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Universal Stainless Reports Third Quarter 2016 Results

  • 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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