Metalico Inc (MEA)

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Metalico, Inc. (MEA)

Q3 2012 Earnings Call

November 9, 2012 10:00 AM ET

Executives

Carlos Agüero – Chairman, President and CEO

Mike Drury – EVP

Kevin Whalen – SVP and CFO

Analysts

Karen – DA Davidson

Victor Simonte – Hudson Bay Capital

Jack Thompson – Private Investor

Robert Litterman – Private Investor

Saurabh Kapadia – Corre Partners

Presentation

Operator

Good morning. My name is Richard, and I’ll be your conference facilitator. At this time, I would like to welcome everyone to the Metalico 2012 Third Quarter Results Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period.

I would like to remind you that today’s call is being recorded for transcription purposes. The purpose of today’s call is to discuss the results of the company’s operations for the quarter ended September 30, 2012.

Earlier today, Metalico issued a press release announcing third quarter results and filed a report on Form 8-K in connection with the release. You can access copies of Metalico’s filings through the SEC’s EDGAR online files or directly through the company’s website at www.metalico.com. Just log on to the website, click on Investors at the top of the homepage and then click on SEC Filings in the left column. Then click to download the report.

Metalico’s filings are also available at the SEC’s website at www.sec.gov. In addition, an audio replay of the call will also be available at 888-843-7419 or at 630-652-3042 for the first week after this call’s conclusion. To access the recording, callers will be required to enter the conference identification number of 33535630.

As is customary, let me reiterate the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. The following discussion contains forward-looking statements that are subject to risks and uncertainties, including those risks set forth in Metalico’s filings with the SEC. These risks could cause actual results for the current period and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of the company.

We refer you to Metalico’s periodic reports that are filed from time to time with the SEC. For a more detailed discussion of forward-looking statements and a discussion of the factors that could cause results to differ materially from the discussion today, please refer to the Risk Factor Discussion in Metalico’s Annual Report on Form 10-K for 2011, which is also available online.

In addition, during the course of the conference call, certain non-GAAP financial measures may be described in which should be considered, in addition to, and not in lieu of comparable GAAP financial measures. The company has provided reconciliations of these non-GAAP measures to what it believes are the most directly comparable GAAP measures in the earnings release.

Thank you ladies and gentlemen. I would now like to turn the call over to Mr. Carlos Agüero, President and Chief Executive Officer of Metalico.

Carlos Agüero

Welcome every one and thank you for joining our call. With me here today are Michael Drury, our Executive Vice President and Chief Operating Officer of PGM, Minor Metal and Lead Operations and also Kevin Whalen, our Senior Vice President and Chief Financial Officer.

After my remarks, we’ll be available for questions. We will also post a transcript of our remarks along with the question-and-answer session on our website, when the transcript becomes available after the call.

As we reported earlier today in our news release, this was a disappointing quarter for the company. Although we still achieved positive EBITDA, we were buffeted by declining prices for scrap metal throughout the industry and intense competition for sourcing materials in our markets.

We also took a significant impairment charge against the carrying value of goodwill in our PGM reporting unit and we recorded a book-to-physical adjustment for ferrous inventory.

Excluding these unusual charges, our adjusted loss was $1.3 million or $0.03 per share. Even as adjusted, our performance for the quarter was certainly not acceptable. Nevertheless, we do expect that the fourth quarter will be stronger as many market indicators such as ferrous pricing are moving in a positive direction.

With the exception of our Elizabeth, New Jersey location, Hurricane Sandy had a minimal effect on our operations, most of which are well away from the coastal areas that were the hardest hit. Our Elizabeth, New Jersey location, which only regained power yesterday, remain busy buying and selling scrap metal with the use of multiple back-up generators.

Early in the quarter we identified a potential covenant issue under our senior secured lending facility. I’m pleased to acknowledge the cooperation of our lenders and the efforts of our management team in working through this matter. At all times we’ve conducted business normally and met our obligations on a very timely basis as usual.

As reported earlier this morning, the company’s ferrous and non-ferrous recycling business generated a $2 million loss, principally as a result of $1.5 million inventory shrinkage recognized in the third quarter.

PGM recycling margins continued to be impacted by competition and volatile prices and continues to operate at a loss. Consequently, we reviewed the current value of intangible assets for the PGM segment and determined that an adjustment was appropriate. In the third quarter, the company took a $12.1 million non-cash charge to write down the intangible assets in this reporting unit.

The Lead Fabricating segment continued to improve performance, reporting operating income of $1.4 million compared to $854,000 in the prior year’s period. Third quarter results also compared favorably to $1.1 million that was reported in the sequential second quarter of 2012. Better product mix, higher selling prices and a continued focus on productivity aided improved results.

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