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Universal Stainless Reports Third Quarter 2019 Results

560 Days ago

  • Q3 2019 Sales total $56.6 million; Aerospace reaches 72.3% of sales
  • Q3 2019 Net Income of $0.8 million, or $0.09 per diluted share
  • EBITDA totals $6.0 million in Q3 2019
  • Order entry up 5% sequentially; Quarter-end Backlog of $118.3 million, up from $116.9 million at end of Q2 2019            

BRIDGEVILLE, Pa., Oct. 23, 2019 (GLOBE NEWSWIRE) -- Universal Stainless & Alloy Products, Inc. (Nasdaq: USAP) today reported that net sales for the third quarter of 2019 were $56.6 million, compared with $69.1 million in the third quarter of 2018, and $71.0 million in the second quarter of 2019. Third quarter operations were negatively impacted by increased downtime and production delays in key production units. The resulting delayed shipments were primarily driven by unplanned downtime associated with repair activity at the North Jackson hydraulic forge relating to the fire, which occurred in the second quarter, with estimated third quarter delayed shipments approximating 2.0 million pounds or $6.0 million of net sales. At the close of the third quarter, the Company substantially completed the hydraulic forge fire-related repair activity.

Chairman, President and CEO Dennis Oates commented: “Aerospace sales remained strong in the quarter and accounted for 72.3% of total sales. Year-to-date sales to aerospace, by far our largest end market, were up 16.8% from the same period of 2018.  While sales to all end markets were lower sequentially, demand remained solid, and order entry was up 5%. We were also encouraged by the continued successful ramp-up of our mid-size bar cell unit at our Dunkirk facility as well as the melt cost reduction activity at our vacuum induction melt shop at our North Jackson facility.

“We did experience unplanned downtime on the North Jackson hydraulic forge in the third quarter, following the second quarter fire at the forge, which led to lower-than-expected shipments and sales for the period.  While overall total production efficiency and shipment volume picked up markedly in September, it was not sufficient to overcome our increased downtime.

“Significant progress has been made on our hydraulic forge, and production levels have improved in the fourth quarter. Additionally, as we proceed through the fourth quarter, we expect production levels to exceed those achieved prior to the second quarter fire.”

Sales of premium alloys totaled $8.0 million, or 14.2% of sales, in the third quarter of 2019, compared with a record $12.8 million, or 18.0% of sales, in the 2019 second quarter, and $9.2 million, or 13.3% of sales, in the third quarter of 2018.

For the first nine months of 2019, sales totaled $187.8 million compared with $198.9 million in the same period of 2018.  Sales of premium alloys in the first nine months of 2019 were $30.2 million, or 16.1% of sales, compared with $33.0 million, or 16.6% of sales, in the same period of 2018.

The Company's gross margin for the third quarter of 2019 was 9.4% of sales, compared with 12.8% of sales in the second quarter of 2019, and 15.1% of sales in the third quarter of 2018.  Lower volume, product mix and surcharge misalignment as well as equipment downtime time negatively impacted the third quarter 2019 gross margin.

Selling, general and administrative expenses were $4.5 million, or 8.0% of sales, in the third quarter of 2019, compared with $5.6 million, or 7.9% of sales, in the 2019 second quarter, and $5.1 million, or 7.4% of sales, in the third quarter of 2018.

Net income for the third quarter of 2019 totaled $0.8 million, or $0.09 per diluted share, and included a $0.04 insurance recovery related to a fire in the pickling area of the Dunkirk facility in September 2017. Net income for the second quarter of 2019 was $2.1 million, or $0.24 per diluted share, and included charges of $0.03 per diluted share related to a fire in June 2019 associated with the hydraulic forge at the North Jackson facility. In the third quarter of 2018, net income totaled $3.9 million, or $0.44 per diluted share.

For the first nine months of 2019, net income was $4.1 million, or $0.46 per diluted share, compared with $10.1 million, or $1.23 per diluted share, in the first nine months of 2018.

The Company’s EBITDA for the third quarter of 2019 was $6.0 million, compared with $8.2 million for the second quarter of 2019, and $10.1 million in the third quarter of 2018.

Managed working capital at September 30, 2019 totaled $144.9 million, compared with $147.8 million at June 30, 2019, and $136.9 million at the end of the third quarter of 2018. The reduction in managed working capital compared with the 2019 second quarter was driven mainly by an 11.2% decrease in accounts receivable. Inventory totaled $140.7 million at the end of the 2019 third quarter, in line with the 2019 second quarter.

Backlog (before surcharges) at September 30, 2019 was $118.3 million, compared with $116.9 million at June 30, 2019, and $111.4 million at the end of the 2018 third quarter.

The Company’s total debt at September 30, 2019 was $66.1 million, compared with $68.2 million at June 30, 2019, and $62.5 million at the end of the third quarter of 2018.  Capital expenditures for the third quarter of 2019 totaled $3.9 million, compared with $3.8 million in the second quarter of 2019, and $6.6 million in the third quarter of 2018.

The Company’s third quarter income tax benefit totaled $0.6 million and was favorably impacted by discrete items, primarily increased research and development tax credits.

Conference Call and Webcast

The Company has scheduled a conference call for today, October 23, 2019, at 10:00 a.m. (Eastern) to discuss third quarter 2019 results. Those wishing to listen to the live conference call via telephone should dial 706-679-0668, passcode 7459879. A simultaneous webcast will be available on the Company’s website at www.univstainless.com, and thereafter archived on the website through the end of the fourth quarter of 2019.  

About Universal Stainless & Alloy Products, Inc.

Universal Stainless & Alloy Products, Inc., established in 1994 and headquartered in Bridgeville, PA, manufactures and markets semi-finished and finished specialty steels, including stainless steel, nickel alloys, tool steel and certain other alloyed steels. The Company's products are used in a variety of industries, including aerospace, power generation, oil and gas, and heavy equipment manufacturing. More information is available at www.univstainless.com.

Forward-Looking Information Safe Harbor

Except for historical information contained herein, the statements in this release are forward-looking statements that are made pursuant to the “safe harbor” provision of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements involve known and unknown risks and uncertainties that may cause the Company's actual results in future periods to differ materially from forecasted results. Those risks include, among others, the Company’s ability to maintain its relationships with its significant customers and market segments; the Company’s response to competitive factors in its industry that may adversely affect the market for finished products manufactured by the Company or its customers; the Company’s ability to compete successfully with domestic and foreign producers of specialty steel products and products fashioned from alternative materials; the demand for the Company’s products and the prices at which the Company is able to sell its products in the aerospace industry, from which a substantial amount of our sales is derived; the Company’s ability to develop, commercialize, market and sell new applications and new products; the receipt, pricing and timing of future customer orders; the impact of changes in the Company’ product mix on the Company’s profitability; the Company’s ability to maintain the availability of raw materials and operating supplies with acceptable pricing; the availability and pricing of electricity, natural gas and other sources of energy that the Company needs for the manufacturing of its products; risks related to property, plant and equipment, including the Company’s reliance on the continuing operation of critical manufacturing equipment; the Company’s success in timely concluding collective bargaining agreements and avoiding strikes or work stoppages; the Company’s ability to attract and retain key personnel; the Company’s ongoing requirement for continued compliance with laws and regulations, including applicable safety and environmental regulations; the ultimate outcome of the Company’s current and future litigation matters; the Company’s ability to meet its debt service requirements and to comply with applicable financial covenants; risks associated with conducting business with suppliers and customers in foreign countries; risks related to acquisitions that the Company may make; the Company’s ability to protect its information technology infrastructure against service interruptions, data corruption, cyber-based attacks or network security breaches; the impact on the Company’s effective tax rates of changes in tax rules, regulations and interpretations in the United States and other countries where it does business; and the impact of various economic, credit and market risk uncertainties. Many of these factors are not within the Company’s control and involve known and unknown risks and uncertainties that may cause the Company’s actual results in future periods to be materially different from any future performance suggested herein.  Any unfavorable change in the foregoing or other factors could have a material adverse effect on the Company’s business, financial condition and results of operations.  Further, the Company operates in an industry sector where securities values may be volatile and may be influenced by economic and other factors beyond the Company’s control.  Certain of these risks and other risks are described in the Company's filings with the Securities and Exchange Commission (SEC) over the last 12 months, copies of which are available from the SEC or may be obtained upon request from the Company

Non-GAAP Financial Measures

This press release includes discussions of financial measures that have not been determined in accordance with U.S. Generally Accepted Accounting Principles (GAAP).  These measures include earnings (loss) before interest, income taxes, depreciation and amortization (EBITDA) and Adjusted EBITDA.  We include these measurements to enhance the understanding of our operating performance.  We believe that EBITDA, considered along with net earnings (loss), is a relevant indicator of trends relating to cash generating activity of our operations.  Adjusted EBITDA excludes the effect of share-based compensation expense and other non-cash generating activity such as impairments and the write-off of deferred financing costs. We believe excluding these costs provides a consistent comparison of the cash generating activity of our operations.  We believe that EBITDA and Adjusted EBITDA are useful to investors as they facilitate a comparison of our operating performance to other companies who also use EBITDA and Adjusted EBITDA as supplemental operating measures.  These non-GAAP financial measures supplement our GAAP disclosures and should not be considered an alternative to the GAAP measures.  These non-GAAP measures may not be entirely comparable to similarly titled measures used by other companies due to potential differences among calculations methodologies.  A reconciliation of these non-GAAP financial measures to their most directly comparable financial measure prepared in accordance with GAAP is included in the tables that follow.

UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.  
FINANCIAL HIGHLIGHTS  
(Dollars in Thousands, Except Per Share Information)  
(Unaudited)  
   
CONSOLIDATED STATEMENTS OF OPERATIONS  
                                         
    Three months ended     Nine months ended  
    September 30,     September 30,  
    2019     2018     2019     2018  
Net Sales                                        
Stainless steel   $   42,459     $   46,447     $   136,557     $   136,580  
High-strength low alloy steel       8,206         5,751         27,035         16,339  
Tool steel       4,263         13,130         17,756         31,537  
High-temperature alloy steel       845         2,149         3,390         9,627  
Conversion services and other sales       795         1,579         3,098         4,781  
                                         
Total net sales       56,568         69,056         187,836         198,864  
                                         
Cost of products sold       51,260         58,631         166,052         167,472  
                                         
Gross margin       5,308         10,425         21,784         31,392  
                                         
Selling, general and administrative expenses       4,525         5,131         15,095         16,187  
                                         
Operating income       783         5,294         6,689         15,205  
                                         
Interest expense       989         906         2,809         3,245  
Deferred financing amortization       56         60         171         195  
Other income, net       (452 )       (48 )       (421 )       (690 )
                                         
Income before income taxes       190         4,376         4,130         12,455  
                                         
Provision (benefit) for income taxes       (577 )       460         55         2,376  
                                         
Net income   $   767     $   3,916     $   4,075     $   10,079  
                                         
Net income per common share - Basic   $   0.09     $   0.45     $   0.46     $   1.27  
Net income per common share - Diluted   $   0.09     $   0.44     $   0.46     $   1.23  
                                         
Weighted average shares of common                                        
stock outstanding                                        
Basic       8,787,837         8,699,953         8,780,590         7,931,783  
Diluted       8,879,441         8,952,749         8,870,240         8,166,759  


MARKET SEGMENT INFORMATION  
                                         
    Three months ended     Nine months ended  
    September 30,       September 30,  
    2019     2018       2019       2018  
Net Sales                                        
Service centers   $   38,693     $   49,889     $   129,996     $   139,152  
Original equipment manufacturers       4,862         4,981         19,318         15,232  
Rerollers       6,629         6,530         20,016         23,188  
Forgers       5,589         6,077         15,408         16,511  
Conversion services and other sales       795         1,579         3,098         4,781  
                                         
Total net sales   $   56,568     $   69,056     $   187,836     $   198,864  
                                         
Tons shipped       9,776         12,385         31,656         34,681  
                                         
MELT TYPE INFORMATION  
                                         
    Three months ended     Nine months ended  
    September 30,     September 30,  
    2019     2018     2019     2018  
Net Sales                                        
Specialty alloys   $   47,730     $   58,325     $   154,511     $   161,048  
Premium alloys *       8,043         9,152         30,227         33,035  
Conversion services and other sales       795         1,579         3,098         4,781  
                                         
Total net sales   $   56,568     $   69,056     $   187,836     $   198,864  
                                         
END MARKET INFORMATION **  
                                         
    Three months ended     Nine months ended  
    September 30,     September 30,  
    2019     2018     2019     2018  
Net Sales                                        
Aerospace   $   40,876     $   37,302     $   132,818     $   113,742  
Power generation       2,884         2,714         8,588         7,337  
Oil & gas       5,653         8,926         18,767         25,211  
Heavy equipment       4,352         13,423         17,973         32,506  
General industrial, conversion services and other sales       2,803         6,691         9,690         20,068  
                                         
Total net sales   $   56,568     $   69,056     $   187,836     $   198,864  
                                         
* Premium alloys represent all vacuum induction melted (VIM) products.                      
**The majority of our products are sold to service centers rather than the ultimate end market customers. The end market information in this press release is our estimate based upon our knowledge of our customers and the grade of material sold to them, which they will in-turn sell to the ultimate end market customer.                      


CONDENSED CONSOLIDATED BALANCE SHEETS  
                     
    September 30,     December 31,  
    2019     2018  
Assets                    
                     
Cash   $   1,204     $   3,696  
Accounts receivable, net       36,422         32,618  
Inventory, net       140,672         134,738  
Other current assets       5,756         3,756  
                     
Total current assets       184,054         174,808  
Property, plant and equipment, net       175,962         177,844  
Other long-term assets       1,002         668  
                     
Total assets   $   361,018     $   353,320  
                     
Liabilities and Stockholders' Equity                    
                     
Accounts payable   $   32,154     $   44,379  
Accrued employment costs       3,830         7,939  
Current portion of long-term debt       3,929         3,907  
Other current liabilities       912         2,929  
                     
Total current liabilities       40,825         59,154  
Long-term debt, net       62,155         42,839  
Deferred income taxes       12,097         11,481  
Other long-term liabilities, net       3,283         2,835  
                     
Total liabilities       118,360         116,309  
Stockholders’ equity       242,658         237,011  
                     
Total liabilities and stockholders’ equity   $   361,018     $   353,320  
                     


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW  
                     
    Nine months ended  
    September 30,  
    2019     2018  
                     
Operating activities:                    
Net income   $   4,075     $   10,079  
Adjustments to reconcile net income to net cash (used in) provided by operating activities:                    
Depreciation and amortization       14,235         14,460  
Deferred income tax       577         2,327  
Share-based compensation expense       1,100         1,046  
Changes in assets and liabilities:                    
Accounts receivable, net       (3,804 )       (19,195 )
Inventory, net       (7,628 )       (7,890 )
Accounts payable       (9,728 )       (3,964 )
Accrued employment costs       (4,109 )       2,595  
Income taxes       (56 )       (36 )
Other, net       (3,735 )       1,307  
                     
Net cash (used in) provided by operating activities       (9,073 )       729  
                     
Investing activity:                    
Capital expenditures       (13,308 )       (13,211 )
                     
Net cash used in investing activity       (13,308 )       (13,211 )
                     
Financing activities:                    
Borrowings under revolving credit facility       145,688         347,395  
Payments on revolving credit facility       (123,097 )       (351,918 )
Proceeds under New Markets Tax Credit financing       -         2,835  
Payments on term loan facility, finance leases, and notes       (3,424 )       (11,821 )
Payments of financing costs       -         (1,105 )
Proceeds from public offering, net of cash expenses       -         32,246  
Proceeds from the exercise of stock options       327         834  
                     
Net cash provided by financing activities       19,494         18,466  
                     
Net (decrease) increase in cash and restricted cash       (2,887 )       5,984  
Cash and restricted cash at beginning of period       4,091         207  
Cash and restricted cash at end of period   $   1,204     $   6,191  
                     


RECONCILIATION OF NET INCOME TO EBITDA AND ADJUSTED EBITDA  
                                         
    Three months ended     Nine months ended  
    September 30,     September 30,  
    2019     2018     2019     2018  
                                         
Net income   $   767     $   3,916     $   4,075     $   10,079  
Interest expense       989         906         2,809         3,245  
Provision (benefit) for income taxes       (577 )       460         55         2,376  
Depreciation and amortization       4,813         4,845         14,235         14,460  
EBITDA       5,992         10,127         21,174         30,160  
Share-based compensation expense       332         369         1,100         1,046  
Fire-related (benefit) expense       (350 )       -         7         -  
Adjusted EBITDA   $   5,974     $   10,496     $   22,281     $   31,206  
                                         


CONTACTS: Dennis M. Oates     Christopher T. Scanlon     June Filingeri
  Chairman,     VP Finance, CFO     President
  President and CEO     and Treasurer     Comm-Partners LLC
  (412) 257-7609     (412) 257-7662     (203) 972-0186



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