Real Industry, Inc. (NASDAQ:RELY) today reported financial results for its fiscal third quarter ended September 30, 2016.

Third Quarter 2016 Operating and Financial Highlights and Other Significant Events

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.