Business Wire | Aug 6, 2020 06:30AM EDT

Olympic Steel Reports Second-Quarter 2020 Results

Aug. 06, 2020

CLEVELAND--(BUSINESS WIRE)--Aug. 06, 2020--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 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 Six Months Ended June 30, June 30,

2020 2019 2020 2019





Net income per diluted share $ (0.56 ) $ 0.18 $ (0.51 ) $ 0.36 (GAAP):



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 0.03 0.03 bad debt expense



Adjusted net income (loss)per diluted share $ (0.38 ) $ 0.16 $ (0.35 ) $ 0.34 (non-GAAP):





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 Six Months Ended June 30, June 30,

2020 2019 2020 2019



Net income (GAAP): $ (6,454 ) $ 2,081 $ (5,861 ) $ 4,155



Excluding the following items:

Foreign exchange (income) 26 59 43 45 loss included in net income

Interest and other expenses 1,891 3,174 4,130 6,416 on debt

Income tax provision (2,948 ) 626 (2,746 ) 1,398 (benefit)

Depreciation and 4,927 4,817 9,840 9.567 amortization

Earnings before interest,taxes, depreciation and (2,558 ) 10,757 5,406 21,581 amortization (EBITDA)



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 577 - 577 - bad debt expense



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 196,237 351,494 478,759 717,876 separately below)

Warehouse and 19,626 25,123 42,702 50,734 processing

Administrative and 17,011 19,396 36,070 39,525 general

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 255,781 423,211 607,110 863,056 expenses

Operating income (loss) (7,485 ) 5,940 (4,434 ) 12,014

Other income (loss), (26 ) (59 ) (43 ) (45 )net

Income (loss) beforefinancing costs and (7,511 ) 5,881 (4,477 ) 11,969 income taxes

Interest and other 1,891 3,174 4,130 6,416 expense on debt

Income (loss) before (9,402 ) 2,707 (8,607 ) 5,553 income taxes

Income tax provision (2,948 ) 626 (2,746 ) 1,398 (benefit)

Net income (loss) $ (6,454 ) $ 2,081 $ (5,861 ) $ 4,155

Earnings per share:

Net income (loss) per $ (0.56 ) $ 0.18 $ (0.51 ) $ 0.36 share - basic



Weighted average shares 11,446 11,415 11,445 11,482 outstanding - basic



Net income (loss) per $ (0.56 ) $ 0.18 $ (0.51 ) $ 0.36 share - diluted



Weighted average shares 11,446 11,415 11,445 11,482 outstanding - diluted

Olympic Steel, Inc.

Balance Sheets

(in thousands)



As of As of June 30, Dec. 31, 2020 2019

Assets

Cash and cash equivalents $ 7,105 $ 5,742

Accounts receivable, net 129,618 133,572

Inventories, net (includes LIFO debits of $1,598and $598 as of June 30, 2020 and December 31, 269,721 273,531 2019 respectively)

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 toconsolidated totals due to Corporate expenses.)



Three months ended June 30,

Specialty Metals Flat Tubular and Pipe Carbon Flat Products Products 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

Averageselling price 762 958 2,239 2,569 N/A N/Aper ton

Cost ofmaterials 114,925 212,784 45,083 82,195 36,229 56,515sold

Gross profit 25,886 43,086 9,412 13,863 16,761 20,708

Operating 35,314 42,614 7,421 9,895 14,536 16,232expenses (1)

Operating $ (9,428 ) $ 472 $ 1,991 $ 3,968 $ 2,225 $ 4,476income (loss)

Depreciationand $ 3,070 $ 2,960 $ 447 $ 436 $ 1,368 $ 1,379amortization

Six months ended June 30,

Specialty Metals Flat Tubular and Pipe Carbon Flat Products Products 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

Averageselling price 767 989 2,427 2,517 N/A N/Aper ton

Cost ofmaterials 278,062 446,100 121,318 158,440 79,379 113,336sold

Gross profit 65,716 88,306 21,665 25,715 36,536 43,173

Operating 76,490 86,608 16,939 19,503 30,006 33,082expenses (1)

Operating $ (10,774 ) $ 1,698 $ 4,726 $ 6,212 $ 6,530 $ 10,091income (loss)



Depreciationand $ 6,080 $ 5,774 $ 944 $ 962 $ 2,732 $ 2,747amortization

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



As of As of

June 30, Dec. 31,

2020 2019



Assets

Flat-products $ 422,104 $ 432,566

Tubular and 220,070 215,841pipe products

Corporate 961 1,148

Total assets $ 643,135 $ 649,555



Other Information

(in thousands except per-share and ratio data)



As of As of

June 30, Dec. 31,

2020 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

View source version on businesswire.com: https://www.businesswire.com/news/home/20200806005461/en/

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