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UF

Unique Fabricating, Inc. (UFABQ)·Q2 2022 Earnings Summary

Executive Summary

  • Q2 2022 net sales were $35.0M (+13.4% YoY), with gross margin of 15.0%; results were dominated by a non-cash $12.2M goodwill impairment, a $3.0M Employee Retention Credit (ERC) benefit, and $1.2M operational costs from LaFayette, GA issues .
  • Management reduced second-half 2022 revenue guidance to $71–$75M (from $75–$79M) and now guides FY 2022 to $141–$145M and FY 2023 to $169–$175M; H2 2022 Operating EBITDA guided to $3.0–$3.5M and FY 2023 to $11.5–$13.5M .
  • Liquidity remained tight: cash was ~$0.6M, total debt $47.7M, and revolver availability ~$4.3M; the ongoing forbearance agreement continues to constrain new transportation wins, despite ~$46M YTD COI secured across markets .
  • Stock narrative catalysts: operational remediation at LaFayette eliminating expedites by August, targeted cost recovery with a cumulative >$10M annualized benefit starting August, and diversification into EV and onshoring consumer/medical demand .

What Went Well and What Went Wrong

  • What Went Well

    • “Our comprehensive cost recovery activities… will be fully realized in August with a cumulative more than $10 million annualized benefit” and continuing COI wins of ~$46M YTD including three high-volume EV applications .
    • Gross margin improved to 15.0% (from 13.5% in Q1) aided by $2.5M ERC in COGS and $0.5M in SG&A, plus higher volumes and pricing actions .
    • Appliance and consumer/medical pipeline strength with onshoring interest; targeted customer rationalization reduced complexity with minimal revenue impact .

  • What Went Wrong

    • $12.2M non-cash goodwill impairment and $1.2M unexpected operating costs at LaFayette (expedites $0.8M, labor inefficiency $0.4M), materially impacting operating income and net loss .
    • Forbearance “cloud” constrained transportation COI wins; H2 2022 revenue guidance reduced to $71–$75M with Operating EBITDA only $3.0–$3.5M .
    • Persistently high input costs (materials, energy, packaging) and labor challenges; material cost baseline trending ~52–53% of sales until cost curve bends late Q4/Q1 .

Financial Results

MetricQ2 2021Q1 2022Q2 2022
Revenue ($USD Millions)$30.896 $35.312 $35.032
Gross Profit ($USD Millions)$4.616 $4.778 $5.243
Gross Margin (%)14.9% 13.5% 15.0%
SG&A ($USD Millions)$6.081 $4.972 $4.241
Operating Income (Loss) ($USD Millions)$(1.465) $(0.194) $(11.161)
Net Income (Loss) ($USD Millions)$(2.509) $(0.569) $(10.711)
Diluted EPS ($USD)$(0.26) $(0.05) $(0.91)
Non-GAAP / Balance MetricsQ1 2022Q2 2022
Operating EBITDA ($USD Millions)$1.265 $2.421
Cash and Equivalents ($USD Millions)~$0.8 ~$0.6
Total Debt ($USD Millions)$47.0 $47.7
Revolver Availability ($USD Millions)~$5.2 ~$4.3

Segment/Market Mix (% of Sales):

MarketQ4 2021Q1 2022Q2 2022
Transportation~88% ~89% ~89%
Appliance~10% ~9% ~9%
Consumer/Off-Road & Medical~2% ~2% ~2%

KPIs and one-off items:

KPIQ1 2022Q2 2022
COI (Customer Order Intake, YTD) ($USD Millions)~$31 ~$46
ERC recognized ($USD Millions)$0.0 (Q1) $3.0 ($2.5 COGS, $0.5 SG&A)
Goodwill impairment ($USD Millions)—$12.163
LaFayette extra costs ($USD Millions)—$1.2 ($0.8 expedites, $0.4 labor)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net SalesH2 2022$75–$79M $71–$75M Lowered
Net SalesFY 2022$145–$152M $141–$145M Lowered
Net SalesFY 2023$169–$179M $169–$175M Narrowed/lowered high end
Operating EBITDAH2 2022Not provided $3.0–$3.5M New
Operating EBITDAFY 2023Not provided $11.5–$13.5M New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’21 and Q1’22)Current Period (Q2’22)Trend
Supply chain and chip shortagesPersistent raw material/logistics inflation; SAAR softness; forbearance constraints; expecting SAAR improvement; early cost recovery phases Seeing flattening of raw material/packaging cost curve; expecting some decreases late Q4; SAAR ~14.0M; 2022 production ~14.7M Stabilizing; cost curve bending down
Cost recovery and pricingPhase 1–2 underway; targeted program-specific recovery; expected >$2.0M annualized by end Q2 Pivoted to targeted approach; cumulative >$10M annualized benefit fully realized in August Accelerating impact
LaFayette, GA operationsNot highlighted priorOne-off $1.2M costs; leadership and maintenance changes; expedites eliminated by Aug; productivity improved Remediated
Forbearance and liquidityGoing concern disclosure; covenant waivers; forbearance extensions; constrained transportation COI “Cloud” continues hampering certain wins; working on long-term bank solution Ongoing headwind
Diversification (Appliance/Consumer/Medical)Strength in GE appliance; onshoring; 30% of YTD COI non-automotive; EV content growth Increased quoting; multiple customers seeking onshoring from China; medical/appliance COI targets Positive momentum
EV programsAwards across major EVs; expect EV share 5% in 2022, 6% in 2023 New NVH nominations for three high-volume EVs with Tier 1s Building pipeline
Material cost mixInflation elevating material %; target longer-term GM improvement (to 16%+ H2’22, 18% in 2023) Material cost baseline ~52% (historical) trending >53% currently; expect curve to bend in Q4/Q1 Near-peak; expected decline

Management Commentary

  • “The latest phase [of cost recovery] will be fully realized in August with a cumulative more than $10 million annualized benefit” and “we have exited approximately 30 smaller customer relationships…improved efficiency…minimal revenue impact” .
  • “We recorded a $12.2 million goodwill impairment…recognized a $3.0 million benefit related to the Employee Retention Credit…experienced…$1.2 million in additional operating costs” .
  • “We continue to work with our lending syndicate on a long-term plan…the protracted forbearance situation has hampered our ability to win certain business…we have secured approximately $46 million in new customer order intake year to date” .
  • CFO: “Of the $35 million net sales…transportation accounted for ~89%, appliance ~9%, remaining 2% consumer off-road…Operating loss…driven by the $12.2 million…impairment; excluding it, operating income of $1 million” .

Q&A Highlights

  • Production outlook: Management biases industry production forecasts slightly down given chip-shortage weekly reports, but still sees ~14.5–14.7M units for 2022 and better H2; guidance aligned accordingly .
  • Diversification progress: Pursuing substantial opportunities in medical/consumer; targeting ~$115M COI for 2022 with 40–45% from medical/appliance/consumer, remainder transportation .
  • LaFayette breakdown: $0.8M expediting and $0.4M labor inefficiency; actions taken—management changes, maintenance investments, scheduling reorg, Mexico support—eliminated expedites and excess labor costs by August .
  • Material cost structure: Historical material cost ~52%; inflation pushed current to >53%; management expects cost curve to bend lower in late Q4/Q1 and pricing stickiness to support margin recovery .

Estimates Context

  • S&P Global/Capital IQ consensus estimates for UFABQ were unavailable due to missing CIQ mapping; therefore, a formal beat/miss analysis cannot be performed. Any future EPS comparisons should adjust for non-recurring items (e.g., $12.2M impairment, $3.0M ERC) when assessing core performance .
  • Note: Wall Street consensus via S&P Global was not retrievable for UFABQ this quarter; values unavailable.

Key Takeaways for Investors

  • Core operations improved sequentially (gross margin 13.5% → 15.0%) aided by cost recovery and ERC; excluding impairment, Q2 operating income was ~$1M, suggesting underlying profitability leverage at normalized costs/volumes .
  • One-offs obscured optics: the $12.2M impairment and $1.2M LaFayette costs drove GAAP losses; remediation actions appear in place with expedites eliminated in August, a potential near-term margin catalyst .
  • Guidance reset lower for H2/FY22 reflects caution on auto production and forbearance constraints; watch for bank resolution as a catalyst to unlock transportation COI and lift the “cloud” over new wins .
  • Cost curve inflection likely in late Q4/Q1: management cites flattening and some decreases in raw material/packaging; with pricing stickiness and ongoing automation (lasers/robotics), margins should structurally improve through 2023 .
  • Diversification and EV exposure building: appliance and medical onshoring inquiries and new EV NVH nominations support a more resilient revenue mix over time .
  • Liquidity remains tight (cash ~$0.6M, revolver availability ~$4.3M); monitor covenant/forbearance developments and working capital dynamics closely for execution risk .
  • Near-term trading lens: headlines on bank agreement progress, confirmation of H2 cost recovery realization (> $10M annualized) and evidence of LaFayette normalization are likely to drive narrative and price reactions .

Notes:

  • No additional press releases beyond the Q2 2022 8-K press release were found in the period [ListDocuments: 0 results].
  • All financial figures and commentary are sourced from the Q2 2022 8-K and earnings call, plus prior Q1 2022 and Q4 2021 documents for trend context .