IBC Advanced Alloys Corp.

Good day, everyone, and welcome to this IBC Advanced Alloys Webcast and Conference Call. I am Jim Sims, Director of Investor and Public Relations with IBC.

Before we begin today's webcast, just a few reminders. Slides from today's presentation and the audio of this call are being broadcast live over the web.

A recording of the broadcast is being made and a replay will be available on the IBC website following the broadcast. You can see that at www.ibcadvancedalloys.com.

After the formal presentation, company will take questions from webcast participants. During this presentation, we will be making forward-looking statements and viewers are cautioned not to place undue reliance on such forward-looking information and statements.

Additional information identifying risks and uncertainties is contained in IBC’s filings, including our Annual Information Form for the quarter ended June 30, 2020, and those are available on sedar.com. Joining us today is Mark Smith, CEO and Chairman of the IBC Board of Directors.

Mark, let's get started.

Thanks, Jim, and welcome everyone. Let's go to the key points of today's update briefing.

IBC was showing market improvements in performance, sales and gross margins prior to the onset of the COVID-19 pandemic. And I am very proud.

Let me say that again, I am very proud of the significant operational and financial improvements that our team achieved in fiscal year 2020 over the prior year. Reduced economic activity driven by the COVID pandemic has tempered the advances we were making, but the IBC team is now focused on building back our pre-COVID momentum and continuing our relentless efforts to improve sales volumes and gross margins while lowering our operating costs and increasing efficiencies across the enterprise.

Let's look at the results of the quarter and year ended on June 30, 2020. Income in the quarter of $27,000 compared favorably to a loss of $1.5 million in the prior year period.

Engineered Materials division sales rose by 79% in the quarter and by 33% in the year as compared to the comparable prior year periods. Copper Alloys sales decreased by 20% in the quarter, primarily due to softer economic conditions related to the COVID-19 pandemic, but posted a 6% gain on a year-over-year basis.

We recorded a working capital surplus of $852,000 as at June 30, 2020, compared to a working capital deficit of $1.3 million at the close of fiscal year 2019. Comprehensive gross margin also strengthened improving in the quarter to 9.7% from a negative 7.1% in the prior year period and rising to 14% for the year from 5% in the prior year, outstanding results.

Consolidated adjusted earnings before interest, taxes, depreciation, and amortization or adjusted EBITDA for the quarter was $455,000, which compared to adjusted EBITDA of negative $1 million for the prior year period. Adjusted EBITDA for the year ended June 30, 2020 was $1.4 million, as compared to negative $1.9 million in the prior year.

Our Engineered Materials division, where we manufacture high performance beryllium-aluminum alloys had a particularly good year. Income in the quarter of $308,000 compared to a loss of $567,000 in the prior year period.

Income for the year of $365,000 compared to a loss of $1.1 million in the prior year. Sales in the quarter of $2.1 million were 79% higher than sales of $1.2 million in the prior year period.

Sales for the year of $6.9 million represented a 33% increase over $5.2 million in sales in the prior year. The division’s stronger sales performance was driven largely by increased demand for beryllium-aluminum products in commercial markets.

Average gross margin strengthened to 31.9% in the quarter and to 24.5% in the year reversing negative gross margins in both periods of the corresponding prior year periods. The division posted $404,000 in adjusted EBITDA in the quarter, which compared to a negative $445,000 in the prior year period.

Likewise, adjusted EBITDA rose for the year to $1.2 million, reversing a loss of $638,000 in the prior year, outstanding results by the EMC division. Our Copper Alloys division loss of $473,000 in the quarter was actually an improvement over a loss of $582,000 in the prior year period.

For the year, the division posted a loss of $679,000, which again was an improvement over a loss of $1.3 million in the prior year. Sales of $3 million in the quarter were 20% lower than sales of $3.7 million in fiscal Q4 of 2019.

This was mostly due to reduced economic activities from COVID, while sales for the fiscal year 2020 of $14.3 million were 6% higher than sales of $3.5 million in the prior year. Average gross margin declined to a negative 5.8% in the quarter, again, largely due to COVID.

However, for the year, average gross margin improved to 8.9% for the year as compared to 7.8% in fiscal year 2019. Adjusted EBITDA swung to a positive $229,000 from a negative $453,000 in the prior year, again, outstanding results by the Copper Alloys division in a period of economic reduction due to COVID.

On a consolidated basis, you can see that the company has continued to trend upward over the past two years in operating income, net income, adjusted EBITDA and sales. Looking ahead, IBC’s growth strategy is based upon three key portions of the total strategy.

The first part is consolidate our current forging operations that are located in Pennsylvania and Missouri to our Franklin, Indiana headquarters and expand the production capacity and product offering. The second part is to improve gross margins across IBC’s product line, and the third part is to increase operating revenue or sales in both Copper Alloys and Engineered Materials division and achieve consistent profitability.

The first part of our growth strategy is to consolidate our existing foundries in Missouri and Pennsylvania to Franklin, Indiana. We believe this will help us achieve the following: one, expanded production capacity and increased copper alloys sales by an estimated 50% from 2020 to 2024 with consolidated EBITDA rising by more than 700% over that time for a compounded annual growth rate of 38%.

We also hope to have improved lead times to support higher sales. We also hope to have annual fixed cost savings of $1.1 million as a result of this consolidation, the variable cost savings through better labor utilization, and increased production efficiencies will also come to bear and better funding for additional feedstock, which then can drive even more new sales.

The second part of our growth strategy is to continue to lower our unit cost production. We are having great success with this now as a result of capital improvements we made in Franklin, and you can see in the blue portion of this slide, one of the items that we have done as a result of a capital improvement.

We also see our copper alloys consolidation helping to generate fixed costs savings as I just noted in the prior slide. Finally, upgrading our foundry equipment and process will help to improve product yields and capacity all going to lower unit costs.

The third part of our growth strategy is to increase market share in several key markets. For example, in defense technologies, we expect to grow sales for both operating divisions, particularly in those defense platforms that require beryllium-based alloys and in systems where our beryllium-aluminum near-net-shape casting technology is an improvement over our competition in terms of cost and performance.

In electronics, we expect to capture greater market share as the Internet of Things continues to expand given the many uses of our copper and beryllium alloys in both computer chips and in the making of those chips. In transportation, the move to lightweight platforms on the ground, in the air and at sea is tailor-made for greater use of our beryllium-aluminum alloys.

In space, we continue to grow sales of mission-critical beryllium alloys in satellite technologies. And finally, in the mold industry our thermal mold superalloys are increasingly vital to the plastic injection mold industry.

That concludes my presentation for today. And I'll turn it back over to you, Jim.

Thanks, Mark. We will take some questions from our audience.

And for those participating on the webcast, you can simply type in your question into the webcast tool on your screen, and click send. For those participating in listen-only phone lines, please post your questions via Email to me at [email protected] or you can text me at (303) 503-6203.

Mark, let's go to our first question from John. John asks us to review the status and plans for the scandium program.

We are continuing to work on that effort jointly with NioCorp. I think as a result of the really tight restrictions and personal discomfort by some folks on traveling right now, this has slowed down to some extent, but it's still a very high priority between IBC and NioCorp and we will pick up this effort more and more as restrictions ease up.

So not much activity on that to be quite honest right now because of COVID-19, but we are still extremely interested in it and see a lot of good things coming in the future.

Here is a question from Scott, Mark. Scott asks, consolidating your facilities in Indiana seems to be a smart move.

Are you getting much support from the state of Indiana for those proposed plans?

Yes. This is really exciting thing actually to talk about this particular support level from the state.

We have been working with state officials who are really excited to see this consolidation happened. It does mean more revenue for the state.

It means more employees in the state and they are just extremely supportive. We are looking at multiple programs that the state of Indiana has available to all of its businesses.

We filed some applications to try to take advantage of some of those programs. And we hope to hear back from that latter part of this year or early part of next year.

But as everyone can probably tell from the timing of everything, decisions are being made as we speak, and fundraising is occurring as we speak to make sure that we can do this consolidation and realize all of the tremendous potential that this consolidation will bring to the company. The Board and management are 100% committed to this consolidation.

And Mark here is a question from Jeff, who asks how do you see the future of your business with regard to defense spending? And I think he means to add the products that we make for various defense platforms.

This is a very exciting area for us as well. The one thing that we have very easily noticed during the last six to nine months during the COVID-19 pandemic is the fact that the defense side of our business really has seen no negative impact at all to date.

Now, obviously we have an election where we will know the results sometime after November 3 and we'll see what that means to the politics of the United States. But when you take a look at the Lockheed Martin projections just for the F-35 jet and the sales to other countries, we remain very confident regardless of election results, that the aluminum-beryllium alloy parts that we make are going to be in very high demand.

So we don't see any real impact for that for multiple coming years and remain very excited to continue to work with the Department of Defense and their subcontractors on the various parts that we produce.

Okay. Thanks, Mark.

And that looks like all the questions we have for today. If anyone does have any follow-up questions, please send that to me, and I'll be glad to get back to you at [email protected].

This concludes our webcast today. Of course, for more information on IBC and our line and mission-critical alloy products, please see our website at www.ibcadvancedalloys.com.

A recording of this webcast will be made available on IBC’s website later today. Thank you all for joining us.

We look forward to seeing you next time.