Company to host conference call on November
10, 2016, at 1:00 p.m. ET
Real Industry, Inc. (NASDAQ:RELY) (“Real Industry” or the
“Company”) today reported financial results for its fiscal
third quarter ended September 30, 2016.
Third Quarter 2016 Operating and Financial Highlights and
Other Significant Events
- Revenues were $314.9 million, compared
to $338.6 in the prior year period and $320.9 million sequentially
from the fiscal 2016 second quarter
- Net loss was $10.9 million, largely due
to lower gross profit from tight scrap spreads at Real Alloy in
North America and one-time charges relating to the separation of
the Company’s former CEO
- Segment Adjusted EBITDA was $16.9
million, down from $22.8 million in the prior year period and $20.9
million sequentially from the fiscal 2016 second quarter
- Consolidated liquidity remains strong
at $105.3 million at quarter end, of which $92.3 million relates to
Real Alloy
- Subsequent to quarter end, Real
Industry closed on the acquisition of the assets of Beck Aluminum
Alloys and an investment in an affiliated trading business
Management Commentary
Mr. Kyle Ross, President, Interim Chief Executive Officer and
Chief Investment Officer of Real Industry, stated, “Over the past
few months, Real Industry has refocused its efforts on improving
the value of its primary operating business and allocating capital
based on a critical evaluation of risk-based returns. As Real Alloy
operates through a challenging scrap spread environment, we are
witnessing the value of our scale and diversified business model
with strong results from our base tolling operations in North
America and strong performance in Europe. In addition, the
continued efforts of lean operating practices throughout all of our
facilities have allowed the Company to offset some of the margin
pressure in our buy/sell business and lower tolling volumes.
Mr. Ross continued, “Our sustained performance during this
difficult period, along with our strong liquidity, uniquely
positions us to take advantage of opportunities to acquire assets
with tremendous upside. Beck Aluminum Alloys is a very good example
of an opportunistic acquisition that we can integrate into Real
Alloy with limited risk, and without adding considerable operating
expense. This acquisition helps to diversify and complement our
operations by opening new geographies and allows us to enter new
markets of high purity foundry alloys, as well as supply primary
aluminum and other prime-based alloys to our existing customer base
through our affiliation with the trading business. We are prepared
to quickly transact on further opportunistic investments similar to
the Beck acquisition.”
Third Quarter 2016 Consolidated Financial Results
Real Industry reported revenues of $314.9 million in the third
quarter of 2016, which was driven by Real Alloy business’ aggregate
291,300 metric tonnes of metal invoiced. This compares to $338.6
million in revenues on an aggregate 299,900 metric tonnes of metal
invoiced in the third quarter of 2015. Real Industry reported net
loss attributable to the Company of $10.9 million and net loss
available to common stockholders of $11.6 million in the third
quarter of 2016, or $0.40 loss per basic and diluted share.
The year over year reduction in revenues was partially caused by
reduced volume caused by lower toll business from Real Alloy
customers that have elected to use more prime alloy in 2016 given
low LME aluminum prices at the beginning of the year, along with a
more meaningful impact of lower prices for secondary alloys during
the period in our buy/sell business.
Compared to the 2016 second quarter, revenues were lower by $6.0
million and volumes were down approximately 2,700 metric tonnes, a
reduction of less than 1 percent, which was in line with normal
seasonal customer facility shut downs in the third quarter.
Segment Adjusted EBITDA at Real Alloy was $16.9 million in the
third quarter of 2016, compared to $22.8 million in the third
quarter of 2015. The decrease was due to Real Alloy’s financial
performance in North America, offset by improved results in
Europe.
Corporate operating costs, which primarily represent SG&A
expenses, were $7.5 million in the third quarter of 2016 and $3.2
million in the prior year period. This $4.3 million increase in
operating costs is primarily related to costs associated with the
separation of the Company’s former chief executive officer,
including $2.0 million of accrued cash severance and $1.5 million
of accelerated share-based compensation expense.
Segment Operating Results
Real Alloy is our primary operating business and includes two
segments, Real Alloy North America (“RANA”) and Real Alloy Europe
(“RAEU”).
For the three months ended September 30, 2016 and 2015, RANA
reported $200.5 million and $205.2 million of revenues,
representing 64% and 61% of the Company’s consolidated revenues,
respectively. Approximately 54% and 53% of RANA’s invoiced sales
volume was used in automotive applications in the three months
ended September 30, 2016 and 2015, respectively.
RANA’s Segment Adjusted EBITDA was $9.0 million in the third
quarter compared, to $15.4 million in the prior year period.
Segment Adjusted EBITDA per tonne decreased from $77 to $46 due
primarily to lower gross profit from tighter scrap spreads in the
three months ended September 30, 2016, compared to the same period
in the prior year, partially offset by lower SG&A costs, driven
by the termination of the transition services agreement with
Aleris. The reduction in scrap spreads is primarily driven by a
decrease in scrap availability, partially driven by lower steel
prices, as well as increased imports due to the strengthening U.S.
dollar.
In the three months ended September 30, 2016 and 2015, RAEU
reported $114.4 million and $133.4 million of revenues,
representing 36% and 39% of the Company’s consolidated revenues,
respectively. RAEU supplies the European automobile industry, which
represented approximately 65% and 72% of this segment’s invoiced
sales volume in the three months ended September 30, 2016 and 2015,
respectively.
RAEU’s Segment Adjusted EBITDA was $7.9 million in the third
quarter, compared to $7.4 million in the prior year period. Segment
Adjusted EBITDA per tonne increased to $82 from $74 in the three
months ended September 30, 2016 and 2015, respectively, due to
higher gross profit driven by lower natural gas prices and lower
SG&A costs.
Management Outlook
Mr. Ross stated, “We have a defined strategy to increase
stockholder value at Real Industry by supporting and leveraging a
valuable operating asset in Real Alloy, and utilizing our $870
million in federal NOLs. We continue to evaluate other potential
M&A opportunities under favorable terms, and will focus on
situations where we can deploy capital effectively with an
attractive return on investment.”
Balance Sheet and Liquidity
As of September 30, 2016, Real Industry’s cash and cash
equivalents were $34.6 million, total debt was $342.2 million, and
stockholders’ equity was $123.2 million. The Company’s total
liquidity was $105.3 million as of September 30, 2016, of which
$92.3 million relates to Real Alloy.
Conference Call and Webcast Information
The Company will host a conference call at 1:00 p.m. ET on
Thursday, November 10, 2016, during which management will discuss
the results of operations for the third quarter ended September 30,
2016.
The dial-in numbers are:
(877) 407-9163 (Toll-free U.S. & Canada)
(412) 902-0043 (International)
Participants may also access the live call via webcast at
http://realindustryinc.equisolvewebcast.com/q3-2016. The webcast
will be archived and accessible for approximately 30 days. A replay
will be available shortly after the call in the investor relations
section of the Company’s website, www.realindustryinc.com, and will
remain available for 90 days.
About Real Industry, Inc.
Real Industry is a North America-based holding company seeking
to take significant ownership stakes in well-managed and
consistently profitable businesses concentrated primarily in the
U.S. industrial and commercial marketplace. Real Industry has
significant capital resources, and U.S. federal net operating loss
tax carryforwards of more than $870 million. For more information
about Real Industry, visit its corporate website at
www.realindustryinc.com.
Cautionary Statement Regarding Forward-Looking
Statements
This release contains forward-looking statements, which are
based on our current expectations, estimates, and projections about
the Company’s and its subsidiaries’ businesses and prospects, as
well as management’s beliefs, and certain assumptions made by
management. Words such as “anticipates,” “expects,” “intends,”
“plans,” “believes,” “seeks,” “estimates,” “may,” “should,” “will”
and variations of these words are intended to identify
forward-looking statements. Such statements speak only as of the
date hereof and are subject to change. The Company undertakes no
obligation to revise or update publicly any forward-looking
statements for any reason. These statements include, but are not
limited to, statements about: our financial results, including for
the third quarter of 2016, as well as our expectations for future
financial trends and performance of our business and our strategy
in future periods including during fiscal 2016; our ability to take
advantage of opportunities to acquire assets with tremendous
upside; the expected benefits to the Company of the integration of
Beck Aluminum Alloys into Real Alloy; future opportunistic
investments; the Company’s evaluation of other potential M&A
opportunities; our long-term outlook; our preparation for future
market conditions; and any statements or assumptions underlying any
of the foregoing. Such statements are not guarantees of future
performance and are subject to certain risks, uncertainties, and
assumptions that are difficult to predict. Accordingly, actual
results could differ materially and adversely from those expressed
in any forward-looking statements as a result of various factors.
Important factors that may cause such a difference include, but are
not limited to, changes in domestic and international demand for
recycled aluminum; the cyclical nature and general health of the
aluminum industry and related industries; commodity price
fluctuations and our ability to enter into effective commodity
derivatives or arrangements to effectively manage our exposure to
such commodity price fluctuations; inventory risks, commodity price
risks, and energy risks associated with Real Alloy’s buy/sell
business model; our ability to service, and the high leverage
associated with, our indebtedness, and compliance with the terms of
the indebtedness, including the restrictive covenants that
constrain the operation of our business and the businesses of our
subsidiaries; our ability to successfully identify, acquire and
integrate additional companies and businesses that perform and meet
expectations after completion of such acquisitions; our ability to
achieve future profitability; our ability to control operating
costs and other expenses; that general economic conditions may be
worse than expected; that competition may increase significantly;
changes in laws or government regulations or policies affecting our
current business operations and/or our legacy businesses, as well
as those risks and uncertainties disclosed under the sections
entitled “Risk Factors” and “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” in Real Industry,
Inc.’s Form 10-K filed with the Securities and Exchange Commission
(“SEC”) on March 14, 2016, and similar disclosures in subsequent
reports filed with the SEC, which are available on our website at
www.realindustryinc.com and on the SEC website at
https://www.sec.gov.
REAL INDUSTRY, INC.
UNAUDITED CONDENSED CONSOLIDATED
BALANCE SHEETS
September 30, December 31, (In
millions) 2016 2015
ASSETS
Current assets: Cash and cash equivalents $ 34.6 $ 35.7 Trade
accounts receivable, net 97.1 77.2 Financing receivable 45.2 32.7
Inventories 95.5 101.2 Prepaid expenses, supplies, and other
current assets 25.9 24.7 Current assets of discontinued operations
— 0.3 Total current assets 298.3 271.8 Property,
plant and equipment, net 287.3 301.5 Intangible assets, net 13.2
15.1 Goodwill 104.6 104.3 Other noncurrent assets 8.9
8.2 TOTAL ASSETS $ 712.3 $ 700.9
LIABILITIES,
REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities: Trade payables $ 112.4 $ 100.9 Accrued
liabilities 41.6 51.8 Long-term debt due within one year 2.4 2.3
Current liabilities of discontinued operations 0.1
0.1 Total current liabilities 156.5 155.1 Accrued pension benefits
39.3 38.0 Environmental liabilities 11.7 11.7 Long-term debt, net
339.8 312.1 Common stock warrant liability 4.2 6.9 Deferred income
taxes 5.9 6.7 Other noncurrent liabilities 6.9 5.4 Noncurrent
liabilities of discontinued operations 0.7 0.7 TOTAL
LIABILITIES 565.0 536.6 Redeemable Preferred Stock
24.1 21.9 TOTAL STOCKHOLDERS' EQUITY 123.2
142.4 TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY
$ 712.3 $ 700.9
REAL INDUSTRY, INC.
UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
Three Months Ended September 30, Nine Months Ended
September 30, (In millions, except per share amounts)
2016 2015 2016 2015
Revenues $ 314.9 $ 338.6 $ 945.2 $ 845.1 Cost of sales 298.3
313.2 889.7 793.5 Gross profit 16.6 25.4 55.5
51.6 Operating costs 20.1 18.0 53.0
44.6 Operating profit (loss) (3.5 ) 7.4 2.5 7.0 Nonoperating
expense, net 7.8 4.9 24.2 43.2 Earnings
(loss) from continuing operations
before income taxes
(11.3 ) 2.5 (21.7 ) (36.2 ) Income tax expense (benefit)
(0.5 ) 0.5 0.4 (6.7 ) Earnings (loss) from
continuing operations (10.8 ) 2.0 (22.1 ) (29.5 ) Earnings (loss)
from discontinued operations,
net of income taxes
— (0.7 ) 0.1 26.5 Net earnings (loss)
(10.8 ) 1.3 (22.0 ) (3.0 ) Earnings from continuing operations
attributable to noncontrolling
interest
0.1 0.1 0.5 0.3 Net earnings (loss)
attributable to
Real Industry, Inc.
$ (10.9 ) $ 1.2 $ (22.5 ) $ (3.3 ) EARNINGS (LOSS) PER SHARE Net
earnings (loss) attributable to
Real Industry, Inc.
$ (10.9 ) $ 1.2 $ (22.5 ) $ (3.3 ) Dividends on Redeemable
Preferred
Stock, in-kind
(0.5 ) (0.5 ) (1.4 ) (1.0 ) Accretion of discount on Redeemable
Preferred Stock
(0.2 ) (0.2 ) (0.8 ) (0.6 ) Net
earnings (loss) available to
common stockholders
$ (11.6 ) $ 0.5 $ (24.7 ) $ (4.9 ) Basic earnings (loss) per share:
Continuing operations $ (0.40 ) $ 0.04 $ (0.85 ) $ (1.21 )
Discontinued operations — (0.02 ) —
1.02 Basic earnings (loss) per share $ (0.40 ) $ 0.02 $ (0.85 ) $
(0.19 ) Diluted earnings (loss) per share: Continuing operations $
(0.40 ) $ 0.04 $ (0.85 ) $ (1.21 ) Discontinued operations —
(0.02 ) — 1.02 Diluted earnings (loss) per
share $ (0.40 ) $ 0.02 $ (0.85 ) $ (0.19 )
REAL INDUSTRY, INC.
UNAUDITED SEGMENT INFORMATION
Differences between segment totals and
consolidated totals are included in Corporate and Other.
Three Months Ended September 30, 2016
(Dollars in millions, except per tonne information,
tonnes in thousands)
RANA RAEU Segment
Totals
Metric tonnes invoiced: Tolling arrangements 98.9 48.8 147.7
Buy/sell arrangements 96.6 47.0 143.6 Total
metric tonnes invoiced 195.5 95.8 291.3
Revenues $ 200.5 $ 114.5 $ 315.0 Cost of sales 192.3
105.9 298.2 Gross profit $ 8.2 $ 8.6 $ 16.8 Selling,
general and administrative expenses $ 6.7 $ 3.9 $ 10.6 Depreciation
and amortization $ 8.1 $ 3.1 $ 11.2 Capital expenditures $ 4.0 $
3.4 $ 7.4 Segment Adjusted EBITDA $ 9.0 $ 7.9 $ 16.9 Segment
Adjusted EBITDA per metric tonne invoiced $ 46 $ 82 $ 58
Three Months Ended September 30, 2015
(Dollars in millions, except per tonne information,
tonnes in thousands)
RANA RAEU Segment
Totals
Metric tonnes invoiced: Tolling arrangements 112.3 53.2 165.5
Buy/sell arrangements 88.1 46.3 134.4 Total
metric tonnes invoiced 200.4 99.5 299.9
Revenues $ 205.2 $ 133.4 $ 338.6 Cost of sales 189.0
125.7 314.7 Gross profit $ 16.2 $ 7.7 $ 23.9 Selling,
general and administrative expenses $ 8.8 $ 4.6 $ 13.4 Depreciation
and amortization $ 7.2 $ 3.1 $ 10.3 Capital expenditures $ 7.7 $
0.9 $ 8.6 Segment Adjusted EBITDA $ 15.4 $ 7.4 $ 22.8 Segment
Adjusted EBITDA per metric tonne invoiced $ 77 $ 74 $ 76
REAL INDUSTRY, INC.
UNAUDITED SEGMENT INFORMATION
Differences between segment totals and
consolidated totals are included in Corporate and Other.
Nine Months Ended September 30, 2016
(Dollars in millions, except per tonne information,
tonnes in thousands)
RANA RAEU Segment
Totals
Metric tonnes invoiced: Tolling arrangements 298.7 153.5 452.2
Buy/sell arrangements 292.5 132.8 425.3 Total
metric tonnes invoiced 591.2 286.3 877.5
Revenues $ 613.7 $ 331.5 $ 945.2 Cost of sales 575.6
314.0 889.6 Gross profit $ 38.1 $ 17.5 $ 55.6
Selling, general and administrative expenses $ 21.8 $ 11.9 $ 33.7
Depreciation and amortization $ 23.6 $ 12.9 $ 36.5 Capital
expenditures $ 11.5 $ 7.1 $ 18.6 Segment Adjusted EBITDA $ 36.5 $
19.6 $ 56.1 Segment Adjusted EBITDA per metric tonne invoiced $ 62
$ 68 $ 64
Nine Months Ended September 30,
2015 (Dollars in millions, except per tonne information,
tonnes in thousands)
RANA RAEU Segment
Totals
Metric tonnes invoiced: Tolling arrangements 265.9 124.0 389.9
Buy/sell arrangements 212.7 113.1 325.8 Total
metric tonnes invoiced 478.6 237.1 715.7
Revenues $ 521.7 $ 323.3 $ 845.0 Cost of sales 487.6
308.1 795.7 Gross profit $ 34.1 $ 15.2 $ 49.3
Selling, general and administrative expenses $ 18.9 $ 10.4 $ 29.3
Depreciation and amortization $ 17.0 $ 7.2 $ 24.2 Capital
expenditures $ 15.9 $ 2.7 $ 18.6 Segment Adjusted EBITDA $ 36.3 $
16.9 $ 53.2 Segment Adjusted EBITDA per metric tonne invoiced $ 76
$ 71 $ 74
NON-GAAP FINANCIAL MEASURES
A non-GAAP financial measure is a numerical measure of
historical or future financial performance, financial position or
cash flows that excludes amounts, or is subject to adjustments that
have the effect of excluding amounts, that are included in the most
directly comparable measure calculated and presented in accordance
with generally accepted accounting principles (“GAAP”) in the
balance sheets, statements of operations, or statements of cash
flows; or includes amounts, or is subject to adjustments that have
the effect of including amounts, that are excluded from the most
directly comparable measures so calculated and presented. We report
our financial results in accordance with GAAP; however, our
management believes that certain non-GAAP performance measures,
which we use in managing our businesses, may provide investors with
additional meaningful comparisons between current results and
results in prior periods. Segment Adjusted EBITDA (defined below)
is an example of a non-GAAP financial measure that we believe
provides investors and other users of our financial information
with useful information.
Our CODM and management use several measures of performance for
our reportable segments, including earnings before interest, taxes,
depreciation and amortization and excludes certain other items
(“Segment Adjusted EBITDA”). We use Segment Adjusted EBITDA as our
primary financial performance metric and believe this measure
provides additional information commonly used by holders of our
common stock, as well as the holders of the Senior Secured Notes
and parties to the Asset-Based Facility with respect to the ongoing
performance of our underlying business activities.
Our Segment Adjusted EBITDA calculations represent segment
earnings (loss) before interest, taxes, depreciation and
amortization, unrealized gains and losses on derivative financial
instruments, charges and expenses related to acquisitions, and
certain other gains and losses. Segment Adjusted EBITDA as we use
it may not be comparable to similarly titled measures used by other
companies. We calculate Segment Adjusted EBITDA by eliminating the
impact of a number of items we do not consider indicative of our
ongoing operating performance and certain other items. Readers are
encouraged to evaluate each adjustment shown in the reconciliation
and the reasons we consider it appropriate for supplemental
analysis, however, Segment Adjusted EBITDA is not a financial
measurement calculated and presented in accordance with GAAP. When
analyzing our operating performance, we encourage investors to use
Segment Adjusted EBITDA in addition to, and not as an alternative
for, net earnings (loss) derived in accordance with GAAP. Segment
Adjusted EBITDA has limitations as an analytical tool, and it
should not be considered in isolation, or as a substitute for, or
superior to, our measures of financial performance prepared in
accordance with GAAP.
These limitations include, but are not limited to:
- Does not reflect our cash expenditures
or future requirements for capital expenditures or contractual
commitments;
- Does not reflect changes in, or cash
requirements for, working capital needs;
- Does not reflect interest expense or
cash requirements necessary to service interest and/or principal
payments under the Senior Secured Notes or Asset-Based
Facility;
- Does not reflect certain tax payments
that may represent a reduction in cash available to us;
- Does not reflect the operating results
of Corporate and Other; and
- Although depreciation and amortization
are noncash charges, the assets being depreciated and amortized may
have to be replaced in the future, and Segment Adjusted EBITDA does
not reflect cash requirements for such replacements.
Other companies, including companies in our industry, may
calculate Segment Adjusted EBITDA differently and the degree of
their usefulness as a comparative measure correspondingly decreases
as the number of differences in computations increases.
In addition, in evaluating Segment Adjusted EBITDA it should be
noted that in the future we may incur expenses similar to the
adjustments in the below presentation. Our presentation of Segment
Adjusted EBITDA should not be construed as an inference that our
future results will be unaffected by unusual or nonrecurring
items.
The table below provides a reconciliation of Segment Adjusted
EBITDA to the most directly comparable financial measure presented
in accordance with GAAP, net loss, for the three and nine months
ended September 30, 2016 and 2015:
Three Months Ended September 30,
Nine Months Ended September 30, (In millions)
2016 2015 2016 2015
Segment Adjusted EBITDA $ 16.9 $ 22.8 $ 56.1 $ 53.2 Unrealized
gains (losses) on derivative
financial instruments
(0.6 ) 0.5 0.9 (0.8 ) Segment depreciation and amortization (11.3 )
(10.3 ) (36.6 ) (24.2 ) Amortization of inventories and supplies
purchase accounting adjustments
— (1.3 ) (0.9 ) (8.5 ) Corporate and Other selling, general and
administrative expenses
(7.5 ) (3.2 ) (14.4 ) (10.5 ) Other, net (1.0 ) (1.1
) (2.6 ) (2.2 ) Operating profit (loss) (3.5 ) 7.4
2.5 7.0 Interest expense, net (9.2 ) (9.2 ) (27.5 ) (26.6 ) Change
in fair value of common
stock warrant liability
1.9 3.4 2.6 (2.2 ) Acquisition-related costs and expenses — — —
(14.8 ) Foreign exchange gains on intercompany
loans
— — 1.0 — Other nonoperating income, net (0.5 ) 0.9 (0.3 ) 0.4
Income tax benefit (expense) 0.5 (0.5 ) (0.4 ) 6.7 Earnings (loss)
from discontinued
operations, net of income taxes
— (0.7 ) 0.1 26.5 Net earnings (loss) $
(10.8 ) $ 1.3 $ (22.0 ) $ (3.0 )
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161109006348/en/
Real Industry, Inc.Jeff Crusinberry, 805-435-1255Senior Vice
President and Treasurerinvestor.relations@realindustryinc.com
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