Business Wire | Nov 5, 2020 06:30AM EST

Olympic Steel Reports Third-Quarter 2020 Results

Nov. 05, 2020

CLEVELAND--(BUSINESS WIRE)--Nov. 05, 2020--Olympic Steel, Inc. (Nasdaq: ZEUS), a leading national metals service center, today announced financial results for the three and nine months ended September 30, 2020.

Net loss for the third quarter totaled $1.5 million, or $0.13 per diluted share, compared with net income of $0.6 million, or $0.05 per diluted share, in the third quarter of 2019. The results include $0.1 million of LIFO pre-tax income in the third quarter of 2020, compared with $1.0 million of LIFO pre-tax income in the same period a year ago. Adjusted EBITDA for the third quarter of 2020 was $4.3 million, compared with $7.2 million in the third quarter of 2019. The third-quarter earnings impact of LIFO and the reconciliation of Adjusted Net Income Per Diluted Share and Adjusted EBITDA to the most directly comparable GAAP measures are included below.

Sales for the third quarter of 2020 totaled $300 million, compared with $384 million in the third quarter of 2019. The decline in sales was the result of lower average selling prices and volumes during the quarter. However, volumes increased steadily as the third quarter progressed, with September volumes approaching pre-COVID levels. Sequentially, third quarter 2020 flat-rolled volumes were up 23%, and consolidated operating income improved by over $7 million, compared with the second quarter of 2020.

"The dedication of the entire Olympic Steel team has allowed us to successfully navigate the unprecedented market conditions we have experienced this year. Our COVID-19 protocols are keeping our employees safe and healthy, while reliably maintaining the continuity of our operations to perform for our customers," said Richard T. Marabito, Chief Executive Officer.

"Our third-quarter performance improved sequentially, as demand increased steadily throughout the quarter, and we successfully executed on our initiatives to improve inventory turns, lower expense run rates, and reduce our debt. While profitability lagged due to the impacts of COVID-19 on demand and falling metal prices, all of our segments were EBITDA-positive for the third quarter," Marabito continued. "As we enter the final months of the year, we are seeing strengthening demand and tightening supply across the industry, which should support a positive pricing environment and result in Olympic Steel having a strong finish to 2020."

Marabito concluded, "The actions we've taken to diversify our business, build operational efficiencies, and strengthen our balance sheet are helping us manage through the near-term uncertainty while building a stronger, more profitable Olympic Steel for the long term. As we move forward, we are positioned to deliver consistent profitability, and our access to capital and strong balance sheet put us in an excellent position to invest in higher-return growth opportunities."

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

(Figures may not foot due to rounding.)

The following table reconciles adjusted net income per diluted share to themost directly comparable GAAP financial measure:

Three Months Ended Nine Months Ended September 30, September 30,

2020 2019 2020 2019





Net income per diluted share $ (0.13 ) $ 0.05 $ (0.64 ) $ 0.41 (GAAP):



Excluding the following items:

LIFO income (0.01 ) (0.05 ) (0.07 ) (0.07 )

Restructuring and other charges:

Net loss on sale of assets 0.13

Mexico facility exit 0.05

COVID-related severance and bad 0.03 debt expense



Adjusted net income (loss) per diluted share (non-GAAP): $ (0.14 ) $ 0.00 $ (0.50 ) $ 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

September 30,

Nine Months Ended

September 30,

2020

2019

2020

2019

Net income (GAAP):

$

(1,520

)

$

591

$

(7,381

)

$

4,746

Excluding the following items:

Foreign exchange (income) loss included in net income

25

(12

)

68

33

Interest and other expenses on debt

1,693

2,569

5,823

8,985

Income tax provision (benefit)

(561

)

433

(3,307

)

1,831

Depreciation and amortization

4,727

4,642

14,567

14,209

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

4,364

8,223

9,770

29,804

LIFO income

(100

)

(1,000

)

(1,100

)

(1,250

)

Restructuring and other charges:

Net loss on sale of assets

-

-

2,109

-

Mexico facility exit

-

-

900

-

COVID-related severance and bad debt expense

-

-

577

-

Adjusted EBITDA (non-GAAP)

$

4,264

$

7,223

$

12,256

$

28,554

Conference Call and Webcast

A simulcast of Olympic Steel's 2020 third-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 November 5, 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; supplier consolidation or the addition of additional capacity; customer, supplier and competitor consolidation, bankruptcy or insolvency; reduced production schedules, layoffs or work stoppages by our own, our suppliers' or customers' personnel; 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; 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.

Reconciliation of Net Income to Adjusted EBITDA

(in thousands)

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

Three Months Ended Nine Months Ended September 30, September 30,

2020 2019 2020 2019



Net income (GAAP): $ (1,520 ) $ 591 $ (7,381 ) $ 4,746



Excluding the following items:

Foreign exchange (income) 25 (12 ) 68 33loss included in net income

Interest and other expenses 1,693 2,569 5,823 8,985 on debt

Income tax provision (561 ) 433 (3,307 ) 1,831 (benefit)

Depreciation and 4,727 4,642 14,567 14,209 amortization

Earnings before interest,taxes, depreciation and 4,364 8,223 9,770 29,804amortization (EBITDA)



LIFO income (100 ) (1,000 ) (1,100 ) (1,250 )

Restructuring and other charges:

Net loss on sale of assets - - 2,109 -

Mexico facility exit - - 900 -

COVID-related severance and - - 577 - bad debt expense



Adjusted EBITDA (non-GAAP) $ 4,264 $ 7,223 $ 12,256 $ 28,554

Conference Call and Webcast

A simulcast of Olympic Steel's 2020 third-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 November 5, 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; supplier consolidation or the addition of additional capacity; customer, supplier and competitor consolidation, bankruptcy or insolvency; reduced production schedules, layoffs or work stoppages by our own, our suppliers' or customers' personnel; 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; 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 Nine months ended

September 30 September 30

2020 2019 2020 2019

Net sales $ 299,921 $ 384,230 $ 902,597 $ 1,259,300

Costs and expensesCost of materials sold 239,967 311,104 718,726 1,028,980 (excludes items shownseparately below)Warehouse and processing 19,471 25,204 62,173 75,938

Administrative and 16,507 18,552 52,577 58,077 generalDistribution 11,226 11,840 33,133 37,170

Selling 6,130 6,999 18,863 21,759

Occupancy 2,256 2,308 7,355 7,572

Depreciation 4,347 4,292 13,422 13,211

Amortization 380 350 1,145 998

Total costs and expenses 300,284 380,649 907,394 1,243,705

Operating income (loss) (363 ) 3,581 (4,797 ) 15,595

Other income (loss), net (25 ) 12 (68 ) (33 )

Income (loss) before (388 ) 3,593 (4,865 ) 15,562 financing costs andincome taxes Interest and other 1,693 2,569 5,823 8,985 expense on debt Income (loss) before (2,081 ) 1,024 (10,688 ) 6,577 income taxes Income tax provision (561 ) 433 (3,307 ) 1,831

Net income (loss) $ (1,520 ) $ 591 $ (7,381 ) $ 4,746

Earnings per share: Net income (loss) per $ (0.13 ) $ 0.05 $ (0.64 ) $ 0.41 share - basic Weighted average shares 11,452 11,420 11,447 11,526 outstanding - basic Net income (loss) per $ (0.13 ) $ 0.05 $ (0.64 ) $ 0.41 share - diluted Weighted average shares 11,452 11,420 11,447 11,526 outstanding - diluted Olympic Steel, Inc.

Balance Sheets

(in thousands)

As of As of

September December 31, 30, 2019 2020

Assets Cash and cash equivalents $ 5,144 $ 5,742

Accounts receivable, net 148,555 133,572

Inventories, net (includes LIFO debits of $1,698 232,897 273,531 and $598 as of September 30, 2020 and December 31,2019 respectively)Prepaid expenses and other 8,120 6,997

Total current assets 394,716 419,842

Property and equipment, at cost 420,382 416,511

Accumulated depreciation (272,769 ) (260,264 )

Net property and equipment 147,613 156,247

Goodwill 3,423 3,423

Intangible assets, net 28,305 29,259

Other long-term assets 17,263 14,439

Right of use asset, net 27,983 26,345

Total assets $ 619,303 $ 649,555

Liabilities Accounts payable $ 69,665 $ 69,452

Accrued payroll 10,313 13,196

Other accrued liabilities 10,541 12,850

Current portion of lease liabilities 5,985 5,589

Total current liabilities 96,504 101,087

Credit facility revolver 171,299 192,925

Other long-term liabilities 20,470 14,068

Deferred income taxes 10,011 12,262

Lease liabilities 22,184 20,861

Total liabilities 320,468 341,203

Shareholders' Equity Preferred stock - -

Common stock 132,089 131,647

Treasury stock - (335 )

Accumulated other comprehensive loss (4,532 ) (2,281 )

Retained earnings 171,278 179,321

Total shareholders' equity 298,835 308,352

Total liabilities and shareholders' equity $ 619,303 $ 649,555

Olympic Steel, Inc.

Segment Financial Information

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

Three months ended September 30,

Specialty Metals Flat Tubular and Pipe Carbon Flat Products Products Products

2020 2019 2020 2019 2020 2019

Tons sold 224,199 248,521 33,735 38,213 N/A N/A

Net sales $ 167,948 $ 215,515 $ 80,904 $ 97,563 $ 51,069 $ 71,152

Average 749 867 2,398 2,553 N/A N/Aselling priceper tonCost of 134,845 176,277 69,790 83,696 35,332 51,131materialssoldGross profit 33,103 39,238 11,114 13,867 15,737 20,021

Operating 34,707 41,539 8,666 9,807 14,993 15,559expensesOperating (1,604 ) (2,301 ) 2,448 4,060 744 4,462income (loss) Depreciation 2,852 2,850 513 441 1,344 1,309andamortization Nine months ended September 30,

Specialty Metals Flat Tubular and Pipe Carbon Flat Products Products Products

2020 2019 2020 2019 2020 2019

Tons sold 672,133 788,894 92,642 111,389 N/A N/A

Net sales $ 511,726 $ 749,921 $ 223,887 $ 281,718 $ 166,984 $ 227,661

Average 761 951 2,417 2,529 N/A N/Aselling priceper tonCost of 412,907 622,377 191,108 242,136 114,711 164,467materialssoldGross profit 98,819 127,544 32,779 39,582 52,273 63,194

Operating 111,197 128,147 25,605 29,310 44,999 48,641expensesOperating (12,378 ) (603 ) 7,174 10,272 7,274 14,553income (loss) Depreciation 8,932 8,624 1,457 1,403 4,076 4,056andamortization As of As of

September December 30, 31,

2020 2019

AssetsFlat-products $ 393,573 $ 432,566

Tubular and 224,839 215,841 pipe productsCorporate 891 1,148

Total assets 619,303 649,555

Other Information

(in thousands except per-share and ratio data)

As of As of

September 30, December 31,

2020 2019

Shareholders' equity per share $ 26.98 $ 28.04

Debt to equity ratio 0.57 to 1 0.63 to 1 Nine Months Ended September 30,

2020 2019

Net cash from operating activities 28,653 99,355

Cash dividends per share $ 0.06 $ 0.06

View source version on businesswire.com: https://www.businesswire.com/news/home/20201105005515/en/

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