Universal Stainless & Alloy Products, Inc.

Thank you for standing by and welcome to the Universal Stainless Alloy Products Inc. Third Quarter 2023 Conference Call and Webcast. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1-1 on your telephone. To remove yourself from the queue, simply press star 1-1 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, June Fillingeri. Please go ahead.

Thank you. Good morning. This is June Fillingeri of ComPartners. And I also would like to welcome you to the Inversal call and webcast. We are here to discuss the company's third quarter 2023 results reported this morning. With us for management are Danny 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. Jonathan, our operator, 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, Jim. Good morning, everyone. Thanks for joining us today. Our third quarter performance essentially met our short-term expectations, both top line and bottom line. Let me hit some of the highlights. Total sales of $71.3 million were the second highest quarterly sales on record. Premium alloy sales grew 28% sequentially, putting us on track for a record 2023. Our gross margin expanded to 15.2% of sales, the highest since the second quarter of 2018, despite commodity headwinds. Operating income increased by 43% from the second quarter. As a result, our net income doubled sequentially to $1.9 million, or 20 cents per diluted share. Adjusted EBITDA increased to $9.5 million, up 20% from Q2, and was one and a half times greater than the third quarter last year. Inventories were reduced $800,000 and managed working capital remained at 53% of sales, despite the sales growth and high backlog. Capital spending was $3 million with major projects on time and within budget. Lastly, we reduced debt by another $3.8 million to $89.5 million, while liquidity improved to $31 million on September 30 compared to $24 million on June 30. There were five main drivers of our third quarter performance. First, a richer product mix. Mainly more premium alloy sales and aggressive mix management of our air-melted portfolio. Second, higher base selling prices. We've implemented 15 base selling prices since late 2021. The P&L benefit of these increases will continue to grow as we move through the next several quarters. Third, increased production levels with well-controlled fixed overhead spending. Production is running about 15% ahead of last year as we strive to ramp up operations. Fourth, my compliments to the manufacturing team on setting several monthly production records, especially in our vacuum arc remelding operation in North Jackson and the intermediate bar cell at our Dunkirk facility, which you'll recall we installed just before COVID. Our Dunkirk plant also set a new monthly finished bar shipping record in September. Fifth, Our focused efforts to improve yields in recent years are also beginning to pay dividends, particularly in our Bridgeville plate products and growing finished round bar products. Turning to the order book, order entry was up sequentially on strong aerospace demand, and order backlog remained substantial at $345 million before surcharges. Premium products represented 37% of our backlog. Our strong backlog and demonstrated positive trends and operations gives us confidence in continued sequential improvements in performance. One additional very important update. I'm also pleased to announce that our board, as a part of its leadership succession plan, unanimously named Chris Zimmer as our new president and chief executive officer, effective November 1st. Chris is a 15-year Universal veteran. He joined Universal as vice president of sales and marketing. and currently serves as Executive Vice President and Chief Operating Officer. He knows our company inside and out, and he's well established as a leader in the specialty metals industry. As I stated in our release this morning, I have confidence that Chris's leadership, working in concert with the senior management team, sets the stage for Universal to have a very exciting future. On a personal note, I will be transitioning to Executive Chairman of the company, focusing on a smooth leadership transition longer term strategic issues, and my normal chairman responsibilities. So Chris, congratulations. I look forward to supporting you and the team as you assume your new responsibilities. I'll turn it over to you for your review of operations.