OAK BROOK, Ill., Aug. 14, 2019 (GLOBE NEWSWIRE) -- A. M. Castle & Co. (OTCQX: CTAM) (the "Company" or "Castle"), a global distributor of specialty metal and supply chain solutions, today reported its second quarter 2019 financial results.

Second Quarter 2019 Financial Results Summary:

  • Generated net sales of $147.9 million, a 1.7% year-over-year decrease compared to $150.4 million in the second quarter of 2018, which had one more sales day, with sales per day flat year-over-year.

  • Reported an operating loss of $1.2 million, flat compared to the second quarter of 2018.

  • Reported a net loss of $8.3 million, which included $9.9 million of interest expense, of which $6.8 million was non-cash related to long-term debt held primarily by major shareholders, and $1.3 million was non-cash related to the Company's pension plan, compared to a net loss of $8.5 million for the second quarter of 2018, which included $8.1 million of interest expense, of which $5.2 million was non-cash related to long term-debt held primarily by major shareholders, and $1.2 million was non-cash related to the Company's pension plan.

  • Reported EBITDA of $3.5 million and adjusted EBITDA of $3.2 million in the second quarter of 2019 compared to EBITDA of $0.5 million and adjusted EBITDA of $2.2 million in the second quarter of 2018.

  • Maintained a stable gross material margin of 25.7% compared to 25.8% in the first quarter of 2019 and 26.2% in the second quarter of 2018.

Chairman and CEO Steve Scheinkman commented, "In light of the deteriorating market conditions in both demand and pricing experienced in the second quarter in many of the sectors we service, we are pleased by the resiliency of our efforts to continue to improve profitability. While our industrial-focused product lines faced head-winds, our aerospace business continued to remain strong."

President Marec Edgar added, "We continue to focus on selectively pursuing sales that are highly accretive, particularly those including our value-added service offerings.  We believe this strategy will enable us to maintain a stable gross material margin and continue to achieve EBITDA in excess of cash interest expense during even downward pricing environments, such as we experienced this quarter. Coupled with the progress we have made in working capital management through the first half of 2019, we believe we are well positioned to generate positive cash flow to invest in our business and reduce debt in the remainder of 2019."

Mr. Edgar commented further, "We began to fully realize the impact of our new global supply organization in the second quarter.  This included consistent reductions of aged inventory, improved overall stock levels, and real-time facilitation of our branches in moving higher cost inventory as certain markets softened, allowing us to avoid an overstocked position relative to the market and restock at lower replacement costs.  Our focus for the second half of 2019 will be on continuing to improve the quality of our inventory and generating cash from even more efficient working capital utilization."

Executive Vice President of Finance and Administration Pat Anderson commented, "Our ongoing commitment to working capital efficiency is favorably impacting our cash flows from operations, which will allow us to continue to invest in the business and decrease our debt burden.  In fact, we have already started making principal payments against our revolving A credit facility during the third quarter of 2019."

Mr. Edgar concluded, "We believe the end markets we serve will remain extremely competitive for the remainder of 2019.  Given that, we are focused on building upon the operational foundation we demonstrated in the first half of 2019 and continuing our momentum towards improved profitability."

About A. M. Castle & Co.

Founded in 1890, A. M. Castle & Co. is a global distributor of specialty metal and supply chain services, principally serving the producer durable equipment, commercial aircraft, heavy equipment, industrial goods, construction equipment, and retail sectors of the global economy. Its customer base includes many Fortune 500 companies as well as thousands of medium and smaller-sized firms spread across a variety of industries. It specializes in the distribution of alloy and stainless steels; nickel alloys; aluminum and carbon. Together, Castle and its affiliated companies operate out of 21 metals service centers located throughout North America, Europe and Asia. Its common stock is traded on the OTCQX® Best Market under the ticker symbol "CTAM".

Non-GAAP Financial Measures

This release and the financial information included in this release include non-GAAP financial measures. The non-GAAP financial information should be considered supplemental to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Investors should recognize that these non-GAAP financial measures might not be comparative to similarly titled measures of other companies. However, we believe that non-GAAP reporting, giving effect to the adjustments shown in the reconciliation contained in this release and in the attached financial statements, provides meaningful information, and therefore we use it to supplement our GAAP reporting and guidance. Management often uses this information to assess and measure the performance of our business. We have chosen to provide this supplemental information to investors, analysts and other interested parties to enable them to perform additional analysis of operating results, to illustrate the results of operations giving effect to the non-GAAP adjustments shown in the reconciliations and to assist with period-over-period comparisons of such operations. The exclusion of the charges indicated herein from the non-GAAP financial measures presented does not indicate an expectation by the Company that similar charges will not be incurred in subsequent periods.

In addition, the Company believes that the use and presentation of EBITDA, which is defined by the Company as loss before provision for income taxes plus depreciation and amortization, and interest expense, is widely used by the investment community for evaluation purposes and provides investors, analysts and other interested parties with additional information in analyzing the Company’s operating results. EBITDA, adjusted non-GAAP net loss and adjusted EBITDA are presented as the Company believes the information is important to provide investors, analysts and other interested parties additional information about the Company’s financial performance. Management uses EBITDA, adjusted non-GAAP net loss and adjusted EBITDA to evaluate the performance of the business.

Cautionary Statement on Risks Associated with Forward Looking Statements

Information provided and statements contained in this release that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements only speak as of the date of this release and the Company assumes no obligation to update the information included in this release.  Such forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy, and the benefits that we expect to achieve from our working capital management initiative. These statements often include words such as “believe,” “expect,” “anticipate,” “intend,” “predict,” “plan,” “should,” or similar expressions.  These statements are not guarantees of performance or results, and they involve risks, uncertainties, and assumptions.  Although we believe that these forward-looking statements are based on reasonable assumptions, there are many factors that could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements. These factors include our ability to effectively manage our operational initiatives and implemented restructuring activities, the impact of volatility of metals prices, the impact of imposed tariffs and/or duties, the cyclical and seasonal aspects of our business, our ability to effectively manage inventory levels, and the impact of our substantial level of indebtedness, as well as including those risk factors identified in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. All future written and oral forward-looking statements by us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to above. Except as required by the federal securities laws, we do not have any obligations or intention to release publicly any revisions to any forward-looking statements to reflect events or circumstances in the future, to reflect the occurrence of unanticipated events or for any other reason.

     
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS    
  Three Months Ended Six Months Ended
(Dollars in thousands, except per share data) June 30, June 30,
Unaudited 2019 2018 2019 2018
Net sales $147,930  $150,414  $297,457  $296,287 
Costs and expenses:        
Cost of materials (exclusive of depreciation) 109,941  111,061  220,899  220,965 
Warehouse, processing and delivery expense 20,541  21,165  40,818  41,520 
Sales, general and administrative expense 16,477  16,974  32,979  33,522 
Depreciation expense 2,130  2,362  4,251  4,738 
Total costs and expenses 149,089  151,562  298,947  300,745 
Operating loss (1,159) (1,148) (1,490) (4,458)
Interest expense, net 9,850  8,129  19,299  15,255 
Other (income) expense, net (2,480) 673  (4,082) (4,101)
Loss before income taxes (8,529) (9,950) (16,707) (15,612)
Income tax benefit (225) (1,437) (400) (1,958)
Net loss $(8,304) $(8,513) $(16,307) $(13,654)


Reconciliation of Reported Net Loss to EBITDA and Adjusted EBITDA:
  Three Months Ended Six Months Ended
(Dollars in thousands) June 30, June 30,
Unaudited 2019 2018 2019 2018
Net loss, as reported $(8,304) $(8,513) $(16,307) $(13,654)
Depreciation expense 2,130  2,362  4,251  4,738 
Interest expense, net 9,850  8,129  19,299  15,255 
Income tax benefit (225) (1,437) (400) (1,958)
EBITDA 3,451  541  6,843  4,381 
Non-GAAP adjustments (a) (238) 1,641  258  1,309 
Adjusted EBITDA $3,213  $2,182  $7,101  $5,690 
         
(a) Refer to "Reconciliation of Reported Net Loss to Adjusted Non-GAAP Net Loss" table for additional details on these amounts.


Reconciliation of Reported Net Loss to Adjusted Non-GAAP Net (Loss) Income:        
  Three Months Ended Six Months Ended
(Dollars in thousands) June 30, June 30,
Unaudited 2019 2018 2019 2018
Net loss, as reported $(8,304) $(8,513) $(16,307) $(13,654)
Non-GAAP adjustments:        
Noncash compensation expense 548  696  1,191  1,342 
Foreign exchange (gain) loss on intercompany loans (786) 945  (933) (33)
Non-GAAP adjustments to arrive at Adjusted EBITDA (238) 1,641  258  1,309 
Non-cash interest expense(a) 6,765  5,232  13,182  9,766 
Total non-GAAP adjustments 6,527  6,873  13,440  11,075 
Tax effect of adjustments        
Adjusted non-GAAP net loss $(1,777) $(1,640) $(2,867) $(2,579)
         
(a) Non-cash interest expense for the three months ended June 30, 2019 and June 30, 2018 includes interest paid in kind of $3,936 and $3,184, respectively, and amortization of debt discount of $2,829 and $2,048, respectively. Non-cash interest expense for the six months ended June 30, 2019 and June 30, 2018 includes interest paid in kind of $7,788 and $6,138, respectively, and amortization of debt discount of $5,394 and $3,628, respectively.
 


CONDENSED CONSOLIDATED BALANCE SHEETS 
(Dollars in thousands, except par value data)As of
UnauditedJune 30,
 2019
 December 31,
 2018
ASSETS   
Current assets:   
Cash and cash equivalents$6,534  $8,668 
Accounts receivable93,337  79,757 
Inventories157,715  160,686 
Prepaid expenses and other current assets10,593  14,344 
Income tax receivable1,268  1,268 
Total current assets269,447  264,723 
Goodwill and intangible assets, net8,176  8,176 
Prepaid pension cost2,131  1,754 
Deferred income taxes1,268  1,261 
Right of use assets32,175   
Other noncurrent assets867  1,278 
Property, plant and equipment:   
Land5,579  5,577 
Buildings20,936  21,218 
Machinery and equipment40,734  38,394 
Property, plant and equipment, at cost67,249  65,189 
Accumulated depreciation(16,075) (11,989)
Property, plant and equipment, net51,174  53,200 
Total assets$365,238  $330,392 
LIABILITIES AND STOCKHOLDERS’ DEFICIT   
Current liabilities:   
Accounts payable$48,475  $42,719 
Accrued and other current liabilities13,109  16,631 
Lease liabilities6,725   
Income tax payable1,519  1,589 
Short-term borrowings7,979  5,498 
Current portion of long-term debt631  119 
Total current liabilities78,438  66,556 
Long-term debt, less current portion260,527  245,966 
Deferred income taxes6,478  7,540 
Finance leases8,483  61 
Build-to-suit liability  9,975 
Other noncurrent liabilities2,964  3,334 
Pension and postretirement benefit obligations6,300  6,321 
Lease liabilities25,486   
Commitments and contingencies   
Stockholders’ deficit:   
Common stock, $0.01 par value—200,000 Class A shares authorized
with 3,818 shares issued and 3,650 shares outstanding at June 30, 2019,
and 3,803 shares issued and outstanding at December 31, 2018
38  38 
Additional paid-in capital58,556  55,421 
Accumulated deficit(66,533) (50,472)
Accumulated other comprehensive loss(15,045) (14,348)
Treasury stock, at cost — 168 shares at June 30, 2019 and no shares at
December 31, 2018
(454)  
Total stockholders’ deficit(23,438) (9,361)
Total liabilities and stockholders’ deficit$365,238  $330,392 
        


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six Months Ended
(Dollars in thousands)June 30,
Unaudited2019 2018
Operating activities:   
Net loss$(16,307) $(13,654)
Adjustments to reconcile net loss to net cash used in operating activities:   
Depreciation4,251  4,738 
Amortization of deferred financing costs and debt discount5,394  3,628 
Noncash interest paid in kind7,788  6,138 
(Loss) gain on sale of property, plant & equipment154  (5)
Unrealized foreign currency gain(748) (11)
Noncash impact of operating leases476   
Deferred income taxes(1,836)  
Non-cash compensation expense1,191  1,342 
Other, net  298 
Changes in assets and liabilities:   
Accounts receivable(13,354) (17,283)
Inventories3,213  (10,776)
Prepaid expenses and other current assets3,764  (3,586)
Other noncurrent assets(13) 806 
Prepaid pension costs(377) (1,376)
Accounts payable5,573  10,663 
Income tax payable and receivable(770) (2,288)
Accrued and other current liabilities(3,546) 964 
Lease liabilities(62)  
Postretirement benefit obligations and other noncurrent liabilities(89) (195)
Net cash used in operating activities(5,298) (20,597)
Investing activities:   
Capital expenditures(2,627) (3,379)
Proceeds from sale of property, plant and equipment21  5 
Net cash used in investing activities(2,606) (3,374)
Financing activities:   
Proceeds from long-term debt including credit facilities3,500  39,461 
Repayments of long-term debt including credit facilities  (17,570)
Proceeds from (repayments of) short-term borrowings, net2,528  (852)
Principal paid on finance leases(301)  
Payments of debt issue costs  (482)
Payments of build-to-suit liability  (897)
Net cash from financing activities5,727  19,660 
Effect of exchange rate changes on cash and cash equivalents43  (157)
Net change in cash and cash equivalents(2,134) (4,468)
Cash and cash equivalents—beginning of year8,668  11,104 
Cash and cash equivalents—end of period$6,534  $6,636 
        


LONG-TERM DEBT   
(Dollars in thousands)As of
UnauditedJune 30,
 2019
 December 31,
 2018
    
5.00% / 7.00% Second Lien Notes due August 31, 2022(a)$187,048  $180,894 
Floating rate Revolving A Credit Facility due February 28, 2022111,988  108,488 
12.00% Revolving B Credit Facility due February 28, 2022(b)24,276  22,875 
Less: unvested restricted Second Lien Notes due August 31, 2022(826) (1,378)
Less: unamortized discount(61,604) (64,491)
Less: unamortized debt issuance costs(355) (422)
Total long-term debt260,527  245,966 
Less: current portion of long-term debt   
Total long-term portion$260,527  $245,966 
(a) Included in balance is interest paid in kind of $18,604 as of June 30, 2019 and $12,217 as of December 31, 2018.
(b) Included in balance is interest paid in kind of $2,776 as of June 30, 2019 and $1,375 as of December 31, 2018.
 
 

For Further Information:

Ed Quinn
+1 (847) 455-7111
Email: Inquiries@amcastle.com