Olympic Steel Inc (ZEUS) 2020 Q2 法說會逐字稿

Good morning, and welcome to the Olympic Steel 2020 Second Quarter Financial Results Conference call.

(Operator Instructions) As a reminder, this conference is being recorded.

I would now like to hand the conference over to Mr. Rich Manson, Chief Financial Officer at Olympic Steel.

Please go ahead, sir.

Thank you, operator.

Welcome to Olympic Steel's earnings call for the second quarter of 2020.

Our call this morning will be hosted by our Chief Executive Officer, Rick Marabito; and we will also be joined by our President and Chief Operating Officer, Andrew Greiff.

Before we begin, I have a few reminders.

Some statements made on today's call will be predictive and are intended to be made as forward-looking within the safe harbor provision of the Private Securities Litigation Reform Act of 1995 and may not reflect actual results.

The company does not undertake to update such statements, changes in assumptions or changes in other factors affecting such forward-looking statements.

Important assumptions, risks uncertainties and other factors that could cause actual results to differ materially are set forth in the company's reports on Forms 10-K and 10-Q and the press releases filed with the Securities and Exchange Commission.

During today's discussion, we may refer to adjusted net income per diluted share, EBITDA and adjusted EBITDA, which are non-GAAP financial measures.

A reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures is provided in the press release that was issued this morning and can be found on our website.

Today's live broadcast will be archived and available for replay on Olympic Steel's website.

At this time, I'll turn the call over to Rick.

Thank you, Rich.

Good morning, everyone, and thank you for joining us to discuss Olympic Steel's second quarter results.

I'll begin with a brief discussion of the quarter and some comments on our near-term outlook for the company and the industry.

Then I'll turn the call over to Andrew, and he'll address each business segment more specifically.

After that, Rich will provide more detail about our financial results.

First, I want to thank our Olympic Steel team for their resilience and flexibility in the face of unprecedented and extremely challenging business conditions created by the COVID-19 pandemic.

Our team's perseverance and dedication to each other, to our customers and to Olympic Steel has been impressive and quite gratifying.

We also appreciate the support of our customers and suppliers, as we have worked closely together as essential businesses to ensure the reliable flow of metals in North America and the North American supply chain during the pandemic.

As COVID-19 began to affect the U.S. economy, we took quick and decisive actions to protect the strength and flexibility of our company, while maintaining our commitment to health and safety of our employees.

These actions included reducing operating expenses by 22%, permanently lowering our headcount by over 300 people or 17%, limiting capital expenditures to safety and maintenance needs, further tightening inventory management resulting in a 16% year-to-date reduction of inventory volume, so far and preserving and now increasing liquidity; all while improving our health and safety protocols and performance.

We saw immediate benefits from these actions, which contributed to our positive adjusted EBITDA in the second quarter.

Turning to this morning's earnings release.

Net sales for the quarter totaled $248 million and net loss was $6.5 million or $0.56 per share.

Our results were negatively impacted by $3.6 million of restructuring and other charges that Rich will detail later.

Our sales were significantly impacted by the deep downturns in our industrial markets, including the temporary closure of the automotive industry in April and May.

Market conditions began to improve as the quarter progressed, with our June shipping volume returning to approximately 80% of pre-pandemic levels, resulting in a profitable month of June.

Many of our key markets faced disruption and volatility during the quarter.

We benefited from a significantly lower and more flexible expense run rate.

We efficiently adjusted our operations and workforce in response to often weekly changes in customer production schedules.

As customer demand improves, we expect to leverage the benefits of our sustainably lower expenses.

One of the highlights of the quarter was the opening of our new metal processing facility in Buford, Georgia, which significantly enhances our presence in the southeastern United States.

Andrew will discuss the optimism we have for our newest operation.

Looking ahead, we expect market conditions will continue to improve, but we are also mindful that much uncertainty still exists as our country continues to battle COVID-19 and prepares for the upcoming national elections in November.

While uncertainty persists, I do know that our organization has demonstrated that it is nimble and prepared for the unexpected.

We believe our operational and workforce flexibility and strong liquidity give us the foundation to manage through any ongoing challenges.

The diversification we've built into our business, our specialty metals and pipe and tube products, along with the acquisitions of downstream metal intensive branded products, is proven to be beneficial as these businesses maintain consistent profitability through the pandemic.

We expect our strong financial position and trusted customer relationships will enable us to capitalize on sustained economic and industry momentum as it occurs.

I will now turn the call over to Andrew for his comments.

Thank you, Rick, and good morning.

I'd like to take a few moments to review our business segment results and talk about the actions we have taken to better position our company for success.

In our carbon segment, we have seen improvement in recent weeks as demand has rebounded.

This segment took the biggest hit during the second quarter due to the decline in demand from larger OEMs and the 2-month shutdown by automotive manufacturers.

At this time, the market is still unpredictable, and we are seeing some on-again off-again production schedules from our OEM customers.

Going forward, we will rely on our flexibility within our workforce, and operations to efficiently respond to these fluctuations in demand.

Both the specialty metals and pipe and tube segments were EBITDA and pretax positive for the quarter, resulting from the swift actions we took to reduce expenses in both segments.

Pipe and tube showed steady results with strong margins and cost control leading to a profitable quarter.

In specialty metals, despite slowdowns in the appliance, food equipment and automotive markets, the segment posted income for the 18th consecutive quarter.

We are excited with the progress we have seen with our white metals cut-to-length line in Schaumburg, a white metal slitter in Streetsboro and the return to normalized business at our Berlin Metals operation.

As we navigated the current business environment, we continue to strengthen our strategic position for long-term success.

One of the key events during the quarter was the opening of our new facility in Buford, Georgia, which expands our footprint in the southeastern United States.

The Buford facility will be our primary flat-rolled fabrication hub serving customers in this region.

The fabrication equipment and processing capacity at this new facility will expand our capabilities to support our industrial OEM customers.

In Winder, Georgia, production began on our newly installed automotive stamping press.

We expect to be in full production by the end of the third quarter.

The stamping equipment is in addition to our existing stretcher leveler line, cut-to-length and slitting capabilities.

In addition to the 2 Georgia locations, we have seen a significant increase in volume through our Huntsville, Alabama operation versus 2019.

As Rick commented earlier, we have seen consistent business volumes from our Detroit facility once automotive manufacturers return to business in June.

I expect to see consistent automotive business throughout the third quarter.

As we move forward, we are keeping a close watch on all of our markets.

Across the company, no advanced warning temporary closures from our large industrial OEMs has become the norm and will likely continue in the second half of 2020.

We will take whatever actions are necessary to maintain our strong position and ability to meet customer needs.

Now I'll turn the call over to Rich.

Thank you, Andrew, and good morning, everyone.

Starting in early March and continuing into April, we took several actions to reduce expenses and preserve our liquidity and flexibility.

As we've noted in our release and comments today, these actions have been vital to Olympic Steel delivering positive adjusted EBITDA in the second quarter.

Excluding restructuring and other charges, which I'll walk through in a minute, we saw all 3 segments deliver positive EBITDA in June, and the overall company was pretax positive for the month of June as our expense cuts took hold and our automotive customers reopened and other OEMs increased production.

Overall sales for the quarter totaled $248 million compared with $429 million in the second quarter a year ago.

Net loss for the second quarter was $6.5 million or $0.56 per diluted share compared with net income of $2.1 million or $0.18 per diluted share in the second quarter of 2019.

Our second quarter 2020 results include $500,000 of LIFO income and $3.6 million of restructuring and other charges, which, together, negatively impacted our earnings by $0.18 per share.

The restructuring and other charges incurred in the second quarter are a result of our actions to reduce costs and preserve liquidity during the pandemic.

These charges include a $2.1 million loss on the sale of idled real estate in South Carolina, a $900,000 charge related to the planned exit from our leased Monterrey, Mexico facility, while we continue to honor our customer commitments and a $600,000 charge in COVID-related severance and bad debt expense.

We reinforced our focus on cash and liquidity by continuing our tight management of inventory, limiting capital expenditures, implementing furloughs and layoffs where necessary and further reducing other operating expenses.

Excluding the restructuring and other charges, our second quarter 2020 operating expenses were down $16 million or 22% compared to the second quarter of 2019.

The tax benefit of 31.4% for the quarter is a result of our ability to carry any tax losses incurred in 2020 back to years where the federal tax rate was 35% versus the current tax rate of 21%.

We continue to have a strong balance sheet.

At June 30, 2020, our total debt was $197 million and availability through our asset-based revolving credit facility was approximately $86 million.

Compared to June 30, 2019, our debt is down approximately $68 million.

Today, our debt sits at $184 million, and we have approximately $99 million of availability.

Our credit department did a fantastic job during the pandemic, keeping our year-to-date consolidated average day sales outstanding at 42.5 days compared with 41.0 days last year.

Year-to-date, our capital expenditures totaled $6.2 million, which includes the new operation in Buford, Georgia.

We anticipate capital expenditures in the second half of 2020 to be less, as we are limiting expenditures to maintenance and safety-related items.

As a final note, we are pleased to continue delivering value to our shareholders through payments of quarterly dividends.

Our Board of Directors has approved a regular quarterly cash dividend of $0.02 per share payable on September 15, 2020, to shareholders of record on September 1, 2020.

This marks the 61st consecutive quarter in which we have paid a dividend.

As Rick mentioned, we are very proud of the Olympic Steel team and the resilience in responding to the ongoing challenges in the market.

It is with their support and dedication that we can operate our business efficiently in these unprecedented times.

Now operator, let's open the call for questions.

(Operator Instructions)

Your first question comes from the line of Chris Sakai with Singular Research.

Just a question.

I just wanted to sort of understand, looking forward into the next quarter and maybe for the rest of the year, where do you see a lot of improvement -- where do you see the most improvement coming?

Yes, if you could just give an idea of that, that would be great.

Thanks, Chris.

Yes, Andrew, how about if you take that in terms of what we see for an outlook for the rest of the year?

Yes, happy to, Rick.

So Chris, what we certainly see is automotive -- we saw automotive come back in June.

We expect certainly through the third quarter and probably through the balance of the year, barring some change relative to COVID, or if there's some shutdown that is unforeseen, we see automotive being strong.

We see that -- in our specialty metals group, we see the food equipment industry starting to come back a little bit.

We've seen some nice pickup there.

Our truck-trailer industry was behind going into 2020 versus '19.

It improved a little bit, certainly not at the '19 level.

So we continue to see -- we'll continue to see that being positive for the balance of the year.

The ag market is going to continue to be challenging, we think, for the balance of the year and construction.

While we've seen some improvement, it's going to be relatively flat, we think, going forward through the balance.

Okay.

Great.

And then one thing, as well, for the next quarter and beyond, will -- for the rest of the year, will we see more items such as like the net loss on the real -- sale of a real estate asset or some -- a facility exit?

Are we going to see more of those type costs?

Chris, it's Rich.

No, those were things that just occurred in the second quarter, as we took the time to make sure that our operating expense structure and liquidity was going to be right in light of everything that was going out with the COVID pandemic.

I would not anticipate seeing those charges in the back half of 2020.

(Operator Instructions)

Okay.

Thank you, operator.

I think we appreciate everybody's participation this morning.

Thank you for that.

Thank you for your interest in Olympic Steel.

And I sincerely hope that you all stay safe and healthy.

And we certainly look forward to speaking with all of you again in the near future.

Thank you.

This concludes today's conference call.

You may now disconnect.

Thank you for your participation.