Olympic Steel Inc (ZEUS) 2020 Q1 法說會逐字稿

Good morning and welcome to the Olympic Steel 2020 First Quarter Financial Results Conference Call. (Operator Instructions) Please note this conference call is being recorded. I would now like to hand the conference over to Rich Manson, Chief Financial Officer at Olympic Steel. Please go ahead, sir.

Thank you, operator. Welcome to Olympic Steel's earnings call for the first 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 provisions 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 and EBITDA, which are non-GAAP financial measures. A reconciliation of this non-GAAP measure to the most directly comparable GAAP financial measure 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 on this conference call to discuss Olympic Steel's first quarter results. We're becoming more skilled at working in this virtual environment. We trust you are too, and we hope you and your family and friends are all staying healthy. Today, I'll begin with a brief discussion of the first quarter and provide some commentary on the business environment we see today. Then I'll turn the call over to Andrew, who'll provide more detail about the specific actions we're taking to navigate the current environment. And then Rich will talk more about our financial position before we open the call up for questions.

As we announced in our release this morning, in the first quarter, we saw strong results from our specialty metals and pipe and tube businesses as the positive impacts from our ongoing disciplines around reducing operating expenses and our continuous inventory management efforts. Net income for the first quarter was $593,000 or $0.05 per diluted share and sales for the quarter totaled $354 million. Our first quarter results were sequentially strengthening in March until the COVID-19 pandemic struck. By mid-March, we began to see the slowdown impacting our automotive-related customers, and then by April, we experienced a broader pullback in most of the industrial business sectors we serve.

Our primary focus has been and always will be on the safety and health of our employees and their families. Safety is built into our mission and our core values. To address the health and safety of our employees during the COVID-19 situation, we have implemented many safeguards, including social distancing, quarantining when necessary, restricting travel, industrial cleaning, disinfecting workstations, and employees are working remotely wherever possible. We also have many employees with family members who serve on the front line fighting COVID-19, and our appreciation and thanks goes out to all first responders and medical personnel.

As determined by the United States Department of Homeland Security, we are an essential business in the states we operate, and all of our facilities are open and servicing customers during the shelter-in-place directives. We're proud to play a critical role in providing metal manufacturing and distribution of products that are critical to sustaining the United States economy during the COVID-19 fight. We are supplying metal to industries that are keeping our country running, like the transportation, medical and food services markets, and to customers manufacturing products such as hospital beds, IV stands and carts, among other essential products.

So we are sure to face some difficult times ahead. We have weathered challenges and cyclical downturns throughout our history. This particular challenge requires resiliency, flexibility and decisiveness and a strong balance sheet and ample liquidity. This is how we are managing through this situation. Olympic Steel acted quickly and decisively early in the COVID-19 crisis to rightsize our inventory and workforce, limit our capital spending to business essentials and to preserve liquidity. Our decision to furlough workers to adjust our business to current customer production levels has provided important wage and benefit continuation to our affected employees while providing Olympic Steel the flexibility to quickly and safely return our skilled employees back to work as the United States economy moves to recovery mode. Our strong liquidity and loan availability also serve us well. Andrew and Rich will provide more details about these actions.

Ultimately, the current situation provides Olympic Steel with the opportunity to show our customers our fortitude and problem-solving abilities as well as continue to improve our operational efficiency with streamlined processes and procedures. We are deepening our relationships with customers by demonstrating our value to them when they need us the most. We are a trusted business partner by sharing best practices around employee health and safety, candidly communicating about the business environment and realities, and performing to the best of our abilities during this time.

Through all this change, there is one constant: the strong commitment and perseverance of the Olympic Steel workforce. I am proud of how our team has responded. While the near-term business environment remains challenging and customer production scenarios are both uncertain and rapidly changing, I am confident Olympic Steel will emerge as an even stronger company that is well positioned to participate in the economic recovery as the United States begins to reopen.

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

Thank you, Rick, and good morning. Today, I would like to briefly address our first quarter results and then discuss the specific business actions Olympic Steel is taking to navigate the current business environment and to position our company for a strong recovery.

Let me begin by highlighting our profitable first quarter. Our specialty metals segment continues to outperform the market relative to shipments in both stainless and aluminum, with the segment contributing $3.2 million of EBITDA during the first quarter. At our pipe and tube segment, strong margins and focus on operating expenses and inventory turns contributed to $5.2 million of FIFO EBITDA in the first quarter.

I will echo Rick's comments from earlier regarding COVID-19 that we are committed to a safe work environment and are closely following the evolving guidance provided by the federal government, the United States Centers for Disease Control and Prevention and state and local health officials. We have the recommended precautions and protocols in place to protect our people.

In addition to our health and safety protocols, we are taking aggressive actions to align our production levels with the current conditions in our key markets. We will continue to adjust workforce and production levels at our facilities in response to temporary customer closures. At the same time, our own supply chains have remained intact even with recent mill capacity reductions. We have also further enhanced our discipline on operating expenses and inventory management. We have curtailed noncritical spending, reduced our capital expenditures to levels that cover our maintenance and safety needs and, at different points in April, furloughed up to 1/4 of our workforce to reflect current business levels. By choosing to furlough employees, we are ensuring they can retain their health care benefits and we also have flexibility to bring back this experienced workforce when demand begins to rebound. We are reducing inventory to reflect declining shipments. And in the second quarter, we expect to reduce inventory by an additional 15% to 20%.

I am most proud of our leadership team, including our executive commercial leaders as well as other key departments. Each department has worked tirelessly in response to the COVID-19 pandemic. Great collaboration has occurred throughout our company to ensure that we continue to operate safely as an essential business. From where we sit today, it's a challenge to know just how long the slowdown and uncertainty will continue or the timing and pace of recovery. Auto manufacturers and heavy equipment OEMs, many of whom are important customers to Olympic Steel, have cut back or temporarily closed their operations. We have a number of very deep, long-standing relationships with these customers and we are in close contact with them. We will continue to adjust our operations to meet their needs in the short term. And when they initiate their plans for recovery, we can activate our plans to return to more normal operations.

As we move forward, we will continue to monitor the situation and take additional actions as necessary to ensure that Olympic Steel remains a strong company with the ability to properly serve all our stakeholders.

Now I'll turn the call over to Rich.

Thank you, Andrew, and good morning to everyone. The first quarter of 2020 started off slowly and began to pick up positive momentum in February and March, just as the impact from the COVID-19 pandemic began to affect most business sectors. Despite this setback, we did report a profitable quarter. Sales for the first quarter of 2020 totaled $354 million compared with $446 million a year ago. Net income was $593,000 or $0.05 per diluted share compared with $2.1 million or $0.18 per diluted share in the first quarter of last year. Our first quarter 2020 results include $500,000 of LIFO pretax income which positively impacted our earnings by $0.03 per share.

Each of our operating segments produced positive EBITDA for the first quarter with our specialty metals and pipe and tube segments showing particular resiliency. Our results reflect the benefits from the expense reduction measures we put in place during the second half of 2019. These measures helped us achieve lower year-over-year operating expenses and a lower operating expense per ton. Given the current environment, we are focusing on managing our liquidity position. Over the last 2 months, we have enhanced our efforts to strengthen our position by focusing on operating expenses, further reducing inventory levels and judiciously applying capital. We have temporarily suspended all nonessential capital expenditures, which means we're only spending on required maintenance and safety improvements.

We have a strong balance sheet, and our total debt was $209 million at March 31. Our $475 million asset-based revolving credit facility provides us with a great source of low-cost liquidity with minimal covenant requirements. We finished the first quarter with $112 million of availability, a $19 million increase from year-end 2019. The countercyclical nature of our industry provides a significant cash flow as accounts receivable and inventory levels recede.

Now a few words about the CARES Act. There will be some benefits from the deferrals of social security and unemployment taxes, but the other provisions of the Act are generally not applicable to us.

As part of our commitment to shareholders, we continue to pay our normal quarterly dividend of $0.02 per share. We have now paid dividends for 60 consecutive quarters. We also repurchased a small amount of stock, 15,000 shares, during the first quarter of 2020. To preserve liquidity, we do not expect any additional stock buybacks in the immediate future.

In closing, I'd like to echo what Rick said about how proud I am of the Olympic Steel team in responding to this challenging situation, and I'm confident we'll emerge an even stronger company.

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

(Operator Instructions) Our first question comes from Chris Sakai with Singular Research.

My question just was on -- if you could shed some light on the strength of specialty metals. Just wanted to see what were the main reasons why specialty metals seem to do well this quarter.

Chris, this is Andrew. Great question. So the continued strength -- we have a nice auto piece of business, which has continued to be strong. Certainly into the first quarter, it was. Appliance and our restaurant equipment business continues to be pretty strong.

And then, Chris, this is Rick. What I'd like to add is strategically, we've talked a lot the last several years about our diversification. And I think in this environment, I think you're starting to see the real benefits of the diversification of product into the specialty metals as well as the pipe and tube. And we've also seen some real strength in the specialty metals in terms of growing our aluminum business, and we would see that continuing into the future. So thanks for the question.

Okay. Great. And then you mentioned restaurant equipment business doing well, but has that been affected at all by the coronavirus and the shutdown?

It has, Chris. We certainly started to see a little bit of a tail off at the end of March. In April, we really started to feel the impact. So the answer is yes, we've started to feel that impact.

(Operator Instructions) There are no further questions at this time. At this point, I'd like to turn the call back to Rick Marabito for closing comments.

Thank you. Once again, thank you for joining us this morning and for your interest in Olympic Steel. And I sincerely hope you all stay safe and healthy, and we look forward to speaking with you again next quarter. Thank you.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.