Universal Stainless(USAP) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's financial statements, management's analysis, market risk disclosures, and controls and procedures Financial Statements This section presents the company's operational results, financial position, and cash flows, highlighting a shift to net income and increased inventory Consolidated Statements of Operations Q3 2021 net sales remained flat, but a $10 million PPP loan forgiveness led to a net income of $7.9 million, reversing a prior-year loss Consolidated Statements of Operations (Q3 & Nine Months, in thousands, except per share) | Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $37,169 | $37,434 | $112,709 | $148,407 | | Gross margin | $2,307 | $(4,427) | $4,223 | $2,419 | | Operating loss | $(2,703) | $(8,580) | $(11,169) | $(13,039) | | Gain on extinguishment of debt | $10,000 | $0 | $10,000 | $0 | | Net income (loss) | $7,890 | $(7,000) | $868 | $(11,742) | | Diluted EPS | $0.87 | $(0.79) | $0.10 | $(1.33) | Consolidated Balance Sheets Total assets increased to $321.0 million, driven by a $24.2 million rise in inventory, while total liabilities also grew to $93.4 million Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total current assets | $160,656 | $137,116 | | Inventory, net | $135,604 | $111,380 | | Total assets | $320,954 | $303,046 | | Total current liabilities | $38,112 | $33,893 | | Long-term debt, net | $49,126 | $33,471 | | Total liabilities | $93,409 | $77,366 | | Total stockholders' equity | $227,545 | $225,680 | Consolidated Statements of Cash Flow Net cash used in operations was $4.9 million, primarily due to a $25.5 million increase in inventory, while financing provided $11.3 million Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(4,871) | $12,604 | | Net cash used in investing activity | $(6,514) | $(8,480) | | Net cash provided by (used in) financing activities | $11,300 | $(4,236) | | Net decrease in cash | $(85) | $(112) | Notes to the Unaudited Consolidated Financial Statements Key notes detail revenue recognition, inventory, and debt structure, including a $10.0 million PPP loan forgiveness and a new $120.0 million credit facility - Revenue from specialty alloys constituted the majority of sales, though sales of premium alloys (VIM products) decreased in Q3 and the first nine months of 2021 compared to 2020[37] - In July 2021, the company's $10.0 million Paycheck Protection Program (PPP) Term Note was fully forgiven by the Small Business Administration, resulting in a corresponding gain on extinguishment of debt recorded in the third quarter[59] - On March 17, 2021, the company entered into a new Credit Agreement providing a $105.0 million Revolving Credit Facility and a $15.0 million Term Loan, replacing its prior credit agreement[50] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 sales, attributing decreases to supply chain issues, while highlighting strong backlog growth and improved gross margin Overview Q3 2021 sales were $37.2 million, impacted by supply chain issues, but backlog grew 26.5% sequentially to $125.1 million - Backlog (before surcharges) increased 26.5% sequentially to $125.1 million at the end of Q3 2021, marking the third consecutive quarter of double-digit growth[86] - Q3 2021 sales of $37.2 million were negatively impacted by supply chain challenges and labor shortages, which delayed shipments[85] - Gross margin for Q3 2021 was 6.2% of net sales, an improvement from 5.6% in Q2 2021 and a negative 11.8% in Q3 2020[88] Results of Operations Q3 2021 net sales were flat, but gross margin improved, and a $10 million PPP loan forgiveness led to a $7.9 million net income Q3 2021 vs Q3 2020 End Market Sales (in thousands) | End Market | Q3 2021 Sales | Q3 2020 Sales | % Change | | :--- | :--- | :--- | :--- | | Aerospace | $22,253 | $25,138 | (11.5)% | | Power generation | $847 | $1,590 | (46.7)% | | Oil & gas | $4,041 | $2,755 | 46.7% | | Heavy equipment | $7,614 | $4,662 | 63.3% | - For the nine months ended Sep 30, 2021, net sales decreased 24.1% year-over-year, driven by an 18.7% drop in shipment volume and a 6.6% decrease in average sales price per ton, primarily due to the economic impact of COVID-19 on aerospace and premium alloy product demand[111] - The company's estimated annual effective tax rate for 2021 is 136.9%, significantly different from the 21.0% federal statutory rate, mainly due to the non-taxable gain on the extinguishment of the PPP loan[78][102][116] Liquidity and Capital Resources The company has $39 million available liquidity, with cash used in operations for inventory build-up and $6.5 million in capital expenditures - As of September 30, 2021, the company had approximately $39 million of remaining availability under its revolving credit facility[119] - Cash used in operations for the first nine months of 2021 was $4.9 million, largely due to a $25.5 million increase in inventory to support backlog growth and mitigate supply chain risks[123] - Capital expenditures for the first nine months of 2021 were $6.5 million, with a full-year expectation of approximately $11.0 million, primarily for strategic projects to expand melt and remelt capabilities for premium products[125] Quantitative and Qualitative Disclosures About Market Risk No significant changes in market risk disclosures were reported compared to the 2020 Annual Report on Form 10-K - The company reports no significant changes in its market risk compared to what was disclosed in its 2020 Annual Report on Form 10-K[143] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - Management concluded that the company's disclosure controls and procedures are effective as of September 30, 2021[143] - There were no changes in the company's internal control over financial reporting during the third quarter of 2021 that have materially affected, or are reasonably likely to materially affect, internal controls[143] PART II. OTHER INFORMATION This section details legal proceedings, risk factors, equity sales, defaults, mine safety, and exhibits Legal Proceedings No material changes to legal proceedings were reported since the 2020 Annual Report on Form 10-K - There are no material changes to legal proceedings since the 2020 Form 10-K filing[145] Risk Factors No material changes in risk factors were reported compared to the 2020 Annual Report on Form 10-K - There have been no material changes in risk factors from those disclosed in the 2020 Form 10-K[146] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - None reported[147] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None reported[148] Mine Safety Disclosures This item is not applicable to the company - Not Applicable[149] Other Information This item is not applicable - Not Applicable[150] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL-formatted financial statements - Exhibits filed include Sarbanes-Oxley Act certifications for the CEO and CFO, and financial data in XBRL format[152]