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Universal Stainless Reports Third Quarter 2019 Results

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  • 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. (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