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Universal Stainless Reports Fourth Quarter 2018 Results

  • Q4 2018 Sales of $57.1 million, up 13.5% from Q4 2017
  • Q4 2018 Net Income is $0.6 million, or $0.07 per diluted share, versus $7.6 million in Q4 2017, which was comprised entirely of the 2017 tax law change benefits
  • EBITDA totals $5.4 million in Q4 2018 versus $5.8 million in Q4 2017
  • Quarter-End Backlog of $126.2 million, up 62.5% from Q4 2017 and up 13.3% sequentially

/EIN News/ -- BRIDGEVILLE, Pa., Jan. 23, 2019 (GLOBE NEWSWIRE) -- Universal Stainless & Alloy Products, Inc. (Nasdaq: USAP) today reported that net sales for the fourth quarter of 2018 were $57.1 million, an increase of 13.5% from $50.3 million in the fourth quarter of 2017, although below 2018 third quarter revenues of $69.1 million. All end markets contributed to the year-over-year growth, with the exception of power generation and general industrial. Aerospace remained the Company's largest end market, at 61.5% of total Company sales. Fourth quarter 2018 aerospace sales totaled $35.1 million, up 23.7% from the fourth quarter of 2017.

Sales of premium alloys in the fourth quarter of 2018 totaled $8.1 million, or 14.2% of sales, compared with $7.3 million, or 14.6% of sales, in the fourth quarter of 2017, and $9.2 million, or 13.3% of sales, in the third quarter of 2018. 

Full year 2018 sales increased 26.3% to a record $255.9 million from $202.6 million in 2017. Sales of premium alloys were also at a record level for full year 2018 increasing 50.7% to $41.1 million, or 16.1% of sales. 2017 premium alloy sales were $27.3 million or 13.5% of sales.

The Company's gross margin for the fourth quarter was 11.3% of sales, compared with 12.3% of sales in the fourth quarter of 2017, and 15.1% of sales in the third quarter of 2018. Margins were negatively impacted by continued cost increases in supply items, especially electrodes, coupled with misalignment of customer surcharges. In addition, lower productivity associated with labor contract negotiations, unplanned Bridgeville melt shop maintenance issues, as well as physical inventory adjustments further reduced fourth quarter gross margin.

Selling, general and administrative expenses were $5.6 million, or 9.7% of sales, for the fourth quarter of 2018, compared with $5.1 million, or 10.2% of sales, in the fourth quarter of 2017, and $5.1 million, or 7.4% of sales, for the third quarter of 2018.

Net income for the fourth quarter of 2018 totaled $0.6 million, or $0.07 per diluted share, (which includes an additional 1.4 million weighted average shares outstanding due to the second quarter 2018 equity issuance), compared with net income of $7.9 million, or $1.06 per diluted share, in the fourth quarter of 2017, which included a net tax benefit of $1.06 per diluted share primarily attributable to the new federal tax legislation. Before the tax benefit, net income in the fourth quarter of 2017 was breakeven. Net income in the 2018 third quarter totaled $3.9 million, or $0.44 per diluted share.

For full year 2018, net income increased 40.1% to $10.7 million, or $1.28 per diluted share, (which included an additional 0.8 million weighted average shares outstanding due to the second quarter equity issuance), versus net income of $7.6 million, or $1.03 per diluted share, in 2017, which included the tax benefit.

The Company’s EBITDA for the fourth quarter of 2018 was $5.4 million, compared with $5.8 million in the fourth quarter of 2017, and $10.1 million in the third quarter of 2018. Full year 2018 EBITDA increased 55.6% to $35.6 million from $22.9 million in 2017.

Managed working capital at December 31, 2018 totaled $123.0 million compared with $136.9 million at September 30, 2018.

Backlog (before surcharges) at December 31, 2018 was a record $126.2 million, an increase of 13.3% from September 30, 2018, and 62.5% higher than at the end of the 2017 fourth quarter.

Fourth quarter operating cash flow improved from the prior quarter and resulted in a debt reduction of $15.8 million in the quarter. The Company’s total debt at December 31, 2018 declined to $46.7 million, compared with $62.5 million at the end of the third quarter of 2018 and $79.7 million at the end of the fourth quarter of 2017. 

Capital expenditures for the fourth quarter of 2018 totaled $2.2 million compared to $6.6 million for the third quarter of 2018 and $3.3 million in the fourth quarter of 2017. Fourth quarter capital expenditures were driven by the Company’s mid-size bar cell project at its Dunkirk, NY facility, which began the commissioning process late in the fourth quarter. Benefits related to this project are expected to include both cost and inventory reductions, as well as quality and cycle time improvements.

The Company’s tax rate for the twelve months ended December 31, 2018 was 15.4%. The Company’s effective tax rate is less than the federal statutory rate of 21.0%, primarily due to the favorable impact of federal research and development tax credits.

Chairman, President and CEO Dennis Oates commented: “After a strong three quarters, the 2018 fourth quarter proved to be more difficult than anticipated. Even so, 2018 was a profitable year highlighted by record levels of both premium alloy and total sales. We exited the year with a strong balance sheet and significantly improved liquidity, and enter 2019 with a record backlog and healthy order entry across most of our end markets, especially aerospace. The mid-size bar cell in our Dunkirk, NY facility is on schedule to become fully operational in the 2019 first quarter. We are encouraged by the cycle time and quality improvements that the bar cell is expected to provide.”

Conference Call and Webcast

The Company has scheduled a conference call for today, January 23, 2019, at 10:00 a.m. (Eastern) to discuss fourth quarter 2018 results. Those wishing to listen to the live conference call via telephone should dial 706-679-0668, passcode 6498743. 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 first quarter of 2019.

About Universal Stainless & Alloy Products, Inc.

Universal Stainless & Alloy Products, Inc., established in 1994 and 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. 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 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; the Company’s ability to compete successfully with domestic and foreign producers of specialty steel products and products fashioned from alternative materials; the 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’ 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; risks associated with conducting business with suppliers and customers in foreign countries; 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 of changes in tax rules, regulations and interpretations in the United States and other countries where it does business; 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. These non-GAAP measures may not be entirely comparable to similarly titled measures used by other companies due to potential differences among calculations methodologies. 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)

    Three Months Ended     Year Ended  
    December 31,     December 31,  
    2018     2017     2018     2017  
Net Sales                                        
Stainless steel   $   39,571     $   33,307     $   176,955     $   139,603  
High-strength low alloy steel       6,082         4,744         21,617         15,693  
Tool steel       8,771         7,355         40,308         32,279  
High-temperature alloy steel       1,840         4,350         11,467         12,435  
Conversion services and other sales       799         518         5,580         2,633  
                                         
Total net sales       57,063         50,274         255,927         202,643  
                                         
Cost of products sold       50,639         44,115         218,111         179,609  
                                         
Gross margin       6,424         6,159         37,816         23,034  
                                         
Selling, general and administrative expenses       5,559         5,121         21,746         18,797  
                                         
Operating income       865         1,038         16,070         4,237  
                                         
Interest expense       802         1,005         4,047         4,022  
Deferred financing amortization       60         63         255         255  
Other (income) expense       (139 )       (6 )       (829 )       (49 )
                                         
Income (loss) before income taxes       142         (24 )       12,597         9  
                                         
Provision (benefit) for income taxes       (441 )       (7,884 )       1,935         (7,601 )
                                         
Net income   $   583     $   7,860     $   10,662     $   7,610  
                                         
Net income per common share - Basic   $   0.07     $   1.09     $   1.31     $   1.05  
Net income per common share - Diluted   $   0.07     $   1.06     $   1.28     $   1.03  
                                         
Weighted average shares of common                                        
stock outstanding                                        
Basic       8,728,631         7,238,372         8,132,632         7,225,697  
Diluted       8,864,592         7,417,044         8,347,692         7,374,805  


MARKET SEGMENT INFORMATION  
                                         
    Three Months Ended     Year ended  
    December 31,     December 31,  
    2018     2017     2018     2017  
Net Sales                                        
Service centers   $   41,013     $   34,641     $   180,165     $   140,259  
Original equipment manufacturers       5,350         4,395         20,582         17,634  
Rerollers       6,149         6,223         29,337         23,675  
Forgers       3,752         4,497         20,263         18,442  
Conversion services and other sales       799         518         5,580         2,633  
                                         
Total net sales   $   57,063     $   50,274     $   255,927     $   202,643  
                                         
Tons shipped       9,873         8,996         44,554         39,246  
                                         
MELT TYPE INFORMATION  
                                         
    Three Months Ended     Year ended  
    December 31,     December 31,  
    2018     2017     2018     2017  
Net Sales                                        
Specialty alloys   $   48,155     $   42,428     $   209,203     $   172,715  
Premium alloys *       8,109         7,328         41,144         27,295  
Conversion services and other sales       799         518         5,580         2,633  
                                         
Total net sales   $   57,063     $   50,274     $   255,927     $   202,643  
                                         
END MARKET INFORMATION **  
                                         
    Three Months Ended     Year ended  
    December 31,     December 31,  
    2018     2017     2018     2017  
Net Sales                                        
Aerospace   $   35,108     $   28,391     $   148,850     $   111,795  
Power generation       1,941         4,325         9,278         16,592  
Oil & gas       6,282         4,773         31,493         19,069  
Heavy equipment       9,117         7,545         41,623         33,876  
General industrial, conversion services and other sales       4,615         5,240         24,683         21,311  
                                         
Total net sales   $   57,063     $   50,274     $   255,927     $   202,643  
                                         
* 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 customer. 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  
                     
    December 31,  
    2018     2017  
Assets                    
                     
Cash   $   3,696      $   207  
Accounts receivable, net       32,618         24,990  
Inventory, net       134,738         116,663  
Other current assets       3,756         4,404  
                     
Total current assets       174,808         146,264  
Property, plant and equipment, net       177,844         174,444  
Other long-term assets       668         523  
                     
Total assets   $   353,320      $   321,231  
                     
Liabilities and Stockholders' Equity                    
                     
Accounts payable   $   44,379      $   34,898  
Accrued employment costs       7,939         4,075  
Current portion of long-term debt       3,907         4,707  
Other current liabilities       2,929         1,268  
                     
Total current liabilities       59,154         44,948  
Long-term debt, net       42,839         75,006  
Deferred income taxes       11,481         9,605  
Other long-term liabilities, net       2,835         4  
                     
Total liabilities       116,309         129,563  
Stockholders’ equity       237,011         191,668  
                     
Total liabilities and stockholders’ equity   $   353,320      $   321,231  


CONSOLIDATED STATEMENTS OF CASH FLOW  
                     
    Year Ended  
    December 31,  
    2018     2017  
Operating activities:                    
Net income   $   10,662      $   7,610  
Adjustments to reconcile net income to net cash provided by operating activities:                    
Depreciation and amortization       18,918         18,823  
Deferred income tax       1,850         (7,593 )
Share-based compensation expense       1,368         1,564  
Net gain on asset disposals       (9 )       (70 )
Changes in assets and liabilities:                    
Accounts receivable, net       (7,628 )       (5,567 )
Inventory, net       (20,373 )       (27,378 )
Accounts payable       5,293         14,178  
Accrued employment costs       3,939         272  
Income taxes       (246 )       77  
Other, net       2,833         (811 )
                     
Net cash provided by operating activities       16,607         1,105  
                     
Investing activities:                    
Capital expenditures       (15,388 )       (7,996 )
Proceeds from sale of property, plant and equipment       10         70  
                     
Net cash used in investing activities       (15,378 )       (7,926 )
                     
Financing activities:                    
Borrowings under revolving credit facility       368,910         350,314  
Payments on revolving credit facility       (388,728 )       (338,836 )
Proceeds under New Markets Tax Credit financing       2,835         -  
Payments on term loan facility, capital leases, and notes       (12,364 )       (5,078 )
Payments of financing costs       (1,109 )       -  
Proceeds from public offering, net of cash expenses       32,246         -  
Proceeds from the exercise of stock options       865         553  
                     
Net cash provided by financing activities       2,655         6,953  
                     
Net increase in cash and restricted cash       3,884         132  
Cash and restricted cash at beginning of period       207         75  
Cash and restricted cash at end of period   $   4,091      $   207  


RECONCILIATION OF NET INCOME TO EBITDA AND ADJUSTED EBITDA  
                                           
      Three Months ended     Twelve Months Ended  
      December 31,     December 31,  
      2018     2017     2018     2017  
                                           
Net income     $   583     $   7,860     $   10,662     $   7,610  
Interest expense         802         1,005         4,047         4,022  
Provision (benefit) for income taxes         (441 )       (7,884 )       1,935         (7,601 )
Depreciation and amortization         4,458         4,791         18,918         18,823  
EBITDA         5,402         5,772         35,562         22,854  
Share-based compensation expense         322         197         1,368         1,564  
Adjusted EBITDA     $   5,724     $   5,969     $   36,930     $   24,418  
                                           

 


CONTACTS: Dennis M. Oates
Chairman,
President and CEO
(412) 257-7609
Christopher T. Scanlon
VP Finance, CFO
and Treasurer 
(412) 257-7662
June Filingeri
President 
Comm-Partners LLC
(203) 972-0186

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