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Universal Stainless

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Universal Stainless Reports Third Quarter 2016 Results

Oct 26, 2016

  • Gross Margin in the Third Quarter Improves 130 Basis Points Sequentially to 11.9% of Sales
  • Net Loss in the Third Quarter Totals $0.5 Million, or $0.07 per Diluted Share, Improved From a Net Loss of $0.8 Million, or $0.11 per Diluted Share in the Second Quarter
  • Adjusted EBITDA in the Third Quarter Increases 10.0% Sequentially to $5.0 Million

BRIDGEVILLE, Pa., Oct. 26, 2016 (GLOBE NEWSWIRE) -- Universal Stainless & Alloy Products, Inc.(Nasdaq:USAP) today reported that net sales for the third quarter of 2016 were $39.7 million, down 3.4% sequentially from the second quarter of 2016, with the decrease driven primarily by sales to the Aerospace end market, specifically to our Service Center customers.   In the third quarter of 2015, net sales were $43.4 million.  For the first nine months of 2016, net sales were $120.3 million, compared with $149.0 million in the same period of 2015. 

Sales of premium alloys in the third quarter of 2016 totaled $3.4 million, or 8.6% of sales, compared with $3.8 million, or 9.2% of sales, in the second quarter, and $4.4 million, or 10.2% of sales, in the third quarter of 2015.   Premium alloy sales in the first nine months of 2016 were $11.3 million, or 9.4% of total sales, compared with $13.7 million, or 9.2% of total sales, in the same period of 2015.

The Company's gross margin for the third quarter of 2016 improved to $4.7 million, or 11.9% of sales, compared with $4.3 million, or 10.6% of sales, in the second quarter of 2016.  The improvement reflects the continued benefit of productivity enhancements, as well as further alignment of customer surcharges and input commodity costs.  In the third quarter of 2015, gross margin was a negative $0.4 million, or a negative 0.9% of sales.

The Company's net loss for the third quarter of 2016 was $0.5 million, or $0.07 per diluted share, improved from a net loss of $0.8 million, or $0.11 per diluted share, in the second quarter of 2016.  In the third quarter of 2015, the Company had a net loss of $17.0 million, or $2.41 per diluted share, which included losses of $15.5 million, or $2.19 per diluted share, related to a goodwill impairment charge, costs associated with idling of plants, supplier loss impact, non-cash inventory write-offs, and other exit and severance costs.

The Company's adjusted EBITDA for the third quarter was $5.0 million and represents a 10.0% improvement over the second quarter at an adjusted EBITDA margin of 12.7%.  Adjusted EBITDA is defined in the non-GAAP financial measures disclosure, and in the supporting table.

Backlog (before surcharges) at September 30, 2016 was $39.4 million, up 2.3% from $38.5 million at the end of the 2016 second quarter. Mill lead times remain short, reflecting a continued soft marketplace, and therefore keeping the Company's backlog suppressed from historical levels.

In the third quarter of 2016, the Company generated cash flow from operating activities of $1.7 million. Capital expenditures for the third quarter were $1.4 million, and total debt less cash was improved by $0.4 million.

Chairman, President and CEO Dennis Oates commented: "The further expansion in our gross profit margin was key to our sequential profitability improvement, reflecting improved operational productivity and better alignment of input commodity costs and surcharges.    

"As expected, 2016 continues to be a transition year, as evident in the Aerospace market, and is evolving with modest improvement in market demand from the recent low point in the fourth quarter of 2015.

"Despite current softness in Aerospace as we finish 2016, we remain optimistic about the overall health of Aerospace, as well as our other end markets, given positive industry trends.   We remain focused on capturing opportunities while continuing to advance the transformation of Universal Stainless through our move to higher value, higher margin premium alloys." 

Webcast

The Company has scheduled a conference call for today, October 26, at 10:00 a.m. (Eastern) to discuss third 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 fourth quarter of 2016.  

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 Nine months ended
  September 30,  September 30,
  2016 2015 2016 2015
Net Sales            
Stainless steel $ 29,621  $ 32,627  $ 89,070  $ 113,980 
High-strength low alloy steel   3,376    3,838    10,939    13,270 
Tool steel   4,503    4,240    12,710    13,133 
High-temperature alloy steel   1,376    1,512    4,642    4,981 
Conversion services and other sales    775    1,154    2,914    3,600 
             
Total net sales   39,651    43,371    120,275    148,964 
             
Cost of products sold   34,917    43,781     109,861    138,478 
             
Gross margin   4,734    (410)   10,414    10,486 
             
Selling, general and administrative expenses   4,504     5,218    12,933    14,873 
Goodwill impairment   -    20,268    -    20,268 
             
Operating income (loss)   230    (25,896)   (2,519)   (24,655)
             
Interest expense    863    586    2,731     1,813 
Deferred financing amortization   61    47    951    367 
Other expense, net   118    55    210    88 
             
Loss before income taxes   (812)   (26,584)   (6,411)   (26,923)
             
Benefit for income taxes   (292)   (9,539)   (2,649)   (9,647)
              
Net loss $ (520) $ (17,045) $ (3,762) $ (17,276)
             
Net loss per common share -Basic $ (0.07) $ (2.41) $ (0.52) $ (2.45)
Net loss per common share -Diluted $ (0.07) $ (2.41) $ (0.52) $ (2.45)
             
Weighted average shares of common            
stock outstanding            
Basic   7,206,659    7,070,924    7,188,782    7,062,373 
Diluted   7,206,659    7,070,924    7,188,782    7,062,373  
                      


MARKET SEGMENT INFORMATION
             
  Three months ended Nine months ended
  September 30,  September 30,
  2016 2015  2016  2015
Net Sales            
Service centers $27,507 $30,153 $84,838 $101,957
Original equipment manufacturers  4,593  4,532  12,283  17,268
Rerollers  2,860  2,868  9,356  13,687
Forgers  3,916  4,664  10,884  12,452
Conversion services and other sales  775  1,154  2,914  3,600
              
Total net sales $39,651 $43,371 $120,275 $148,964
             
Tons shipped  7,905  7,622  23,789  26,423
             
MELT TYPE INFORMATION
             
  Three months ended Nine months ended
  September 30, September 30,
  2016 2015 2016 2015
Net Sales            
Specialty alloys $35,460 $37,801 $106,104 $131,664
Premium alloys *  3,416  4,416  11,257   13,700
Conversion services and other sales  775  1,154  2,914  3,600
             
Total net sales $39,651 $43,371 $120,275 $148,964
             
END MARKET INFORMATION **
             
  Three months ended Nine months ended
  September 30, September 30,
  2016 2015 2016 2015
Net Sales             
Aerospace $23,628 $28,036 $75,287 $92,176
Power generation  4,009  3,817  10,933  16,215
Oil & gas  3,066  2,782  9,245  12,996
Heavy equipment  4,872  4,057  13,276  13,024
General industrial, conversion services and other sales  4,076  4,679  11,534  14,553
             
Total net sales  $39,651 $43,371 $120,275 $148,964
             

* 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
        
  September 30, December 31,
  2016 2015
Assets      
       
Cash $377 $112
Accounts receivable, net  21,517  17,683
Inventory, net   85,677  83,373
Other current assets  2,220  2,584
        
Total current assets  109,791  103,752
Property, plant and equipment, net  185,416   193,505
Other long-term assets1  64  45
        
Total assets $295,271 $297,302
       
Liabilities and Stockholders' Equity      
        
Accounts payable $18,581 $11,850
Accrued employment costs  3,227  3,256
Current portion of long-term debt  4,571  3,000
Other current liabilities  1,150  640
       
Total current liabilities  27,529  18,746
Long-term debt1  66,973  72,884
Deferred income taxes  17,980  20,666
Other long-term liabilities  30  29
       
Total liabilities  112,512  112,325
Stockholders' equity  182,759  184,977
       
Total liabilities and stockholders' equity $295,271 $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
       
  Nine months ended
  September 30,
  2016 2015
       
Operating activities:      
Net loss $ (3,762 ) $ (17,276)
Adjustments to reconcile net loss to net cash provided by operating activities:      
Depreciation and amortization   13,834    14,109 
Deferred income tax   (2,686)   (9,585)
Write-off of deferred financing costs   768    - 
Share-based compensation expense   972    1,487 
Net gain on asset disposals   (340)   - 
Goodwill impairment   -    20,268 
Changes in assets and liabilities:      
Accounts receivable, net   (3,834)   5,878 
Inventory, net   (3,442)   11,288 
Accounts payable   6,109    (11,371)
Accrued employment costs   (29)   (2,237)
Income taxes   269    (226)
Other, net   642    213 
       
Net cash provided by operating activities   8,501    12,548 
        
Investing activities:      
Capital expenditures   (3,119)   (8,397)
Proceeds from sale of property, plant and equipment   1,571    - 
       
Net cash used in investing activities   (1,548 )   (8,397)
       
Financing activities:      
Borrowings under revolving credit facility   184,685     76,898 
Payments on revolving credit facility   (204,886)    (78,923)
Borrowings under term loan facility   30,000    - 
Payments on term loan facility, capital leases, and convertible notes   (16,308)   (2,250)
Payments of deferred financing costs   (750)    - 
Proceeds from the issuance of common stock   571    388 
       
Net cash used in financing activities   (6,688)   (3,887)
       
Net increase in cash   265    264 
Cash at beginning of period   112    142 
       
Cash at end of period $ 377  $ 406 
       


 RECONCILIATION OF NET LOSS TO EBITDA AND ADJUSTED EBITDA
                    
  Three months ended Three months ended Nine months ended
  June 30,  September 30, September 30,
  2016 2015 2016 2015 2016 2015
                    
Net loss $ (802) $ (356) $ (520) $ (17,045) $ (3,762) $ (17,276)
Interest expense   887    605    863    586    2,731    1,813 
Benefit for income taxes   (437)   (173)   (292)   (9,539)   (2,649)   (9,647)
Depreciation and amortization   4,641    4,626    4,687    4,928    13,834     14,109 
EBITDA   4,289    4,702    4,738    (21,070)   10,154    (11,001)
Share-based compensation expense   279    422     288    526    972    1,487 
Write-off of deferred financing   -    -    -    -    768    - 
Goodwill impairment   -    -    -    20,268    -    20,268 
Adjusted EBITDA $ 4,568  $ 5,124  $ 5,026  $ (276) $ 11,894  $ 10,754 
                   


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

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Source: Universal Stainless & Alloy Products

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