Earnings Transcript for IAALF - Q4 Fiscal Year 2024

Jim Sims: Good morning, everyone and welcome to this IBC Advanced Alloys Investor Update webcast. We are going to discuss today IBC's financial performance for the quarter and year ended June 30, 2024. I'm Jim Sims, Director of Investor and Public Relations with IBC. Before we begin our webcast, just a few reminders. The 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, and we are at www.ibcadvancedalloys.com. After our formal presentation, we will be happy to take questions from webcast participants. During today's presentation, we'll 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 on sedar.com and on our company website at ibcadvancedalloys.com. Joining us for the webcast today is Mark Smith, CEO and Executive Chairman of the Board of IBC; and Toni Wendel, Chief Financial Officer and Board Secretary for IBC. Mark and Toni, thank you both for joining us. Mark, why don't you go ahead?

Mark Smith: Thanks Jim, and welcome, everyone. Let's go ahead with the first slide. Thank you Jim. So for those of you on the call who are new to IBC, let me take -- let me start by providing a quick overview of our company and our operations. We are an Indiana-based manufacturer specializing in copper alloy products for the defense and global commercial markets. We are the only company in the US that both cast and forges, copper and copper alloy products, at its primary business or as our primary business. We are known for the depth of our technical expertise and our ability to maintain the highest product quality by operating in a vertically integrated facility. There is still room for significant expansion of plant operations on the current site. IBC makes a variety of specialty copper and copper alloy products, for hundreds of customers across multiple industry sectors, including those shown here. Here is a representative sampling of some of our customers, both past and current, very impressive. I'm very pleased to report a very good quarter and fiscal year 2024 for IBC. First, we achieved profitability, both in the quarter and for the year. We set several financial performance records in 2024, including the highest consolidated sales in IBC's history. Gross margins are continuing to improve. We strengthened our working capital position by $5.6 million in 2024 fiscal year. We have now successfully discontinued operations at our Wilmington, Massachusetts facility. We expect to incur a charge to operations in respect to the discontinuation of that facility, and we are continuing to negotiate with the building landlord to minimize such costs. And as we focus now, on our continuing operations at our Copper Alloys division, I would have to say I'm very, very excited about the future of IBC, which we will discuss in more detail later today. So let's get into more of the details. First, as many of you probably saw in our news release earlier today, we’re reporting the performance of discontinued operations from our now closed Massachusetts facility, continuing operations at our Copper Alloy division and a combination of continued and discontinued operations. So combined sales of both discontinued and continuing operations rose by 50.9% and 33.4% year-over-year for the quarter and the year respectively, on much higher product demand. Continuing operations sales at Copper Alloys division were $7 million in the quarter, a 28.7% year-over-year increase and $25.7 million for the year, a 19.3% increase over the prior year. And I'm pleased to report that this 2024 sales performance was a new record for the Copper Alloys division. We generated combined operating income of $2.3 million and $5.6 million in the quarter and year, respectively, which showed substantial improvement over prior year period figures. We booked combined adjusted EBITDA of $2.3 million for the quarter and $7.6 million for the year, both of which reversed prior year period losses. Combined gross margin came in at 33.9% in the quarter and 29% for the year. Both reflected stronger performance and a favorable inventory adjustment in the quarterly result. We generated combined net income of $559,000 or $0.01 per share and $1.7 million or $0.02 per share for the quarter and year, respectively. IBC's working capital improved by $5.6 million in the fiscal year going from a working capital deficiency of $7.2 million, including cash of $83,000 as of June 30, 2023 to a working capital deficiency of $1.6 million, including cash of $1.4 million as of June 30, 2024, that improvement largely reflected debt refinancing of short-term debt with long-term debt and satisfaction of the obligation to produce beryllium-aluminum castings, under a sales contract in our EMC division. Here, you can see a very nice upward trend over the past four years in both revenue and adjusted EBITDA for IBC. The copper-colored bars show the performance of our continuing operations at copper alloys and the blue bars show performance from our now discontinued operations at our Wilmington Massachusetts plant. The combined total sales revenue generated in 2024 of just over $38 million was a new record for the company, as was the adjusted EBITDA for the year of $7.4 million. This next slide shows what I see as a nice and very welcome turnaround for the company in terms of net income after some very challenging years, it is nice to be in the green. All right. There you go. Jim. Here is the green that we're very happy to be in. My goal and that of the entire air team is to continue to operate profitably going forward. And I see growth opportunities ahead that I believe will help us achieve this goal. The next slide, you can see here copper has a very strong upward trend in terms of gross profit and gross margin since we completed our $5.7 million expansion and modernization of the Copper Alloys manufacturing facility in Franklin, Indiana in 2022. This vertically integrated facility has 32,000 square feet of new production space, which now totals 83,000 square feet on 12 acres of land. It provides vertical integration of alloy casting, forging, which includes hammer, press and ring rolling, heat treating and machining operations and has helped generate sales growth from about $13.7 million to more than $25 million a year. And it positions IBC to expand our business with additional capacity. Here are a few of the longer-term macro growth trends that we see continuing to drive demand of our products. The global expansion of 5G networks and the Internet of Things is increasing demand for materials across our copper product lines. Growth in the electronics sector is also driving greater demand for our products. As markets for electric vehicles expand around the world, we expect to see much more intensive use of copper that's very bullish for IBC. A number of our customers are in the power generation sector, and that includes the rapidly intensifying work in Fusion Energy. The US, sees a return or if the USCs returned to major investment in the oil and gas industry and production there, and there is also a potentially strong area of additional growth in that sector with lots of positive things moving forward for the copper division. Let me mention what additional area of potential growth, US naval defense. It is widely recognized by both political parties in the US that America has seriously fallen behind in terms of its competitive position vis-a-vis China in terms of surface and subsurface naval ships. One statistic puts this situation in sharp focus for me. Just on Chinese shipyard near Shanghai, has more capacity than all of Americas shipyards combined. The US Navy has announced an aggressive 30-year plan to rebuild both the number of naval defense vessels we sale and the domestic supplier networks that service this industry. The Navy's goal is to grow the fleet to over 381 ships and 134 large unmanned surface and underwater vehicles. That is from a forecast low of only 285 ships in 2026. A special emphasis will be on submarines, including the Columbia and Virginia class subs IBC has supplied the Navy for a number of years, with a variety of copper alloy products, including for Columbia and Virginia class submarines. We're in discussions now with defense policy leaders in Washington, D.C. and with leaders in America's largest submarine boat builders about potentially expanding our ability to provide them with the specialized alloys they need. I hope to have more of this growth opportunity in the buds ahead. And with that, I'm happy to take any questions.

A - Jim Sims: Thank you, Mark. Now let's take some questions from today's audience. For those participating on the webcast, simply type in your question into the chat thread on your screen. If you are participating via the phone lines, you might want to pose your questions via e-mail to me, jim.sims@ibcadvancedalloys.com or you could try to text me at (303)-503-6203. We have a couple of questions that came in just at the start of the call. Mark, let me pose these to you. And Toni, you can chime in as you need to. First of all, the question is, is EMC, our Engineered Materials division or our beryllium-aluminum division is that completely closed active juncture?

Mark Smith: The basic answer to the question is yes. But let me provide a little bit more detail. We announced in a press release that we had successfully completed all of the contracts that we had out of our Wilmington production facility. That was an outstanding achievement by the EMC team and one which certainly helped the IBC consolidated financials for the fourth quarter and fiscal year 2024. So all of the production capabilities are done. And now we are to the point where all the equipment has been removed from the facility. All of the cleaning of the facility is behind us. But we do still have two employees at the facility to watch over the facility and do some additional detailed cleaning. And we do have the lease situation at the Wilmington facility that we're still negotiating with the landowner. So there are a couple of things that still need to be done. But for all practical purposes, we are completely closed at that facility.

Jim Sims: Okay. Here is a couple of follow-on questions to that, Mark. What were the total costs for shutting down the EMC division?

Mark Smith: We had projected costs of about $1.7 million to shutdown EMC. We have spent about $1.3 million so far. So we are under our projected cost for that effort. But we still have a couple of biter things left to do. So we'll see where we ultimately pull out. But so far, we have actually spent less than what we projected.

Jim Sims: All right. Mark, are we able to disclose the net proceeds from the EMC capital equipment auction?

Mark Smith: Absolutely. We received -- and I'll talk about this on a cash basis because I think it's much easier than getting it to all of the accounting standards that normally go with an answer like this. But on a cash basis, a net cash basis, we received about $273,378 in net cash, as a result of the gross proceeds that we got from the buyer versus what we needed to pay-off for the machinery and equipment loans that we had on that equipment. So a very nice net cash receipt of over $270,000.

Jim Sims: Okay. Here's another question. Were there any EMC personnel in Massachusetts that will need to move to the Franklin, Indiana Copper division?

Mark Smith: We really haven't made a final determination on that right now. Those types of discussions are very personal in nature. We certainly have multiple EMC employees, who we think would be excellent additions in copper, but those are individual decisions and there is a long distance between the two facilities. So we'll see where that turns out, but we don't have anything to determinative at this point.

Jim Sims: Were quarterly profits from the copper division sufficient to cover the EMC closing costs?

Mark Smith: It is an interesting question and kind of an interesting view. I've never really looked at it from that perspective. If we take a look at the IBC consolidated numbers or would take a look at copper by itself or EMC by itself, what we could say is, IBC on a consolidated basis, generate enough profits to cover closing costs at EMC to-date. And that's a very nice thing for us to say, but it does have a lot to do with copper and a little bit to do with what EMC did in terms of performance in the fourth quarter and the fiscal year 2024 in its entirety. So it is a combination, a very good team effort, a very good company effort overall. So the consolidated profits has certainly been enough to cover those costs so far.

Jim Sims: Okay. And generally, what are the priorities now that the company is focusing on the copper division going forward? Are there expansion plans? How do you see the business growing in the quarters and years ahead?

Mark Smith: Yes. This is really a great question and one that IBC is extremely focused on right now. And I can talk about kind of what our priorities are in three areas. One is performance, performance, performance, having to do with our base or foundational business at the Copper division. This has been a very, very reliable and sustainable book of business for us. And we want to continue to perform as well as we have historically in that foundational business, and that foundational business has shown a very nice level of growth each and every year. So we will be very focused on performance, performance, performance for our existing foundational business. We'll also be focused on debt reduction for the company. As a result of the EMC performance historically over the last several years, we have had to put the company in a pretty difficult debt position. I'm happy to report that we've actually paid down some of that debt already in this calendar year 2024, and our goal is to take a look at every dollar that comes in and figure out should that go to debt reduction or should that go to the third area that we are focused on, which is growing the copper division. The copper division has an outstanding potential. We've talked about the naval defense sector as one area. There's multiple areas also in the space sector, those space sector provided excellent projects for us here in fiscal year 2024. So there are absolutely expansion plans for the company. One of the first things that we want to get focused on is how do we add a vacuum fortis into our existing foundry, which we have room for already. How do we add a vacuum furnace into the foundry so that we could make some of those naval defense alloys that they're looking for. Once we have that capability at hand, now we can start taking a look at how can we get further downstream in the name of the Fed sector with the alloys that we're producing and making different pieces and different configurations of that alloy. Those two things alone, just making the alloy and then getting further downstream could very easily provide unbelievable substantial growth for the copper division. So those are the things we're going to be focused on, existing foundational business and performing well in that category, paying down debt and growing the copper division. So those are going to keep us very busy. And I think we've got an outstanding future in front of us in terms of gross margin, earnings and cash flow.

Jim Sims: Right, Mark, thanks for that. I think you've kind of answered our last question, which is how do you think about IBC's balance sheet, working capital, customer payments moving forward. Any last thoughts you want to add before we conclude today's webcast.

Mark Smith: Yes. Some final thoughts I'll provide there. The entire team at IBC has really worked hard for well over a year now, at literally managing our cash situation on a daily basis. And that focus has really put us in a much different position than where we were a year ago, a position that we're very happy and proud to be in today. We all understand what it takes or what it took to get here, and we all understand the hard work it's going to take to continue with that success and to continue with the growth that we want to see out of our copper division. I want to take a couple of minutes to recognize some people at IBC as well. The efforts that Mark Wilde, our President of our Copper division puts in day in and day out, as the leader of that division is just nothing less than phenomenal. Mark has a family situation out there. He has second and third generation families that are working at our facility in Franklin, it's a place that people want to be and they go that extra mile every time that they're asked. Rajiv, our salesperson at the Copper division, again, just unbelievable performance by Rajiv. He's out providing the type of engineering technology that our customers need, which not only they have a go-to guy, whatever there's something new to be had, but he's a go-to guy for everything that they already need. The efforts of people like Rajiv and Mark, that really highlight the copper division the way that it needs to be highlighted. And without people like that, without people, it's very difficult to see these results. So my sincere thanks to the entire copper team the leadership effort that's been demonstrated there. I think our future is just really outstanding.

Jim Sims: All right, Mark. Thanks. That takes care of the questions we have today. Thanks, everybody, for joining us today. As I mentioned, we have made a copy and a recording of this webcast and we'll post that along with the slides from today's presentation to our website in the next few hours. If any of you have any questions that I didn't see, please go ahead and send those to me. I'll -- feel free, and I'll get back to you on those. It's jim.sims@ibcadvancedalloys.com. Thank you all for joining us today. We look forward to talking to you again soon. Take care, and stay safe. Bye-bye.

Mark Smith: Thanks, everybody.