Elah Holdings Inc fka RELYQ (ELLH)

[Enterprising Investor]

Real Industry Reports Fiscal 2016 Fourth Quarter and Year-End Results (3/14/17)

Company to host conference call on March 14, 2017, at 1:00 p.m. ET

SHERMAN OAKS, Calif.--(BUSINESS WIRE)--Real Industry, Inc. (NASDAQ:RELY) (“Real Industry” or the “Company”) today reported financial results for its fiscal fourth quarter and year ended December 31, 2016. As a result of the Real Alloy acquisition in February 2015, the Company’s results of operations and any other performance metric for its two reportable segments for fiscal 2016 compare only to approximately 10 months of performance (February 27, 2015 through December 31, 2015) in fiscal 2015.

FY 2016 Summary:

Revenues of $1.2 billion, compared to $1.1 billion in fiscal 2015 (10-month period)

Net loss of $102.6 million and net loss available to common stockholders of $105.9 million, significantly attributable to a one-time noncash $61.8 million goodwill impairment charge in Real Alloy North America (“RANA”)

Segment Adjusted EBITDA of $67.9 million, compared to $70.3 million in fiscal 2015 (10-month period)

Liquidity remains solid at $85.9 million at year-end
Strategic bolt-on acquisition of Beck Aluminum integrated and right-sized for profitability in 2017

Invested in our corporate mergers and acquisitions team, while accounting and finance functions have been streamlined and integrated with our Real Alloy staff, resulting in improved efficiency and a reduction in ongoing operating costs

Fourth Quarter 2016 Operating and Financial Highlights:

Revenues were $304.5 million, compared to $300.5 million in the prior-year period and $314.9 million sequentially from the fiscal 2016 third quarter

Net loss of $80.6 million and net loss available to common stockholders of $81.2 million were primarily driven by the goodwill impairment charge

Segment Adjusted EBITDA was $11.8 million, down from $17.1 million in the prior-year period and $16.9 million sequentially from the fiscal 2016 third quarter, driven by weaker results in RANA

2017 Outlook:

LME and aluminum alloy prices have risen considerably in the early part of 2017 from fiscal 2016 third quarter and fourth quarter prices, which directionally serve as a positive indicator for our Real Alloy business

Expect invoiced volumes in 2017 to be stable to slightly positive year over year

Management Commentary

Mr. Kyle Ross, President, Interim Chief Executive Officer and Chief Investment Officer of Real Industry, stated, “2016 was a year in which Real Alloy navigated a challenging market environment by leveraging its leading size, diversified operations, productivity focus and liquidity position. We have responded proactively to these difficult market conditions, and we feel well-positioned to benefit from the expected market recovery in 2017. During the year, our Real Alloy Europe ("RAEU") segment delivered consistent performance, including the highest Segment Adjusted EBITDA in five years. RAEU is already off to a strong start in 2017, and market conditions are indicating another solid year ahead. Furthermore, we believe our recent multi-million dollar investment in our Norwegian operation has positioned that part of the business for a successful long-term future. In RANA the metal price environment created challenges that our productivity initiatives and flexible cost structure were unable to fully offset. As previously reported, primary aluminum prices caused some customers to substitute away from secondary alloys, leading to reductions in our tolling business in 2016, and the scrap spread environment continued to tighten throughout the second half of the year, ultimately resulting in the lowest Segment Adjusted EBITDA for RANA over a six-month period since 2009. This lower performance resulted in the goodwill impairment charge we incurred in the fourth quarter. LME and aluminum alloy prices have risen considerably in the early part of 2017, which directionally is very positive for both RANA and RAEU. While this improved pricing environment is not expected to significantly impact RANA’s financial performance in the first quarter of 2017, due to the structure of our commercial arrangements, we are optimistic that the higher metal prices and normal seasonal increases in scrap flow will result in improved scrap spreads and Segment Adjusted EBITDA in the second quarter and beyond.”

FY 2016 Financial Results

Real Industry reported revenues of $1.2 billion in the year ended December 31, 2016, driven by the Company’s Real Alloy business, which invoiced 1.2 million metric tonnes in 2016. This compares to $1.1 billion in revenues on over 1 million metric tonnes invoiced in fiscal 2015 (approximately 10 months of operation). For 2016, Real Industry reported a net loss of $102.6 million and net loss available to common stockholders of $105.9 million, or a loss of $3.68 per basic and diluted share, which includes a one-time, noncash $61.8 million goodwill impairment charge at RANA that represents $2.15 of the per share loss. Other factors contributing to the increased net loss over the prior period are described below.

In 2016, Real Alloy experienced a decline in financial performance driven by lower volume and tighter scrap spreads in its RANA segment, while its RAEU segment delivered consistent performance from a Segment Adjusted EBITDA perspective as improved mix and higher margins offset lower volumes on a comparable 12-month basis.

In RANA, the year-over-year volume decline was primarily due to wrought alloy tolling customers electing to purchase prime aluminum rather than using as much secondary alloys as in the prior period. This reduction in tolling volume was partially offset by increased buy/sell volumes due to commercial sales efforts. RAEU also experienced a reduction in volume year-over-year due to similar substitution of primary aluminum by certain customers and operational downtime from customers taking longer holiday shutdowns. However, both segments experienced very different scrap spread environments in 2016, which supports the value of maintaining diverse operations. RANA was negatively impacted by pricing pressure on its sales prices from imported material due to the strong dollar while demand for scrap remained high, compressing margins, whereas RAEU benefitted from a favorable product mix and a consistent flow of scrap at stable margins throughout the year.

In this difficult environment, RANA achieved significant productivity gains in 2016, including reduced SG&A expenses and a series of plant-level cost reductions. These positive actions were unable to fully offset the lower volumes and tighter scrap spreads resulting in RANA’s lowest Segment Adjusted EBITDA over a six-month period (Q3 and Q4) since 2009. In contrast, RAEU delivered its highest Segment Adjusted EBITDA in five years.

In the aggregate, Real Alloy generated Segment Adjusted EBITDA of $67.9 million in 2016, compared to $70.3 million in fiscal 2015 (approximately 10 months of operation). RANA’s Segment Adjusted EBITDA was $44.0 million in 2016, compared to $49.0 million in fiscal 2015 (10 months), while Segment Adjusted EBITDA per tonne decreased from $73 to $56. RAEU’s Segment Adjusted EBITDA was $23.9 million in 2016, compared to $21.3 million in the prior year (10 months) and its Segment Adjusted EBITDA per tonne was flat at $64.

Largely as a result of RANA’s Segment Adjusted EBITDA in 2016 being more than 20% lower than the period prior to the Real Alloy Acquisition, the annual goodwill impairment analysis resulted in a $61.8 million noncash charge in the fourth quarter.

Fourth Quarter 2016 Consolidated Financial Results

Real Industry reported revenues of $304.5 million in the fourth quarter of 2016, which was driven by Real Alloy’s aggregate 278,900 metric tonnes invoiced. This compares to $300.5 million in revenues on an aggregate 291,300 metric tonnes invoiced in the fourth quarter of 2015. Real Industry reported net loss of $80.6 million and net loss available to common stockholders of $81.2 million in the quarter ended December 31, 2016, or a loss of $2.84 per basic and diluted share.

During the period, RANA reported revenues of $207.3 million on 194,300 tonnes invoiced. The mix between buy/sell and tolling arrangements was 52% and 48%, respectively. Compared to the prior-year period, total volume was lower by 1%, but revenues were higher by 9% driven primarily by a 7% shift in mix from tolling to buy/sell volume, which contributes substantially more revenue per tonne than tolling arrangements as the metal value is included in sales. The fourth quarter of 2016 included incremental buy/sell volume from the Beck Aluminum acquisition. The reduction in tolling volume described previously drove an overall reduction in volume from the prior period. Compared to the prior sequential quarter, revenues were 3% higher, similarly driven by increased buy/sell volumes due to commercial sales efforts and the Beck Aluminum acquisition, even though aggregate volume was slightly lower during the period attributable to typical seasonality of the business, particularly the holidays.

RAEU reported revenues of $97.1 million on 84,600 tonnes invoiced in the fourth quarter. The mix between buy/sell and tolling arrangements was 46% and 54%, respectively. Compared to the prior-year period, total volume was lower by 11%, and revenues were lower by 12%. The reduction in volume was largely due to customers taking more holiday shutdown time in 2016, which also drove the lower revenues. Compared to the prior sequential quarter, revenues were lower by 15% driven largely by a 12% reduction in volume due to normal seasonality of the business.

In the aggregate, Real Alloy generated Segment Adjusted EBITDA of $11.8 million in the fourth quarter of 2016, compared to $17.1 million in the prior-year period. The majority of the decrease was driven by RANA as its Segment Adjusted EBITDA was $7.5 million in the fourth quarter, compared to $12.7 million in the prior-year period. Segment Adjusted EBITDA per tonne decreased from $65 to $39. Lower SG&A expenses and increased productivity results year-over-year did not fully offset the drop in volume and compressed margins. RAEU’s Segment Adjusted EBITDA was $4.3 million in the fourth quarter, compared to $4.4 million in the prior-year period as Segment Adjusted EBITDA per tonne increased from $47 to $51.

Real Alloy reduced its SG&A expenses by $1.0 million in the fourth quarter compared to the prior-year period. Capital expenditures in the fourth quarter were higher in both segments due to the investment in Norway mentioned above and incremental plant improvements in North America. For the year, total capital expenditures were in line with prior guidance.

Outside of the Company’s segments, corporate operating costs, which primarily represent SG&A expenses, were $3.1 million in the fourth quarter of 2016 and $3.4 million in the prior-year period. In addition, Real Industry accrued $0.4 million in severance and restructuring costs associated with its decision to exit Cosmedicine and transition a number of corporate functions from Sherman Oaks to Real Alloy’s headquarters in Ohio.

Management Outlook

Mr. Ross continued, “Although 2016 results at RANA were below management’s plans, we continue to see strong customer activity due to continued growth in the utilization of aluminum across our end-markets and we anticipate business volumes in 2017 will be stable to slightly positive year-over-year given the impact of ongoing commercial efforts and the contributions from the Beck Aluminum acquisition. We remain focused on maintaining lean operations and striving for continuous improvement as we stay in close contact with our customers and keep an eye on these market trends. In 2017, we will continue to devote resources to opportunities that we anticipate will increase the value of our investment in Real Alloy through productivity efforts, organic growth and prudent capital allocation including further potential bolt-on activity. But Real Alloy is only a piece of Real Industry’s future. Our strong M&A team at corporate is focused on executing a more targeted M&A strategy to create a more diversified business generating sustainable profits. As a business buyer, our platform is unique, and we expect to use that to our advantage. Through a disciplined approach to structure and value, our acquisition strategy should begin to unlock the value of our $916 million U.S. federal NOL to the benefit of our stockholders.”

Balance Sheet and Liquidity

As of December 31, 2016, Real Industry’s cash and cash equivalents were $27.2 million, total debt was $356.5 million, and stockholders’ equity was $34.5 million. The Company’s total liquidity was $85.9 million as of December 31, 2016, of which $76.0 million relates to Real Alloy.

Conference Call and Webcast Information

The Company will host a conference call at 1:00 p.m. ET on Tuesday, March 14, 2017, during which management will discuss the results of operations for the fourth quarter and year ended December 31, 2016.

The dial-in numbers are:

[phone] (Toll-free U.S. & Canada)
[phone] (International)

Participants may also access the live call via webcast at http://realindustryinc.equisolvewebcast.com/q4-2016. 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 $916 million. For more information about Real Industry, visit its corporate website at www.realindustryinc.com.

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