Universal Stainless(US:USAP)2024-10-30 16:49Financial Performance - Sales in Q3 2024 reached $87.3 million, the highest in company history, a 22% increase from $71.3 million in Q3 2023[75] - Gross margin for Q3 2024 was $22.0 million, or 25.2% of net sales, compared to 15.2% in Q3 2023, driven by cost improvements and higher base prices[77] - Operating income increased to $13.2 million in Q3 2024, up from $4.4 million in Q3 2023, representing a 195.4% increase[77] - Net income for Q3 2024 was $11.2 million, or $1.12 per diluted share, compared to $1.9 million, or $0.20 per diluted share in Q3 2023[90] - Net sales for the nine months ended September 30, 2024, increased by $41.5 million, or 20.1%, compared to the same period in the prior year, reaching $247.6 million[96] - Gross margin for the nine months ended September 30, 2024, was 23.3%, up from 13.8% in the prior year, driven by higher base selling prices and productivity gains[97] - Operating income increased to $33.1 million for the nine months ended September 30, 2024, a 270.1% increase from $9.0 million in the prior year[1] - Net income for the nine months ended September 30, 2024, was $24.1 million, or $2.45 per diluted share, compared to $2.3 million, or $0.25 per diluted share, for the same period in 2023[104] Market Segmentation - Aerospace market accounted for $71.3 million, or 82% of total sales, reflecting strong demand for premium alloys[75] - Premium alloy product sales reached a record $23.7 million in Q3 2024, a 43.7% increase from $16.5 million in Q3 2023[76] - The aerospace market segment accounted for 80.8% of total net sales, with sales of $200.2 million, an increase of 29.8% compared to the prior year[95] Expenses and Financial Management - Selling, general and administrative expenses increased by $2.5 million in Q3 2024, primarily due to higher insurance costs and nonrecurring transaction costs[85] - Selling, general and administrative expenses increased by $5.1 million, totaling $24.5 million, representing 9.9% of net sales for the nine months ended September 30, 2024[98] - Interest expense decreased to approximately $1.8 million in Q3 2024 from $2.1 million in Q3 2023, due to lower debt levels[86] - Interest expense decreased to approximately $5.7 million in the first nine months of 2024, down from $6.2 million in the same period in 2023[99] Cash Flow and Financial Position - Cash generated from operating activities was $29.4 million for the nine months ended September 30, 2024, compared to $17.8 million in the prior year[107] - The company maintained approximately $50.3 million of remaining availability under its revolving credit facility as of September 30, 2024[105] Merger and Acquisition Activity - The company entered into a definitive Merger Agreement with Aperam S.A., expected to close in Q1 2025, pending regulatory approval[74] - The Merger Agreement includes a $14.8 million termination fee payable under certain circumstances, which may discourage potential acquirers[145] - The Company is currently undergoing a Merger with a wholly owned indirect subsidiary of Aperam, which may disrupt business operations and relationships with customers and suppliers[134] - Significant management resources are being allocated towards the completion of the Merger, potentially affecting the Company's business and results of operations[134] - The Merger Agreement imposes restrictions on the Company's ability to acquire other businesses or make significant changes to its operations prior to the Merger's completion[135] - The completion of the Merger is contingent upon obtaining various regulatory approvals and the affirmative vote of a majority of the Company's stockholders[139][141] - If the Merger is not completed, the Company may incur substantial expenses without realizing the anticipated benefits, adversely affecting its financial condition[142] - The Merger Agreement includes "no shop" covenants that may deter other potential acquirers and includes a termination fee of $14.8 million under certain circumstances[145] - Following the Merger, holders of the Company's common stock will have no ownership or voting interest in the combined company[146] - Stockholder litigation could delay or prevent the completion of the Merger, negatively impacting the Company's operations[148][149] Internal Controls and Compliance - The Company has taken steps to remediate material weaknesses in internal control over financial reporting, including enhancing risk assessment and expanding the internal audit team[126] - There were no changes in the Company's internal control over financial reporting that materially affected the controls during the fiscal quarter ended September 30, 2024[128] - The Company is subject to restrictions on business conduct prior to the consummation of the Merger, which may affect its ability to respond to competitive pressures[135] Debt and Financing - The Company maintained a fixed charge coverage ratio (FCCR) greater than 1.1 for two consecutive quarters, achieving this for the period ending December 31, 2023[121] - The Company is required to maintain undrawn availability under the Credit Agreement of at least $11.0 million until the FCCR requirement is met[121] - Interest rates for the majority of the debt under the Facilities were approximately 7.0% for the Revolving Credit Facility and 7.5% for the Term Loan for the nine months ended September 30, 2024[123] - The Company pays a commitment fee of 0.25% based on the daily unused portion of the Revolving Credit Facility[122] - As of September 30, 2024, the total net deferred financing costs related to the Credit Agreement were approximately $0.4 million[118] - The Company amortized approximately $0.2 million of deferred financing costs for the nine months ended September 30, 2024[118]