Highlights
- Q1 2016 Sales of $115.0 million;
Adjusted EBITDA of $24.0 million. Machine clothing sales were down
due to declining markets and grades, and rolls sales were up due to
the company’s repositioning program.
- Repositioning program results were
powerful and contributed ~30% of Adjusted EBITDA both through
incremental new sales and a lowered cost structure.
- Q1 2016 free cash flow of $10.5
million; an improvement of $14.7 million year-over-year.
- Improved 2016 free cash flow guidance
to $25 to $30 million, targeting 2016 net debt leverage of
4.3x.
- Acquisition of JJ Plank/Spencer
Johnston (“Spencer Johnston”) adds capability to rolls business,
and is immediately de-leveraging on a pro forma basis.
Xerium Technologies, Inc. (NYSE:XRM), a leading, global provider
of highly engineered, industrial consumable products and integrated
services today reported first quarter 2016 financial results.
First quarter sales were $115.0 million compared to prior-year
sales of $121.0 million. On a constant currency basis, sales were
down (2.8)%, compared to the first quarter of 2015. Sequentially,
sales were approximately flat versus the fourth quarter of 2015.
The Company’s performance in the quarter reflected market softness,
increasingly offset by higher sales from products associated with
the Company’s strategic repositioning initiatives especially rolls
sales, which were up 3.5% year-over-year.
First quarter Adjusted EBITDA was $24.0 million, lower than the
prior-year of $26.2 million, but a sequential improvement versus
$21.3 million in the fourth-quarter of 2015. In Q1 2016, the
Company realized a $5.1 million benefit from ongoing cost reduction
programs, and began to realize incremental profit contribution from
sales associated with its repositioning projects.
Harold Bevis, President and Chief Executive Officer commented,
“Our repositioning investments are becoming evident and serving as
a catalyst for improved financial performance. Already our roll
sales are increasing, as we expected they would. We are pleased to
report sequential gains in profitability and a strong
year-over-year improvement in free cash flow. We are intently
focused on building momentum behind this catalyst, which we expect
to offset the declines we are seeing in certain markets and
products. We believe we are on a clear path to improved
fundamentals, including consistently positive cash generation. We
expect to de-lever our balance sheet as we continue our strategic
repositioning to best align Xerium for future global demand.”
Bevis continued, “Our acquisition of Spencer Johnston is a
modestly sized, but important deal that accelerates our strategic
repositioning. Rolls are a special business for us, and it is
growing as an industry. This acquisition further expands both our
products and our presence. We expect to achieve straight-forward
cost-based synergies and generate strong cash flow from this
addition. It will also accelerate our de-leveraging process. We are
excited to meet our new employees, introduce ourselves to our new
customers, and begin integration of their four factories into our
operational footprint. This solidly adds new capability to our
industry-leading rolls business.”
With regard to overall corporate repositioning, the company made
incremental progress on several of its strategic priorities,
including:
Sales Repositioning
- Brought new rolls capacity and
capabilities on-line at the Neenah, WI facility.
- Successfully field trialing 14 new
products which introduce new material technology, product
categories, and machine analytics.
- Completed the acquisition of rolls
company Spencer Johnston, which accelerates and enhances Xerium’s
efforts to reposition its core business, particularly in its
stronger performing rolls segment.
Cost Reductions
- Successfully executed on cost reduction
efforts, with $5.1 million of cost-out in Q1 2016 versus prior
year. The 2016 full year plan is $25 million for cost-out
initiatives.
- Concluded production at the Middletown,
VA production facility, bringing total facility closures to nine
since 2012. The rolls machines in this plant will be the equipment
source for two brand-new rolls plants in growing geographies
outside of North America – one in Chile and one in Asia.
Cash Generation and
De-leveraging
- Generated $10.5 million of free cash
flow in Q1 2016, an improvement of $14.7 million compared to cash
flow of $(4.2) million in Q1 2015, marking the completion of an
accelerated period of capital investment. The company pulled
forward a significant amount of capex to launch its repositioning
efforts and that has been completed. Capex will now be lower than
normal for several years.
- Post synergies, management expects the
Spencer Johnston acquisition to provide $6 million of annual EBITDA
and free cash flow at full run-rate and the acquisition is expected
to produce an immediate de-leveraging effect on a pro forma basis.
This business will require minimal capex on an ongoing basis.
Results of Operations:
Net sales for Q1 2016 were $115.0 million, a decrease of (2.8)%
compared to Q1 2015 sales of $121.0 million, on a constant currency
basis. The decrease in sales was primarily attributable to lower
machine clothing volumes in the Asia and South America markets, and
the ongoing shifts of pricing and mix, partially offset by
repositioning initiatives. Conversely, rolls sales are increasing
as a result of the company’s repositioning program.
Table 1 summarizes Q1 net sales and the effect of currency
translation rates.
Table 1
Net Sales For The Quarter
Ended
3/31/2016 3/31/2015
$ Change
Currency Effect of $
Change
% Change
% Change Excluding
Currency
Roll Covers $43,628 $43,745 ($117 )
($1,665 ) (0.3 )% 3.5 % Machine Clothing
71,337 77,284 (5,947 )
(1,049 ) (7.7 )% (6.3 )% Total $114,965
$121,029 ($6,064 ) ($2,714 )
(5.0 )% (2.8 )%
Q1 2016 gross profit was $43.5 million, or 37.9% of net sales,
compared to $48.6 million, or 40.1% of net sales in Q1 2015.
Machine clothing gross margin, excluding plant startup costs,
declined to 40.9% in Q1 2016 from 43.5% in Q1 2015. The decline in
gross profit margin is primarily due to discrete production
inefficiencies, unfavorable fixed cost absorption, and the effect
of the ongoing shift in pricing and mix, partially offset by cost
reduction initiatives, net of inflation. Rolls gross margin,
excluding startup costs, declined to 35.0% in Q1 2016, from 35.5%
in Q1 2015. The decline was primarily due to unfavorable currency
effects.
SG&A expenses (including Selling, G&A and R&D
expenses) were $29.2 million, or 25.4% of net sales in Q1 2016,
compared to $32.1, or 26.6% of sales in Q1 2015. The improvement in
SG&A expense is primarily attributable to savings achieved
through the Company’s cost-out initiatives and favorable currency
effects.
Q1 2016 Adjusted EBITDA declined 8.4% to $24.0 million, or 20.9%
of net sales, compared to Q1 2015 Adjusted EBITDA of $26.2 million,
or 21.7% of net sales. Adjusted EBITDA excludes expenses related to
the Company’s restructuring activities, plant start-up costs, stock
based compensation, and non-recurring expenses. For a full
reconciliation, refer to table 3.
Q1 2016 basic loss per share was $(0.09) per share compared to
Q1 2015 basic income per share of $0.11. Excluding adjustments (see
Table 2) earnings per share were $0.07 in Q1 2016, compared to
$0.28 in Q1 2015.
Cash taxes were $3.1 million in Q1 2016. For the full year 2016,
we expect that cash taxes will be approximately $15.7 million or
60% of pre-tax income. Cash taxes are primarily impacted by income
the company earns in tax paying jurisdictions relative to income it
earns in non-tax paying jurisdictions, primarily the United
States.
At March 31, 2016, the Company had total liquidity of $49
million, and generated free cash flow of $10.5 million during the
first quarter of 2016, marking a $14.7 million improvement over the
prior year. EVP and Chief Financial Officer, Cliff Pietrafitta said
“This significant cash flow positive swing highlights our exit from
a period of accelerated repositioning investment. While our work to
realign the business continues, we are pleased that future
activities will require less capital, supporting our focus on cash
generation and de-levering the balance sheet. Further to that
point, on April 26, 2016 we announced plans to establish a new roll
cover and mechanical services facility located in
Concepción, Chile. We are continuing to reposition
assets from low-growth to high-growth markets. This new project is
very capital efficient in that Xerium already owns the majority of
the equipment that will be installed in the new Concepción
plant.
Net debt (which is defined as total debt less cash) was $481.9
million at the end of Q1 2016 compared to $480.6 million at the end
of Q4 2015. The Company's net debt leverage ratio was 4.8X at March
31, 2016 and 4.7X on a pro forma basis after factoring in the
acquisition of Spencer Johnston (incremental Spencer Johnston pro
forma leverage includes incremental debt of $18 million and the
first full year of pro forma EBITDA of $5.4 million). The Company
plans to utilize its free cash flow to de-lever over the remainder
of the year.
Updated 2016 Outlook
- Consistent with the Company’s previous
communications, the Company expects continuing sales volume growth
in its rolls segment for the full year. In the machine clothing
segment, sales are expected to remain flat to slightly negative
relative to the prior year, as the company brings on new volume
from plant investments and new products to offset the impact of
declining markets and grades.
- As a result of recent developments
including the acquisition of Spencer Johnston and a modestly
firming end-market outlook, the Company expects 2016 Adjusted
EBITDA to be in a range of $107 to $113 million. When fully
integrated, the Company expects the acquisition of Spencer Johnston
to provide a benefit to Adjusted EBITDA of $6 million on an ongoing
basis, assuming no unexpected changes to end-market
conditions.
- As a result of lower expected capital
expenditures and the inclusion of operating cash flow from Spencer
Johnston, the Company expects 2016 free cash flow in a range of $25
million to $30 million. The Company further expects that the
Spencer Johnston acquisition will add $6 million of free cash flow,
once at full run rates. The Company is targeting 2016 net debt
leverage of 4.3x.
CONFERENCE CALL
The Company plans to hold a conference call on the following
morning:
Date: May 5, 2016 Start Time: 8:00 a.m. Eastern Time Domestic
Dial-In: +1-844-818-4921 International Dial-In: +1-484-880-4582
Conference ID: 87951589
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.
ABOUT XERIUM TECHNOLOGIES,
INC
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 30 manufacturing facilities in 13 countries
around the world, Xerium has approximately 3,000 employees.
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 Adjusted EPS, 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 the applicable table
within this press release. 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-K for the year ended December 31, 2015 filed with
the Securities and Exchange Commission on March 14, 2016, our March
31, 2016 Form 10-Q filed with the Securities and Exchange
Commission May 4, 2016 and our presentation that will accompany our
conference call tomorrow.
BASIC ADJUSTED EARNINGS PER SHARE (net
of taxes)
Table 2 represents a reconciliation of basic net (loss) earnings
per share to basic adjusted earnings per share for the three months
ended March 31, 2016 and 2015:
Table 2 Three Months Ended March
31, 2016 2015 Basic net (loss) income per share $
(0.09 ) $ 0.11 Adjustments: Brazilian amnesty interest deduction
(0.06 ) — Non-recurring tax reserve adjustment — 0.07 Restructuring
expense 0.16 0.10 Valuation allowance reversal — (0.01 ) Plant
start-up costs 0.06 0.05 FX gain — (0.04 ) Basic adjusted
earnings per share $ 0.07 $ 0.28
EBITDA AND ADJUSTED
EBITDA
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. Table 3 provides a reconciliation from net
income and operating cash flows, which are the most directly
comparable GAAP financial measures, to EBITDA and Adjusted
EBITDA.
Table 3 Three Months Ended March 31, 2016
2015 Net (loss) income $ (1,445 ) $
1,733 Stock-based compensation 592 822 Depreciation 7,900 7,163
Amortization of intangibles 94 79 Deferred financing cost
amortization 756 875 Foreign exchange loss (gain) on revaluation of
debt 1,120 (1,973 ) Deferred tax expense 155 979 Loss on
disposition of property and equipment 17 14 Net change in operating
assets and liabilities 4,885 (1,691 )
Net cash provided by operating
activities
14,074 8,001 Interest expense, excluding amortization 9,585 8,789
Net change in operating assets and liabilities (4,885 ) 1,691
Current portion of income tax expense 2,510 2,796 Stock-based
compensation (592 ) (822 ) Foreign exchange gain (loss) on
revaluation of debt (1,120 ) 1,973 Loss on disposition of property
and equipment (17 ) (14 )
EBITDA 19,555 22,414 Stock-based
compensation 592 822 Operational restructuring expenses 2,832 2,224
Other non-recurring expenses 103 — Plant startup costs 877
750
Adjusted EBITDA $ 23,959 $
26,210
Xerium Technologies, Inc.
Consolidated Statements of
Operations
(Dollars in thousands, except per share
data and unaudited)
Three Months ended March 31, 2016
2015 Net Sales $ 114,965 $ 121,029 Costs and expenses: Cost
of products sold 71,428 72,476 Selling 15,721 16,326 General and
administrative 11,507 13,846 Research and development 1,940 1,962
Restructuring 2,832 2,224 103,428 106,834
Income from operations 11,537 14,195 Interest expense, net
(10,341 ) (9,664 ) Foreign exchange gain 24 977
Income before provision for income taxes 1,220 5,508 Provision for
income taxes (2,665 ) (3,775 ) Net (loss) income $ (1,445 ) $ 1,733
Comprehensive income (loss) $ 7,373 $ (29,398 ) Net
(loss) income per share: Basic $ (0.09 ) $ 0.11 Diluted $
(0.09 ) $ 0.11 Shares used in computing net (loss) income
per share: Basic 15,789,991 15,560,995 Diluted
15,789,991 16,479,368
Consolidated Selected
Financial Data Cash Flow Data: (in thousands)
Qtr Ended March 31, 2016 March 31, 2015
Net cash provided by operating activities 14,074 $ 8,001 Net cash
used in investing activities (3,530 ) $ (12,123 ) Net cash provided
by financing activities (3,897 ) $ 3,947
Other Financial
Data: (in thousands) Depreciation and amortization $
7,994 $ 7,242 Capital expenditures, gross (3,550 ) $ (12,155 )
Balance Sheet Data: (in thousands) March 31,
2016 December 31, 2015 Cash and cash
equivalents $ 15,450 $ 9,839 Total assets $ 564,596 $ 550,374 Total
debt (including capital leases) $ 497,323 $ 490,466 Total
stockholders' deficit (106,123 ) $ (113,070 )
FORWARD-LOOKING
STATEMENTS
This press release contains forward-looking statements. The
words "will", "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 EBITDA and 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 EBITDA and
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, 2015 filed on March 14, 2016
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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160504006818/en/
ICR, Inc.Michael Callahan, 203-682-8311orXerium Technologies,
Inc.Cliff Pietrafitta, 919-526-1444Investor
RelationsIR@xerium.com
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