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Universal Stainless

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Universal Stainless Reports Fourth Quarter 2016 Results

Jan 25, 2017
  • Fourth Quarter Net Sales Total $34.2 Million, up 7.8% Versus the Fourth Quarter of 2015
  • Fourth Quarter Net Loss Totals $0.22 per Diluted Share, Improved from a Net Loss per Diluted Share of $0.48 in the Fourth Quarter of 2015
  • Fourth Quarter Gross Margin was 9.1% of Sales, Improved From a Negative 2.8% of Sales in the Fourth Quarter of 2015
  • Order Entry Increases 16.7% from the Fourth Quarter of 2015
  • Quarter-End Backlog of $43.8 Million Increases 14.5% from the Fourth Quarter of 2015

BRIDGEVILLE, Pa., Jan. 25, 2017 (GLOBE NEWSWIRE) -- Universal Stainless & Alloy Products, Inc. (Nasdaq:USAP) today reported results for the fourth quarter of 2016 showing broad-based improvement on several measures compared with the fourth quarter of 2015, including increases in sales, order entry, backlog, and gross margin. The marketplace in which we operate continued to be challenging with cautious buying and customer year-end inventory management.  However, we have achieved alignment of our input costs and surcharges, improved operating margins, and have positioned the Company for growth and return to profitability as market conditions improve.

Net sales for the fourth quarter of 2016 were $34.2 million, up 7.8% compared with the fourth quarter of 2015, but down 13.9% sequentially from the third quarter of 2016, with the sequential decrease primarily from lower sales to the Aerospace end market, driven by customers' planned reductions of year-end inventory levels.   

Backlog (before surcharges) at December 31, 2016 was $43.8 million, up 11.2% from $39.4 million at the end of the 2016 third quarter, and up 14.5% from $38.2 million at the end of the 2015 fourth quarter.  Backlog at December 31, 2016 specific to premium alloys was up 66% compared with the end of the 2016 third quarter, and up 49% compared with the end of the 2015 fourth quarter. Sales of premium alloys in the fourth quarter of 2016 totaled $3.1 million, or 9.1% of sales, compared with $3.9 million, or 12.3% of sales, in the fourth quarter of 2015, and $3.4 million, or 8.6% of sales, in the third quarter of 2016.  

For full year 2016, net sales were $154.4 million, compared with $180.7 million in 2015.  Premium alloy sales in 2016 were $14.4 million, or 9.3% of sales, compared with $17.6 million, or 9.7% of sales, in 2015.

The Company's gross margin for the fourth quarter of 2016 was $3.1 million, or 9.1% of sales, improved from a negative $0.9 million, or a negative 2.8% of sales, in the fourth quarter of 2015.  The dramatic improvement from the fourth quarter of 2015 reflects the benefit of operational efficiencies and productivity, and better alignment of melt costs and surcharges.  In the third quarter of 2016, gross margin was $4.7 million, or 11.9% of sales, reflecting the benefit of higher sales.

For full year 2016, gross margin improved to $13.5 million, or 8.8% of sales, compared with $9.6 million, or 5.3% of sales, in 2015.  The improvement for the full year also reflects the benefit of operational efficiencies and productivity, and better alignment of melt costs and surcharges. 

The Company's net loss for the fourth quarter of 2016 was $1.6 million, or $0.22 per diluted share, significantly improved from a net loss of $3.4 million, or $0.48 per diluted share, in the fourth quarter of 2015.  For full year 2016, the net loss was $5.3 million, or $0.74 per diluted share, improved from a net loss of $20.7 million, or $2.92 per diluted share, in 2015.  The net loss in 2015 included an after tax goodwill impairment charge of $13.1 million, or $1.85 per diluted share.

The Company's adjusted EBITDA for the fourth quarter of 2016 was $3.6 million, substantially improved from a negative $0.5 million in the fourth quarter of 2015, but lower compared with $5.0 million in the third quarter of 2016.  The sequential decline in the fourth quarter of 2016 is primarily a result of lower sales compared with the third quarter of 2016.  For full year 2016, adjusted EBITDA was $15.5 million, an improvement from $10.2 million in 2015.

The Company's fourth quarter total debt of $72.6 million increased by $1.0 million, compared with the third quarter of 2016, but declined by $3.3 million for full year 2016.  Capital expenditures for the fourth quarter were $1.3 million, and for the full year 2016 were $4.4 million.

Chairman, President and CEO Dennis Oates commented: "Despite the expected slow finish to 2016, we are pleased to see improving trends in bookings and backlog coupled with a more favorable domestic specialty steel demand outlook going forward.   As previously noted, 2016 was a transition year and business evolved with modest improvements in market demand from the cycle lows.  In the latter part of 2016, demand was tempered by uncertainty surrounding the outcome of the election and inventory reductions by several customers. 

"As we start 2017, we are fully focused on capturing opportunities presented to us by the improving marketplace while continuing to advance the transformation of Universal Stainless through our move to higher value, higher margin premium alloys.  We are optimistic that increased sales volume and further productivity initiatives will translate into improved profitability as business conditions improve and we further utilize our mills going forward.  We remain committed to returning the business to sustained profitability through topline improvement and operational enhancements." 

Webcast

The Company has scheduled a conference call for today, January 25, 2017, at 10:00 a.m. (Eastern) to discuss fourth quarter 2016 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 2017.  

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.  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  Year Ended 
  December 31,  December 31, 
  2016  2015  2016  2015 
Net Sales                    
Stainless steel $ 23,048  $ 21,965  $ 112,118  $ 135,945 
High-strength low alloy steel   2,241    2,775    13,180    16,045 
Tool steel   6,469    3,064    19,179    16,197 
High-temperature alloy steel   1,415    2,576    6,057    7,557 
Conversion services and other sales   986    1,316    3,900    4,916 
                     
Total net sales   34,159    31,696    154,434    180,660 
                     
Cost of products sold   31,060    32,587    140,921    171,065 
                     
Gross margin   3,099    (891)   13,513    9,595 
                     
Selling, general and administrative expenses   4,549    4,533    17,482    19,406 
Goodwill impairment   -    -    -    20,268 
                     
Operating loss   (1,450)   (5,424)   (3,969)   (30,079)
                     
Interest expense   928    511    3,659    2,324 
Deferred financing amortization   64    199    1,015    566 
Other (income) expense   20    (241)   230    (153)
                     
Loss before income taxes   (2,462)   (5,893)   (8,873)   (32,816)
                     
Benefit for income taxes   (877)   (2,497)   (3,526)   (12,144)
                     
Net loss $ (1,585) $ (3,396) $ (5,347) $ (20,672)
                     
Net loss per common share - Basic $ (0.22) $ (0.48) $ (0.74) $ (2.92)
Net loss per common share - Diluted $ (0.22) $ (0.48) $ (0.74) $ (2.92)
                     
Weighted average shares of common                    
stock outstanding                    
Basic   7,206,753    7,092,233    7,193,300    7,069,954 
Diluted   7,206,753    7,092,233    7,193,300    7,069,954 
                     
  


MARKET SEGMENT INFORMATION 
                     
  Three Months Ended  Year Ended 
  December 31,  December 31, 
  2016  2015  2016  2015 
Net Sales                    
Service centers $ 23,744  $ 19,133  $ 108,582  $ 121,090 
Forgers   2,557    2,691    13,441    15,143 
Rerollers   3,125    4,161    12,481    17,848 
Original equipment manufacturers   3,747    4,395    16,030    21,663 
Conversion services and other sales   986    1,316    3,900    4,916 
                     
Total net sales $ 34,159  $ 31,696  $ 154,434  $ 180,660 
                     
Tons shipped   7,582    5,966    31,372    32,388 
                     
MELT TYPE INFORMATION 
                     
  Three Months Ended  Year Ended 
  December 31,  December 31, 
  2016  2015  2016  2015 
Net Sales                    
Specialty alloys $ 30,074  $ 26,481  $ 136,178  $ 158,145 
Premium alloys*   3,099    3,899    14,356    17,599 
Conversion services and other sales   986    1,316    3,900    4,916 
                     
Total net sales $ 34,159  $ 31,696  $ 154,434  $ 180,660 
                     
END MARKET INFORMATION ** 
                     
  Three Months Ended  Year Ended 
  December 31,  December 31, 
  2016  2015  2016  2015 
Net Sales                    
Aerospace $ 16,692  $ 16,615  $ 91,979  $ 108,791 
Power generation   3,242    2,997    14,175    19,212 
Oil & gas   3,147    4,098    12,392    17,094 
Heavy equipment   6,833    2,937    20,109    15,961 
General industrial, conversion services and other sales   4,245    5,049    15,779    19,602 
                     
Total net sales $ 34,159  $ 31,696  $ 154,434  $ 180,660 
                     

*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, that they will in-turn sell to the ultimate end market customer.

           
CONDENSED CONSOLIDATED BALANCE SHEETS 
           
  December 31, 
  2016  2015 
Assets          
           
Cash $ 75   $ 112 
Accounts receivable, net   19,437    17,683 
Inventory, net   91,342    83,373 
Other current assets   2,729    2,584 
           
Total current assets   113,583    103,752 
Property, plant and equipment, net   182,398    193,505 
Other long-term assets   64    45 
           
Total assets $ 296,045   $ 297,302 
           
Liabilities and Stockholders' Equity          
           
Accounts payable $ 19,906   $ 11,850 
Accrued employment costs   3,803    3,256 
Current portion of long-term debt   4,579    3,000 
Other current liabilities   898    640 
           
Total current liabilities   29,186    18,746 
Long-term debt1   67,998    72,884 
Deferred income taxes   17,629    20,666 
Other long-term liabilities   12    29 
           
Total liabilities   114,825    112,325 
Stockholders' equity   181,220    184,977 
           
Total liabilities and stockholders' equity $ 296,045   $ 297,302 

1Reflects the retrospective adoption of ASC 2015-3, "Simplifying the Presentation of Debt Issuance Costs" which resulted in the reclassification of $1,253 of deferred financing costs from other long-term assets to a reduction of debt at December 31, 2015 to be consistent with the current period presentation.

            
CONSOLIDATED STATEMENTS OF CASH FLOW  
            
  Year Ended  
  December 31,  
  2016  2015  
            
Operating activities:           
Net (loss) income $ (5,347)  $ (20,672) 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:           
Depreciation and amortization   18,533    18,608  
Deferred income tax   (3,525)   (12,060) 
Write-off of deferred financing costs   768    -  
Share-based compensation expense, net   1,405    1,865  
Net gain on asset disposals   (340)    -  
Goodwill impairment   -    20,268  
Changes in assets and liabilities:           
Accounts receivable, net   (1,754)   11,374  
Inventory, net   (9,155)   15,929  
Accounts payable   7,096    (13,009) 
Accrued employment costs   547    (2,755) 
Income taxes   200    (248) 
Other, net   (22)   (130) 
            
Net cash provided by operating activities   8,406    19,170  
            
Investing activities:           
Capital expenditures   (4,376)   (9,551) 
Proceeds from sale of property, plant and equipment   1,571    -  
Proceeds from insurance recovery   -    218  
            
Net cash used in investing activities   (2,805)   (9,333) 
            
Financing activities:           
Borrowings under revolving credit facility   241,152    73,515  
Payments on revolving credit facility   (259,243)   (80,253) 
Borrowings under term loan facility   30,000    -  
Payments on term loan facility, capital leases, and convertible notes   (17,448)   (3,000) 
Proceeds from the issuance of common stock   651    455  
Payment of deferred financing costs   (750)   (584) 
            
Net cash used in financing activities   (5,638)   (9,867) 
            
Net decrease in cash   (37)   (30) 
Cash at beginning of period   112    142  
            
Cash at end of period $ 75   $ 112  
  
RECONCILIATION OF NET LOSS TO EBITDA AND ADJUSTED EBITDA 
                      
   Three Months Ended  Year Ended 
   December 31,  December 31, 
   2016  2015  2016  2015 
                      
Net loss  $ (1,585) $ (3,396) $ (5,347) $ (20,672)
Interest expense    928    511    3,659    2,324 
Benefit for income taxes    (877)   (2,497)   (3,526)   (12,144)
Depreciation and amortization    4,699    4,499    18,533    18,608 
EBITDA    3,165    (883)   13,319    (11,884)
Share-based compensation expense    433    378    1,405    1,865 
Write-off of deferred financing costs    -    -    768    - 
Goodwill Impairment    -    -    -    20,268 
Adjusted EBITDA  $ 3,598  $ (505) $ 15,492  $ 10,249 
                      

 

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

Ross C. Wilkin	
VP Finance, CFO	
and Treasurer	
(412) 257-7662	

Brian M. Rayle	
Managing Director
Libertatis Consulting
(440) 827-2019