2012--Q4 Shareholder Letter
February 19, 2013
Dear UGSI Shareholder,
I am pleased to report that 2012 was far and away the best year in UGSI’s history. Excluding the results of the newly acquired chemical feed product lines operated by our UGSI ChemFeed subsidiary, our revenue increased by more than 30% over 2012, while our gross margin increased by almost 70%. At the same time, our operating expenses (SG&A) decreased from 2011, enabling us to report a very healthy bottom line and very strong cash generation. In short, we had an outstanding year.
Fusible PVC™ pipe products continued to gain market acceptance, helped – no doubt – by our ever-growing list of highly technical pulls over 2,000 feet. During 2012, we completed eight pulls of 2,000 feet or more, including one record-setting slipline installation of a single 7,000-foot length of 14” pipe in Northern California. Speaking of achievements, we also successfully defeated several attempts during 2012 by the HDPE pipe industry to exclude fused PVC pipe from American Water Works Association (AWWA) standards. As many of our investors know, AWWA is the authoritative resource on safe drinking water in the U.S and Canada. As a result of our efforts – and with the assistance of other industry participants who base their actions on science, not commercially motivated attacks – AWWA is expected to issue a revised installation standard for PVC pipe later this year. The revised standard will, for the first time, specifically reference fused joints as an acceptable design for joining PVC pipe.
Our Mobile Pipe subsidiary continued to perform in line with expectations in 2012. Although municipal water demand for lined and coated steel pipe declined on the West Coast last year, Mobile Pipe was able to offset that downturn by expanding its footprint with oil and gas pipeline customers. We also made significant investments during the year in Mobile Pipe to broaden its capabilities and to improve its physical plant. We added a full-time sales professional in the second half of the year, and we look forward to reaping the benefits as Mobile Pipe reaches out proactively to its customers and potential customers for the first time in 30 years. In the meantime, we’ve also proven that we can successfully cross-sell Mobile Pipe’s services together with our Fusible PVC™ pipe offering, with successful projects already completed in California and Hawaii. We intend to expand that effort geographically in 2013.
We made great strides in getting our new ChemFeed product line up and running following the acquisition of those lines in August. UGSI ChemFeed is now fully-staffed and we are ramping up sales each month as we rebuild the reputation of our Wallace & Tiernan® and Stranco® chemical feed products. For our five months of ownership in 2012, we attained results that actually exceeded our pro forma projections at the time of the acquisition. We have assembled a first-class team at our facility in Vineland, New Jersey, and we look forward to positive earnings contribution from UGSI ChemFeed in 2013.
This is an exciting time for our business, as our water industry strategies are being decisively validated by solid and growing financial performance. We will continue to seek new investment opportunities that offer the highest and best return for our shareholders. We remain hopeful that 2013 will continue to provide enhanced economic prospects for our businesses and for our shareholders.
Thank you for your continued support.
Sincerely,
Andy Seidel
AI
