Highlights
- Q1 2017 sales of $119.9 million,
increased 4.3% from $115.0 million in Q1 2016 (see Table 1) due to
incremental sales from the acquisition of Spencer Johnston and
increased machine clothing sales. Q1 2017 sales were up 5.5% versus
Q1 2016, when measured on a constant-currency basis.
- Q1 2017 gross margin of 39.6%, a 170
basis point increase over the prior year period of 37.9%, as
production efficiencies favorably impacted our results.
- Q1 2017 income from operations of $14.3
million, a $2.7 million, or 23.7%, increase over the prior year
period of $11.5 million.
- Q1 2017 net loss of $(2.8) million, a
$1.4 million increase in net loss over the prior year period of
$(1.4) million due to an increase in interest expense, partially
offset by higher sales and operational efficiencies.
- Q1 2017 adjusted EBITDA of $26.6
million, an increase of 11.0% over the prior year period,
representing 22.2% of sales. Q1 2017 adjusted EBITDA was up 15.8%
to $27.7 million versus Q1 2016 when measured on a
constant-currency basis (see Table 2).
- Order backlog increased again to $181
million driven by diversification of sales efforts and strong order
patterns. This is the highest company backlog in 5 years.
- Company names Mark Staton President and
CEO; appoints Mitchell I. Quain to Board of Directors.
Xerium Technologies, Inc. (NYSE:XRM), a leading, global provider
of industrial consumable products and services, today reported
first quarter 2017 financial results.
Clifford Pietrafitta, Chief Financial Officer said, “We are
pleased to see the effects of our repositioning efforts taking hold
through improved volume and lower costs. During the first quarter
of 2017, sales diversification and momentum from new products led
to strong performance with 4.3% growth over the prior year. Higher
sales combined with operational excellence program results led to
an 11.0% improvement in adjusted EBITDA, while our order patterns
remained strong and outpaced sales during the period.”
Pietrafitta continued, “Production levels improved during Q1 as
our debottlenecking actions took effect. We are also pleased to
report that during the quarter we shipped our first forming fabric
from our new Machine Clothing manufacturing complex in Kunshan,
China.
Q1 Financial Highlights:
Q1 net sales were $119.9 million, an increase of 5.5%
year-over-year on a constant currency basis (see Table 1). The
increase was driven by a constant currency sales increase of 9.8%
in roll covers and 2.8% in machine clothing. Order patterns during
the quarter remained strong with $128.0 million of orders and a
quarter-end backlog of $181 million.
Q1 2017 gross profit was $47.5 million, or 39.6% of net sales,
compared to $43.5 million, or 37.9% of net sales, in Q1 2016.
Machine clothing gross margin improved to 42.9% in Q1 2017 from
40.1% in Q1 2016. The increase in gross profit margin was primarily
due to production efficiencies, partially offset by negative
currency effects. Rolls and service gross margin improved slightly
to 34.6% in Q1 2017 from a gross margin of 34.2% in Q1 2016.
SG&A expenses (including Selling, G&A and R&D
expenses) were $30.1 million, or 25.1% of net sales, in Q1 2017
versus $29.2 million, or 25.4% of net sales, in Q1 2016. The
increase in SG&A expenses was due to incremental overhead costs
related to the Spencer Johnston acquisition.
Q1 2017 basic loss per share was $(0.18) versus Q1 2016 of
$(0.09). Basic adjusted earnings per share (see Table 3) were $0.06
in Q1 2017 compared to $0.07 in Q1 2016 as a result of higher
interest, partially offset by improved operations.
GAAP income from operations in the first quarter of 2017 was
$14.3 million, or 11.9% of sales, up $2.7 million, or 23.6%
compared to Q1 2016. Q1 2017 adjusted EBITDA improved to $26.6
million, or 22.2% of net sales, compared to $23.9 million, or 20.8%
of net sales in 2016, an increase of 15.8% on a constant currency,
operational basis (see Table 2). The increase was driven by higher
sales and operational efficiencies. 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 $2.0 million in Q1 2017. 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.
Net cash used in operating activities was $(7.2) million and
free cash flow was $(12.3) million (see Table 5) during the first
quarter of 2017 as a result of a $23.6 million semi-annual bond
interest payment, combined with a temporary build of inventory
primarily related to the launch of the Kunshan, China forming
fabric production start-up and production debottlenecking and
expansion activities.
Net debt was $524.9 million at the end of Q1 2017 compared to
$511.7 million at the end of Q4 2016. The Company's net debt
leverage ratio is 5.4x (see Table 6). 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
As disclosed previously, the Company has repositioned its
business to focus on growing end markets and geographies. These
efforts have included the introduction of approximately 90 new
products, the opening or acquisition of 4 facilities, the closure
of 8 facilities, and the conversion of much of the Company’s
equipment from graphical product set-ups over to non-graphical,
growing product set-ups.
As previously reported, third party outlooks of the Company’s
underlying markets indicate that a large number of new machines
will be installed, especially in China, and that new machine
startups are now outpacing machine closures by a 2 to 1 margin. Our
Q1 results support this assessment.
With an improving market environment and the expected impact of
repositioning programs, the Company expects 2017 full-year adjusted
EBITDA to approximate 2016 levels, or be modestly higher. In
addition, the Company expects 2017 free cash flow to be modestly
lower than the prior year, as higher cash interest and negative
currency impacts will not be fully offset by improved operational
cash flow. Given this outlook, the Company is well positioned to
execute against its 4 year, $100 million debt pay down program and
naturally grow its business.
Leadership Changes
Xerium announced earlier today that its Board of Directors has
appointed industry veteran Mark Staton President and Chief
Executive Officer, replacing Harold Bevis. Mr. Staton has also
replaced Mr. Bevis on the Company’s Board. Xerium also announced
today that it has appointed Mitchell I. Quain as a new Director,
increasing the size of the Board to eight members.
CONFERENCE CALL
The Company plans to hold a conference call this evening:
Date: May 1, 2017 Start Time: 5:00 p.m. Eastern Time Domestic
Dial-In: +1-844-818-4921 International Dial-In: +1-484-880-4582
Conference ID: 10867830
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.
Xerium Technologies, Inc. Condensed Consolidated
Balance Sheets (Dollars in thousands and unaudited)
March 31, December 31, 2017
2016 ASSETS Current assets: Cash and cash equivalents
$ 10,138 $ 12,808 Accounts receivable, net 74,666 68,667
Inventories, net 73,997 70,822 Prepaid expenses 5,658 6,325 Other
current assets 17,733 15,784 Total current assets
182,192 174,406 Property and equipment, net 288,009 284,101
Goodwill 58,064 56,783 Intangible assets 7,694 7,330 Non-current
deferred tax asset 12,810 10,737 Other assets 8,350
8,556 Total assets $ 557,119 $ 541,913
LIABILITIES AND
STOCKHOLDERS' DEFICIT Current liabilities: Notes payable $
7,596 $ 7,328 Accounts payable 42,261 36,158 Accrued expenses
52,549 64,532 Current maturities of long-term debt 9,403
8,600 Total current liabilities 111,809 116,618 Long-term
debt, net of current maturities 483,981 472,923 Liabilities under
capital lease 18,216 19,236 Non-current deferred tax liability
8,442 7,157 Pension, other post-retirement and post-employment
obligations 65,183 65,026 Other long-term liabilities 9,056 7,858
Stockholders' deficit
Preferred stock - - Common stock 16 16 Stock warrants - - Paid-in
capital 431,354 430,823 Accumulated deficit (445,900) (443,066)
Accumulated other comprehensive loss (125,038)
(134,678) Total stockholders' deficit (139,568)
(146,905) Total liabilities and stockholders' deficit $ 557,119 $
541,913
Xerium Technologies, Inc.
Consolidated Statement of Operations (Dollars in
thousands, except per share data and unaudited)
Three Months Ended
March 31,
2017 2016 Net Sales 119,866 114,965 Costs and
expenses: Cost of products sold 72,370 71,428 Selling 15,674 15,721
General and administrative 12,654 11,507 Research and development
1,744 1,940 Restructuring 3,164 2,832 105,606
103,428 Income from operations 14,260 11,537 Interest
expense, net (13,263) (10,341) Loss on extinguishment of debt (25)
- Foreign exchange loss (1,125) 24 (Loss) income
before provision for income taxes (153) 1,220 Provision for income
taxes (2,681) (2,665) Net loss (2,834)
(1,445) Comprehensive income 6,806 7,373 Net loss per
share: Basic $ (0.18) $ (0.09) Diluted $ (0.18) $ (0.09) Shares
used in computing net loss per share: Basic 16,153,113
15,789,991 Diluted 16,153,113 15,789,991
Xerium Technologies, Inc. Consolidated
Statements of Cash Flows (Dollars in thousands and
unaudited) Three Months Ended March
31, 2017 2016 Operating activities
Net loss $ (2,834) $ (1,445) Adjustments to reconcile net loss to
net cash (used in) provided by operating activities: Stock-based
compensation 531 592 Depreciation 7,819 7,900 Amortization of
intangibles 273 94 Deferred financing cost amortization 899 756
Foreign exchange loss on revaluation of debt 627 1,120 Deferred
taxes 10 155 (Gain) loss on disposition of property and equipment
(49) 17 Loss on extinguishment of debt 25 - Provision (benefit) for
doubtful accounts 41 (72) Change in assets and liabilities which
provided (used) cash: Accounts receivable (4,153) (2,130)
Inventories (1,136) 2,232 Prepaid expenses 783 (621) Other current
assets (1,785) 1,024 Accounts payable and accrued expenses (7,334)
4,689 Deferred and other long-term liabilities (940)
792 Net cash (used in) provided by operating activities (7,223)
15,103
Investing activities Capital expenditures
(5,285) (3,550) Proceeds from disposals of property and equipment
216 20 Net cash used in investing activities (5,069)
(3,530)
Financing activities Proceeds from borrowings
40,476 13,313 Principal payments on debt (29,693) (16,439) Payment
of financing fees (170) (98) Payment of obligations under capital
leases (1,520) (673) Employee taxes paid on equity awards -
(1,029) Net cash provided by (used in) financing activities
9,093 (4,926) Effect of exchange rate changes on cash flows
529 (1,036) Net (decrease) increase in cash (2,670) 5,611
Cash and cash equivalents at beginning of period 12,808
9,839 Cash and cash equivalents at end of period $ 10,138 $
15,450 Noncash capitalized lease asset and liability
$ - $ 1,259
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"). Management of the Company
uses supplementary non-GAAP measures, including Adjusted EBITDA,
Free Cash Flow, Net Debt and Adjusted EPS, internally to assist in
evaluating its liquidity and financial and operational performance.
Therefore, the Company believes these non-GAAP measures may also be
useful to investors and financial analysts. Adjusted EBITDA and
Free Cash Flow are specifically used in evaluating the ability to
service indebtedness and to fund ongoing capital expenditures. Net
Debt presents a view of the overall change in leverage from quarter
to quarter. Adjusted EPS excludes certain items the Company does
not believe to be indicative of on-going business trends in order
to better analyze historical and future business trends on a
consistent basis. Adjusted EBITDA, Free Cash Flow, Net Debt and
Adjusted EPS should not be considered in isolation or as a
substitute for net income (loss), net cash (used in) provided by
operating activities, total debt or net income (loss) per
share.
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
Annual 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.
NET SALES
Table 1 summarizes Q1 net sales and the effect of currency
translation rates. Change Excluding Currency is calculated taking
the difference between Q1 2017 net sales at Q1 2016 FX rates (in US
dollars) less Q1 2016 reported net sales
Table 1
Net Sales For The Quarter
Ended
3/31/2017 3/31/2016 $ Change
% Change
$ Change Excluding
Currency
% Change Excluding
Currency
Roll Covers $47,371 $43,628 $3,743 8.6% $4,278 9.8% Machine
Clothing 72,495 71,337 1,157
1.6% 2,015 2.8% Total $119,866
$114,965 $4,900 4.3%
$6,293 5.5%
ADJUSTED EBITDA
Table 2 summarizes Q1 adjusted EBITDA and the effect of currency
translation rates. Change Excluding Currency is calculated taking
the difference between Q1 2017 adjusted EBITDA at Q1 2016 FX rates
(in US dollars) less Q1 2016 reported adjusted EBITDA.
Table 2
Adjusted EBITDA For the Quarter
Ended
3/31/2017
3/31/2016 $ Change % Change
$ Change Excluding
Currency
% Change Excluding
Currency
Roll Covers $ 9,795 $ 9,198 $ 597 6.5% $ 565 6.1% Machine Clothing
20,807 18,635 $ 2,172 11.7% $ 3,359 18.0% Corporate (4,029)
(3,898) $ (131) (3.4%) $ (154) (4.0%)
Total $ 26,573 $ 23,935 $ 2,638 11.0% $
3,770 15.8%
BASIC ADJUSTED EARNINGS PER
SHARE
Table 3 represents a reconciliation of basic net loss per share
to basic adjusted earnings per share for the three months ended
March 31, 2017 and 2016:
Table 3 Three Months
Ended March 31, 2017 2016 Basic net
loss per share $ (0.18 ) $ (0.09 ) Adjustments: Brazil
amnesty deduction — (0.06 ) Restructuring expense 0.16 0.16 Plant
start-up costs 0.03 0.06 Foreign exchange loss 0.05 —
Basic adjusted earnings per share $ 0.06 $ 0.07
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 (loss), which is the most
directly comparable GAAP financial measure, 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, Q1 2016 Adjusted EBITDA was stated at $24.0 million based
on the definition previously used.
Table 4 Q1
2017 Q1 2016 Net loss (2,834) (1,445) Stock-based
compensation 531 592 Depreciation 7,819 7,900 Amortization of
intangibles 273 94 Deferred financing cost amortization 899 756
Unrealized foreign exchange loss on revaluation of debt 627 1,120
Deferred taxes 10 155 (Gain) loss on disposition of property and
equipment (49) 17 Loss on extinguishment of debt 25 - Net change in
operating assets and liabilities (14,524) 5,914
Net cash (used in) provided by operating activities (7,223)
15,103 Interest expense, excluding amortization 12,366 9,585 Net
change in operating assets and liabilities 14,524 (5,914) Current
portion of income tax expense 2,671 2,510 Stock-based compensation
(531) (592) Unrealized foreign exchange loss on revaluation of debt
(627) (1,120) Gain (loss) on disposition of property and equipment
49 (17) Loss on extinguishment of debt (25) -
EBITDA 21,204 19,555 Loss on extinguishment of debt 25 -
Stock-based compensation 531 592 Operational restructuring expenses
3,164 2,832 Other non-recurring expenses 45 103 Plant startup costs
480 877 Foreign exchange loss (gain) 1,124 (24)
Adjusted EBITDA 26,573 23,935
FREE CASH FLOW
Table 5 summarizes free cash flow which is defined as net cash
(used in) provided by operating activities less capital
expenditures plus proceeds from disposals of property and
equipment.
Table 5 March
31, 2017 March 31, 2016 Net cash (used in)
provided by operating activities $ (7,223) $ 15,103 Capital
expenditures (5,285) (3,550) Proceeds from disposals of property
and equipment 216 20 Free Cash flow $ (12,292)
$ 11,573
NET DEBT
Table 6 summarizes net debt which is defined as GAAP total debt
less cash and deferred financing fees and net debt leverage which
is defined as net debt divided by trailing twelve month Adjusted
EBITDA.
Table 6 March
31, 2017 December 31, 2016 Total debt
(including capital leases) $ 519,196 $ 508,087 less cash (10,138)
(12,808) less deferred financing fees 15,799
16,436 Net debt $ 524,857 $ 511,715 Trailing twelve month adjusted
EBITDA 98,000 95,362 Net debt leverage
5.4 5.4
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.
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version on businesswire.com: http://www.businesswire.com/news/home/20170501005607/en/
Xerium Technologies, Inc.Cliff Pietrafitta, 919-526-1403Chief
Financial Officer
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