Real Industry, Inc.d18rn0p25nwr6d.cloudfront.net/CIK-0000038984/f8f49... · On August 9, 2016, the...
Transcript of Real Industry, Inc.d18rn0p25nwr6d.cloudfront.net/CIK-0000038984/f8f49... · On August 9, 2016, the...
UNITED STATESSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORTPursuant to Section 13 OR 15(d)
of the Securities Exchange Act of 1934
Date of Report: August 9, 2016
Real Industry, Inc.
Delaware 001-08007 46-3783818(State or other Jurisdiction of
Incorporation) (Commission File Number) (IRS Employer Identification No.)
15301 Ventura Boulevard, Suite 400Sherman Oaks, California 91403
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (805) 435-1255
(Former name or former address if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the followingprovisions: oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.
On August 9, 2016, Real Industry, Inc. (the “Company”) issued a press release announcing its financial results for the quarter ended June 30, 2016. A copy of theCompany’s August 9, 2016 press release is attached hereto as Exhibit 99.1.
In accordance with General Instruction B.2 of Form 8-K, the information contained in Exhibit 99.1 furnished as an exhibit hereto shall not be deemed “filed” forpurposes of Section 18 of the Securities Exchange Act of 1934, as amended, is not subject to the liabilities of that section, and shall not be deemed incorporated byreference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as shall be expressly set forth by specificreference in such filing or document.
Exhibit 99.1 contains certain non-GAAP financial information. The reconciliation of such non-GAAP financial information to GAAP financial measures isincluded in Exhibit 99.1. Further, Exhibit 99.1 contains statements intended as “forward-looking statements,” all of which are subject to the cautionary statementsabout forward-looking statements set forth therein.
Item 7.01 Regulation FD Disclosure.
On August 9, 2016, the Company updated its investor presentation deck on its corporate website, www.realindustryinc.com . The presentation deck is attachedhereto as Exhibit 99.2.
In accordance with General Instruction B.2 of Form 8-K, the information contained in Exhibit 99.2 furnished as an exhibit hereto shall not be deemed “filed” forpurposes of Section 18 of the Securities Exchange Act of 1934, as amended, is not subject to the liabilities of that section, and shall not be deemed incorporated byreference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as shall be expressly set forth by specificreference in such filing or document.
The information set forth in Item 2.02 above and in Exhibits 99.1 and 99.2 to this Current Report on Form 8-K are incorporated into this Item 7.01 by reference .
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit No. Description
99.1
Real Industry, Inc. Earnings Press Release dated August 9, 2016.
99.2
Real Industry, Inc. Investor Presentation Deck dated August 9, 2016.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersignedthereunto duly authorized. REAL INDUSTRY, INC.
Date: August 9 , 2016 By: /S/ KYLE ROSS
Name: Kyle Ross Title: Executive Vice President,
Chief Financial Officer and Secretary
INDEX TO EXHIBITS Exhibit No. Description
99.1
Real Industry, Inc. Earnings Press Release dated August 9, 2016.
99.2
Real Industry, Inc. Investor Presentation Deck dated August 9, 2016.
Exhibit 99.1
REAL INDUSTRY REPORTS FISCAL 2016 SECOND QUARTER RESULTSCompany to host conference call on August 10, 2016, at 1:00 p.m. EDT
SHERMAN OAKS, Calif., August 9, 2016 -- Real Industry, Inc. (NASDAQ: RELY) (“Real Industry” or the “Company”)today reported financial results for its fiscal second quarter ended June 30, 2016. Second Quarter 2016 Highlights- Revenues increased to $320.9 million from $309.4 million sequentially from the fiscal 2016 first quarter- Net loss reduced by $8.6 million sequentially from the fiscal 2016 first quarter- Segment Adjusted EBITDA of $20.9 million, up from $18.3 million sequentially from the fiscal 2016 first quarter- Consolidated liquidity increased to $116.5 million at quarter end, of which $98.0 million relates to Real Alloy Management CommentaryCraig Bouchard, Real Industry’s Chairman and CEO, stated, “We were pleased with the improved performance Real Alloyachieved in second quarter 2016. Adjusted EBITDA from the Real Alloy business was $20.9 million, which was in-line withexpectations. SG&A expenses are beginning to show the positive impact of operating as a stand-alone business following thetermination of the Transition Services Agreement with Aleris. "While market demand remains resilient, we continue to monitor scrap spreads. Our focus is executing oncontinuous improvement across our 24 plant locations. The Real Alloy team has achieved lean and Six Sigma gains ahead ofour original timeline, which helped drive EBITDA through the first half of 2016.” Second Quarter 2016 ResultsReal Industry reported revenues of $320.9 million, which was almost entirely driven by our Real Alloy business’ aggregate294,000 metric tonnes invoiced in the second quarter of 2016. This compares to $368.6 million in revenues on an aggregate304,000 metric tonnes invoiced in the second quarter of 2015. The year over year reduction in volume was primarily caused bylower toll business from customers that have elected to use more prime alloy in 2016 given low LME aluminum prices at thebeginning of the year. Compared to the 2016 first quarter, revenue was higher by $11.4 million and volumes increased 0.6%,which was in line with expectations. Adjusted EBITDA at Real Alloy was $20.9 million in the second quarter of 2016, or $71 per tonne, compared to $22.9 million ofAdjusted EBITDA in the second quarter of 2015, or $75 per tonne, and to $18.3 million of Adjusted EBITDA, or $63 per tonne, inthe first quarter of 2016. Segment gross profit was $22.2 million, and segment adjusted gross margin was 7.0% during thesecond quarter 2016, compared to $21.2 million, and adjusted gross margin of 6.7% in the second quarter of 2015 (each asadjusted for purchase accounting amortization). Operating costs in corporate and other were $3.6 million during the quarter, a $0.5 million decrease from the second quarter of2015, as a result of decreased expenses related to compensation and consulting fees. Real Industry reported net loss attributable to the Company of $1.5 million in the second quarter of 2016, an $8.6 millionimprovement over the first quarter loss of $10.1 million. Net loss available to common stockholders was $2.2 million, or $0.07 pershare.
Real Industry, Inc. Page 2August 9, 2016 Balance Sheet and LiquidityAs of June 30, 2016, Real Industry’s cash and cash equivalents were $40.2 million, total debt was $319.1 million, andstockholders’ equity was $132.2 million. The Company’s total liquidity was $116.5 million as of June 30, 2016, of which $98.0million relates to Real Alloy. Conference Call and Webcast InformationThe Company will host a conference call at 1:00 p.m. EDT on Wednesday, August 10, 2016, during which management willdiscuss the results of operations for the second quarter ended June 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/q2-2016 . The webcast willbe archived and accessible for approximately 30 days.
A replay will be available shortly after the call on 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 large, well-managedand consistently profitable businesses concentrated primarily in the United States industrial and commercial marketplace. RealIndustry has significant capital resources, and U.S. federal net operating loss tax carryforwards of more than $870 million. Formore information about Real Industry, visit its corporate website at www.realindustryinc.com . Cautionary Statement Regarding Forward-Looking StatementsThis release contains forward-looking statements, which are based on our current expectations, estimates, and projections aboutthe Company’s and its subsidiaries’ businesses and prospects, as well as management’s beliefs, and certain assumptions madeby management. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “should,” “will”and variations of these words are intended to identify forward-looking statements. Such statements speak only as of the datehereof and are subject to change. The Company undertakes no obligation to revise or update publicly any forward-lookingstatements for any reason. These statements include, but are not limited to, statements about: our financial results, including forthe second quarter of 2016, as well as our expectations for future financial trends and performance of our business and ourstrategy in future periods including during fiscal 2016; our expectations with respect to SG&A expenses in future periods; ourfuture acquisition activities; our belief that the current state of the marketplace provides our Company with the opportunity toacquire valuable assets at reasonable multiples that can benefit from our unique tax-advantaged growth platform; ourexpectation to report continued improvements in operating margins as we transition to a stand-alone entity without mitigatinglegacy costs; our long-term outlook; our preparation for future market conditions; and any statements or assumptions underlyingany of the foregoing. Such statements are not guarantees of future performance and are subject to certain risks, uncertainties,and assumptions that are difficult to predict. Accordingly, actual results could differ materially and adversely from thoseexpressed in any forward-looking statements as a result of various factors. Important factors that may cause such a differenceinclude, but are not limited to, changes in domestic and international demand for recycled aluminum; the cyclical nature andgeneral health of the aluminum industry and related industries; commodity price fluctuations and our ability to enter into effectivecommodity derivatives or arrangements to effectively manage our exposure to such commodity price fluctuations; inventory risks,commodity price risks, and energy risks associated with Real Alloy’s buy/sell business model; our ability to service, and the highleverage associated with, our indebtedness, and compliance with the terms of the indebtedness, including the restrictivecovenants that constrain the operation of our business and the businesses of our subsidiaries; our ability to successfully identify,acquire and integrate additional companies and businesses that perform and meet expectations after completion of suchacquisitions; our ability to
Real Industry, Inc. Page 3August 9, 2016 achieve future profitability; our ability to control operating costs and other expenses; that general economic conditions may beworse than expected; that competition may increase significantly; changes in laws or government regulations or policies affectingour current business operations and/or our legacy businesses, as well as those risks and uncertainties disclosed under thesections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” inReal Industry, Inc.’s Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 14, 2016, and similardisclosures in subsequent reports filed with the SEC, which are available on our website at www.realindustryinc.com and on theSEC website at https://www.sec.gov . Contact Real Industry, Inc. Jeff Crusinberry, Senior Vice President and Treasurer (805) 435-1255 [email protected]
Real Industry, Inc. Page 4August 9, 2016
REAL INDUSTRY, INC.CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31, (In millions) 2016 2015 ASSETS Current assets: Cash and cash equivalents $ 40.2 $ 35.7 Trade accounts receivable, net 93.7 77.2 Financing receivable 40.9 32.7 Inventories 89.3 101.2 Prepaid expenses, supplies, and other current assets 23.0 24.7 Current assets of discontinued operations 0.3 0.3 Total current assets 287.4 271.8
Property, plant and equipment, net 290.4 301.5 Intangible assets, net 13.8 15.1 Goodwill 104.5 104.3 Other noncurrent assets 8.0 8.2 TOTAL ASSETS $ 704.1 $ 700.9
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY Current liabilities: Trade payables $ 112.5 $ 100.9 Accrued liabilities 47.5 51.8 Long-term debt due within one year 2.4 2.3 Current liabilities of discontinued operations 0.1 0.1 Total current liabilities 162.5 155.1
Accrued pension benefits 38.8 38.0 Environmental liabilities 11.7 11.7 Long-term debt, net 316.7 312.1 Common stock warrant liability 6.1 6.9 Deferred income taxes 5.9 6.7 Other noncurrent liabilities 6.2 5.4 Noncurrent liabilities of discontinued operations 0.7 0.7 TOTAL LIABILITIES 548.6 536.6
Redeemable Preferred Stock 23.3 21.9 TOTAL STOCKHOLDERS’ EQUITY 132.2 142.4 TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY $ 704.1 $ 700.9
Real Industry, Inc. Page 5August 9, 2016
REAL INDUSTRY, INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended June 30, Six Months Ended June 30, (In millions, except per share amounts) 2016 2015 2016 2015 Revenues $ 320.9 $ 368.7 $ 630.3 $ 506.5 Cost of sales 298.6 347.4 591.4 480.3 Gross profit 22.3 21.3 38.9 26.2
Selling, general and administrative expenses 14.6 15.7 30.0 23.3 Losses (gains) on derivative financial instruments, net (1.5) 2.1 (0.3) 2.0 Amortization of intangibles 0.7 0.3 1.3 0.4 Other operating expense, net 0.4 0.4 1.9 0.9 Operating profit (loss) 8.1 2.8 6.0 (0.4)
Nonoperating expense (income): Interest expense, net 9.1 9.3 18.3 17.4 Change in fair value of common stock warrant liability (1.3) 6.3 (0.7) 5.6 Acquisition-related costs and expenses — 0.4 — 14.8 Foreign exchange losses (gains) on intercompany loans 1.6 — (1.0) — Other, net (0.2) 0.3 (0.2) 0.5 Total nonoperating expense 9.2 16.3 16.4 38.3
Loss from continuing operations before income taxes (1.1) (13.5) (10.4) (38.7)Income tax expense (benefit) 0.2 0.2 0.9 (7.2)Loss from continuing operations (1.3) (13.7) (11.3) (31.5)
Earnings from discontinued operations, net of income taxes 0.1 2.9 0.1 27.2 Net loss (1.2) (10.8) (11.2) (4.3)
Earnings from continuing operations attributable to noncontrolling interest 0.3 0.1 0.4 0.2 Net loss attributable to Real Industry, Inc. $ (1.5) $ (10.9) $ (11.6) $ (4.5)
LOSS PER SHARE Net loss attributable to Real Industry, Inc. $ (1.5) $ (10.9) $ (11.6) $ (4.5)Dividends on Redeemable Preferred Stock, in-kind (0.5) (0.5) (0.9) (0.6)Accretion of fair value adjustment to Redeemable Preferred Stock (0.2) (0.2) (0.5) (0.3)Net loss available to common stockholders $ (2.2) $ (11.6) $ (13.0) $ (5.4)
Basic and diluted earnings (loss) per share: Continuing operations $ (0.08) $ (0.53) $ (0.43) $ (1.32)Discontinued operations 0.01 0.11 — 1.10 Basic and diluted loss per share $ (0.07) $ (0.42) $ (0.43) $ (0.22)
Real Industry, Inc. Page 6August 9, 2016
REAL INDUSTRY, INC.UNAUDITED SEGMENT INFORMATION
(Dollars in millions, except per tonne information, Three Months Ended June 30, 2016 tonnes in thousands) RANA RAEU Total Tolling metric tonnes invoiced 98.3 52.7 151.0 Buy/sell metric tonnes invoiced 101.1 41.9 143.0 Total metric tonnes invoiced 199.4 94.6 294.0
Revenues $ 212.4 $ 108.4 $ 320.8 Cost of sales 197.3 101.3 298.6 Gross profit $ 15.1 $ 7.1 $ 22.2
Selling, general and administrative expenses, excluding depreciation $ 7.1 $ 3.8 $ 10.9 Operating profit $ 8.1 $ 3.5 $ 11.6 Adjusted EBITDA $ 14.3 $ 6.6 $ 20.9 Adjusted EBITDA per metric tonne invoiced $ 72 $ 70 $ 71
(Dollars in millions, except per tonne information, Three Months Ended June 30, 2015 tonnes in thousands) RANA RAEU Total Tolling metric tonnes invoiced 111.5 49.8 161.3 Buy/sell metric tonnes invoiced 93.2 49.5 142.7 Total metric tonnes invoiced 204.7 99.3 304.0
Revenues $ 231.0 $ 137.6 $ 368.6 Cost of sales 215.9 131.5 347.4 Gross profit $ 15.1 $ 6.1 $ 21.2
Selling, general and administrative expenses, excluding depreciation $ 7.1 $ 4.3 $ 11.4 Operating profit (loss) $ 7.4 $ (0.6) $ 6.8 Adjusted EBITDA $ 15.9 $ 7.0 $ 22.9 Adjusted EBITDA per metric tonne invoiced $ 78 $ 70 $ 75
Real Industry, Inc. Page 7August 9, 2016
REAL INDUSTRY, INC.UNAUDITED SEGMENT INFORMATION
(Dollars in millions, except per tonne information, Six Months Ended June 30, 2016 tonnes in thousands) RANA RAEU Total Tolling metric tonnes invoiced 199.8 104.7 304.5 Buy/sell metric tonnes invoiced 195.9 85.8 281.7 Total metric tonnes invoiced 395.7 190.5 586.2
Revenues $ 413.2 $ 217.0 $ 630.2 Cost of sales 383.3 208.1 591.4 Gross profit $ 29.9 $ 8.9 $ 38.8
Selling, general and administrative expenses, excluding depreciation $ 14.9 $ 7.7 $ 22.6 Operating profit (loss) $ 13.8 $ (1.0) $ 12.8 Adjusted EBITDA $ 27.5 $ 11.7 $ 39.2 Adjusted EBITDA per metric tonne invoiced $ 69 $ 61 $ 67
(Dollars in millions, except per tonne information, Six Months Ended June 30, 2015 tonnes in thousands) RANA RAEU Total Tolling metric tonnes invoiced 153.6 70.8 224.4 Buy/sell metric tonnes invoiced 124.6 66.8 191.4 Total metric tonnes invoiced 278.2 137.6 415.8
Revenues $ 316.5 $ 189.9 $ 506.4 Cost of sales 298.6 181.8 480.4 Gross profit $ 17.9 $ 8.1 $ 26.0
Selling, general and administrative expenses, excluding depreciation $ 10.0 $ 5.7 $ 15.7 Operating profit (loss) $ 7.2 $ (0.1) $ 7.1 Adjusted EBITDA $ 20.9 $ 9.5 $ 30.4 Adjusted EBITDA per metric tonne invoiced $ 75 $ 70 $ 73
Real Industry, Inc. Page 8August 9, 2016 NON-GAAP FINANCIAL MEASURES
A non-GAAP financial measure is a numerical measure of historical or future financial performance, financial position or cash flows that excludesamounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measurecalculated and presented in accordance with generally accepted accounting principles (“GAAP”) in the balance sheets, statements of operations, orstatements of cash flows; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from themost directly comparable measures so calculated and presented. We report our financial results in accordance with GAAP; however, ourmanagement believes that certain non-GAAP performance measures, which we use in managing our businesses, may provide investors withadditional meaningful comparisons between current results and results in prior periods. Adjusted EBITDA (defined below) is an example of a non-GAAP financial measure that we believe provides investors and other users of our financial information with useful information.
Management uses Adjusted EBITDA as a performance metric for its segments and believes this measure provides additional information commonlyused by holders of our common stock, as well as the holders of the Real Alloy Senior Secured Notes and parties to the Asset-Based Facility withrespect to the ongoing performance of our underlying business activities, as well as our ability to meet our future debt service, capital expendituresand working capital needs. In addition, Adjusted EBITDA is a component of certain covenants under the Indenture governing the Senior SecuredNotes.
Our Adjusted EBITDA calculations represent net earnings before interest, taxes, depreciation and amortization, unrealized gains and losses onderivative financial instruments, share-based compensation expense, charges and expenses related to acquisitions, and certain other gains andlosses.
Adjusted EBITDA as we use it may not be comparable to similarly titled measures used by other companies. We calculate Adjusted EBITDA byeliminating the impact of a number of items we do not consider indicative of our ongoing operating performance and certain other items. You areencouraged to evaluate each adjustment and the reasons we consider it appropriate for supplemental analysis. However, Adjusted EBITDA is not afinancial measurement calculated and presented in accordance with GAAP, and when analyzing our operating performance, investors should useAdjusted EBITDA in addition to, and not as an alternative for operating profit or any other performance measure derived in accordance with GAAP.Adjusted EBITDA has limitations as an analytical tool, and it should not be considered in isolation, or as a substitute for, or superior to, our measuresof financial performance prepared in accordance with GAAP. These limitations include:
· does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
· does not reflect changes in, or cash requirements for, working capital needs;
· does not reflect interest expense or cash requirements necessary to service interest and/or principal payments under the Real AlloySenior Secured Notes or Asset-Based Facility;
· does not reflect certain tax payments that may represent a reduction in cash available to us;
· Although depreciation and amortization are noncash charges, the assets being depreciated and amortized may have to be replaced inthe future, and Adjusted EBITDA does not reflect cash requirements for such replacements; and
· Other companies, including companies in our industry, may calculate these measures differently and the degree of their usefulness asa comparative measure correspondingly decreases as the number of differences in computations increases.
In addition, in evaluating Adjusted EBITDA it should be noted that in the future we may incur expenses similar to the adjustments in the belowpresentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual ornonrecurring items.
The table below provides a reconciliation of Adjusted EBITDA of our segments to the most directly comparable financial measure presented inaccordance with GAAP (unaudited). Our reconciliation of Adjusted EBITDA to net loss for the three and six months ended June 30, 2016 and 2015,follows:
Real Industry, Inc. Page 9August 9, 2016 Three Months Ended June 30, Six Months Ended June 30, (In millions) 2016 2015 2016 2015 Adjusted EBITDA $ 20.9 $ 22.9 $ 39.2 $ 30.4 Unrealized gains (losses) on derivative financial instruments 1.9 (1.3) 1.5 (1.3)Segment depreciation and amortization (10.6) (10.2) (25.3) (13.9)Amortization of inventories and supplies purchase accounting adjustments (0.3) (3.5) (0.9) (7.2)Corporate and Other: Operating loss—excludes share-based compensation expense (3.1) (3.8) (5.9) (6.7)Share-based compensation expense (0.5) (0.3) (1.0) (0.6)
Other (0.2) (1.0) (1.6) (1.1)Operating profit (loss) 8.1 2.8 6.0 (0.4)
Nonoperating expenses (9.2) (16.3) (16.4) (38.3)Income tax benefit (expense) (0.2) (0.2) (0.9) 7.2 Earnings from discontinued operations, net of income taxes 0.1 2.9 0.1 27.2 Net loss $ (1.2) $ (10.8) $ (11.2) $ (4.3)
Corporate Overview august 2016 Exhibit 99.2
Cautions about forward-looking statements and other notices Cautionary Statement Regarding Forward-Looking Statements. This presentation contains forward-looking statements, which are based on our current expectations, estimates and projections about Real Industry, Inc. and its subsidiaries’ (the “Company”) businesses and prospects, as well as management’s beliefs and certain assumptions made by management. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “should,” “will” and variations of these words are intended to identify forward-looking statements. Such statements speak only as of the date hereof and are subject to change. The Company undertakes no obligation to revise or update publicly any forward-looking statements for any reason. These statements include, but are not limited to, statements about the Company’s long-term investment decisions, further acquisitions, potential de-leveraging and expansion and business strategies; anticipated growth opportunities; the amount of capital-raising necessary to achieve those strategies; utilization of federal net operating loss tax carryforwards; Real Alloy’s improvements to operating efficiencies and cost of sales; auto demand in future periods; timing for hedging of commodity pricing in future periods; as well as future performance, growth, operating results, financial condition and prospects. Such statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict. Accordingly, actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. Important factors that may cause such a difference include, but are not limited to the Company’s ability to successfully identify, consummate and integrate acquisitions and/or other businesses; changes in business or other market conditions; the difficulty of keeping expense growth at modest levels while increasing revenues; the difficulty of making operating and cost improvements; the Company and its subsidiaries ability to successfully defend against currentand new litigation and indemnification matters, as well as demands by investment banks for defense, indemnity, and contribution claims; the Company’s ability to access and realize value from its federal net operating loss tax carryforwards; the Company’s ability to identify and recruit management; the Company’s ability to maintain the listing requirements of the NASDAQ; and other risks detailed from time to time in the Company’s SEC filings, including but not limited to the most recently filed Annual Report on Form 10-K and subsequent reports filed on Forms 10-Q and 8-K. Use of Non-GAAP Measures. This presentation includes references to the non-GAAP financial measures of earnings before interest, taxes, depreciation and amortization (“EBITDA”) and, with certain additional adjustments (“Adjusted EBITDA”). Management believes that the non-GAAP measures of EBITDA and Adjusted EBITDA enhance the understanding of the financial performance of the operations of Real Alloy (and prior to its acquisition, the former global recycling and specification alloys business of Aleris Corporation) by investors and lenders. As a complement to financial measures recognized under GAAP, management believes that EBITDA and Adjusted EBITDA assist investors who follow the practice of some investment analysts who adjust GAAP financial measures to exclude items that may obscure underlying performance and distort comparability. Because EBITDA and Adjusted EBITDA are not measures recognized under GAAP, they are not intended to be presented herein as a substitute for earnings (loss) from continuing operations, net earnings (loss), net income attributable to Aleris or Real Alloy, or segment income, as indicators of operating performance. EBITDA and Adjusted EBITDA are the primary performance measurements used by our senior management and Board of Directors to evaluate certain operating results. Reconciliation to the GAAP equivalent of the non-GAAP measures of EBITDA and Adjusted EBITDA for Real Alloy are provided herein, in our Forms 10-Q filed with the SEC on May 12, 2015, August 17, 2015, and November9, 2015, on our form 10K filed on March 15, 2016, on our Form 8-K filed with the SEC on June 29, 2015, and in Note 4 on page S-35 of the Prospectus Supplement No. 1 dated January 29, 2015 for the rights offering as filed with the SEC.
Corporate overview Business Description & Strategy Publicly traded, NOL-rich holding company seeking well-managed and consistently profitable businesses Focused on sectors that include transportation, food, water and energy Ticker NASDAQ: RELY Share Price $7.90 (as of 8/1/16) Market Capitalization $231 million (as of 8/1/16) Shares Outstanding 29.3 million (as of 5/2/16) Cash(1) $18.6 million (as of 6/30/16) Net Debt(2) $297.5 million (as of 6/30/16) Preferred Stock $23.3 million (carrying value as of 6/30/16) NOLs Federal NOLs of approximately $870 million begin to expire 2027 Management & Board Stockholders and seasoned professionals with extensive experience in acquiring, building and managing successful businesses Does not include cash balance at subsidiary Real Alloy. Represents debt, less cash balances and capitalized issuance costs at subsidiary Real Alloy.
organization Real Alloy Intermediate Holding, LLC (Delaware) Real Alloy Holding, Inc. (Delaware) Real Industry, Inc. (Delaware) SGGH, LLC (Delaware) NABCO, LLC -Sold January 2015 Cosmedicine, LLC (Delaware) Holding company structure Key Executives Craig Bouchard, CEO Kyle Ross, CFO John Miller, EVP Operations 7 member Board Corporate staff of 11 employees (Accounting, Tax, Legal and M&A) ~$870M Federal NOLs (as of 12/31/15) Issuer of $25M Preferred Stock (initial) Real Industry’s Direct Subsidiaries Acquisition closed February 2015 Issuer of 10% $305M Senior Secured Notes due 2019 (B3/B) Holdco of Real Alloy businesses
Evolution and transformation 1973: Changed name to Fremont General Corp. Strategic Transition 1963: Founded as an insurance company 2005: Wholly owned subsidiary, Fremont Investment & Loan, achieved top five subprime mortgage originator position June 2008: Voluntarily filed for Chapter 11 bankruptcy June 2010: Reorganized as Signature Group Holdings; NOLs remain intact July 2011: Acquired NABCO for $36.9M Sept. 2012: Zell Credit Opportunity Fund 9.4% stake June 2013: Bouchard and investor group lead proxy fight; Bouchard appointed chairman & CEO Oct. 2014: Entered into definitive purchase agreement to acquire Real Alloy from Aleris for $525M Dec. 2014: Completed $28M Primary Equity offering Jan. 2015: Closed sale of NABCO for gross proceeds of $78M Jan. 2015: Closed $305M Senior Secured Notes offering pending Real Alloy acquisition 2010 Feb. 2015: Completed stapled Rights Offering for gross proceeds of $55M Feb. 2015: Closed acquisition of Real Alloy June 2015: Changed corporate name to ‘Real Industry’; 2 members added to Board July 2015: Raised $8.2M in at-the-market offering to support next bid June 2015: Enter Russell 2000 Index® Apr. 2015: Uplisted to NASDAQ | 1963 | 2015 Sept. 2013-Jan 2014: Prepare for growth - $300M shelf registration; reverse split; corporate reincorporation Oct. 2015: $700M shelf registration filed
Building value Build a portfolio of operationally countercyclical, well-managed, and profitable companies Growth through acquisition with a laser focus on: Maximizing value creation on a per-share basis Allocating capital wisely Operational excellence post-closing Parent Objectives Acquisition Criteria Post-Closing Priorities Proven management Edge/sustainable competitive advantage Industry leader Invest at a 20% IRR Focus on transition into RELY (Real Alloy completed ahead of plan) De-leverage Six Sigma Support growth opportunities
What is next? Building the Platform: Target opportunities that generate $25-100 million pretax income A few recent opportunities have exceeded this range Increase operating margins and free cash flow conversion Blend countercyclical cash flows Utilize the NOL Optimize capital structure
Stock Performance Source: Deutsche Bank North American Aluminum And Specialty Metals One Year Three Year
bond Performance Source: Deutsche Bank North American Aluminum And Specialty Metals One Year Three Year
Real alloy OVERVIEW Global leader in third-party aluminum recycling Converts aluminum scrap and dross into reusable aluminum and specification alloys Customers are automotive OEMs and suppliers, rolling mills, and extruders 30+ year operating history 24 facilities in North America (18) & Europe (6) 300+ customers worldwide Implemented and Utilizing Hoshin Kanri/Lean Six Sigma initiative Purchased at 6.25x multiple of LTM EBITDA Volume(1) Invoiced by End Use Volume(1) by Region Note: All tonnage information is presented in metric tonnes. (1) Based on 2016 June YTD Volume
How real alloy serves its Customers Integrated with Customers Through Closed Loop Operations Illustrative Operations Flow – Aluminum Fabrication Chain Competitive Advantage Value Proposition for Customers Impact to Real Alloy Close proximity to customers Integrated into supply chain Multiple facilities to support customers Operational expertise and scale bring higher efficiency and quality Maximize use of customers’ metal units to minimize their metal risk Average customer relationship spans more than 10 years ~95% renewal rate with top customers Pre-processing Melting Casting Ingots Scrap Rolling / Extrusion Scrap End-Product Fabrication Scrap Integrated Recycling Value Chain Casting End-Customers
Low commodity risk Business Model Approximately two-thirds of Real Alloy’s volume is protected from commodity price swings under combination of tolling and hedging arrangements. Tolling Processes metal owned by customers –No ownership of inventory insulates from metal price risk and reduced working capital needs Charges a tolling or processing fee on a per pound or ton volume basis Pass-through arrangements on energy and other costs Buy / Sell Purchases aluminum scrap in the open market and sells the converted metal Profitability driven by the metal spread Hedges a portion of its buy/sell volume in Europe Rapid inventory turns (~12x/year) ensures minimal commodity price exposure Real Alloy operates using two types of customer arrangements: Tolling (~54%) and Buy/Sell (~46%), based on LTM as of June 30, 2016
Real alloy Market dynamics Economic Variable Impact on Real Alloy LME price of aluminum and “Midwest Premium” Limited; a rising metal environment is directionally better for the business and vice versa, all else equal Prices products based on published market prices (Platts, Metal Bulletin); generally not off the LME Scrap for the buy/sell business is purchased locally and pricing is based on supply/demand Primary aluminum production by China Limited Demand for scrap imports by China China’s demand for scrap imports impacts pricing but not always spreads, which are more meaningful China’s demand for scrap has been decreasing due to government regulation and a slowing economy in China Natural gas volatility Changes tend to impact Platts and Metal Bulletin pricing Aim to hedge a portion in the future markets Foreign currency Mostly translation risk as Real Alloy Europe purchases and sells in local currency
Auto demand expected to provide upside beyond 2016 Source: Ducker 2015 NA Light Vehicle Aluminum Study . Source: IHA Automotive – August 2015 Units Units Source: Autodata, Morgan Stanley Research
Scrap market update *Average of Platts Twitch, Cast and Turnings Prices (Right Axis)
Risk Management General Corporate philosophy of taking as much risk off table as possible Approximately 2/3 of annual Real Alloy volume is protected from metal price fluctuations Multiple hedge counterparties are in place and additional relationships are being negotiated Metal No hedging is needed for Tolling Business Approximately 70% of European Buy/Sell contracts are hedged North American metal risk managed physically Natural Gas Prices locked with physical contracts in Europe and with financial hedges in North America through the end of 2016 for a significant portion of overall exposure Have begun locking physically and/or financially hedging a portion of 2017 and 2018 exposure
Real alloy(1) FINANCIAL SUMMARY Revenue ($ millions) Volume Invoiced (metric tons in thousands) Note: Numbers may not add due to rounding. Financial data prior to 2015 is of the global recycling and specification alloys business of Aleris. Financial data prior to 2015 is before any estimated standalone impact. LTM is reflective of information as of June 30, 2016
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2q 2016 financial statements Unaudited Condensed Consolidated Statements of Operations Three Months Ended June 30, Six Months Ended June 30, (In millions, except per share amounts) 2016 2015 2016 2015 Revenues $ 320.9 $ 368.7 $ 630.3 $ 506.5 Cost of sales 298.6 347.4 591.4 480.3 Gross profit 22.3 21.3 38.9 26.2 Selling, general and administrative expenses 14.6 15.7 30.0 23.3 Losses (gains) on derivative financial instruments, net (1.5 ) 2.1 (0.3 ) 2.0 Amortization of intangibles 0.7 0.3 1.3 0.4 Other operating expense, net 0.4 0.4 1.9 0.9 Operating profit (loss) 8.1 2.8 6.0 (0.4 ) Nonoperating expense (income): Interest expense, net 9.1 9.3 18.3 17.4 Change in fair value of common stock warrant liability (1.3 ) 6.3 (0.7 ) 5.6 Acquisition-related costs and expenses — 0.4 — 14.8 Foreign exchange losses (gains) on intercompany loans 1.6 — (1.0 ) — Other, net (0.2 ) 0.3 (0.2 ) 0.5 Total nonoperating expense 9.2 16.3 16.4 38.3 Loss from continuing operations before income taxes (1.1 ) (13.5 ) (10.4 ) (38.7 ) Income tax expense (benefit) 0.2 0.2 0.9 (7.2 ) Loss from continuing operations (1.3 ) (13.7 ) (11.3 ) (31.5 ) Earnings from discontinued operations, net of income taxes 0.1 2.9 0.1 27.2 Net loss (1.2 ) (10.8 ) (11.2 ) (4.3 ) Earnings from continuing operations attributable to noncontrolling interest 0.3 0.1 0.4 0.2 Net loss attributable to Real Industry, Inc. $ (1.5 ) $ (10.9 ) $ (11.6 ) $ (4.5 ) LOSS PER SHARE Net loss attributable to Real Industry, Inc. $ (1.5 ) $ (10.9 ) $ (11.6 ) $ (4.5 ) Dividends on Redeemable Preferred Stock, in-kind (0.5 ) (0.5 ) (0.9 ) (0.6 ) Accretion of fair value adjustment to Redeemable Preferred Stock (0.2 ) (0.2 ) (0.5 ) (0.3 ) Net loss available to common stockholders $ (2.2 ) $ (11.6 ) $ (13.0 ) $ (5.4 ) Basic and diluted earnings (loss) per share: Continuing operations $ (0.08 ) $ (0.53 ) $ (0.43 ) $ (1.32 ) Discontinued operations 0.01 0.11 — 1.10 Basic and diluted loss per share $ (0.07 ) $ (0.42 ) $ (0.43 ) $ (0.22 )
2q 2016 financial statements cont’d Condensed Consolidated Balance Sheets June 30, December 31, (In millions) 2016 2015 ASSETS Current assets: Cash and cash equivalents $ 40.2 $ 35.7 Trade accounts receivable, net 93.7 77.2 Financing receivable 40.9 32.7 Inventories 89.3 101.2 Prepaid expenses, supplies, and other current assets 23.0 24.7 Current assets of discontinued operations 0.3 0.3 Total current assets 287.4 271.8 Property, plant and equipment, net 290.4 301.5 Intangible assets, net 13.8 15.1 Goodwill 104.5 104.3 Other noncurrent assets 8.0 8.2 TOTAL ASSETS $ 704.1 $ 700.9 LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY Current liabilities: Trade payables $ 112.5 $ 100.9 Accrued liabilities 47.5 51.8 Long-term debt due within one year 2.4 2.3 Current liabilities of discontinued operations 0.1 0.1 Total current liabilities 162.5 155.1 Accrued pension benefits 38.8 38.0 Environmental liabilities 11.7 11.7 Long-term debt, net 316.7 312.1 Common stock warrant liability 6.1 6.9 Deferred income taxes 5.9 6.7 Other noncurrent liabilities 6.2 5.4 Noncurrent liabilities of discontinued operations 0.7 0.7 TOTAL LIABILITIES 548.6 536.6 Redeemable Preferred Stock 23.3 21.9 TOTAL STOCKHOLDERS’ EQUITY 132.2 142.4 TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY $ 704.1 $ 700.9
Real alloy adjusted ebitda reconciliation to real industry OPERATING PROFIT (LOSS) Three Months Ended June 30, Six Months Ended June 30, (In millions) 2016 2015 2016 2015 Adjusted EBITDA $ 20.9 $ 22.9 $ 39.2 $ 30.4 Unrealized gains (losses) on derivative financial instruments 1.9 (1.3 ) 1.5 (1.3 ) Segment depreciation and amortization (10.6 ) (10.2 ) (25.3 ) (13.9 ) Amortization of inventories and supplies purchase accounting adjustments (0.3 ) (3.5 ) (0.9 ) (7.2 ) Corporate and Other: Operating loss—excludes share-based compensation expense (3.1 ) (3.8 ) (5.9 ) (6.7 ) Share-based compensation expense (0.5 ) (0.3 ) (1.0 ) (0.6 ) Other (0.2 ) (1.0 ) (1.6 ) (1.1 ) Operating profit (loss) 8.1 2.8 6.0 (0.4 ) Nonoperating expenses (9.2 ) (16.3 ) (16.4 ) (38.3 ) Income tax benefit (expense) (0.2 ) (0.2 ) (0.9 ) 7.2 Earnings from discontinued operations, net of income taxes 0.1 2.9 0.1 27.2 Net loss $ (1.2 ) $ (10.8 ) $ (11.2 ) $ (4.3 )
Real alloy(1) ADJUSTED EBITDA RECONCILIATION (1) Historical financial data for the global recycling and specification alloys business of Aleris is presented for 2011 through 2014, and for the period ended February 26, 2015, as Predecessor to Real Alloy. Historical financial data for Real Alloy is presented for the period from February 27, 2015 to December 31, 2015. Adjusted EBITDA does not include any estimated stand-alone impact. Note: For relevant footnotes, see stand-alone audited financial statements for the fiscal years ended December 31, 2015, 2014 and 2013 filed with the SEC on Form 8-K dated August 9, 2016, for fiscal years ended December 31, 2014, 2013 and 2012 filed with the SEC on Form 8-K dated June 29, 2015, and Prospectus Supplement No. 1 dated January 29, 2015 for fiscal year ended December 31, 2011. ($ millions) 2011 2012 2013 2014 2015 Net income $68.7 $26.4 $19.0 $29.3 ($27.2) Interest expense 0.0 0.0 0.0 0.0 35.0 Provision for income taxes 14.6 11.9 4.3 1.1 5.5 Depreciation and amortization 11 15.8 21.6 25.6 40.1 EBITDA $94.3 $54.1 $44.9 $56.0 $53.4 Acquisition related costs and expenses 0.0 0.0 0.0 0.0 8.9 Amortization of purchase accounting adjustments 0.0 0.0 0.0 0.0 9.2 Foreign currency losses on intercompany loans 0.0 0.0 0.0 0.0 1.6 Restructuring charges 0.2 2.4 3.3 2.6 0.3 Unrealized losses (gains) on derivatives 3.2 (1.5) (0.8) 2.6 (0.6) Net income attributable to non-controlling interest 1.0 1.3 1.0 0.9 0.3 Loss on disposal of assets 0.1 0.8 1.3 2.2 2.2 Stock-based compensation expense related to Real Alloy employees and non-Real Alloy employees 3.0 4.2 4.8 3.9 0.5 SG&A allocated from Aleris not directly associated 13.6 12.0 12.6 12.8 1.3 with the business Excluded entities/facilities (6.7) (3.6) (3.3) 0.0 0.0 Medical expense adjustment 0.0 0.0 4.3 3.1 0.0 Extreme winter weather 0.0 0.0 0.0 2.1 0.0 Other (3.3) (0.8) 1.4 1.4 4.7 Adjusted EBITDA $105.4 $68.9 $69.5 $87.6 $81.8