Balchem Corporation (NASDAQ: BCPC) today reported financial results
for the fourth quarter and full year 2018. Ted Harris, Chairman,
CEO, and President of Balchem said, “We ended the year with a solid
fourth quarter, highlighted by record fourth quarter sales,
adjusted net earnings, and free cash flow. These results once again
highlight the strength and resilience of our business model in what
has proved to be a challenging business environment.”
Mr. Harris added, “The Balchem team made
significant progress in 2018. We are very proud to have delivered
these strong 2018 full year results with each of our four segments
contributing nicely to achieve consolidated revenue growth of 8.2%,
to a record $643.7 million, while delivering record adjusted net
earnings of $97.7 million and free cash flow of $99.5 million, both
increasing by 19.7% and 19.8% year over year, respectively. At the
same time, we completed the integration of Innovative Food
Processors that we acquired in 2017 and added Bioscreen to our
portfolio in late 2018 while significantly advancing our strategic
growth initiatives.”
Fourth Quarter 2018 Financial Highlights:
- Fourth quarter net sales of $163.5 million in 2018, an increase
of $4.3 million, or 2.7%, compared to the prior year quarter.
- Year over year quarterly sales growth in three of our four
segments, with record fourth quarter sales for our Human Nutrition
& Health, Animal Nutrition & Health, and Specialty Products
segments.
- Fourth quarter adjusted EBITDA was $39.6 million, a decrease of
$0.4 million, or 1.0%, from the prior year.
- Fourth quarter GAAP net earnings were $20.3 million, a decrease
of $21.6 million, or 51.6%, from the prior year primarily due to
the one-time favorable impact of the Tax Cuts and Jobs Act in 2017.
These net earnings resulted in GAAP earnings per share of $0.63.
Record quarterly adjusted net earnings of $25.1 million increased
$3.3 million or 14.9% from the prior year, resulting in adjusted
earnings per share(a) of $0.77.
- Record quarterly cash flows from operations were $39.5 million
for 2018 with record quarterly free cash flow(a) of $33.6
million.
Full Year 2018 Financial Highlights:
- Strong full year sales of $643.7 million, an increase of $48.9
million or 8.2% from the prior year, with year over year sales
growth in all four of our segments.
- Record Adjusted EBITDA of $159.9 million compared to $147.8
million from the prior year, an increase of $12.1 million or
8.2%.
- GAAP net earnings of $78.6 million, a decrease of $11.5 million
or 12.8% from the prior year primarily due to the favorable impact
of the Tax Cuts and Jobs Act in 2017, resulting in GAAP diluted
earnings per share of $2.42. Record adjusted net earnings of $97.7
million, an increase of $16.1 million or 19.7% from the prior year
resulting in adjusted diluted earnings per share of $3.01.
- Record full year cash flows from operations were $118.7 million
compared to $110.6 million in 2017 and record full year free cash
flow(a)was $99.5 million compared to $83.1 million in 2017.
- Declared a $15.2 million dividend on common stock of $0.47 per
share, an 11.9% increase over the prior year cash dividend.
- Reduced our net debt(b) by $76.8 million to $101.7 million as
of December 31, 2018, or 0.64 times 2018 Adjusted EBITDA.
Results for Period Ended December 31, 2018
(unaudited) |
($000 Omitted Except for Net Earnings per Share) |
|
Three Months Ended |
|
Year Ended |
|
|
|
|
|
|
|
December 31, |
|
December 31, |
|
|
2018 |
2017 |
|
2018 |
2017 |
|
|
|
|
|
|
|
|
Net
sales |
$ |
163,539 |
$ |
159,264 |
|
$ |
643,679 |
$ |
594,790 |
|
|
|
|
|
|
|
|
Gross
margin |
|
51,325 |
|
51,638 |
|
|
204,252 |
|
189,009 |
|
Operating expenses |
|
24,070 |
|
24,972 |
|
|
96,501 |
|
91,754 |
|
Earnings
from operations |
|
27,255 |
|
26,666 |
|
|
107,751 |
|
97,255 |
|
Other
expense |
|
1,992 |
|
2,144 |
|
|
8,721 |
|
8,767 |
|
Earnings
before income tax expense |
|
25,263 |
|
24,522 |
|
|
99,030 |
|
88,488 |
|
Income
tax expense |
|
4,929 |
|
(17,453 |
) |
|
20,457 |
|
(1,583 |
) |
Net
earnings |
$ |
20,334 |
$ |
41,975 |
|
$ |
78,573 |
$ |
90,071 |
|
|
|
|
|
|
|
|
Diluted
net earnings per common share |
$ |
0.63 |
$ |
1.30 |
|
$ |
2.42 |
$ |
2.79 |
|
|
|
|
|
|
|
|
Adjusted
EBITDA(a) |
$ |
39,598 |
$ |
39,992 |
|
$ |
159,936 |
$ |
147,833 |
|
Adjusted
net earnings(a) |
$ |
25,146 |
$ |
21,889 |
|
$ |
97,747 |
$ |
81,689 |
|
Adjusted
net earnings per common share(a) |
$ |
0.77 |
$ |
0.68 |
|
$ |
3.01 |
$ |
2.53 |
|
|
|
|
|
|
|
|
|
|
|
|
Shares
used in the calculations of diluted and adjusted net earnings per
common share |
|
32,479 |
|
32,305 |
|
|
32,445 |
|
32,230 |
|
(a) See “Non-GAAP Financial Information” for a
reconciliation of GAAP and non-GAAP financial
measures.(b) Net debt is calculated as current
and long-term debt, less cash and cash equivalents.
Segment Financial Results for the Fourth Quarter of
2018:
The Human Nutrition &
Health segment generated record quarterly sales of $87.3
million, an increase of $4.0 million or 4.8% compared to the prior
year quarter. The increase was driven by higher powder systems and
flavor systems sales into food and beverage markets, increased
chelated minerals and higher choline nutrients sales. Quarterly
earnings from operations for this segment of $12.3 million
increased $0.2 million or 2.0% compared to $12.1 million in the
prior year quarter, primarily due to the aforementioned higher
sales and lower amortization expense, partially offset by higher
raw material costs and mix. Excluding the effect of non-cash
expense associated with amortization of acquired intangible assets
for 2018 and 2017 of $5.3 million and $5.8 million, respectively,
adjusted earnings from operations for this segment were $17.7
million, compared to $17.9 million in the prior year quarter.
The Animal Nutrition &
Health segment generated record quarterly sales of $47.1
million, an increase of $2.6 million or 5.7% compared to the prior
year quarter. The increased sales were primarily due to increased
ruminant species volumes. Fourth quarter earnings from operations
for this segment of $7.0 million were down from the prior year
comparable quarter of $8.1 million, due to lower volumes and
margins in the European monogastric business as a result of
increased competitive activity, increased raw material costs, and
mix, only partially offset by the higher ruminant volumes.
Excluding the effect of non-cash expense associated with
amortization of acquired intangible assets for 2018 and 2017 of
$0.2 million and $0.1 million, respectively, adjusted earnings from
operations for this segment were $7.2 million, compared to $8.1
million in the prior year quarter.
The Specialty Products segment
generated record fourth quarter sales of $17.6 million, an increase
of $1.0 million or 6.2% compared to the prior year quarter,
primarily due to higher sales of ethylene oxide for the medical
device sterilization market. Quarterly earnings from operations for
this segment were $5.8 million, versus $4.8 million in the prior
year comparable quarter, an increase of $1.0 million or 19.8%,
primarily due to the aforementioned higher sales and an improved
mix. Excluding the effect of non-cash expense associated with
amortization of acquired intangible assets of $0.8 million for 2018
and 2017, respectively, adjusted earnings from operations for this
segment were $6.5 million, compared to $5.6 million in the prior
year quarter.
The Industrial Products segment
sales of $11.6 million decreased $3.3 million or 22.2% from the
prior year comparable quarter, primarily due to reduced sales of
choline and choline derivatives used in shale fracking
applications. Earnings from operations for the Industrial Products
segment were $2.2 million, an increase of $0.1 million or 6.7%
compared with the prior year comparable quarter, and were primarily
due to higher average selling prices, an improved mix and certain
lower operating expenses offsetting the aforementioned lower sales
volumes and higher raw material costs.
Consolidated gross margin for the quarter ended
December 31, 2018 of $51.3 million decreased by $0.3 million or
0.6%, compared to $51.6 million for the prior year comparable
period. Gross margin as a percentage of sales decreased to 31.4% as
compared to 32.4% in the prior year period. The decrease was
primarily due to mix and certain higher raw material costs.
Operating expenses of $24.1 million for the fourth quarter were
down $0.9 million from the prior year comparable quarter, primarily
due to a decrease in certain compensation-related expenses,
partially offset by an increase in research and development
expenses. Excluding non-cash operating expense associated with
amortization of intangible assets of $5.6 million, operating
expenses were $18.5 million, or 11.3% of sales.
Interest expense was $1.7 million in the fourth
quarter of 2018. Our effective tax rates for the three months ended
December 31, 2018 and 2017 were 19.5% and (71.2)%, respectively.
The increase in the effective tax rate from the prior year is
primarily due to the one-time favorable impact of the Tax Cuts and
Jobs Act in 2017.
For the quarter ended December 31, 2018, cash
flows provided by operating activities were $39.5 million, and
record quarterly free cash flow was $33.6 million. The $144.3
million of net working capital on December 31, 2018 included a $35
million reduction in the current portion of long-term debt,
resulting from the second quarter repayment of existing debt
through the initial use of revolving debt from our new credit
facility, and this revolving debt is classified as long-term debt
on our balance sheet. In addition, the net working capital included
a cash balance of $54.3 million, which reflects capital
expenditures of $5.9 million and accelerated principal payments on
the revolving loan of $22.0 million in the fourth quarter of 2018.
The Company continues to invest in projects across all facilities
to improve capabilities and operating efficiencies.
Ted Harris said, “The record fourth quarter
consolidated revenue, adjusted net earnings, and free cash flow
capped off what was a very strong year for the company.”
Mr. Harris went on to add, “While macroeconomic
uncertainties abound, the strength of our balance sheet and the
proven resilience of our business model will enable us to continue
to progress our strategic organic growth initiatives and seek
value- creating acquisitions as we move forward in 2019.”
Quarterly Conference CallA
quarterly conference call will be held on Thursday, February 28,
2019, at 11:00 AM Eastern Time (ET) to review fourth quarter 2018
results. Ted Harris, Chairman of the Board, CEO and President,
Martin Bengtsson, CFO, and Bill Backus, CAO will host the call. We
invite you to listen to the conference by calling toll-free
1-877-407-8289 (local dial-in 1-201-689-8341), five minutes prior
to the scheduled start time of the conference call. The conference
call will be available for replay two hours after the conclusion of
the call through end of day Thursday, March 14, 2019. To access the
replay of the conference call, dial 1-877-660-6853 (local dial-in
1-201-612-7415), and use conference ID #13687517.
Segment InformationBalchem
Corporation reports four business segments: Human Nutrition &
Health; Animal Nutrition & Health; Specialty Products; and
Industrial Products. The Human Nutrition & Health segment
delivers customized food and beverage ingredient systems, as well
as key nutrients into a variety of applications across the food,
supplement and pharmaceutical industries. The Animal Nutrition
& Health segment manufactures and supplies products to numerous
animal health markets. Through Specialty Products, Balchem provides
specialty-packaged chemicals for use in healthcare and other
industries, and also provides chelated minerals to the
micronutrient agricultural market. The Industrial Products segment
manufactures and supplies certain derivative products into
industrial applications.
Forward-Looking StatementsThis
release contains forward-looking statements, which reflect
Balchem’s expectation or belief concerning future events that
involve risks and uncertainties. Balchem can give no assurance that
the expectations reflected in forward-looking statements will prove
correct and various factors could cause results to differ
materially from Balchem’s expectations, including risks and factors
identified in Balchem’s annual report on Form 10-K for the year
ended December 31, 2017. Forward-looking statements are qualified
in their entirety by the above cautionary statement. Balchem
assumes no duty to update its outlook or other forward- looking
statements as of any future date.
Contact: Mary Ann Brush, Balchem
Corporation (Telephone: 845-326-5600)
|
|
|
|
|
|
Selected Financial Data (unaudited) |
($ in 000’s) |
|
|
Three Months
Ended |
|
Year Ended |
Business
Segment Net Sales |
December 31, |
|
December 31, |
|
|
|
|
|
|
2018 |
|
|
2017 |
|
|
|
2018 |
|
|
2017 |
|
Human
Nutrition & Health |
$ |
87,271 |
|
$ |
83,273 |
|
|
$ |
341,237 |
|
$ |
315,796 |
|
Animal
Nutrition & Health |
|
47,106 |
|
|
44,552 |
|
|
|
175,693 |
|
|
157,688 |
|
Specialty Products |
|
17,575 |
|
|
16,542 |
|
|
|
75,808 |
|
|
73,355 |
|
Industrial Products |
|
11,587 |
|
|
14,897 |
|
|
|
50,941 |
|
|
47,951 |
|
Total |
$ |
163,539 |
|
$ |
159,264 |
|
|
$ |
643,679 |
|
$ |
594,790 |
|
|
|
Business Segment Earnings Before |
Three Months Ended |
|
Year Ended |
Income Taxes |
December 31, |
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 |
|
|
2017 |
|
|
|
2018 |
|
|
2017 |
|
Human
Nutrition & Health |
|
12,315 |
|
|
12,068 |
|
|
|
48,490 |
|
|
44,010 |
|
Animal
Nutrition & Health |
|
7,012 |
|
|
8,073 |
|
|
|
26,673 |
|
|
22,292 |
|
Specialty Products |
|
5,778 |
|
|
4,824 |
|
|
|
25,361 |
|
|
24,949 |
|
Industrial Products |
|
2,152 |
|
|
2,016 |
|
|
|
9,013 |
|
|
6,413 |
|
Transaction and integration costs |
|
(2 |
) |
|
(315 |
) |
|
|
(1,786 |
) |
|
(2,496 |
) |
Indemnification settlement |
|
— |
|
|
— |
|
|
|
— |
|
|
2,087 |
|
Interest
and other expense |
|
(1,992 |
) |
|
(2,144 |
) |
|
|
(8,721 |
) |
|
(8,767 |
) |
Total |
|
25,263 |
|
|
24,522 |
|
|
|
99,030 |
|
|
88,488 |
|
|
|
Selected Balance Sheet Items |
|
|
|
|
|
|
|
December 31, |
December 31, |
|
|
|
|
|
|
|
|
2018 |
2017 |
Cash and
Cash Equivalents |
|
|
|
|
|
|
|
$ |
54,268 |
|
$ |
40,416 |
|
Accounts
Receivable, net |
|
|
|
|
|
|
|
|
99,545 |
|
|
91,226 |
|
Inventories |
|
|
|
|
|
|
|
|
67,187 |
|
|
60,696 |
|
Other
Current Assets |
|
|
|
|
|
|
|
|
5,314 |
|
|
6,998 |
|
Total
Current Assets |
|
|
|
|
|
|
|
|
226,314 |
|
|
199,336 |
|
|
|
|
|
|
|
|
|
|
|
Property, Plant & Equipment, net |
|
|
|
|
|
|
|
|
194,339 |
|
|
189,793 |
|
Goodwill |
|
|
|
|
|
|
|
|
447,995 |
|
|
441,361 |
|
Intangible Assets with Finite Lives, net |
|
|
|
|
|
|
|
|
105,985 |
|
|
128,073 |
|
Other
Assets |
|
|
|
|
|
|
|
|
6,722 |
|
|
5,073 |
|
Total
Assets |
|
|
|
|
|
|
|
$ |
981,355 |
|
$ |
963,636 |
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities |
|
|
|
|
|
|
|
$ |
82,056 |
|
$ |
73,396 |
|
Current
Portion of Long-Term Debt |
|
|
|
|
|
|
|
|
— |
|
|
35,000 |
|
Long-Term Debt |
|
|
|
|
|
|
|
|
156,000 |
|
|
183,964 |
|
Deferred
Income Taxes |
|
|
|
|
|
|
|
|
44,309 |
|
|
48,548 |
|
Long-Term Obligations |
|
|
|
|
|
|
|
|
7,372 |
|
|
5,847 |
|
Total
Liabilities |
|
|
|
|
|
|
|
|
289,737 |
|
|
346,755 |
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity |
|
|
|
|
|
|
|
|
691,618 |
|
|
616,881 |
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
$ |
981,355 |
|
$ |
963,636 |
|
Balchem Corporation |
Condensed Consolidated Statements of Cash
Flows |
(Dollars in thousands) |
(unaudited) |
|
|
|
|
Year Ended |
|
December 31, |
|
|
2018 |
|
|
2017 |
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
Net
earnings |
$ |
78,573 |
|
$ |
90,071 |
|
Adjustments to reconcile net earnings to net cash provided by
operating activities: |
|
|
|
|
Depreciation and amortization |
|
44,666 |
|
|
44,379 |
|
Stock
compensation expense |
|
6,413 |
|
|
6,264 |
|
Other
adjustments |
|
(6,944 |
) |
|
(28,114 |
) |
Changes
in assets and liabilities |
|
(4,011 |
) |
|
(1,982 |
) |
Net cash provided by operating activities |
|
118,697 |
|
|
110,618 |
|
|
|
|
Cash flow from investing
activities: |
|
|
Cash paid
for acquisition, net of cash acquired |
|
(17,399 |
) |
|
(17,393 |
) |
Capital
expenditures and intangible assets acquired |
|
(19,723 |
) |
|
(28,117 |
) |
Proceeds
from insurance and sale of assets |
|
5,131 |
|
|
2,814 |
|
Net cash used in investing activities |
|
(31,991 |
) |
|
(42,696 |
) |
|
|
|
Cash flows from financing
activities: |
|
|
Proceeds
from revolving debt |
|
210,750 |
|
|
25,000 |
|
Principal
payments on long-term and revolving debt |
|
(274,250 |
) |
|
(89,384 |
) |
Proceeds
from stock options exercised |
|
8,272 |
|
|
9,732 |
|
Dividends
paid |
|
(13,432 |
) |
|
(12,069 |
) |
Other |
|
(2,787 |
) |
|
(1,905 |
) |
Net cash used in financing activities |
|
(71,447 |
) |
|
(68,626 |
) |
|
|
|
|
|
Effect of
exchange rate changes on cash |
|
(1,407 |
) |
|
2,477 |
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
13,852 |
|
|
1,773 |
|
|
|
|
|
|
Cash and cash equivalents, beginning of
period |
|
40,416 |
|
|
38,643 |
|
Cash and cash equivalents, end of period |
$ |
54,268 |
|
$ |
40,416 |
|
|
|
|
Non-GAAP Financial
Information
In addition to disclosing financial results in
accordance with United States (U.S.) generally accepted accounting
principles (GAAP), this earnings release contains non-GAAP
financial measures that we believe are helpful in understanding and
comparing our past financial performance and our future results.
The non-GAAP financial measures disclosed by the company exclude
certain business combination accounting adjustments and certain
other items related to acquisitions, certain unallocated equity
compensation, and certain one-time or unusual transactions. These
non-GAAP financial measures should not be considered a substitute
for, or superior to, financial measures calculated in accordance
with GAAP, and the financial results calculated in accordance with
GAAP and reconciliations from these results should be carefully
evaluated. Management believes that these non-GAAP measures provide
useful information about the Company's core operating results and
thus are appropriate to enhance the overall understanding of the
Company's past financial performance and its prospects for the
future. The non-GAAP financial measures in this press release
include adjusted gross margin, adjusted earnings from operations,
adjusted net earnings and the related adjusted per diluted share
amounts, EBITDA, adjusted EBITDA, adjusted income tax expense, and
free cash flow. EBITDA is defined as earnings before interest,
other expense/income, taxes, depreciation and amortization.
Adjusted EBITDA is defined as earnings before interest, other
expense/income, taxes, depreciation, amortization, stock-based
compensation, acquisition-related expenses, indemnification
settlements, legal settlements, and the fair valuation of acquired
inventory. Adjusted income tax expense is defined as income tax
expense adjusted for the impact of ASU 2016-09 and the 2017 impact
of the Tax Cuts and Jobs Act. Free cash flow is defined as net cash
provided by operating activities less capital expenditures.
Set forth below are reconciliations of the non-GAAP financial
measures to the most directly comparable GAAP financial
measures.
Table 1 |
|
Reconciliation of Non-GAAP Measures to
GAAP |
(Dollars in thousands, except per share data) |
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
Year Ended |
|
December 31, |
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 |
|
|
|
2017 |
|
|
|
2018 |
|
|
|
2017 |
|
Reconciliation of adjusted gross margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP gross
margin |
$ |
51,325 |
|
|
$ |
51,638 |
|
|
$ |
204,252 |
|
|
$ |
189,009 |
|
Amortization of intangible assets (1) |
|
735 |
|
|
|
715 |
|
|
|
3,097 |
|
|
|
2,737 |
|
Adjusted
gross margin |
|
52,060 |
|
|
|
52,353 |
|
|
|
207,349 |
|
|
|
191,746 |
|
|
|
|
|
|
Reconciliation of adjusted earnings from
operations |
|
|
|
|
GAAP
earnings from operations |
|
27,255 |
|
|
|
26,666 |
|
|
|
107,751 |
|
|
|
97,255 |
|
Amortization of intangible assets (1) |
|
6,308 |
|
|
|
6,639 |
|
|
|
24,988 |
|
|
|
26,784 |
|
Transaction
and integration costs (2) |
|
2 |
|
|
|
315 |
|
|
|
1,786 |
|
|
|
2,496 |
|
Indemnification settlement (3) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,087 |
) |
Adjusted
earnings from operations |
|
33,565 |
|
|
|
33,620 |
|
|
|
134,525 |
|
|
|
124,448 |
|
|
|
|
|
|
Reconciliation of adjusted net earnings |
|
|
|
|
GAAP net
earnings |
|
20,334 |
|
|
|
41,975 |
|
|
|
78,573 |
|
|
|
90,071 |
|
Amortization of intangible assets (1) |
|
6,378 |
|
|
|
6,753 |
|
|
|
25,668 |
|
|
|
27,258 |
|
Transaction
and integration costs (2) |
|
2 |
|
|
|
315 |
|
|
|
1,786 |
|
|
|
2,496 |
|
Indemnification settlement (3) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,087 |
) |
Income tax
adjustment (4) |
|
(1,568 |
) |
|
|
(27,154 |
) |
|
|
(8,280 |
) |
|
|
(36,049 |
) |
Adjusted
net earnings |
$ |
25,146 |
|
|
$ |
21,889 |
|
|
$ |
97,747 |
|
|
$ |
81,689 |
|
|
|
|
|
|
Adjusted
net earnings per common share - diluted |
$ |
0.77 |
|
|
$ |
0.68 |
|
|
$ |
3.01 |
|
|
$ |
2.53 |
|
(1) Amortization of intangible assets:
Amortization of intangible assets consists of amortization of
customer relationships, trademarks and trade names, developed
technology, regulatory registration costs, patents and trade
secrets, and other intangibles acquired primarily in connection
with business combinations. We record expense relating to the
amortization of these intangibles in our GAAP financial statements.
Amortization expenses for our intangible assets are inconsistent in
amount and are significantly impacted by the timing and valuation
of an acquisition. Consequently, our non-GAAP adjustments exclude
these expenses to facilitate an evaluation of our current operating
performance and comparisons to our past operating performance.
(2) Transaction and integration costs:
Transaction and integration costs related to acquisitions are
expensed in our GAAP financial statements. Management excludes this
item for the purposes of calculating Adjusted EBITDA and other
non-GAAP financial measures. We believe that excluding this item
from our non-GAAP financial measures is useful to investors because
this item is associated with each transaction and is inconsistent
in amount and frequency causing comparison of current and
historical financial results to be difficult.
(3) Indemnification settlement: Indemnification
settlement related to a favorable settlement we received relating
to the SensoryEffects acquisition which is included in our GAAP
financial statements. Management excluded this settlement for the
purposes of calculating Adjusted EBITDA and other non-GAAP
financial measures. We believe that excluding the settlement from
our non-GAAP financial measures is useful to investors because this
type of settlement is infrequent causing comparison of current and
historical financial results to be difficult.
(4) Income tax adjustment: For purposes of
calculating adjusted net earnings and adjusted diluted earnings per
share, we adjust the provision for (benefit from) income taxes to
tax effect the taxable and deductible non-GAAP adjustments
described above as they have a significant impact on our income tax
(benefit) provision. Additionally, the income tax adjustment is
adjusted for the impact of adopting ASU 2016-09, “Improvements to
Employee Share-Based Payment Accounting”, and the 2017 impact of
the Tax Cuts and Jobs Act (the “Tax Reform Act”), enacted on
December 22, 2017 by the U.S. government, and uses our non- GAAP
effective rate applied to both our GAAP earnings before income tax
expense and non-GAAP adjustments described above. The income tax
adjustment for the three months ended December 31, 2018 and 2017,
respectively, is calculated as the difference between the December
31, 2018 and 2017 year-to-date income tax adjustment, respectively,
and the September 30, 2018 and 2017 year-to-date income tax
adjustment, respectively. See Table 3 for the calculation of our
non-GAAP effective tax rate.
The following table sets forth a reconciliation of Net Income
calculated using amounts determined in accordance with GAAP to
EBITDA and to Adjusted EBITDA for the three and twelve months ended
December 31, 2018 and 2017.
Table 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Year Ended |
|
December 31, |
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 |
|
|
2017 |
|
|
|
2018 |
|
|
2017 |
|
Net income
- as reported |
$ |
20,334 |
|
$ |
41,975 |
|
|
$ |
78,573 |
|
$ |
90,071 |
|
Add
back: |
|
|
|
|
Provision
for income taxes |
|
4,929 |
|
|
(17,453 |
) |
|
|
20,457 |
|
|
(1,583 |
) |
Other
expense |
|
1,992 |
|
|
2,144 |
|
|
|
8,721 |
|
|
8,767 |
|
Depreciation and amortization |
|
11,136 |
|
|
11,095 |
|
|
|
43,986 |
|
|
43,905 |
|
EBITDA |
|
38,391 |
|
|
37,761 |
|
|
|
151,737 |
|
|
141,160 |
|
Add back
certain items: |
|
|
|
|
Non-cash
compensation expense related to equity awards |
|
1,205 |
|
|
1,916 |
|
|
|
6,413 |
|
|
6,264 |
|
Transaction
and integration costs |
|
2 |
|
|
315 |
|
|
|
1,786 |
|
|
2,496 |
|
Indemnification settlement |
|
— |
|
|
— |
|
|
|
— |
|
|
(2,087 |
) |
Adjusted
EBITDA |
$ |
39,598 |
|
$ |
39,992 |
|
|
$ |
159,936 |
|
$ |
147,833 |
|
The following table sets forth a reconciliation
of our GAAP effective income tax rate to our non-GAAP effective
income tax rate for the three and twelve months ended December 31,
2018 and 2017.
Table
3 |
|
|
|
|
|
|
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
December 31, |
|
|
|
|
Effective Tax |
|
|
|
|
Effective Tax |
|
|
|
2018 |
|
Rate |
|
|
2017 |
|
Rate |
|
GAAP Income Tax
Expense |
$ |
4,929 |
|
19.51 |
% |
|
$ |
(17,453 |
) |
(71.2 |
)% |
Impact of ASU 2016-09
adoption(5) |
|
273 |
|
|
|
|
37 |
|
|
|
Impact of the Tax Reform
Act |
|
— |
|
|
|
|
24,945 |
|
|
|
Adjusted Income Tax
Expense |
$ |
5,202 |
|
20.6 |
% |
|
$ |
7,529 |
|
30.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
December 31, |
|
|
|
|
Effective Tax |
|
|
|
|
|
Effective Tax |
|
|
|
2018 |
|
Rate |
|
|
|
2017 |
|
Rate |
|
GAAP Income
Tax Expense |
$ |
20,457 |
|
20.7 |
% |
|
$ |
(1,583 |
) |
(1.8 |
)% |
Impact of
ASU 2016-09 adoption(5) |
|
2,043 |
|
|
|
|
|
2,589 |
|
|
|
Impact of
the Tax Reform Act |
|
— |
|
|
|
|
|
24,945 |
|
|
|
Adjusted
Income Tax Expense |
$ |
22,500 |
|
22.7 |
% |
|
$ |
25,951 |
|
29.3 |
% |
(5) Impact of ASU 2016-09 adoption: In March
2016, the FASB issued ASU No. 2016-09, “Improvements to Employee
Share- Based Payment Accounting” (“ASU 2016-09”), which addresses
the accounting for share-based payment transactions, including the
income tax consequences, classification of awards as either equity
or liabilities, and classification on the statement of cash flows.
The Company adopted ASU 2016-09 on January 1, 2017 prospectively
(prior periods have not been restated). The primary impact of
adoption was the recognition during the three and year ended
December 31, 2018 and 2017, of excess tax benefits as a reduction
to the provision for income taxes and the classification of these
excess tax benefits in operating activities in the consolidated
statement of cash flows instead of financing activities. The
presentation requirements for cash flows related to employee taxes
paid for withheld shares had no impact to any of the periods
presented in the consolidated statement of cash flows, since such
cash flows have historically been presented in financing
activities. The Company also elected to continue estimating
forfeitures when determining the amount of stock-based compensation
costs to be recognized in each period. No other provisions of ASU
2016-09 had a material impact on the Company’s financial statements
or disclosures.
The following table sets forth a reconciliation of net cash
provided by operating activities to free cash flow for the three
and twelve months ended December 31, 2018 and 2017.
Table 4 |
|
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Year Ended |
|
December 31, |
|
December 31, |
|
|
|
|
|
|
|
|
|
2018 |
2017 |
|
2018 |
2017 |
Net cash provided by
operating activities |
$ |
39,512 |
|
$ |
31,164 |
|
|
$ |
118,697 |
|
$ |
110,618 |
|
Capital
expenditures |
(5,917 |
) |
(9,850 |
) |
|
(19,170 |
) |
(27,526 |
) |
Free
cash flow |
$ |
33,595 |
|
$ |
21,314 |
|
|
$ |
99,527 |
|
$ |
83,092 |
|
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