Olympic Steel(ZEUS) - 2025 Q1 - Quarterly Report

Part I. FINANCIAL INFORMATION Financial Statements For the first quarter ended March 31, 2025, Olympic Steel reported net sales of $492.9 million, a decrease from $526.6 million in the prior year period, primarily due to lower average selling prices, with net income significantly declining to $2.5 million from $8.7 million year-over-year, while total assets increased slightly to $1.06 billion and the company generated $49.4 million in cash from operations, a strong reversal from the $2.6 million used in the same period last year Consolidated Balance Sheets | Balance Sheet Items (in thousands) | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $595,586 | $580,591 | | Inventories, net | $360,148 | $390,626 | | Total Assets | $1,064,722 | $1,044,496 | | Total Current Liabilities | $188,485 | $132,638 | | Credit facility revolver | $235,360 | $272,456 | | Total Liabilities | $490,537 | $470,572 | | Total Shareholders' Equity | $574,185 | $573,924 | - Total assets increased to $1.06 billion as of March 31, 2025, from $1.04 billion at year-end 2024. The change was driven by a rise in accounts receivable, offset by a decrease in inventories. Total liabilities also increased, primarily due to a significant rise in accounts payable[9] Consolidated Statements of Comprehensive Income | Income Statement (in thousands, except per share) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Sales | $492,941 | $526,642 | | Cost of materials sold | $374,500 | $407,538 | | Operating Income | $7,793 | $15,938 | | Income before income taxes | $3,590 | $11,909 | | Net Income | $2,509 | $8,697 | | Net Income Per Share - Diluted | $0.21 | $0.75 | | Dividends declared per share | $0.16 | $0.15 | - Net sales decreased by 6.4% year-over-year, while operating income fell by 51.1% in Q1 2025 compared to Q1 2024. This resulted in a significant drop in diluted EPS from $0.75 to $0.21[11] Consolidated Statements of Cash Flows | Cash Flow Activities (in thousands) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash from operating activities | $49,418 | ($2,608) | | Net cash used for investing activities | ($8,831) | ($4,818) | | Net cash (used for) from financing activities | ($39,237) | $4,542 | | Net change in cash | $1,350 | ($2,884) | - The company generated significant cash from operations ($49.4 million) in Q1 2025, a major improvement from a cash use of $2.6 million in Q1 2024, primarily driven by favorable changes in working capital, including a large increase in accounts payable and a decrease in inventories[13] Notes to Unaudited Consolidated Financial Statements - The company operates in three reportable segments: specialty metals flat products, carbon flat products, and tubular and pipe products. The carbon flat products segment is the largest, accounting for 58.0% of total revenue in Q1 2025[23][32] - As of March 31, 2025, the company had $235.4 million outstanding on its asset-based revolving credit facility and had approximately $254 million of availability[42][44] - In April 2025, subsequent to the quarter end, the company amended its ABL Credit Facility, extending the maturity date to April 17, 2030, and increasing availability[75] Management's Discussion and Analysis (MD&A) Management attributes the 6.4% decrease in Q1 2025 net sales to a 10.2% decline in average selling prices, partially offset by a 4.3% increase in sales volume; despite the sales drop, gross profit margin improved to 24.0% from 22.6% year-over-year, as the average cost of inventory decreased more than selling prices, however, a 7.3% increase in operating expenses, partly due to the MetalWorks acquisition, led to a significant decline in operating income and net income, while the company maintains strong liquidity with $254 million available under its credit facility, which was recently extended to 2030 Results of Operations | Consolidated Operations (in thousands) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net sales | $492,941 | $526,642 | | Gross profit | $118,441 | $119,104 | | Gross Profit % | 24.0% | 22.6% | | Operating income | $7,793 | $15,938 | | Operating Margin % | 1.6% | 3.0% | | Net income | $2,509 | $8,697 | - The decrease in net sales was driven by a 10.2% decrease in average selling prices, partially offset by a 4.3% increase in sales volume[100] - Operating expenses increased by $7.5 million (7.3%), primarily due to the inclusion of operating expenses from the recently acquired MetalWorks and higher variable costs from increased sales volume[103] Segment Operations | Segment Performance (Q1 2025 vs Q1 2024) | Net Sales (in millions) | Operating Income (in millions) | | :--- | :--- | :--- | | Specialty Metals Flat Products | $129.5 (flat) | $2.6 (down from $3.9) | | Carbon Flat Products | $286.2 (down 4.9%) | $5.8 (down from $8.7) | | Tubular and Pipe Products | $77.2 (down 19.7%) | $4.1 (down from $7.6) | - The Carbon Flat Products segment's sales decrease was caused by a 10.3% drop in average selling prices, despite a 6.0% increase in tons sold[117][118] - The Tubular and Pipe Products segment experienced the sharpest decline, with net sales falling 19.7% due to decreases in both average selling prices (9.2%) and shipping volume (11.6%)[125] Liquidity, Capital Resources and Cash Flows - The company generated $49.4 million of net cash from operations in Q1 2025, compared to using $2.6 million in Q1 2024, mainly due to positive working capital changes[133] - Financing activities used $39.2 million in cash, primarily for $37.1 million in net repayments on the ABL Credit Facility and $1.8 million in dividend payments[137] - The company's $625 million ABL Credit Facility was amended in April 2025 to extend the maturity to 2030. As of March 31, 2025, availability was approximately $254 million[142][143][145] - No shares were repurchased under the stock repurchase program or sold under the at-the-market (ATM) equity program during the first quarter of 2025[140][141] Market Risk Disclosures The company identifies its primary market risks as volatility in metals pricing, which impacts revenue, costs, and inventory valuation, and interest rate risk on its variable-rate debt, with the metals industry being cyclical and factors like import levels, tariffs, and economic conditions significantly affecting material costs, and to mitigate interest rate risk, the company entered into an interest rate hedge on $75 million of its debt, fixing the rate at 3.82% - The company's primary market risk is the cyclical and volatile nature of metals pricing, which can significantly affect net sales, gross profits, and inventory values[151][152] - To manage interest rate risk on its variable-rate ABL Credit Facility, the company entered into a two-year forward starting interest rate hedge on $75 million of borrowings, fixing the rate at 3.82%[157] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded that they were effective as of March 31, 2025, with no material changes to the company's internal control over financial reporting during the first quarter - The CEO and CFO concluded that as of March 31, 2025, the company's disclosure controls and procedures were effective[158] - No changes in internal control over financial reporting occurred during Q1 2025 that have materially affected, or are reasonably likely to materially affect, internal controls[159] Part II. OTHER INFORMATION Other Information During the quarter ended March 31, 2025, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No directors or officers adopted or terminated any Rule 10b5-1 trading plans during the first quarter of 2025[162] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications pursuant to the Sarbanes-Oxley Act of 2002 and the Inline XBRL financial data files - The exhibits filed with this report include certifications from the Principal Executive Officer and Principal Financial Officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act[163]