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00:13 Good morning and welcome to the Encore Wire Reports Fourth Quarter and Full-Year 2021 Results Conference Call. My name is [Sunera] [ph] and I'll be the operator for today’s call. At this time, all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session. [Operator Instructions] Please note, this conference is being recorded. 00:39 I will now turn the call over to Mr. Bret Eckert. Bret, you may begin.
00:44 Thanks, [Sunera] [ph]. Good morning and welcome to the Encore Wire Corporation quarterly conference call. I’m Bret Eckert, Chief Financial Officer of Encore Wire. With me this morning is Daniel Jones, President, CEO and Chairman of the Board. In a minute, we will review Encore's financial results for the quarter and year-ended December 31, 2021. After the financial review, we will take any questions you may have. 01:09 Before we review the financials, let me indicate that throughout this conference call, we may be making certain statements that might be considered to be forward-looking. In order to comply with certain securities legislation and instead of attempting to identify each particular statement as forward-looking, we advise you that all such statements involve certain risks and uncertainties that could cause the actual results to differ materially from those discussed today. 01:35 I refer each of you to the company's SEC reports and news releases for a more detailed discussion of these risks and uncertainties. Also reconciliations of non-GAAP financial measures discussed during this conference call to the most directly comparable financial measures presented in accordance with GAAP, including EBITDA, which we believe to be useful supplemental information for investors are posted on our website. 02:00 I'll now turn the call over to Daniel for some opening remarks. Daniel?
02:04 Good morning everyone and thank you for joining us on the call and for your interest in Encore Wire. We appreciate your continued investment, confidence, and support. Our operating performance and results in 2021 mark a milestone year in the great history of Encore Wire. By leveraging our one location, low cost business model, tested sales distribution network, strong and dedicated employee base, and deep supplier relations, we were able to deliver exceptional results. 02:36 Throughout the fourth quarter of 2021, sales prices and margins remains strong as we successfully navigated raw material constraints in price volatility. We remain centered and nimble adapting to changing customer needs and fluid market dynamics by continuing to execute on our core values of providing unbeatable customer service in our order fill rates, we were able to increase both copper and aluminum volumes on both the comparative quarter and annual basis over 2020 levels. 03:10 Copper unit volumes increased 10.8% on an annual basis and 3.9% in the fourth quarter over comparable periods in the prior year. Comex copper prices increased during the fourth quarter averaging slightly higher than the third quarter of 2021. All other raw material costs also increased slightly during the quarter. This upward volatility positively impacted and supported current market spreads. 03:42 Copper spreads increased 133.7% on a comparative quarter basis and 149.2% on an annual basis. With the incremental capacity coming online this year, we believe Encore Wire continues to remain well-positioned to capture market share and incremental volume growth in the current economic environment. 04:07 As we address the near-term challenges, we remain focused on the long-term opportunities for our business. We believe that our superior order fill rates and deep vertical integration continue to enhance our competitive position. As orders come in from electrical contractors, our distributors, and continue to depend on us for quick deliveries, coast to coast. 04:31 I'll now turn the call over to Bret to cover our financial results. Bret?
04:35 Thank you, Daniel. Net sales for the fourth quarter ended December 31, 2021 were 687.9 million, compared to 380.8 million for the fourth quarter of 2020. Copper unit volume measured in the pounds of copper contained in the wires sold increased 3.9% in the fourth quarter of 2021 versus the fourth quarter of 2020. 05:01 Gross profit percentage for the fourth quarter of 2021 was 34.2%, compared to 15.4% in the fourth quarter of 2020. The average selling price of wire per copper pounds sold increased 70.5% in the fourth quarter of 2021 versus the fourth quarter of 2020, while the average cost of copper per pound purchased increased 36.4%. 05:27 Net income for the fourth quarter of 2021 was 141.6 million, versus 24.1 million in the fourth quarter of 2020. Fully diluted net earnings per common share were $6.91 in the fourth quarter of 2021 versus $1.17 in the fourth quarter of 2020. Net sales for the year ended December 31, 2021 were 2.53 billion, compared to 1.277 billion in 2020. Copper unit volume increased 10.8% in 2021 versus 2020. 06:06 Gross profit percentage for the year ended December 31, 2021 was 33.5%, compared to 15.2% in 2020. The average selling price of wire per copper pounds sold increased 84.7% in the year ended December 31, 2021 versus the year ended December 31, 2020, while the average cost of copper per pound purchased increased 49.5%. 06:36 Net income for the year ended December 31, 2021 was 541.4 million versus 76.1 million in 2020. Fully diluted net earnings per common share were $26.22 in the year ended December 31, 2021 versus $3.68 in 2020. 07:01 Aluminum wire represented 10.5% and 8.3% respectively over net sales in the quarter and year ended December 31, 2021. Aluminum wire volumes have increased for both the quarter and year ended December 31, 2021, compared to the comparative periods in the prior year. The favorable market conditions in the fourth quarter and year-ended December 31, 2021 were driven by volatile raw material prices, supply constraints, and continued demand for our products. 07:33 In addition, production challenges across the sector, including inconsistent access to raw materials, disruptions in the distribution network, and access to skilled labor create unique marketing conditions in the second, third, and fourth quarter of 2021. We expect these conditions will abate in the future, but we are unable to predict the timing of that abatement or whether such abatement will be gradual or abrupt. 07:58 Our balance sheet remains very strong. We have no long term debt and our revolving line of credit remains untapped. We had 439 million in cash at the end of the year, compared to 183.1 million at the end of 2020. 08:13 During 2021, we repurchased 475,557 shares of our common stock at an average price of $91.04, including 82,178 shares repurchased at an average price of $128.54 in the fourth quarter of 2021. We also declared a $0.02 cash dividend during the quarter. 08:40 The new service center opened in mid-May of 2021 and is fully operational today. The repurposing of our vacated distribution center to expand manufacturing capacity and extend our market reach will be completed in the second quarter of 2022. The incremental investments announced in July of 2021 continue in earnest, focused on broadening our position as a low cost manufacturer in the sector, and increasing manufacturing capacity to sustain and drive growth. 09:09 Capital spending in 2022 to 2024 will expand vertical integration in our manufacturing processes to reduce costs, as well as modernize select wire manufacturing facilities to increased capacity and efficiency. Total capital expenditures were 118 million in 2021. We expect total capital expenditures to range from 150 million to 170 million in 2022, a 150 million to 170 million in 2023, and 80 million to 100 million in 2024. We plan to continue to fund these investments with the existing and cash reserves and operating cash flows. 09:51 I will now turn the floor over to Daniel for a few final remarks.
09:56 Thank you, Bret. The results in the fourth quarter and year ended December 31, 2021 further attest to the strength of our one campus vertically integrated low cost business model, which is driving under the current market conditions. I want to personally thank our suppliers and vendors for their exceptional performance in 2021. 10:19 Our deep relationships and strong internal management team coupled with consistent execution in 2021 positioned us favorably in the market allowing us to maintain our overall low cost structure. 10:33 Looking ahead, we remain laser focused on continuing to fulfill the core values of our company, unbeatable customer service, nimble operations and quick deliveries coast to coast. I want to close by recognizing our employees for their hard work, tenacity, and all [indiscernible] during these unprecedented times. Our performance this year could not have happened without their extraordinary efforts and dedication. 10:59 The results in 2021 have also allowed us the opportunity to incrementally invest in our team as we continue to position Encore as an employer of choice in the sector. I also want to thank our shareholders for their continued support. 11:14 We'll now take questions from for our listeners [Sunera] [ph].
11:18 Absolutely. Thank you. [Operator Instructions] And the first question comes from Julio Romero from Sidoti & Company. Please go ahead. Your line is open.
11:50 Thanks. Good morning, Daniel and Bret. Thanks for taking the questions.
11:54 Sure. Hey, Julio.
11:57 What does your crystal ball tell you guys about the way pricing for your end-products should trend over the next year assuming offer kind of stays at the current levels?
12:11 Well, as far as pricing, that's a two-headed monster. It's processing and delivery and you can't separate the two. And I'm obviously extremely bullish on copper, which leads me to be pretty bullish on the [pricing] [ph] also. 12:31 I think that we can continue to perform at the level that we're performing and deliver with the fill rates and lead times that we have, I think we'll be able to continue to price the product accordingly.
12:46 Okay, that's helpful. I guess turning to your capacity expansion, the press release talked about expanding vertical integration and modernizing some facilities, could you maybe expand on specifically the vertical integration portion? Are you adding another Rod Mill and how much incremental Copper Rod could you produce?
13:08 You know, what we’re doing, we have a pretty aggressive ES&G program that's posted on our website and along those lines are some opportunities for us to address existing equipment. And in that process, there'll be some capacity enhancements in areas, but specifically to speak to the Rod Mill we are going to do some improvements there in that category, it will give us a little bit more flexibility, you know probably should just leave it at that.
13:46 Okay. And I guess what do you think a normalized maintenance – you are putting in a lot of CapEx in over the next few years, but what's a normalized maintenance CapEx run rate for Encore Wire look like post these incremental investments? So, say normalized maintenance for 2024 and beyond?
14:08 Yeah, I still think we're in that 40 to 60 range, 50 to 70 range, and as we go through and do this modernization effort that helps as well, like as you place the older equipment with new equipment. And so, I think we'll navigate back ultimately to that 40 to 60 range after we get through this wave of expansion [here] [ph].
14:31 Okay. And then maybe last one for me here is just, can you give us a sense of how much incremental product – incremental volume do you expect to be able to generate once your capacity expansion is, kind of fully in place?
14:46 Yeah, Good question. It's consistent with what we had communicated before. Once we complete the repurposing of our vacated distribution center, which we expect to come online in mid second quarter, we've talked about 15% or so incremental capacity come and associate with that and I think that number is still very relevant.
15:11 Got it. And that's 15% post second quarter of [Multiple Speakers]. And then beyond just thinking about, you know, you had obviously, you put out 2024 CapEx expectations, I'm just trying to get a sense of like when all set and done even with that.
15:31 Yeah. More to come on that, Julio, right. You know, we’ve been obviously a little vague with regards to incremental investments that we're making as we get closer to that like we did with the repurpose in a distribution center and the opening of the service center. We'll start to disclose a little bit more about the incremental capacity associated with those investments.
15:54 Fair enough. Thanks very much for taking the questions and best of luck in 2022.
15:58 Thanks for your support.
16:03 Thank you. Our next question comes from Brent Thielman. Please go ahead. Your line is open.
16:10 Hey. Great. Thanks. Good morning. Hey, Daniel, I was wondering if you could check now that the service center is, sort of fully up and running. Can you talk about some of the benefits you're seeing within the business and having that new facility? It's hard to parse out within the financials what’s doing for you, maybe you could talk qualitatively about what you're seeing it did for you?
16:35 Yes. What we've done Brent and by the way, thanks for the support and the question. What we've done is, we vacated the old distribution center. We added some capacity to enhance our service levels, specifically, the lead times and the fuel rate, which allows us as you have heard in the past, and I'll repeat it. It's price and delivery. We like to focus on the delivery side and fight for the price and that's where that benefit has shown up. 17:15 As we are able to fill the trucks a little bit quicker, a little bit fuller and more on time we are able to charge just a little bit more maybe for the most part. And then also with the increase and the challenges in the industry and the country, as far as getting products moved from coast to coast, you know maximizing that opportunity, each trailer that bumps the dock, there's some pretty significant value and making certain that truck is full along with what you're able to do when you deliver the product completing on time.
18:02 Okay. So, it means, beyond some of the external factors that are helping this huge spread that you've been posting in the last few quarters, you know that facility is also incrementally contributing. Is that fair?
18:16 That's very fair. Absolutely. And then specifically to the new footprint of the existing service center that we're operating out of. There's really no physical limitations in that building. We have ample space to do the added services that required in different markets that we predicted would benefit, and that's starting to show up as well. In each of the market segments that we serve as you've studied and written about over the years, there's fluctuations and there's volatility within each category. 18:59 And so that new footprint and space allows us to operate quite a bit more efficiently to move those finished goods and those purchased items to get them off the deck pretty quickly.
19:17 Okay. And then back to those external forces at play, I mean, Daniel it's kind of beyond just the price of copper, we can all see what that's doing, but I think about the supply constraints [freight] [ph], access to other materials and inputs, are all those factors still contributing today to, kind of levels of profitability and spread that I guess are beyond what you expect normally from the business?
19:49 Yes. I mean, not something that we didn't expect. It's actually something that we've built the company towards to be able to respond quickly and to deliver when other folks maybe they can't. Clearly, there's supply chain issues. There's labor shortages, there's uncertainties around COVID. All those things continue to have an influence on job sites and different phases of each project potentially, but again, as the product is put to us from a request standpoint of hey, can you do it in this fashion again? 20:35 Again, we focus on that delivery piece, which has allowed us to maybe charge a little bit more on the price side. But again, we still have to stay within the guardrails of the industry itself, and it's been more of this this instant gratification on the delivery, maybe even placeholders on future jobs. 21:02 It really is an extension of the markets that we've seen in the past, but as I've talked about in prior calls over the years, there's a few factors that force discipline into this market, and that's when we can really throw some numbers out which you've seen.
21:24 Alright. And I guess another – you're out talking to customers on the distributor side, maybe sense how mean their inventories are and I think about it in the sense that we get another leg up in demand, we see sort of a windfall in volume here. So, any thoughts there just in terms of what you're hearing in the field from some of those customers [indiscernible]?
21:50 Yeah. We're seeing – we’re simply a one category of what our distributor customers have to purchase and distribute. And so, what we're seeing is in all of the categories there's the same struggles that you mentioned. Labor shortages and supply chain issues and COVID uncertainty and whatever, it's not specific obviously to building wire. It's across the board. So, the more that we can put their [mind at] [ph] ease on our product category and take care of it with the service in the field rate, you know there’s value there, because they have other things they can go and concentrate on and do. 22:37 So, the approach of trying to potentially make their job just a little bit easier in that moment in our product category. Again, there's some value to that and we're doing the things that we feel like we need to do to capitalize on it, but, our distributors are doing a fantastic job. As Brett has mentioned many times, our receivables are what they are, but they're all correct, which is a fantastic indicator on business itself. 23:10 We're getting paid on time. So, that's also a testament to the quality of the distributor that we choose to go to market with. So, they’re having issues on all categories and again, we are just trying to do what we can to perform once the order comes in.
23:32 And then with copper prices where they are, are you seeing any substitution for aluminum products? Is that having any impact on your copper unit volume?
23:42 There's definitely substitution discussions when copper is at 450 or what have you, but the support to that has been, I didn't look this morning, but I’m pretty sure aluminum is around [$1.45, $1.50] [ph], and so it's come up as well. And then there's a decent tightness if you will on the aluminum supply, which is again, the price itself leads to the discussion, and then you have, you know you have to work on the delivery piece. 24:21 So, it's definitely in the discussion, you know Brent, as you've seen in the past, there's a large demand for specific sizes of aluminum building wire that kind of pulls the availability away from traditional commercial and industrial applications maybe on the supply side and then we're happy to follow-up with the copper shipments, that's what they’re like.
24:52 Okay. Well, great. Thank you for taking my questions. Congrats on a tremendous year.
24:57 Yeah. Thank you [indiscernible].
24:58 Thanks Brent.
25:02 Thank you. Our next question comes from Bill Baldwin. Please go ahead. Your line is open.
25:10 Hey, Bill.
25:14 You may be on mute. It looks like he may have disconnected.
25:26 Okay.
25:28 At this time, I am not showing any further questions. I like to turn the call back over to the host.
25:34 [Sunera] [ph], I appreciate, I appreciate everyone’s interest today, their investment in Encore Wire, and you all enjoy the day. Thank you.
25:42 Thank you.
25:43 Thank you. And thank you ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.