usap-10q_20220630.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2022 

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from              to             

Commission File Number 001-39467

 

UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.

(Exact name of Registrant as specified in its charter)

 

 

Delaware

25-1724540

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

 

600 Mayer Street

Bridgeville, PA 15017

(Address of principal executive offices, including zip code)

(412) 257-7600

(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of Each Class

Trading Symbol

Name of Each Exchange

on Which Registered

Common Stock, par value $0.001 per share

Preferred Stock Purchase Rights

USAP

The Nasdaq Stock Market, LLC

The Nasdaq Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

 

 

Non-accelerated filer

 

☐  

Smaller reporting company

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of July 25, 2022, there were 8,975,331 shares of the Registrant’s common stock outstanding.

 

 

 

i


 

Universal Stainless & Alloy Products, Inc.

Table of Contents

 

 

 

DESCRIPTION

 

PAGE NO.

 

 

 

 

 

PART I.

 

FINANCIAL INFORMATION

 

1

 

 

 

 

 

Item 1.

 

Financial Statements

 

1

 

 

 

 

 

 

 

Consolidated Statements of Operations

 

1

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Loss

 

2

 

 

 

 

 

 

 

Consolidated Balance Sheets

 

3

 

 

 

 

 

 

 

Consolidated Statements of Cash Flow

 

4

 

 

 

 

 

 

 

Consolidated Statements of Shareholders' Equity

 

5

 

 

 

 

 

 

 

Notes to the Unaudited Consolidated Financial Statements

 

6

 

 

 

 

 

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

13

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

20

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

20

 

 

 

 

 

PART II.

 

OTHER INFORMATION

 

21

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

21

 

 

 

 

 

Item 1A.

 

Risk Factors

 

21

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

21

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

21

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

21

 

 

 

 

 

Item 5.

 

Other Information

 

21

 

 

 

 

 

Item 6.

 

Exhibits

 

22

 

 

 

 

 

SIGNATURES

 

23

 

 

 


 

 

Part I.

FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in Thousands, Except Per Share Information)

(Unaudited)

 

 

 

Three months ended

 

 

Six months ended

 

 

June 30,

 

 

June 30,

 

 

2022

 

2021

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

52,156

 

$

38,502

 

$

99,718

 

$

75,540

Cost of products sold

 

 

47,417

 

 

36,338

 

 

90,926

 

 

73,624

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross margin

 

 

4,739

 

 

2,164

 

 

8,792

 

 

1,916

Selling, general and administrative expenses

 

 

5,277

 

 

5,151

 

 

10,326

 

 

10,382

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(538)

 

 

(2,987)

 

 

(1,534)

 

 

(8,466)

Interest expense and other financing costs

 

 

870

 

 

492

 

 

1,579

 

 

1,042

Other (income) expense, net

 

 

(39)

 

 

7

 

 

(26)

 

 

23

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(1,369)

 

 

(3,486)

 

 

(3,087)

 

 

(9,531)

Income taxes

 

 

68

 

 

(993)

 

 

(35)

 

 

(2,509)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(1,437)

 

$

(2,493)

 

$

(3,052)

 

$

(7,022)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share - Basic

 

$

(0.16)

 

$

(0.28)

 

$

(0.34)

 

$

(0.79)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share - Diluted

 

$

(0.16)

 

$

(0.28)

 

$

(0.34)

 

$

(0.79)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

8,960,770

 

 

8,900,460

 

 

8,953,460

 

 

8,894,669

Diluted

 

 

8,960,770

 

 

8,900,460

 

 

8,953,460

 

 

8,894,669

 

The accompanying notes are an integral part of these consolidated financial statements.


1


 

 

UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Dollars in Thousands)

(Unaudited)

 

 

 

Three months ended

 

 

 

Six months ended

 

 

 

June 30,

 

 

 

June 30,

 

 

 

2022

 

 

2021

 

 

 

2022

 

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

 

(1,437

)

 

$

 

(2,493

)

 

$

 

(3,052

)

 

$

 

(7,022

)

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on derivatives

 

 

 

121

 

 

 

 

5

 

 

 

 

256

 

 

 

 

20

 

Comprehensive loss

 

$

 

(1,316

)

 

$

 

(2,488

)

 

$

 

(2,796

)

 

$

 

(7,002

)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

2


 

 

UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands, Except Per Share Information)

 

 

 

June 30,

 

December 31,

 

 

2022

 

2021

 

 

(Unaudited)

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$

315

 

$

118

Accounts receivable (less allowance for doubtful accounts of $201 and $201, respectively)

 

 

30,137

 

 

21,192

Inventory, net

 

 

148,977

 

 

140,684

Other current assets

 

 

8,931

 

 

8,567

 

 

 

 

 

 

 

Total current assets

 

 

188,360

 

 

170,561

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

158,665

 

 

159,162

Other long-term assets

 

 

873

 

 

909

 

 

 

 

 

 

 

Total assets

 

$

347,898

 

$

330,632

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

30,156

 

$

24,000

Accrued employment costs

 

 

2,652

 

 

4,303

Current portion of long-term debt

 

 

2,360

 

 

2,392

Other current liabilities

 

 

1,087

 

 

943

 

 

 

 

 

 

 

Total current liabilities

 

 

36,255

 

 

31,638

 

 

 

 

 

 

 

Long-term debt, net

 

 

81,623

 

 

66,852

Deferred income taxes

 

 

2,492

 

 

2,461

Other long-term liabilities, net

 

 

3,246

 

 

3,360

 

 

 

 

 

 

 

Total liabilities

 

 

123,616

 

 

104,311

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Senior preferred stock, par value $0.001 per share; 1,980,000 shares authorized; zero shares issued and outstanding

 

 

-

 

 

-

Common stock, par value $0.001 per share; 20,000,000 shares authorized; 8,975,331 and 8,938,091 shares issued, respectively

 

 

9

 

 

9

Additional paid-in capital

 

 

96,347

 

 

95,590

Accumulated other comprehensive income

 

 

296

 

 

40

Retained earnings

 

 

127,630

 

 

130,682

 

 

 

 

 

 

 

Total stockholders’ equity

 

 

224,282

 

 

226,321

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

347,898

 

$

330,632

 

The accompanying notes are an integral part of these consolidated financial statements. 

3


 

UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOW

(Dollars in Thousands)

(Unaudited)

 

 

 

 

Six months ended

 

 

 

 

June 30,

 

 

 

 

2022

 

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Activities:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

$

 

(3,052

)

 

 

$

 

(7,022

)

Adjustments for non-cash items:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

9,694

 

 

 

 

 

9,639

 

Deferred income tax

 

 

 

 

(52

)

 

 

 

 

(2,510

)

Share-based compensation expense

 

 

 

 

695

 

 

 

 

 

581

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

 

 

(8,945

)

 

 

 

 

(3,210

)

Inventory, net

 

 

 

 

(9,054

)

 

 

 

 

(10,288

)

Accounts payable

 

 

 

 

3,450

 

 

 

 

 

12,327

 

Accrued employment costs

 

 

 

 

(1,651

)

 

 

 

 

2,716

 

Income taxes

 

 

 

 

33

 

 

 

 

 

3

 

Other

 

 

 

 

(128

)

 

 

 

 

(533

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash (used in) provided by operating activities

 

 

 

 

(9,010

)

 

 

 

 

1,703

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing Activity:

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

 

 

(5,482

)

 

 

 

 

(4,483

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in investing activity

 

 

 

 

(5,482

)

 

 

 

 

(4,483

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

 

Borrowings under revolving credit facility

 

 

 

 

64,647

 

 

 

 

 

56,008

 

Payments on revolving credit facility

 

 

 

 

(48,810

)

 

 

 

 

(45,887

)

Proceeds from term loan facility

 

 

 

 

-

 

 

 

 

 

8,571

 

Payments on term loan facility, finance leases, and notes

 

 

 

 

(1,210

)

 

 

 

 

(15,497

)

Issuance of common stock under share-based plans

 

 

 

 

62

 

 

 

 

 

118

 

Payments of financing costs

 

 

 

 

-

 

 

 

 

 

(539

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by financing activities

 

 

 

 

14,689

 

 

 

 

 

2,774

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

 

 

 

197

 

 

 

 

 

(6

)

Cash at beginning of period

 

 

 

 

118

 

 

 

 

 

164

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash at end of period

 

 

$

 

315

 

 

 

$

 

158

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.


4


 

 

UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Dollars in Thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

Common

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

other

 

 

 

shares

 

 

Common

 

 

paid-in

 

 

Retained

 

 

comprehensive

 

 

 

outstanding

 

 

stock

 

 

capital

 

 

earnings

 

 

income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the six months ended June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2021

 

 

8,938,091

 

 

$

 

9

 

 

$

 

95,590

 

 

$

 

130,682

 

 

$

 

40

 

Share-based compensation

 

 

19,362

 

 

 

 

-

 

 

 

 

409

 

 

 

 

-

 

 

 

 

-

 

Net gain on derivative instruments

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

135

 

Net loss

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

(1,615

)

 

 

 

-

 

Balance at March 31, 2022

 

 

8,957,453

 

 

$

 

9

 

 

$

 

95,999

 

 

$

 

129,067

 

 

$

 

175

 

Common stock issuance under

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee Stock Purchase Plan

 

 

9,870

 

 

 

 

-

 

 

 

 

62

 

 

 

 

-

 

 

 

 

-

 

Share-based compensation

 

 

8,008

 

 

 

 

-

 

 

 

 

286

 

 

 

 

-

 

 

 

 

-

 

Net gain on derivative instruments

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

121

 

Net loss

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

(1,437

)

 

 

 

-

 

Balance at June 30, 2022

 

 

8,975,331

 

 

$

 

9

 

 

$

 

96,347

 

 

$

 

127,630

 

 

$

 

296

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the six months ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2020

 

 

8,883,788

 

 

$

 

9

 

 

$

 

94,276

 

 

$

 

131,440

 

 

$

 

(45

)

Share-based compensation

 

 

11,034

 

 

 

 

-

 

 

 

 

309

 

 

 

 

-

 

 

 

 

-

 

Net gain on derivative instruments

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

15

 

Net loss

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

(4,529

)

 

 

 

-

 

Balance at March 31, 2021

 

 

8,894,822

 

 

$

 

9

 

 

$

 

94,585

 

 

$

 

126,911

 

 

$

 

(30

)

Common stock issuance under

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee Stock Purchase Plan

 

 

11,271

 

 

 

 

-

 

 

 

 

71

 

 

 

 

-

 

 

 

 

-

 

Exercise of stock options

 

 

5,272

 

 

 

 

-

 

 

 

 

47

 

 

 

 

-

 

 

 

 

-

 

Share-based compensation

 

 

6,493

 

 

 

 

-

 

 

 

 

272

 

 

 

 

-

 

 

 

 

-

 

Net gain on derivative instruments

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

5

 

Net loss

 

 

-

 

 

 

 

-

 

 

 

 

-

 

 

 

 

(2,493

)

 

 

 

-

 

Balance at June 30, 2021

 

 

8,917,858

 

 

$

 

9

 

 

$

 

94,975

 

 

$

 

124,418

 

 

$

 

(25

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5


 

 

UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1: Nature of Business and Basis of Presentation

Universal Stainless & Alloy Products, Inc., and its wholly-owned subsidiaries (collectively, “Universal,” “we,” “us,” “our,” or the “Company”), manufacture and market semi-finished and finished specialty steel products, including stainless steel, nickel alloys, tool steel and certain other alloyed steels. Our manufacturing process involves melting, remelting, heat treating, hot and cold rolling, forging, machining and cold drawing of semi-finished and finished specialty steels. Our products are sold to service centers, forgers, rerollers, original equipment manufacturers and wire redrawers. Our customers further process our products for use in a variety of industries, including the aerospace, power generation, oil and gas, heavy equipment, and general industrial manufacturing industries. We also perform conversion services on materials supplied by customers.

The accompanying unaudited consolidated statements include the accounts of Universal Stainless & Alloy Products, Inc. and its subsidiaries and are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial reports and the instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under U.S. GAAP have been condensed or omitted pursuant to such regulations. Although the December 31, 2021 consolidated balance sheet data was derived from the audited financial statements, it does not include all disclosures required by U.S. GAAP. However, we believe that the disclosures are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with our most recently audited financial statements and the notes thereto included in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission. In the opinion of management, the accompanying financial statements include all adjustments necessary to present a fair presentation of the consolidated financial statements for the periods shown. Interim results are not necessarily indicative of the operating results for the full fiscal year or any future period. The preparation of these financial statements in conformity with U.S. GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. Actual results may differ from our estimates. The consolidated financial statements include our accounts and the accounts of our wholly–owned subsidiaries. We also consolidate, regardless of our ownership percentage, variable interest entities (each a “VIE”) for which we are deemed to have a controlling financial interest. All intercompany transactions and balances have been eliminated.

When we obtain an economic interest in an entity, we evaluate the entity to determine if the entity is a VIE, and if we are deemed to be a primary beneficiary. As a part of our evaluation, we are required to qualitatively assess if we are the primary beneficiary of the VIE based on whether we hold the power to direct those matters that most significantly impacted the activities of the VIE and the obligation to absorb losses or the right to receive the benefits of the VIE that could potentially be significant. Refer to Note 7, New Markets Tax Credit Financing Transaction, for a description of the VIEs included in our consolidated financial statements.

Recently Adopted Accounting Pronouncements

None.

Recently Issued Accounting Pronouncements

The Company considers the applicability and impact of all Accounting Standards Updates (ASUs.) Recently issued ASUs not listed were assessed and were determined not applicable, or are expected to have minimal impact on our consolidated financial statements.

 

Note 2: Net loss per Common Share

The following table sets forth the computation of basic and diluted net loss per common share:

 

 

Three months ended

 

 

Six months ended

 

 

June 30,

 

 

June 30,

 

(dollars in thousands, except per share amounts)

2022

 

 

2021

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

 

(1,437

)

 

$

 

(2,493

)

 

$

 

(3,052

)

 

$

 

(7,022

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator: