Universal Stainless & Alloy Products Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 25, 2023

There are 7 speakers on the call.

Operator

Thank you for standing by, and welcome to the Universal Stainless Alloy Products Inc. 3rd Quarter 2023 Conference Call and Webcast. At this time, all participants are in listen only mode. After the speakers' presentation, there will be a question and answer session. As a reminder, today's program is being recorded.

Operator

And now I'd like to introduce your host for today's program, June Filangeri. Please go ahead.

Speaker 1

Thank you. Good morning. This is June Filangeri of Comm Partners. And I also would like to welcome you to the Inversal call and webcast. We are here to discuss the company's Q3 2023 results reported this morning.

Speaker 1

With us from management are Denny Oates, Chairman, President and Chief Executive Officer Chris Zimmer, Executive Vice President and Chief Operating Officer John Arminis, Vice President and General Counsel and Steve DeTomaso, Vice President and Chief Financial Officer. Before I turn the call over to management, let me quickly review procedures. Also, please note that in this morning's call, management will make forward looking statements Under the Private Securities Litigation Reform Act of 1995, I would like to remind you of the risks related to these statements, which are more fully described in today's press release and in the company's filings with the Securities and Exchange Commission. With the formalities complete, I would now like to turn the call over to Denny Oates. Denny, we are ready to begin.

Speaker 2

Thanks, Jim. Good morning, everyone. Thanks for joining us today. Our Q3 performance essentially met our short term expectations, both top line and bottom line. Let me hit some of the highlights.

Speaker 2

Total sales of $71,300,000 were the 2nd highest quarterly sales on record. Premium Alloy sales grew 28% sequentially, putting us on track for a record 2023. Our gross margin expanded to 15.2 percent of sales, the highest since the Q2 of 2018 despite commodity headwinds. Operating income increased by 43% from the 2nd quarter. As a result, our net income doubled sequentially to 1 point and was 1.5 times greater than the Q3 last year.

Speaker 2

Inventories were reduced $800,000 and managed working capital remained at 53% of sales despite the sales growth and high backlog. Capital spending was $3,000,000 with major projects on time and within budget. Lastly, we reduced debt by another $3,800,000 to $89,500,000 while liquidity improved to $31,000,000 on There were 5 main drivers of our 3rd quarter performance. First, a richer product mix, mainly more premium alloy sales and aggressive mix management of our air melded portfolio. 2nd, higher base selling prices.

Speaker 2

We've implemented 15 base selling prices since late 2021. The P and L benefit of these increases will continue to grow as we move through the next several quarters. 3rd, Increased production levels with well controlled fixed overhead spending. Production is running about 15% ahead of last year as we strive to ramp up operations. 4th, my compliments to the manufacturing team on setting several monthly production records, especially in our VacuMark remelding operation in North Jackson and the intermediate bar cell at our Dunkirk facility, which you'll recall we installed just before COVID.

Speaker 2

Our Dunkirk plant also set a new monthly finished bar shipping record in September. 5th, Our focused efforts to improve yields in recent years are also beginning to pay dividends, particularly in our Bridgeville plate products and growing finished round bar products. Turning to the order book. Order entry was up sequentially on strong aerospace demand, and order backlog remains $345,000,000 before surcharges. Premium products represented 37% of our backlog.

Speaker 2

Our strong backlog and demonstrated positive trends in operations gives us confidence in continued sequential improvements in performance. One additional very important update. I'm also pleased to announce that our Board, as a part of its leadership succession plan, Unanimously named Chris Zimmer as our new President and Chief Executive Officer effective November 1. Chris is a 15 year Universal veteran. He joined Universal as Vice President of Sales and Marketing and currently serves as Executive Vice President and Chief Operating Officer.

Speaker 2

He knows our company inside and out, and he's well established as a leader in the specialty metals industry. As I stated in our release this morning, I have confidence that Chris' leadership working in concert with the senior management team sets the stage for Universal to have a very exciting future. On a personal note, I will be transitioning to Executive Chairman of the company, focusing on a smooth leadership transition, longer term strategic issues and my normal Chairman responsibilities. So Chris, congratulations. I look forward to supporting you and the team as you assume your new responsibilities.

Speaker 2

I'll turn it over to you for your review of operations.

Speaker 3

Thank you, Denny. I appreciate your kind words and I'm grateful for your ongoing support. I'm deeply honored to take on this leadership role and for the Board's confidence in me. This is an exciting time and I'm looking forward to continuing the work with our talented management team to execute our long term strategy and profitably grow our business. And now turning to my operating report.

Speaker 3

Let me start with our capital project at the North Jackson plant, where we're adding 2 VAR furnaces. We're now in the final commissioning and technical validation phase with full integration into operations to begin in the Q1 of 2024. Once complete, the project will increase our VAR capacity by 20%. VAR capacity was a pinch point for us back in 2018 2019. The new VAR furnaces have better technology and better controls that will mainly be used for premium alloy production.

Speaker 3

Premium alloys are the critical platform for our growth strategy. As Denny highlighted, our 3rd quarter premium alloy sales increased 28% from the 2nd quarter. They were double the level of Q3 of 2022 and they were up 83% year to date. Production levels at our remelt shops, hot working mills and major finishing units all continue to improve sequentially. As we already announced on September 1, we reached a new 5 year agreement with the hourly employees at our Bridgeville plant.

Speaker 3

Companywide, our employment stability continues to improve as our labor headcount has increased 5% since the end of the second quarter. Turning to commodities. Nickel Ratcheted down another 4% in the Q3, closing at $8.90 the lowest level in 2 years. While the strong aerospace market and electric vehicle industry are a source of growing demand for nickel, supply is outpacing demand due to Indonesian production, which is up 50% in just 3 years. Continued weakness in the Chinese economy is adding additional pressure.

Speaker 3

In fact, nearly every metal tracked declined sequentially in the quarter, including scrap, which fell by 11%. It's worth noting that the prime scrap market in the Pittsburgh region stabilized in October and is expected to gain traction during the rest of the year. As anticipated, we saw negative surcharge misalignment in Q3 and we expect misalignment in the Q4 to moderate. Let's turn to end markets, beginning with aerospace, our largest market. Aerospace sales increased 5% in the Q3 of 2023 to a new record of $54,000,000 or 76 percent of sales.

Speaker 3

They were up 71% from the Q3 of 2022. Year to date sales reached $154,200,000 a 58% increase from the same period of 2022. Demand for our aerospace products remains robust in the Q3 and that level of demand continues to grow. The demand drivers remain the same. Air traffic continues to recover and is on the verge of a full recovery back to pre pandemic levels.

Speaker 3

Airlines continue to place substantial orders for new, more fuel efficient planes as they upgrade and expand their fleets to meet customer demand. As a result, order books at Boeing and Airbus extend past the end of the decade and both are continuing to press hard to increase production levels. Looking at recent developments at the airplane manufacturers, Boeing delivered 105 airplanes in the 3rd quarter, including 69 of the 7 37 MAX and 19787 Dreamliners. Deliveries in September were lower than expected because they needed to fix and inspect thousands of holes in the 7 37 MAX bulkhead that were drilled improperly. Last week, Spirit entered into an agreement with Boeing to achieve production stability at its facilities and support higher deliveries.

Speaker 3

Boeing has provided funding for tooling and capital through 2025 for planned and potential 7 37878787 rate increases. Boeing's 3rd quarter activity was strong totaling 321 commercial planes with 207 37 MAXs and 120 787s. By the end of the quarter, Boeing's commercial backlog had increased 4% to 5,172 planes. September was the 1st month since December of 2019 that their backlog surpassed 5,000. Boeing has reportedly laid out an aggressive build rate plan for their 737 and a master schedule for its suppliers that it reaffirmed in their earnings release today.

Speaker 3

The plan calls for a production rate of 38 per month by the end of the year with plans to increase to 50 in the 2025 to 2026 timeframe. The 7/87 7 program is now transitioning production to 5 per month and plans to increase to 10 per month in that 2025 to 2026 timeframe. Meanwhile, Airbus delivered 172 aircraft in the 3rd quarter and won total orders of 200 new planes. Airbus plans to deliver 7 20 planes this year and its current production rate is estimated for 48 per month. In the company's 2nd quarter report, Airbus said that production of the A320 family was progressing well towards the previously announced rate of 75 per month in 2026.

Speaker 3

On wide bodies, Airbus continues to target a rate of 3 A330s per month in 2024 moving to 9 A350s per month by the end of 2025. Looking at the data supporting the demand for new aircraft, IATI reported total traffic in August of 2023 rose 28% from August of last year. Global traffic is now at 96% of pre COVID levels. That included a 30% increase in international traffic versus the same period a month ago, the same month a year ago with all markets demonstrating double digit gains year over year. Domestic travel has reached 109% of August 2019 levels.

Speaker 3

It's also reflected in the TSA daily passenger screening count, which exceeded $2,700,000 on October 22 versus $2,500,000 on that date in 2022 at 2.5 back in 2019. Looking at the airlines, all three of the major U. S. Carriers reported record 3rd quarter revenues. Delta Air Lines saw 6% higher domestic travel and 35% higher international travel and said strong demand is continuing into the 4th quarter.

Speaker 3

United Airlines also reported higher domestic and international traffic year on year. American Airlines attributed their growth to a resilient demand environment. All three airlines referenced the spike in fuel costs, which reinforces the case for newer, more fuel efficient airplanes. The defense industry has been in sharp focus given the war in Ukraine and the tragic attack by Hamas in Israel. Needless to say, market demand remains strong.

Speaker 3

Lockheed Martin reported better than expected 3rd quarter results along with a record backlog for both domestic and international customers. An area of focus is their next generation F-thirty 5 jets, which they expect to begin delivering in the spring. Additionally, the State Department has green lighted a $5,000,000,000 sale of 25 F-thirty 5 jets to South Korea subject to congressional approval. For Universal Stainless, The opportunities in commercial aerospace and defense are both substantial and continuing to increase as we execute our initiatives to expand our portfolio of products and approvals. With our increased premium alloy portfolio, we are growing our presence in the engine side of the airplane and winning new business.

Speaker 3

More approvals from the primes have led to stronger order entry. Overall, the supply chain remains in a pull mode and strong demand is expected to continue well into 2024 and beyond. The heavy equipment market remained our 2nd largest market in the Q3 of with sales of $8,900,000 or 13 percent of sales, which is level with the 2nd quarter and 44% higher than the Q3 of 2022. Year to date sales of $24,800,000 rose 15% from the prior year period. Metal fabrication demand drives our heavy equipment market sales, mainly for automotive applications, especially model changeovers.

Speaker 3

We said last time that we expected our sales to that market to remain solid in the Q3 and that was the case. However, we've also noted tool steel plate demand can be lumpy. While the automakers report strong 3rd quarter sales with an estimated 3,900,000 cars and trucks sold in the period, The prolonged UAW strike actions against GM, Ford and Stellantis have been disruptive to their operations. As a result, our customers are showing signs of caution and we expect some softening in our heavy equipment sales in the 4th quarter. Once the strikes are resolved, we expect quarterly sequential growth throughout 2024 to return as they have in normal years.

Speaker 3

The general industrial market remained our 3rd largest market in the Q3 of 2023 with sales of 3,300,000 were 5% of sales, which is up 3% from the Q2 of 2023 and up 50% from the Q3 of last year. Year to date sales rose 35 percent to $10,100,000 Our general industrial sales are mainly for semiconductor manufacturing. In their latest report, the Semiconductor Industry Association reported that semiconductor sales improved for the 6th consecutive months in August, providing optimism for continued momentum in the months to come. We said last time that we were bullish about 2024 with Sales to the oil and gas market totaled $2,600,000 or 4% of sales in the Q3 of 2023, a decrease of 15% from the 2nd quarter and 30% lower in the Q2 of the Q3 in 2022. Year to date sales of $10,400,000 were 18% lower than the same period of 2022.

Speaker 3

As was the case in the Q2, the decline in our Q3 oil and gas sales reflects our decision to temporarily shift more of our production to higher margin aerospace products. Last quarter, Baker Hughes, Halliburton and SLB, formerly Schlumberger, All said that they expected softness in the U. S. Land market to continue in the second half of twenty twenty three. That was borne out in Baker Hughes' 3rd quarter rig count data with U.

Speaker 3

S. Oil rig count falling 9%, while the gas rig count was down 15%. Let me emphasize that our shift away from oil and gas is temporary. We intend to fully resume servicing our customers in that market as our production levels continue to increase. Power Generation market sales totaled $700,000 or 1% of sales in the Q3 of 2023, down 46% from the 2nd quarter and 54% lower than the Q3 last year.

Speaker 3

Year to date sales of $3,100,000 were down 38%. As is the case in oil and gas, we have temporarily shifted finishing capacity away from the power gen market to Aerospace Applications. We primarily serve the gas turbine maintenance market and intend to do so going forward. Now let me turn the call over to Steve for his report on our financials.

Speaker 4

Thank you, Chris. Good morning, everyone. Our Q3 sales reached $71,300,000 the highest level in the past 10 years, driven by growth in our premium products and our aerospace end market and by increasing base prices. Our premium product sales totaled $16,500,000 which is our 2nd highest ever, 2nd only to the Q1 of this year and our Aerospace sales of $54,000,000 reached a record level. Year to date, our premium product sales through 9 months totaled 47,000,000 which is more than any previous full calendar year and compares to $25,700,000 in the 1st 9 months of last year.

Speaker 4

That increase is driven by a more than 50% increase in the volume of our premium shipments, plus a more than 20% increase in the average price per pound of these products. 3rd quarter gross margin of 15.2% was almost a full point better than the 14.3% achieved in Q2 Despite misalignment of $1,800,000 between our sales price surcharge and our materials costs, holding back margin by an additional 200 plus basis points. Consistent with our plan, Margin has expanded each quarter this year as a result of higher base prices, more shipment volume, a richer shipment mix and higher production. Selling, general and administrative costs totaled $6,400,000 in Q3, down from $6,800,000 in Q2 and approximately in line with the Q1 of this year. Year over year SG and A expenses increased due to higher property insurance costs and higher employee related costs, but is 9.5% of our sales for the current year to date compared with about 10.5% last year.

Speaker 4

Operating income of $4,400,000 is also a sequential increase and at its highest level Since the Q3 of 2018, interest expense increased in Q3 and totaled $2,100,000 compared with an even $2,000,000 in both the 1st and second quarters this year. The increase is due to persistently high interest rates, partly offset by lower average borrowing levels in Q3 versus Q2. Our pre tax income of $2,200,000 resulted in net income of $1,900,000 or $0.20 per diluted share outstanding and our effective tax rate for the quarter of 13.4% continues to primarily reflect a federal statutory rate of 21% adjusted for the impact of research and development tax credits earned. State income taxes and discrete items impacting the quarter are not significant. EBITDA was $9,200,000 a $1,600,000 increase compared to last quarter, While adjusted EBITDA was $9,500,000 the highest since the Q3 of 2018.

Speaker 4

The reconciliation of adjusted EBITDA for each period presented is provided in the tables to the press release. During the Q3, we generated $6,700,000 of cash from our operations. While growing receivables on high September sales and decreasing our inventory despite the sales increase and our robust backlog. In total, we have generated $17,800,000 in cash from operations in the current year to date. We used $9,700,000 of that cash on capital expenditures and the rest to pay down our debt.

Speaker 4

2nd quarter capital expenditures were $2,700,000 We expect full year CapEx to come in between $14,000,000 $16,000,000 with about half of that total going to our investment in remelt capacity at our North Jackson facility, where we are commissioning the 2 new VacuMark remelt furnaces. Regarding our financial position as of September 30, Total debt was $89,500,000 down $3,700,000 this quarter and nearly $9,000,000 compared with the end of last year. Revolver availability increased to about $31,000,000 compared to $24,000,000 last quarter. Managed working capital increased by $3,200,000 sequentially, despite a $5,700,000 increase in accounts receivable. Managed working capital decreased as a percent of annualized sales to 53%.

Speaker 4

Our days sales outstanding ratio this quarter increased to 47.7 days compared to 41.3 in Q2, but our underlying collection cycle in both periods was similar. Sales were back end loaded in Q3 and we continue to target a collection cycle in the low 40s. And inventory at the end of the quarter was modestly down versus Q2. In summary, we have delivered 2 consecutive quarters of positive earnings while paying down debt and expanding our liquidity. Our backlog remains strong and we continue to increase production levels.

Speaker 4

We expect to continue this momentum in the Q4 and into 2024. That concludes my financial report. And I'll hand the call back to Denny.

Speaker 2

Thanks, Steve. So we were pleased with the 3rd quarter results, but we are very far from being satisfied. We're looking at the Q4 and on into 2024 with growing optimism. That optimism is based on a number of things. Our near record backlog of $345,000,000 which contains 37% high margin premium products.

Speaker 2

Our evolving product mix changed towards more premium melded and finished bar products, both higher margin product lines. Our growing capture of base price increases embedded in our backlog will add to margin expansion directly with each passing month. Commodities appear to be stabilizing, as Chris said, which will reduce the negative misalignment experienced over the past couple of quarters. Plant activity levels are increasing and plan to continue to increase, providing the opportunity for better fixed cost coverage and variable cost reduction. Process improvements are generating benefits in terms of productivity per equipment hour and in higher product yields.

Speaker 2

Our capital project to add much needed VacuMark remelt capacity is wrapping up and will be ready for service early next year. We are seeing slow, steady improvement on the labor, supply chain and inflation fronts. Most importantly, I'm confident that the leadership of Chris and his senior management team, along with the talent and commitment of the roughly 700 Universal employees, is a powerful formula for future success, and I look forward to working with them in my new role. Lastly, I want to thank our Board, stockholders and all of our employees for your support, advice and counsel during my almost 16 year tenure as Universal's President and CEO. It has truly been an honor and a pleasure.

Speaker 2

With that, we'll conclude our formal remarks. Jonathan, we're ready to take some questions.

Operator

Our first question comes from the line of Phil Gibbs from KeyBanc.

Speaker 5

Hey, good morning.

Speaker 2

Good morning, Phil. How are you doing?

Speaker 5

Good. Congrats,

Speaker 2

Chris. Thank you, Phil. I appreciate it.

Speaker 3

Sure. Thank you.

Speaker 5

And then on the gross margin piece, I think you teased out $1,800,000 of misalignment. And I know at least on the for the flat roll guys, some of the Nickel and stainless surcharges declined for the November month, so still heading down. Is that factored into your forecast that you still would expect some easing misalignment?

Speaker 3

Yes. It the rate is actually slowing. So we do expect to see it in the Q4, but likely not to the degree that we did in the Q3.

Speaker 5

And then on the CapEx side, is the roughly $15,000,000 spend outlook Still intact for the year and we assume that within that number about half of that is related to maintenance and Also as we look out into 2024, seemingly the CapEx is going to stay around the same levels given the investments that you have on the docket?

Speaker 4

Yes, Phil, that's correct. So the number for the current year will come in right around $15,000,000 Could be a little more, could be a little bit less depending on the timing of wrapping up some projects here. About half of that 2023 number is related to the growth CapEx, installing and commissioning the new VARs in North Jackson. So the rest of it is maintenance type or smaller strategic type CapEx projects that aren't quite as Individually largest that re meld expansion. And then the second part of your question for 2024, yes, we expect similar CapEx levels in 2020

Speaker 5

And then on the labor side, you mentioned in your prepared remarks, you said things are Easing in terms of some of the constraints out there that you see, where are you all in terms of your specific situation and are you expecting to increase your headcount further or are you going to be some spot at this point?

Speaker 3

Yes, Phil, it's getting better. We're not quite exactly where we want to get to. Stability is improving. We're shifting more of those Onboarding customers into core workers that give us the type of safe working conditions and productivity that we expect going forward. I suspect we'll probably add a few more heads.

Speaker 3

We're not quite done staffing up the plants the way that we want to have them staffed. Well, when I think back to where we were a year ago versus where we are today, it's absolutely a better environment. And every quarter that goes by we continue to get more stability. So I think we're really close to getting to that level we want to get to. And as these new customers that have come on board Continue to mature in their roles, productivity is going to continue to improve as we stabilize headcount.

Speaker 5

Thank you. And then just lastly, you've done a good job Maintaining a nice base level of inventory as you've grown your volumes over the last couple of quarters. What's the outlook that you have for net working capital over the balance of the year and maybe into early next year and inventory specifically?

Speaker 4

Thanks. So Net working capital may grow modestly in the future, mainly on higher receivables related to our higher sales outlook. Inventory, the mix is going to shift a little bit to more premium product, which has some upward pressure on the inventory dollars. We are trying to continue to manage our turns improvement. So we improved turns in 2023.

Speaker 4

We're continuing to focus on that and we will be looking to keep that inventory dollars line as flat as possible as we step through 2024. So that's the goal. So implicit in there will be a modest increase in managed working capital, but But certainly continued improvement as a percent of our sales line.

Speaker 5

Just sneak one more in for Chris Specifically, Chris, I know you work a lot on the commercial side and product development along with the rest of the team. As it relates to your comments regarding winning new business with the jet engine manufacturers, I would think that that's Part of the reason why you're investing in North Jackson a little bit more heavily, maybe kind of talk about that evolution and How you've gotten here and then what gives you confidence that you can continue to build that moving forward? Thank you.

Speaker 3

Yes. One of the benefits of this environment that's been extremely strong, demand has snapped back coming out of COVID, is The focus that the primes that we've been working with to point their engineering resources towards approvals It has been as good as it's been since we purchased North Jackson back in 2011. So we developed a lot of these products early on, but it's really only Been in the past 18 months to 24 months where a lot of the prime approvals have started to come in. That's opened up the door for us to start booking new business for these alloys and it's one of the primary drivers of our backlog and it's starting to show up now in our shipments. So that's really been the game changer has been the Prime's willingness and their focus to mitigate risk in their supply chain, Bring us on as a new supplier and this is for a number of different primes and applications.

Speaker 3

So that's the part we're really excited about, really being able to fulfill The potential of North Jackson and I think we're going to realize that in 2024 and moving forward. The capital that's going into North Jackson When we talk about the VARs and a couple of other smaller projects, really round out some of the pinch points. They paved the way for us to continue to grow. So the majority of those assets are already in place. We still got capacity to grow on a number of them.

Speaker 3

So the capital is really focused towards our ability to We'll execute that growth and continue to serve customers. So that's the primary thing that I would say is what's changed What's really got us excited about rounding out this year and heading into next year is we've got this big backlog to work against.

Speaker 5

Any way to size up the revenue potential of the premium alloy business or North Jackson as you look out a couple of years? And then how much of that would be dedicated generally speaking to the engine guys? That's my last one. Thanks.

Speaker 3

Yes, I think when we look back historically, we talked about what that investment in North Jackson can mean. We've talked about incremental sales of $100,000,000 has been the historical number that we've talked about at very rich premiums from a margin standpoint. The markets continue to evolve. I would say that that number is probably closer to $120,000,000 to $130,000,000 at this point. And that expectation for solid margins remains intact.

Operator

One moment for our next question. And our next question comes from the line of Bob Sales from LMK Capital Management. Your question please.

Speaker 6

Hi, thanks. Just one question on the premium alloys with premium alloy products With 28% of the revenue in Q3 being premium And the backlog containing 37%, do you have Any sort of quantitative guidance for us in terms of what you're planning towards with premium alloys as a percentage of revenue or total dollars in Q4?

Speaker 3

Yes. We expect that to range between 25% to 30%. Right now with lead times, the backlog appears to be higher because we do have a number of products that we continue to book with shorter lead times. So even though the backlog contains 37%, that shows the richness that's there and the promise that it is coming. But there's a number of products that we'll continue to book into 2024 that should bring us back down around that 25% to 30% range going forward.

Speaker 6

Got it. Got it. Okay. And then on the misalignment of commodity prices with did you say it was $1,800,000 in the

Speaker 4

Yes, that's correct.

Speaker 6

Do you again, can you be if commodity prices Stayed where they are now, can you offer any precision as to how much better they might look in Q4?

Speaker 4

There are a few moving parts in there, but a rough cut would be about half of what we experienced in Q3 would recur in Q4 from continual decline in our surcharges.

Speaker 6

Fantastic. And do you expect to be able to make any more progress against inventory to bring it down given the, I guess, sort of inventory Headwind of having more premium alloy in the mix?

Speaker 4

So, yes. So we are focused on continuing to improve our volumetric turns, because we will have a higher mix of premium alloys And our WIP inventory in the coming quarters, that comes with a higher dollar amount. So it will provide a little bit of a headwind there that you acknowledge. But As we look out in 2024, we want to manage against that and keep inventory as flat as possible. So we're not planning on that driving a big increase in the inventory dollar line item.

Speaker 6

Yes, got it. And then last question is, when you talked about the Product approvals starting to flow into the order book given that you've been working on them for a while. Are those approvals skewed towards commercial or defense one way or the other?

Speaker 3

There's a healthy mix. I think the majority of it, that's what we're able to identify go towards commercial applications. But as we sell into the engine manufacturers, for example, a number of the alloys that we're Qualified on now and supplying into can go into applications that will show up on commercial airplane and they go into defense applications both on Fighter Jets and Rotorcraft. Rough cut when we look at where we believe our metal is going to and again the visibility can Challenging because 75% of our sales flow through service centers and forgers. But we believe that close to 3 quarters Our volume is going towards commercial applications and the balance going towards military applications.

Speaker 6

Got it. Okay. Great performance. Congratulations.

Speaker 4

Thank you.

Speaker 3

Thank you.

Operator

And this does conclude the question and answer session of today's program. I'd like to hand the program back to Mr. Oates for any further remarks.

Speaker 2

Thanks, Jonathan. Once again, thank you for joining us this morning. We continue to execute on our strategy in the Q3, and we remain optimistic about the Q4 in We look forward to updating you on that progress on our next call in January. In the meantime, please enjoy your holidays, be well and stay safe. Have a good day.

Operator

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect.

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Earnings Conference Call
Universal Stainless & Alloy Products Q3 2023
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