Empire Resources Reports Results for Third Quarter of 2015

- Net Sales are $122.0 Million

- Operating Income Totals $2.3 Million

- GAAP Net Income per Diluted Share Is $0.04; Non-GAAP Net Income per Diluted Share Is $0.06

Nov 16, 2015, 09:00 ET from Empire Resources, Inc.

FORT LEE, N.J., Nov. 16, 2015 /PRNewswire/ -- Empire Resources, Inc. (NASDAQ: ERS), a distributor of value added, semi-finished metal products, announced today that net sales for the third quarter of 2015 were $122.0 million, compared with $159.4 million in the third quarter of 2014, and $134.5 million in the second quarter of 2015. Compared with the 2015 second quarter, strong sales growth in Europe and solid recovery in Australia were offset by substantially lower sales in Latin America.  In the U.S., stronger sales of aluminum products were offset by lower sales of steel products, in line with challenging steel industry conditions.

Gross profit for the third quarter of 2015 was $5.3 million, or 4.4% of sales, compared with $7.5 million, or 4.7% of sales, in the third quarter of 2014, and $5.7 million, or 4.2% of sales, in the second quarter of 2015.  Gross profit has been negatively impacted by a lower sales level as well as increased competitive pressures across all regions. The sequential improvement in the gross margin as a percentage of sales was due to the reduction of lower-margin carbon steel sales in Latin America. 

Operating income for the third quarter of 2015 was $2.3 million, compared with $3.7 million for the third quarter of 2014 and $2.0 million for the second quarter of 2015.  The improvement from the second quarter of 2015 was primarily due to lower SG&A as a result of lower sales commissions, travel expenses, and lower repairs and maintenance on our Baltimore warehouse during the third quarter of 2015.

Net interest expense for the third quarter of 2015 was $1.4 million compared with $1.0 million in the third quarter of 2014 and $1.6 million in the second quarter of 2015.  The reduction in interest expense from the 2015 second quarter reflected the Company's further progress in reducing inventory levels, which totaled $153.5 million at September 30, 2015 compared with $192.1 million at December 31, 2014.

The Company recognized a non-cash non-operating loss of $0.2 million in the third quarter of 2015 related to the change in fair market valuation of the derivative feature of its convertible subordinated note.  That compares with a non-cash non-operating loss of $2.1 million in the third quarter of 2014 and a non-cash non-operating gain of $0.4 million in the second quarter of 2015.

Fair value accounting requires that changes in derivative liabilities related to the Company's convertible notes be charged or credited to income during each accounting period. The changes in valuation have several drivers, primary among them is the change in the Company's stock price, with increases in the stock price causing losses, increasing the value of the derivative liability, while decreases in the stock price produce gains, reducing the value of the derivative liability. Such losses are not tax deductible, and likewise any recoveries of such losses are not taxable upon recovery.    

Non-GAAP net income for the third quarter of 2015, excluding the effect of the change in fair market valuation of the derivative liability and the associated tax treatment, was $0.5 million, or $0.06 per diluted share, compared with $1.5 million, or $0.16 per diluted share, in the third quarter of 2014, and $0.3 million, or $0.02 per diluted share, in the second quarter of 2015.

On a GAAP basis, the Company reported net income for the third quarter of 2015 of $0.3 million, or $0.04 per diluted share, compared with a net loss of $0.7 million, or $(0.08) per diluted share, in the third quarter of 2014, and net income of $0.8 million, or $0.06 per diluted share for the second quarter of 2015.   

For the first nine months of 2015, net sales were $424.7 million and net income was $2.8 million, or $0.22 per diluted share, on a GAAP basis, and $1.8 million, or $0.15 per diluted share, on a non-GAAP basis.  For the first nine months of 2014, net sales were $444.2 million and net income was $1.8 million, or $0.20 per diluted share, on a GAAP basis, and $4.3 million, or $0.48 per diluted share, on a non-GAAP basis.

The Company uses the non-GAAP measures internally, which exclude the effect of the non-cash non-operating gains and losses due to the quarterly changes in the valuation of the derivative liability, to evaluate its operating performance and believes that this is a useful measure also used by investors.

Nathan Kahn, President and CEO, commented, "Global markets remained challenging in the third quarter. Even so, we improved sales in Europe, as well as maintaining a solid sales performance in Australia, and continued strong sales of our aluminum products in the U.S.  We are continuing to focus on our customers' needs, especially for just-in-time delivery. To better serve those needs today and in the future, we recently acquired and are moving to a substantially larger and more modern distribution facility in Baltimore."

About Empire Resources, Inc.

Empire Resources, Inc. is a distributor of a wide range of semi-finished metal products to customers in the transportation, automotive, housing, appliance and packaging industries in the U.S., Canada, Latin America, Australia, New Zealand and Europe. The Company maintains supply contracts with mills in various parts of the world.

Use of Non-GAAP Financial Measures

To supplement the Company's consolidated financial statements presented on a GAAP basis, the Company discloses non-GAAP net income, because management uses this supplemental non-GAAP financial measure to evaluate performance period over period, to analyze the underlying trends in its business, and to establish operational goals. In addition, the Company believes investors already use this non-GAAP measure to monitor the Company's performance. Non-GAAP net income is defined by the Company as net income excluding non-cash, non-operating changes in value of derivative liability related to the conversion option on its convertible debt.

Generally, a non-GAAP financial measure is a numerical measure of a company's performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP. The non-GAAP measure discussed above, however, should be considered in addition to, and not as a substitute for, or superior to net income or other measures of financial performance prepared in accordance with GAAP.  A reconciliation of non-GAAP to GAAP net income is set forth in the table below.

The Company believes that providing this information assists investors in understanding the Company's operating performance and the methodology used by management to evaluate and measure such performance.

Forward-Looking Statements:

This press release contains "forward-looking statements." Such statements may be preceded by the words "intends," "may," "will," "plans," "expects," "anticipates," "projects," "predicts," "estimates," "aims," "believes," "hopes," "potential" or similar words. Forward-looking statements are not guarantees of future performance, are based on certain assumptions and are subject to various known and unknown risks and uncertainties, many of which are beyond the Company's control, and cannot be predicted or quantified and consequently, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include, without limitation, risks and uncertainties associated with (i) the loss or default of one or more suppliers; (ii) the loss or default of one or more significant customers; (iii) a default by counterparties to derivative financial instruments; (iv) changes in general, national or regional economic conditions; (v) an act of war or terrorism that disrupts international shipping; (vi) changes in laws, regulations and tariffs; (vii) the imposition of anti-dumping duties on products the Company imports; (viii) changes in the size and nature of the Company's competition; (ix) changes in interest rates, foreign currencies or spot prices of aluminum; (x) the loss of one or more key executives; (xi) increased credit risk from customers; (xii) the Company's failure to grow internally or by acquisition and (xiii) the Company's failure to improve operating margins and efficiencies. More detailed information about the Company and the risk factors that may affect the realization of forward-looking statements is set forth in the Company's filings with the Securities and Exchange Commission (SEC), including the Company's Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q. Investors and security holders are urged to read these documents free of charge on the SEC's web site at http://www.sec.gov. The Company assumes no obligation to publicly update or revise its forward-looking statements as a result of new information, future events or otherwise.

 

Condensed Consolidated Statements of Income (In thousands except per share amounts) 

(Unaudited)

Three Months Ended September 30,     2015                             2014

Nine Months Ended September 30,    2015                       2014

Net sales

$

121,950

$

159,366

$

424,689

$

444,199

Cost of goods sold

116,603

151,897

406,488

423,228

Gross profit

5,347

7,469

18,201

20,971

Selling, general and administrative expenses

3,094

3,819

10,632

10,600

Operating income

2,253

3,650

7,569

10,371

   Interest expense, net

1,419

1,041

4,665

3,223

Income before other expenses

834

2,609

2,904

7,148

Other expenses

   Change in value of derivative liability 

(224)

(2,059)

1,184

(2,239)

   Loss related to extinguishment of debt       converted into common stock

-

(164)

-

(164)

Income before income taxes

610

386

4,088

4,745

Income taxes

295

1,080

1,314

2,985

Net income (loss)

$

315

$

(694)

$

2,774

$

1,760

Weighted average shares outstanding:

     Basic

8,870

8,814

8,709

8,705

     Diluted

8,898

8,814

11,736

8,964

Earnings (loss)  per share:

     Basic

$0.04

($0.08)

$0.32

$0.20

     Diluted

$0.04

($0.08)

$0.22

$0.20

See notes to unaudited condensed consolidated financial statements

Non-GAAP Consolidated Statements of Income (In thousands except per share amounts)

Three Months Ended September  30,     2015                       2014

Nine Months Ended September 30,         2015                             2014                

GAAP income before income taxes

610

386

4,088

4,745

Elimination of the change in value of      derivative liability 

224

2,059

(1,184)

2,239

Non-GAAP net income before taxation 

834

2,445

2,904

6,984

Income taxes 

325

954

1,133

2,724

Non-GAAP net income

$

509

$

1,491

$

1,771

$

4,260

Weighted average shares outstanding:

     Basic

8,870

8,814

8,709

8,705

     Diluted

8,898

9,080

11,736

8,964

Non-GAAP earnings per share:

     Basic

$0.06

$0.17

$0.20

$0.49

     Diluted

$0.06

$0.16

$0.15

$0.48

 

 

Condensed Consolidated Balance Sheets (In thousands except share and per share amounts)

September 30, 2015  Unaudited

December 31, 2014

ASSETS 

Current assets:

     Cash

$

5,536

$

1,130

     Trade accounts receivable (less allowance for doubtful          accounts of $356 and $562)

76,248

89,693

     Inventories

153,507

192,064

     Deferred tax assets

3,834

3,911

     Advance to supplier, net of imputed interest of $3 and $66

831

3,277

     Other current assets, including derivatives

13,232

18,605

          Total current assets

253,188

308,680

     Preferential supply agreement, net

80

321

     Long-term financing costs, net of amortization 

817

1,024

     Property and equipment, net

4,372

4,258

Total assets

$

258,457

$

314,283

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

     Notes payable - banks

$

166,471

$

201,088

     Subordinated convertible debt net of unamortized discount of $346

10,654

-

     Trade accounts payable

22,928

42,626

     Income taxes payable

1,209

4,190

     Accrued expenses and derivative liabilities

6,737

4,137

     Dividends payable

217

449

          Total current liabilities

208,216

252,490

Subordinated convertible debt net of unamortized discount of $803 

-

10,197

Derivative liability for embedded conversion option

1,550

2,734

Deferred taxes payable

47

51

          Total liabilities

209,813

265,472

Commitments (Note 18)

Stockholders' equity:

     Common stock $0.01 par value, 20,000,000 shares authorized         and 11,749,651 shares issued         at September 30, 2015 and December 31, 2014

117

117

     Additional paid-in capital

13,038

13,678

     Retained earnings

42,927

40,805

     Accumulated other comprehensive loss

(576)

(334)

     Treasury stock, 3,173,843 and 2,843,717 shares         at September 30, 2015 and December 31, 2014, respectively

(6,862)

(5,455)

          Total stockholders' equity

48,644

48,811

Total liabilities and stockholders' equity

$

258,457

$

314,283

See notes to unaudited condensed consolidated financial statements

 

Condensed Consolidated Statements of Cash Flows (In thousands)

(Unaudited)

Nine Months Ended September 30, 2015                          2014

Cash flows - operating activities:

     Net income

$

2,774

$

1,760

     Adjustments to reconcile net income to net cash provided by/(used in) operating         activities:

               Depreciation and amortization 

487

482

               Change in value of derivative liability

(1,184)

2,239

               Amortization of convertible note discount

457

419

               Imputed interest on vendor advance

(53)

(144)

               Loss related to extinguishment of debt converted into common stock 

-

164

              Reduction in allowance for doubtful accounts

(188)

-

               Amortization of supply agreement

240

240

               Deferred income taxes 

73

271

               Foreign exchange loss and other

437

296

               Stock-based compensation

-

630

               Changes in:

-

-

                    Trade accounts receivable

13,043

(45,330)

                    Inventories

37,828

18,947

                    Other current assets

5,353

27

                    Trade accounts payable

(19,689)

(10,751)

                    Income taxes payable

(2,973)

995

                    Accrued expenses and derivative liabilities

2,649

5,708

                 Net cash  provided by/(used in) operating activities

39,254

(24,047)

Cash flows - investing activities:

    Repayment related to supply agreement

2,500

2,500

    Purchases of property and equipment

(237)

(19)

                 Net cash provided by investing activities

2,263

2,481

Cash flows - financing activities:

     (Repayment of)/proceeds from notes payable – banks

(33,978)

25,602

     Repayments - mortgage payable

-

(136)

     Deferred financing costs

(158)

(1,005)

     Dividends paid 

(884)

(648)

     Treasury stock purchased 

(1,407)

(13)

     Purchase of stock options

(922)

-

     Proceeds from stock options exercised

-

15

     Excess tax benefit related to purchase of stock options

282

-

                 Net cash (used in)/provided by financing activities

(37,067)

23,815

Net increase in cash

4,450

2,249

        Effect of exchange rate

(44)

(63)

Cash at beginning of period

1,130

2,477

Cash at end of the period

$

5,536

$

4,663

Supplemental disclosures of cash flow information:

     Cash paid during the period for:

          Interest

$

4,024

$

3,476

          Income taxes

$

2,480

$

2,737

Non cash financing activities:

      Dividend declared but not yet paid

$

217

$

224

       Treasury stock issued on conversion of subordinated debt

1,507

See notes to unaudited condensed consolidated financial statements

 

SOURCE Empire Resources, Inc.



RELATED LINKS

http://www.empireresources.com