Market Overview

Universal Stainless Reports Strong Results on Continued Sales Growth in Second Quarter of 2018

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  • Q2 2018 Sales of $66.1 million, up 25.6% from Q2 2017
  • Q2 2018 Net Income increases to $4.0 million, or $0.50 per diluted share, versus $1.2 million, or $0.17 per diluted share, in Q2 2017
  • EBITDA reaches $11.2 million in Q2 2018, up 54.6% from Q2 2017
  • Quarter-End Backlog of $104.2 million, up 64.2% versus Q2 2017 and up 15.1% sequentially

BRIDGEVILLE, Pa., July 25, 2018 (GLOBE NEWSWIRE) -- Universal Stainless & Alloy Products, Inc. (NASDAQ:USAP) today reported net sales of $66.1 million for the second quarter of 2018, an increase of 25.6% from $52.6 million in the second quarter of 2017, and up 3.7% from $63.7 million in the 2018 first quarter.  All end markets contributed to the year-over-year growth, with the exception of power generation. Aerospace remained the Company's largest end market, reaching 60.9% of total Company sales.  Second quarter aerospace sales totaled $40.2 million, up 38.7% from the second quarter of 2017.

Sales of premium alloys in the second quarter of 2018 increased 77.7% to a record $12.0 million and represented 18.2% of sales, compared with $6.8 million, or 12.9% of sales, in the second quarter of 2017.  In the first quarter of 2018, premium alloy sales totaled $11.8 million, or 18.6% of sales.

For the first six months of 2018, sales increased 27.9% to $129.8 million from $101.5 million in the same period of 2017.  Sales of premium alloys increased 89.5% to $23.9 million, or 18.4% of sales, from $12.6 million, or 12.4% of sales, in the first half of 2017.

The Company's gross margin for the second quarter of 2018 increased to $11.7 million, or 17.7% of sales, from $7.2 million, or 13.6% of sales, in the second quarter of 2017, and $9.3 million, or 14.5% of sales, in the 2018 first quarter.

Selling, general and administrative expenses were $5.8 million, or 8.8% of sales, for the second quarter of 2018, compared with $4.5 million, or 8.6% of sales, in the second quarter of 2017, and $5.2 million, or 8.2% of sales, in the first quarter of 2018. The increase was due to higher employee incentive compensation expense.

Other income for the second quarter of 2018 totaled $0.6 million and included $0.7 million related to a favorable legal settlement.

Net income for the second quarter of 2018 increased to $4.0 million, or $0.50 per diluted share, and included other income of $0.5 million, net of tax, or $0.06 per diluted share, as a result of a favorable legal settlement.  Additionally, 2018 second quarter diluted shares outstanding increased to 8.1 million, reflecting the Company's recent equity offering.

The Company's 2018 second quarter net income of $4.0 million, or $0.50 per diluted share, compares with net income of $1.2 million, or $0.17 per diluted share, in the second quarter of 2017, and net income of $2.1 million, or $0.28 per diluted share in the first quarter of 2018. First quarter 2018 diluted shares outstanding totaled 7.5 million, and second quarter 2017 diluted shares outstanding totaled 7.4 million.           

The Company successfully completed an underwritten equity offering in June 2018, issuing 1.4 million shares, including shares issued upon the underwriter's full exercise of its option to purchase additional shares. Proceeds, net of underwriting discount and other offering fees and expenses, totaled $32.3 million.

For the first six months of 2018, net income was $6.2 million, or $0.79 per diluted share, versus breakeven in the first six months of 2017.

The Company's EBITDA for the second quarter of 2018 was $11.2 million, an increase of 54.6% from the second quarter of 2017, and an increase of 27.6% from the first quarter of 2018. 

Managed working capital totaled $125.5 million at June 30, 2018, in line with the end of the 2018 first quarter and included accounts receivable of $35.8 million and inventory of $125.6 million, continuing to reflect strong markets and increased business activity.

Backlog (before surcharges) at June 30, 2018 was $104.2 million, an increase of 15.1% from March 31, 2018, and 64.2% higher than the 2017 second quarter.

The Company's total debt at June 30, 2018 was $57.1 million, compared with $99.9 million at the end of the first quarter of 2018. The decrease in total debt was due primarily to the application of the equity offering net proceeds to the Company's revolving credit facility.  

Capital expenditures for the second quarter of 2018 totaled $4.2 million compared to $1.7 million in the second quarter of 2017 and $2.5 million for the first quarter of 2018. The increase in capital expenditures was driven by the Company's mid-size bar cell project at its Dunkirk, NY facility, which is expected to be completed in the fourth quarter. Once completed, benefits related to this project are expected to include both cost and inventory reductions, as well as quality and cycle time improvements.

The Company's tax rate for the six months ended June 30, 2018 was 23.7% and included approximately $0.3 million of discrete tax expense items, primarily related to the expiration of fully vested stock options. Excluding the discrete tax items, the underlying annual effective tax rate was 19.6%. 

Chairman, President and CEO Dennis Oates commented: "Continued favorable market conditions, strong volume including record premium alloy sales, along with better price realization and cost absorption, drove our second quarter performance.  Gross margin as a percent of sales reached 17.7%, the highest level since the first quarter of 2012, while the EBITDA margin increased to 17.0% of sales.  We also made important strides in strengthening our financial structure with the successful equity offering in June, giving us important flexibility to pursue our growth strategy and respond to robust market conditions."

Mr. Oates continued, "We have entered the third quarter on very strong footing.  Backlog of over $100 million is the highest in six years and bookings remain at record levels.  These factors point to sequential growth in the third quarter, which historically is a seasonally slower period, as well as support our positive outlook for the remainder of the year."

Webcast

The Company has scheduled a conference call for today, July 25, 2018, at 10:00 a.m. (Eastern) to discuss second quarter 2018 results. Those wishing to listen to the live conference call via telephone should dial 706-679-0668, passcode 6576879. 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 third quarter of 2018.  

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.

-TABLES FOLLOW -

   
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
FINANCIAL HIGHLIGHTS
(Dollars in Thousands, Except Per Share Information)
(Unaudited)
 
   
CONSOLIDATED STATEMENTS OF OPERATIONS  
                                         
    Three months ended     Six months ended  
    June 30,     June 30,  
    2018     2017     2018     2017  
Net Sales                                        
Stainless steel   $   47,691     $   37,157     $   90,630     $   72,190  
High-strength low alloy steel       4,888         3,418         10,090         7,590  
Tool steel       8,766         8,665         18,407         15,722  
High-temperature alloy steel       2,931         2,901         7,478         4,877  
Conversion services and other sales       1,795         466         3,203         1,103  
                                         
Total net sales       66,071         52,607         129,808         101,482  
                                         
Cost of products sold       54,376         45,441         108,841         90,071  
                                         
Gross margin       11,695         7,166         20,967         11,411  
                                         
Selling, general and administrative expenses       5,849         4,499         11,056         9,228  
                                         
Operating income (loss)       5,846         2,667         9,911         2,183  
                                         
Interest expense       1,197         1,020         2,339         1,959  
Deferred financing amortization       71         64         135         128  
Other (income) expense, net       (599 )       (14 )       (642 )       (20 )
                                         
Income (loss) before income taxes       5,177         1,597         8,079         116  
                                         
Provision (benefit) for income taxes       1,139         369         1,916         107  
                                         
Net income (loss)   $   4,038     $   1,228     $   6,163     $   9  
                                         
Net income (loss) per common share - Basic   $   0.52     $   0.17     $   0.82     $   0.00  
Net income (loss) per common share - Diluted   $   0.50     $   0.17     $   0.79     $   0.00  
                                         
Weighted average shares of common                                        
stock outstanding                                        
Basic       7,817,628         7,219,423         7,541,332         7,217,943  
Diluted       8,076,108         7,360,137         7,784,403         7,333,106  
                                         

                                                                                                                                               

MARKET SEGMENT INFORMATION  
                                         
    Three months ended     Six months ended  
    June 30,       June 30,  
    2018     2017       2018       2017  
Net Sales                                        
Service centers   $   44,743     $   37,382     $   89,262     $   70,111  
Original equipment manufacturers       5,769         4,756         10,251         8,878  
Rerollers       8,293         5,259         16,658         11,812  
Forgers       5,471         4,744         10,434         9,578  
Conversion services and other sales       1,795         466         3,203         1,103  
                                         
Total net sales   $   66,071     $   52,607     $   129,808     $   101,482  
                                         
Tons shipped       11,139         10,090         22,296         20,421  
                                         
MELT TYPE INFORMATION  
                                         
    Three months ended     Six months ended  
    June 30,     June 30,  
    2018     2017     2018     2017  
Net Sales                                        
Specialty alloys   $   52,244     $   45,371     $   102,728     $   87,776  
Premium alloys *       12,032         6,770         23,877         12,603  
Conversion services and other sales       1,795         466         3,203         1,103  
                                         
Total net sales   $   66,071     $   52,607     $   129,808     $   101,482  
                                         
END MARKET INFORMATION **  
                                         
    Three months ended     Six months ended  
    June 30,     June 30,  
    2018     2017     2018     2017  
Net Sales                                        
Aerospace   $   40,205     $   28,995     $   76,440     $   55,687  
Power generation       2,334         4,774         4,623         9,008  
Oil & gas       7,826         4,814         16,285         9,703  
Heavy equipment       9,048         8,948         19,083         16,633  
General industrial, conversion services and other sales       6,658         5,076         13,377         10,451  
                                         
Total net sales   $   66,071     $   52,607     $   129,808     $   101,482  
                                         
* 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  
                     
    June 30,     December 31,  
    2018     2017  
Assets                    
                     
Cash   $   263     $   207  
Accounts receivable, net       35,812         24,990  
Inventory, net       125,615         116,663  
Other current assets       4,165         4,404  
                     
Total current assets       165,855         146,264  
Property, plant and equipment, net       173,227         174,444  
Other long-term assets       6,656         523  
                     
Total assets   $   345,738     $   321,231  
                     
Liabilities and Stockholders' Equity                    
                     
Accounts payable   $   35,885     $   34,898  
Accrued employment costs       5,891         4,075  
Current portion of long-term debt       6,742         4,707  
Other current liabilities       1,233         1,268  
                     
Total current liabilities       49,751         44,948  
Long-term debt, net       50,386         75,006  
Deferred income taxes       11,520         9,605  
Other long-term liabilities, net       2,841         4  
                     
Total liabilities       114,498         129,563  
Stockholders' equity       231,240         191,668  
                     
Total liabilities and stockholders' equity   $   345,738     $   321,231  
                     
   
                     


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW  
                     
    Six months ended  
    June 30,  
    2018     2017  
                     
Operating activities:                    
Net income (loss)   $   6,163     $   9  
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:                    
Depreciation and amortization       9,613         9,365  
Deferred income tax       1,885         (16 )
Share-based compensation expense       678         971  
Changes in assets and liabilities:                    
Accounts receivable, net       (10,822 )       (9,614 )
Inventory, net       (10,084 )       (9,798 )
Accounts payable       643         8,655  
Accrued employment costs       1,891         (550 )
Income taxes       (29 )       117  
Other, net       267         (752 )
                     
Net cash provided by (used in) operating activities       205         (1,613 )
                     
Investing activity:                    
Capital expenditures       (6,647 )       (3,068 )
                     
Net cash (used in) investing activity       (6,647 )       (3,068 )
                     
Financing activities:                    
Borrowings under revolving credit facility       264,889         158,180  
Payments on revolving credit facility       (283,346 )       (150,830 )
Proceeds under New Markets Tax Credit financing       2,835         -  
Payments on term loan facility, capital leases, and notes       (3,567 )       (2,751 )
Payment of deferred financing costs       (695 )       -  
Proceed from public offering, net of cash expenses       32,253         -  
Proceeds from the common stock exercised       262         104  
                     
Net cash provided by financing activities       12,631         4,703  
                     
Net increase in cash and restricted cash       6,189         22  
Cash and restricted cash at beginning of period       207         75  
Cash and restricted cash at end of period   $   6,396     $   97  
                     


RECONCILIATION OF NET INCOME (LOSS) TO EBITDA AND ADJUSTED EBITDA  
                                           
      Three Months ended     Six months ended  
      June 30,     June 30,  
      2018     2017     2018     2017  
                                           
Net income (loss)     $   4,038     $   1,228     $   6,163     $   9  
Interest expense         1,197         1,020         2,339         1,959  
Provision (Benefit) for income taxes         1,139         369         1,916         107  
Depreciation and amortization         4,857         4,648         9,613         9,365  
EBITDA         11,231         7,265         20,031         11,440  
Share-based compensation expense         352         437         678         971  
Adjusted EBITDA     $   11,583     $   7,702     $   20,709     $   12,411  
                                           

 

CONTACTS: Dennis M. Oates
Chairman,
President and CEO
(412) 257-7609
Christopher T. Scanlon
VP Finance, CFO 
and Treasurer 
(412) 257-7662

June Filingeri
President
Comm-Partners LLC
(203) 972-0186

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