UNIVERSAL STAINLESS & ALLOY PRODUCTS INC (USAP)·Q2 2024 Earnings Summary

Executive Summary

• Record quarter: revenue $82.8M (+7% QoQ, +20% YoY), gross margin 25.4% (all-time high), diluted EPS $0.90 (more than doubled QoQ), adjusted EBITDA $18.5M (22.3% of sales) .
• Aerospace drove strength: $68.6M sales (82.9% of total), +14% QoQ and +34% YoY; premium alloys $20.7M (25.0% of sales), +61% YoY .
• Balance sheet/cash: CFO $7.3M; total debt reduced by $3.0M to $78.3M; backlog $296.5M (down sequentially as lead times are pulled in; ASP per pound in backlog up 6% QoQ and 18% YoY) .
• Outlook: Management expects sales growth and further margin expansion; 2024 CapEx ~$18M; SG&A guided ~$8.5M per quarter in 2H; opportunity for another 25 bps interest spread reduction benefiting Q4 .

What Went Well and What Went Wrong

What Went Well

• Margin expansion and profitability: “Record sales…gross margin hit an all-time high of 25.4%…record net income of $8.9 million or $0.90 per diluted share and adjusted EBITDA…$18.5 million” driven by aerospace/premium mix, higher base prices, and cost/yield initiatives .
• Aerospace momentum and approvals: “Record aerospace market sales of $68.6 million…We achieved a richer product mix and a broader base of customer approvals…structural change in the level of margin” .
• Debt reduction and cash generation: Net cash from ops $7.3M; debt down another $3M in Q2; management focused on positive cash flow to fund CapEx and pay down debt .

What Went Wrong

• Non-aerospace softness: Heavy equipment $5.2M (–11% QoQ), energy $5.1M (–15% QoQ), general industrial $3.3M (–22% QoQ) as customers hesitated and semiconductor demand remained modest .
• Backlog declined as lead times narrowed: Backlog fell to $296.5M (from $325.1M) amid controlled order entry to pull in lead times, though ASP per pound rose (+6% QoQ, +18% YoY) .
• Minor surcharge misalignment and labor constraints: Raw material misalignment modest negative $0.5–$0.6M; labor stability improved but still below pre-COVID production efficiency, pacing small-diameter finishing .

Financial Results

Segment breakdown – Market Channels (Net Sales $USD Millions):

End Market breakdown (Net Sales $USD Millions):

Melt Type (Net Sales $USD Millions):

KPIs and Balance Sheet Highlights:

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Record sales…gross margin hit an all-time high of 25.4% of sales, record net income…$0.90 per diluted share and adjusted EBITDA…$18.5 million” highlighting premium alloys and aerospace strategy .
• “These projects, combined with the change in our mix towards aerospace and premium products, represent a structural change in the level of margin we are achieving” .
• “We continue to invest in our premium alloy capacity…add a second 18-ton furnace shell for the VIM in mid-2025, and a new box furnace to support the forge the third quarter this year” .
• “Backlog remained solid at $297 million…we are…walking back our lead times…gone from mid-70s to ~45–50-week lead times on premium alloys” .

Q&A Highlights

• CapEx allocation: ~$18M FY24 with >50% to sustainability, ~$4M modernization, ~$5–6M growth ROI (furnace capacity, finishing pull-through) .
• Bottlenecks: VIM primary melt pacing; small-diameter finishing labor-intensive; stability improving but still below pre-COVID productivity .
• Working capital/inventory: Inventory built ahead of planned melt maintenance; target to bring working capital back to Q1 levels by Q3; surcharge misalignment modest ($0.5–$0.6M) .
• Premium alloys end-use split: ~2/3 defense, ~1/3 engines in commercial aerospace .
• Lead times/backlog management: Premium alloy lead times reduced from 70–80 to ~45–50 weeks; industry “new norm” likely 10–14 months given demand > supply .

Estimates Context

• Wall Street consensus (S&P Global Capital IQ) for Q2 2024 EPS and revenue was unavailable for USAP at the time of analysis due to missing mapping in SPGI (no CIQ company ID returned); therefore, beat/miss versus consensus cannot be determined. As a result, please note that comparison to estimates is not provided [GetEstimates error].

Key Takeaways for Investors

• Margin step-up appears structural: mix shift to premium/aerospace plus sustained cost/yield initiatives drove record 25.4% gross margin and 15.5% operating margin; management expects further expansion .
• Aerospace/defense exposure is the key growth engine: 83% of sales in Q2; approvals expanding; Boeing/Airbus production plans supportive despite timing adjustments .
• Backlog quality improving as lead times are pulled in: absolute backlog declined but ASP per pound is higher; controlled order entry enhances competitiveness .
• Cash generation and deleveraging: consistent CFO, debt down to $78.3M, interest expense trending lower with spread reductions (another 25 bps targeted) .
• Capacity relief in sight: near-term box furnace and mid-2025 VIM shell should alleviate bottlenecks; supports premium alloy throughput and future growth .
• Non-aero cyclicals a 2025 lever: heavy equipment and general industrial soft near term; management sees recovery post-election and with U.S. semiconductor/AI investment tailwinds .
• SG&A run-rate reset: ~$8.5M per quarter in 2H provides a clearer OpEx baseline when modeling incremental margin drop-through .

Additional primary sources consulted:

• Q2 2024 8-K earnings press release with full financial tables .
• Q2 2024 earnings call transcript (prepared remarks and Q&A) .
• Q1 2024 8-K press release for sequential comparisons and guidance baseline .
• Q4 2023 8-K press release for longer-term context on margins, aerospace, and capacity (VAR) .