M. Castle & Co. (NYSE:CAS) , a global distributor of specialty metal and supply chain solutions, today reported financial results for the third quarter ended September 30, 2016.

Highlights:

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 2016compared 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”.