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UNIVERSAL STAINLESS & ALLOY PRODUCTS INC (USAP)·Q3 2024 Earnings Summary

Executive Summary

  • USAP delivered record net sales of $87.3M (+5% q/q; +22% y/y) and record diluted EPS of $1.11 in Q3 2024, with gross margin at 25.2% and operating income at $13.0M, driven by strong commercial aerospace engine demand .
  • Premium alloy sales hit a record $23.7M (27.1% of sales; +14% q/q; +44% y/y), while aerospace sales reached a record $71.4M (81.8% of sales; +4% q/q; +32% y/y) .
  • Nonrecurring items included ~$0.6M SG&A costs related to the pending Aperam transaction and a net $2.2M pre-tax NMTC gain; after tax, these impacted net income by ~$1.4M or ~$0.14 per diluted share .
  • USAP agreed to be acquired by Aperam for $45.00 per share in cash; the company did not hold a Q3 earnings call due to the pending transaction—this deal is the principal near-term stock catalyst .

What Went Well and What Went Wrong

What Went Well

  • Record topline and profitability: net sales $87.3M, net income $11.1M, diluted EPS $1.11; adjusted EBITDA $19.3M (22.1% of sales) and EBITDA $20.5M .
  • Mix tailwinds: premium alloy sales at a record $23.7M (27.1% of sales) and aerospace at $71.4M (81.8% of sales), supporting margins .
  • CEO confidence and momentum: “This is the sixth consecutive quarter that we have achieved profitable growth…” and aerospace demand “especially strong,” underscoring strategic focus on premium alloys and aerospace .

What Went Wrong

  • Reported results benefited from nonrecurring items: a net $2.2M pre-tax NMTC gain and ~$0.6M transaction-related SG&A; net after-tax impact ~$1.4M ($0.14 per share), complicating run-rate assessment .
  • No earnings call or guidance due to the pending Aperam transaction, reducing qualitative visibility into Q4/FY trajectory .
  • Continued sensitivity to raw material/surcharge alignment noted in prior periods (e.g., Q1 raw material misalignment ~$1.3M headwind), highlighting ongoing commodity pricing risk .

Financial Results

MetricQ3 2023Q1 2024Q2 2024Q3 2024
Revenue ($USD Millions)$71.3 $77.6 $82.8 $87.3
Diluted EPS ($)$0.20 $0.43 $0.90 $1.11
Gross Profit ($USD Millions)$10.9 $14.7 $21.0 $22.0
Gross Margin (%)15.2% 18.9% 25.4% 25.2%
Operating Income ($USD Millions)$4.4 $7.3 $12.8 $13.0
EBITDA ($USD Millions)$9.0 $12.2 $17.9 $20.5
Adjusted EBITDA ($USD Millions)$9.3 $12.6 $18.5 $19.3

Segment and mix KPIs:

KPIQ3 2023Q1 2024Q2 2024Q3 2024
Premium Alloy Sales ($USD Millions)$16.5 $20.1 $20.7 $23.7
Premium Alloy Sales (% of Revenue)23.1% 25.9% 25.0% 27.1%
Aerospace Sales ($USD Millions)$54.0 $60.2 $68.6 $71.4
Aerospace Sales (% of Revenue)75.6% 77.5% 82.9% 81.8%
Cash from Operations ($USD Millions)$6.7 (Q3’23) $10.3 (Q1’24) $7.3 (Q2’24) $11.9 (Q3’24)

End market mix (Net Sales $USD Millions):

End MarketQ3 2023Q1 2024Q2 2024Q3 2024
Aerospace$54.0 $60.2 $68.6 $71.4
Energy$0.7 $6.0 $5.1 N/A
Heavy Equipment$8.9 $5.8 $5.2 N/A
General Industrial/Other$5.1 $5.6 $3.8 N/A
Total Revenue$71.3 $77.6 $82.8 $87.3

Notes:

  • Q3 2024 includes ~$0.6M of transaction expenses and a net $2.2M pre-tax NMTC gain; net after-tax impact ~$1.4M or ~$0.14 per diluted share .
  • Net debt declined by $9.0M sequentially and by $20.3M vs Q3 2023; operating cash flow was $11.9M in Q3 2024 .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue, Margins, OpEx, Tax, SegmentQ4 2024 / FY 2024No formal numeric guidance; management previously cited “opportunities to increase sales and further expand gross margins” No formal guidance; no Q3 call due to pending Aperam transaction Guidance paused/suspended due to transaction

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3 2024)Trend
Aerospace demandQ2: Record aerospace sales ($68.6M, 82.9%); strong commercial and defense, pricing/mix expanding margins . Q1: Robust aerospace demand; strong backlog support .Record aerospace sales ($71.4M, 81.8%); commercial engine demand “especially strong” .Improving/robust
Premium alloys focusQ2: Premium sales $20.7M (25%); investments in VIM capacity and box furnace . Q1: Premium mix strategy; customer approvals .Premium sales record $23.7M (27.1%) .Mix shifting higher
Cost/margin initiativesQ2: Margin expansion via price increases, cost projects, stable commodity prices . Q1: Base price increases realized; margin despite $1.3M raw material headwind .Gross margin 25.2%; margin drivers sustained; nonrecurring NMTC gain and transaction costs present .Sustained margins with mix; some nonrecurring effects
Working capital/deleveragingQ2: Positive OCF; debt reduced $3M . Q1: OCF $10.3M; debt reduced $4.3M .OCF $11.9M; net debt down $9.0M q/q and $20.3M y/y .Improving cash generation and deleveraging
Corporate actions/strategic—Pending acquisition by Aperam; $45 per share cash; no earnings call .Transaction dominates narrative
Commodity/surcharge dynamicsQ1: Raw material misalignment ~$1.3M headwind . Q3’23: Negative surcharge misalignment noted .Not specifically quantified in Q3; margins remained strong .Risk persists; offset by mix/pricing

Management Commentary

  • “Our record performance in the third quarter continued to be driven by aerospace, with commercial aircraft engine demand especially strong.” — Christopher M. Zimmer, President & CEO .
  • “This is the sixth consecutive quarter that we have achieved profitable growth…” — Christopher M. Zimmer .
  • Prior focus reiterated: “Our margin expansion is the result of our strategic focus on aerospace and defense products, including premium alloys… targeted and sustainable margin improvement projects and our continuous cost management.” — Q2 commentary .
  • Capacity investment: “Add a second 18-ton furnace shell for the VIM… mid-2025, and a new box furnace to support the forge…” — Q2 commentary .
  • Q1 strategic emphasis: near-record sales, highest profitability in 12 years; base price increases realized; strong backlog .

Q&A Highlights

  • No Q3 2024 conference call or webcast due to the pending Aperam transaction; therefore no analyst Q&A this quarter .
  • Press release provided clarity on nonrecurring impacts: ~$0.6M transaction-related SG&A and a net $2.2M pre-tax NMTC gain; after-tax ~$1.4M or ~$0.14 per diluted share .
  • Operational color emphasized aerospace engine demand and continued profitable growth .

Estimates Context

  • Wall Street consensus estimates from S&P Global were unavailable for USAP due to a missing CIQ mapping at the time of query; as a result, we cannot provide a versus-consensus comparison for Q3 2024. Values retrieved from S&P Global were unavailable for USAP.

Key Takeaways for Investors

  • Aerospace-driven mix and premium alloys continue to expand margins; Q3 gross margin held at 25.2% with record revenue/EPS despite lack of a call .
  • Nonrecurring NMTC gain and transaction costs added ~$0.14 to diluted EPS; underlying run-rate remains strong but should be normalized for valuation models .
  • Cash generation and deleveraging improved (OCF $11.9M; net debt down $9.0M q/q and $20.3M y/y), supporting balance sheet resilience into the transaction process .
  • Capacity investments (VIM expansion and forge support) underpin medium-term premium alloy growth if the business remains standalone within Aperam post-close .
  • Near-term trading is dominated by the $45.00 cash acquisition by Aperam; merger spread, regulatory approvals (HSR/CFIUS), and shareholder vote timing are the primary catalysts, not quarterly fundamentals .
  • Absence of guidance and no call reduces incremental visibility; use prior commentary (“opportunities to increase sales and expand gross margins”) as directional, not numeric .
  • Watch for any updates in proxy filings and transaction milestones; fundamentals provide a supportive backdrop, but deal dynamics will drive the stock near term .