Universal Stainless & Alloy Products, Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Universal Stainless' first quarter 2023 conference call and webcast. At this time, all participants are on a listen-only mode. After this speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 1-1 on your telephone. You will then hear an automatic message advising your hand is raised. Please note that today's conference may be recorded. I will now hand the conference over to your speaker host, June Follingeri. Please go ahead.

Thank you, Olivia. Good morning. This is June Fillingeri of ComPartners, and I also would like to welcome you to the Universal Stainless Conference call and webcast. We are here to discuss the company's first quarter 2023 results reported this morning. With us for management are Denny Oates, Chairman, President, and Chief Executive Officer. Chris Simmer, Executive Vice President and Chief Operating Officer. John Arminas, Vice President and General Counsel. And Steve DiTomaso, Vice President and Chief Financial Officer. Before I turn the call over to management, let me quickly review procedures. After management has made formal remarks, we will take your questions. Livia will instruct you on procedures at that time. Also, please note that in this morning's call, management will make forward-looking statements. Under the Private Securities Litigation Reform Act of 1995, I would like to remind you of the risks related to these statements, which are more fully described in today's press release and in the company's filings with the Securities and Exchange Commission. With the formalities complete, I would now like to turn the call over to Denny Oates, Denny, we are ready to begin.

Thanks, June. Good morning, everyone. Thanks for joining us today. We got off to a solid start in 2023, and our first quarter performance exceeded expectations. The main drivers were robust aerospace demand, a favorable mix of premium and finished bar products, increased base selling prices and surcharges, and higher plant activity levels. Progress was made in improving profitability with our gross margin returning to double digits. and increasing each month of the quarter. The tempo of business remains exceptionally strong, pointing to continued sales growth and profitability improvement over the balance of the year. Let's look at the highlights starting with business activity. March 31 order backlog was $366 million, a record high and a 27% sequential increase. First quarter order entry totaled $117 million, up 41% over Q4 of 2022, and another company record. First quarter sales were $66 million, up 17% sequentially, on a 15% volume increase, and marks the highest level since pre-pandemic 2019. Premium alloy sales reached a quarterly record of $17.7 million, or 27% of sales. That's a 31% increase from the fourth quarter and virtually doubled the first quarter last year. Our premium alloy sales continue to be driven by aerospace demand. First quarter aerospace sales increased 22% sequentially and represented nearly 75% of sales. The accelerating growth in our higher margin premium products is a key part of our long-term strategy. And I should note that our record backlog contains roughly 35% premium products. Take a look at profitability. First quarter gross margin improved to 11.7% of sales, returning to double-digit levels for the first time since 2019. Higher shipment volume and planned activity levels, the richer sales mix, increased surcharges, and higher base selling prices were all contributors to our improved profitability. In total, we announced six price increases in 2022, which are layered into our backlog and will roll into sales through the rest of 2023 and into 2024. In March of this year, we announced an additional increase, a base price increase of 7% to 12% on BART products, which will impact 2024 given current lead times. Plant activity levels increased 10%, generating better absorption of fixed cost and substantial operating leverage. Additionally, we were able to reduce variable costs per process pound by approximately 6% sequentially. Labor availability remains a challenge. Nevertheless, productivity and output are continuing to increase as we train and integrate new employees into operations. I'm also very pleased to report that we achieved an OSHA recordable rate of one in the quarter, a record low for the company. I want to express my personal appreciation and compliments to all of our employees for their efforts in looking out for each other as we strive to maintain a safe work environment. Although operating income in the first quarter turned positive at $1.4 million, we reported a net loss of $1.5 million, $500,000, or six cents per diluted share. We have much more work to do and remain confident in our outlook for sequential quarterly improvement. EBITDA and adjusted EBITDA reached the highest level since 2019, totaling $6.5 million and $6.8 million, respectively. Just a few comments on our financial position. Managed working capital is $149.8 million on March 31, compared with $145.9 million at year-end 2022. We continue to reduce inventory, which totaled $149.4 million versus $154.2 million at the end of the fourth quarter, reflecting our announced plans to improve inventory turnover while driving sales and operating levels higher. Total debt on March 31 was $99 million, with remaining availability relatively unchanged from 2022's year end at $24 million. First quarter capital expenditures totaled $4.5 million, mainly for investment in North Jackson, which consists of the addition of two vacuum arc remelt furnaces. The equipment has been delivered. Installation is on track for completion this year. with full integration operations beginning in the first quarter of 2024. Our objective is to expand our product portfolio with more technologically advanced, higher margin premium products, thereby enhancing our capabilities, cost structure, and growth prospects. To capitalize on the abundant opportunities in our future and to accelerate the execution of our long-term growth strategy, we announced two changes in our leadership team earlier this month. Chris Zimmer is named Executive Vice President and Chief Operating Officer. Chris takes on manufacturing, purchasing, technology, and quality, in addition to his current responsibilities for sales, marketing, and supply chain management and development. Chris is a 15-year veteran of Universal and most recently served as Executive Vice President and Chief Commercial Officer of the company. He's been a key partner in building Universal over the past 15 years, and his promotion to Chief Operating Officer elevates that partnership to a new level. Additionally, Brian Kane was promoted to Vice President of Sales and Marketing. Brian is also a 15-year Universal Veteran and served most recently as Manager of Field Sales. Chris, I'll turn it over to you for your review of operations.