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

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Company sees sequential and year-over-year sales and margin growth

OAK BROOK, Ill., Aug. 07, 2018 (GLOBE NEWSWIRE) -- A. M. Castle & Co. (OTCQB:CTAM) (the "Company" or "Castle"), a global distributor of specialty metal and supply chain solutions, today reported financial results for the second quarter of 2018.

Second Quarter 2018 Financial Highlights:

  • Increased net sales by 3.1% sequentially and 10.2% year-over-year to $150.4 million

  • Reported net loss of $8.5 million, which included $8.1 million of interest expense, of which $5.2 million was non cash related to long term debt held primarily by majority shareholders and $1.2 million was non cash related to over-funded pension plan

  • Achieved EBITDA of $0.5 million and adjusted EBITDA of $2.2 million, including foreign currency losses of $2.6 million and $1.7 million, respectively. Excluding foreign currency losses of $2.6 million in the second quarter of 2018 and foreign currency gains of $2.8 million in the first quarter of 2018, EBITDA growth of $2.1 million from the first quarter of 2018

  • Adjusted EBITDA exceeded cash interest for the second consecutive quarter

  • Improved gross material margin to 26.2% compared to 24.7% in the first quarter of 2018 and 25.2% in the second quarter of 2017

President and CEO Steve Scheinkman commented, "We are very pleased to report that we continued to grow EBITDA and that adjusted EBITDA exceeded cash interest for the second straight quarter. Our quarterly net sales of $150 million were higher compared to both the prior quarter and the second quarter of last year, driven by continued strong volume and higher selling prices. Selling prices improved 4.1% compared to the prior quarter, and 12.6% compared to the second quarter of last year, as demand remained strong in our core markets. Margins were also beneficially impacted by the elimination of some lower margin sales in the quarter."

Executive Vice President and CFO Pat Anderson added, "The increase in our liquidity due to our improved financial performance and expanded credit facility has enabled us to continue to invest in inventory and grow our business.  During the quarter, our gross material margin increased to 26.2% up from 24.7% in the first quarter of 2018 and 25.2% in the second quarter of 2017.  The cash interest paid of $1.7 million is significantly lower than our cash interest burden prior to our emergence from bankruptcy."

Scheinkman concluded, "Although our second quarter results were negatively impacted by increased transportation and labor costs, which we believe are indicative of growth in our business, we saw continued strong demand and a strong pricing environment throughout the second quarter and into the third quarter. We have experienced solid sales and gross material margin momentum over the first half of 2018, and that has continued into July.  As we continue to grow our business, we will remain focused on increasing our efficiency to further improve our EBITDA."

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. 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   Successor     Predecessor
(Dollars in thousands, except per share data) Three Months
Ended 
June 30, 2018
    Three Months
Ended
June 30, 2017
As Adjusted*
  Six Months
Ended 
June 30, 2018
    Six Months
Ended
June 30, 2017
As Adjusted*
Unaudited          
Net sales $ 150,414       $ 136,482     $ 296,287       $ 272,408  
Costs and expenses:                  
Cost of materials (exclusive of depreciation and amortization) 111,061       102,052     220,965       203,089  
Warehouse, processing and delivery expense 21,165       19,318     41,520       38,037  
Sales, general and administrative expense 16,974       15,215     33,522       30,311  
Restructuring expense       40           168  
Depreciation and amortization expense 2,362       3,895     4,738       7,759  
Total costs and expenses 151,562       140,520     300,745       279,364  
Operating loss (1,148 )     (4,038 )   (4,458 )     (6,956 )
Interest expense, net 8,129       11,274     15,255       23,220  
Financial restructuring expense       5,723           6,600  
Unrealized loss on embedded debt conversion option                 146  
Other expense (income), net 673       (4,067 )   (4,101 )     (6,399 )
Reorganization items, net       5,502           5,502  
Loss before income taxes (9,950 )     (22,470 )   (15,612 )     (36,025 )
Income tax (benefit) expense (1,437 )     71     (1,958 )     8  
Net loss $ (8,513 )     $ (22,541 )   $ (13,654 )     $ (36,033 )
                   
* 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 
June 30, 2018
  Six Months
Ended 
June 30, 2018
  Three Months
Ended 
March 31, 2018
Unaudited    
Net loss, as reported $ (8,513 )   $ (13,654 )   $ (5,141 )
Depreciation expense 2,362     4,738     2,376  
Interest expense, net 8,129     15,255     7,126  
Income tax benefit (1,437 )   (1,958 )   (521 )
EBITDA 541     4,381     3,840  
Non-GAAP adjustments (a) 1,641     1,309     (332 )
Adjusted EBITDA $ 2,182     $ 5,690     $ 3,508  
 
(a) Refer to "Reconciliation of Adjusted Non-GAAP Net Loss to Reported 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 
June 30, 2018
  Six Months
Ended 
June 30, 2018
  Three Months
Ended 
March 31, 2018
Unaudited    
Net loss, as reported $ (8,513 )   $ (13,654 )   $ (5,141 )
Non-GAAP adjustments:          
Noncash compensation expense 696     1,342     646  
Foreign exchange loss (gain) on intercompany loans 945     (33 )   (978 )
Non-GAAP adjustments to arrive at Adjusted EBITDA 1,641     1,309     (332 )
Non-cash interest expense(a) 5,232     9,766     4,534  
Total non-GAAP adjustments 6,873     11,075     4,202  
Tax effect of adjustments          
Adjusted non-GAAP net loss $ (1,640 )   $ (2,579 )   $ (939 )
 
(a) Non-cash interest expense for the three and six months ended June 30, 2018 includes interest paid in kind of $3,184 and $6,138, respectively, and amortization of debt discount of $2,048 and $3,628, respectively. 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) June 30,
 2018
  December 31,
 2017
Unaudited      
ASSETS      
Current assets:      
Cash and cash equivalents $ 6,636     $ 11,104  
Accounts receivable, less allowances of $1,678 and $1,586, respectively 91,060     74,370  
Inventories 164,120     154,491  
Prepaid expenses and other current assets 15,307     12,274  
Income tax receivable 3,593     1,576  
Total current assets 280,716     253,815  
Goodwill and intangible assets, net 8,176     8,176  
Prepaid pension cost 12,121     10,745  
Deferred income taxes 1,277     1,278  
Other noncurrent assets 1,270     1,344  
Property, plant and equipment:      
Land 5,578     5,581  
Buildings 21,264     21,296  
Machinery and equipment 35,843     33,011  
Property, plant and equipment, at cost 62,685     59,888  
Accumulated depreciation (7,227 )   (2,961 )
Property, plant and equipment, net 55,458     56,927  
Total assets $ 359,018     $ 332,285  
LIABILITIES AND STOCKHOLDERS' EQUITY      
Current liabilities:      
Accounts payable $ 52,031     $ 41,757  
Accrued and other current liabilities 15,581     13,931  
Income tax payable     262  
Short-term borrowings 4,838     5,854  
Current portion of long-term debt 119     118  
Total current liabilities 72,569     61,922  
Long-term debt, less current portion 229,183     199,903  
Deferred income taxes 16,166     16,166  
Build-to-suit liability 9,609     10,148  
Other noncurrent liabilities 3,577     3,784  
Pension and postretirement benefit obligations 6,313     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 June 30, 2018 and 3,734 shares issued and
outstanding at December 31, 2017
38     37  
Additional paid-in capital 53,212     49,944  
Accumulated deficit (26,981 )   (13,327 )
Accumulated other comprehensive loss (4,668 )   (2,669 )
Total stockholders' equity 21,601     33,985  
Total liabilities and stockholders' equity $ 359,018     $ 332,285  
               


         
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Successor     Predecessor
(Dollars in Thousands) Six Months
Ended 
June 30, 2018
    Six Months
Ended 
June 30, 2017
Unaudited    
Operating activities:        
Net loss $ (13,654 )     $ (36,033 )
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization 4,738       7,759  
Amortization of deferred financing costs and debt discount 3,628       3,056  
Unrealized loss on embedded debt conversion option       146  
Noncash reorganization items, net       4,850  
(Gain) loss on sale of property, plant and equipment (5 )     7  
Unrealized foreign currency gain (11 )     (3,153 )
Noncash interest paid in kind 6,138        
Noncash compensation expense 1,342       442  
Deferred income taxes       (1,325 )
Other, net 298       408  
Changes in assets and liabilities:        
Accounts receivable (17,283 )     (16,729 )
Inventories (10,776 )     487  
Prepaid expenses and other current assets (3,586 )     (6,262 )
Other noncurrent assets 806       1,533  
Prepaid pension costs (1,376 )     (1,792 )
Accounts payable 10,663       5,976  
Income tax payable and receivable (2,288 )     433  
Accrued and other current liabilities 964       7,200  
Pension and postretirement benefit obligations and other noncurrent liabilities (195 )     (353 )
Net cash used in operating activities (20,597 )     (33,350 )
Investing activities:        
Capital expenditures (3,379 )     (2,264 )
Proceeds from sale of property, plant and equipment 5       47  
Proceeds from release of cash collateralization of letters of credit       246  
Net cash used in investing activities (3,374 )     (1,971 )
Financing activities:        
Proceeds from long-term debt including credit facilities 39,461       12,500  
Repayments of long-term debt including credit facilities (17,570 )     (126 )
Short-term borrowings, net (852 )      
Payments of debt issue costs (482 )     (1,831 )
Payments of build-to-suit liability (897 )      
Net cash from financing activities 19,660       10,543  
Effect of exchange rate changes on cash and cash equivalents (157 )     374  
Net change in cash and cash equivalents (4,468 )     (24,404 )
Cash and cash equivalents - beginning of year 11,104       35,624  
Cash and cash equivalents - end of period $ 6,636       $ 11,220  
                 


   
LONG-TERM DEBT Successor
(Dollars In Thousands) June 30,
 2018
  December 31,
 2017
       
5.00% / 7.00% Second Lien Notes due August 31, 2022 $ 174,725     $ 168,767  
Floating rate New ABL Credit Facility due February 28, 2022 104,988     101,047  
12.00% Revolving B Credit Facility due February 28, 2022 18,180      
Other, primarily capital leases 238     288  
Less: unvested restricted Second Lien Notes due August 31, 2022 (1,761 )   (2,144 )
Less: unamortized discount (66,597 )   (67,937 )
Less: unamortized debt issuance costs (471 )    
Total long-term debt 229,302     200,021  
Less: current portion of long-term debt 119     118  
Total long-term portion $ 229,183     $ 199,903  
               


For Further Information:

-At ALPHA IR-
Analyst Contact
Chris Hodges or Chris Donovan
(312) 445-2870
Email: CTAM@alpha-ir.com 
Traded: OTCQB (CTAM)

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