GSE Holding Q2 sales decline 22%

Selected financial results for the second quarter of 2013:

- Net sales of $108.2 million vs. $139.2 million in 2Q 2012 
- Gross margin of 12.2% vs. 17.4% in 2Q 2012
- Adjusted EBITDA of $3.9 million vs. $16.0 million in 2Q 2012
- A goodwill impairment charge of $26.4 million was recorded relative to the European business
- GAAP net loss of $33.9 million or a loss of $1.69 per diluted share, compared to net income of $3.8 million or $0.18 per diluted share in 2Q 2012
- Adjusted net loss of $6.9 million or a loss of $0.34 per diluted share

Chuck Sorrentino, interim President and Chief Executive Officer stated that, "After recently being named interim President and CEO I have undertaken a more in-depth review of our operations. Our business faced significant challenges in the first half of 2013 in the form of a prolonged European recession and competitive pressures that were further exacerbated by poor weather conditions.

“Operating results were also pressured in the Americas, where a capacity surplus has outstripped demand, pressuring margins. Despite these near-term headwinds, we believe that we still maintain strong leadership positions in our end-markets. It's our challenge to demonstrate the differentiated nature of our value added products to our customers in each of the end-markets that we serve. We face a difficult road ahead, but we believe that our focus on continued innovation while streamlining operations will result in an improved second half of 2013."

Second Quarter Summary

Total net sales for the second quarter were $108.2 million, compared to $139.2 million for the prior year period. Gross profit was $13.2 million in the second quarter of 2013 compared to $24.2 million in the prior year period, resulting in gross margin for the second quarter of 2013 to decline to 12.2% from 17.4% in the prior year period.

During the second quarter of 2013, the Company performed an interim assessment of goodwill related to its Europe Africa reporting unit due to indications that the fair value of this reporting unit may be less than its carrying amount. 

Such indications included prolonged weak economic conditions, under-achievement of previous financial projections and projected continued difficulties in the European market. Based on this assessment, an impairment charge totaling $26.4 million was recorded.

GAAP net loss for the quarter was $33.9 million, or ($1.69) per diluted share, compared to net income of $3.8 million, or $0.18 per diluted share in the prior year period. Adjusted EBITDA was $3.9 million compared to $16.0 million in the prior year period.  Adjusted net loss in the quarter was $6.9 million, or ($0.34) per diluted share compared to adjusted net income of $5.8 million or $0.29 per diluted share in the prior year period.

The lower adjusted EBITDA for the first half of 2013 caused GSE to breach its covenant in respect to its total leverage ratio for June 30, 2013 as contained in its U.S. Credit Facility, which was detailed in the Company's Current Report on Form 8-K filed on August 2nd.  The Company obtained a waiver of default from its lenders and amended the credit facility.

GSE Holding