Empire Resources Reports Strong Third Quarter 2014 Results

FORT LEE, N.J., Nov. 14, 2014 /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 2014 were $159.4 million, an increase of 26% from the third quarter of 2013, and 9% higher sequentially.  The growth in revenue compared with both the third quarter of 2013 as well as the second quarter of 2014 was primarily driven by a strong increase in sales in the U.S.

Gross profit for the third quarter of 2014 increased 41% from the third quarter of 2013 to $7.5 million, or 4.7% of sales, compared with $5.3 million, or 4.2% of sales, in the third quarter of 2013. In the second quarter of 2014, gross profit was $7.0 million, or 4.8% of sales. 

Operating income for the third quarter of 2014 was $3.7 million, which is more than double the operating income of $1.7 million reported in the third quarter of 2013 and up 3% from operating income of $3.5 million in the second quarter of 2014.    

Net interest expense for the third quarter of 2014 was $1.0 million, which is 10% below the third quarter of 2013 and 5% below the second quarter of 2014, reflecting the lower interest rate environment in the most recent quarter and reduced interest expense due to a reduction in the Company's convertible debt. 

The Company recognized a non-cash non-operating loss of $2.1 million in the third quarter of 2014 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 gain of $1.7 million in the third quarter of 2013, and a non-cash non-operating gain of $0.2 million in the second quarter of 2014.

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 on the derivative liability, while decreases in the stock price produce gains on the derivative liability. Such losses are not tax deductible, and likewise any recoveries of such losses are not taxable upon recovery.  Accordingly, no tax effect was given to the non-cash non-operating loss of $2.1 million in the third quarter of 2014 or the non-cash non-operating gains of $1.7 million in the third quarter of 2013 and the $0.2 million in the second quarter of 2014. The resultant effective tax rate for the third quarter of 2014 was 279.8%, 8.6% for the third quarter of 2013 and 38.8% in the second quarter of 2014.

Non-GAAP net income for the third quarter of 2014, excluding the effect of the change in fair market valuation of the derivative liability and the associated tax treatment, increased 345% to $1.5 million, or $0.17 per diluted share, compared with non-GAAP net income of $0.3 million, or $0.04 per diluted share, in the third quarter of 2013.  Non-GAAP net income was $1.5 million, or $0.17 per diluted share, in the second quarter of 2014. 

On a GAAP basis, the Company reported a net loss of $0.7 million, or $0.08 per diluted share, for the third quarter of 2014, compared with net income of $2.1 million, or $0.06 per diluted share, in the third quarter of 2013, and net income of $1.6 million, or $0.15 per diluted share, in the second quarter of 2014.   

For the first nine months of 2014, net sales increased 20% to $444.2 million compared with $370.3 million in the first nine months of 2013.  On a GAAP basis, net income for the first nine months of 2014 was $1.8 million, or $0.20 per diluted share, compared with $1.9 million, or $0.22 per diluted share, in the first nine months of 2013.  On a non-GAAP basis, net income increased 103% to $4.3 million, or $0.48 per diluted share, for the first nine months of 2014, compared with non-GAAP net income of $2.1 million, or $0.24 per diluted share, in the first nine months of 2013.

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, "For a third consecutive quarter, we achieved both sequential and year-over-year top-line growth, as we continue to benefit from our geographic and product diversity.  Robust market demand in the U.S. was the main driver of our sales in the third quarter, both in aluminum and steel.  We also realized improved growth in Europe, where our team's focus on execution is making a difference despite locally soft economic conditions. Sales in Latin America remained nearly level while the Australia/New Zealand team continued the year-over-year improvement they have achieved for the past two quarters. We are also pleased to report continued growth in operating income, which is at the highest level in four years, while our non-GAAP net income year-to-date is double the level we achieved last year."

Restatement Due to Change in Income Tax Provision

Losses and gains arising from the change in values of the derivative liability are excluded from deferred income tax calculations and adjustments for this have been reflected in the accounting for deferred income taxes. Net income for the three months ended September 30, 2013 has been increased by $0.6 million, or $0.07 per basic share, and by $0.00 per diluted share, from the amount of $1.5 million previously reported, to reflect a reduction in the deferred income tax provision attributable to the income from the change in value of the derivative liability. Correspondingly, the net income for the three months ended March 31, 2013 has been decreased by $0.6 million, or $0.07 per basic and diluted share, from the amount of $0.1 million previously reported to reflect an increase in the deferred income tax provision attributable to the loss from change in value of the derivative liability. Similarly, the net income for the three months ended March 31, 2014 has been decreased by $0.2 million, or $0.03 per basic and diluted share, from the amount of $1.0 million previously reported.

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.

SOURCE Empire Resources, Inc.

Related Links

http://www.empireresources.com

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