What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2025-02-07 compared with 2024-11-12 · 43 added, 41 removed, 121 unchanged (41% of the section changed)

5 unchanged sentences

The Decatur and Sinton facilities operate stretcher leveler cut-to-length lines.

The equipment at all locations improve the flatness and surface quality of the coils and cut the coils into sheet and plate of prescribed lengths.

The equipment at all locations improves the flatness and surface quality of the coils and cut the coils into sheet and plate of prescribed lengths.

On a combined basis, the facilities are capable of cutting sheet and plate with thicknesses ranging from 16 gauge to 1” thick in widths ranging from 36” wide to 96” wide.

5 unchanged sentences

Results of Operations

Six Months Ended September 30, 2024 Compared to Six Months Ended September 30, 2023

During the six months ended September 30, 2024 (the “ 2024 period”), sales, cost of materials sold and adjusted gross profit decreased approximately $46.7 million, $33.3 million and $13.4 million , respectively, compared to the amounts recorded during the six months ended September 30, 2023 (the “ 2023 period”).

Nine Months Ended December 31, 2024 Compared to Nine Months Ended December 31, 2023

During the nine months ended December 31, 2024 (the “ 2024 period”), sales, cost of materials sold and adjusted gross profit decreased approximately $68.6 million, $46.0 million and $22.6 million, respectively, compared to the amounts recorded during the nine months ended December 31, 2023 (the “2023 period”).

Adjusted gross profit is a non-GAAP measure calculated as sales minus cost of materials sold.

The decrease in sales was associated with both a decline in sales volume and a decrease in the average selling price per ton.

Sales volume for the 2024 period consisted of approximately 353,000 tons from inventory and another 60,000 tons of toll processing customer owned material compared to the 2023 period volume consisting of approximately 375,000 tons from inventory and 72,000 tons of toll processing.

The decline in sales volume for the 2024 period was related to a combination of challenging conditions for some of our customers and extended planned downtime for equipment upgrades and maintenance at the Company's Sinton and Decatur facilities.

The decline in sales volume for the 2024 period was related to a combination of challenging conditions for some of our customers, extended planned downtime for equipment upgrades, and political uncertainty leading up to the presidential election.

Adjusted gross profit was approximately $52.2 million for the 2024 period compared to approximately $74.9 million for the 2023 period.

1 unchanged sentence

Our operating results are significantly impacted by the market price of hot-rolled steel coil ("HRC").

Entering the 2023 period, HRC prices had increased approximately 95% from November 2022 to April 2023.

HRC prices then declined approximately 18% by the end of the 2023 period.

As a result, the 2023 period benefitted from strong physical margins during the first half of the period and then experienced margin compression during the second half of the period.

Entering the 2024 period, HRC prices were on a predominately declining trend dropping approximately 40% from January 2024 through the middle of August 2024.

From August 2024 and to the end of the 2024 period, HRC price remained relatively stable.

As a result, the Company experienced compressed physical margins throughout the 2024 period.

Entering the 2023 period, HRC prices had increased approximately 95% from November 2022 to April 2023.

HRC prices then declined approximately 45% until the October 2023 with prices then increasing by approximately 66% by the end of the 2023 period.

As a result, the 2023 period benefitted from strong physical margins for the first quarter of the period followed by a quarter of compressed margins and then ended the period with a quarter of improving margins.

The Company utilizes HRC futures to partially manage exposure to commodity price risk.

7 unchanged sentences

Sales volume for the 2024 period consisted of approximately 326,000 tons from inventory and another 60,000 tons of toll processing customer owned material compared to the 2023 period volume consisting of approximately 351,000 tons from inventory and 72,000 tons of toll processing.

The decline in sales volume for the 2024 quarter was related to a combination of challenging conditions for some of our customers and extended planned downtime for equipment upgrades and maintenance at the Company's Sinton and Decatur facilities.

Flat-roll segment operations recorded operating profits of approximately $6.6 million and $23.6 million for the 2024 period and 2023 period, respectively.

13 unchanged sentences

This decrease was primarily related to lower earnings before taxes for the 2024 period.

The income tax provision as a percentage of earnings before tax was approximately 21.1% and 24.9% for the six months ended September 30, 2024 and 2023, respectively.

For the six months ended September 30, 2024 , the effective tax rate differed from the federal statutory rate due primarily to the inclusion of state tax expenses in the provision with this impact partially reduced by the tax effect of restricted stock vesting during the period.

For the six months ended September 30, 2023 , the effective tax rate differed from the federal statutory rate due primarily to the inclusion of state tax expenses in the provision.

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023

During the three months ended September 30, 2024 (the “ 2024 quarter”), sales, cost of materials sold and adjusted gross profit decreased approximately $24.0 million, $21.5 million and $2.5 million , respectively, compared to the amounts recorded during the three months ended September 30, 2023 (the “ 2023 quarter”).

The income tax provision as a percentage of earnings before tax was approximately 12.4% and 23.4% for the nine months ended December 31, 2024 and 2023, respectively.

For the nine months ended December 31, 2024 , the effective tax rate differed from the federal statutory rate due primarily to the tax effect of restricted stock vesting during the period with this impact partially reduced by the inclusion of state tax expenses in the provision.

For the nine months ended December 31, 2023 , the effective tax rate differed from the federal statutory rate due primarily to the inclusion of state tax expenses in the provision.

Three Months Ended December 31, 2024 Compared to Three Months Ended December 31, 2023

During the three months ended December 31, 2024 (the “ 2024 quarter”), sales, cost of materials sold and adjusted gross profit decreased approximately $21.9 million, $13.5 million and $8.4 million , respectively, compared to the amounts recorded during the three months ended December 31, 2023 (the “ 2023 quarter”).

Adjusted gross profit is a non-GAAP measure calculated as sales minus cost of materials sold.

The decrease in sales was associated with both a decline in sales volume and a decrease in the average selling price per ton.

Sales volume for the 2024 quarter consisted of approximately 112,500 tons from inventory and another 18,000 tons of toll processing customer owned material compared to the 2023 quarter volume consisting of approximately 118,000 tons from inventory and 22,000 tons of toll processing.

The decline in sales volume for the 2024 quarter was related to a combination of weaker demand among some customers and hesitancy among others given the political uncertainty at the time.

The decline in sales volume for the 2024 quarter was related to a combination of weaker demand among some customers and hesitancy among others given political uncertainty during the quarter.

Adjusted gross profit was approximately $15.6 million for the 2024 quarter compared to approximately $24.0 million for the 2023 quarter.

Adjusted gross profit as a percentage of sales was approximately 16.5% for the 2024 quarter compared to approximately 20.7% for the 2023 quarter.

Our operating results are significantly impacted by the market price of hot-rolled steel coil ("HRC").

HRC price declined approximately 25% during the 2023 quarter with this decline being part of a downward price cycle which commenced in April 2023.

From April 2023 and to the end of the 2023 quarter, HRC price declined approximately 45%.

As a result, the Company experienced compressed margins during the 2023 quarter.

Entering the 2024 quarter, HRC prices were on a predominately declining trend dropping approximately 40% from January 2024 through the middle of the 2024 quarter.

As a result, the Company experienced compressed physical margins during the 2024 quarter.

Our operating results are significantly impacted by the market price of HRC.

Entering the 2024 quarter, HRC price had reached the bottom of a price cycle after a prolonged decline and remained relatively stable near the bottom during the 2024 quarter.

As a result, the Company experienced compressed margins throughout the 2024 quarter.

The Company experienced an inflection point in HRC price during the 2023 quarter with prices increasing approximately 66% from early October 2023 and through the end of the 2023 quarter.

As a result, the Company experienced considerable margin improvement in the second half of the 2023 quarter.

The Company utilizes HRC futures to partially manage exposure to commodity price risk.

The Company recognized hedging related gains of approximately $0.2 million and $4.4 million in the 2024 and 2023 quarters, respectively.

The Company recognized hedging related gains of approximately $0.3 million in the 2024 quarter compared to hedging related losses of approximately $4.1 million in the 2023 quarter.

Flat-roll Segment

1 unchanged sentence

For a more complete understanding of the average selling prices of goods sold, it is helpful to exclude any sales generated from processing or storage of customer owned material.

Sales generated from processing or storage of customer owned material totaled approximately $1.1 million for the 2024 quarter compared to approximately $1.3 million for the 2023 quarter.

Sales generated from processing or storage of customer owned material totaled approximately $1.0 million for the 2024 quarter and approximately $1.0 million for the 2023 quarter.

Sales generated from flat-roll segment inventory totaled approximately $85.1 million for the 2024 quarter compared to approximately $105.4 million for the 2023 quarter.

1 unchanged sentence

Sales volume for the 2024 quarter consisted of approximately 105,000 tons from inventory and another 18,000 tons of toll processing customer owned material compared to the 2023 quarter volume consisting of approximately 110,000 tons from inventory and 22,000 tons of toll processing.

The decline in sales volume for the 2024 quarter was related to a combination of weaker demand among some customers and hesitancy among others given the political uncertainty at the time.

The decline in sales volume for the 2024 quarter was related to a combination of weaker demand among some customers and hesitancy among others given the political uncertainty during the quarter.

Flat-roll segment operations recorded operating profits of approximately $1.3 million and $8.7 million for the 2024 quarter and 2023 quarter, respectively.

4 unchanged sentences

Sales decreased due primarily to a decrease in the average selling price per ton from approximately $1,164 per ton for the 2023 quarter to approximately $1,013 per ton for the 2024 quarter.

Sales volume was comparable between the periods with approximately 9,000 tons sold in the 2024 quarter compared to approximately 8,500 tons sold in the 2023 quarter.

The tubular segment recorded an operating loss of approximately $0.6 million for t he 2024 quarter compared to a break even operating profit for the 2023 quarter.

Sales volume was comparable between the periods with approximately 8,000 tons sold in both the 2023 and the 2024 quarters.

The tubular segment recorded operating losses of approximately $0.2 million and $0.1 million for t he 2024 quarter and 2023 quarter, respectively.

The tubular segment purchases its inventory from a limited number of suppliers.

5 unchanged sentences

This decrease was primarily related to lower earnings before taxes for the 2024 quarter.

The income tax provision or benefit as a percentage of earnings or loss before tax was approximately 25.2% and 24.6% for the three months ended September 30, 2024 and 2023, respectively .

For both periods, the effective tax rate differed from the federal statutory rate due primarily to the inclusion of state tax expenses in the provision.

The income tax provision or benefit as a percentage of earnings or loss before tax was approximately 25.8% and 5.9% for the three months ended December 31, 2024 and 2023, respectively .

For the 2024 quarter, the effective tax rate differed from the federal statutory rate due primarily to the inclusion of state tax expenses in the provision.

For the 2023 quarter, the effective tax rate differed from the federal statutory rate due primarily to the adjustment of interim tax estimates during the quarter.

Non-GAAP Information

1 unchanged sentence

Adjusted gross profit is calculated as sales minus cost of materials sold.

Cost of materials sold is a discrete line on our statements of operations and represents the cost associated with direct materials.

Cost of materials sold is a discrete line on our statements of operations and represents the cost associated with purchased steel, inbound freight, transfer freight and certain external processing costs.

To provide financial statement users with a better understanding of the Company's expenses, cost of sales is disaggregated on our statements of operations into the line items cost of materials sold, processing and warehousing expense, delivery expense and depreciation and amortization.

The Company believes adjusted gross profit is a meaningful measure because our cost structure and operating results are significantly impacted by the fluctuating costs associated with direct materials.

The following table reconciles the GAAP measure for gross profit to the non-GAAP measure adjusted gross profit (in thousands):

THREE MONTHS ENDED

SIX MONTHS ENDED

SEPTEMBER 30,

NINE MONTHS ENDED

Gross profit (GAAP measure)

4 unchanged sentences

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

The Company’s current ratio amounted to 4.1 a t September 30, 2024 and 3.1 at March 31, 2024 .

Working capital was approximately $111.7 million at September 30, 2024 and $116.0 million at March 31, 2024 .

During the six months ended September 30, 2024, the Company maintained assets and liabilities at levels it believed were commensurate with operations.

The Company’s current ratio amounted to 3.5 a t December 31, 2024 and 3.1 at March 31, 2024 .

Working capital was approximately $107.0 million at December 31, 2024 and $116.0 million at March 31, 2024 .

During the nine months ended December 31, 2024, the Company maintained assets and liabilities at levels it believed were commensurate with operations.

Changes in balance sheet amounts occurred in the ordinary course of business.

11 unchanged sentences

If certain conditions precedent are satisfied, the ABL facility may be increased by up to an aggregate of $25 million, in minimum increments of $5 million.

At September 30, 2024, the Company had a balance of approximately $35.9 million under the ABL Facility with an applicable interest rate of 7.0%.

At September 30, 2024, the Company's applicable borrowing base calculation supported access to approximately $104.7 million of the ABL Facility.

At December 31, 2024, the Company had a balance of approximately $32.5 million under the ABL Facility with an applicable interest rate of 6.5%.

At December 31, 2024, the Company's applicable borrowing base calculation supported access to approximately $99.2 million of the ABL Facility.

As of the filing date of this Form 10-Q, the Company had borrowings of approximately $49.0 million outstanding under the ABL Facility and the Company's most recent borrowing base calculation provided access to approximately $100.5 million of the ABL Facility.

4 unchanged sentences

Hedging decisions are intended to protect the value of the Company's inventory and produce more consistent financial results over price cycles.

The Company recognized gains of approximately $0.2 million and $5.6 million in the three month and six month periods ended September 30, 2024, respectively, related to hedging activities with all of this being classified as economic hedges of risk.

The Company recognized gains of approximately $0.3 million and $5.8 million in the three and nine months ended December 31, 2024, respectively, related to hedging activities with all of this being classified as economic hedges of risk.

With MTM accounting treatment it is possible that hedging related gains or losses might be recognized in a different fiscal quarter or fiscal year than the corresponding improvement or contraction in our physical margins.

See Note H for additional information related to the Company's hedging activities.

The Company expects sales volume for the third quarter of fiscal 2025 to be slightly lower than the second quarter volume due primarily to the seasonal impact of holidays.

HRC price remained stable to start the third quarter resulting in minimal change to the Company’s sales prices and margins.

As a result, the Company may experience a generally challenging margin environment in the third quarter.

The Company expects sales volume for the fourth quarter of fiscal 2025 to be higher than the third quarter volume due to stronger order activity and the impact of holidays on third quarter volume.

HRC prices were stable at the start of the fourth quarter but began to increase at the time of this filing.

Most industry participants anticipate prices to increase further during the second half of the quarter.

The Company expects fourth quarter sales margins to improve compared to the third quarter.

CRITICAL ACCOUNTING ESTIMATES

19 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis