Olympic Steel Reports Third-Quarter 2020 Results

Operational efficiencies position Company to capitalize on steady rise in demand and strengthening metals pricing

CLEVELAND – 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 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

September 30,

 

Nine Months Ended

September 30,

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

 

Net income per diluted share (GAAP):

$

(0.13

)

 

$

0.05

 

 

$

(0.64

)

 

$

0.41

 

 

 

 

 

 

 

 

 

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 debt expense

 

 

 

 

 

0.03

 

 

 

 

 

 

 

 

 

 

 

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.

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 expenses
Cost of materials sold (excludes items shown separately below)

 

239,967

 

 

311,104

 

718,726

 

 

1,028,980

 

Warehouse and processing

 

19,471

 

 

25,204

 

62,173

 

 

75,938

 

Administrative and general

 

16,507

 

 

18,552

 

52,577

 

 

58,077

 

Distribution

 

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 financing costs and income taxes

 

(388

)

 

3,593

 

(4,865

)

 

15,562

 

 
Interest and other expense on debt

 

1,693

 

 

2,569

 

5,823

 

 

8,985

 

 
Income (loss) before income taxes

 

(2,081

)

 

1,024

 

(10,688

)

 

6,577

 

 
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 share – basic

$

(0.13

)

$

0.05

$

(0.64

)

$

0.41

 

 
Weighted average shares outstanding – basic

 

11,452

 

 

11,420

 

11,447

 

 

11,526

 

 
Net income (loss) per share – diluted

$

(0.13

)

$

0.05

$

(0.64

)

$

0.41

 

 
Weighted average shares outstanding – diluted

 

11,452

 

 

11,420

 

11,447

 

 

11,526

 

 

Olympic Steel, Inc.

Balance Sheets

(in thousands)

 

As of

September 30,

2020

As of

December 31,

2019

Assets
 
Cash and cash equivalents

$

5,144

 

$

5,742

 

Accounts receivable, net

 

148,555

 

 

133,572

 

Inventories, net (includes LIFO debits of $1,698 and $598 as of September 30, 2020 and December 31, 2019 respectively)

 

232,897

 

 

273,531

 

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 to consolidated totals due to Corporate expenses.)

Three months ended September 30,

Carbon Flat Products

 

Specialty Metals Flat

Products

 

Tubular and Pipe

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 selling price per ton

 

749

 

 

867

 

 

2,398

 

2,553

 

N/A

 

N/A

Cost of materials sold

 

134,845

 

 

176,277

 

 

69,790

 

83,696

 

35,332

 

51,131

Gross profit

 

33,103

 

 

39,238

 

 

11,114

 

13,867

 

15,737

 

20,021

Operating expenses

 

34,707

 

 

41,539

 

 

8,666

 

9,807

 

14,993

 

15,559

Operating income (loss)

 

(1,604

)

 

(2,301

)

 

2,448

 

4,060

 

744

 

4,462

 
Depreciation and amortization

 

2,852

 

 

2,850

 

 

513

 

441

 

1,344

 

1,309

 
 

Nine months ended September 30,

Carbon Flat Products

 

Specialty Metals Flat

Products

 

Tubular and Pipe

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 selling price per ton

 

761

 

 

951

 

 

2,417

 

2,529

 

N/A

 

N/A

Cost of materials sold

 

412,907

 

 

622,377

 

 

191,108

 

242,136

 

114,711

 

164,467

Gross profit

 

98,819

 

 

127,544

 

 

32,779

 

39,582

 

52,273

 

63,194

Operating expenses

 

111,197

 

 

128,147

 

 

25,605

 

29,310

 

44,999

 

48,641

Operating income (loss)

 

(12,378

)

 

(603

)

 

7,174

 

10,272

 

7,274

 

14,553

 
Depreciation and amortization

 

8,932

 

 

8,624

 

 

1,457

 

1,403

 

4,076

 

4,056

 
 

As of

September 30,

2020

As of

December 31,

2019

Assets
Flat-products

$

393,573

 

$

432,566

 

Tubular and pipe products

 

224,839

 

 

215,841

 

Corporate

 

891

 

 

1,148

 

Total assets

 

619,303

 

 

649,555

 

 

Other Information

(in thousands except per-share and ratio data)

     

As of

September 30,

2020

       

As of

December 31,

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

 

Richard A. Manson

Chief Financial Officer

(216) 672-0522

ir@olysteel.com

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