Aug 9th 2010 Earnings Call
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INDUSTRIAL SERVICE OF AMERICA
Moderator: Harry Kletter
August 9, 2010
2:00 p.m. ET
Operator: Good afternoon, my name is (Cassandra) and I will be your conference operator today. At this time I would like to welcome everyone for the quarterly earnings update conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time simple press star then the number one on your telephone keypad.
If you would like to withdraw your questions, press the pound key. This call contains forward looking statements that are based on our current expectations estimates, a lease and assumption. Worries such as anticipates, expects, intends, plans, (a league), seek and estimates, and variation of these words and similar expressions are intended to identify forward looking statements. These statements are not guaranteed a future performance and are subject to risk uncertainties and other factor.
Some of which are beyond our control and difficult to predict and could cause actual results to this materially from those express or implied in the forward looking statements. Although we believe that the assumptions on which these forward looking statements are base are reasonable. Any of those assumptions could prove to be inaccurate and as a result, the forward looking statements based on those assumptions could also be inaccurate. While we may elect to update these forward looking statements at some point in the future, we disclaim any obligation to do so, even if ask estimates or assumptions change.
In light of these and other uncertainties, the inclusion of a forward looking statement in this presentation should not be regarded as a representation by us that our plans and objective will be achieved. You should not place undo rely us on these forward looking statements. Factors which could cause or our actual results to be materially different from those expressed in or implied by the forward looking statements we make are set forth under the captions "Risk Factors" in our annual report on Form 10-K and in our other reports filed with the Securities and Exchange Commission.
In this presentation, we refer to Non-GAAP Financial Measures. This Non-GAAP Measures are not prepared in accordance with generally accepted accounting principle. And now, I would like to turn the conference over Harry Kletter. You may begin.
Harry Kletter: Thank you, everyone, for being on the call today. If you are in front of a computer, go to www.isa-inc.com, then Company, then Headquarters to view our state-of-the-art facilities in Louisville, Kentucky located on 45 acres. I invite each one of you to visit us some time in the future. It's truly an impressive facility. Nineteen months ago, ISA had a rebirth after a dramatic decline in the economy and global markets. In January 2009 we were reborn and haven't stopped growing since. The second quarter of 2010 was the best in ISA's history. Our sales, EBITDA, net income and EPS all doubled over last year's levels.
Sales reached $93 million, the highest in ISA's history. ISA continue to receive significant orders from its consumers which are driving the company's growth. ISA continue to gain market share in the stainless business. In addition, we made progress on many of our stated initiatives. We increased our float and trading liquidity by splitting our stock three-to-two in May. Two, we may progress on putting in place a new credit facility which we subsequently closed in July. Three, we now have a $40 million revolver and just one term loan secured by our shredder, so our balance sheet is very clean.
Our shredder continues to process a significant amount of ferrous metals, causing ferrous shipments to be up 164 percent over last year's level. We will continue to enhance our shredder productivity so we can drive higher and more profitable sales in the future. We recently shipped - we sold two (barges) to the Southern mills, our first barge shipments since 1960. Our favorable geographic location allows us to use barge transport when we produce more metals than our primary consumer can buy.
ISA's strong growth will continue to be organic. We're building a nice stainless, non-ferrous and our new alloys division, by processing more materials at our facilities. We have enough demand from our customers who continue this in the future. ISA continuous to evolve into a major competitor in the scrap recycling industry, and we expect our growth to continue for years.
However, metal prices are volatile. So our business fluctuates with metal prices. We're also susceptible to slowdowns in the economy. There are no clear indications that the economy has recovered yet. I can only say this; I'm from the era of the last Depression. But we are confident that the long-term trend for ISA is steady and continual growth. I believe that the company is in the best shape that it has have ever been in. There is still a lot of growth opportunity. The company has the best management that I’ve ever seen, young, smart management, and an experienced board of directors.
I want to introduce our President in Chief Operating Officer Brian Donaghy. Brian joined me seven years ago, his growth is a story in itself so we won't put that on the table until some future time when you may meet him or he wants to tell you the story. Brian, go ahead.
Brian Donaghy: Good afternoon everybody. Our Operations and Strategy: We are pleased with our second quarter operating results all over - - all of our recycling divisions showed decent volumes, coupled with satisfactory margins, in quarter two. We are currently seeing increased flows into our yards, brought on by higher prices. Non-ferrous and ferrous prices are showing strength, and the recent rally in nickel should equate to higher selling prices for our stainless steel division in September.
We continue to look forward to increases in our volumes and margins. We are currently adding the latest non-ferrous recovery technology to our downstream system at our shredder in Louisville. Once operational, we will see increased margins in our ferrous division. I continue to seek out and recruit the best talent in our industry to manage and ensure our growth. And we continuously work on improving current relationships with consumers and suppliers alike.
ISA is committed to growth and we are convinced that we have several years of strong growth ahead of us with little investment, as we have built facilities, forged relationships and recruited talent that would support several years of organic growth. The recent initiatives that I've just outlined, coupled with a weakening dollar, strong export market and a recovering U.S. economy are the perfect recipe for ISA's continued success.
Harry Kletter: I want to introduce Don Rodgers, who will give you the financial and then we can go into our Q&A. Don?
Don Rodgers: Thank you Harry and congratulations again for another great quarter to you Brian. First of all will compare the second quarter 2010 to the second quarter of 2009 revenue up a 137 percent, 92.8 million compared to 39.1 million, EBITDA up a 116 percent, 5.1 million compared to 2.4 million. Net income up a 155 percent, 2.3 million compared to 922 thousand in 2009.
Earning per share up 112 percent, 36 cents for the quarter compared to 17 cents in 2009. Year to date in financials revenue for the first six months up a 163 percent over 2009. One hundred and sixty six, (inaudible) a 167 million compared to 63.4 million in 2009. EBIDTA up a 120 percent, 9.2 million compared to 4.2 million. Net income up a 161 percent, 1.1 million compared to 1.6. Earnings per share up a 117 percent, 63 cents of share in 2010 compared to 29 cents in 2009.
SG&A expenses for the second quarter of 2010 was 3.6 million or 3.8 percent of revenue compared to 2009, second quarter expenses of 2.4 million or 6 percent, year to date SG&A expenses in 2010, 6.8 million for 4 percent of revenue compared to 2009, 5.1 million or 8 percent of revenue. A little bit about the balance sheet of 2010 through June, cash we have 1.2 million compared to 700 thousand, so we're up about a half a million dollars.
Then when you look at our revolver which is our accounts receivable and inventory, it's up to 16.4 million compared to 8.2 an increase of 8.3. Our term and other debt is 13.8 compared to 21 down 7.2 million. We've had a shift. We are paying off our long term debt in financing through our revolver line of credit. Our equity in 2010 stands at 26.4 million compared to 21.9 increase of 4.5 million.
The new credit facility that we've talked about, first key terms of it, it's a $40 million revolver, up from a 21, up from a $20 million revolver that we've put in place in April. We have now 8.8 million of term debt secured by the shredder. The new credit facility fall in link to all part of term debts except the shredder. Also the revolver and the term, the term in July of 2013, the rates are very attractive at LIBOR plus 2.5.
I'll turn it over to Harry for the conclusion, and then we will open it up for questions.
Harry Kletter: We are pleased we can continue to report strong results of ISA. The business has a solid foundation and strong operating management to lead the organization into the future. I have to tell you, I've been around a long time, and this is probably the most amazing situation I've ever seen in a company, especially our company.
I only hope that this scrap industry can get others to enter into the public markets and that we have companies that are organic. And I mean by organic, commodities and not diversifying towards other operations. We have no plans on diversifying in the near future and we have plenty of growth present right now. Now I would like to open it up to questions, so I'll turn it back to the operator.
Operator: At this time if you would like to ask a question, please press star one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Juan Noble.
Juan Noble: Yes, hi. Good afternoon everybody. Congratulations on the great quarter. Just a couple of questions, one of them you know sort of broad overview type of question. You know in the financial press I guess within the last month or so there's been a couple of pieces that (want) to do a high rate of industry production leading to maybe higher inventories than of the consuming producers can absorb. And (then) in terms of causing maybe some downward pressure on prices. If you could just give me your take on that, second question is all for Don I guess. If you could give us some detail on a specific tonnages for the year earlier quarter as compared to this one as well as some color on pricing.
Harry Kletter: Well, number one, the scrap industry is very short throughout the world in the future due to the overuse and over exporting that we've had on the United States. We have taken it from east of the Appalachian, west of the Rockies and we've only got what's in between that is available to our growth of our industry coming back to where – I mean the (steel mills) and the smelters and that. Prices fluctuate a little bit up and down, but this month we had another surprise. They try to take the price down and it's back up again.
So basically I could tell you, having been in this industry a long time. There is no commodity's available for the future if we have a increase of our industry.
Juan Noble: OK, thank you Harry.
Harry Kletter: (Inaudible).
Juan Noble: Now a question for Don.
Don Rodgers: OK, your question was concerning the volumes?
Juan Noble: Right, right, the (tonnages) or pounds for you know the various metal groups year earlier quarter and this one's plus average prices for each if you have them.
Don Rodgers: Well, we don't normally disclose the average prices.
Juan Noble: OK.
Don Rodgers: You know we pretty much stay with the revenue - went up a 137 percent. And it was across the board and alloys, ferrous and non-ferrous.
Juan Noble: All right.
Don Rodgers: With the increase and the largest being in the ferrous with the shredder.
Juan Noble: OK and you gave a price step-up percentage in your 10Q, Don. Was that figure applicable essentially to all of the metals groups, or was it stronger in some versus other?
Don Rodgers: We gave a what now? Excuse me. I didn't understand you.
Juan Noble: Your sub-prices for your commodities were up something like 90 odd percent. Now was that pretty much the way it was for all of your metals groups? Or were – was it stronger in some groups versus others?
Harry Kletter: Well, it's wasn’t up 90 percent. I think that you misheard it. If it were up 90 percent, it would really be serious. No, I think that they could say that the prices are up, if we grow 90 percent from the end of the 2008, yes. But if you go in the 19 months that we've been operating they have fluctuated I'd say somewhere on the ferrous 25 to 50 dollars. Non-ferrous maybe 5 to 10 cents, stainless maybe 25 dollars a ton even more because stainless (inaudible) . It is vulnerable to the nickel price.
Juan Noble: I see, all right thank you.
Operator: The next question comes from the line of (Matt Bradford).
(Matt Bradford): Hey guys, I'm just wondering if you could comment a little bit on your international expansion plans and how that's been progressing.
Harry Kletter: None.
(Matt Bradford): None?
Harry Kletter: We stay in a domestic business. We're in mid-United States, we have plenty consumers. If anything, the only thing is there is a few random items that come out of non-ferrous and I would call it the garbage of the scrap industry.
(Matt Bradford): Got you. How about your – that scrap supply shortage problem? How's that been coming along?
Harry Kletter: Well, I don't know if – we're having an increase in the last (19) months from 4,000 ton to 17,000 ton in a month. Well I don't think we are having a shortage. Unfortunately, maybe others are having it due to competition and everything else. But somehow, our flow has just flown up and we are still trying to figure it out but we are in middle of the United States, mid America within a 100 mile radius of the availabilities. We’re competitive because we are close to consumers and they like us.
(Matt Bradford): Fair enough. That's it for me. Thanks, guys.
Operator: Again ladies and gentlemen, I would like to remind you in order to ask a question, please press star one on your telephone keypad. The next question comes from the line of Rudy Scarito.
Rudy Scarito: Good afternoon everyone. Harry, you mentioned in your opening remarks something about the rebirth of ISA in January of 2009. Can you elaborate a little bit on what you were referring to there?
Harry Kletter: Well, we started a boom and I have tell you a little bit of history back before 2003, 2004, scrap iron was 80 dollars a ton, 90 dollars a ton, but what got it back - China woke up. I happened to be in China in 2003 and when I came back in November, and I had been at (Tanjung) Steel and I looked around, China having been there in the 70's and through the 70's many other time and I noticed that China had started on this boom. I had – visiting people that I have seen were buying our random metals and taking it over then I was wondering what they were doing with it.
(Inaudible) back was the boom that we had in the last of – from 2004 to the last quarter of 2008. At that time, I guess we all know what happened. We had a collapse of the economy of the world. And then when it happened, suddenly we have figured out what to do and we attacked it and now we're seeing the reward. Does that answer?
Rudy Scarito: Yes, that's perfect. Thank you.
Operator: There are no further questions, do you have any closing remarks?
Harry Kletter: Well everybody, I can only say that I hope the rest of the industry will understand the public market and be able to come in to it. I was in the public market once before, bringing out the waste industry and at the same time had scrap. The waste industry moved ahead and today is almost in to being a utility. Scrap metal had that and still today, we don't have enough scrap organizations publicly. Which makes it a little hard for one person, one company, one management to run that alone. Or the company that – companies that would get in to the public market, I think would be beneficial to all including ourselves. Thank you.
Operator: This concludes today's conference call. You may now disconnect.
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