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A. M. Castle & Co. Reports Third Quarter Results

Company reports continued strong sales and margins

OAK BROOK, Ill., Nov. 13, 2018 (GLOBE NEWSWIRE) -- A. M. Castle & Co. (CTAM) (the "Company" or "Castle"), a global distributor of specialty metal and supply chain solutions, today reported financial results for the third quarter of 2018.

Third Quarter 2018 Financial Highlights:

  • Achieved net sales of $148.1 million, a 20.2% year-over-year increase compared to $81.5 million and $41.7 million in the two-month Predecessor period ended August 31, 2017 and the one-month Successor period ended September 30, 2017, respectively, and down 1.5% from $150.4 million in the second quarter of 2018.

  • Reported net loss of $6.7 million, which included $8.7 million of interest expense, of which $5.7 million was non-cash related to long term debt held primarily by majority shareholders and $1.2 million was non-cash related to the over-funded pension plan. Net loss in the second quarter of 2018 was $8.5 million.

  • Achieved gross material margin of 25.1% compared to 22.2% and 24.5% in the Predecessor period and the Successor period, respectively, and down from 26.2% in the second quarter of 2018.

  • Achieved EBITDA of $2.3 million and adjusted EBITDA of $2.5 million, including foreign currency gains of $1.0 million and $0.5 million, respectively, up from EBITDA of $0.5 million and adjusted EBITDA of $2.2 million in the second quarter of 2018.

  • Adjusted EBITDA exceeded cash interest for the third consecutive quarter.

Chairman and CEO Steve Scheinkman commented, “We are very pleased to report continued EBITDA growth, and adjusted EBITDA that exceeded cash interest for the third consecutive quarter. Our quarterly net sales of $148 million were more than 20% higher than the prior year third quarter, driven by continued strong volume and pricing. We saw continued healthy demand and a positive pricing environment throughout the third quarter, and our sales and gross material margin momentum has continued into the fourth quarter. While we are cautious heading into the seasonally-slow year end months, when volumes are traditionally lower, we look forward to expanding on our recent positive operating performance.”

President Marec Edgar noted, “As we continue to grow our business, we will remain focused on increasing our efficiency to further improve our EBITDA. With our strengthening foundation and additional progress from our continuous improvement initiative, we are well-positioned for the next phase of profitable growth.”

Executive Vice President and CFO Pat Anderson added, “Our focus on improving profitability and liquidity is paying off.  We continue to achieve adjusted EBITDA greater than our cash interest, and we are using cash to grow the business rather than to support the onerous capital structure that we had in the past.”

Presentation of Predecessor and Successor Financial Results

The Company adopted fresh-start reporting as of August 31, 2017, the date the Company's Amended Prepackaged Joint Chapter 11 Plan of Reorganization became effective and the Company emerged from its Chapter 11 cases (the "Effective Date"). As a result of the application of fresh-start reporting, the Company’s financial statements for periods prior to the Effective Date are not comparable to those for periods subsequent to the Effective Date. References to “Successor” refer to the Company on or after the Effective Date. References to “Predecessor” refer to the Company prior to the Effective Date. Operating results for the Successor and Predecessor periods are not necessarily indicative of the results to be expected for a full fiscal year. References such as the “Company,” “we,” “our” and “us” refer to A.M. Castle & Co. and its subsidiaries, whether Predecessor and/or Successor, as appropriate.

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 22 metals service centers located throughout North America, Europe and Asia. Its common stock is traded on the OTCQB® Venture 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, including any combination of and comparison to combined Predecessor and Successor results. 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 cost savings and other benefits that we expect to achieve from our restructuring, as well as the anticipated increase in our borrowing capacity under our Credit Facility. 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, 2017, which we filed on March 15, 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 Successor     Predecessor
(Dollars in thousands, except per share data) Three Months
Ended 
September 30, 2018
  September 1, 2017
Through
September 30, 2017
As Adjusted*
    July 1, 2017
Through 
August 31, 2017 
As Adjusted*
Unaudited      
Net sales $ 148,109     $ 41,725       $ 81,518  
Costs and expenses:            
Cost of materials (exclusive of depreciation and amortization) 110,896     31,482       63,406  
Warehouse, processing and delivery expense 21,092     5,972       12,277  
Sales, general and administrative expense 16,871     5,141       10,455  
Restructuring expense           398  
Depreciation and amortization expense 2,227     502       2,391  
Total costs and expenses 151,086     43,097       88,927  
Operating loss (2,977 )   (1,372 )     (7,409 )
Interest expense, net 8,746     1,805       3,409  
Financial restructuring expense           424  
Other (income) expense, net (3,000 )   (2,770 )     (2,037 )
Reorganization items, net     128       (80,033 )
(Loss) income before income taxes (8,723 )   (535 )     70,828  
Income tax (benefit) expense (2,068 )   286       (1,395 )
Net (loss) income $ (6,655 )   $ (821 )     $ 72,223  
             
 
* Adjusted due to the adoption of ASU No. 2017-07, "Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost."
 


Condensed Consolidated Statements of Operations Continued Successor     Predecessor
(Dollars in thousands, except per share data) Nine Months
Ended
September 30, 2018
  September 1, 2017
Through
September 30, 2017
As Adjusted*
    January 1, 2017
Through
August 31, 2017
As Adjusted*
Unaudited      
Net sales $ 444,396     $ 41,725       $ 353,926  
Costs and expenses:            
Cost of materials (exclusive of depreciation and amortization) 331,861     31,482       266,495  
Warehouse, processing and delivery expense 62,612     5,972       50,314  
Sales, general and administrative expense 50,393     5,141       40,766  
Restructuring expense           566  
Depreciation and amortization expense 6,965     502       10,150  
Total costs and expenses 451,831     43,097       368,291  
Operating loss (7,435 )   (1,372 )     (14,365 )
Interest expense, net 24,001     1,805       26,629  
Financial restructuring expense           7,024  
Unrealized loss on embedded debt conversion option           146  
Other (income) expense, net (7,101 )   (2,770 )     (8,436 )
Reorganization items, net     128       (74,531 )
(Loss) income before income taxes (24,335 )   (535 )     34,803  
Income tax (benefit) expense (4,026 )   286       (1,387 )
Net (loss) income $ (20,309 )   $ (821 )     $ 36,190  
             
 
* Adjusted due to the adoption of ASU No. 2017-07, "Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost."


Reconciliation of Reported Net Loss to EBITDA and Adjusted EBITDA:   Successor
(Dollars in thousands)   Three Months
Ended
September 30,
2018
  Nine Months
Ended
September 30,
2018
  Three Months
Ended 
June 30, 2018
  Three Months
Ended 
March 31, 2018
Unaudited        
Net loss, as reported   $ (6,655 )   $ (20,309 )   $ (8,513 )   $ (5,141 )
Depreciation expense   2,227     6,965     2,362     2,376  
Interest expense, net   8,746     24,001     8,129     7,126  
Income tax benefit   (2,068 )   (4,026 )   (1,437 )   (521 )
EBITDA   2,250     6,631     541     3,840  
Non-GAAP adjustments (a)   202     1,511     1,641     (332 )
Adjusted EBITDA   $ 2,452     $ 8,142     $ 2,182     $ 3,508  
     
(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:   Successor
(Dollars in thousands)   Three Months
Ended
September 30,
2018
  Nine Months
Ended
September 30,
2018
  Three Months
Ended 
June 30, 2018
  Three Months
Ended 
March 31, 2018
Unaudited        
Net loss, as reported   $ (6,655 )   $ (20,309 )   $ (8,513 )   $ (5,141 )
Non-GAAP adjustments:                
Noncash compensation expense   721     2,063     696     646  
Foreign exchange (gain) loss on intercompany loans   (519 )   (552 )   945     (978 )
Non-GAAP adjustments to arrive at Adjusted EBITDA   202     1,511     1,641     (332 )
Non-cash interest expense(a)   5,751     15,517     5,232     4,534  
Total non-GAAP adjustments   5,953     17,028     6,873     4,202  
Tax effect of adjustments                
Adjusted non-GAAP net loss   $ (702 )   $ (3,281 )   $ (1,640 )   $ (939 )
(a) Non-cash interest expense for the three and nine months ended September 30, 2018 includes interest paid in kind of $3,617 and $9,755, respectively, and amortization of debt discount of $2,134 and $5,762, respectively. Non-cash interest expense for the three months ended June 30, 2018 includes interest paid in kind of $3,184 and amortization of debt discount of $2,048. Non-cash interest expense for the three months ended March 31, 2018 includes interest paid in kind of $2,954 and amortization of debt discount of $1,580.


CONDENSED CONSOLIDATED BALANCE SHEETS Successor
(Dollars in thousands, except par value data) September 30,
2018
  December 31,
2017
Unaudited      
ASSETS      
Current assets:      
Cash and cash equivalents $ 7,356     $ 11,104  
Accounts receivable, less allowances of $1,100 and $1,586, respectively 89,297     74,370  
Inventories 167,915     154,491  
Prepaid expenses and other current assets 15,735     12,274  
Income tax receivable 2,056     1,576  
Total current assets 282,359     253,815  
Goodwill and intangible assets, net 8,176     8,176  
Prepaid pension cost 12,810     10,745  
Deferred income taxes 1,291     1,278  
Other noncurrent assets 835     1,344  
Property, plant and equipment:      
Land 5,579     5,581  
Buildings 21,319     21,296  
Machinery and equipment 37,136     33,011  
Property, plant and equipment, at cost 64,034     59,888  
Accumulated depreciation (9,366 )   (2,961 )
Property, plant and equipment, net 54,668     56,927  
Total assets $ 360,139     $ 332,285  
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Accounts payable $ 50,363     $ 41,757  
Accrued and other current liabilities 16,862     13,931  
Income tax payable 668     262  
Short-term borrowings 5,069     5,854  
Current portion of long-term debt 119     118  
Total current liabilities 73,081     61,922  
Long-term debt, less current portion 239,908     199,903  
Deferred income taxes 11,978     16,166  
Build-to-suit liability 9,790     10,148  
Other noncurrent liabilities 3,509     3,784  
Pension and postretirement benefit obligations 6,281     6,377  
Commitments and contingencies      
Stockholders’ equity:      
Common stock, $0.01 par value—200,000 Class A shares authorized with 3,803 shares issued and outstanding at September 30, 2018 and 3,734 shares issued and outstanding at December 31, 2017 38     37  
Additional paid-in capital 54,872     49,944  
Accumulated deficit (33,636 )   (13,327 )
Accumulated other comprehensive loss (5,682 )   (2,669 )
Total stockholders’ equity 15,592     33,985  
Total liabilities and stockholders’ equity $ 360,139     $ 332,285  


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Successor     Predecessor
(Dollars in Thousands) Nine Months 
Ended
September 30, 2018
  September 1, 2017 
Through 
September 30, 2017
    January 1, 2017 
Through 
August 31, 2017
Unaudited      
Operating activities:            
Net (loss) income $ (20,309 )   $ (821 )     $ 36,190  
Adjustments to reconcile net (loss) income to net cash used in operating activities:            
Depreciation and amortization 6,965     502       10,150  
Amortization of deferred financing costs and debt discount 5,762     73       3,810  
Unrealized loss on embedded debt conversion option           146  
Noncash reorganization items, net           (87,107 )
(Gain) loss on sale of property, plant and equipment (4 )         7  
Unrealized foreign currency gain (784 )   (1,292 )     (4,439 )
Noncash interest paid in kind 9,755     951        
Noncash compensation expense 2,063     215       630  
Deferred income taxes (4,188 )         (953 )
Other, net 463     66       537  
Changes in assets and liabilities:            
Accounts receivable (15,253 )   (3,658 )     (6,061 )
Inventories (14,324 )   (784 )     (2,703 )
Prepaid expenses and other current assets (3,614 )   (3,050 )     (3,100 )
Other noncurrent assets 540     567       1,664  
Prepaid pension costs (2,065 )   (168 )     (849 )
Accounts payable 8,947     235       8,602  
Income tax payable and receivable (83 )   174       (340 )
Accrued and other current liabilities 1,791     523       (6,002 )
Pension and postretirement benefit obligations and other noncurrent liabilities (287 )   (93 )     (471 )
Net cash used in operating activities (24,625 )   (6,560 )     (50,289 )
Investing activities:            
Capital expenditures (4,909 )   (924 )     (2,850 )
Proceeds from sale of property, plant and equipment 53     5       619  
Proceeds from release of cash collateralization of letters of credit           7,492  
Net cash (used in) from investing activities (4,856 )   (919 )     5,261  
Financing activities:            
Proceeds from long-term debt including credit facilities 45,454     8,677       195,026  
Repayments of long-term debt including credit facilities (17,600 )   (25 )     (175,414 )
Short-term borrowings, net (607 )   (216 )     3,797  
Payments of debt issue costs (499 )         (1,831 )
Payments of build-to-suit liability (897 )         (3,000 )
Net cash from financing activities 25,851     8,436       18,578  
Effect of exchange rate changes on cash and cash equivalents (118 )   95       890  
Net change in cash and cash equivalents (3,748 )   1,052       (25,560 )
Cash and cash equivalents - beginning of year 11,104     10,064       35,624  
Cash and cash equivalents - end of period $ 7,356     $ 11,116       $ 10,064  


LONG-TERM DEBT Successor
(Dollars In Thousands) September 30,
 2018
  December 31,
 2017
       
5.00% / 7.00% Second Lien Notes due August 31, 2022 $ 177,783     $ 168,767  
Floating rate New ABL Credit Facility due February 28, 2022 110,988     101,047  
12.00% Revolving B Credit Facility due February 28, 2022 18,738      
Other, primarily capital leases 208     288  
Less: unvested restricted Second Lien Notes due August 31, 2022 (1,570 )   (2,144 )
Less: unamortized discount (65,665 )   (67,937 )
Less: unamortized debt issuance costs (455 )    
Total long-term debt 240,027     200,021  
Less: current portion of long-term debt 119     118  
Total long-term portion $ 239,908     $ 199,903  

For Further Information:

Brendan Geraghty
+1 (312) 297-7411
Email: Brendan.Geraghty@edelman.com