Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Metalico, Inc. (NYSEMKT:MEA)

Q4 2008 Earnings Call Transcript

March 12, 2009, 2009 10:00 am ET

Executives

Carlos Aguero – Chairman, President & CEO

Michael Drury – EVP

Analysts

Brett Levy – Jefferies & Company

Eric Prouty – Canaccord

Michael Curly [ph] – McGallan Curly [ph]

Scott Reynolds – Thomas Weisel

Paul Schaffer – American Metal Market

Nat Kellogg – Next Generation

Operator

Good morning. My name is Christy and I will be your conference facilitator. At this time I would like to welcome everyone to the Metalico Fiscal Year 2008 Results Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period. I would like to remind you that today’s call is being recorded for transcription purposes. The purpose of today’s call is to discuss the results of the company’s operations for the year and quarter ended December 31st 2008.

Earlier today Metalico issued a press release announcing fourth quarter results and filed a report on Form 8-K in connection with the release. The company will also be filing its annual report on Form 10-K for 2008 shortly. You can access copies of Metalico’s filings through the SEC’s Edgar online file or directly through the company’s Web site at www.metalico.com. Just log on to the Web site, click on “Investors” at the top of the home page then click on the “SEC Filings” in the left column, then click to download the report. Metalico's filings are also available at the SEC’s Web site at www.sec.gov.

In addition, an audio replay of the call will also be available at 800-642-1687 or 706-645-9291 for the first 48 hours after the call’s conclusion. To access the recording callers will be required to enter the conference identification number at 87-77-80-98.

As is customary let me reiterate the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. The following discussion contains forward-looking statements that are subject to risks and uncertainties including those risks set forth in Metalico's filings with the SEC.

These risks could cause actual results for the current period and beyond to differ materially from those expressed in any forward-looking statements made by or on behalf of the company. We refer you to Metalico's periodic reports that are filed from time to time with the SEC.

For more detailed discussion of forward-looking statements and the discussion of the factors that could cause results to differ materially from the discussion today please refer to the risk factor discussion in Metalico's Form 10-K for 2008 which will also be available online.

In addition, during the course of the conference call certain non-GAAP financial measures may be described which should be considered in addition to and not in lieu of comparable GAAP financial measures. The company has provided reconciliation of these non-GAAP measures to what it believes are the most directly comparable GAAP measures in the earnings release.

Thank you, ladies and gentlemen. I would now like to turn the call over to Mr. Carlos Aguero, President and Chief Executive Officer of Metalico.

Carlos Aguero

Good morning. And thank you for joining today’s conference call. With me here today, Michael Drury, our Executive Vice President and Eric Finlayson, our Senior Vice President and Chief Financial Officer. Following my presentation we will be available to answer any questions you may have. We will also post the transcript of our remarks and the question-and-answer session on Metalico Web site when the transcript becomes available after this call.

Earlier today we released financial information ushering the severe impact of global impact of economic crisis that had on Metalico. In a moment I will review our results in a little bit more detail. But first, I would like to speak about our reaction to the catastrophic downturn and how we try to position ourselves.

The last time we presented our results after the third quarter of 2008 I began by saying that the third quarter saw the beginning of a difficult period for the global commodities market. I also mentioned that the metal sector was experiencing historic downward pressures from the worldwide contraction in capital, credit, production and consumption and free falling commodity prices.

I think by now we all know how bad things have gotten. Unfortunately, the trends we talked about last year continued through the fourth quarter and are still present today. I don’t need to belabor the point that there is a lot of negative moves in the business section from the newspapers today.

In the first half of 2008, well before the crash, the company added to a Platinum Group Metals operation with the American Cat Con acquisition and added an attractive ferrous scrap recycling platform in western Pennsylvania with the purchase of the Snyder Group. These moves allowed Metalico to further diversify among commodities achieving a fair balance between ferrous and nonferrous metals. Of course, with all metal commodities dropping at the same time diversification did not help much in the latter part of the year.

We understood immediately that earnings in cash flow were going to be deeply affected by the recessionary conditions. Early in the fourth quarter we carefully reviewed all aspects of the company’s operations and we moved quickly to make appropriate changes proactively to mitigate the impact of the crisis on our business. First, we aggressively contained our metal buying prices. We concentrated on clearing inventories rapidly, severely limited our expenditures, we instituted hiring and wage freeze. Over time we cut back or eliminate where appropriate operations were temporarily idle. We reassigned personnel and impose painful employee layoff. We tightened customer credit terms and pursued more aggressive collection efforts.

We have always run with a lean corporate management team, made leaner now by moving personnel to a system work more closely with some of our operating locations. In general, we have instituted policies and procedures to maximize economies of scale and minimize losses.

In the fourth quarter we were also concerned enough about our future ability to comply with our financial covenant as we initiated discussion with our senior lenders. I am happy to say that our lenders were supportive of our efforts and came through with new terms that more realistically reflect the current status of business and industry and provide more relax covenant to help ensure that when business improves Metalico will have sufficient working capital.

On a more positive note we reduced overall debt burden substantially. As of today, the outstanding balance under our $60 million revolving credit facility still stands at zero. We have borrowing availability of 25 million and we have a cash balance on hand of 45 million. Our debt balance today is approximately 170 million, a reduction of more than 50 million from the year-end 2008 but still higher than we would have liked given today's business environment. We are continuing to look for ways to reduce debt further this year while maintaining operating flexibility.

As we entered the new year we reduced and then suspended the company match for employee 401K contribution. The company senior executives including everyone at Metalico’s corporate office waved contractual raises that they were entitled to and along with many managers and supervisors accepted a 10% pay cut to help us conserve capital. Many of our other employees those individuals earning less than management but still more than online workers took smaller decreases in their salaries.

The net effect of work force reductions has been 194 fewer employees now than when the crisis started, a 25% reduction in personnel. Certainly, all of this has made very difficult and painful process for management and employees alike. I would like to compliment and thank all of our employees for their cooperation and focused approach to the mission our hand in the face of extraordinary challenges.

Now, let’s review some of our financials. Revenues of $818 million for the year exceeded 2007 number by 145%. Operating income of $30.4 million before combined write-down of 70.2 million. Net income was 15.4 million before the write-down compared to 2007 net income of 14.8 million. Fully diluted loss per share of $1.25 after write-down but income of $0.43 per share before the write-down. A $70 million pre-tax write-down of assets has been taken. A net loss of $43.7 million has been realized after the write-down.

The EBITDA excluding the write-down was $42.7 million, compared to $37.2 million

last year. Net working capital as of December 31 was 66.8 million and stockholders equity ended the year at 113 million.

Results reflect an economy that deteriorated rapidly first led by the collapsing PGM and base metal prices followed by greatly reduced inbound and outbound metal units through our operating facilities, the consequence of which led us to record large impairment charges in the fourth quarter of 2008.

Specifically, our year-end results reflect write-down of operating income, a pre-write-down operating income of 30.4 million. We then recorded a non-cash intangibles and goodwill impairment charge of 59 million. A $7.8 million inventory markdown and a 3.5 million charge-off of accounts receivable and vendor advances.

Looking further at the details, net loss for the year ended, 12/31/08, after the $70 million write-down was 43.7 million or $1.25 per share on sales of $818 million. These results compared to net income of 14.8 or $0.50 per share on sales of $334 million for the year ended December 31st of '07.

Sales increased by 484 million or 145% over the 2007 results. Operating income before write-down rose to 30.4 million as compared to 29.4 million, operating income for '07. EBITDA before write-down for 2008 was 42.7 million, an increase of 4.9 million or 13% or was a 37.2 million of EBITDA recorded for the prior year.

Capital expenditures in 2008 totaled $11.1 million which was higher than depreciation by 2.3 million and as compared to $11.6 million capital expenditures in the prior year. We expended approximately $6.5 million for the scrap metal recycling segment largely for facility improvement and new processing equipment and 4.4 million for the Lead Fabricating segment during the year mostly for the completion of the new high speed mill in Birmingham, Alabama which is now fully operational.

As of March 10, 2009, Metalico had 36,428,000 common shares this year in outstanding, which is a change of about 1% from the end of the third quarter of '08.

Fourth quarter financial highlights include the following. All of these before write-down as compared to the prior year's fourth quarter. Sales decreased by 43% to the total of 64.5 million. Operating loss was 19.6 million compared to operating income of 7.5 million. Net loss was 8.4 million from a net income of 3.5 million.

EBITDA was negative at 17.9 million versus a positive of 10 million in the prior year. 2008 loss per share of $0.22 compared to 2007 income of $0.08 per share. Again, all these prior to the write-ups and write-downs.

Reviewing the fourth quarter starting with the Scrap Metal segment, Scrap Metal segment generated sales of $49.6 million compared to $89.1 million in the comparable period for 2007. Our figures for the quarter include the results of operations for the Snyder Group asset which were acquired in May of '08. Fourth quarter sales for Snyder was $16.8 million, major contributed to the decrease in sales was a drop in PGM sales of more than 50%.

We derive 35% of our scrap revenue from ferrous and 65% from all non-ferrous metal. Operating loss for scrap again before corporate overhead and write-downs was 12.2 million in the 2008 period compared to an operating profit of 5.8 million in the same quarter of last year.

We realized an average price of $329 per gross ton for ferrous, a $207 per ton decrease from the September 2008 pricing which had been $536 per gross ton. But we realized an increase of 18% compared to an average of $278 per ton sold in 2007 fourth quarter.

The nonferrous portion of the business experienced fall in prices also across all commodities. Our average nonferrous selling price in the quarter was $1.11 per pound compared to $1.55 per pound in the prior year quarter and a $1.36 per pound sequentially from the third quarter.

Metalico’s volume of metal sold for all of 2008 were 440,000 gross tons of ferrous which was a 54% increase from the 286,000 sold in 2007. We also sold a total of 128 million pound of nonferrous which was an increase of approximately 40 million pound or 45% over 2007.

Let’s move over to the Lead Fabricating segment. In this year’s fourth quarter the Lead Fabricating segment generated sales of 15 million compared to same period sales of 24.5 million in '07 representing a 39% decrease. As a result, the Lead segment realized an average selling price of $1.34 per pound in the quarter, down sequentially from a $1.53 per pound in the third quarter.

The segment’s operating loss again before corporate overhead and write-down was 3.2 million in the 2008 period compared to operating income of 3.5 million in the same quarter last year. Comparative volume for the year decreased by 6.2 million pounds.

Finally, we are all well aware that these times have been challenging for our employees and their family. We are proud of our people and we are grateful for their diligent, team work and dedication. So on behalf of our Board of Directors I would like to thank all of our employees and management personnel for their commitment to the company throughout the year.

Now I would like to say a word on guidance and forward-looking statements. Metalico’s customary practice like many others in our industry is not to provide guidance for earnings estimates. The scrap recycling industry is highly cyclical and commodity metal market have been and continued to be very volatile.

Therefore, we believe it could be misleading to estimate earnings because of the unpredictability, the duration and magnitude of commodity price has been and the related impact on demand for metal by consumers.

Now, word on outlook. While Metalico continues to be optimistic about the long-term prospects for metal consumption and recycling the near-term market environment is still very challenging and we can’t predict when the industry could see improvement. Metalico expect that operating performance during 2009 would be greatly influenced by the following factors.

The receipt of ferrous and nonferrous scraping tool yards across the country continues to well below historic norm and is expected to remain substantially below normal for the foreseeable months. Prices for all grades of ferrous scrap will continue to be volatile and weak while demand for scrap could be spotting to anemic in both domestic and foreign markets.

Nonferrous prices are generally settled in the trading range not seen since March of 2004. Demand for products is sluggish at that most items appear to be moving but are priced unfavorably for recyclers like consumers compared to recent norms.

Demand for Aluminum Deox, however, has recently picked up but is not yet helped in its pricing. Average time and group metal prices dropped by more than 50% from '08 peak but now appear to be finding a trading range and some price stability although at substantially lower level.

Lower platinum prices have severely impacted unit volumes, industry wide as suppliers appear to be holding back soluble metals and in hopes of stronger pressure metal pricing in the future. Also, a reduction of the number of cars being scrapped has contributed to the slowdown in converter recycling.

Average lead prices have continually risen – average lead prices had actually risen modestly from their lows in 2008 but unit volumes are trending lower due to normal seasonal factors coupled with the impact of insufficient credit availability and the recession.

It is evident that the economic downturn has not faired any industry that Metalico’s Lead segment sells to. We have experienced a decrease in demand from the residential to commercial construction industry, the chemical industry, radiation protection and metal refiners to use anodes. One exception appears to be ammunition consumes who are less expensive, less shot has resulted in an increasing consumption by the reloaded and original equipment manufacturers.

I would like to finish with a few words on our industry and our prospects. Our long-term goals has always been to grow the company by making strategic acquisitions while offering premier products and services from our facility. I can’t understand many people believing that the story we are telling today does not lend itself directly to the kind of growth we experienced in 2007 and during the first half of 2008.

With great disappointment we have to acknowledge that our acquisition activity in the scrap metal recycling sector will have to be delayed for some time. The flow of scrap both into and out of recyclers like us has slowed considerably as industrial production demand has fallen.

Likewise the decline in overall business activity is having an effect on our lead manufacturing operations as I said a moment ago. These conditions along with the well documented problems in the banking sector have constrained our access to capital.

Although I have spoken at length this morning about sustaining operations through the downturn we have not forgotten our goal of growth and creating value for shareholders. Everything we've done has been based on our efforts to be in the best position possible to respond to unfolding economic realities. However, today, our principal objective is to get through this hundred year economic storm and come out of it ready to continue building and growing for years to come.

This concludes our prepared remarks. And with that operator I would like to open up the call for any questions we might have.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from Brett Levy with Jefferies & Company. Your line is open.

Brett Levy – Jefferies & Company

Hey guys, what was the year end number for cash and bank loan availability and what is the current number for year end for cash and bank loan availability?

Carlos Aguero

Well, the numbers we gave you are current, the cash balance is approximately $45 today and the availability under the line – under the $60 million line is currently $25.

Brett Levy – Jefferies & Company

So there is some LCs there?

Carlos Aguero

Yes, there is a borrowing power up to $25 million right now.

Brett Levy – Jefferies & Company

Alright and then you said that that the terms were revised, can you give us a sense as to what the new covenants are?

Michael Drury

Brett, this is Mike Drury. We filed an 8K about a week and a half ago and all the information can be found in that.

Brett Levy – Jefferies & Company

Okay, I mean maybe just give me a sense as to sort of maintenance covenants the one that maybe most onerous as you guys look into subsequent quarters, are there any, debt to EBITDA or EBITDA interest maintenance covenants going forward?

Michael Drury

No, there is the traditional covenants you could expect upon in this facility but we are relatively comfortable with the covenants, we work diligently with the banks to establish them and obviously we can’t foresee the future but we feel we are in reasonably good shape.

Brett Levy – Jefferies & Company

Alright, and then, my understanding is that, for a bunch of different grades of scrap, the gathering activity has really fallen dramatically and that I mean basically you could sell it for it doesn’t make sense to buy those grades of scrap. Can you talk about kind of what grades you are experiencing there with and kind of whether you think it’s as bad as it could be right now or could get worse?

Carlos Aguero

Well, its very hard to predict pricing and so we don’t try to and as we said earlier we don’t like to give guidance and currently we can tell you a little bit about what we are seeing that it really depends on what part of the country you are and what grade you are talking about but for example something like machine shop turning happens to be a grade right now that very low in price and very hard to move so sensibly accumulating in the yard but something like number one or plain structural or shred it seeing demand but at lower level and at significantly lower prices than the norm can they go lower, I mean they have been low in the past so certainly they could go lower again, it all depends on what kind of demand you see from the steel mills and how that’s been very weak.

Brett Levy – Jefferies & Company

And in the context of the current market is there an opportunity to ring some amount of money or something out of working capital?

Carlos Aguero

Well we are always working for opportunities to first to reduce operating costs and then to increase or maximize working capital so that’s an ongoing process and we do believe that there is still other areas that we can make some progress in that regard.

Brett Levy – Jefferies & Company

And lastly and then I get back in queue is there a CapEx guidance number for 2009?

Michael Drury

We have not published guidance for 2009.

Brett Levy – Jefferies & Company

Not even for CapEx?

Carlos Aguero

But the easy answer on that is its going to be what absolutely necessary and discretionary stuff will be held back in the interest of preserving capital.

Brett Levy – Jefferies & Company

So what’s the good name and the number for you guys?

Carlos Aguero

Again we are not – it’s more of a function preservation of capital and maintenance and right now we would – we have settled our policy of not going out with any number.

Brett Levy – Jefferies & Company

Thanks very much, guys.

Carlos Aguero

You are quite welcome, thank you for your questions.

Operator

Our next question comes in the line is Eric Prouty of Canaccord. Your line is open.

Eric Prouty – Canaccord

Great, thanks. Guys can you maybe quantify a little bit some of the cost savings that you have implemented maybe if we look at mid December SG&A number of $7.6 million, how much or how many of the charges were in that $7.6 million and then how much do you think have some of these cost savings measures taken out of SG&A?

Carlos Aguero

The charges which we covered a little bit in the discussion is really three categories, a goodwill and intangibles impairment charges of $59 million and inventory charge of $7.8 and accounts receivable and advance charge of $3.5, totaling $70 million. That’s really the crux but in terms of all the costs associated with layoffs and such I'm just going to run through the P&L and a part of the operating loss for the fourth quarter will have to segregate an exact number and get back to you on what that is, I don’t have that number right in front of me.

Eric Prouty – Canaccord

Okay, but could some of the write offs for receivables bad debt et cetera, that’s probably likely to have gone through the SG&A line as opposed to the gross line?

Carlos Aguero

Yes.

Eric Prouty – Canaccord

Okay, so if we are looking at more of a run rate in the $4 million range do you think you are taking out a million of cost with some of these measures that you have talked about in the call here half a million?

Carlos Aguero

Well, we have I think it certainly exceeds our number, we’ll have to get an exact number but we have laid off or somehow one way or another reduced overall personnel by 190 some odd people, 194 persons or 25% of the workforce so its going to be I believe higher than the number you are suggesting but again rather than throw out a number that I don’t have clearly in front of me let us get some calculation on it we can let you know.

Eric Prouty – Canaccord

Sure, now that makes sense. And then you know again just try to get around surround some of the issues in the touch points here you got a variable cost model you feel like add current prices and volumes you can squeeze enough out a cost at least run at a cash flow break even level?

Carlos Aguero

Well, what I can tell you is that everything we are buying and selling we have a margin and the crux of the issue is that that margin first is necessarily big enough and second that the volumes are significantly constrained so even though you may have a good spread on something or deep and spread on something if you don’t have enough volumes that’s really the challenge and that’s hard to predict although on an optimistic point we are going into the warmer weather season now which tends to bring out more scrap so we are hoping that as the weather does warm up it will pick up the volume inbound and obviously on the outbound price and we will be able to cover our costs.

But in terms of where we are our operating cash flow, et cetera, our policy has been not to comment on operations before required filing but I will say that we take all necessary steps to reduce operating costs and we feel that we have been somewhat successful considering that our current cash on hand and the reduction of debt of over $42 million since last August if you look at the reconciliation cash from year end to now starting from the debt payment we are almost flat so I wouldn’t – you can do the math and see there how its been a first quarter significant burn rate there.

Eric Prouty – Canaccord

Sure, okay, great and actually you preempted my next question which is the weather impact that living in Boston I'd say in the northeast at least we probably had about us a bad of a winter as we had in the past?

Carlos Aguero

It’s been a cold long ugly winter, we can’t wait for it to be over, and hopefully we will start to see the signs of increased flow of people into the yards and scrap.

Eric Prouty – Canaccord

Yes, and I won't even ask you to quantify but you believe that beyond the economy weather has been an impact on volumes?

Carlos Aguero

It always is seasonally I think that this year more than ever than.

Eric Prouty – Canaccord

Okay, now that’s fair enough. Finally again you touched on it, but if we look at today’s cash and debt what are the required payments for the debt coming up and is that cash going to be held in reserve or is that more so likely going to be utilized to more aggressively pay down the debt levels?

Carlos Aguero

No, we have some scheduled payments coming up and that the cash will be used to make those scheduled payments and then obviously as I said earlier we want to try to maintain as much operating flexibility as possible which usually translate into you have to conserve your cash.

Eric Prouty – Canaccord

Sure, okay, great, that’s all, thanks guys.

Carlos Aguero

You're welcome.

Operator

Our next question comes from the line of Michael Curly [ph] with McGallan Curly [ph], your line is open.

Michael Curly – McGallan Curly

Good morning

Carlos Aguero

Good morning

Michael Curly – McGallan Curly

With all the only information discussed today do you have anything like that could show us some whole long term future with your company, I mean I have been with you guys for a long time and I have enjoyed the highs and not too much enjoying these lows right now I am sure you are not either but something that showing us that we are moving in the right direction I mean just not getting it?

Carlos Aguero

Well Michael, we share your pain of having suffered through these lows. We have tried to be as candid and straightforward about the economic condition as we see them. I think it would be improper to try to create a basis that we don’t see at a foundation of I think that the next few months, couple of months is going to tell us a lot more whether there is a pick up in demand from the mills and whether there is an increase in flow of scrap and I think that one thing that I would point to that should give you some encouragement is that while price of commodity is not going up rapidly they have ended to – other than for ferrous scrap which has been very weak now in the month of March, other areas such as copper and aluminum and even lead have stabilized into a nice trading range and stability is the first product, stability and pricing I think is the first part of a recovery so we are seeing that so that’s what I can tell you but there is no way that anyone could predict what we are going to see in volumes. I think that is much more of a macro economic issue, but I think if you call the yards all around the county they would tell you the same thing that we have been saying is that the key issue is that there is not sufficient flow into the yards and that there isn’t sufficient demand from the consumers and that’s what needs to improve. I think you can always find a way to live with pricing, but you have to build volumes.

Michael Curly – McGallan Curly

Do you see anything on the long-term horizon?

Carlos Aguero

Well if we didn’t see the downturn coming I wouldn’t want to try to predict a long term horizon rising either but its just we are doing everything we can that’s within our control we try to control the things we can control in, things you can control you just have to deal with them as best as possible.

Michael Curly – McGallan Curly

Well, no, the reason why I was asking you is like you read in the paper its here in the news with Obama’s economic plans stuff about we build in bridges and things like that I mean do you see anything like that coming down the road?

Carlos Aguero

Well all of that whatever is going to have an impact its not going to be immediate so I think you are months away from seeing any sort of significant impact from all of these government program.

Michael Curly – McGallan Curly

Okay, thank you.

Carlos Aguero

Okay, thank you, Mike.

Operator

Our next question comes from the line of Scott Reynolds with Thomas Weisel. Your line is open

Scott Reynolds – Thomas Weisel

Hi, guys, this is Scott calling in for Jeff Osborne.

Carlos Aguero

Hi, Scott.

Scott Reynolds – Thomas Weisel

Quick question, in the quarter, was there any effect from the bonds?

Carlos Aguero

I think there was an effect and I believe it is like $1. – let me see I can get you an exact number, let me read this and see, (inaudible) warrant in the fourth quarter the net effect I think is $1.3 million or $1.4 million net effect.

Scott Reynolds – Thomas Weisel

Alright, so substantially below last quarter?

Carlos Aguero

Yes.

Scott Reynolds – Thomas Weisel

And then on both these Snyder acquisition and the American Cat Con acquisition, is it fair to assume that the volumes there have just declined in the similar measure to what the rest of the business has?

Carlos Aguero

Well I think in the PGM side has declined more than in the ferrous/nonferrous side, that’s what we would frame. Seems that the people who generate platinum group metals or converters tend to hold on to them in times like this waiting for pricing as they can easily be stored the area for cars that lied on and so forth that has seen a significant drop up in supply, but not to the degree that we have seen in the platinum group metal side.

Scott Reynolds – Thomas Weisel

Okay. And I know you guys last quarter broke out your contribution from PGMs to revenue, you probably do that in the K, but could you give it on the call?

Carlos Aguero

We – I don’t believe we broke it out, but I can tell you that sector is still as a standalone factor actually lost money in the quarter and saw the biggest drop in volumes of any of the businesses.

Scott Reynolds – Thomas Weisel

Alright, and then the last question, what’s the driver of the increasing demand for Aluminum Deox?

Carlos Aguero

Well, lot of the mills had been down for a long time and have been utilizing what they had in inventory and there are some mills at least that are positioning themselves for start up and some they have started although at much lower production level and I think they were just completely out, that’s one factor. The second factor we see is that some of our competitors that were supplying into that market have either declared bankruptcy or have curtailed production and so we are getting more calls and we have always been proud of the product we make there we think it’s a very good product and that consumers really like it so I think it’s a combination of all the factors with competitors weakness being an important element of it.

Scott Reynolds – Thomas Weisel

Okay, and the Q4 volumes are obviously very weak, we are about two months or a little bit more than that into the first quarter, can you give us any idea what our volumes look like similar lower higher than 4Q?

Carlos Aguero

Well the tracking all over – the tracking higher than the fourth quarter for sure but currently nowhere near the norms.

Scott Reynolds – Thomas Weisel

Okay, thank you.

Carlos Aguero

You're welcome.

Operator

Well our next question comes from Paul Schaffer with American Metal Market. Your line is open.

Paul Schaffer – American Metal Market

Yes, is there a serious possibility that you, that one or more of your facilities might be closed down permanently?

Carlos Aguero

Well we have mentioned earlier that we had temporarily idled facilities depending on demand and idled particular parts of operation, for example, the Deox manufacturing was idle for a couple of months and its now back running at full production, we will see based on demand how long we need to keep it. The shredder in the Pittsburgh market area has been intermittently on and off depending on demand. No need to be producing if you are not able to sell it so in terms of permanent we don’t see anything significant, any significant or major assets with permanent closure and when and if we do then that will be something that we will report.

Paul Schaffer – American Metal Market

Okay, thank you.

Carlos Aguero

You're welcome.

Operator

(Operator instructions) Our next question comes from Nat Kellogg with Next Generation. Your line is open.

Nat Kellogg – Next Generation

Hi, guys, how are you doing?

Carlos Aguero

Hi.

Nat Kellogg – Next Generation

Can you guys just talk maybe a little bit about the linearity in the fourth quarter but I know things sort of fell apart I heard you guys went through pretty much all December not shipping and also I was just wondering if you could talk about what October versus November versus December looks like for you?

Carlos Aguero

Well, the easy way, the fourth quarter was the quarter that never was and I think that just not – not just for us but pretty much for many, many operations in many different types of industry. I think we got progressively worst each month it went along starting September into October, November and December, and December, American industrial production or let’s say activity was basically I think shut down, the easiest way to describe it. In January it started to see some life and we are hoping that we will, as I said earlier, the weather start to warm up we will continue to see a little bit more of a pick up.

Nat Kellogg – Next Generation

Okay, and then if I go back a couple of years ago you guys obviously were nicely profitable business much lower prices, but it sounds like its really got no but obviously volume was better back in '05 '06 and than you did today and so I mean I guess saying its you guys would obviously if you had to choose between the two you choose for volume over price (inaudible) pick up?

Carlos Aguero

Well, a more pricing and steady volume is really the formula you need. The volatility in pricing hurts you and certainly the impact of not getting the flow into the yards means that you can’t sell particularly if you don’t have the consumer demand so the stability in price and a steady flow and a steady demand by consumers is really what you need as the formula to return to profitability on a steady basis.

Nat Kellogg – Next Generation

Okay. And then can you just talk a little bit sort of the what’s going on in the used car market as far as it sounds like obviously there is supply of used cars is drying a little bit as people try and (inaudible) what not, can you just give us a little color on what you guys are seeing there and if that might improve at some point?

Carlos Aguero

I don’t have much on it, but I think Mike Drury want to make a comment on.

Michael Drury

Yes, if you look last year when the demand was earning high and price was pretty strong, a car that had value with $1,500 you could actually scrap it and realize that value. They obviously can’t do that because the scrap value just aren't there. That car is staying on a longer and as it is well documented in the auto industry people are just not buying the same number of new vehicles that they were in the past so both are hanging on to their cars longer and running what would have been a junker, six months ago, nine months ago running it as a good operating unit today so the volume is definitely smaller.

Carlos Aguero

Yes, but we don’t have any (inaudible) data on used car sales, that’s not something we're involved in.

Nat Kellogg – Next Generation

Yes, that’s right, if I know I wouldn’t expect that I just know that’s very helpful. And then can you guys just talk a little bit about the competitive environment, I mean our guys closing up shop or people going out of business I mean how this is affecting maybe the some of the smaller guys out there?

Carlos Aguero

Well, I think there is a lot of winter hibernation going on and we will see again there is a weather turn people start to come out of it. Earlier in the year with the very high commodity prices a lot of small and mid size and large operation got a chance to make a lot of money with record pricing on ferrous ton in May, June and July I guess, so it has given people more than ability to withstand or hold up in the face of this downturn in this reduction of volumes. How long that staying power is its very hard to say, so that kind of what we are seeing.

Nat Kellogg – Next Generation

Okay. And then I guess just last question it sounds like you guys have obviously worked pretty hard to sort of get yourselves on a position that you can withstand or have a little bit of a tough running here, but I mean how long you know these kind of operating levels do you guys started to get worried just giving financial flexibility and the debt load and all the rest of it, I mean if you guys survive it a year of this type of activity level?

Carlos Aguero

Well that’s a very difficult question to answer because one thing is certain is that nothing ever kind of stays the same that always changes so we are hoping that the changes we see will be positive and that will help us to get through it. The more those changes become negative changes with lower pricing and still no pick up in volume we make that actual price a lot more difficult to complete successfully so its we are actually working as hard as we can trying to be as conservative as we can and hoping that there is an impact to the world economy as a positive one, but that’s all we can say, we don’t – again we don’t try to predict or project where things will be, but we do know that it will change, I wont say the same one way or the other.

Nat Kellogg – Next Generation

Right, fair enough. And then just last question on the debt covenants that you guys have I assume that you get stripped out that non cash charges when you guys are calculating that for covenant test?

Carlos Aguero

Yes, it’s an EBITDA covenant, yes, that’s right.

Nat Kellogg – Next Generation

Okay. And that strips out the goodwill (inaudible).

Carlos Aguero

Alright.

Nat Kellogg – Next Generation

Okay, alright, thanks, that’s all I got. Thanks very much guys, I appreciate.

Carlos Aguero

Thank you.

Operator

(Operator instructions) We have no more questions left there.

Carlos Aguero

Okay, as we have done in the past we will wait up to 60 seconds, if there are no further questions then we will conclude our call. No other questions operator?

Operator

We have no other questions sir.

Carlos Aguero

Okay, well I just want to thank all of you for joining us today and for your interest in Metalico and its development, we certainly look forward to speaking with you again when we present our – we go through the first quarter of 2009 sometime in late April. Thank you very much and have a wonderful day.

Operator

Thank you, you do as well sir.

Carlos Aguero

Thank you.

Operator

And this concludes our Metalico 2008 results conference call. You may now disconnect your lines.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Metalico, Inc. Q4 2008 Earnings Call Transcript
This Transcript
All Transcripts