Q3 2015 Highlights:
- Adjusted EBITDA was $28.3 million or
24% of sales representing a 130 basis point YOY improvement. TTM
Adjusted EBITDA increased to $111.9 million or 23% of sales
representing a 240 basis point YOY improvement. Gross margins were
41% and improved YOY for the 12th consecutive
quarter.
- Sales repositioning program remains
on track. 2 new plants, 8 expanded plants, and 39 new
products.
- We anticipate the current commodity
grade production decline environment to continue into Q4, now
expect full year 2015 Adjusted EBITDA to be approximately $110
million.
- We continue to reposition
operational profile with closures of our Warwick, Canada and
Middletown, VA facilities.
- We remain on track for a ~$30
million YOY free cash flow improvement, and it is expected to
accelerate.
- We completed the refinancing of our
existing ABL facility – the new facility provides more flexible
terms at a lower overall cost of borrowing.
Xerium Technologies, Inc. (NYSE:XRM), a leading global provider
of industrial consumable products and services, announced its Q3
2015 results.
Net sales for Q3 2015 were $118 million, a decrease of $(9.9)
million, or (7.1)% compared to Q3 2014, on a constant currency
basis, driven by the decline in sales to commodity grade paper
producers, particularly in North America. These decreases were
partially offset by increases in rolls sales outside of North
America. See "Non-GAAP Financial Measures" and "Segment
Information" below.
Q3 2015 gross profit was $48.3 million, or 41% of net sales,
excluding one-time start-up costs of a new machine clothing plant
in China; a new rolls plant in Turkey; and plant closure costs.
SG&A expenses were $32.1 million, or 27.3% of net sales in
Q3 2015, a decline versus Q3 2014 expenses of $34.2 million, or
24.6% of net sales.
Adjusted EBITDA was $28.3 in Q3 2015, sequentially flat to Q2
2015. Q3 2015 TTM Adjusted EBITDA was $111.9 million, an increase
of $1.2 million over Q3 2014 TTM Adjusted EBITDA.
Q3 2015 basic earnings per share were $0.06 per share versus a
loss per share of $(1.32) in Q3 2014. Excluding the non-recurring
items and foreign currency gains, basic adjusted earnings per share
were $0.30 in Q3 2015, compared to $0.43 in Q3 2014 as a result of
lower sales volumes and gross margins, partially offset by
favorable currency effects and improved SG&A. See "Basic
Adjusted Earnings Per Share" below.
CEO Comments
"Commodity grade paper production declined strongly in Q3,
particularly in North America due in part to the strong dollar.
Xerium is exposed to this set of market dynamics and it is a key
reason for its multi-year 10 project sales repositioning program.
This program remains on track with 8 of the 10 projects completed
and the majority of the spending completed," said Harold Bevis,
President and CEO of Xerium Technologies, Inc. “Our largest sales
growth projects are both on line now – new machine clothing plant
in China to pursue Asian board, packaging and tissue; and a new
rolls plant in Turkey to pursue board, packaging and tissue in that
region.
In October 2015, we announced the closure of a rolls plant in
North America in order to initiate our 11th sales repositioning
project. We will move that equipment into a new rolls plant in a
new geography focused on the growing pulp market. These initiatives
are part of our firm commitment to move Xerium into growing grades
and geographies. This will increase our earnings potential.
Winning new business for this new capacity is paramount and is
based upon technical performance on our customer’s machines. Xerium
has developed 39 new products and created over 150 new patents in
this endeavor. The sales repositioning programs will be a main
driver of our ongoing success. At the same time, we are
repositioning the company’s cost structure. As a result, the
company has systematically improved its gross margin rates and
EBITDA rates.
8 of the first 10 sales repositioning projects have been
completed and the other 2 projects will be completed in Q4. The
majority of the spending on these projects has been completed as
well. Free cash flow is expected to improve ~$30 million
year-over-year and this progress will continue into 2016."
2015 Outlook
We expect currency market dynamics and currency exchange rates
to remain the same in Q4 2015. Consequently, adjusted EBITDA is now
expected to be approximately $110 million for 2015. This is
confirmation of the importance of the company’s repositioning
program. The economic payback of these investments will become
increasingly apparent as we move forward. Furthermore, with the
most significant capital investments behind us, we will improve the
company's free cash flow as we go forward.
Sales Growth Repositioning
Program
The company has completed 17 of the 19 plant repositioning
projects in its 3 year program. This transformation program has the
goal of realigning our geographic footprint, cost structure and
machine re-purposing with market growth opportunities. In June, we
announced that the closure of the machine clothing plant in Canada
was due to its high cost structure. Those machines are moving to
Asia. In addition, in October, we announced that we were closing
the Virginia rolls plant due to it being redundant to other North
American facilities and Xerium having strong alternate use for
those assets in a brand-new high-growth market location (new
location not yet announced).
For at least the next 2 years, the company will be repurposing
and relocating its machine clothing and roll assets and personnel
to new growing market positions.
Machine Clothing Sales Growth
Repositioning
We have completed the company’s sales growth repositioning
program at 10 machine clothing plants.
- 4 plant closures in Spain, Argentina,
Canada, and Brazil
- 5 plant expansions in Canada, Austria,
Japan, and Brazil
- 1 new plant in China
This 3 year refitting program will better position Xerium to
pursue machine clothing sales in growing grades and regions that
are outpacing global industry growth. In addition, this global
renovation program helped reconfigure our machine clothing plants
into a unified global network that eliminates redundancy,
standardizes on best practices and shortens lead times. The company
has a few more remaining steps to complete its machine clothing
repositioning program (those steps not yet announced).
The most significant project was building the company’s new
machine clothing in China and it began production in August of
2015. The Asia team has already won new incremental business for Q4
2015 and beyond. Its strategic location in the world’s largest
paper-making region is ideal. Over half of the world’s paper
machines are in Asia, and over half of those machines are in China
specifically. This is the company’s first machine clothing plant in
China. It has the company’s newest equipment and newest product
designs.
Rolls Sales Growth
Repositioning
The company is also on track to complete in Q4 the company’s
sales growth repositioning at 9 rolls plants.
- 4 plant closures in France, Germany,
United States
- 4 plant expansions in China, United
States
- 1 new plant in Turkey
This 3 year refitting program will better position Xerium to
pursue roll sales in growing grades and regions that are outpacing
global industry growth. The company has installed its first working
roll plant in China and is winning new business and moving existing
production from Europe to China. The China plant has the company’s
newest equipment and newest product designs.
CFO Comments
EVP and Chief Financial Officer, Cliff Pietrafitta said: "We
spent approximately $16.8 million of cash on capital expenditures
and restructuring costs in Q3 2015 and we expect to spend cash of
approximately $50 million in 2015 on capital expenditures and
approximately $13 million on restructuring costs for the entire
year of 2015. Our estimated restructuring costs have increased from
prior guidance, due to the acceleration of the Middletown, VA
closure and other cost out initiatives, as we are proactively
addressing the ongoing weakness in the commodity grade markets.
As of September 30, 2015, we had an aggregate of $33.0 million
available for additional borrowings under our Credit Facility and
smaller lines of credit and our cash balances totaled $10.7
million. In addition, Q3 2015 free cash flow (defined as cash flow
from operations less capital expenditures) improved $1.3 million to
$(2.3) million from $(3.6) million in Q2 of 2015, primarily as a
result of improved cash flow from operations in Q3 2015.
Net debt (which is defined as total debt less cash) increased to
$478.7 million in Q3 2015 from $473.4 million in Q2 2015, primarily
as a result of negative free cash flow and unfavorable currency
effects. Our net debt leverage ratio was 4.3x in Q3 2015, compared
to 4.1x in Q2 2015. We expect our net debt and leverage to improve
in 2016, as we utilize free cash flow to pay down debt.
On November 3, 2015 we completed a refinancing of our existing
ABL revolver. This new $55 million facility extends the maturity
date to November of 2020 and provides more flexible terms at a
lower overall cost of borrowing. The terms of this new facility
will provide us additional optionality as we continue our strategic
initiatives.
Trade working capital decreased $15.6 million to $116.0 million
at September 30, 2015 from $131.6 million at December 31, 2014,
primarily as a result of favorable currency impacts. Net of
favorable currency, trade working capital improved $2.6 million.
See "Trade Working Capital Information" and "Non-GAAP Financial
Measures" below.
Our effective income tax rate for Q3 2015 was 45.2% compared to
334.0% in Q3 2014. Excluding the effects of settling a tax
assessment in Brazil in 2014, restructuring, non-recurring tax
reserve adjustment and the Australian valuation allowance release,
our effective tax rate was 55.9%, compared to 38.0% in Q3 2014,
primarily due to the mix of earnings in tax paying jurisdictions
versus earnings in non-tax paying jurisdictions. See "Effective Tax
Rate" below."
SEGMENT INFORMATION
The following table presents net sales for Q3 2015 and Q3 2014
by segment and the effect of currency on Q3 2015 net sales (dollars
in thousands):
Net Sales For The
Quarter Ended
9/30/2015 9/30/2014 $ Change
Currency Effect
of $ Change
% Change
% Change
Excluding Currency
Roll Covers $45,203 $52,773 ($7,570 ) ($4,451 ) (14.3)% (5.9)%
Machine
Clothing
72,536 86,085 (13,549 ) (6,763 )
(15.7)% (7.9)% Total $117,739
$138,858 ($21,119 ) ($11,214 ) (15.2)%
(7.1)%
TRADE WORKING CAPITAL
The following table presents trade working capital as of
September 30, 2015 and December 31, 2014 (in thousands). The change
was primarily driven by favorable currency effects.
9/30/2015 12/31/2014
Fav /(Unfav)
Change
Trade receivables, net (1) $76,244 $81,998 $5,754 Inventories, net
71,803 83,550 11,747 Trade accounts payable (2) (32,021 )
(33,962 ) (1,941 ) Total $116,026 $131,586
$15,560
(1) Trade Receivables, Net equals Accounts Receivable less Other
Receivables of $1.6 million and $1.1 million at September 30, 2015
and December 31, 2014.
(2) Trade Accounts Payables equals Accounts Payable less
Deposits Received and Other Payables of $6.0 million and $7.9
million at September 30, 2015 and December 31, 2014,
respectively.
EFFECTIVE TAX RATE
The following table presents a reconciliation of effective tax
rate excluding restructuring expenses, non-recurring tax reserve
adjustments and the Australian valuation allowance release, to our
effective tax rate for the quarter ended September 30, 2015 (in
thousands):
For the quarter ended September 30, 2015
Pre-tax
Amounts
Tax
Amounts
After-tax
Amounts
Effective
Tax Rate
Income before provision for income taxes $1,670 ($755 ) $915 45.2 %
Non-recurring tax adjustments (5,001 ) 2,972 (2,029 ) 59.4 %
Income before provision for income taxes excluding non-recurring
tax adjustments $6,671 ($3,727 ) $2,944 55.9 %
BASIC ADJUSTED EARNINGS PER SHARE (net
of taxes)
Three Months Ended September 30, 2015
2014 Net income (loss) per share $ 0.06 $ (1.32 )
Adjustments: Brazilian Tax Charge — 1.56 Restructuring expense 0.24
0.18 Valuation allowance reversal (0.12 ) — Plant start-up costs
0.09 0.03 Non-recurring expense 0.09 — Impairment of idle machinery
and equipment 0.01 — Inventory write-down at a closed plant 0.02 —
FX gain (0.09 ) (0.02 ) Basic adjusted earnings per share $ 0.30
$ 0.43
CONFERENCE CALL
The Company plans to hold a conference call on the following
morning:
Date: November 5, 2015 Start Time: 9:00 a.m. Eastern Time
Domestic Dial-In: +1-844-818-4921
International Dial-In: +1-484-880-4582
Conference ID: 39761772
Webcast:
www.xerium.com/investorrelations
To participate on the call, please dial in at least 10 minutes
prior to the scheduled start. A live audio webcast and replay of
the call may be found in the investor relations section of the
Company's website at www.xerium.com.
To follow along with the presentation that will accompany the
Company's conference call, please join the webcast by going to
www.xerium.com/investorrelations. Click on the webcast link
appearing above our conference call details, then click on the link
appearing below "Webcast Presentation" on the following page. You
may also click here and you will be taken directly to the webcast
registration page.
NON-GAAP FINANCIAL
MEASURES
This press release includes measures of performance that differ
from the Company's financial results as reported under generally
accepted accounting principles ("GAAP"). The Company uses
supplementary non-GAAP measures, including EBITDA, Adjusted EBITDA,
currency effects on Net Sales, Effective Tax Rate and the effects
of Restructuring and Trade Working Capital to assist in evaluating
its liquidity and financial performance. EBITDA and Adjusted EBITDA
are specifically used in evaluating the ability to service
indebtedness and to fund ongoing capital expenditures. Neither
Adjusted EBITDA nor EBITDA should be considered in isolation or as
a substitute for income (loss) or cash flows from operations (as
determined in accordance with GAAP).
For additional information regarding non-GAAP financial measures
and a reconciliation of such measures to the most comparable
financial measures under GAAP, please see "Segment Information,"
"Trade Working Capital", "Basic Adjusted earnings Per Share" and
"Effective Tax Rate" above and our Selected Financial Data below.
In addition, the information in this press release should be read
in conjunction with the corresponding exhibits, financial
statements and footnotes contained in our Report on Form 10-Q for
the quarter ended September 30, 2015 filed with the Securities and
Exchange Commission on November 4, 2015 and our presentation that
will accompany our conference call tomorrow.
About Xerium Technologies
Xerium Technologies, Inc. (NYSE:XRM) is a leading global
provider of industrial consumable products and services. Xerium,
which operates around the world under a variety of brand names,
utilizes a broad portfolio of patented and proprietary technologies
to provide customers with tailored solutions and products integral
to production, all designed to optimize performance and reduce
operational costs. With 27 manufacturing facilities in 13 countries
around the world, Xerium has approximately 3,000 employees.
FORWARD-LOOKING
STATEMENTS
This press release contains forward-looking statements. The
words "believe," "estimate," "expect," "intend," "anticipate,"
"goals," variations of such words, and similar expressions identify
forward-looking statements, but their absence does not mean that
the statement is not forward-looking. The forward-looking
statements in this release include statements regarding our full
year Adjusted EBITDA performance, anticipated sales performance,
capital expenditures, cost savings measures, future efforts to
improve overall performance and free cash flow. Forward-looking
statements are not guarantees of future performance, and actual
results may vary materially from the results expressed or implied
in such statements. Differences may result from actions taken by
us, as well as from risks and uncertainties beyond our control.
These risks and uncertainties include the following items: (1) we
may not realize the Adjusted EBITDA performance we are projecting
(2) our expected sales performance and our backlog of sales may not
be fully realized; (3) our cost reduction efforts, including our
restructuring activities, may not have the positive impacts we
anticipate; (4) we are subject to execution risk related to the
startup of our new facilities in China and Turkey and expansion
projects elsewhere; (5) our plans to develop and market new
products, enhance operational efficiencies and reduce costs may not
be successful; (6) market improvement in our industry may occur
more slowly than we anticipate, may stall or may not occur at all;
(7) variations in demand for our products, including our new
products, could negatively affect our revenues and profitability;
(8) our manufacturing facilities may be required to quickly
increase or decrease production, which could negatively affect our
production facilities, customer order lead time, product quality,
labor relations or gross margin; and (9) the other risks and
uncertainties discussed elsewhere in this press release, our Form
10-K for the year ended December 31, 2014 filed on March 4, 2015
and our other SEC filings. If any of these risks or uncertainties
materialize, or if our underlying assumptions prove to be
incorrect, actual results may vary significantly from what we
projected. Any forward-looking statement in this press release
reflects our current views with respect to future events. Except as
required by law, we assume no obligation to publicly update or
revise these forward-looking statements for any reason, whether as
a result of new information, future events, or otherwise. As
discussed above, we are subject to substantial risks and
uncertainties related to current economic conditions, and we
encourage investors to refer to our SEC filings for additional
information. Copies of these filings are available from the SEC and
in the investor relations section of our website at www.xerium.com.
Selected Financial Data Follows
Xerium Technologies, Inc. Consolidated Statements
of Operations and Comprehensive Loss (Dollars in thousands,
except per share data) Three Months Ended Nine
Months Ended September 30, September 30,
2015 2014 2015 2014 Net Sales $ 117,739
$ 138,858 $ 361,896 $ 411,965 Costs and expenses: Cost of
products sold 71,252 83,364 217,413 248,954 Selling 15,889 18,195
48,645 55,362 General and administrative 14,370 14,133 40,261
43,337 Research and development 1,841 1,909 5,695 5,899
Restructuring 5,001 3,466 12,734 15,712
108,353 121,067 324,748 369,264 Income
from operations 9,386 17,791 37,148 42,701 Interest expense, net
(9,775 ) (9,412 ) (28,144 ) (26,985 ) Foreign exchange gain (loss)
2,059 367 2,150 (818 ) Income before provision
for income taxes 1,670 8,746 11,154 14,898 Provision for income
taxes (755 ) (29,218 ) (9,209 ) (33,440 ) Net income (loss) $ 915
$ (20,472 ) $ 1,945 $ (18,542 ) Comprehensive loss $
(11,012 ) $ (41,003 ) $ (33,706 ) $ (39,482 ) Net income (loss) per
share: Basic $ 0.06 $ (1.32 ) $ 0.12 $ (1.20 )
Diluted $ 0.06 $ (1.32 ) $ 0.12 $ (1.20 ) Shares used
in computing net income (loss) per share: Basic 15,667,103
15,475,836 15,595,793 15,426,125 Diluted
16,567,070 15,475,836 16,440,525 15,426,125
Consolidated Selected Financial
Data Cash Flow Data: (in thousands) Nine
Months Ended September 30, 2015
September 30, 2014 Net cash provided by operating activities
$24,856 $1,317 Net cash used in investing activities ($40,272 )
($33,503 ) Net cash provided by financing activities $17,709
$26,713
Other Financial Data: (in thousands)
Depreciation and amortization $21,625 $26,180 Capital expenditures,
gross ($40,376 ) ($33,666 )
Balance Sheet Data: (in
thousands) September 30, 2015 December
31, 2014 Cash and cash equivalents $10,704 $9,517 Total
assets $570,238 $594,044 Total debt (including capital leases)
$489,383 $469,435 Total stockholders' deficit ($107,251 ) ($74,110
)
EBITDA and Adjusted EBITDA Non-GAAP
Measures
Non-GAAP Financial Measures
We use EBITDA and Adjusted EBITDA (as defined in our credit
facility) as supplementary non-GAAP liquidity measures to assist us
in evaluating our liquidity and financial performance, specifically
our ability to service indebtedness and to fund ongoing capital
expenditures. Neither EBITDA nor Adjusted EBITDA should be
considered in isolation or as a substitute for income (loss) or
cash flows from operations (as determined in accordance with GAAP).
EBITDA is defined as net income (loss) before interest expense,
income tax provision (benefit) and depreciation (including non-cash
impairment charges) and amortization. "Adjusted EBITDA" means, with
respect to any period, the total of (A) the consolidated net income
for such period, plus (B) without duplication, to the extent that
any of the following were deducted in computing such consolidated
net income for such period: (i) provision for taxes based on income
or profits, including, without limitation, federal, state,
provincial, franchise and similar taxes, including any penalties
and interest relating to any tax examinations, (ii) consolidated
interest expense, (iii) consolidated depreciation and amortization
expense, (iv) reserves for inventory in connection with plant
closures, (v) consolidated operational restructuring costs, (vi)
noncash charges resulting from the application of purchase
accounting, including push-down accounting, (vii) non-cash expenses
resulting from the granting of common stock, stock options,
restricted stock or restricted stock unit awards under equity
compensation programs solely with respect to common stock, and cash
expenses for compensation mandatorily applied to purchase common
stock, (viii) non-cash items relating to a change in or adoption of
accounting policies, (ix) non-cash expenses relating to pension or
benefit arrangements, (x) expenses incurred as a result of the
repurchase, redemption or retention of common stock earned under
equity compensation programs solely in order to make withholding
tax payments, (xi) amortization or write-offs of deferred financing
costs, (xii) any non-cash losses resulting from mark to market
hedging obligations (to the extent the cash impact resulting from
such loss has not been realized in such period) and (xiii) other
non-cash losses or charges (excluding, however, any non-cash loss
or charge which represents an accrual of, or a reserve for, a cash
disbursement in a future period), minus (C) without duplication, to
the extent any of the following were included in computing
consolidated net income for such period, (i) non-cash gains with
respect to the items described in clauses (vi), (vii), (ix), (xi),
(xii) and (xiii) (other than, in the case of clause (xiii), any
such gain to the extent that it represents a reversal of an accrual
of, or reserve for, a cash disbursement in a future period) of
clause (B) above and (ii) provisions for tax benefits based on
income or profits. Notwithstanding the foregoing, Adjusted EBITDA,
as defined in the credit facility and calculated below, may not be
comparable to similarly titled measurements used by other
companies.
Consolidated net income is defined as net income (loss)
determined on a consolidated basis in accordance with GAAP;
provided, however, that the following, without duplication, shall
be excluded in determining consolidated net income: (i) any net
after-tax extraordinary or non-recurring gains, losses or expenses
(less all fees and expenses relating thereto), (ii) the cumulative
effect of changes in accounting principles, (iii) any fees and
expenses incurred during such period in connection with the
issuance or repayment of indebtedness, any refinancing transaction
or amendment or modification of any debt instrument, in each case,
as permitted under the credit facility and (iv) any cancellation of
indebtedness income.
The following table provides reconciliation from net income and
operating cash flows, which are the most directly comparable GAAP
financial measures, to EBITDA and Adjusted EBITDA.
Nine Months ended
September 30,
Trailing Twelve Months
Ended September 30,
Q3 2015 Q2 2015 Q3
2014 2015 2014 2015
2014 Net income (loss) $ 915 $
(703 ) $ (20,472 ) $ 1,945 $
(18,542 ) $ 13,104 $ (15,098 ) Stock-based compensation
1,064 804 709 2,690 1,858 3,380 2,452 Depreciation 7,138 7,096
8,183 21,397 24,950 29,199 33,529 Amortization of intangibles 69 79
231 228 1,230 538 1,454 Deferred financing cost amortization 870
896 942 2,641 2,409 3,536 3,079 Foreign exchange (gain) loss on
revaluation of debt (1,200 ) 1,057 396 (2,115 ) (340 ) (2,033 )
(260 ) Deferred tax expense (3,179 ) 628 2,460 (1,571 ) 1,509
(7,938 ) (5,516 ) Asset Impairment 1,135 — 277 1,178 277 1,037 553
(Gain) loss on disposition of property and equipment (69 ) 13 (33 )
(85 ) (4 ) (1,116 ) 43 Net change in operating assets and
liabilities 3,441 (3,200 ) (292
) (1,452 ) (12,030 ) (9,276 )
(13,235 )
Net cash provided by (used in) operating
activities 10,184 6,670 (7,599 ) 24,856 1,317 30,431 7,001
Interest expense, excluding amortization 8,905 7,809 8,650 25,503
24,576 34,390 33,071 Net change in operating assets and liabilities
(3,441 ) 3,200 292 1,452 12,030 9,276 13,235 Current portion of
income tax expense 3,934 4,052 26,758 10,780 31,931 13,788 34,263
Stock-based compensation (1,064 ) (804 ) (709 ) (2,690 ) (1,858 )
(3,380 ) (2,452 ) Foreign exchange gain (loss) on revaluation of
debt 1,200 (1,057 ) (396 ) 2,115 340 2,033 260 Asset Impairment
(1,135 ) — (277 ) (1,178 ) (277 ) (1,037 ) (553 ) Gain (loss) on
disposition of property and equipment 69 (13 )
33 85 4
1,116 (40 )
EBITDA 18,652 19,857 26,752 60,923 68,063
86,617 84,785 Stock-based compensation 1,064 804 709 2,690 1,858
3,380 2,452 Operational restructuring expenses 5,001 5,509 3,466
12,734 15,712 15,164 22,102 Inventory write-off related to a closed
plant 465 — — 465 — 465 262 Non-restructuring impairment expense
149 — — 149 — 149 — Other non-recurring expense 1,552 700 — 2,402 —
2,402 — Plant startup costs 1,378 1,132
537 3,110 953
3,677 1,058
Adjusted EBITDA $
28,261 $ 28,002 $ 31,464
$ 82,473 $ 86,586 $
111,854 $ 110,658
View source
version on businesswire.com: http://www.businesswire.com/news/home/20151104006912/en/
Xerium Technologies, Inc.Cliff Pietrafitta, 919-526-1444Investor
RelationsIR@xerium.com
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