Market Overview

A. M. Castle & Co. Reports Third Quarter 2016 Results

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OAK BROOK, Ill., Nov. 09, 2016 (GLOBE NEWSWIRE) -- A. M. Castle & Co. (NYSE: CAS) (the "Company" or "Castle"), a global distributor of specialty metal and supply chain solutions, today reported financial results for the third quarter ended September 30, 2016.

Highlights: 

  • Improved third quarter 2016 gross material margin to 26.0%, compared to 25.3% in second quarter 2016 and 23.4% in third quarter 2015; 

  • Reduced operating expenses to $41.1 million in third quarter 2016, compared to $44.3 million in second quarter 2016 and $50.8 million in third quarter 2015;

  • Achieved sequential quarterly improvement in loss from continuing operations  and  EBITDA with majority of branches now contributing positively; and 

  • Completed the sale of 50% equity ownership in Kreher Steel Company, LLC ("Kreher") to the Company's former joint venture partner.

President and CEO Steve Scheinkman commented, "Although we experienced the normal industry slowdown during the summer months, our transformation continued to take hold as we achieved our third sequential quarter of EBITDA improvement. While our sales tons per day decreased by 6.0% compared to the previous quarter, our financial performance improved as we were able to increase our gross margins to align with Castle's traditional margins in more stable markets even in this historically low commodity price environment. We also increased our margin per ton by 6.2% while at the same time reducing our operating expenses. We experienced a greater decline in volume in the United States and Canada than reported by the MSCI for the industry; however, our foreign subsidiaries performed above the MSCI rate."

Scheinkman continued, "As we expect volumes to decrease in the fourth quarter due to normal holiday and year-end seasonality, and with the industrial end markets yet to show signs of significant recovery, we remain focused on improving the efficiencies of our overall operations. We continue to work to win new contracts and to grow our participation in both of our end markets. Additionally, we have lowered both our fixed overhead and variable costs without sacrificing on-time delivery performance, safety, or quality. We expect these synergies to help us leverage profitability on new contracts and allow us to increase our transactional business at accretive net margins. Coupled with our recently-announced commitments intended to improve liquidity and working capital, we believe that we are well positioned to take advantage of the eventual recovery in the industrial end markets and improvement in commodity prices."

Third Quarter 2016 Results

Net sales in the third quarter 2016 were $124.9 million, a decrease of $25.7 million, or 17.1%, compared to the third quarter 2015. The decrease in net sales was mainly attributable to a 9.6% decrease in tons sold per day compared to the same period last year, coupled with a 4.4% decrease in average selling prices. Impacting the decrease in net tons sold per day were sales attributable to the Company's Houston and Edmonton operations, which were closed in February 2016. Excluding the tons sold from the Houston and Edmonton operations in the third quarter 2015, tons sold per day decreased 3.6% in the third quarter 2016 compared to the third quarter 2015. 

Gross material margin, calculated as net sales less cost of materials (exclusive of depreciation and amortization) divided by net sales, was 26.0% in the third quarter 2016, compared to 25.3% in the second quarter 2016 and 23.4% in the third quarter 2015. Loss from continuing operations in the third quarter 2016 was $18.3 million, compared to a loss from continuing operations of $21.3 million in the second quarter 2016 and $28.8 million in the third quarter 2015. Negative EBITDA from continuing operations in the third quarter 2016 was $4.8 million, compared to negative EBITDA from continuing operations of $6.9 million in the second quarter 2016 and $13.6 million in the third quarter 2015.

Executive Vice President and CFO, Pat Anderson, commented, "Positive branch-level operating results were generated by the majority of our reporting locations during the quarter. The number of branches contributing positively has grown throughout the year and we are executing specific steps at all branches, including those performing below expectations, to drive increased contribution. This, paired with a gross material margin rate that is more in line with Castle's historical performance in more stable markets, is a very encouraging development as we enter the fourth quarter."

Net cash used in operating activities of continuing operations was $10.7 million during the nine months ended September 30, 2016, compared to $13.1 million of net cash used in operating activities of continuing operations during the nine months ended September 30, 2015. Net cash from investing activities of $85.5 million during the nine months ended September 30, 2016 is primarily attributable to cash proceeds from the sale of Total Plastics Inc. ("TPI") and the sale of the Company's 50% equity interest in Kreher. The proceeds from the sale of TPI and Kreher were used to pay down the Company's long-term debt. Net cash used in financing activities was $68.7 million during the nine months ended September 30, 2016. The Company had $12.5 million of borrowings outstanding under its revolving credit facility at September 30, 2016, and $42.0 million of additional unrestricted borrowing capacity available under its revolving credit facility, compared with $66.1 million in borrowings and $30.1 million of additional unrestricted borrowing capacity under the revolving credit facility at December 31, 2015.  Total long-term debt outstanding, net of unamortized discount, unamortized debt issuance costs and the derivative liability for the embedded conversion feature of the Company's convertible notes, was $235.6 million at September 30, 2016 and $317.6 million at December 31, 2015. Refer to the "Total Long-Term Debt" table below for details related to the Company's outstanding debt obligations.

Scheinkman concluded, "While we continue to demonstrate progress, especially at the end of the current quarter, we are cautious heading into the seasonally-slow year end months where volumes are traditionally lower. We are also very pleased with the recently announced debt repayment of $27.5 million made today and the support from a world-class syndicate of lenders who provided commitment letters for the new $100 million term loan facilities. Finally, the transaction between W.B. & Co. and Raging Capital and the new settlement agreement between Raging Capital and the Company will bring additional stability to our Board of Directors and allow Castle to focus solely on returning to profitability and future success. Our momentum is building and we are growing more confident about our prospects for 2017 and beyond."

Webcast Information

Management will hold a conference call at 11:00 a.m. ET today to review the Company's results for the third quarter ended September 30, 2016 and discuss market conditions and business outlook. The call can be accessed via the internet live or as a replay. Those who would like to listen to the call may access the webcast through a link on the investor relations page of the Company's website at http://www.castlemetals.com/investors or by calling (800) 708-4540 or (847) 619-6397 and citing code 4363 2636#.

An archived version of the conference call webcast will be available for replay at the link above approximately three hours following its conclusion, and will remain available until the next earnings conference call.

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 New York Stock Exchange under the ticker symbol "CAS".

Non-GAAP Financial Measures

This release and the financial statements 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. 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 income (loss) from continuing operations before provision for income taxes plus depreciation and amortization, and interest expense, less interest income, 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. Adjusted non-GAAP net income (loss), adjusted non-GAAP income (loss) from continuing operations, adjusted EBITDA, and adjusted gross material margin which are defined as reported net income (loss), reported income (loss) from continuing operations, EBITDA and gross margin adjusted for non-cash items and items which are not considered by management to be indicative of the underlying results, 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. Operating expenses, excluding restructuring expense (income), is presented as management believes it provides useful information to investors, analysts and other interested parties regarding the ongoing expenses of the Company. Management uses EBITDA, adjusted non-GAAP net income (loss), adjusted non-GAAP net income (loss) from continuing operations, adjusted EBITDA, operating expenses excluding restructuring expense (income) and adjusted gross material margin 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 facility closures and organizational changes.  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, including our ability to effectively manage our operational initiatives and restructuring activities, the impact of volatility of metals prices, the cyclical and seasonal aspects of our business, our ability to effectively manage inventory levels, our ability to successfully complete the remaining steps in our strategic refinancing process, and the impact of our substantial level of indebtedness, as well as including those risk factors identified in Item 1A "Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, as amended, and our Quarterly Report on Form 10-Q for the second quarter ended June 30, 2016. 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   
(Dollars in thousands, except per share data)Three Months Ended Nine Months Ended
UnauditedSeptember 30, September 30,
 2016 2015 2016 2015
Net sales$124,893  $150,571  $419,433  $505,439 
Costs and expenses:       
Cost of materials (exclusive of depreciation and amortization)92,406  115,300  323,808  411,834 
Warehouse, processing and delivery expense19,561  25,893  63,772  76,826 
Sales, general, and administrative expense16,820  18,023  51,486  60,338 
Restructuring expense912  1,204  14,674  17,653 
Depreciation and amortization expense3,845  5,666  12,498  17,447 
Total costs and expenses133,544  166,086  466,238  584,098 
Operating loss(8,651) (15,515) (46,805) (78,659)
Interest expense, net8,743  10,156  28,711  30,345 
Unrealized gain on embedded debt conversion option(6,285)   (7,569)  
Debt restructuring loss, net    6,562   
Other expense, net6,250  2,270  4,587  4,532 
Loss from continuing operations before income taxes and equity in losses of joint venture(17,359) (27,941) (79,096) (113,536)
Income tax expense (benefit)903  (629) 1,099  (22,141)
Loss from continuing operations before equity in losses of joint venture(18,262) (27,312) (80,195) (91,395)
Equity in losses of joint venture(36) (1,460) (4,177) (134)
Loss from continuing operations(18,298) (28,772) (84,372) (91,529)
Income (loss) from discontinued operations, net of income taxes(1,688) 955  
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