OLYMPIC STEEL INC Q1 FY2024 earnings call

• Olympic Steel delivered strong first quarter results despite challenging market conditions, with sales of $527 million and net income of $8.7 million. - Diversification strategy into higher value-added processing and manufactured metal products is working, providing countercyclical benefit. - Hired Max Fitzgerald as Vice President of Fabrication to execute fabrication strategy. - Carbon segment focused on cost control and customer diversification, with coated offerings expanding. - Pipe and tube segment upgraded laser equipment, with Central Tube & Bar integration going well. - Specialty Metals segment saw signs of headwinds waning, with volume improvement and anticipation of price increases in April

The Carbon segment had EBITDA of $12.7 million and led profitability, with efforts in cost control and customer product/process diversification. The pipe and tube segment had adjusted EBITDA of $10.3 million, with successful integration of Central Tube & Bar and ongoing upgrades to laser equipment. The Specialty Metals segment faced challenging market conditions but ended the quarter with its best reported volume since Q1 2023, contributing $4.9 million of EBITDA. Carbon segment revenue contribution: led profitability; Pipe and tube: $10.3 million EBITDA; Specialty Metals: $4.9 million EBITDA

• Expect 2024 tax rate to approximate 27.5% to 28.5%. - Anticipate capital expenditures of approximately $30 million in 2024. - M&A market starting to open up more in the last month to 6 weeks. - Anticipate stability in pricing in Q2 and beyond, with stainless and aluminum showing strength

• Long equipment lead times impacting capital expenditures. - Market conditions, including pricing dynamics, can affect profitability. - Earlier contraction of the M&A market due to higher interest rates

Q: Just hoping we could start with lead times. You mentioned in your remarks that there's still maybe a little longer than you'd like them to be. Is this a product of bringing in more value-added services? And if it is, at what point does automation start bringing those lead times down? Kind of where is the tipping point there?

A: So Dave, it's Rick. Is your question on our comment about longer lead times related to some of our CapEx equipment? Or is it on our business levels, lead times with customers? David Joseph Storms: My understanding was that was lead times for long business levels, if I have that wrong, apologies. Richard Marabito: Yes. I mean, I think our lead times are, I call them, pretty normal. Andrew Greiff: Yes, they are. I would tell you that on the carbon side, lead times in hot roll is probably still in the 4- to 5-week probably similar to a little bit longer tandem products or cold-rolled galvanized more like 6 to 7 weeks on the specialty side, stainless and aluminum, about the same, probably 4 to 5 weeks from us, certainly, to our customers, we have a lot of J.I.T. programs established. So in some cases, it's same-day deliveries, just depending on the customer and the agreements that we have.

Q: Can you talk about, one is just maintenance capital spending. And then in terms of acquisitions, can you just talk about how you're thinking about things today? And what's changed given where the economy is et cetera?

A: Sure. It's Rich. With respect to CapEx, maintenance CapEx is between $7 million and $10 million per year. And as we indicated in the prepared comments, we expect to spend about $30 million this year. And I think we have POs out there for quite a bit. It's just that the prepared comments, we indicated that it's a particular long lead time to get processing equipment. Now I'll let Rick answer the question on M&A. Richard Marabito: Yes. Thanks, Alan. Good question on the M&A. So we saw a bit of just in general, I think the M&A market really contracted towards the end part of last year and as we opened this year. And I think part of that was some of the impacts maybe of higher interest rates. As you know, and we've talked a lot about it, we strategically will continue to aggressively look at growth both from internal CapEx growth and acquisitions. So we've remained very active in terms of looking. What I'd say is probably in the last month to 6 weeks, we've seen the M&A market, in general, start to open up more. The reasoning behind that, I think it may be people are settling in at what the federal funds rate is. And even if we're not going to go down here in the near term in the next couple of quarters, I think, as always, businesses adjust. And valuations adjust, and I think that's what's happened. So we're starting to really see a much larger inflow into the pipeline, which is really good. As I've said numerous times, we anticipate being -- continuing to be successful. We've made 6 acquisitions in the last 5 years. And we would fully intend to stay on that trend. And we'll also stay disciplined though. We'll look for target companies that are similar to what you've seen in our recent track record that are high-performing companies, good fits and immediately accretive to Olympic. So that's kind of a snapshot of what we're seeing.

Q: Wanted to ask about inventory levels. How should we be thinking about them throughout the year?

A: Andrew Greiff: Well, we think we're at appropriate levels today really across the board. And I think as lead times continue to -- I would say, Chris, to be at normal levels. Again, we see hot-rolled in the 4- to 5-week cold-roll in the 6-week, stainless and aluminum in 4- to 5-week, I think we'll get back to a traditional inventory turns. We target certainly 5x turns, and we think we'll certainly be there. And I think for the second half of the year, I think we'll be in good shape inventory-wise.

Q: Can you comment on the quarterly cadence for capital expenditures for the next 3 quarters?

A: Richard Manson: Yes. Sure, Chris. As I indicated in our comments, we think that the full year spend will be in the $30 million range. We've just been -- we've ordered a lot of equipment. It's just taking a long time and the lead times are long to get it in. But I think that number is a solid number to use for the full year forecast