SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 26, 2011
Universal Stainless & Alloy Products, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 000-25032 | 25-1724540 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) | ||
| 600 Mayer Street, Bridgeville, Pennsylvania | 15017 | |||
| (Address of principal executive offices) | (Zip code) | |||
Registrant’s telephone number, including area code: (412) 257-7600
Check the appropriate box below if the Form 8–K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2.):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a–12 under the Exchange Act (17 CFR 240.14a–12) |
| ¨ | Pre–commencement communications pursuant to Rule 14d–2(b) under the Exchange Act (17 CFR 240.14d–2(b)) |
| ¨ | Pre–commencement communications pursuant to Rule 13e–4(c) under the Exchange Act (17 CFR 240.13e–4(c)) |
| Item 2.02. | Results of Operations and Financial Condition. |
On October 26, 2011, Universal Stainless and Alloy Products, Inc. issued a press release regarding its earnings for the third quarter ended September 30, 2011. A copy of the press release is attached hereto as Exhibit 99.1.
The information in this Current Report on Form 8-K, including the attached press release regarding the Company’s earnings for the third quarter ended September 30, 2011, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.
| Item 9.01. | Financial Statements and Exhibits. |
| (d) | Exhibits |
| 99.1 | Press Release dated October 26, 2011 |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC. | ||
| By: | /s/ Douglas M. McSorley | |
| Vice President of Finance, | ||
| Chief Financial Officer and Treasurer | ||
Dated: October 26, 2011
Exhibit 99.1
| CONTACTS: |
Dennis Oates |
Douglas McSorley | June Filingeri | |||
| Chairman, |
VP Finance, CFO | President | ||||
| President and CEO |
and Treasurer | Comm-Partners LLC | ||||
| (412) 257-7609 |
(412) 257-7606 | (203) 972-0186 |
FOR IMMEDIATE RELEASE
UNIVERSAL STAINLESS REPORTS STRONG THIRD QUARTER 2011 RESULTS
- Sales Reach Record $67.3 Million
- EPS is $0.55, after $0.28 of Expense for Newly-Acquired North Jackson Operation
- Backlog was $92.2 Million at Quarter-End
BRIDGEVILLE, PA, October 26, 2011 – Universal Stainless & Alloy Products, Inc. (Nasdaq: USAP) reported today that sales for the third quarter of 2011 reached a record $67.3 million, an increase of 30% from the third quarter of 2010 and up 6% from the 2011 second quarter.
Operating income for the third quarter of 2011 was $7.2 million and included $1.7 million of operating expense related to the acquisition and start-up of the Company’s North Jackson operation, a substantially completed greenfield facility acquired by the Company on August 18, 2011. Operating income was $6.3 million in the third quarter of 2010 and $8.5 million in the 2011 second quarter.
Net income for the third quarter of 2011 was $3.9 million, or $0.55 per diluted share, with North Jackson-related expense of $1.9 million (after-tax) reducing EPS by $0.28, in line with the Company’s guidance. Net income was $4.1 million, or $0.60 per diluted share, in the third quarter of 2010, and $5.5 million, or $0.79 per diluted share, in the second quarter of 2011, which included expense of $0.3 million (after-tax), equivalent to $0.04 per diluted share, related to the acquisition of North Jackson.
As a result of the North Jackson acquisition, the Company now projects that its 2011 tax rate will increase to 37 percent from 35 percent. The increased rate is due to the accelerated deductions that will result from the commissioning of the North Jackson assets. These deductions will enable the Company to recover cash taxes paid earlier this year and in 2010 but also will result in the loss of certain tax deductions that will increase the tax rate. The after-tax expense related to North Jackson in the third quarter includes $0.06 per diluted share for the effect of the increased tax rate.
For the first nine months of 2011, sales increased 38% to $190.4 million and net income rose 43% to $13.9 million, or $1.97 per diluted share, compared with the same period of 2010. Net income for the first nine months of 2011 included after-tax expense of $0.37 per diluted share related to the acquisition of the North Jackson operation.
For the third quarter of 2011, cash flow from operations was $1.9 million. The total consideration for the acquisition of the North Jackson assets acquired from Patriot Special Metals, Inc. was $115.8 million, which was funded with internal cash and $20 million in convertible notes to the seller, as well as with funds under the new $115 million credit agreement as previously reported. Capital expenditures were $3.2 million for the third quarter, including $0.3 million for the North Jackson operation. At September 30, 2011, the Company had cash of $0.3 million and total debt of $95.6 million, or 35.3% of total capitalization.
Shipment volume for the third quarter of 2011 increased 9% from the third quarter of 2010 and 2% from the second quarter of 2011. Compared with the 2011 second quarter, volume shipped to the power generation and aerospace
1
markets increased 14% and 7%, respectively, while volume shipped to the petrochemical and service center plate markets was down 2% and 5%, respectively.
Chairman, President and CEO Dennis Oates commented: “Business remained unusually strong in the summer months and backlog stayed at a healthy level of $92 million, despite the negative economic headlines. In addition to strong sales growth, the consolidated operating margin on our base business was 13.2% in the third quarter, before acquisition related costs. The Company’s operating margins in the last two quarters are at the highest levels achieved in the past 15 quarters and reflect increased earnings power resulting from our focus on a higher value sales mix and cost reductions. The addition of North Jackson will enable us to expand our product range in higher value, higher margin products as well as reduce costs and better utilize our melt shop and other capacity, which will further drive profitability.
“Construction projects and equipment commissioning in North Jackson are on schedule. Our state-of-the-art radial forge has begun processing internal material and doing conversion work for customers. Construction of the Vacuum Induction Melting furnace and installation of two Vacuum Arc Remelt furnaces are underway. Our Board recently approved the purchase of two additional VAR furnaces for North Jackson. This decision was based on the current level of business and the continued favorable outlook for all our end markets.”
Segment Review
For the third quarter of 2011, the Universal Stainless & Alloy Products segment including the North Jackson operation had sales of $60.6 million and operating income of $4.8 million, yielding an operating margin of 7.9% of sales. Before including the North Jackson operation and acquisition-related costs, segment operating income was $6.5 million, or 10.7% of sales. In the third quarter of 2010, sales were $46.2 million, and operating income was $4.4 million, or 9.4% of sales. For the second quarter of 2011, sales were $60.5 million, and operating income was $6.4 million, or 10.7% of sales.
Segment sales rose 31% from the third quarter of 2010 on an 11% increase in tons shipped mainly due to higher shipments to forgers and to Dunkirk for finished product production. Segment sales were in line with the second quarter of 2011 on 5% lower volume due to lower shipments of service center plate products and lower shipments to Dunkirk.
Sales for the Dunkirk Specialty Steel segment were $25.3 million for the third quarter of 2011, and operating income was $2.5 million, yielding an operating margin of 9.9% of sales. This compares with sales in the third quarter of 2010 of $16.1 million and operating income of $1.4 million, or 8.4% of sales. In the second quarter of 2011, sales were $25.6 million, and operating income was $3.0 million, or 11.6% of sales.
Dunkirk’s sales increased 57% from the third quarter of 2010 on a 46% increase in tons shipped, mainly due to increased shipments to service centers. Dunkirk’s sales decreased 1% from their record level in the second quarter of 2011 on 2% lower tons shipped, mainly due to lower shipments to service centers.
The Company noted that while the newly-acquired North Jackson operation was reported in the results of the Universal Stainless & Alloy Products segment for the third quarter of 2011, it is finalizing a new organizational structure for the inclusion of North Jackson, which may change its externally reported segments in the future.
Webcast
A simultaneous webcast of the Company’s conference call discussing the third quarter of 2011, scheduled at 10:00 a.m. (Eastern) today, 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 2011.
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, tool steel and certain other alloyed steels. The Company’s products are used in a variety of industries, including aerospace, power generation, petrochemical 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
2
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.
- TABLES FOLLOW -
3
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share information)
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| For the Quarter Ended September 30, |
For the Nine-Months Ended September 30, |
|||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Net Sales |
||||||||||||||||
| Stainless steel |
$ | 54,746 | $ | 39,567 | $ | 149,797 | $ | 100,332 | ||||||||
| Tool steel |
5,407 | 7,425 | 18,376 | 22,464 | ||||||||||||
| High-strength low alloy steel |
4,440 | 2,579 | 13,925 | 7,576 | ||||||||||||
| High-temperature alloy steel |
1,579 | 1,150 | 5,037 | 4,369 | ||||||||||||
| Conversion services |
935 | 637 | 2,945 | 1,829 | ||||||||||||
| Scrap sales and other |
192 | 512 | 348 | 1,270 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total net sales |
67,299 | 51,870 | 190,428 | 137,840 | ||||||||||||
| Cost of products sold |
54,725 | 41,555 | 154,884 | 112,909 | ||||||||||||
| Selling and administrative expenses |
5,343 | 4,001 | 12,870 | 9,952 | ||||||||||||
|
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|
|
|
|
|
|
|||||||||
| Operating income |
7,231 | 6,314 | 22,674 | 14,979 | ||||||||||||
| Interest expense |
(609 | ) | (126 | ) | (852 | ) | (334 | ) | ||||||||
| Other income |
45 | 10 | 188 | 11 | ||||||||||||
|
|
|
|
|
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|
|||||||||
| Income before income taxes |
6,667 | 6,198 | 22,010 | 14,656 | ||||||||||||
| Income tax provision |
2,774 | 2,107 | 8,144 | 4,983 | ||||||||||||
|
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|
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|||||||||
| Net income |
$ | 3,893 | $ | 4,091 | $ | 13,866 | $ | 9,673 | ||||||||
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|||||||||
| Earnings per common share – Basic |
$ | 0.57 | $ | 0.60 | $ | 2.03 | $ | 1.43 | ||||||||
|
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|
|
|
|
|
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| Earnings per common share – Diluted |
$ | 0.55 | $ | 0.60 | $ | 1.97 | $ | 1.41 | ||||||||
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|
|||||||||
| Weighted average shares of Common |
||||||||||||||||
| Stock outstanding |
||||||||||||||||
| Basic |
6,831,048 | 6,785,753 | 6,821,944 | 6,777,915 | ||||||||||||
| Diluted |
7,202,386 | 6,856,951 | 7,050,781 | 6,850,369 | ||||||||||||
MARKET SEGMENT INFORMATION
| For the Quarter Ended September 30, |
For the Nine-Months Ended September 30, |
|||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Net Sales |
||||||||||||||||
| Service centers |
$ | 35,067 | $ | 25,425 | $ | 98,000 | $ | 66,432 | ||||||||
| Forgers |
12,997 | 8,544 | 36,792 | 31,655 | ||||||||||||
| Rerollers |
12,506 | 11,560 | 35,983 | 24,112 | ||||||||||||
| Original equipment manufacturers |
4,518 | 3,803 | 12,844 | 9,733 | ||||||||||||
| Wire redrawers |
1,084 | 1,389 | 3,516 | 2,809 | ||||||||||||
| Conversion services |
935 | 637 | 2,945 | 1,829 | ||||||||||||
| Scrap sales and other |
192 | 512 | 348 | 1,270 | ||||||||||||
|
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|
|
|
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|
|||||||||
| Total net sales |
$ | 67,299 | $ | 51,870 | $ | 190,428 | $ | 137,840 | ||||||||
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|
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| Tons Shipped |
12,813 | 11,758 | 38,345 | 32,008 | ||||||||||||
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4
BUSINESS SEGMENT RESULTS
Universal Stainless & Alloy Products Segment
| For the Quarter Ended | For the Nine-Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2011 * | 2010 | 2011 * | 2010 | |||||||||||||
| Net Sales |
||||||||||||||||
| Stainless steel |
$ | 34,803 | $ | 26,669 | $ | 94,037 | $ | 70,626 | ||||||||
| Tool steel |
5,047 | 7,159 | 17,184 | 21,804 | ||||||||||||
| High-strength low alloy steel |
662 | 371 | 1,816 | 1,755 | ||||||||||||
| High-temperature alloy steel |
623 | 507 | 2,050 | 1,658 | ||||||||||||
| Conversion services |
641 | 542 | 2,203 | 1,385 | ||||||||||||
| Scrap sales and other |
230 | 525 | 359 | 1,238 | ||||||||||||
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|||||||||
| 42,006 | 35,773 | 117,649 | 98,466 | |||||||||||||
| Intersegment |
18,554 | 10,437 | 58,512 | 28,692 | ||||||||||||
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| Total net sales |
60,560 | 46,210 | 176,161 | 127,158 | ||||||||||||
| Material cost of sales |
31,265 | 22,778 | 92,338 | 60,667 | ||||||||||||
| Operation cost of sales |
20,511 | 16,365 | 58,811 | 46,676 | ||||||||||||
| Selling and administrative expenses |
4,004 | 2,702 | 8,872 | 6,730 | ||||||||||||
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| Operating income |
$ | 4,780 | $ | 4,365 | $ | 16,140 | $ | 13,085 | ||||||||
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| * | - The Unviersal Stainless & Alloy Products segment includes the results of our North Jackson operations from the August 18, 2011 acquisition date through September 30, 2011. |
Dunkirk Specialty Steel Segment
| For the Quarter
Ended September 30, |
For the Nine-Months Ended September 30, |
|||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Net Sales |
||||||||||||||||
| Stainless steel |
$ | 19,943 | $ | 12,898 | $ | 55,760 | $ | 29,706 | ||||||||
| Tool steel |
360 | 266 | 1,192 | 660 | ||||||||||||
| High-strength low alloy steel |
3,778 | 2,208 | 12,109 | 5,821 | ||||||||||||
| High-temperature alloy steel |
956 | 643 | 2,987 | 2,711 | ||||||||||||
| Conversion services |
294 | 95 | 742 | 444 | ||||||||||||
| Scrap sales and other |
(38 | ) | (13 | ) | (11 | ) | 32 | |||||||||
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|||||||||
| 25,293 | 16,097 | 72,779 | 39,374 | |||||||||||||
| Intersegment |
34 | 15 | 126 | 92 | ||||||||||||
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|||||||||
| Total net sales |
25,327 | 16,112 | 72,905 | 39,466 | ||||||||||||
| Material cost of sales |
15,847 | 9,708 | 44,864 | 22,528 | ||||||||||||
| Operation cost of sales |
5,628 | 3,752 | 16,230 | 10,760 | ||||||||||||
| Selling and administrative expenses |
1,339 | 1,299 | 3,998 | 3,222 | ||||||||||||
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| Operating income |
$ | 2,513 | $ | 1,353 | $ | 7,813 | $ | 2,956 | ||||||||
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5
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||
| 2011 | 2010 | |||||||
| Assets |
||||||||
| Cash and cash equivalents |
$ | 295 | $ | 34,400 | ||||
| Accounts receivable, net |
39,535 | 29,273 | ||||||
| Inventory, net |
79,273 | 69,710 | ||||||
| Refundable income taxes |
10,487 | 137 | ||||||
| Deferred income taxes |
10,987 | 4,326 | ||||||
| Other current assets |
1,686 | 1,198 | ||||||
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|||||
| Total current assets |
142,263 | 139,044 | ||||||
| Property, plant and equipment, net |
168,854 | 71,581 | ||||||
| Goodwill |
20,479 | — | ||||||
| Other assets |
4,354 | 1,499 | ||||||
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| Total assets |
$ | 335,950 | $ | 212,124 | ||||
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| Liabilities and Stockholders’ Equity |
||||||||
| Accounts payable |
$ | 20,838 | $ | 20,022 | ||||
| Outstanding checks in excess of bank balance |
— | — | ||||||
| Accrued employment costs |
7,296 | 5,488 | ||||||
| Current portion of long-term debt |
1,500 | 2,833 | ||||||
| Accrued income tax |
— | — | ||||||
| Other current liabilities |
1,178 | 605 | ||||||
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|
|||||
| Total current liabilities |
30,812 | 28,948 | ||||||
| Long-term debt |
94,100 | 7,990 | ||||||
| Deferred taxes |
35,648 | 15,276 | ||||||
| Other long-term liabilities |
— | 287 | ||||||
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|
|||||
| Total liabilities |
160,560 | 52,501 | ||||||
| Stockholders’ equity |
175,390 | 159,623 | ||||||
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|||||
| Total liabilities and stockholders’ equity |
$ | 335,950 | $ | 212,124 | ||||
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6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
| For the Nine-Months Ended September 30, |
||||||||
| 2011 | 2010 | |||||||
| Cash flows from Operating Activities: |
||||||||
| Net income |
$ | 13,866 | $ | 9,673 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
4,801 | 4,055 | ||||||
| Gain on sale of property, plant and equipment |
(20 | ) | — | |||||
| Deferred income tax |
13,536 | 945 | ||||||
| Stock-based compensation expense, net |
1,154 | 1,377 | ||||||
| Tax benefit from stock-based payment arrangements |
— | — | ||||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable, net |
(10,262 | ) | (12,770 | ) | ||||
| Inventory, net |
(9,563 | ) | (16,563 | ) | ||||
| Accounts payable |
(3,659 | ) | 7,160 | |||||
| Net change in outstanding checks in excess of bank balance |
— | — | ||||||
| Accrued employment costs |
1,806 | 3,919 | ||||||
| Income taxes |
(10,244 | ) | 3,730 | |||||
| Other, net |
(286 | ) | 16 | |||||
|
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|
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|
|||||
| Net cash provided by operating activities |
1,129 | 1,542 | ||||||
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|
|||||
| Investing Activities: |
||||||||
| Business acquisition, net of convertible notes assumed |
(91,298 | ) | — | |||||
| Capital expenditures |
(7,853 | ) | (5,148 | ) | ||||
| Proceeds from sale of property, plant and equipment |
20 | 17 | ||||||
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|
|||||
| Net cash used in investing activities |
(99,131 | ) | (5,131 | ) | ||||
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|||||
| Financing Activities: |
||||||||
| Borrowings under term loan facility |
40,000 | — | ||||||
| Borrowings under revolving credit facility |
44,200 | — | ||||||
| Payments on revolving credit facility |
(8,600 | ) | — | |||||
| Debt repayments |
(10,823 | ) | (1,515 | ) | ||||
| Proceeds from the issuance of Common Stock |
415 | 244 | ||||||
| Payment of deferred financing costs |
(1,370 | ) | — | |||||
| Tax benefit from stock-based payment arrangements |
75 | 99 | ||||||
| State grant funding the purchase of new equipment |
— | 500 | ||||||
| Purchase of treasury stock |
— | (260 | ) | |||||
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|
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|
|||||
| Net cash provided by (used in) financing activities |
63,897 | (932 | ) | |||||
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|
|
|||||
| Net decrease in cash and cash equivalents |
(34,105 | ) | (4,521 | ) | ||||
| Cash and cash equivalents at beginning of period |
34,400 | 41,615 | ||||||
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|||||
| Cash and cash equivalents at end of period |
$ | 295 | $ | 37,094 | ||||
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| Supplemental Non-Cash Investing and Financing Activity: |
||||||||
| Convertible notes issued as acquisition consideration |
$ | 20,000 | $ | — | ||||
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7