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Universal Stainless Reports Continued Operational and Financial Improvements in Fourth Quarter 2017 Results

Jan 24, 2018
  • Q4 2017 Sales of $50.3 Million, Up 47.2% vs. Q4 2016
  • Q4 Net Income of $7.9 million, or $1.06 per diluted share, including a net tax benefit of $1.06 per diluted share primarily attributable to the new federal tax legislation
  • EBITDA in Q4 of $5.8 Million, Up 82.4% from Q4 2016
  • Quarter-End Backlog of $77.7 Million, Up 17.3% sequentially, and Up 77.3% vs. Q4 2016

BRIDGEVILLE, Pa., Jan. 24, 2018 (GLOBE NEWSWIRE) -- Universal Stainless & Alloy Products, Inc.(Nasdaq:USAP) today reported net sales for the fourth quarter of 2017 of $50.3 million, an increase of 47.2% from $34.2 million in the fourth quarter of 2016, and slightly below $50.9 million in the 2017 third quarter.  All end markets made substantial contributions to the year-over-year quarterly sales growth, including aerospace, the Company's largest end market, where sales grew 70.1% from the fourth quarter of 2016. 

Sales of premium alloys remained at record levels in the fourth quarter of 2017 at $7.3 million, or 14.6% of sales, compared with $7.4 million, or 14.5% of sales reached in the third quarter of 2017, and versus $3.1 million, or 9.1% of sales, in the fourth quarter of 2016.

For full year 2017, sales increased to $202.6 million, up 31.2% from $154.4 million in 2016.  Sales of premium alloys in 2017 increased 90.1% to $27.3 million, or 13.5% of sales, from $14.4 million, or 9.3% of sales, in 2016. 

The Company’s gross margin for the fourth quarter of 2017 was $6.2 million, or 12.3% of sales, compared with $5.5 million, or 10.7% of sales, in the third quarter of 2017, and $3.1 million, or 9.1% of sales, in the fourth quarter of 2016.      

For the fourth quarter of 2017, selling, general and administrative expenses were $5.1 million, or 10.2% of sales, compared with $4.4 million, or 8.7% of sales, in the 2017 third quarter, and $4.5 million, or 13.3% of sales, in the fourth quarter of 2016. The fourth quarter increase is primarily due to increased legal expenses and adjustments to the bonus program accruals.

Net income for the fourth quarter of 2017 was $7.9 million, or $1.06 per diluted share, including a net tax benefit of $1.06 per diluted share primarily attributable to the new federal tax legislation.  In the third quarter of 2017, the Company incurred a net loss of $0.3 million, or $0.04 per diluted share, including unusual charges related to the facility fires totaling $0.03 per diluted share, and $0.03 per diluted share of discrete tax expense items mainly related to the new stock compensation accounting guidance in 2017. In the fourth quarter of 2016, the Company's net loss was $1.6 million, or $0.22 per diluted share.

For full year 2017, net income was $7.6 million, or $1.03 per diluted share, (including $1.03 per diluted share of net tax benefit) compared with a net loss of $5.3 million, or $0.74 per diluted share, in full year 2016. 

The Company’s EBITDA for the fourth quarter of 2017 was $5.8 million, an increase of 2.3% from the 2017 third quarter and an increase of 82.4% from the prior year fourth quarter.   

For full year 2017, the Company’s EBITDA was $22.9 million, an increase of $9.5 million, or 71.6%, compared with full year 2016.

Backlog (before surcharges) at December 31, 2017 was $77.7 million, an increase of 17.3% from September 30, 2017, and 77.3% higher than at the end of the 2016 fourth quarter. The December 31, 2017 backlog is the largest  backlog since the second quarter of 2012.

The Company’s fourth quarter debt was $79.7 million compared with $77.1 in the third quarter of 2017, with the increase for higher working capital driven by strong bookings and backlog growth.   

Capital expenditures for the fourth quarter of 2017 increased to $3.3 million from $1.6 million in the third quarter of 2017 and $1.3 million in the fourth quarter of 2016 and included down payments on capital projects scheduled for 2018 in Dunkirk and Bridgeville.

Chairman, President and CEO Dennis Oates commented: “We continue to see positive customer sentiment and increasing market momentum. Our bookings in the fourth quarter were the highest level reached since the first quarter of 2012. Our top line continued to grow, including a record level of premium alloy sales, despite the normal seasonal slow-down as customers address their year-end inventory targets and extreme weather conditions.    

“We made modest progress in improving our gross margin during the fourth quarter, although there was some spill-over effect from the September fire-related issues as we sold through third quarter production and worked to keep orders flowing according to schedule.  These challenges are now largely behind us and our focus is on expanding gross margins, driving efficiencies and seizing opportunities in the current strong market.”

Webcast

The Company has scheduled a conference call for today, January 24, 2018, at 10:00 a.m. (Eastern) to discuss fourth quarter 2017 results.  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 first quarter of 2018.  

About Universal Stainless & Alloy Products, Inc.

Universal Stainless & Alloy Products, Inc., 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. Established in 1994, the Company, with its experience, technical expertise, and dedicated workforce, stands committed to providing the best quality, delivery, and service possible. 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 concentrated nature of the Company’s customer base to date and the Company’s dependence on its significant customers; the receipt, pricing and timing of future customer orders; changes in product mix; the limited number of raw material and energy suppliers and significant fluctuations that may occur in raw material and energy prices; risks related to property, plant and equipment, including the Company’s reliance on the continuing operation of critical manufacturing equipment; risks associated with labor matters; 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 and matters; risks related to acquisitions that the Company may make; 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.

CONTACTS:
Dennis M. Oates 
Chairman,
President and CEO
(412) 257-7609 

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

-TABLES FOLLOW -

 

UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
FINANCIAL HIGHLIGHTS
(Dollars in Thousands, Except Per Share Information)
(Unaudited)

CONSOLIDATED STATEMENTS OF OPERATIONS

    Three Months Ended     Year Ended  
    December 31,     December 31,  
    2017     2016     2017     2016  
Net Sales                                        
Stainless steel   $   33,307     $   23,048     $   139,603     $   112,118  
High-strength low alloy steel       4,744         2,241         15,693         13,180  
Tool steel       7,355         6,469         32,279         19,179  
High-temperature alloy steel       4,350         1,415         12,435         6,057  
Conversion services and other sales       518         986         2,633         3,900  
                                         
Total net sales       50,274         34,159         202,643         154,434  
                                         
Cost of products sold       44,115         31,060         179,609         140,921  
                                         
Gross margin       6,159         3,099         23,034         13,513  
                                         
Selling, general and administrative expenses       5,121         4,549         18,797         17,482  
                                         
Operating income (loss)       1,038         (1,450 )       4,237         (3,969 )
                                         
Interest expense       1,005         928         4,022         3,659  
Deferred financing amortization       63         64         255         1,015  
Other (income) expense       (6 )       20         (49 )       230  
                                         
Income (loss) before income taxes       (24 )       (2,462 )       9         (8,873 )
                                         
Benefit for income taxes       (7,884 )       (877 )       (7,601 )       (3,526 )
                                         
Net income (loss)   $   7,860     $   (1,585 )   $   7,610     $   (5,347 )
                                         
Net income (loss) per common share - Basic   $   1.09     $   (0.22 )   $   1.05     $   (0.74 )
Net income (loss) per common share - Diluted   $   1.06     $   (0.22 )   $   1.03     $   (0.74 )
                                         
Weighted average shares of common                                        
stock outstanding                                        
Basic       7,238,372         7,206,753         7,225,697         7,193,300  
Diluted       7,417,044         7,206,753         7,374,805         7,193,300  



MARKET SEGMENT INFORMATION  
                                         
    Three Months Ended     Year ended  
    December 31,     December 31,  
    2017     2016     2017     2016  
Net Sales                                        
Service centers   $   34,641     $   23,744     $   140,259     $   108,582  
Forgers       4,497         2,557         18,442         13,441  
Rerollers       6,223         3,125         23,675         12,481  
Original equipment manufacturers       4,395         3,747         17,634         16,030  
Conversion services and other sales       518         986         2,633         3,900  
                                         
Total net sales   $   50,274     $   34,159     $   202,643     $   154,434  
                                         
Tons shipped       8,996         7,582         39,246         31,372  
                                         
MELT TYPE INFORMATION  
                                         
    Three Months Ended     Year ended  
    December 31,     December 31,  
    2017     2016     2017     2016  
Net Sales                                        
Specialty alloys   $   42,428     $   30,074     $   172,715     $   136,178  
Premium alloys *       7,328         3,099         27,295         14,356  
Conversion services and other sales       518         986         2,633         3,900  
                                         
Total net sales   $   50,274     $   34,159     $   202,643     $   154,434  
                                         
END MARKET INFORMATION **  
                                         
    Three Months Ended     Year ended  
    December 31,     December 31,  
    2017     2016     2017     2016  
Net Sales                                        
Aerospace   $   28,391     $   16,692     $   111,795     $   91,979  
Power generation       4,325         3,242         16,592         14,175  
Oil & gas       4,773         3,147         19,069         12,392  
Heavy equipment       7,545         6,833         33,876         20,109  
General industrial, conversion services and other sales       5,240         4,245         21,311         15,779  
                                         
Total net sales   $   50,274     $   34,159     $   202,643     $   154,434  
                                         

* 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 customer.  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  
                     
    December 31,  
    2017     2016  
Assets                    
                     
Cash   $   207      $   75  
Accounts receivable, net       24,990         19,437  
Inventory, net       116,663         91,342  
Other current assets       4,404         2,729  
                     
Total current assets       146,264         113,583  
Property, plant and equipment, net       174,444         182,398  
Other long-term assets       523         64  
                     
Total assets   $   321,231      $   296,045  
                     
Liabilities and Stockholders' Equity                    
                     
Accounts payable   $   34,898      $   19,906  
Accrued employment costs       4,075         3,803  
Current portion of long-term debt       4,707         4,579  
Other current liabilities       1,268         898  
                     
Total current liabilities       44,948         29,186  
Long-term debt       75,006         67,998  
Deferred income taxes       9,605         17,629  
Other long-term liabilities       4         12  
                     
Total liabilities       129,563         114,825  
Stockholders’ equity       191,668         181,220  
                     
Total liabilities and stockholders’ equity   $   321,231      $   296,045  



CONSOLIDATED STATEMENTS OF CASH FLOW  
                     
    Year Ended  
    December 31,  
    2017     2016  
Operating activities:                    
Net income (loss)   $   7,610      $   (5,347 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:                    
Depreciation and amortization       18,823         18,533  
Deferred income tax       (7,593 )       (3,525 )
Write-off  of deferred financing costs       -         768  
Share-based compensation expense, net       1,564         1,405  
Net gain on asset disposals       (70 )       (340 )
Changes in assets and liabilities:                    
Accounts receivable, net       (5,567 )       (1,754 )
Inventory, net       (27,378 )       (9,155 )
Accounts payable       14,178         7,096  
Accrued employment costs       272         547  
Income taxes       77         200  
Other, net       (811 )       (22 )
                     
Net cash provided by operating activities       1,105         8,406  
                     
Investing activities:                    
Capital expenditures       (7,996 )       (4,376 )
Proceeds from sale of property, plant and equipment       70         1,571  
                     
Net cash used in investing activities       (7,926 )       (2,805 )
                     
Financing activities:                    
Borrowings under revolving credit facility       350,314         241,152  
Payments on revolving credit facility       (338,836 )       (259,243 )
Borrowings under term loan facility       -         30,000  
Payments on term loan facility, capital leases, and convertible notes       (5,078 )       (17,448 )
Proceeds from the issuance of common stock       553         651  
Payment of deferred financing costs       -         (750 )
                     
Net cash provided by (used in) financing activities       6,953         (5,638 )
                     
Net increase (decrease) in cash       132         (37 )
Cash at beginning of period       75         112  
Cash at end of period   $   207      $   75  



RECONCILIATION OF NET INCOME (LOSS) TO EBITDA AND ADJUSTED EBITDA  
                                           
      Three Months ended     Twelve Months Ended  
      December 31,     December 31,  
      2017     2016     2017     2016  
                                           
Net income (loss)     $   7,860     $   (1,585 )   $   7,610     $   (5,347 )
Interest expense         1,005         928         4,022         3,659  
Benefit for income taxes         (7,884 )       (877 )       (7,601 )       (3,526 )
Depreciation and amortization         4,791         4,699         18,823         18,533  
EBITDA         5,772         3,165         22,854         13,319  
Share-based compensation expense         197         433         1,564         1,405  
Write-off of deferred financing costs         -         -         -         768  
Adjusted EBITDA     $   5,969     $   3,598     $   24,418     $   15,492  
                                           

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Source: Universal Stainless & Alloy Products, Inc.