Sign in

You're signed outSign in or to get full access.

UF

Unique Fabricating, Inc. (UFABQ)·Q3 2022 Earnings Summary

Executive Summary

  • Q3 2022 net sales rose 15.4% year over year to $34.5M, but gross margin compressed to 8.8%, and GAAP net loss widened to $(10.6)M (−$0.90 per share) due to a $4.8M non-cash goodwill impairment and a $3.7M tax expense from valuation allowances .
  • Management lowered guidance: FY22 net sales to ~$136M (from $141–$145M), Q4 net sales to $31–$32M, and FY23 sales to $154–$162M with operating EBITDA of $9–$11M (down from $169–$175M and $11.5–$13.5M) .
  • Cost-discipline improved: SG&A declined to $4.4M in Q3, with a 2023 run-rate around $4.7M/quarter; inventory reduced by $1.2M (9%) since year-end 2021 .
  • Strategic catalyst: Forbearance ended and $4.0M investor-led financing completed; management expects refinancing to unlock COI wins and contribution margins of 30–35% on incremental revenue as volumes recover .
  • Street estimates: S&P Global Wall Street consensus for Q3 2022 was unavailable; comparisons to estimates cannot be made (S&P Global data unavailable for UFABQ) [GetEstimates error].

What Went Well and What Went Wrong

What Went Well

  • SG&A fell to $4.4M, reflecting cost actions and discipline; management targets ~$4.7M per quarter in 2023 despite planned incentives, demonstrating operating leverage as volumes normalize .
  • Refinancing milestones: $4.0M investor-led financing closed in October and credit amendment ended forbearance, with management asserting it “puts us in a much better competitive position” to win COI from larger customers .
  • Operational progress: Inventory reduced $1.2M (9%) since 2021; customer audits from Valio, Bosch, Maley positive—precursors to new awards; YTD COI reached ~$79M despite commercial headwinds .

What Went Wrong

  • Gross margin compressed to 8.8% (from 11.0% a year ago and 15.0% in Q2) on higher manufacturing costs; demand was lower than expected due to OEM closures/shift reductions and tier customer inventory balancing .
  • Non-cash impairment and tax hit: $4.8M goodwill impairment and $3.7M tax expense from valuation allowances in Canada/Mexico; prior-year quarter benefited from $6.1M PPP forgiveness, amplifying YoY net loss .
  • Q3 carried $0.4M of prior-quarter Lafayette costs and cost recovery was $0.3M below expectations; management guided Q4 net sales down to $31–$32M given continued demand weakness .

Financial Results

MetricQ3 2021Q1 2022Q2 2022Q3 2022
Net Sales ($USD Millions)$29.9 $35.3 $35.0 $34.5
Gross Profit ($USD Millions)$3.3 $4.8 $5.2 $3.0
Gross Margin (%)11.0% 13.5% 15.0% 8.8%
SG&A ($USD Millions)$5.7 $5.0 $4.2 $4.4
Operating Loss ($USD Millions)$(7.6) $(0.2) $(11.2) $(6.2)
Net Loss ($USD Millions)$(1.9) $(0.6) $(10.7) $(10.6)
Diluted EPS ($)$(0.19) $(0.05) $(0.91) $(0.90)

Market mix (% of net sales)

Market MixQ1 2022Q2 2022Q3 2022
Transportation (%)~89% ~89% ~89%
Appliance (%)~9% ~9% ~9%
Other (Consumer/Off-road) (%)~2% ~2% ~2%

Key KPIs

KPIQ1 2022Q2 2022Q3 2022
Total Debt ($USD Millions)$47.0 $47.7 $47.7
Cash & Equivalents ($USD Millions)$0.8 $0.6 $0.5
Operating EBITDA (Non-GAAP, $USD Millions)$1.27 $2.42 $0.25
COI – YTD ($USD Millions)~$31 ~$46 ~$79

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales ($USD Millions)FY 2022$141–$145 ~$136 Lowered
Net Sales ($USD Millions)Q4 2022N/A (not previously provided)$31–$32 New
Net Sales ($USD Millions)FY 2023$169–$175 $154–$162 Lowered
Operating EBITDA ($USD Millions)FY 2023$11.5–$13.5 $9–$11 Lowered
SG&A ($USD Millions per quarter)2023 Run-Rate~≤$5.0 target ~$4.7 Lowered

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3 2022)Trend
Supply chain and input costsCost recovery phased; inflationary raw materials/logistics; expected margin improvement in H2’22 as curve bends Cost curve “flattened” with early decreases; input costs cresting; tailwind expected into 2023 Improving
Forbearance and refinancingForbearance hampered COI wins; working towards long-term bank plan $4.0M financing closed; amendment ended forbearance; better competitive position to win COI Improving
Margins and contributionTargeted gross margin >16% in H2’22; longer-term aim 18–20% Q3 gross margin 8.8%; Q4 volume softness expected; 30–35% contribution margin on incremental revenue Mixed (near-term down, medium-term leverage)
Demand/macro (auto SAAR/production)2022 forecast ~14.7M units; pent-up demand supports outlook Q3 SAAR ~13.0M; 2023 forecast reduced to 15.4M units; OEM inventory just over 1.0M units Neutral to slightly softer
Diversification (Appliance/Medical/Consumer)Increased quoting and onshoring; COI outside transportation ~30% YTD Continued wins; positive customer audits (Valio, Bosch, Maley) Improving
Operational executionLafayette issues resolved; lasers/robotics investments to improve utilization Q3 carried $0.4M Lafayette costs; lean initiatives ongoing; inventory down Improving with residual noise
Technology/productApproval for reaction injection molded HVAC seals; TwinShape ducts programs New takeover project for TwinShape HVAC duct on Rivian; quality award at PACCAR program Improving

Management Commentary

  • “We completed an investor-led $4.0 million financing… [and] executed an amendment to our credit agreement that ends our forbearance condition.”
  • “Third quarter results reflect… non-cash goodwill impairment charge of $4.8 million… lower sales due to OEM plant closures and shift reductions… $0.4 million carryover operating costs… cost recovery activities in Q3 were $0.3 million less than previously expected.”
  • “SG&A costs [fell] to $4.4 million… inventory reduction of $1.2 million or 9% since the end of 2021.”
  • “We are forecasting 2023 sales between $154 million and $162 million… operating EBITDA of between $9.0 million and $11.0 million.”
  • “We… see… positive feedback from recent customer site audits… important precursor to new business awards.”

Q&A Highlights

  • Competitive positioning post-forbearance: Management expects improved ability to win COI; customers indicated exiting forbearance will unlock awards over next 60–90 days .
  • Earnings power and contribution margin: At ~$158M sales, EBITDA ~$9–11M; incremental revenue contributes 30–35% to operating margin; significant upside operating leverage .
  • Gross margin trajectory: Q4 remains challenged on lower volumes ($31–$32M), but volume recovery and cost curve tailwinds support margin improvement starting Q1 2023 .
  • SG&A run-rate: 2023 quarterly SG&A estimated ~$4.7M even on ~$20M higher sales, reflecting operating leverage .
  • Speed to ramp new awards: Die-cut takeover business can launch in <30 days; TwinShape ducts awarded and set for <60-day launch; larger RIM programs ~9 months .
  • Input costs leveling: Base raw materials and broader cost inputs have crested; expected to become a tailwind due to pricing stickiness on the way down .

Estimates Context

  • S&P Global Wall Street consensus for UFABQ Q3 2022 EPS and revenue was unavailable; we attempted retrieval but no CIQ mapping exists for UFABQ, so comparisons to Street estimates cannot be performed (S&P Global data unavailable) [GetEstimates error].
  • Given unavailable consensus, post-quarter estimate revisions are likely to reflect reduced FY22/FY23 sales and EBITDA ranges provided by management .

Key Takeaways for Investors

  • Near-term softness: Q4 net sales guided to $31–$32M with low volumes, implying continued margin pressure before expected recovery in early 2023 .
  • Structural cost actions: SG&A down to $4.4M in Q3 and ~$4.7M/quarter in 2023 supports operating leverage once volumes rebound .
  • Refinancing catalyst: Forbearance ended and $4.0M financing closed; management expects COI wins and improved competitive stance, a potential stock narrative inflection when comprehensive refinancing completes .
  • Margin upside with volumes: 30–35% contribution margin on incremental revenue suggests notable EBITDA acceleration with modest top-line growth .
  • Cost curve tailwind: Input costs appear to have peaked; pricing stickiness may aid margin recovery as costs decline .
  • Diversification and awards: Customer audits and new TwinShape HVAC duct programs (Rivian, PACCAR) bolster confidence in non-automotive and EV-linked growth avenues .
  • Liquidity watch: Cash ~$0.5M and total debt ~$47.7M highlight the importance of completing refinancing to support growth and working capital through ramp .