Olympic Steel, Inc. (NASDAQ:ZEUS) Q2 2020 Earnings Conference Call August 6, 2020 10:00 AM ET Company Participants Rich Manson - Chief Financial Officer Rick Marabito - Chief Executive Officer Andrew Greiff - President and Chief Operating Officer Conference Call Participants Chris Sakai - Singular Research Operator Good morning, and welcome to the Olympic Steel 2020 Second Quarter Financial Results Conference call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 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, 2020 ☐ 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 0-23320 OLYMPIC STEEL, INC. (Exact name of registrant as specified in its charter) Ohio 34-1245650 (State or other jurisdic ...

Part I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for Q1 2020 and 2019, detailing the company's financial position, performance, and cash flows [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) | Metric | March 31, 2020 ($k) | December 31, 2019 ($k) | | :----------------------- | :-------------------- | :--------------------- | | Total Assets | 677,967 | 649,555 | | Total Liabilities | 371,575 | 341,203 | | Total Shareholders' Equity | 306,392 | 308,352 | | Accounts Receivable, net | 165,782 | 133,572 | | Inventories, net | 267,554 | 273,531 | | Credit facility revolver | 209,052 | 192,925 | [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) | Metric | Q1 2020 ($k) | Q1 2019 ($k) | YoY Change (%) | | :-------------------------- | :----------- | :----------- | :------------- | | Net Sales | 354,380 | 445,919 | -20.5% | | Operating Income | 3,051 | 6,074 | -49.8% | | Income Before Income Taxes | 795 | 2,846 | -72.1% | | Net Income | 593 | 2,074 | -71.4% | | Total Comprehensive Income | (1,955) | 996 | -296.4% | | Net Income Per Share - Basic| 0.05 | 0.18 | -72.2% | | Net Income Per Share - Diluted| 0.05 | 0.18 | -72.2% | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) | Cash Flow Activity | Q1 2020 ($k) | Q1 2019 ($k) | | :-------------------------------- | :----------- | :----------- | | Net Cash Used for Operating Activities | (11,985) | (1,165) | | Net Cash Used for Investing Activities | (4,235) | (13,394) | | Net Cash From Financing Activities | 15,762 | 10,353 | | Net Change in Cash and Cash Equivalents | (458) | (4,206) | [Supplemental Disclosures of Cash Flow Information](index=7&type=section&id=Supplemental%20Disclosures%20of%20Cash%20Flow%20Information) | Metric | Q1 2020 ($k) | Q1 2019 ($k) | | :------------- | :----------- | :----------- | | Interest Paid | 2,153 | 3,188 | | Income Taxes Paid | (7) | 58 | [Consolidated Statements of Shareholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity) | Metric | December 31, 2019 ($k) | March 31, 2020 ($k) | | :-------------------------------- | :--------------------- | :------------------ | | Total Shareholders' Equity | 308,352 | 306,392 | | Net Income (Q1 2020) | - | 593 | | Changes in fair value of hedges, net of tax (Q1 2020) | - | (2,548) | | Repurchase of common stock (Q1 2020) | - | (145) | [Notes to Unaudited Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) [1. Basis of Presentation](index=9&type=section&id=1.%20Basis%20of%20Presentation) - The company operates in three reportable segments: carbon flat products, specialty metals flat products, and tubular and pipe products[20](index=20&type=chunk) - The COVID-19 pandemic did not have a **material impact** on the company's financial statements for the three months ended March 31, 2020, but could have material adverse effects in the near term[22](index=22&type=chunk) - The adoption of ASU No 2016-13, "Financial Instruments-Credit Losses (Topic 326)", did not have a **material impact** on the company's Consolidated Financial Statements[23](index=23&type=chunk) [2. Revenue Recognition](index=9&type=section&id=2.%20Revenue%20Recognition) - Revenue recognition for substantially all sales occurs upon shipment or delivery of the product, when title, ownership, and risk of loss pass to the customer[26](index=26&type=chunk) Disaggregated Revenue by Products Sold (Q1 2020 vs Q1 2019) | Product | Q1 2020 (%) | Q1 2019 (%) | | :-------- | :---------- | :---------- | | Hot Rolled| 30.0 | 35.4 | | Plate | 11.6 | 13.2 | | Cold Rolled| 5.6 | 5.5 | | Coated | 8.6 | 7.0 | | Specialty | 25.0 | 17.8 | | Tube | 17.8 | 17.8 | | Other | 1.4 | 3.3 | | **Total** | **100.0** | **100.0** | [3. Accounts Receivable](index=11&type=section&id=3.%20Accounts%20Receivable) | Metric | March 31, 2020 ($k) | December 31, 2019 ($k) | | :-------------------------------- | :-------------------- | :--------------------- | | Allowances for credit losses and unissued credits | 3,100 | 3,700 | [4. Inventories](index=11&type=section&id=4.%20Inventories) | Inventory Type | March 31, 2020 ($k) | December 31, 2019 ($k) | | :--------------- | :------------------ | :--------------------- | | Unprocessed | 217,547 | 220,787 | | Processed and finished | 50,007 | 52,744 | - Approximately **15.3% ($41.1 million)** of consolidated inventory was reported under the LIFO method at March 31, 2020[31](index=31&type=chunk) - The Company recorded **$0.5 million of LIFO income** during Q1 2020, anticipating declining metals prices[32](index=32&type=chunk) [5. Goodwill and Intangible Assets](index=13&type=section&id=5.%20Goodwill%20and%20Intangible%20Assets) | Metric | March 31, 2020 ($k) | December 31, 2019 ($k) | | :-------------------- | :------------------ | :--------------------- | | Goodwill | 3,423 | 3,423 | | Intangible Assets, Net| 28,940 | 29,259 | - Estimated amortization expense for intangible assets is approximately **$1.3 million per year** for the next year[36](index=36&type=chunk) [6. Leases](index=14&type=section&id=6.%20Leases) | Lease Cost Component | Q1 2020 ($k) | Q1 2019 ($k) | | :--------------------- | :----------- | :----------- | | Operating lease cost | 1,777 | 1,759 | | Total finance lease cost | 74 | 8 | | Lease Metric | March 31, 2020 | December 31, 2019 | | :-------------------------- | :------------- | :---------------- | | Operating lease right-of-use asset, net | $28,673k | $25,799k | | Weighted Average Remaining Lease Term (Operating) | 7 years | 7 years | | Weighted Average Remaining Lease Term (Finance) | 6 years | 6 years | [7. Debt](index=16&type=section&id=7.%20Debt) | Debt Component | March 31, 2020 ($k) | December 31, 2019 ($k) | | :-------------------------------- | :-------------------- | :--------------------- | | Asset-based revolving credit facility | 209,052 | 192,925 | | Total debt | 209,052 | 192,925 | - The ABL Credit Facility has a revolving credit facility of **$445 million** and matures on December 8, 2022[40](index=40&type=chunk) - As of March 31, 2020, the Company was in compliance with its covenants and had approximately **$112.2 million of availability** under the ABL Credit Facility[44](index=44&type=chunk) - A five-year forward starting fixed rate interest rate hedge was entered into on January 10, 2019, fixing the rate at **2.57% on $75 million** of LIBOR-based borrowings[43](index=43&type=chunk) [8. Derivative Instruments](index=16&type=section&id=8.%20Derivative%20Instruments) - The Company uses nickel swaps to mitigate customers' risk of volatility in metals prices; these are not designated as hedging instruments[46](index=46&type=chunk)[47](index=47&type=chunk) - A fixed rate interest rate hedge was entered into on January 10, 2019, to eliminate variability of cash interest payments on **$75 million** of LIBOR-based borrowings, fixing the rate at **2.57%**[48](index=48&type=chunk) Net Gain (Loss) Recognized from Derivatives | Derivative Type | Q1 2020 ($k) | Q1 2019 ($k) | | :---------------------- | :----------- | :----------- | | Fixed interest rate hedge | (202) | (9) | | Metals swaps | (112) | 130 | | Embedded customer derivatives | 112 | (130) | | Total loss | (202) | (9) | [9. Fair Value of Assets and Liabilities](index=17&type=section&id=9.%20Fair%20Value%20of%20Assets%20and%20Liabilities) - All fair value measurements are classified as **Level 2**, indicating inputs other than quoted prices are observable[51](index=51&type=chunk) Fair Value of Items Recorded at Fair Value (March 31, 2020) | Item | Level 1 ($k) | Level 2 ($k) | Level 3 ($k) | Total ($k) | | :-------------------------- | :----------- | :----------- | :----------- | :--------- | | Assets: Embedded customer derivative | - | 59 | - | 59 | | Liabilities: Metal Swaps | - | 59 | - | 59 | | Liabilities: Fixed interest rate hedge | - | 6,439 | - | 6,439 | | **Total liabilities recorded at fair value** | **-** | **6,498** | **-** | **6,498** | [10. Accumulated Other Comprehensive Loss](index=18&type=section&id=10.%20Accumulated%20Other%20Comprehensive%20Loss) - The fair value of the interest rate hedge, net of tax, was **$6.4 million** and is included in "Accumulated other comprehensive loss" on the Consolidated Balance Sheets at March 31, 2020[54](index=54&type=chunk) [11. Equity Plans](index=18&type=section&id=11.%20Equity%20Plans) Restricted Stock Unit (RSU) Expense | Metric | Q1 2020 ($k) | Q1 2019 ($k) | | :-------------------- | :----------- | :----------- | | RSU expense before taxes | 360 | 275 | | RSU expense after taxes | 269 | 200 | RSU Activity (Shares Outstanding) | Metric | March 31, 2020 | March 31, 2019 | | :-------------------- | :------------- | :------------- | | Outstanding at December 31 | 636,086 | 527,546 | | Granted | 70,588 | 156,562 | | Outstanding at March 31 | 700,851 | 684,108 | [12. Income Taxes](index=19&type=section&id=12.%20Income%20Taxes) - Due to COVID-19 pandemic uncertainty, the Q1 2020 tax provision was recorded based on the **actual effective tax rate** for the period, rather than an estimated annual effective tax rate[62](index=62&type=chunk) Income Tax Provision | Metric | Q1 2020 ($k) | Q1 2019 ($k) | | :-------------------- | :----------- | :----------- | | Income tax provision | 202 | 772 | | Effective tax rate | 25.4% | 27.1% | [13. Shares Outstanding and Earnings Per Share](index=20&type=section&id=13.%20Shares%20Outstanding%20and%20Earnings%20Per%20Share) Shares Outstanding and EPS | Metric | Q1 2020 | Q1 2019 | | :-------------------------------- | :------ | :------ | | Weighted average basic shares outstanding | 11,444k | 11,488k | | Basic earnings per share | $0.05 | $0.18 | | Diluted earnings per share | $0.05 | $0.18 | [14. Stock Repurchase Program](index=20&type=section&id=14.%20Stock%20Repurchase%20Program) - The Board of Directors authorized a stock repurchase program of up to **550,000 shares** of common stock in October 2015[65](index=65&type=chunk) Common Stock Repurchases | Period | Shares Repurchased | Aggregate Cost ($k) | | :-------------------- | :----------------- | :------------------ | | Q1 2020 | 15,000 | 145 | | Q1 2019 | 3,800 | 64 | [15. Segment Information](index=20&type=section&id=15.%20Segment%20Information) - The Company operates in three reportable segments: carbon flat products, specialty metals flat products, and tubular and pipe products[68](index=68&type=chunk) Segment Net Sales | Segment | Q1 2020 ($k) | Q1 2019 ($k) | | :-------------------------- | :----------- | :----------- | | Carbon flat products | 202,967 | 278,536 | | Specialty metals flat products | 88,488 | 88,097 | | Tubular and pipe products | 62,925 | 79,286 | | **Total net sales** | **354,380** | **445,919** | Segment Operating Income (Loss) | Segment | Q1 2020 ($k) | Q1 2019 ($k) | | :-------------------------- | :----------- | :----------- | | Carbon flat products | (1,346) | 1,226 | | Specialty metals flat products | 2,735 | 2,244 | | Tubular and pipe products | 4,305 | 5,615 | | Corporate expenses | (2,643) | (3,011) | | **Total operating income** | **3,051** | **6,074** | [16. Subsequent Events](index=21&type=section&id=16.%20Subsequent%20Events) - The COVID-19 pandemic, classified on March 11, 2020, did not materially impact Q1 2020 financial condition or results of operations[73](index=73&type=chunk) - Falling metals prices due to COVID-19 could lead to lower of cost or market inventory adjustments and future impairment of long-lived assets, intangible assets, and goodwill[74](index=74&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, segment results, and liquidity, highlighting impacts from metals prices and the anticipated effects of the COVID-19 pandemic [Forward-Looking Information](index=23&type=section&id=Forward-Looking%20Information) - Forward-looking statements are subject to risks including the **COVID-19 pandemic's impact** on sales, profits, receivables, metals prices, employee productivity, operational risks, and liquidity[77](index=77&type=chunk) - Other risks include falling metals prices and inventory devaluation, general economic conditions, competitive factors, and the cyclicality of the metals industry[77](index=77&type=chunk) [Overview](index=24&type=section&id=Overview) - Olympic Steel is a metals service center operating in three segments: carbon flat products, specialty metals flat products, and tubular and pipe products[79](index=79&type=chunk) - Gross profit is influenced by product mix, processing performed, demand and availability of metals, and volatility in selling prices and material purchase costs[79](index=79&type=chunk) - The company maintains substantial metals inventories to meet short lead times and just-in-time delivery requirements[81](index=81&type=chunk) - Approximately **297 of 1,792 employees** are represented by nine collective bargaining units, with agreements expiring between May 2020 and March 2025[82](index=82&type=chunk)[83](index=83&type=chunk) [COVID-19](index=25&type=section&id=COVID-19) - The COVID-19 pandemic had an **immaterial impact on Q1 2020 results** but is expected to negatively impact April and Q2 2020 sales due to customer temporary closures, especially in the automotive industry[84](index=84&type=chunk) - A prolonged pandemic could lead to falling metals prices, inventory adjustments, asset impairments, and higher bad debt expense[85](index=85&type=chunk) - The company has approximately **$112 million of availability** under its ABL Credit Facility and an unencumbered real estate portfolio, providing sufficient liquidity for the next 12 months[86](index=86&type=chunk) [Reportable Segments](index=26&type=section&id=Reportable%20Segments) - The company operates in three reportable segments: carbon flat products, specialty metals flat products, and tubular and pipe products, with performance assessed primarily by operating income[87](index=87&type=chunk)[88](index=88&type=chunk) - The tubular and pipe products segment generally has the **highest average selling price and gross profit percentage** among the three segments[89](index=89&type=chunk) [Carbon flat products](index=26&type=section&id=Carbon%20flat%20products) - Focuses on direct sale and distribution of processed carbon and coated flat-rolled sheet, coil, and plate products and fabricated parts[91](index=91&type=chunk) - Expanded product offerings in 2019 through acquisitions to include self-dumping metal hoppers and steel/stainless-steel dump inserts[79](index=79&type=chunk) [Specialty metals flat products](index=26&type=section&id=Specialty%20metals%20flat%20products) - Focuses on direct sale and distribution of processed aluminum and stainless flat-rolled sheet and coil products, flat bar products, and fabricated parts[92](index=92&type=chunk) - Expanded product offerings in 2018 through the acquisition of Berlin Metals to include differing types of stainless flat-rolled sheet and coil and prime tin mill products[79](index=79&type=chunk) [Tubular and pipe products](index=27&type=section&id=Tubular%20and%20pipe%20products) - Consists of the Chicago Tube and Iron (CTI) business, acquired in 2011, distributing metal tubing, pipe, bar, valves, and fittings, and fabricating pressure parts[94](index=94&type=chunk) [Corporate expenses](index=27&type=section&id=Corporate%20expenses) - Includes unallocated expenses for managing the entire Company, such as compensation for certain personnel, board of directors' expenses, audit expenses, and other professional fees[95](index=95&type=chunk) [Results of Operations](index=27&type=section&id=Results%20of%20Operations) - Average metals prices were **17% lower** in Q1 2020 compared to Q1 2019, negatively impacting net sales and profitability[96](index=96&type=chunk)[97](index=97&type=chunk) - **Significant impact on business volumes** is expected in Q2 2020 due to customer temporary closures related to the COVID-19 pandemic, especially in the automotive and heavy industrial segments[98](index=98&type=chunk) [Consolidated Operations](index=28&type=section&id=Consolidated%20Operations) - Net sales **decreased 20.5%** due to a 17.0% decrease in average selling prices and a 4.2% decrease in volume[101](index=101&type=chunk) - Gross profit as a percentage of net sales **increased to 20.3%** in Q1 2020 from 17.8% in Q1 2019, driven by lower inventory costs and LIFO income[103](index=103&type=chunk) - Operating expenses **decreased $4.7 million (6.3%)** but increased as a percentage of net sales to 19.4% from 16.5%[104](index=104&type=chunk) Consolidated Operating Results (Q1 2020 vs Q1 2019) | Metric | Q1 2020 ($k) | % of Net Sales (Q1 2020) | Q1 2019 ($k) | % of Net Sales (Q1 2019) | | :-------------------------- | :----------- | :----------------------- | :----------- | :----------------------- | | Net Sales | 354,380 | 100.0 | 445,919 | 100.0 | | Cost of materials sold | 282,522 | 79.7 | 366,382 | 82.2 | | Gross profit | 71,858 | 20.3 | 79,537 | 17.8 | | Operating expenses | 68,807 | 19.4 | 73,463 | 16.5 | | Operating income | 3,051 | 0.9 | 6,074 | 1.3 | | Income before income taxes | 795 | 0.3 | 2,846 | 0.6 | | Net income | 593 | 0.2 | 2,074 | 0.5 | [Segment Operations](index=29&type=section&id=Segment%20Operations) - All segments expect **significant decreases in shipping levels** during Q2 2020 due to customer actions related to the COVID-19 pandemic[111](index=111&type=chunk)[119](index=119&type=chunk)[125](index=125&type=chunk) [Carbon flat products](index=29&type=section&id=Carbon%20flat%20products_segment) - Net sales **decreased 27.1%** due to a 24.3% decrease in average selling prices and a 3.7% decrease in tons sold[112](index=112&type=chunk) - The segment reported an **operating loss of $1.3 million** in Q1 2020, compared to an operating income of $1.2 million in Q1 2019[116](index=116&type=chunk) Carbon Flat Products Segment Operating Results | Metric | Q1 2020 | Q1 2019 | | :-------------------------- | :------ | :------ | | Total tons sold | 263,110 | 273,171 | | Net sales ($k) | 202,967 | 278,536 | | Average selling price per ton | $771 | $1,020 | | Gross profit (%) | 19.6% | 16.2% | | Operating income (loss) ($k)| (1,346) | 1,226 | [Specialty metals flat products](index=30&type=section&id=Specialty%20metals%20flat%20products_segment) - Net sales **increased 0.4%** due to a 4.0% increase in average selling prices, primarily from increased surcharges on stainless steel, despite a 3.4% decrease in tons sold[119](index=119&type=chunk) - Operating income **increased to $2.7 million** in Q1 2020 from $2.2 million in Q1 2019[122](index=122&type=chunk) Specialty Metals Flat Products Segment Operating Results | Metric | Q1 2020 | Q1 2019 | | :-------------------------- | :------ | :------ | | Total tons sold | 34,570 | 35,784 | | Net sales ($k) | 88,488 | 88,097 | | Average selling price per ton | $2,560 | $2,462 | | Gross profit (%) | 13.8% | 13.5% | | Operating income ($k) | 2,735 | 2,244 | [Tubular and pipe products](index=31&type=section&id=Tubular%20and%20pipe%20products_segment) - Net sales **decreased 20.6%** due to an 11.2% decrease in shipping volume and a 10.6% decrease in average selling prices[125](index=125&type=chunk) - Gross profit as a percentage of net sales **increased to 31.4%** in Q1 2020, with LIFO income contributing 0.8%[127](index=127&type=chunk) Tubular and Pipe Products Segment Operating Results | Metric | Q1 2020 ($k) | Q1 2019 ($k) | | :-------------------------- | :----------- | :----------- | | Net sales | 62,925 | 79,286 | | Gross profit (%) | 31.4% | 28.3% | | Operating income ($k) | 4,305 | 5,615 | [Corporate expenses](index=31&type=section&id=Corporate%20expenses_results) - Corporate expenses **decreased to $2.6 million** in Q1 2020 from $3.0 million in Q1 2019, primarily due to decreased performance-based incentive compensation[130](index=130&type=chunk) [Liquidity, Capital Resources and Cash Flows](index=31&type=section&id=Liquidity%2C%20Capital%20Resources%20and%20Cash%20Flows) - The company's principal capital requirements include funding working capital, purchasing equipment, making acquisitions, and paying dividends, funded by operations and credit facility borrowings[131](index=131&type=chunk) - The company believes its ABL Credit Facility and unencumbered real estate portfolio provide **sufficient liquidity for the next 12 months**, but may seek additional sources if the COVID-19 pandemic persists[132](index=132&type=chunk) - Capital spending is currently limited to projects already in process, essential maintenance, and safety projects due to the COVID-19 pandemic[132](index=132&type=chunk) [Operating Activities](index=32&type=section&id=Operating%20Activities) - Net cash used for operations **increased to $12.0 million** in Q1 2020, primarily due to $17.0 million used for working capital[133](index=133&type=chunk) - Working capital at March 31, 2020, totaled **$334.7 million**, a $16.0 million increase from December 31, 2019, driven by a $32.2 million increase in accounts receivable and a $6.0 million decrease in inventories[135](index=135&type=chunk) [Investing Activities](index=32&type=section&id=Investing%20Activities) - Net cash used for investing activities **decreased to $4.2 million** in Q1 2020 from $13.4 million in Q1 2019, primarily due to no acquisitions in 2020[136](index=136&type=chunk) - Capital expenditures of **$4.2 million** in Q1 2020 were mainly for additional processing equipment at existing facilities[136](index=136&type=chunk) [Financing Activities](index=32&type=section&id=Financing%20Activities) - Financing activities generated **$15.8 million** in Q1 2020, primarily from $16.1 million of net borrowings under the ABL Credit Facility[137](index=137&type=chunk) - Dividends paid were **$0.2 million** for both Q1 2020 and Q1 2019, with a Q2 2020 dividend of $0.02 per share approved[138](index=138&type=chunk) [Stock Repurchase Program](index=33&type=section&id=Stock%20Repurchase%20Program_liquidity) - The company repurchased **15,000 shares for $145 thousand** in Q1 2020 under its authorized program of up to 550,000 shares[140](index=140&type=chunk)[139](index=139&type=chunk) - Repurchases are subject to ABL Credit Facility covenants, including availability thresholds and a pro-forma EBITDA to fixed charges ratio[139](index=139&type=chunk) [Debt Arrangements](index=33&type=section&id=Debt%20Arrangements) - The ABL Credit Facility provides **$445 million in revolving credit**, collateralized by accounts receivable, inventory, and personal property, maturing on December 8, 2022[141](index=141&type=chunk) - As of March 31, 2020, the company was in compliance with its covenants and had approximately **$112.2 million of availability** under the ABL Credit Facility[143](index=143&type=chunk) - A five-year interest rate swap fixed the rate at **2.57% on $75 million** of revolving debt, entered into on January 10, 2019[145](index=145&type=chunk) [Critical Accounting Policies](index=33&type=section&id=Critical%20Accounting%20Policies) - The consolidated financial statements are prepared in conformity with GAAP, requiring management to make estimates and assumptions that affect reported amounts[146](index=146&type=chunk) - Estimates and assumptions are monitored and evaluated based on historical experience and reasonable factors, but actual results may differ[146](index=146&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to significant market risks from fluctuating metals prices and interest rate changes, which can materially impact financial results - Primary market risks include fluctuating metals prices (carbon, coated, stainless steel, aluminum, pipe, tube, flat rolled coil, sheet, and plate) and interest rate changes[148](index=148&type=chunk)[153](index=153&type=chunk) - Metals price volatility can significantly affect the availability and cost of raw materials, the ability to pass on price increases to customers, and lead to lower gross profits or inventory adjustments[148](index=148&type=chunk)[149](index=149&type=chunk) - The company uses metals swaps to mitigate customer price volatility and a five-year interest rate swap to lock the interest rate at **2.57% on $75 million** of revolving debt[153](index=153&type=chunk)[154](index=154&type=chunk) [Item 4. Controls and Procedures](index=35&type=section&id=Item%204.%20Controls%20and%20Procedures) The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2020, with no material changes in internal controls during Q1 - Disclosure controls and procedures were **effective as of March 31, 2020**, as concluded by the CEO and CFO[155](index=155&type=chunk) - **No material changes** in internal control over financial reporting occurred during the first quarter of 2020[156](index=156&type=chunk) - The company is continually monitoring and assessing the COVID-19 situation's impact on its internal controls[156](index=156&type=chunk) Part II. OTHER INFORMATION [Item 1A. Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) This section updates risk factors, emphasizing the potential adverse effects of the COVID-19 pandemic on business operations, financial condition, and liquidity - The COVID-19 pandemic could have a **material adverse effect** on the company's business, financial condition, and liquidity[160](index=160&type=chunk)[161](index=161&type=chunk) - Potential impacts include reduced sales and profit levels, slower payment of accounts receivable, falling metals prices leading to inventory adjustments and asset impairments, reduced employee availability, increased operational risks from remote work, and negative impacts on liquidity[161](index=161&type=chunk) - The impact on customers, suppliers, vendors, and other business partners could also adversely affect the company[162](index=162&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=36&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's repurchase of 15,000 common shares for $145 thousand in March 2020 under its existing stock repurchase program - The stock repurchase program, authorized on October 2, 2015, allows for the repurchase of up to **550,000 shares**[163](index=163&type=chunk) Common Stock Purchases (Q1 2020) | Period | Total shares purchased | Average price paid per share | Maximum shares that may yet be purchased | | :-------------------- | :--------------------- | :--------------------------- | :--------------------------------------- | | 03/01/20 thru 03/31/20 | 15,000 | $9.64 | 360,212 | | **Total** | **15,000** | **$9.64** | | [Item 6. Exhibits](index=37&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including Sarbanes-Oxley certifications and various XBRL financial data documents - Exhibits include certifications from the Principal Executive Officer and Principal Financial Officer pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002[165](index=165&type=chunk) - XBRL Instance Document and Taxonomy Extension documents (Schema, Calculation, Definition, Label, Presentation Linkbase) are also filed[165](index=165&type=chunk) [SIGNATURES](index=38&type=section&id=SIGNATURES) The report was officially signed by the Chief Executive Officer and Chief Financial Officer on behalf of the company on May 1, 2020 - The report was signed by Richard T Marabito, Chief Executive Officer, and Richard A Manson, Chief Financial Officer, on May 1, 2020[167](index=167&type=chunk)

Olympic Steel, Inc. (NASDAQ:ZEUS) Q1 2020 Earnings Conference Call May 1, 2020 9:00 AM ET Company Participants Rich Manson - CFO Rick Marabito - CEO Andrew Greiff - President and COO Conference Call Participants Chris Sakai - Singular Research Operator Good morning and welcome to the Olympic Steel 2020 First Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please not ...

Part I [Business](index=4&type=section&id=Item%201.%20Business) Olympic Steel operates as a metals service center across three segments, providing value-added processing and distribution for diverse industries [The Company and Segments](index=4&type=section&id=The%20Company%20and%20Segments) - Olympic Steel operates as a metals service center across three reportable segments: carbon flat products, specialty metals flat products, and tubular and pipe products[17](index=17&type=chunk) - The company expanded its product offerings in 2019 through the acquisitions of McCullough Industries (self-dumping metal hoppers) and EZ Dumper (steel and stainless-steel dump inserts)[17](index=17&type=chunk) [Business Strategy and Objectives](index=5&type=section&id=Business%20Strategy%20and%20Objectives) - The company's strategy focuses on profitable geographic and product growth through acquisitions, start-ups, and investments in people, systems, and high value-added processing equipment[26](index=26&type=chunk) - Key operating objectives include improving safety, managing inventory turnover and operating expenses, diversifying products, growing market share, and investing in technology[27](index=27&type=chunk) - Recent growth has been accelerated through acquisitions, including EZ-Dumper® and McCullough in 2019, and Berlin Metals in 2018, as well as capital investments in facilities and equipment[29](index=29&type=chunk)[30](index=30&type=chunk)[31](index=31&type=chunk) [Products, Processing Services and Quality Standards](index=7&type=section&id=Products%2C%20Processing%20Services%20and%20Quality%20Standards) - The company provides a wide range of value-added processing services, including cutting-to-length, slitting, blanking, tempering, plate burning, laser cutting, machining, welding, and fabrication[43](index=43&type=chunk) Major Processing Equipment by Segment (as of Dec 31, 2019) | Processing Equipment | Flat Products | Tubular and Pipe Products | Total | | :--- | :--- | :--- | :--- | | Tempering | 3 | - | 3 | | Stretcher-leveling | 2 | - | 2 | | Cutting-to-length | 14 | 13 | 27 | | Slitting | 15 | - | 15 | | Plate processing | 23 | - | 23 | | Laser processing | 29 | 9 | 38 | | Machining | 39 | 85 | 124 | | Tube processing | 2 | 39 | 41 | | Total | 184 | 150 | 334 | - The company maintains high quality standards, with **26 facilities** holding ISO 9001:2015 certifications and others holding specialized certifications like IATF 16949:2016 and ASME S Certification[47](index=47&type=chunk) [Customers and Raw Materials](index=8&type=section&id=Customers%20and%20Raw%20Materials) Consolidated Net Sales by Industry | Industry | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Industrial machinery and equipment | 46% | 48% | 51% | | Residential and commercial construction | 13% | 13% | 9% | | Automobile manufacturers and suppliers | 11% | 10% | 9% | | Metals service centers | 8% | 10% | 11% | | Transportation equipment manufacturers | 8% | 8% | 6% | - The company's top three customers accounted for approximately **10%** of consolidated net sales in 2019[48](index=48&type=chunk) - The company's principal raw materials (carbon, stainless steel, aluminum) are subject to cyclical price and availability volatility, with inventory managed to meet customers' just-in-time delivery needs[52](index=52&type=chunk)[53](index=53&type=chunk) - In 2019, approximately **57%** of total metals requirements were purchased from the company's three largest suppliers, indicating significant supplier concentration[57](index=57&type=chunk) [Employees](index=11&type=section&id=Employees) - As of December 31, 2019, the company employed approximately **1,860 people**[67](index=67&type=chunk) - Approximately **300 hourly plant personnel** are represented by nine separate collective bargaining units with staggered expiration dates from 2020 to 2024[67](index=67&type=chunk)[68](index=68&type=chunk) [Risk Factors](index=15&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from volatile metal prices, government tariffs, cyclical demand, customer/supplier concentration, and cybersecurity threats [Risks Related to our Business](index=15&type=section&id=Risks%20Related%20to%20our%20Business) - Volatile metal prices can cause significant fluctuations in operating results, as declining prices can lead to lower gross profits and inventory write-downs[84](index=84&type=chunk)[85](index=85&type=chunk) - Government actions, such as Section 232 tariffs, create uncertainty and can impact metal prices, sales, and profitability[86](index=86&type=chunk) - The company has significant customer concentration, with the top three customers accounting for **10%** of 2019 sales and the industrial machinery sector representing **46%** of 2019 sales[88](index=88&type=chunk)[89](index=89&type=chunk) - Supplier concentration is a risk, with approximately **57%** of metal requirements in 2019 purchased from the three largest suppliers[102](index=102&type=chunk) - The business is exposed to cybersecurity threats and risks associated with the ongoing implementation of new ERP systems, which could disrupt operations[95](index=95&type=chunk)[96](index=96&type=chunk) [Risks Related to Our Common Stock](index=22&type=section&id=Risks%20Related%20to%20Our%20Common%20Stock) - The market price of the company's common stock has been historically volatile and could fluctuate in the future due to factors like commodity prices, analyst estimates, and general economic conditions[126](index=126&type=chunk) - Provisions in the company's charter and Ohio law, such as a staggered board and limitations on calling special meetings, could delay or prevent a change in management or a takeover attempt[131](index=131&type=chunk) [Properties](index=25&type=section&id=Item%202.%20Properties) The company's properties are strategically located near suppliers and customers, primarily in the hubs of major metals consumption markets - Properties are strategically situated, with most customers located within a **250-mile radius** of a processing facility, enabling an efficient just-in-time delivery system[135](index=135&type=chunk) - The company operates numerous owned and leased facilities across the United States and one in Monterrey, Mexico, which serve its three business segments, with many facilities shared between the carbon and specialty metals segments[136](index=136&type=chunk)[138](index=138&type=chunk) [Information About Our Executive Officers](index=28&type=section&id=Information%20About%20Our%20Executive%20Officers) This section details the business experience of the company's executive officers, reflecting a recent management succession plan - Michael D. Siegal serves as Executive Chairman of the Board since January 2019, having previously been CEO since 1984[145](index=145&type=chunk) - Richard T. Marabito has served as Chief Executive Officer since January 2019, previously serving as CFO since 2000[146](index=146&type=chunk) - Richard A. Manson has served as Chief Financial Officer since January 2019, having been with the company since 1996 in various roles[147](index=147&type=chunk) - Andrew S. Greiff has served as President and Chief Operating Officer since January 2020[148](index=148&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=29&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on the Nasdaq under the symbol "ZEUS", with dividends and repurchases subject to credit facility limitations - The company's common stock is traded on the Nasdaq Global Select Market under the symbol "ZEUS"[151](index=151&type=chunk) - A stock repurchase program authorized on October 2, 2015, allows for the repurchase of up to **550,000 shares** of common stock[154](index=154&type=chunk) - Dividends and stock repurchases are restricted by the ABL Credit Facility, with an annual limit of **$5.0 million** without limitations, and specific availability requirements for amounts exceeding this threshold[152](index=152&type=chunk)[154](index=154&type=chunk) [Selected Financial Data](index=30&type=section&id=Item%206.%20Selected%20Financial%20Data) Key financial data for 2019 shows net sales of **$1.58 billion** and net income of **$3.9 million**, reflecting a decline from 2018 Selected Financial Data (2017-2019) | (in thousands, except per share data) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | **Income Statement Data:** | | | | | Net sales | $1,579,040 | $1,715,081 | $1,330,696 | | Gross profit | $298,930 | $342,127 | $275,484 | | Operating income | $16,610 | $57,052 | $23,986 | | Net income | $3,856 | $33,759 | $18,963 | | **Per Share Data:** | | | | | Net income - diluted | $0.34 | $2.95 | $1.67 | | **Balance Sheet Data (Year-End):** | | | | | Total assets | $649,555 | $760,740 | $604,158 | | Total debt | $192,925 | $302,530 | $197,165 | | Shareholders' equity | $308,352 | $306,991 | $272,583 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Financial performance in 2019 declined due to falling metal prices and lower demand, resulting in decreased net sales and net income, offset by strong operating cash flow [Results of Operations](index=33&type=section&id=Results%20of%20Operations) Financial results in 2019 declined due to falling metal prices and weaker demand, leading to decreased consolidated net sales and a significant drop in net income Consolidated Operations Summary (2019 vs 2018) | (in thousands) | 2019 | 2018 | | :--- | :--- | :--- | | Net sales | $1,579,040 | $1,715,081 | | Gross profit | $298,930 | $342,127 | | Operating income | $16,610 | $57,052 | | Net income | $3,856 | $33,759 | - The decrease in 2019 sales was due to a **9.3%** decrease in sales volume, partially offset by a **1.5%** increase in average selling prices[181](index=181&type=chunk) - The carbon flat products segment experienced an operating loss of **$5.0 million** in 2019, a sharp decline from a **$44.4 million** operating income in 2018, due to decreased volume and selling prices[188](index=188&type=chunk)[195](index=195&type=chunk) - The tubular and pipe products segment's operating income increased to **$18.6 million** in 2019 from **$11.5 million** in 2018, largely due to a favorable LIFO adjustment (**$3.7 million** income in 2019 vs. **$8.4 million** expense in 2018)[206](index=206&type=chunk)[208](index=208&type=chunk)[210](index=210&type=chunk) [Liquidity, Capital Resources and Cash Flows](index=37&type=section&id=Liquidity%2C%20Capital%20Resources%20and%20Cash%20Flows) The company generated **$129.6 million** in operating cash flow in 2019, primarily from working capital reductions, used for debt repayment and investments, maintaining strong liquidity Cash Flow Summary (2019 vs 2018) | (in millions) | 2019 | 2018 | | :--- | :--- | :--- | | Net cash from operating activities | $129.6 | ($50.5) | | Net cash used for investing activities | ($21.0) | ($47.5) | | Net cash (used for) from financing activities | ($112.1) | $104.3 | - The decrease in working capital was primarily due to a **$95.8 million** decrease in inventory and a **$42.1 million** decrease in accounts receivable[215](index=215&type=chunk) - Investing activities in 2019 included **$11.1 million** for the acquisitions of McCullough Industries and EZ Dumper and **$10.2 million** in capital expenditures[216](index=216&type=chunk) - As of December 31, 2019, the company had **$93.3 million** of availability under its ABL Credit Facility[223](index=223&type=chunk) [Critical Accounting Policies](index=40&type=section&id=Critical%20Accounting%20Policies) - Key judgments and estimates are required for several accounting policies, including Allowance for Doubtful Accounts, Inventory Valuation, Intangible Assets, and Income Taxes[233](index=233&type=chunk) - Inventory valuation methods include specific identification for carbon and specialty metals, and a mix of LIFO and weighted average FIFO for tubular and pipe products, with **14.3%** of consolidated inventory on the LIFO method as of December 31, 2019[239](index=239&type=chunk)[240](index=240&type=chunk) - The company performs an annual impairment test of indefinite-lived intangible assets (goodwill and trade names) in the fourth quarter, or more frequently if impairment indicators are present[243](index=243&type=chunk) - Revenue is recognized when control of the product transfers to the customer, which for substantially all sales occurs upon shipment or delivery[250](index=250&type=chunk)[251](index=251&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=44&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is primarily exposed to market risks from volatile metals prices and fluctuating interest rates, which are partially mitigated by an interest rate swap on **$75 million** of debt - The company's primary market risks are volatile metals pricing and interest rate changes on its variable rate debt[260](index=260&type=chunk)[266](index=266&type=chunk) - A **100 basis point (1.0%)** increase in interest rates from December 31, 2019 levels would result in an estimated additional annual interest expense of **$1.2 million**[266](index=266&type=chunk) - On January 10, 2019, the company entered into a five-year interest rate swap to fix the interest rate at **2.567%** on **$75 million** of its revolving debt[267](index=267&type=chunk) [Financial Statements and Supplementary Data](index=45&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section includes the company's consolidated financial statements, notes, and reports from independent auditors and management on internal control over financial reporting - Includes the audited consolidated financial statements, notes to the financial statements, and supplementary financial information[269](index=269&type=chunk)[270](index=270&type=chunk) - Contains Management's Report on Internal Control Over Financial Reporting, which concluded that internal controls were effective as of December 31, 2019[296](index=296&type=chunk)[299](index=299&type=chunk) - The company adopted the new lease accounting standard (ASU No. 2016-02) in 2019, resulting in the recognition of right-of-use assets and lease liabilities on the balance sheet[275](index=275&type=chunk) [Controls and Procedures](index=78&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2019, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2019[435](index=435&type=chunk) - No changes in internal control over financial reporting occurred during the quarter ended December 31, 2019, that materially affected, or are reasonably likely to materially affect, internal controls[437](index=437&type=chunk) Part III This part incorporates information on directors, executive compensation, security ownership, and related transactions by reference from the 2020 proxy statement [Directors, Executive Officers of the Registrant and Corporate Governance](index=79&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20of%20the%20Registrant%20and%20Corporate%20Governance) Information regarding directors and corporate governance is incorporated by reference from the company's 2020 definitive proxy statement - Information required by this item will be incorporated by reference from the definitive proxy statement for the 2020 Annual Meeting of Shareholders[441](index=441&type=chunk) [Executive Compensation](index=79&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's 2020 definitive proxy statement - Information required by this item will be incorporated by reference from the definitive proxy statement for the 2020 Annual Meeting of Shareholders[442](index=442&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=79&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership of certain beneficial owners and management is incorporated by reference from the company's 2020 definitive proxy statement - Information required by this item will be incorporated by reference from the definitive proxy statement for the 2020 Annual Meeting of Shareholders[443](index=443&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=79&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's 2020 definitive proxy statement - Information required by this item will be incorporated by reference from the definitive proxy statement for the 2020 Annual Meeting of Shareholders[444](index=444&type=chunk) [Principal Accountant Fees and Services](index=79&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information regarding principal accountant fees and services is incorporated by reference from the company's 2020 definitive proxy statement - Information required by this item will be incorporated by reference from the definitive proxy statement for the 2020 Annual Meeting of Shareholders[445](index=445&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=80&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements, schedules, and various exhibits filed as part of the Annual Report, including governance documents and material contracts - Lists the financial statements included in Part II, Item 8[448](index=448&type=chunk) - Includes Financial Statement Schedule II – Valuation and Qualifying Accounts[449](index=449&type=chunk) - Provides an index of all exhibits filed with the report, including governance documents, material contracts, and certifications[450](index=450&type=chunk)[451](index=451&type=chunk)

Financial Data and Key Metrics Changes - The company reported a fourth quarter 2019 loss of $890,000 or $0.08 per share, an improvement from a loss of $1.3 million or $0.11 per share in the fourth quarter of 2018 [8] - For the full year 2019, net income was $3.9 million or $0.34 per share, down from $33.8 million or $2.95 per share in 2018 [8][34] - Consolidated net sales for Q4 2019 totaled $320 million, down from $430 million in the same quarter last year [30] - Full year net sales were $1.6 billion, down from $1.7 billion in 2018 [31] Business Line Data and Key Metrics Changes - The Specialty Metals and Pipe and Tube segments now comprise 41% of net sales, up from 37% a year ago [10] - Specialty Metals recorded its second most profitable year ever, with EBITDA levels just shy of last year's record [11] - The Pipe and Tube segment delivered its third most profitable year since joining the company in 2011 [11] Market Data and Key Metrics Changes - The price of carbon hot-rolled steel fell to less than half of the tariff-induced high pricing seen in 2018 [19] - The overall stainless flat-rolled market was down 4.5%, while the company’s performance was up 7.2% [21] Company Strategy and Development Direction - The company is focused on diversification and has made acquisitions to enhance profitability and reduce volatility [12] - Plans to continue seeking additional acquisition opportunities to further diversify the portfolio [12] - The company aims to improve inventory turnover and reduce operating expenses [32][36] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism, noting that new carbon steel production capacity will likely pressure pricing [25] - The company is addressing volatility by reducing inventory levels and increasing transactional business [25] - Management has not yet seen negative impacts from the coronavirus but is monitoring the situation closely [67] Other Important Information - The company reduced debt by over $110 million, entering 2020 with a strong balance sheet [13][37] - A regular cash dividend of $0.02 per share was declared, marking the 59th consecutive quarter of dividend payments [38] Q&A Session Summary Question: Volume expectations across carbon and Specialty businesses for Q1 2020 - Management expects first quarter volume to be better than Q4 2019 and similar to Q1 2019, with growth in Specialty Metals [43][44] Question: Pricing trends for carbon and specialty gross profits per ton in Q1 - Carbon pricing has seen fluctuations, with expectations of lower margins in Q1 compared to Q4 [46][48] Question: Demand from yellow and green goods in Q1 - Initial expectations were down, but there is optimism for good volume as the quarter progresses [52][54] Question: Changes in legacy carbon flat segment to improve profitability - The company is focused on adding value to carbon steel and improving inventory turnover to mitigate volatility [56][58] Question: Integration of EZ-Dumper acquisition - The integration is going well, and the company is optimistic about future benefits [66] Question: Impact of coronavirus on demand - No current negative effects have been observed, but management is monitoring the situation [67] Question: M&A strategy and future acquisitions - The company is actively looking for acquisitions to enhance returns and profitability [73] Question: Current mindset on inventories - The company aims to maintain close inventory management and improve turnover rates [76][78] Question: U.S. MCA policy impact on manufacturing - There is ongoing discussion, but customers are maintaining their current operations [80][82] Question: Opportunities for increasing tolling volumes - The company is actively looking to grow its aluminum processing business [90]

Investor Presentation February 2020 Forward-Looking Statements | --- | --- | |-----------------------------------------------------------------------------------------------------------------------------------------------------|-------| | | | | Statements contained in this presentation that are not historical facts are forward-looking statements, which involve risks and uncertainties that | | | could cause actual results to differ materially from those expressed in the | | | forward-looking statements. Such ...

Investor Presentation November 2019 Forward-Looking Statements | --- | --- | |-----------------------------------------------------------------------------------------------------------------------------------------------------|-------| | | | | Statements contained in this presentation that are not historical facts are forward-looking statements, which involve risks and uncertainties that | | | could cause actual results to differ materially from those expressed in the | | | forward-looking statements. Such ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q ( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2019 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) 22901 Millcreek Boulevard, Suite 650, Highland Hills, OH (Address of princi ...

Financial Data and Key Metrics Changes - The company reported a net income of $591,000 or $0.05 per share for Q3 2019, a significant decrease from $11.6 million or $1.01 per share in the same quarter last year [21][22] - Net sales for Q3 2019 were $384 million, down 16% compared to Q3 2018, with selling prices decreasing by 7% and volume down 10% [17][18] - Consolidated gross margin for Q3 2019 was 19%, compared to 20% in Q3 2018, with carbon flat gross margins negatively impacted by declining prices [19][20] Business Line Data and Key Metrics Changes - The Specialty Metals segment saw a 3% increase in sales compared to Q3 2018, driven by volume growth and improved pricing, while the Pipe and Tube segment also delivered strong results [18][19] - The Pipe and Tube sales were down approximately 2% year-over-year, while the overall market was down 14%, indicating market share growth [6][18] Market Data and Key Metrics Changes - The overall market for carbon steel products faced challenges due to softer global demand, unsettled trade agreements, and excess global steel capacity, leading to sharp declines in pricing [4][6] - The company noted that its stainless flat roll shipments were up 10.6%, while the overall market was down 2.7%, reflecting successful market share growth [14][15] Company Strategy and Development Direction - The company is focused on diversifying its business, with Specialty Metals and Pipe and Tube segments constituting 44% of sales in Q3 2019 [4][5] - The strategy includes acquiring manufacturers of metal-intensive branded products to enhance profitability and reduce volatility [10][11] - The company aims to strengthen its balance sheet, reduce operating expenses, and focus on cash flow generation to pay down debt [7][27] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about being at the bottom of carbon steel pricing pressures and anticipates a recovery phase extending into early 2020 [7][32] - The company expects to see growth in automotive aluminum and food equipment sales, contributing to a strong outlook for 2020 [35][48] Other Important Information - The Board of Directors declared a regular cash dividend of $0.02 per share, marking the 58th consecutive quarter of dividend payments [8] - The company appointed Vanessa L. Whiting to the Board of Directors, bringing extensive experience in corporate finance and mergers and acquisitions [8] Q&A Session Summary Question: Recent flat roll price increases and margin recovery - Management noted traction in price increases and a surge in ordering as inventory levels lowered, indicating a recovery phase expected to extend into early 2020 [32][33] Question: Near-term expectations for gross profit and volume - Management anticipates a normal seasonal decline in shipments of 7% to 8% from Q3 to Q4, with potential recovery in spot sales [36][37] Question: Thoughts on Q1 volumes and inventory dynamics - Management indicated that large OEMs are adjusting their finished goods inventory, suggesting a potential improvement in volumes and pricing [39][40] Question: Growth in automotive aluminum business - Management confirmed success in targeting automotive aluminum in Detroit, Atlanta, and Mexico, with expectations for stronger performance in 2020 [48][50] Question: Inventory reduction efforts and pricing impact - Management expects inventory to decrease slightly in Q4, with pricing being the primary driver of inventory reduction rather than volume [51][55]