Olympic Steel Reports Third-Quarter 2022 Results

Diversification strategy and operational discipline drive strong financial performance through shifting market conditions

Olympic Steel, Inc. (Nasdaq: ZEUS), a leading national metals service center, today announced financial results for the three months ended September 30, 2022.

Net income for the third quarter totaled $12.0 million, or $1.04 per diluted share, compared with net income of $44.5 million, or $3.87 per diluted share, in the third quarter of 2021. The results include $1.5 million of LIFO pretax expense ($0.10 per share impact) in the third quarter of 2022, compared with $7.0 million ($0.45 per share impact) of LIFO pretax expense in the same period a year ago. Adjusted EBITDA for the third quarter of 2022 was $25.3 million, compared with $70.5 million in the third quarter of 2021.

The Company reported sales totaling $634 million in the third quarter of 2022, compared with $668 million in the third quarter of 2021.

“Our third-quarter performance is further evidence that our strategy to diversify into higher-return, value-added products and services through acquisitions and organic growth has strengthened Olympic Steel,” said Richard T. Marabito, Chief Executive Officer. “As expected, metals pricing significantly declined during the quarter and macroeconomic uncertainty caused by ongoing supply chain constraints, labor shortages and inflation continued. The additional resilience built into our business, combined with our team’s hard work and sustained operating discipline, enabled Olympic Steel to withstand these challenges to deliver $25.3 million of Adjusted EBITDA for the third quarter. We simultaneously strengthened our balance sheet by reducing debt by $84 million, or 26%, so far this year.”

Marabito continued, “While we expect metals pricing to decline further and pressure profit margins in the fourth quarter, we are confident that we have reduced the impact of market cyclicality on our business. We anticipate strong cash flows and further debt reduction in the fourth quarter. We have significant capital to continue our diversification strategy by investing in additional acquisitions, new capacity, and efficiency through automation to deliver value to our shareholders.”

The Board of Directors approved a regular quarterly cash dividend of $0.09 per share, which is payable on December 15, 2022, to shareholders of record on December 1, 2022. The Company has paid a regular quarterly dividend since March 2006.

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 Nine months ended
September 30, September 30,

 

2022

 

2021

 

 

2022

 

 

2021

 

 
Net income per diluted share

$

1.04

$

3.87

 

$

7.53

 

$

8.36

 

 
Excluding the following items:
LIFO Expense

 

0.10

 

0.45

 

 

0.10

 

 

0.77

 

Gain on Sale of Detroit Operation

 

-

 

(0.23

)

 

-

 

 

(0.23

)

Gain on Sale of Milan Warehouse

 

-

 

-

 

 

(0.13

)

 

-

 

 
Adjusted net income per diluted share (non-GAAP)

$

1.14

$

4.09

 

$

7.49

 

$

8.90

 

 

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 Nine Months Ended
9/30/2022 9/30/2021 9/30/2022 9/30/2021
 
Net income (GAAP):

$

12,046

$

44,533

 

$

86,972

 

$

96,190

 

Excluding the following items:
Foreign exchange loss included in net income

 

17

 

15

 

 

38

 

 

24

 

Interest and other expense on debt

 

3,007

 

1,947

 

 

7,276

 

 

5,618

 

Income tax provision

 

4,016

 

15,665

 

 

31,787

 

 

34,354

 

Depreciation and amortization

 

4,666

 

4,813

 

 

14,594

 

 

15,321

 

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

 

23,752

 

66,973

 

 

140,667

 

 

151,507

 

 
LIFO Expense

 

1,500

 

7,000

 

 

1,500

 

 

12,000

 

Gain on Sale of Detroit Operation

 

-

 

(3,499

)

 

-

 

 

(3,499

)

Gain on Sale of Milan Warehouse

 

-

 

-

 

 

(2,083

)

 

-

 

 
Adjusted EBITDA (non-GAAP)

$

25,252

$

70,474

 

$

140,084

 

$

160,008

 

Conference Call and Webcast

A simulcast of Olympic Steel’s 2022 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 4, 2022, 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 of falling metals prices and inventory devaluation; supply disruptions and inflationary pressures, including the availability and rising costs of transportation, energy, logistical services and labor; risks associated with supply chain disruption resulting from the imbalance of metal supply and end-user demands related to the novel coronavirus, or COVID-19, including additional shutdowns in large markets, such as China, and other factors; risks associated with shortages of skilled labor, increased labor costs and our ability to attract and retain qualified personnel; risks associated with the invasion of Ukraine, including economic sanctions, or additional war or military conflict, could adversely affect global metals supply and pricing; rising interest rates and their impacts on our variable interest rate debt; supplier consolidation or addition of additional capacity; risks associated with the COVID-19 pandemic, including, but not limited to 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 net realizable value 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; 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; 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 last-in, first-out, or LIFO, inventory valuation; increased customer demand without corresponding increase in metal supply could lead to an inability to meet customer demand and result in lower sales and profits; general and global business, economic, financial and political conditions, including, but not limited to, recessionary conditions and legislation passed under the current administration; competitive factors such as the availability, and global pricing of metals and production levels, industry shipping and inventory levels and rapid fluctuations in customer demand and metals pricing; customer, supplier and competitor consolidation, bankruptcy or insolvency; the timing and outcomes of inventory lower of cost or net realizable value adjustments and LIFO income or expense; reduced production schedules, layoffs or work stoppages by our own, our suppliers’ or customers’ personnel; cyclicality and volatility within the metals industry; the adequacy of our efforts to mitigate cyber security risks and threats, especially with employees working remotely due to the COVID-19 pandemic; 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 adequacy of our existing information technology and business system software, including duplication and security processes; 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; 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; 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; our ability to sell shares of our common stock under the at-the-market equity program; 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 adjusted EBITDA, and management uses these non-GAAP financial measures internally for planning and forecasting purposes and to measure the performance of the Company. We believe these non-GAAP financial measures provide useful and meaningful information to us and investors because they enhance investors’ understanding of the continuing operating performance of our business and facilitate the comparison of performance between past and future periods. These non-GAAP financial measures 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 these non-GAAP measures to the most directly comparable GAAP financial measures 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 42 facilities in North America.

For additional information, please visit the Company’s website at www.olysteel.com.

 

Olympic Steel, Inc.

Consolidated Statements of Net Income

(in thousands, except per-share data)

 
Three months ended Nine months ended
September 30 September 30

 

2022

 

2021

 

2022

 

2021

 
Net sales

$

634,437

$

668,466

$

2,039,946

$

1,687,667

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

 

527,466

 

520,866

 

1,643,119

 

1,304,234

Warehouse and processing

 

27,397

 

26,208

 

79,069

 

76,153

Administrative and general

 

26,929

 

24,811

 

88,520

 

74,328

Distribution

 

15,131

 

14,424

 

46,613

 

42,086

Selling

 

10,589

 

12,155

 

31,905

 

30,408

Occupancy

 

3,173

 

3,029

 

10,053

 

8,951

Depreciation

 

4,062

 

4,243

 

12,766

 

13,557

Amortization

 

604

 

570

 

1,828

 

1,764

 
Total costs and expenses

 

615,351

 

606,306

 

1,913,873

 

1,551,481

 
Operating income

 

19,086

 

62,160

 

126,073

 

136,186

 
Other loss, net

 

17

 

15

 

38

 

24

 
Income before interest and income taxes

 

19,069

 

62,145

 

126,035

 

136,162

 
Interest and other expense on debt

 

3,007

 

1,947

 

7,276

 

5,618

 
Income before income taxes

 

16,062

 

60,198

 

118,759

 

130,544

 
Income tax provision

 

4,016

 

15,665

 

31,787

 

34,354

 
Net income

$

12,046

$

44,533

$

86,972

$

96,190

 
 
Earnings per share:
 
Net income per share - basic

$

1.04

$

3.88

$

7.53

$

8.37

 
Weighted average shares outstanding - basic

 

11,548

 

11,492

 

11,543

 

11,491

 
Net income per share - diluted

$

1.04

$

3.87

$

7.53

$

8.36

 
Weighted average shares outstanding - diluted

 

11,557

 

11,515

 

11,548

 

11,509

 
 

 

Olympic Steel, Inc.

Balance Sheets

(in thousands)

 

As of

September 30,

2022

As of

December 31,

2021

Assets
 
Cash and cash equivalents

$

10,232

 

$

9,812

 

Accounts receivable, net

 

279,344

 

 

284,570

 

Inventories, net (includes LIFO reserves of $21,236 and

$19,736 as of September 30, 2022 and December 31, 2021

respectively)

508,103

485,029

 
Prepaid expenses and other

 

7,447

 

 

9,989

 

 
Total current assets

 

805,126

 

 

789,400

 

 
Property and equipment, at cost

 

424,051

 

 

413,396

 

Accumulated depreciation

 

(276,918

)

 

(266,340

)

 
Net property and equipment

 

147,133

 

 

147,056

 

 
Goodwill

 

10,496

 

 

10,496

 

Intangible assets, net

 

32,439

 

 

33,653

 

Other long-term assets

 

14,315

 

 

15,241

 

Right of use asset, net

 

27,475

 

 

27,726

 

 
Total assets

$

1,036,984

 

$

1,023,572

 

 
Liabilities
 
Accounts payable

$

167,081

 

$

148,649

 

Accrued payroll

 

38,071

 

 

44,352

 

Other accrued liabilities

 

19,441

 

 

25,395

 

Current portion of lease liabilities

 

6,124

 

 

5,940

 

 
Total current liabilities

 

230,717

 

 

224,336

 

 
Credit facility revolver

 

244,200

 

 

327,764

 

Other long-term liabilities

 

11,245

 

 

15,006

 

Deferred income taxes

 

16,317

 

 

9,890

 

Lease liabilities

 

21,850

 

 

22,137

 

 
Total liabilities

 

524,329

 

 

599,133

 

 
 
Shareholders' Equity
 
Preferred stock

 

-

 

 

-

 

Common stock

 

134,423

 

 

133,427

 

Accumulated other comprehensive income (loss)

 

1,256

 

 

(1,996

)

Retained earnings

 

376,976

 

 

293,008

 

 
Total shareholders' equity

 

512,655

 

 

424,439

 

 
Total liabilities and shareholders' equity

$

1,036,984

 

$

1,023,572

 

 

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

 

2022

 

2021

 

2022

 

2021

 

2022

 

2021

 
Tons sold

 

203,122

 

244,519

 

34,189

 

41,203

 

N/A

 

N/A

 
Net sales

$

336,259

$

404,596

$

188,301

$

164,179

$

109,877

$

99,691

Average selling price per ton

 

1,655

 

1,655

 

5,508

 

3,985

 

N/A

 

N/A

Cost of materials sold

 

293,498

 

321,005

 

150,546

 

120,227

 

83,422

 

79,634

Gross profit

 

42,761

 

83,591

 

37,755

 

43,952

 

26,455

 

20,057

Operating expenses

 

41,029

 

46,427

 

22,683

 

19,289

 

19,360

 

17,703

Operating income

 

1,732

 

37,164

 

15,072

 

24,663

 

7,095

 

2,354

 
Depreciation and amortization

 

2,513

 

2,698

 

1,024

 

858

 

1,112

 

1,239

LIFO expense

 

-

 

-

 

-

 

-

 

1,500

 

7,000

 
Nine months ended September 30,
Carbon Flat Products Specialty Metals Flat

Products

Tubular and Pipe

Products

 

2022

 

2021

 

2022

 

2021

 

2022

 

2021

 
Tons sold

 

619,809

 

728,750

 

111,019

 

123,278

 

N/A

 

N/A

 
Net sales

$

1,086,473

$

976,480

$

614,744

$

428,533

$

338,729

$

282,654

Average selling price per ton

 

1,753

 

1,340

 

5,537

 

3,476

 

N/A

 

N/A

Cost of materials sold

 

931,844

 

755,111

 

455,977

 

331,348

 

255,298

 

217,775

Gross profit

 

154,629

 

221,369

 

158,767

 

97,185

 

83,431

 

64,879

Operating expenses

 

127,404

 

132,572

 

73,138

 

50,798

 

54,454

 

53,166

Operating income

 

27,225

 

88,797

 

85,629

 

46,387

 

28,977

 

11,713

 
Depreciation and amortization

 

7,885

 

8,570

 

3,037

 

2,662

 

3,620

 

4,035

LIFO expense

 

-

 

-

 

-

 

-

 

1,500

 

12,000

As of

September

30, 2022

As of

December

31, 2021

Assets
Flat-products

$

774,536

$

777,074

Tubular and pipe products

 

262,130

 

245,962

Corporate

 

318

 

536

Total assets

$

1,036,984

$

1,023,572

 

Other Information

(in thousands, except per-share and ratio data)

 
(in thousands except per share data)

As of

September 30,

2022

As of

December 31, 2021

Shareholders' equity per share

$

46.06

$

38.31

 
Debt-to-equity ratio 0.48 to 1 0.77 to 1
 
 
Nine Months Ended September 30,

 

2022

 

2021

 

 
Net cash from (used for) operating activities

$

98,251

$

(126,938

)

 
Cash dividends per share

$

0.27

$

0.06

 

 

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