Operational Review
AMG Critical Materials
Q3 ‘19 Q3 ‘18 Change
Revenue $165,227 $219,650 (25%)
Gross (loss) profit (1,317) 52,768 N/A
Gross profit excluding exceptional items 20,426 52,898 (61%)
Operating (loss) profit (20,887) 33,487 N/A
EBITDA 8,803 40,800 (78%)
AMG Critical Materials’ revenue in the third quarter decreased by $54.4 million, or 25%, to $165.2 million, driven largely by lower average prices across all seven business units during the quarter, partially offset by higher sales volumes of chrome metal and lithium concentrate.
Gross (loss) profit in the third quarter decreased by $54.1 million to ($1.3) million. The reduction in gross profit was largely driven by lower vanadium profitability and non-cash expenses for vanadium, lithium and tantalum inventory cost adjustments as a result of a significant decline in prices for those materials.
SG&A expenses in the third quarter of 2019 were consistent at $19.6 million compared to the third quarter 2018.
The third quarter 2019 EBITDA margin was 5% due to lower profitability in the quarter.
AMG Technologies
Q3 ‘19 Q3 ‘18 Change
Revenue $104,646 $108,421 (3%)
Gross profit 26,224 26,787 (2%)
Gross profit excluding exceptional items 26,623 31,238 (15%)
Operating profit 10,266 10,715 (4%)
EBITDA 15,593 18,316 (15%)
With a 2% increase versus June 30, 2019, order backlog maintained a high level of $202.6 million as of September 30, 2019, and the Company signed $79.5 million in new orders during the third quarter of 2019. This represents a 1.20x book to bill ratio. This higher book to bill ratio was largely driven by strong orders of turbine blade coating and induction furnaces for the aerospace market.
AMG Technologies’ third quarter 2019 revenue slightly decreased due to lower prices and volumes in the Titanium Alloys and Coatings business, which was partially offset by profitability related to the favorable finalization of an outstanding large nuclear contract during the quarter.
Third quarter 2019 gross profit slightly decreased by $0.6 million, or 2%, to $26.2 million and gross margin was 25%, consistent with the third quarter 2018.
SG&A expenses decreased slightly to $15.5 million in the third quarter, compared to $16.1 in the same period in 2018, primarily due to lower variable compensation expense.
AMG Technologies’ third quarter EBITDA decreased by 15%, or $2.7 million, to $15.6 million from $18.3 million in the third quarter of 2018 due to lower prices in the Titanium Alloys and Coatings business.
Financial Review
Tax
AMG recorded an income tax expense of $1.5 million in the third quarter 2019, compared to $10.0 million in the same period in 2018. The decrease was primarily due to losses in the United States related to the decline in vanadium profitability and vanadium inventory cost adjustments in the current year.
AMG paid taxes of $7.2 million in the third quarter 2019, compared to tax payments of $6.3 million in the same period in 2018. As a result of the year-over-year volatility in income and the timing of cash tax payments, the present cash tax rate is not indicative of the current year performance as payments in the current year are reflective of the income in 2018 and not 2019. Once earnings have stabilized, we believe that the cash tax rate is the more meaningful metric with regards to AMG’s taxes due to the volatile nature of the company’s deferred tax balances.
Exceptional Items
AMG’s third quarter 2019 gross profit of $24.9 million includes exceptional items, which are not included in the calculation of EBITDA.