BRIDGEVILLE, Pa., Oct. 20, 2021 (GLOBE NEWSWIRE) — Universal Stainless & Alloy Products, Inc. (Nasdaq: USAP) today reported net sales for the third quarter of 2021 of $37.2 million, 3.5% lower than $38.5 million in the second quarter of 2021, and in line with $37.4 million in the third quarter of 2020.
Sales of premium alloys in the third quarter of 2021 were $5.9 million, or 16.0% of sales, compared with $5.9 million, or 15.3% of sales, in the second quarter of 2021, and $9.2 million, or 24.5% of sales, in the third quarter of 2020. The Company’s premium alloy products are primarily sold to the aerospace end market. More than 20% of the total backlog at the end of the third quarter is premium alloy product.
The Company’s gross margin increased in the third quarter to $2.3 million, or 6.2% of sales, from $2.2 million, or 5.6% of sales, in the second quarter of 2021, and a loss of $4.4 million, or (11.8%) of sales in the third quarter of 2020. The sequential increase in the third quarter 2021 gross margin reflects higher production levels and correspondingly lower fixed charges. Gross margin amounts included fixed cost absorption charges of $1.5 million, $2.1 million, and $4.3 million in each respective period.
Chairman, President and CEO Dennis Oates commented: “Our backlog of $125.1 million reached the highest level since the first quarter of 2019 on continued strong order entry. We booked $58 million of new orders during the third quarter, following up on record bookings last quarter. Profitability continued to improve as measured by an expanding gross margin. Like many industrial businesses, we were faced with supply chain challenges and labor shortages which moderated sales growth during the quarter.
“Despite those headwinds, recovery in the aerospace market, our largest end market, continued on pace and was driven by further improvement in commercial air travel and ongoing defense spending. Our third quarter aerospace sales increased 4.4% sequentially and represented 60% of total sales. Aerospace was also the main driver of our third quarter bookings growth. Delivery of these products is scheduled to begin in the fourth quarter and continue into the first half of 2022 and beyond. Projected airplane build-rate increases, continued travel growth and reasonable defense spending next year will accelerate the pull of metal through the supply chain.
“Our sales to the oil & gas market also increased from the second quarter, rising 2.6%, and represented 11% of sales. With oil prices at a seven-year high and natural gas prices up about 50% in the third quarter alone, drilling activity is poised for further recovery. On October 8, Baker Hughes reported that the U.S. added 264 drilling rigs over the past year while international rig counts were up by 85.
“The growth in aerospace and oil and gas sales was offset by lower sales in the balance of our end markets versus the second quarter. Heavy equipment market sales were off 18% sequentially but were 63% higher than the third quarter last year as plate demand demonstrated its typical volatility despite the ongoing recovery in industrial businesses. Heavy equipment remained our second largest market. Sales to the power generation and general industrial markets also were lower following strong sequential improvement in the second quarter.
“We continue to benefit from positive operating leverage as activity levels rise. Substantial increases in raw material costs and general inflationary trends in key inputs are being offset by our surcharges and base price increases.
“We are focused on restoring our profitability and controlling working capital as operations ramp up to meet our rapidly growing backlog. Third quarter results are further evidence of progress in this effort. We are also commissioning a new vacuum arc re-melting furnace and installing expanded vacuum induction melting capability designed to support the growth of premium products and continuously improve the efficiency of our melt operations. Our balance sheet remains strong to support our strategic initiatives.”
Mr. Oates concluded: “While current supply chain challenges will likely persist, we remain determined to make further progress in the fourth quarter and take full advantage of our recovering markets, especially aerospace, as we move into 2022. We will continue to rely on the commitment of our team, the support of our customers and our focus on providing critical products to our markets to do so.”
Quarterly and Year-to-Date Results of Operations
For the first nine months of 2021, net sales totaled $112.7 million compared with $148.4 million in the same period of 2020. Sales of premium alloys were $19.4 million, or 17.2% of sales, in the first nine months of 2021, compared with $29.3 million, or 19.7% of sales, in same period of 2020.
Net income for the third quarter of 2021 was $7.9 million, or $0.87 per diluted share, and included a gain of $10 million due to forgiveness of a term note from the Paycheck Protection Program (PPP) in July, as previously reported. Before the PPP gain, the net loss for the third quarter of 2021 was $2.1 million, or $0.23 per diluted share, compared with a net loss of $2.5 million, or $0.28 per diluted share, in the second quarter of 2021, and a net loss of $7.0 million, or $0.79 per diluted share, in the third quarter of 2020. There were fixed cost absorption charges of $1.5 million, $2.1 million, and $4.3 million in each respective period. For the first nine months of 2021, net income was $0.9 million, or $0.10 per diluted share, including the PPP gain. In the first nine months of 2020, the net loss was $11.7 million, or $1.33 per diluted share.
The Company’s EBITDA for the third quarter of 2021 was $12.1 million including the $10 million PPP gain; Adjusted EBITDA was $3.8 million.
Managed working capital was $124.4 million at September 30, 2021 compared with $116.0 million at June 30, 2021, and $133.3 million at the end of the third quarter of 2020. Inventory was $135.6 million at the end of the third quarter of 2021, compared with $120.8 million at the end of the second quarter of 2021, and $120.9 million at the end of the 2020 third quarter. The increase in inventory in the most recent quarter reflects higher raw material prices, robust raw material purchases to mitigate supply disruptions, and increased work in process to support backlog growth.
Backlog (before surcharges) increased 26.5% to $125.1 million at September 30, 2021 from $98.9 million at June 30, 2021 and increased 128.2% from $54.8 million at the end of the third quarter of 2020.
The Company’s total debt at September 30, 2021 was $51.5 million, compared with $53.0 million at June 30, 2021, and $60.6 million at September 30, 2020.
Capital expenditures for the third quarter of 2021 totaled $2.0 million, compared with $1.8 million for the second quarter of 2021, and $1.3 million in the third quarter of 2020. All capital projects in process continue to be generally on time and within budget. The Company continues to expect capital expenditures in 2021 to approximate $11.0 million to support its strategic growth initiatives.
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.
