Unique Fabricating, Inc.
Q2 2019 Earnings Call Transcript

Published: 10 Aug 2019

[Operator:]

Greetings! And welcome to the Unique Fabricating’s Second Quarter 2019 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.I would now like to turn the conference over to Rob Fink of FNK IR. Please go ahead.

[Ron Fink:]

Thank you, operator. I’d like to welcome everyone to Unique Fabricating’s second quarter 2019 earnings conference call. Hosting the call today is Tom Tekiele, UFAB’s Chief Financial Officer.Before I turn the call over to Tom, I’d like to remind everyone that matters discussed on this conference call will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties.Forward-looking statements relate to future events or to future financial performance and involve known and unknown risks, uncertainties and other factors that may cause the company’s actual results, level of activities, performance or achievements, including statements related to the company’s outlook to be materially different from any future results, levels of activities, performance or achievements expressed or implied by this morning’s Press Release.Such forward-looking statements include statements regarding, among other things, expectations about revenue, EBITDA and earnings per share. All such forward-looking statements are based on management’s present expectations and are subject to certain risk factors, uncertainties that may cause these actual results, outcomes of an event, timing and performance to differ materially from those expressed by such statements.These risks and uncertainties include, but are not limited to, those discussed in the company’s annual report on Form 10-K for the period ended December 31, 2018, which has been filed with the SEC pursuant to Rule 424(b) and, in particular the section titled Risk Factors.All statements including on this call, and included in this morning’s Press Release are made as of today, and Unique Fabricating does not intend to update this information unless required by law. Reference to the company’s website does not constitute incorporation of any of this information.In addition, certain non-GAAP financial measures will be discussed during this call. These non-GAAP measures are used by management to make strategic decisions, forecast future results and evaluate the company’s current performance.Management believes the presentation of these non-GAAP financial measures are useful to investors in an understanding and assessing the company’s ongoing core operations and prospects for the future.Unless it is otherwise stated, it should be assumed that any financials discussed in this call will be on a non-GAAP basis. Full reconciliations of GAAP to non-GAAP are included in the Press Release that was issued earlier today.With all that said, I’d like to turn the call over to Tom. Tom, the call is yours.

[Tom Tekiele:]

Thanks, Rob. In the second quarter, the challenging macroeconomic and automotive industry conditions continued with softer than expected new vehicle production volumes. For Unique, the industry environment challenges we faced were again exacerbated by the impact of the loss of business at two major nonautomotive customers, as a result of our decision to close our Ft. Smith facility last year.The strategic decision to close this plant, streamlined our operations, improved our operating efficiency and along with the other actions we took, helped to reduce our annualized costs by more than $800,000.We had hoped the loss of these lower margin revenues would be offset by the ramp-up of several new major production programs with higher margins, but these launches have been slower than anticipated.We are watching industry trends and working closely with our customers to better anticipate their production strategies and product plans, so that we can optimally align our operations. We are cautiously optimistic that production will begin to ramp as forecasted soon and that the sales shortfall caused by this initial delay will be made up in the second half of this year.As we have discussed in the last few calls, we have accelerated efforts to reduce fixed costs and further improve our operational efficiency, in order to continue to improve our financial position and our flexibility.During the second quarter, we made the strategic decision to accelerate plans to close our Evansville, Indiana plant in September of this year during the first half of 2020. On an annualized basis, this action will reduce our overhead by more than $850,000 per year.In addition, we continue to evaluate additional opportunities to better leverage our geographic footprint, and believe there are several additional steps we can take to further streamline our organization to reduce our overall cost structure, while simultaneously improving our performance.We continue to take proactive steps to help Unique get back to our longer term objective of focused growth. Based on the current visibility of awarded programs and new business we are currently working to secure, we are gaining confidence that we will be back to a top-line growth rate in excess of the underlying automotive market by the second half of 2020.This, in combination with the actions we are taking currently to reduce our cost structure should yield a steady improvement and profitability. We are actively looking to identify a new CEO and that effort is progressing as planned. In the meantime, our leadership team is focused on continuing to streamline the organization, as well as ramping-up new programs that will better position Unique to return to our historic positive levels of performance.2019 has been a very challenging year for the company, but we believe we are making the moves that are necessary to lay the foundation for a successful 2020.Turning to the financial results

[Operator:]

[Operator Instructions] And our first question comes from John Nobile of Taglich Brothers. Please state your question.

[John Nobile:]

Hello! And good morning. Thanks for taking my questions.

[Tom Tekiele:]

Good morning John.

[John Nobile:]

Good morning. You’ve made a significant reduction in your cost structure in the first half. I’m just curious if you expect the current cost structure to remain at this level or are there going to be further cost reductions planned, and if so I was wondering if you could quantify them?I know you talked about Evansville, Indiana, the closure there, and you’re looking at about, was it $800,000, $850,000, but the other cost reductions. If you could just expand a little bit about that, in particular just talk about what they are and actually monetize what we should look for maybe in the second half of this year?

[Tom Tekiele:]

Well, we did make some headcount reductions late in the second quarter John that will have an annualized impact of $1.5 million. Now again that didn’t happen until late in the quarter, so we’ll start seeing some of that benefit during the third and fourth quarters.

[John Nobile:]

That’s $1.5 million on an annual basis is what that was?

[Tom Tekiele:]

That’s correct. Then like you mentioned, we are planning to close the Evansville, Indiana plant. The minimum savings that we should generate from that will be $850,000. It could be more than that. It just depends on what we can do with a warehouse, some warehouse space that we’re leasing today; we’re trying to sublet it, and if we are able to do that the savings will be even more than $850,000 on an annualized basis.There’s also like I said some opportunity for additional cost reductions. You know we’re looking at things we can do to further reduce our geographic footprint and whatnot. If we do something like that it probably wouldn’t be till 2020, but there’s another opportunity for I’d say another $1.2 million on an annualized basis in cost reductions sometime – starting sometime during 2020.

[John Nobile:]

And I was hoping you could talk a little about the new programs that you’re about to launch or that have been recently launched, and if you could quantify how these programs will benefit your sales in the second half of this year and into 2020?

[Tom Tekiele:]

Yes, so one of the largest programs that we were planning to launch was starting in June of this year, and it’s actually gone a little slower than we had hoped, not because of anything that Unique has done, but I guess there is some trouble that the OEM is having ramping that production up to full production levels. So sales are a little bit lighter than we anticipated in Q2, basically due to that large platform that was new to us.We do anticipate and we’re hoping that they are going to make up the production that they lost during June at some time during the third quarter and that they’ll get up to full production speed here shortly, and that will have a nice impact on our revenues. That’s a large platform for us. It’s about $10 million on an annual basis. So that will have a good impact on our revenues going forward.

[John Nobile:]

Okay, and you said it was a slow start in June. July is in the books. Any progress in that platform?

[Tom Tekiele:]

It’s still a little slow, but I think it’s starting now to get back to normalized levels, and from what we understand they are going to work weekends and whatnot to try to make up what they’ve lost. This is a very important platform for this OEM, it’s a very popular SUV, so we’re anticipating that they’ll make up a big loss.

[John Nobile:]

Okay. And I know not just this quarter, but in the first half, you have the end-of-life of certain vehicles which adversely impacted your results. Do you expect that there’s going to be any further end-of-life issues in the second half of this year?

[Tom Tekiele:]

There are programs that will come to the end of their life, but I don’t anticipate that it’s going to have any impact that you’ve seen in the first half of the year. I think that will be more than offset by some of the new platforms that we’re on, that we’ll be launching or that have recently launched. So I anticipate revenues in the second half of the year to be marginally better than they were in the first half, depending on what happens with some of the ramp up of these new platforms. But I don’t anticipate the challenges that we faced in the first half recurring in the second half.

[John Nobile:]

Okay, and when you mentioned incremental improvement in the second half, you’re talking basically sequential improvement over the first half or compared to last year’s.

[Tom Tekiele:]

Yeah, yeah.

[John Nobile:]

Only because you usually have seasonality because your first half is pretty strong compared to your second half, so I just wanted to get an idea that we’re looking at improvements from the first half into second half, not necessarily comparing a Q3 to Q3 of last year.

[Tom Tekiele:]

That is correct. You should see sequential improvement from Q1 and Q2 into Q3 and Q4. And you’re right, there is some seasonality in our business and typically Q3 and Q4 are lighter than Q1 and Q2, but even with that we see some sequential improvement in revenues during the second half of the year.

[John Nobile:]

Well, that’s good to hear. I just have one further question. I’ll open it up for others that may have some questions. But you mentioned the reduction in high content vehicle platforms. That hurt you in the first quarter, it hurt you again this year – excuse me, the second half, the second quarter. So your outlook for the – your involvement in these platforms over the next year, how does it look, the visibility that you have right now as far as these high content vehicles are for the second half of this year.

[Tom Tekiele:]

They look to be back to normalized levels. So I think there were some inventory reductions that happened during the first half of the year on some of these vehicles and these are popular SUVs in a lot of cases. But they might have had some inventory issues at the OEMs that they were trying to correct in the first half of the year. From what we can tell, they will get back to normalized levels in the second half of the year and from there on.

[John Nobile:]

Okay, that’s good to hear. Thank you again for taking my questions.

[Tom Tekiele:]

Thank you, John.

[Operator:]

And sir, there appear to be no further questions at this time. Ladies and gentlemen, this does conclude today’s teleconference. We thank you for your participation. You may disconnect your lines at this time and have a great day!

[Tom Tekiele:]

Thank you.