Universal Stainless Reports Third Quarter 2020 Results
Oct 21, 2020
- Q3 2020 Sales total
$37.4 million ; Premium alloy sales up 13.9% from Q3 2019 - Q3 2020 Net Loss of
$7.0 million , or$0.79 per diluted share; Net loss of$3.9 million , or$0.44 per diluted share, excluding$4.3 million (pre-tax) of fixed cost absorption charges and$0.3 million (pre-tax) gain on insurance proceeds - EBITDA is a loss of
$3.6 million in Q3 2020; Adjusted EBITDA totals$0.6 million - Quarter-end Backlog of
$54.8 million versus$71.8 million at end of Q2 2020 - Managed working capital declines
$16.8 million , while total debt declines$11.9 million from Q2 2020 - Q3 cash flow from operations totals
$13.0 million
Sales of premium alloys in the third quarter of 2020 were
Chairman, President and CEO
“On a more promising note, order entry improved over second quarter levels, with September bookings at their highest level since March. Additionally, cancellations slowed during the quarter. We continue to expect measured improvement in activity levels beginning in 2021.
“Amid challenging third quarter conditions, we remained focused on execution, and saw a further shift in our sales mix to premium alloys, which reached nearly one-quarter of total third quarter sales. Premium alloys are our highest priority for targeted growth, and we continued to see demand for defense and specialty applications. Our new product development and approval activity continues as well.
“While aided by our premium alloy sales, third quarter margins were negatively impacted by lower activity levels and included fixed cost absorption direct charges in the quarter, which was expected.
“We focused on working capital reduction in the third quarter which resulted in positive cash flow. This focus resulted in both inventory and debt declines compared to the second quarter, with inventory reduced by
“Looking towards the balance of the year, we will continue to execute our strategy to pursue market opportunities while adapting our operations to current activity levels as well as maintaining our focus on inventory and debt reduction.”
COVID-19 Response Summary
- Each of the Company’s facilities is an essential operation and continues to remain operational in accordance with the laws of the states in which the facilities are located.
- The Company continues to monitor the pandemic’s impact on the markets the Company serves, including the aerospace and oil & gas markets. The Company’s sales to the aerospace market have declined, primarily due to the cancellation or delay in orders for new airplanes due to the fall-off in air travel caused by the COVID-19 pandemic, as well as a sharp decline in aftermarket sales due to the significant reduction in air travel. The Company also has experienced extreme pressure in demand from the oil & gas market.
- On
April 15, 2020 , the Company entered into a$10.0 million term note pursuant to the Paycheck Protection Program (PPP) under the Coronavirus Aid, Relief, and Economic Security Act. The Company applied for full forgiveness of the PPP term note in the 2020 third quarter, and the PPP loan forgiveness process is currently underway. - While the Company expects the effects of the pandemic and the related responses to continue to negatively impact its results of operations, cash flows and financial position, the uncertainty over the duration and severity of the economic and operational impacts of COVID-19 means the Company cannot reasonably estimate the related future impacts at this time.
- The Company continues to adapt its operations due to lower activity levels. As a result, the Company has taken measures to align its cost structure with current forecasted revenue and operating levels.
Quarterly and Year-to-Date Results of Operations
For the first nine months of 2020, net sales totaled
The Company's gross margin for the third quarter of 2020 was a loss of
Selling, general and administrative expenses were
The net loss for the third quarter of 2020 was
For the first nine months of 2020, the net loss was
The Company’s EBITDA for the third quarter of 2020 was a loss of
Managed working capital at
Backlog (before surcharges) at
The Company’s total debt at
Capital expenditures for the third quarter of 2020 totaled
Conference Call and Webcast
The Company has scheduled a conference call for today,
About
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; uncertainty regarding the return to service of the Boeing 737 MAX aircraft; the Company’s ability to compete successfully with domestic and foreign producers of specialty steel products and products fashioned from alternative materials; changes in overall 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’s 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; the ultimate outcome of the Company’s PPP loan forgiveness application; risks associated with conducting business with suppliers and customers in foreign countries; public health issues, including the outbreak of COVID-19 and its uncertain impact on our facilities and operations and our customers and suppliers and the effectiveness of the Company’s actions taken in response to these risks; 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 from changes in tax rules, regulations and interpretations in
Non-GAAP Financial Measures
This press release includes discussions of financial measures that have not been determined in accordance with
[TABLES FOLLOW]
FINANCIAL HIGHLIGHTS
(Dollars in Thousands, Except Per Share Information)
(Unaudited)
CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||
Three months ended | Nine months ended | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Net sales | $ | 37,434 | $ | 56,568 | $ | 148,407 | $ | 187,836 | |||||||
Cost of products sold | 41,861 | 51,260 | 145,988 | 166,052 | |||||||||||
Gross margin | (4,427 | ) | 5,308 | 2,419 | 21,784 | ||||||||||
Selling, general and administrative expenses | 4,153 | 4,525 | 15,458 | 15,095 | |||||||||||
Operating (loss) income | (8,580 | ) | 783 | (13,039 | ) | 6,689 | |||||||||
Interest expense | 586 | 989 | 2,232 | 2,809 | |||||||||||
Deferred financing amortization | 56 | 56 | 169 | 171 | |||||||||||
Other income, net | (288 | ) | (452 | ) | (302 | ) | (421 | ) | |||||||
(Loss) income before income taxes | (8,934 | ) | 190 | (15,138 | ) | 4,130 | |||||||||
(Benefit) provision for income taxes | (1,934 | ) | (577 | ) | (3,396 | ) | 55 | ||||||||
Net (loss) income | $ | (7,000 | ) | $ | 767 | $ | (11,742 | ) | $ | 4,075 | |||||
Net (loss) income per common share - Basic | $ | (0.79 | ) | $ | 0.09 | $ | (1.33 | ) | $ | 0.46 | |||||
Net (loss) income per common share - Diluted | $ | (0.79 | ) | $ | 0.09 | $ | (1.33 | ) | $ | 0.46 | |||||
Weighted average shares of common stock outstanding: | |||||||||||||||
Basic | 8,829,732 | 8,787,837 | 8,813,880 | 8,780,590 | |||||||||||
Diluted | 8,829,732 | 8,879,441 | 8,813,880 | 8,870,240 |
MARKET SEGMENT INFORMATION | ||||||||||||||
Three months ended | Nine months ended | |||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||
Service centers | $ | 25,983 | $ | 38,693 | $ | 103,877 | $ | 129,996 | ||||||
Original equipment manufacturers | 4,405 | 4,862 | 16,624 | 19,318 | ||||||||||
Rerollers | 3,173 | 6,629 | 13,612 | 20,016 | ||||||||||
Forgers | 3,451 | 5,589 | 12,027 | 15,408 | ||||||||||
Conversion services and other sales | 422 | 795 | 2,267 | 3,098 | ||||||||||
Total net sales | $ | 37,434 | $ | 56,568 | $ | 148,407 | $ | 187,836 | ||||||
Tons shipped | 6,046 | 9,776 | 25,153 | 31,656 | ||||||||||
MELT TYPE INFORMATION | ||||||||||||||
Three months ended | Nine months ended | |||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||
Specialty alloys | $ | 27,847 | $ | 47,730 | $ | 116,869 | $ | 154,511 | ||||||
Premium alloys * | 9,165 | 8,043 | 29,271 | 30,227 | ||||||||||
Conversion services and other sales | 422 | 795 | 2,267 | 3,098 | ||||||||||
Total net sales | $ | 37,434 | $ | 56,568 | $ | 148,407 | $ | 187,836 | ||||||
END MARKET INFORMATION ** | ||||||||||||||
Three months ended | Nine months ended | |||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||
Aerospace | $ | 25,138 | $ | 40,876 | $ | 104,686 | $ | 132,818 | ||||||
Power generation | 1,590 | 2,884 | 5,923 | 8,588 | ||||||||||
Oil & gas | 2,755 | 5,653 | 10,778 | 18,767 | ||||||||||
Heavy equipment | 4,662 | 4,352 | 16,364 | 17,973 | ||||||||||
General industrial, conversion services and other sales | 3,289 | 2,803 | 10,656 | 9,690 | ||||||||||
Total net sales | $ | 37,434 | $ | 56,568 | $ | 148,407 | $ | 187,836 | ||||||
* 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 | ||||||
2020 | 2019 | |||||
Assets | ||||||
Cash | $ | 58 | $ | 170 | ||
Accounts receivable, net | 26,451 | 35,595 | ||||
Inventory, net | 120,947 | 147,402 | ||||
Other current assets | 4,824 | 8,300 | ||||
Total current assets | 152,280 | 191,467 | ||||
Property, plant and equipment, net | 168,623 | 176,061 | ||||
Other long-term assets | 997 | 871 | ||||
Total assets | $ | 321,900 | $ | 368,399 | ||
Liabilities and Stockholders' Equity | ||||||
Accounts payable | $ | 12,443 | $ | 40,912 | ||
Accrued employment costs | 3,235 | 4,449 | ||||
Current portion of long-term debt | 16,690 | 3,934 | ||||
Other current liabilities | 1,664 | 830 | ||||
Total current liabilities | 34,032 | 50,125 | ||||
Long-term debt, net | 43,879 | 60,411 | ||||
Deferred income taxes | 7,609 | 10,962 | ||||
Other long-term liabilities, net | 3,739 | 3,765 | ||||
Total liabilities | 89,259 | 125,263 | ||||
Stockholders’ equity | 232,641 | 243,136 | ||||
Total liabilities and stockholders’ equity | $ | 321,900 | $ | 368,399 |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW | |||||||
Nine months ended | |||||||
2020 | 2019 | ||||||
Operating activities: | |||||||
Net (loss) income | $ | (11,742 | ) | $ | 4,075 | ||
Adjustments for non-cash items: | |||||||
Depreciation and amortization | 14,721 | 14,235 | |||||
Deferred income tax | (3,380 | ) | 577 | ||||
Share-based compensation expense | 1,129 | 1,100 | |||||
Changes in assets and liabilities: | |||||||
Accounts receivable, net | 9,144 | (3,804 | ) | ||||
Inventory, net | 25,093 | (7,628 | ) | ||||
Accounts payable | (25,399 | ) | (9,728 | ) | |||
Accrued employment costs | (1,214 | ) | (4,109 | ) | |||
Income taxes | 207 | (56 | ) | ||||
Other | 4,045 | (3,735 | ) | ||||
Net cash provided by (used in) operating activities | 12,604 | (9,073 | ) | ||||
Investing activity: | |||||||
Capital expenditures | (8,480 | ) | (13,308 | ) | |||
Net cash used in investing activity | (8,480 | ) | (13,308 | ) | |||
Financing activities: | |||||||
Borrowings under revolving credit facility | 101,559 | 145,688 | |||||
Payments on revolving credit facility | (112,498 | ) | (123,097 | ) | |||
Proceeds from Paycheck Protection Program Note | 10,000 | - | |||||
Payments on term loan facility, finance leases, and notes | (3,383 | ) | (3,424 | ) | |||
Issuance of common stock under share-based plans | 86 | 327 | |||||
Net cash (used in) provided by financing activities | (4,236 | ) | 19,494 | ||||
Net decrease in cash and restricted cash | (112 | ) | (2,887 | ) | |||
Cash and restricted cash at beginning of period | 170 | 4,091 | |||||
Cash and restricted cash at end of period | $ | 58 | $ | 1,204 |
RECONCILIATION OF NET (LOSS) INCOME TO EBITDA AND ADJUSTED EBITDA | ||||||||||||||
Three months ended | Nine months ended | |||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||
Net (loss) income | $ | (7,000 | ) | $ | 767 | $ | (11,742 | ) | $ | 4,075 | ||||
Interest expense | 586 | 989 | 2,232 | 2,809 | ||||||||||
(Benefit) provision for income taxes | (1,934 | ) | (577 | ) | (3,396 | ) | 55 | |||||||
Depreciation and amortization | 4,732 | 4,813 | 14,721 | 14,235 | ||||||||||
EBITDA | (3,616 | ) | 5,992 | 1,815 | 21,174 | |||||||||
Share-based compensation expense | 295 | 332 | 1,129 | 1,100 | ||||||||||
Loss on sale of excess scrap | - | - | 354 | - | ||||||||||
Fixed cost absorption direct charge | 4,264 | - | 4,465 | - | ||||||||||
Employee severance costs | - | - | 620 | - | ||||||||||
Fire-related (benefit) expense | (307 | ) | (350 | ) | (307 | ) | 7 | |||||||
Adjusted EBITDA | $ | 636 | $ | 5,974 | $ | 8,076 | $ | 22,281 |
CONTACTS: | |||
Chairman, | VP Finance, CFO | President | |
President and CEO | and Treasurer | ||
(412) 257-7609 | (412) 257-7662 | (203) 972-0186 |
Source: Universal Stainless & Alloy Products, Inc.