IBC Advanced Alloys Corp. (OTCQB:IAALF) Q3 2024 Earnings Call Transcript May 20, 2024 11:00 AM ET
Company Participants
Jim Sims – Director of IR and Public Relations
Mark Smith – CEO and Chairman
Toni Wendel – CFO and Board Secretary
Jim Sims
Good day, everyone, and welcome to this IBC Advanced Alloys Investor Update Webcast. We’re going to discuss today the company’s financial performance for the quarter ended March 31, 2024. I’m Jim Sims. I’m Director of Investor and Public Relations at IBC.
Before we begin our webcast, just a few reminders. Slides from today’s presentation and the audio of this call are being broadcast live over the web. A recording of this broadcast is being made, and a replay will be available on the IBC website later today. We are at www.ibcadvancedalloys.com.
After our formal presentation, the company will take questions from webcast participants. During today’s presentation, we will be making forward-looking statements, and viewers are cautioned not to place undue reliance on such forward-looking information and statements. Additional information identifying risks and uncertainties is contained in IBC’s public filings available at sedar.com. Joining us today is Mark Smith, CEO and Chairman of the Board of IBC, and Toni Wendel, Chief Financial Officer and Board Secretary for IBC. Mark and Toni, thank you for joining us this morning. Mark, please proceed.
Mark Smith
Thanks, Jim, and welcome, everyone. Let’s get right to it. For the quarter ended March 31, 2024, net income was $1.36 million or about $0.01 per share on sales of $10.2 million. That was a new quarterly record for the company. Sales of $34.3 million in the quarter and $27 million in the fiscal year-to-date were both the highest ever recorded at IBC for those periods. Copper Alloys division sales of $6.6 million were higher by 11.9% quarter-over-quarter. Engineered Materials division sales were higher by 97.5% quarter-over-quarter.
Adjusted EBITDA rose to $2.5 million, an increase of 325% over the prior year’s quarter. Year-to-date, adjusted EBITDA rose to $4.5 million. Consolidated operating income of $2.1 million was 24.4% higher quarter-over-quarter and flipped to a positive $3.2 million year-over-year.
The Copper Alloy division also achieved near-record quarterly sales of $6.6 million eclipsed only by sales of $7.1 million in the preceding quarter. Sales increased for the quarter and nine-month period ended March 31, 2024, mostly due to increased demand from customers in the defense and power generation sectors. Gross profit was positively impacted by improved material yield but negatively impacted by higher subcontract costs. A portion of the division sales over the preceding two quarters was driven by the completion of two special nonrecurring projects. However, I would note that, as you can see from the charts on the slide, once copper completed its plant consolidation and expansion and modernization of our vertically integrated facility in 2022, revenue, adjusted EBITDA and profitability have all grown substantially, thanks in large part to our increased capabilities, greater operating efficiencies, aggressive sales efforts, lower cost of production and overall excellent performance.
For those of you who are relatively new to IBC, our Copper Alloys division makes a variety of special copper and copper alloy products, for hundreds of customers across multiple industry sectors, including those shown here. Our expanded plant is shown here on the right. As a result of our investment in this expansion, copper’s gross margin and gross profit have both risen sharply since that time.
This next slide shows just a few of the division’s customers. Notably, we make specialty products for two of America’s largest space launch manufacturers, including SpaceX and Blue Origin. As I mentioned in our recent investor update webcast on April 29, we have decided to close our Wilmington, Massachusetts plant where we make beryllium-aluminum alloy products. The primary driver for this decision was insufficient long-term demand for cast beryllium-aluminum alloy products. As we announced a few months ago, we indicated that if we were not able to secure sufficient sales contracts beyond those we currently have, we would sell the facility or close it down. That is the path we’ve chosen. We will complete work on current contracts, and we anticipate cessation of operations sometime this summer. We see significant benefits to this restructuring, in particular, we anticipate closing this plant to expand free cash flow at IBC, strengthen our gross margins and position us on a better path to sustained profitability.
In terms of facility closure costs, we’re working to minimize those as much as possible, including selling specialized equipment. Various other closure costs are estimated at about $1.7 million, although they could be higher. We are negotiating with suppliers and our landlord to minimize costs as much as possible.
With that, I’m happy to take any questions. Jim?
Question-and-Answer Session
A – Jim Sims
Thanks, Mark. We’ll take some questions from the audience. [Operator Instructions] We had a number of questions that have come in the last several days in advance of our webcast. So Toni and Mark, let me move to those. The first one is IBC’s management has stated that it intends to shift its focus on to profitability of the Copper Alloys division. How does management intend to increase the profitability of the Copper Alloys division? And what is the endgame for IBC? After closing EMC and increasing profitability of the copper division, is it a sale, a merger, a takeover by NioCorp or something else? Mark Smith will take that one.
Mark Smith
Yeah. Thanks, Jim. And let me start with the increase in the profitability of the Copper Alloys division. We’ve covered two points in the presentation this morning already, which is by increasing our yield and putting the copper division into a position where it can do less or has to do less subcontracting. And that does mean more capital investment and making more equipment available that we can actually operate ourselves. So those are the two primary things. We’re also in a position cash-wise right now where we can take advantage of purchasing raw materials at better pricing if it’s available. In other words, we’re not as cash constrained as we have been for some period of time. And so we’re able to take advantage of certain opportunities. So those are the basic modes that we will work on to increase the profitability at the Copper Alloys division. In terms of the endgame, there’s kind of wo parts to that in my mind. The first one is very simple. It’s a combination of performance, performance, performance, which I think the Copper Alloy division is doing just absolutely as well as they have in the history of the division. But after we do that performance, performance, performance, then we want to continue to pay down our debt. And the company, again, because of our cash position that we’re in right now, we have been able to pay down a very good portion of our debt just in — since the 1st of the calendar year, about $2 million, maybe a little more than that already that we paid down. So continuing excellent performance and paying down debt is going to be the name of the game. By doing those two things, that in my mind, creates value. And when you create value, you create opportunities. And that’s when sales, mergers, takeovers you name it, become possible at that point in time. So we’ve got to keep our heads down. We’ve got to keep focused. We’ve got to keep the discipline that we’ve been showing now for two quarters in a row. And these value-creating opportunities will present themselves.
Jim Sims
Thanks, Mark. And Toni, chime in on any of this, if you’d like. Let me go to the next question. With the EMC division closing sometime this summer, will any of the personnel at EMC in Wilmington, Massachusetts, be tendered offers to move to the Franklin, Indiana operations? And if yes, will management try to retain some of the beryllium-aluminum skill sets that you’ve developed? Mark?
Mark Smith
First of all, we absolutely have discussed this internally as a Board and as a management team, our opinion of the people at EMC is that they are outstanding. And they have worked very hard. They’ve learned how to do the work that they do, and it’s a very unfortunate situation where there really is not enough long-term contracting available for this product to keep — to justify keeping the facility open. Pricing is another issue that we certainly have faced over the last 8 to 10 years. So all of the personnel issues have been discussed, offers are made where we deem it appropriate. And I’ll keep the rest of that private and confidential since it does involve individual people.
Jim Sims
Okay. Thanks, Mark. Our next question, has IBC management worked up the preliminary numbers for liquidation of the EMC division? If yes, what are they? We’ve already kind of answered this a little bit. I’m not sure if we have any more information we can impart. But Mark, do you want to add anything to that?
Mark Smith
Yeah. Actually, I’ll see if Toni would like to add anything to that first, and then I’ll add on if needed. I doubt that I’ll have to do much.
Toni Wendel
Yeah. So as Jim mentioned, we did state earlier that we do feel the cost of closure will be somewhere in the $1.750 million range. These costs, of course, we do talk about them every day, have a meeting on them once a week. So we’re definitely aware of them and wanting to minimize them as much as possible. We’ll know more as we go through the next few months. One thing that we don’t have a good feel for at this time is the sale of the assets. I think Mark mentioned that earlier as well. But we will have some income coming to hit against this $1.75 million. We just don’t know what that’s going to be yet.
Jim Sims
Okay. Thanks, Toni. Here’s our next question. I like this one. How many ships per day is the Copper Alloy division running? How many days per week is it operating? And how many hours are worked per shipped each day? The answers to these questions should be an indicator of whether you have excess production capacity at this division.
Mark Smith
Let me start out. A typical day at Franklin is a single shift, but we work staggered hours, and it’s generally speaking about 15 hours total during the day. And it’s largely scheduled around furnace times. But today, Franklin will start at about 4:00 a.m., and it will end at about 5:00 p.m. Furnace times are the limiting factor there. And so in terms of — and it’s about five days a week. So we have more time to work at the facility, would require hiring people and having the sales to justify hiring the extra people. It would also — if we wanted to increase even further, we do. We would then look at the capital required to bring in additional furnace capacity so that we can take care of that limiting factor. Toni, did you want to add anything to that?
Toni Wendel
I think you covered it all, Mark.
Mark Smith
Okay, thank you.
Jim Sims
Okay. Next question. Is the shuttering of the Beryllium division related to the historical IP? In other words, was the division closed for commercial reasons, but all of the intellectual property where IP remains with IBC or was the intellectual property part of the historic legal contention and it will be passed on to any interested party?
Mark Smith
That’s a mouthful of questions, but let me try to answer it fairly straightforward. First of all, the intellectual property that we have in the aluminum-beryllium division or the EMC division, is all categorized as either trade secret or know-how. And so it’s really in the minds of our personnel out there. So by either transferring people to our Franklin, Indiana facility, hiring them or retaining them under contracts, consulting contracts or at the very worst, just simply staying in touch with the right people from EMC, that’s how we will retain that information. And it’s not a good answer, and I apologize, but when IP is all trade secret and know-how, it’s very, very difficult to keep in one spot for too long when you shut down a facility.
Jim Sims
All right. Here is your next question, what is the outcome of the OSHA report issued last year?
Mark Smith
Yeah. The OSHA report did end up in citations and some penalties, and we cooperated fully with OSHA in the entire process. As part of the good attitude that we had, the proposed penalty that OSHA had was significantly reduced. So we’re continuing to pay these penalties on a monthly program that OSHA also provided to us. And to my knowledge, most of the work, if not all of the work that we have done to remediate the issues that OSHA raised, has either been accomplished or still conducting some trials to see if the remediation work that we put into place is effective. And so we will continue to make sure that our employees are as safe as can possibly be. That’s a very high priority for us at the company, and I think our safety record in terms of injuries really speaks for itself. So I think that that’s all coming to an end by definition, I guess, as we shut down, but we really worked hard to cooperate fully with OSHA during the inspection, during the negotiations afterwards and then the implementation of changes thereafter. Very proud of the attitude and the honesty that our employees demonstrated there.
Jim Sims
Okay. Thanks, Mark. Here’s a question that just came in. IBC has done work for the US Military. Does that also extend to copper? In other words, does copper have — make products for the military. And do you see that potentially continuing or expanding at the Copper Alloys division as the US government is trying to rebuild America’s Navy?
Mark Smith
Yeah. We absolutely do work either directly or indirectly for the Department of Defense. Out of the Coppers Division, we make materials for other people who make parts, and we certainly will make parts if we can. We would love to expand that business. And the combination of beryllium and copper are really, really — it’s an amazing alloy when it comes to the Navy. And so we are looking at ways that we can build and grow that business because we think it has a tremendous future associated with it. It will require some capital investments. And so that’s one of the reasons why we’re getting to know that business better. We’re getting to know the people who participate in that business better. so we can conduct a proper due diligence on that, put together the business case properly and then make the project investments or the capital investments that we need to grow our business in that direction. But we do see that as a very prime candidate for future growth for copper.
Jim Sims
It’s exciting, Mark. Thank you. That is — unless there’s anyone who has any other questions, I don’t see any in the meeting chat, and I don’t have any on the text. So that will wrap up our webcast today. If those of you who want to ask a question if you weren’t able to, just go ahead and send that to me, and I’ll answer that offline at jim.sims@ibcadvancedalloys com. Again, today’s webcast was recorded, and we’ll make this available via our website later today. Thank you all for joining us today, and we very much look forward to talking to you again soon. Bye-bye, everybody.
Mark Smith
Thanks, everybody.
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