Highlights
- Full year 2016 GAAP operating cash flow
of $36.5 million and capital expenditures of $13.7 million
resulting in free cash flow of $22.8 million.
- Full year 2016 sales of $471.3 million
compared to $477.2 million in 2015, a 1% decline (see Table
2).
- Full year operating income of $46.1
million, compared to $46.0 million in 2015, approximately
flat.
- Full year adjusted EBITDA of $95.4
million, compared to $101.9 million in the prior year.
- Q4 2016 sales of $113.2 million were
down 2% from $115.3 million in Q4 2015 (see Table 1). Q4 2016
operating income of $8.8 million and adjusted EBITDA of $20.4
million were flat and down 5.1%, respectively compared to Q4 2015
results.
- Began $100 million debt repayment
program in 2016, and reduced total debt to $508.1 million and net
debt to $511.7 million at year end 2016.
- End market outlook improving from a 38%
decrease in global machine closures and improving end market
exposure with greater than 75% of revenue in growing paper
grades.
- Centerpiece investment of Xerium’s
repositioning program was a new machine clothing plant in China,
marking a $35 million investment. 2016 was a successful first year
ramp-up for the plant, which is located in the largest end market
in the world for Xerium’s products and services.
- New wins program delivered a record $45
million of new business in 2016 and backlog grew by 5% over the
prior year. Program success is attributed to an improved geographic
footprint and machines tooled to deliver the 90 new products
launched since 2013.
- Further accelerated the Company’s
repositioning and deleveraging with the Company’s first acquisition
in 9 years. The JJ Plank Corporation/Spencer Johnston (“Spencer
Johnston”) acquisition is performing in line with
expectations.
Xerium Technologies, Inc. (NYSE:XRM), a leading, global provider
of industrial consumable products and services, today reported
fourth quarter and full year 2016 financial results.
Harold Bevis, President and Chief Executive Officer said, “2016
was a noteworthy year for Xerium as the Company ramped up its first
ever machine clothing plant in China, the largest market in the
world for its products and services. The China facility was the
largest component of our repositioning efforts, and accounted for
all of the Company’s above-trend capital spending during 2013 to
2016. The Company’s successful footprint repositioning has been
coupled with the global rollout of 90 new product launches during
the same timeframe. The Company has secured $94 million of new
business wins (sales into new customer machine positions),
including a record $45 million of new business wins in 2016,
resulting in a strong pipeline and 5% backlog growth over the prior
year end. The rate of machine closures dramatically slowed in 2016,
and we believe that balance is forming between old machines being
shut down and new machines being started up.”
Full-year 2016
Highlights
In 2016 Xerium completed its large one-time repositioning which
commenced in 2012, and the Company is now fully engaged with the
dual effort of filling this new capacity and, at the same time,
paying down debt with its free cash flow. Achievement on these
initiatives began in 2016, as the Company generated $22.8 million
of free cash flow. The Company utilized this free cash flow to
reduce leverage in the fourth-quarter.
As a result of repositioning, the new machine clothing plant in
China, and the retooling and debottlenecking of multiple other
plants to accommodate its 90 new product introductions, the Company
achieved $45 million of new wins in 2016 – a new record. The
Company is committed to carefully pursuing and securing sustainable
revenue streams with new business in growth markets, setting the
stage for further progress in 2017.
In 2016 the Company also completed the acquisition of Spencer
Johnston, which brings a new set of best-in-class capabilities to
the Company’s rolls business, and is supportive to the
de-leveraging initiative. Q4 2016 was the second full quarter of
ownership of Spencer Johnston, and this fully integrated business
unit is performing in line with expectations providing positive
contribution to both current results and the Company’s
repositioning efforts.
The Company continued to lower its costs permanently with its
Lean Six Sigma program and its total cost reduction initiatives.
Delivering high quality products, offsetting negative costs,
inflation and mix changes remain a steady-state objective for
Xerium. The Company achieved its cost-takeout objectives in 2016
and has a similar program already underway in 2017.
Q4 Financial Highlights:
Q4 net sales were $113.2 million, a decrease of 1.5%
year-over-year on a constant currency basis. The decrease was
largely due to a (2.7)% machine clothing decline in the quarter,
which represented an improvement over the market decline rate of
(5)% for the first nine months of the year. Order patterns are
improving and backlogs are healthy going into 2017. Table 1
summarizes Q4 net sales and the effect of currency translation
rates.
Table 1
Net Sales For The Quarter Ended
$ Impact of
% Change
12/31/2016
12/31/2015
$ Change
Currency
% Change
Excluding
Change
Currency Roll Covers $ 44,004 $ 44,327 ($323 ) ($493
) (0.7 )% 0.4 % Machine Clothing 69,184
71,020 (1,836 ) 52 (2.6 )%
(2.7 )% Total $ 113,188 $ 115,347
($2,159 ) ($441 ) (1.9 )% (1.5 )%
Q4 2016 gross profit was $41.9 million, or 37.1% of net sales,
compared to $44.4 million, or 38.5% of net sales in Q4 2015.
Machine clothing gross margin, excluding startup costs declined to
40.9% in Q4 2016 from 41.6% in Q4 2015. The decline in gross profit
margin was primarily due to negative currency impacts. Rolls and
service gross margin, excluding startup costs, declined to 31.7% in
Q4 2016, from a gross margin of 34.9% in Q4 2015. The decline was
primarily due to unfavorable product mix in Europe.
SG&A expenses (including Selling, G&A and R&D
expenses) were $30.9 million, or 27.3% of net sales in Q4 2016,
versus $33.3 million, or 28.9% of net sales in Q4 2015. The
decrease in SG&A expenses was primarily attributable to savings
achieved through the Company’s cost-out initiatives and a lump-sum
distribution offered in Q4 2015 to certain US pension participants
as part of the Company’s plan to reduce future pension costs.
Q4 2016 basic loss per share was $(0.55) versus Q4 2015 of
$(0.40). Excluding adjustments (see Table 3) losses per share were
$(0.25) in Q4 2016, compared to $(0.09) in Q4 2015 as a result of
lower sales volumes and gross margins, partially offset by lower
SG&A costs.
GAAP operating income in the fourth quarter of 2016 was $8.8
million, or 7.8% of sales, approximately flat with the year-ago
period. Q4 2016 adjusted EBITDA declined to $20.4 million, or 18.0%
of net sales, compared to $21.5 million, or 18.6% of net sales in
2015. In addition to interest, taxes, depreciation and
amortization, adjusted EBITDA excludes expenses related to the
Company’s restructuring activities, plant start-up costs, stock
based compensation, foreign currency gains and losses and
non-recurring expenses. For a full reconciliation, refer to Table
4.
Cash taxes were $1.7 million in Q4 2016. Full year 2016 cash
taxes were $13.7 million. 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.
The Company generated GAAP operating cash flow of $14.5 million
and free cash flow of $10.5 million during the fourth quarter of
2016 and paid down debt with the excess amounts. Net debt was
$511.7 million at the end of Q4 2016 compared to $522.9 million at
the end of Q3 2016. The Company's net debt leverage ratio on a pro
forma basis is 5.1x after factoring in the acquisition of Spencer
Johnston (incremental Spencer Johnston pro forma leverage includes
incremental debt of $18 million and pro forma full year EBITDA of
$6 million). The Company plans to utilize its free cash flow to pay
down debt and de-lever over the remainder of its debt
maturities.
2017 Outlook
The industry has gone through a hard business cycle in the last
few years due to the strong US dollar and a high rate of machine
closures. At the same time, the Company has repositioned itself
into growth markets with new products versus harvesting its
declining legacy positions. The Company has completed the
above-trend investment part of this repositioning, and is achieving
its objectives of securing sustainable new business in targeted
markets.
The high rate of machine closures is abating and this will
lessen the pressure on the Company’s legacy financial model.
Industry consensus points to similar trends of improving market
prospects, and a leading third-party market forecast estimates that
a large number of new machines will be built, especially in China.
A leading indicator of successful repositioning results is the
Company’s New Wins metric, which tracks successful new business
secured with growth companies in our targeted areas. The New Wins
program is gaining momentum, production bottlenecks are being
resolved with regard to the 90 new products, and backlogs are
strengthening.
With an improving backdrop and the effect of repositioning to
fully offset an uncertain currency outlook and graphical grade
pressure the Company expects similar financial outcomes for
adjusted EBITDA to 2016. The Company also expects 2017 free cash
flow to be modestly lower, as higher cash interest will not be
fully offset by improved operational cash flow. The Company does
expect strengthening business fundamentals and will update comments
regarding this outlook as these events unfold. Given this outlook,
the Company is well positioned to execute against its $100 million
debt pay down program and achieve a naturally growing company that
is attached to growth markets and growth customers.
CONFERENCE CALL
The Company plans to hold a conference call on the following
morning:
Date: March 2, 2017 Start Time: 9:00 a.m. Eastern Time
Domestic Dial-In: +1-844-818-4921 International Dial-In:
+1-484-880-4582 Conference ID: 65969116
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.
ABOUT XERIUM TECHNOLOGIES,
INC.
Xerium Technologies, Inc. (NYSE:XRM) is a leading, global
provider of industrial consumable products and services. Its
products and services are consumed during machine operation by its
customers. Xerium operates around the world under a variety of
brand names, and 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 28
manufacturing facilities in 13 countries around the world, Xerium
has approximately 2,950 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, Free Cash Flow, Net Debt and currency effects on
Net Sales, to assist in evaluating its 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 tables
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, 2016 filed with
the Securities and Exchange Commission on March 1, 2017 and our
presentation that will accompany our conference call tomorrow.
CONSTANT CURRENCY NET
SALES
Table 2 summarizes YTD net sales and the effect of changes in
currency translation rates:
Table 2
Net Sales For The Year Ended
$ Impact of
% Change
12/31/2016
12/31/2015
$ Change
Currency
% Change
Excluding
Change
Currency Roll Covers $ 184,944 $ 177,252 $ 7,692
($2,895 ) 4.3 % 6.0 % Machine Clothing 286,373
299,991 (13,618 ) 442
(4.5 )% (4.7 )% Total $ 471,317 $
477,243 ($5,926 ) ($2,453 ) (1.2
)% (0.7 )%
BASIC ADJUSTED NET LOSS PER SHARE (net
of taxes)
Table 3 represents a reconciliation of basic net loss per share
to basic adjusted loss per share for the three months ended
December 31, 2016 and 2015:
Table 3 Three
Months Ended December 31, 2016 2015
Basic net loss per share
$ (0.55 ) $ (0.40
)
Adjustments: Pension settlement loss — 0.07 Non-recurring tax
reserve adjustment 0.13 (0.04 ) Restructuring expense 0.12 0.11
Valuation allowance adjustment — 0.05 Plant start-up costs 0.02
0.05 Non-recurring expense 0.02 0.01 Impairment of idle machinery
and equipment — 0.02 Inventory write-down at a closed plant — 0.01
Loss on debt extinguishment 0.01 0.02 Foreign exchange loss —
0.01 Basic adjusted loss per share $ (0.25 )
$ (0.09 )
NET DEBT
Net debt is defined as GAAP total debt less cash and deferred
finance fees.
FREE CASH FLOW
Free cash flow is defined as GAAP operating cash flow less
capital expenditures.
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 (loss) 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), (xiii) foreign
currency losses and (xiv) 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 (loss)
for such period, (i) foreign currency gains and (ii) non-cash gains
with respect to the items described in clauses (vi), (vii), (ix),
(xi), (xii) and xiv (other than, in the case of clause (xiv), 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 (iii) provisions for tax benefits based on
income or profits. Notwithstanding the foregoing, Adjusted EBITDA,
as defined and calculated below, may not be comparable to similarly
titled measurements used by other companies.
Consolidated net income (loss) 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 (loss): (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 and (iv) any cancellation of indebtedness income. Table 4
provides a reconciliation from net income and operating cash flows,
which are the most directly comparable GAAP financial measures, to
EBITDA and Adjusted EBITDA.
Adjusted EBITDA Definition
Modification
During the 4th quarter of 2016, the Company modified its
definition of Adjusted EBITDA to exclude foreign exchange gains and
losses from this non-GAAP measure. This change enhances investor
insight into the Company’s operational performance. In previous
filings, Q4 and full year 2015 Adjusted EBITDA were stated at $21.3
million and $103.7 million, respectively.
Table 4
Q4 2016 Q4
2015 YTD 2016 YTD 2015 Net loss
$ (8,945 ) $ (6,325 )
$ (21,618 ) $ (4,380 )
Stock-based compensation 488 608 2,612 3,298 Depreciation 7,907
7,555 32,115 28,952 Amortization of other intangibles 269 70 841
298 Deferred financing cost amortization 830 821 3,063 3,462
Unrealized foreign exchange gain on revaluation of debt (3,310 )
(1,311 ) (3,267 ) (3,426 ) Deferred taxes 3,285 (1,210 ) 219 (2,785
) Asset impairments — 357 — 1,536 (Gain) loss on disposition of
property and equipment — (1,298 ) 50 (1,383 ) Pension settlement
losses — 1,108 — 1,108 Loss on extinguishment of debt 202 388
11,938 388 Change in assets and liabilities which provided (used)
cash 13,816 5,545 10,556 6,219
Net
cash provided by operating activities 14,542
6,308 36,509 33,287 Interest expense,
excluding amortization 12,110 9,448 43,092 34,951 Change in assets
and liabilities which (provided) used cash (13,816 ) (5,545 )
(10,556 ) (6,219 ) Current portion of income tax expense 1,439
5,466 9,063 16,250 Stock-based compensation (488 ) (608 ) (2,612 )
(3,298 ) Pension settlement loss — (1,108 ) — (1,108 ) Unrealized
foreign exchange gain on revaluation of debt 3,310 1,311 3,267
3,426 Asset Impairment — (357 ) — (1,536 ) Gain (loss) on
disposition of property and equipment — 1,298 (50 ) 1,383 Loss on
extinguishment of debt (202 ) (388 ) (11,938 ) (388 )
EBITDA
16,895 15,825 66,775 76,748 Operational
restructuring 2,259 1,916 10,362 14,649 Loss on extinguishment of
debt 202 388 11,938 388 Non-recurring expenses 363 167 1,116 2,569
Stock-based compensation 488 608 2,612 3,298 Pension settlement
losses — 1,108 — 1,108 Non-restructuring impairment charges — 345 —
494 Plant startup costs 320 776 2,176 3,886 Inventory write-off of
closed facilities — 121 — 587 Foreign exchange (gain) loss (94 )
278 383 (1,872 )
Adjusted EBITDA 20,433
21,532 95,362 101,855
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, 2016 filed on March 1, 2017
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.
Xerium Technologies, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(Dollars in thousands, except per share data)
Three Months Ended Year Ended December 31,
December 31, 2016 2015
2016 2015 Net sales $ 113,188 $ 115,347 $
471,317 $ 477,243 Costs and expenses: Cost of products sold 71,247
71,099 293,842 288,512 Selling 15,538 15,770 62,810 64,414 General
and administrative 13,486 15,987 51,063 56,250 Research and
development 1,829 1,709 7,100 7,404 Restructuring 2,259
1,916 10,362 14,649
104,359 106,481 425,177
431,229 Income from operations 8,829 8,866 46,140 46,014
Interest expense, net (12,940 ) (10,269 ) (46,155 ) (38,413 ) Loss
on debt extinguishment (202 ) (388 ) (11,938 ) (388 ) Foreign
exchange gain (loss) 94 (278 ) (383 )
1,872 Loss before provision for income taxes (4,219 ) (2,069
) (12,336 ) 9,085 Provision for income taxes (4,725 ) (4,256
) (9,282 ) (13,465 ) Net loss $ (8,944 ) $
(6,325 ) $ (21,618 ) $ (4,380 ) Comprehensive loss $
(37,497 ) $ (6,428 ) $ (34,604 ) $ (40,134 )
Net loss per share: Basic $ (0.55 ) $ (0.40 ) $ (1.35
) $ (0.28 ) Diluted $ (0.55 ) $ (0.40 ) $
(1.35 ) $ (0.28 ) Shares used in computing net loss per
share: Basic 16,127,451 15,739,331
15,994,467 15,640,836 Diluted 16,127,451
15,739,331 15,994,467
15,640,836
Consolidated Selected
Financial Data Cash Flow Data: (in thousands)
Year Ended December 31, 2016 December 31,
2015 Net cash provided by operating activities $ 36,509 $
33,287 Net cash used in investing activities $ (29,814 ) $ (47,605
) Net cash (used in) provided by financing activities $ (2,326 ) $
14,450
Other Financial Data: (in thousands)
Depreciation and amortization $ 32,956 $ 29,250 Capital
expenditures, gross $ (13,706 ) $ (50,871 )
Balance Sheet
Data: (in thousands) December 31, 2016
December 31, 2015 Cash and cash equivalents $ 12,808
$ 9,839 Total assets $ 541,913 $ 550,374 Total debt $ 508,087 $
483,173 Total stockholders' deficit $ (146,905 ) $ (113,070 )
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170301006589/en/
Xerium Technologies, Inc.Cliff Pietrafitta, 919-526-1444Investor
RelationsIR@xerium.com
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