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Olympic Steel Reports Second-Quarter 2020 Results
August 06, 2020 06:30 AM Eastern Time

Company is benefiting from decisive actions to tightly manage expenses, inventory and liquidity while retaining flexibility to respond to fluctuations in demand

CLEVELAND - Olympic Steel, Inc. (Nasdaq: ZEUS), a leading national metals service center, today announced financial results for the three and six months ended June 30, 2020.

Net loss for the second quarter totaled $6.5 million, or $0.56 per diluted share, compared with net income of $2.1 million, or $0.18 per diluted share, in the second quarter of 2019. The results include $0.5 million of LIFO pre-tax income and $3.6 million of restructuring and other charges in the second quarter of 2020, which together negatively impacted earnings by $0.18 per share. The charges include a loss on the sale of idled real estate, the decision to begin the process of exiting a leased facility in Monterrey, Mexico, and COVID-19-related severance and bad debt expense. Adjusted EBITDA for the second quarter was $0.5 million, compared with $10.5 million in the same period a year ago. The impact of LIFO and the restructuring and other charges, along with a reconciliation of Adjusted Net Income Per Diluted Share and Adjusted EBITDA to the most directly comparable GAAP measures, are included below.

Sales for the second quarter of 2020 totaled $248 million, compared with $429 million in the second quarter of 2019. The decline in sales during the current quarter was the result of lower average selling prices and a significant decline in volume driven by the downturn in industrial markets and temporary closures in the automotive industry caused by the COVID-19 pandemic.

"I want to thank the Olympic Steel team for their resilience and flexibility in the face of the unprecedented business conditions created by the COVID-19 pandemic. Together, we have reinforced our commitment to a safe work environment, maintained operations as an essential business, and continued to be a reliable partner to our customers and suppliers," said Chief Executive Officer Richard T. Marabito.

"As the pandemic began to affect the U.S. economy, we quickly took decisive actions to sustainably reduce operating expenses, limit capital expenditures to safety and maintenance needs, further tighten inventory management, and preserve liquidity. As a result, while many of our key markets faced extreme disruption and volatility, we benefited from a significantly lower expense run rate and the ability to efficiently respond to fluctuations in demand, resulting in positive adjusted EBITDA for the quarter. Our pipe and tube and specialty metals businesses were particularly resilient, with both segments delivering consistent profitability in a difficult market."

Marabito concluded, "We believe that market conditions will continue to improve and expect the third quarter to be sequentially better than the second quarter. Our operational flexibility and strong liquidity position, along with the diversification we've built into our business, give us the foundation to manage through the ongoing challenges. As we look ahead, we believe that the fortitude of our team and the agility of our company position Olympic Steel to capitalize on sustained economic and industry momentum as it occurs."

The Board of Directors also approved a regular quarterly cash dividend of $0.02 per share, which is payable on September 15, 2020, to shareholders of record on September 1, 2020.

The table that follows provides a reconciliation of non-GAAP measures to the most directly comparable measures prepared in accordance with GAAP.

Olympic Steel, Inc.

Reconciliation of Net Income Per Diluted Share to Adjusted Net Income Per Diluted Share

(Figures may not foot due to rounding.)

The following table reconciles adjusted net income per diluted share to the most directly comparable GAAP

financial measure:

 

 

 

 

 

 

 

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

2020

 

2019

 

 

2020

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per diluted share (GAAP):

$

(0.56

)

 

$

0.18

 

 

$

(0.51

)

 

$

0.36

 

 

 

 

 

 

 

 

 

Excluding the following items:

 

 

 

 

 

 

 

LIFO (income) / expense

 

(0.03

)

 

 

(0.02

)

 

 

(0.06

)

 

 

(0.02

)

Restructuring and other charges:

 

 

 

 

Net loss on sale of assets

 

0.13

 

 

 

0.13

 

Mexico facility exit

 

0.05

 

 

 

0.05

 

COVID-related severance and bad debt expense

 

0.03

 

 

 

0.03

 

 

 

 

 

 

Adjusted net income (loss) per diluted share (non-GAAP):

$

(0.38

)

 

$

0.16

 

$

(0.35

)

$

0.34

  

 

 

 

 

 

 

Olympic Steel, Inc.

Reconciliation of Net Income to Adjusted EBITDA

(in thousands)

The following table reconciles adjusted EBITDA to the most directly comparable GAAP financial measure:

 

 

 

 

 

 

 

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

Net income (GAAP):

$

(6,454

)

$

2,081

 

 

$

(5,861

)

 

$

4,155

 

 

 

 

 

 

 

 

Excluding the following items:

 

 

 

 

 

 

Foreign exchange (income) loss included in net income

 

26

 

 

59

 

 

 

43

 

 

 

45

 

Interest and other expenses on debt

 

1,891

 

 

3,174

 

 

 

4,130

 

 

 

6,416

 

Income tax provision (benefit)

 

(2,948

)

 

626

 

 

 

(2,746

)

 

 

1,398

 

Depreciation and amortization

 

4,927

 

 

4,817

 

 

 

9,840

 

 

 

9.567

 

Earnings before interest, taxes, depreciation and amortization (EBITDA)

 

(2,558

)

 

10,757

 

 

 

5,406

 

 

 

21,581

 

 

 

 

 

 

 

 

LIFO income

 

(500

)

 

(250

)

 

 

(1,000

)

 

 

(250

)

Restructuring and other charges:

 

 

 

 

 

 

Net loss on sale of assets

 

2,109

 

 

-

 

 

 

2,109

 

 

 

-

 

Mexico facility exit

 

900

 

 

-

 

 

 

900

 

 

 

-

 

COVID-related severance and bad debt expense

 

577

 

 

-

 

 

 

577

 

 

 

-

 

 

 

 

 

 

 

 

Adjusted EBITDA (non-GAAP)

$

528

 

$

10,507

 

 

$

7,992

 

 

$

21,331

 

Conference Call and Webcast

A simulcast of Olympic Steel's 2020 second-quarter earnings conference call can be accessed via the Investor Relations section of the Company's website at www.olysteel.com. The live simulcast will begin at 10 a.m. ET on August 6, 2020, and a replay will be available for approximately 14 days thereafter.

Forward-Looking Statements

It is the Company's policy not to endorse any analyst's sales or earnings estimates. Forward-looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by words or phrases such as "may," "will," "anticipate," "should," "intend," "expect," "believe," "estimate," "project," "plan," "potential," and "continue," as well as the negative of these terms or similar expressions. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those implied by such statements. Readers are cautioned not to place undue reliance on these forward-looking statements. Such risks and uncertainties include, but are not limited to: risks associated with the novel coronavirus, or COVID-19, pandemic, including, but not limited to supply chain disruptions and customer closures, reduced sales and profit levels, slower payment of accounts receivable and potential increases in uncollectible accounts receivable, falling metals prices that could lead to lower of cost or market inventory adjustments and the impairment of intangible and long-lived assets, reduced availability and productivity of our employees, increased operational risks as a result of remote work arrangements, including the potential effects on internal controls, as well as cybersecurity risks and increased vulnerability to security breaches, information technology disruptions and other similar events, negative impacts on our liquidity position, inability to access our traditional financing sources on the same or reasonably similar terms as were available before the COVID-19 pandemic and increased costs associated with and less ability to access funds under our asset-based credit facility, or ABL Credit Facility, and the capital markets; risks of falling metals prices and inventory devaluation; general and global business, economic, financial and political conditions, including the 2020 U.S. election; competitive factors such as the availability, global pricing of metals and production levels, industry shipping and inventory levels and rapid fluctuations in customer demand and metals pricing; the levels of imported steel in the United States and the tariffs initiated by the U.S. government in 2018 under Section 232 of the Trade Expansion Act of 1962 and imposed tariffs and duties on exported steel or other products, U.S. trade policy and its impact on the U.S. manufacturing industry; cyclicality and volatility within the metals industry; fluctuations in the value of the U.S. dollar and the related impact on foreign steel pricing, U.S. exports, and foreign imports to the United States; the successes of our efforts and initiatives to improve working capital turnover and cash flows, and achieve cost savings; our ability to generate free cash flow through operations and repay debt; the availability and rising costs of transportation and logistical services; customer, supplier and competitor consolidation, bankruptcy or insolvency; reduced production schedules, layoffs or work stoppages by our own, our suppliers' or customers' personnel; the adequacy of our existing information technology and business system software, including duplication and security processes; the adequacy of our efforts to mitigate cyber security risks and threats, especially with employees working remotely due to the COVID-19 pandemic; the amounts, successes and our ability to continue our capital investments and strategic growth initiatives, including acquisitions and our business information system implementations; our ability to successfully integrate recent acquisitions into our business and risks inherent with the acquisitions in the achievement of expected results, including whether the acquisition will be accretive and within the expected timeframe; events or circumstances that could adversely impact the successful operation of our processing equipment and operations; rising interest rates and their impacts on our variable interest rate debt; the impacts of union organizing activities and the success of union contract renewals; changes in laws or regulations or the manner of their interpretation or enforcement could impact our financial performance and restrict our ability to operate our business or execute our strategies; events or circumstances that could impair or adversely impact the carrying value of any of our assets; risks and uncertainties associated with intangible assets, including impairment charges related to indefinite lived intangible assets; the timing and outcomes of inventory lower of cost or market adjustments and last-in, first-out, or LIFO, income or expense; the inflation or deflation existing within the metals industry, as well as product mix and inventory levels on hand, which can impact our cost of materials sold as a result of the fluctuations in the LIFO inventory valuation; our ability to pay regular quarterly cash dividends and the amounts and timing of any future dividends; our ability to repurchase shares of our common stock and the amounts and timing of repurchases, if any; and unanticipated developments that could occur with respect to contingencies such as litigation, arbitration and environmental matters, including any developments that would require any increase in our costs for such contingencies.

In addition to financial information prepared in accordance with GAAP, this document also contains adjusted earnings per diluted share and adjusted EBITDA, which are non-GAAP financial measures. Management's view of the Company's performance includes adjusted earnings per share, and management uses this non-GAAP financial measure internally for planning and forecasting purposes and to measure the performance of the Company. We believe this non-GAAP financial measure provides useful and meaningful information to us and investors because it enhances investors' understanding of the continuing operating performance of our business and facilitates the comparison of performance between past and future periods. This non-GAAP financial measure should be considered in addition to, but not as a substitute for, the information prepared in accordance with GAAP. Additionally, the presentation of these measures may be different from non-GAAP financial measures used by other companies. A reconciliation of this non-GAAP measure to the most directly comparable GAAP financial measure is provided above.

About Olympic Steel

Founded in 1954, Olympic Steel is a leading U.S. metals service center focused on the direct sale of processed carbon, coated and stainless flat-rolled sheet, coil and plate steel, aluminum, tin plate, and metal-intensive branded products. The Company's CTI subsidiary is a leading distributor of steel tubing, bar, pipe, valves and fittings, and fabricator of value-added parts and components. Headquartered in Cleveland, Ohio, Olympic Steel operates from 31 facilities in North America.

For additional information, please visit the Company's website at www.olysteel.com or https://olysteel.irpass.com/Contact_Us?BzID=2195.

Olympic Steel, Inc.

Consolidated Statements of Net Income

(in thousands, except per-share data)

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

June 30

 

June 30

 

 

2020

 

2019

 

2020

 

2019

 

Net sales

$

248,296

 

$

429,151

 

$

602,676

 

$

875,070

 

 

Costs and expenses

Cost of materials sold (excludes items shown separately below)

 

196,237

 

 

351,494

 

 

478,759

 

 

717,876

 

Warehouse and processing

 

19,626

 

 

25,123

 

 

42,702

 

 

50,734

 

Administrative and general

 

17,011

 

 

19,396

 

 

36,070

 

 

39,525

 

Distribution

 

9,618

 

 

12,495

 

 

21,907

 

 

25,330

 

Selling

 

5,923

 

 

7,420

 

 

12,733

 

 

14,760

 

Occupancy

 

2,439

 

 

2,466

 

 

5,099

 

 

5,264

 

Depreciation

 

4,559

 

 

4,488

 

 

9,075

 

 

8,919

 

Amortization

 

368

 

 

329

 

 

765

 

 

648

 

 

Total costs and expenses

 

255,781

 

 

423,211

 

 

607,110

 

 

863,056

 

 

Operating income (loss)

 

(7,485

)

 

5,940

 

 

(4,434

)

 

12,014

 

 

Other income (loss), net

 

(26

)

 

(59

)

 

(43

)

 

(45

)

 

Income (loss) before financing costs and income taxes

 

(7,511

)

 

5,881

 

 

(4,477

)

 

11,969

 

 

Interest and other expense on debt

 

1,891

 

 

3,174

 

 

4,130

 

 

6,416

 

 

Income (loss) before income taxes

 

(9,402

)

 

2,707

 

 

(8,607

)

 

5,553

 

 

Income tax provision (benefit)

 

(2,948

)

 

626

 

 

(2,746

)

 

1,398

 

 

Net income (loss)

$

(6,454

)

$

2,081

 

$

(5,861

)

$

4,155

 

 

Earnings per share:

 

Net income (loss) per share - basic

$

(0.56

)

$

0.18

 

$

(0.51

)

$

0.36

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic

 

11,446

 

 

11,415

 

 

11,445

 

 

11,482

 

 

 

 

 

 

 

 

Net income (loss) per share - diluted

$

(0.56

)

$

0.18

 

$

(0.51

)

$

0.36

 

 

 

 

 

 

 

 

Weighted average shares outstanding - diluted

 

11,446

 

 

11,415

 

 

11,445

 

 

11,482

 

 

Olympic Steel, Inc.

Balance Sheets

(in thousands)

 

 

 

 

 

 

 

 

As of

June 30, 2020

 

As of

Dec. 31, 2019

Assets

 

Cash and cash equivalents

$

7,105

 

$

5,742

 

Accounts receivable, net

 

129,618

 

 

133,572

 

Inventories, net (includes LIFO debits of $1,598 and $598 as of June 30, 2020 and December 31, 2019 respectively)

 

269,721

 

 

273,531

 

Prepaid expenses and other

 

8,766

 

 

6,997

 

 

Total current assets

 

415,210

 

 

419,842

 

 

Property and equipment, at cost

 

419,050

 

 

416,511

 

Accumulated depreciation

 

(268,422

)

 

(260,264

)

 

Net property and equipment

 

150,628

 

 

156,247

 

 

Goodwill

 

3,423

 

 

3,423

 

Intangible assets, net

 

28,623

 

 

29,259

 

Other long-term assets

 

16,675

 

 

14,439

 

Right of use asset, net

 

28,576

 

 

26,345

 

 

Total assets

$

643,135

 

$

649,555

 

 

Liabilities

 

Accounts payable

$

65,933

 

$

69,452

 

Accrued payroll

 

8,903

 

 

13,196

 

Other accrued liabilities

 

13,615

 

 

12,850

 

Current portion of lease liabilities

 

5,994

 

 

5,589

 

 

Total current liabilities

 

94,445

 

 

101,087

 

 

Credit facility revolver

 

196,946

 

 

192,925

 

Other long-term liabilities

 

18,999

 

 

14,068

 

Deferred income taxes

 

10,068

 

 

12,262

 

Lease liabilities

 

22,739

 

 

20,861

 

 

Total liabilities

 

343,197

 

 

341,203

 

 

Shareholders' Equity

 

Preferred stock

 

-

 

 

-

 

Common stock

 

131,803

 

 

131,647

 

Treasury stock

 

-

 

 

(335

)

Accumulated other comprehensive loss

 

(4,885

)

 

(2,281

)

Retained earnings

 

173,020

 

 

179,321

 

 

Total shareholders' equity

 

299,938

 

 

308,352

 

 

Total liabilities and shareholders' equity

$

643,135

 

$

649,555

 

Olympic Steel, Inc.

Segment Financial Information

(In thousands, except tonnage and per-ton data. Figures may not foot to consolidated totals due to Corporate expenses.)

 

 

 

 

 

Three months ended June 30,

 

 

Carbon Flat Products

 

Specialty Metals Flat

Products

 

Tubular and Pipe

Products

 

 

2020

 

2019

 

2020

 

2019

 

2020

 

2019

 

Tons sold

 

184,824

 

 

267,202

 

24,337

 

37,392

 

N/A

 

N/A

 

Net sales

$

140,811

 

$

255,870

$

54,495

$

96,058

$

52,990

$

77,223

Average selling price per ton

 

762

 

 

 

958

 

2,239

 

2,569

 

N/A

 

N/A

Cost of materials sold

 

114,925

 

 

212,784

 

45,083

 

82,195

 

36,229

 

56,515

Gross profit

 

25,886

 

 

43,086

 

9,412

 

13,863

 

16,761

 

20,708

Operating expenses (1)

 

35,314

 

 

42,614

 

7,421

 

9,895

 

14,536

 

16,232

Operating income (loss)

$

(9,428

)

$

472

$

1,991

$

3,968

$

2,225

$

4,476

 

Depreciation and amortization

$

3,070

 

$

2,960

$

447

$

436

$

1,368

$

1,379

 
 

 

 

Six months ended June 30,

 

 

Carbon Flat Products

 

Specialty Metals Flat

Products

 

Tubular and Pipe

Products

 

 

2020

 

2019

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Tons sold

 

 

447,934

 

 

 

540,373

 

 

58,907

 

 

73,176

 

 

N/A

 

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

343,778

 

 

$

534,406

 

$

142,983

 

$

184,155

 

$

115,915

 

$

156,509

Average selling price per ton

 

 

767

 

 

 

989

 

 

2,427

 

 

2,517

 

 

N/A

 

 

N/A

Cost of materials sold

 

 

278,062

 

 

 

446,100

 

 

121,318

 

 

158,440

 

 

79,379

 

 

113,336

Gross profit

 

 

65,716

 

 

 

88,306

 

 

21,665

 

 

25,715

 

 

36,536

 

 

43,173

Operating expenses (1)

 

 

76,490

 

 

 

86,608

 

 

16,939

 

 

19,503

 

 

30,006

 

 

33,082

Operating income (loss)

 

$

(10,774

)

 

$

1,698

 

$

4,726

 

$

6,212

 

$

6,530

 

$

10,091

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

$

6,080

 

$

5,774

$

944

$

962

 

$

2,732

 

$

2,747

 

(1) For the three and six months period ended June 30, 2020, the operating expenses of the Carbon Flat Products segment include $3.6 million of restructuring and other charges.

 

 

 

 

 

 

 

 

 

 

 

As of

June 30,

2020

 

 

As of

Dec. 31,

2019

Assets

 

 

 

 

 

 

 

 

 

 

Flat-products

 

 

 

 

 

 

$

422,104

 

 

$

432,566

Tubular and pipe products

 

 

 

 

 

 

 

220,070

 

 

 

215,841

Corporate

 

 

 

 

 

 

 

961

 

 

 

1,148

Total assets

 

 

 

 

 

 

$

643,135

 

 

$

649,555

 

 

 

 

 

 

 

 

 

 

 

Other Information

(in thousands except per-share and ratio data)

 

 

 

 

 

 

 

 

 

 

 

 

As of

June 30,

2020

 

 

As of

Dec. 31,

2019

 

 

 

 

 

 

 

 

Shareholders' equity per share

 

 

 

$

27.08

 

 

$

28.04

 

 

 

 

 

 

 

 

Debt to equity ratio

 

 

 

0.66 to 1

 

 

0.63 to 1

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30

 

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

Net cash from operating activities

 

 

 

$

3,512

 

 

$

52,187

 

 

 

 

 

 

 

 

Cash dividends per share

 

 

 

$

0.04

 

 

$

0.04

 

Richard A. Manson
Chief Financial Officer
(216) 672-0522
ir@olysteel.com

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