Balchem Corporation (NASDAQ: BCPC) today reported for the fourth
quarter 2019 net earnings of $20.4 million, compared to net
earnings of $20.3 million for the fourth quarter 2018. Fourth
quarter adjusted net earnings(a) were $28.4 million, compared to
$25.1 million in the prior year quarter. Fourth quarter
adjusted EBITDA(a) was $40.0 million, compared to $39.6 million in
the prior year quarter. Balchem Corporation also reported for
the full year 2019 net earnings of $79.7 million, compared to net
earnings of $78.6 million for 2018. Full year adjusted net
earnings(a) were $103.7 million, compared to $97.7 million in the
prior year. Full year adjusted EBITDA(a) was $160.0 million,
compared to $159.3 million in the prior year.
Fourth Quarter 2019 Financial Highlights:
- Fourth quarter net sales of $166.5
million, an increase of $3.0 million, or 1.8%, compared to the
prior year quarter.
- Year over year quarterly sales
growth in three of the four segments, with all-time record sales in
Human Nutrition and Health and Animal Nutrition and Health, and
record fourth quarter sales in Specialty Products.
- Fourth quarter GAAP net earnings of
$20.4 million were slightly higher than the prior year. These net
earnings resulted in GAAP earnings per share of $0.63.
- Quarterly adjusted net earnings of
$28.4 million increased $3.3 million or 12.9% from the prior year,
resulting in adjusted earnings per share(a) of $0.88.
- Fourth quarter adjusted EBITDA was
$40.0 million, an increase of $0.4 million, or 1.0%, from the prior
year.
- Quarterly cash flows from
operations were $33.0 million for the fourth quarter 2019 with
quarterly free cash flow(a) of $26.3 million.
Full Year 2019 Financial Highlights:
- Full year net sales of $643.7
million were slightly higher than the prior year.
- Year over year sales growth in
three of the four segments, with all-time record sales in Human
Nutrition and Health, Animal Nutrition and Health, and Specialty
Products, offset by reduced sales in Industrial Products.
- Full year GAAP net earnings were
$79.7 million, an increase of $1.1 million, or 1.4% from the prior
year. These net earnings resulted in GAAP earnings per share of
$2.45.
- Full year adjusted net earnings of
$103.7 million increased $5.9 million or 6.1% from the prior year,
resulting in adjusted earnings per share(a) of $3.19.
- Full year adjusted EBITDA was
$160.0 million, an increase of $0.7 million, or 0.5%, from the
prior year.
- Full year cash flows from
operations were $124.5 million for 2019 with full year free cash
flow(a) of $96.1 million.
Recent Highlights:
- On December 13, 2019, we acquired
Zumbro River Brand, Inc. ("Zumbro"), headquartered in Albert Lea,
MN. Zumbro specializes in developing, marketing, and
manufacturing agglomerated and extruded products for the food and
beverage industry and is a market leader in high protein and
specialty extruded snacks, cereals, and crisps, marketed under the
brands Z-Crisps®, Whey-Os™, Whey-Vs™, and Z-Texx Complete™.
This business will be integrated within Balchem's Human Nutrition
and Health Segment.
- On December 17, 2019, we declared a
$16.9 million dividend on common stock of $0.52 per share, a 10.6%
increase over the prior year cash dividend, representing the tenth
consecutive year of double-digit dividend growth.
Ted Harris, Chairman, CEO, and President of
Balchem said, “Our fourth quarter results saw sales growth in three
of our four segments, record adjusted net earnings, and continued
strong cash conversion. Record quarterly sales for Human Nutrition
and Health and Animal Nutrition and Health, along with record
fourth quarter Specialty Products sales, were partially offset by
significantly lower Industrial Products sales to the oil and gas
fracking market.”
Mr. Harris added, “The Balchem team made
meaningful progress in 2019 on our strategic growth initiatives,
while delivering solid full year financial results. At the same
time, we acquired Chemogas NV in May 2019 and Zumbro in December
2019, enhancing our strategic positioning and strengthening our
customer offerings.”
Results for Period Ended December 31,
2019 (unaudited)(Dollars in thousands, except per share
data)
| |
Three Months EndedDecember 31, |
|
Year Ended December 31, |
| |
2019 |
|
2018 |
|
2019 |
|
2018 |
|
Net sales |
$ |
166,527 |
|
|
$ |
163,539 |
|
|
$ |
643,705 |
|
|
$ |
643,679 |
|
| Gross margin |
54,346 |
|
|
51,325 |
|
|
211,367 |
|
|
204,252 |
|
| Operating expenses |
30,705 |
|
|
24,091 |
|
|
108,814 |
|
|
97,152 |
|
| Earnings from operations |
23,641 |
|
|
27,234 |
|
|
102,553 |
|
|
107,100 |
|
| Other expense |
1,273 |
|
|
1,971 |
|
|
6,075 |
|
|
8,070 |
|
| Earnings before income tax
expense |
22,368 |
|
|
25,263 |
|
|
96,478 |
|
|
99,030 |
|
| Income tax expense |
1,985 |
|
|
4,929 |
|
|
16,807 |
|
|
20,457 |
|
| Net earnings |
$ |
20,383 |
|
|
$ |
20,334 |
|
|
$ |
79,671 |
|
|
$ |
78,573 |
|
| |
|
|
|
|
|
|
|
| Diluted net earnings per
common share |
$ |
0.63 |
|
|
$ |
0.63 |
|
|
$ |
2.45 |
|
|
$ |
2.42 |
|
| |
|
|
|
|
|
|
|
| Adjusted EBITDA(a) |
$ |
39,989 |
|
|
$ |
39,577 |
|
|
$ |
160,015 |
|
|
$ |
159,285 |
|
| Adjusted net earnings(a) |
$ |
28,399 |
|
|
$ |
25,146 |
|
|
$ |
103,684 |
|
|
$ |
97,747 |
|
| Adjusted diluted net earnings
per common share(a) |
$ |
0.88 |
|
|
$ |
0.77 |
|
|
$ |
3.19 |
|
|
$ |
3.01 |
|
| |
|
|
|
|
|
|
|
| Shares used in the
calculations of diluted and adjusted net earnings per common
share |
32,448 |
|
|
32,479 |
|
|
32,505 |
|
|
32,445 |
|
|
(a) |
See “Non-GAAP Financial Information” for a reconciliation of GAAP
and non-GAAP financial measures. |
Financial Results for the Fourth Quarter
of 2019:
The Human Nutrition &
Health segment generated fourth quarter sales of $90.3
million, an increase of $3.0 million or 3.4% compared to the prior
year quarter. The increase was primarily driven by higher sales
within our Ingredient Solutions business, partially offset by lower
Cereal Systems volumes. Quarterly earnings from operations for this
segment of $9.2 million decreased $3.1 million or 25.3% compared to
$12.3 million in the prior year quarter, primarily due to certain
manufacturing inefficiencies, higher bad debt expense, and a
non-cash restructuring charge, partially offset by the
aforementioned higher sales. Excluding the effect of non-cash
expense associated with amortization of acquired intangible assets
for the fourth quarter of 2019 and 2018 of $4.8 million and $5.3
million, respectively, adjusted earnings from operations(a) for
this segment were $15.2 million, compared to $17.6 million in the
prior year quarter.
The Animal Nutrition &
Health segment generated quarterly sales of $48.4 million,
an increase of $1.3 million or 2.8% compared to the prior year
quarter. The increase was primarily the result of higher
volumes and improved product mix within both our monogastric and
ruminant species businesses. Fourth quarter earnings from
operations for this segment of $9.4 million were up from the prior
year comparable quarter of $7.0 million, primarily due to the
aforementioned higher sales and certain lower raw material costs,
partially offset by continued competitive pressures on volume and
pricing in the European monogastric business. Excluding the
effect of non-cash expense associated with amortization of acquired
intangible assets of $0.2 million in each of the fourth quarters of
2019 and 2018, adjusted earnings from operations for this segment
were $9.6 million, compared to $7.2 million in the prior year
quarter.
The Specialty Products segment
generated fourth quarter sales of $24.0 million, an increase of
$6.5 million or 36.8% compared to the prior year quarter, primarily
due to higher sales of ethylene oxide for the medical device
sterilization market due to both the contribution of Chemogas and
higher legacy product sales, partially offset by lower volumes in
the plant nutrition business. Fourth quarter earnings from
operations for this segment were $6.2 million, versus $5.8 million
in the prior year comparable quarter, an increase of $0.5 million
or 8.0%, primarily due to the aforementioned higher sales,
partially offset by mix and higher operating expenses due to the
acquisition of Chemogas. Excluding the effect of non-cash
expense associated with amortization of acquired intangible assets
for the fourth quarters of 2019 and 2018 of $1.7 million and $0.8
million, respectively, adjusted earnings from operations for this
segment were $7.9 million, compared to $6.5 million in the prior
year quarter.
The Industrial Products segment
sales of $3.8 million decreased $7.8 million or 67.3% from the
prior year comparable quarter, primarily due to reduced sales
volumes of choline and choline derivatives used in shale fracking
applications. Earnings from operations for the Industrial
Products segment were $0.3 million, a decrease of $1.8 million or
84.1% compared with the prior year comparable quarter, primarily
due to the aforementioned lower sales volumes.
Consolidated gross margin for the quarter ended
December 31, 2019 of $54.3 million increased by $3.0 million or
5.9%, compared to $51.3 million for the prior year comparable
period. Gross margin as a percentage of sales was 32.6% as
compared to 31.4% in the prior year period, an increase of 125
basis points. The increase was primarily due to mix and
certain lower raw material costs. Operating expenses of $30.7
million for the quarter increased $6.6 million from the prior year
comparable quarter, primarily due to incremental operating expenses
related to the Chemogas and Zumbro acquisitions, increased
transaction and integration costs, higher bad debt expense, and a
non-cash restructuring charge in the Human Nutrition & Health
segment. Excluding non-cash operating expenses associated with
amortization of intangible assets of $6.4 million, operating
expenses were $24.3 million, or 14.6% of sales.
Interest expense was $1.2 million in the fourth
quarter of 2019. Our effective tax rates for the three months ended
December 31, 2019 and 2018 were 8.9% and 19.5%, respectively. The
decrease in the effective tax rate from the prior year is primarily
due to discrete items, particularly related to tax reform
clarifying regulations, incremental R&D tax credits, and
certain lower state taxes.
For the quarter ended December 31, 2019, strong
cash flows provided by operating activities were $33.0 million, and
free cash flow was $26.3 million. The $162.7 million of net working
capital on December 31, 2019 included a cash balance of $65.7
million, which reflects fourth quarter 2019 capital expenditures
and intangible assets acquired of $6.7 million. The Company
continues to invest in projects across all facilities to improve
capabilities and operating efficiencies.
Ted Harris, Chairman, President, and CEO of
Balchem said, “We delivered record fourth quarter sales and
adjusted net earnings, leading to solid overall results for the
full year 2019. Despite significant headwinds in the quarter
and throughout the year, particularly within Industrial Products,
we were able to deliver both top and bottom-line growth,
highlighting the strength and resilience of our business
model.”
Mr. Harris went on to add, “We are well
positioned to continue to drive growth into the future and look
forward to progressing our organic growth initiatives and seeking
value-creating acquisitions in 2020.”
Quarterly Conference Call
A quarterly conference call will be held on
Friday, February 21, 2020, at 11:00 AM Eastern Time (ET) to review
fourth quarter 2019 results. Ted Harris, Chairman of the Board, CEO
and President and Martin Bengtsson, CFO will host the call.
We invite you to listen to the conference by calling toll-free
1-877-407-8290 (local dial-in 1-201-689-8344), 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 Friday, March 6,
2020. To access the replay of the conference call, dial
1-877-660-6853 (local dial-in 1-201-612-7415), and use conference
ID #13698852.
Segment Information
Balchem 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 Statements
This 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, 2018.
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)
Business Segment Net Sales:
| |
|
Three Months Ended December
31, |
|
Year Ended December 31, |
| |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
Human Nutrition & Health |
|
$ |
90,270 |
|
|
$ |
87,271 |
|
|
$ |
347,433 |
|
|
$ |
341,237 |
|
| Animal Nutrition &
Health |
|
48,430 |
|
|
47,106 |
|
|
177,557 |
|
|
175,693 |
|
| Specialty Products |
|
24,038 |
|
|
17,575 |
|
|
92,257 |
|
|
75,808 |
|
| Industrial Products |
|
3,789 |
|
|
11,587 |
|
|
26,458 |
|
|
50,941 |
|
| Total |
|
$ |
166,527 |
|
|
$ |
163,539 |
|
|
$ |
643,705 |
|
|
$ |
643,679 |
|
Business Segment Earnings Before Income
Taxes:
| |
Three Months Ended December
31, |
|
Year Ended December 31, |
| |
2019 |
|
2018 |
|
2019 |
|
2018 |
|
Human Nutrition & Health |
$ |
9,195 |
|
|
$ |
12,312 |
|
|
$ |
48,429 |
|
|
$ |
48,037 |
|
| Animal Nutrition &
Health |
9,445 |
|
|
7,001 |
|
|
25,868 |
|
|
26,607 |
|
| Specialty Products |
6,238 |
|
|
5,778 |
|
|
28,513 |
|
|
25,254 |
|
| Industrial Products |
340 |
|
|
2,145 |
|
|
3,730 |
|
|
8,988 |
|
| Transaction and integration
costs, ERP implementation costs, and unallocated legal fees |
(1,183 |
) |
|
(2 |
) |
|
(3,436 |
) |
|
(1,786 |
) |
| Unallocated amortization
expense |
(394 |
) |
|
— |
|
|
(551 |
) |
|
— |
|
| Interest and other
expense |
(1,273 |
) |
|
(1,971 |
) |
|
(6,075 |
) |
|
(8,070 |
) |
| Total |
$ |
22,368 |
|
|
$ |
25,263 |
|
|
$ |
96,478 |
|
|
$ |
99,030 |
|
| |
|
|
|
|
|
|
|
| Selected Balance Sheet
Items |
|
December 31, |
|
December 31, |
| |
|
2019 |
|
2018 |
|
Cash and Cash Equivalents |
|
$ |
65,672 |
|
|
$ |
54,268 |
|
| Accounts Receivable, net |
|
93,444 |
|
|
99,545 |
|
| Inventories |
|
83,893 |
|
|
67,187 |
|
| Other Current Assets |
|
11,937 |
|
|
5,314 |
|
| Total Current Assets |
|
254,946 |
|
|
226,314 |
|
| |
|
|
|
|
| Property, Plant &
Equipment, net |
|
216,859 |
|
|
190,919 |
|
| Goodwill |
|
523,998 |
|
|
447,995 |
|
| Intangible Assets with Finite
Lives, net |
|
143,924 |
|
|
109,405 |
|
| Right of Use Assets |
|
7,338 |
|
|
— |
|
| Other Assets |
|
8,617 |
|
|
6,722 |
|
| Total Assets |
|
$ |
1,155,682 |
|
|
$ |
981,355 |
|
| |
|
|
|
|
| Current Liabilities |
|
$ |
92,258 |
|
|
$ |
82,056 |
|
| Revolving Loan |
|
248,569 |
|
|
156,000 |
|
| Deferred Income Taxes |
|
56,431 |
|
|
44,309 |
|
| Derivative Liabilities |
|
2,103 |
|
|
— |
|
| Long-Term Obligations |
|
12,654 |
|
|
7,372 |
|
| Total Liabilities |
|
412,015 |
|
|
289,737 |
|
| |
|
|
|
|
| Stockholders' Equity |
|
743,667 |
|
|
691,618 |
|
| |
|
|
|
|
| Total Liabilities and
Stockholders' Equity |
|
$ |
1,155,682 |
|
|
$ |
981,355 |
|
Balchem
CorporationCondensed Consolidated Statements of
Cash Flows(Dollars in thousands)(unaudited)
| |
|
Year Ended December 31, |
| |
|
2019 |
|
2018 |
| Cash flows from
operating activities: |
|
|
|
|
|
Net earnings |
|
$ |
79,671 |
|
|
$ |
78,573 |
|
|
Adjustments to reconcile net earnings to net cash provided by
operating activities: |
|
|
|
|
|
Depreciation and amortization |
|
45,862 |
|
|
44,666 |
|
|
Stock compensation expense |
|
7,596 |
|
|
6,413 |
|
|
Other adjustments |
|
(3,709 |
) |
|
(6,944 |
) |
|
Changes in assets and liabilities |
|
(4,959 |
) |
|
(4,011 |
) |
|
Net cash provided by operating activities |
|
124,461 |
|
|
118,697 |
|
| |
|
|
|
|
| Cash flows from
investing activities: |
|
|
|
|
|
Cash paid for acquisition, net of cash acquired |
|
(141,062 |
) |
|
(17,399 |
) |
|
Capital expenditures and intangible assets acquired |
|
(28,413 |
) |
|
(19,723 |
) |
|
Proceeds from insurance, sale of assets, and sale of business |
|
14,250 |
|
|
5,131 |
|
|
Purchase of convertible note |
|
(1,000 |
) |
|
— |
|
|
Net cash used in investing activities |
|
(156,225 |
) |
|
(31,991 |
) |
| |
|
|
|
|
| Cash flows from
financing activities: |
|
|
|
|
|
Proceeds from revolving loan |
|
168,569 |
|
|
210,750 |
|
|
Principal payments on long-term and revolving debt |
|
(76,000 |
) |
|
(274,250 |
) |
|
Principal payments on acquired debt |
|
(17,567 |
) |
|
(19 |
) |
|
Proceeds from stock options exercised |
|
4,839 |
|
|
8,272 |
|
|
Dividends paid |
|
(15,135 |
) |
|
(13,432 |
) |
|
Purchase of treasury stock |
|
(21,321 |
) |
|
(1,394 |
) |
|
Other |
|
— |
|
|
(1,374 |
) |
|
Net cash provided by (used in) financing
activities |
|
43,385 |
|
|
(71,447 |
) |
| |
|
|
|
|
|
Effect of exchange rate changes on cash |
|
(217 |
) |
|
(1,407 |
) |
| |
|
|
|
|
| Increase in cash and
cash equivalents |
|
11,404 |
|
|
13,852 |
|
| |
|
|
|
|
| Cash and cash
equivalents, beginning of period |
|
54,268 |
|
|
40,416 |
|
| Cash and cash
equivalents, end of period |
|
$ |
65,672 |
|
|
$ |
54,268 |
|
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, transaction and integration costs, indemnification
settlements, legal settlements, ERP implementation costs,
unallocated legal fees, the fair valuation of acquired inventory,
and restructuring costs. Adjusted income tax expense is
defined as income tax expense adjusted for the impact of ASU
2016-09. Free cash flow is defined as net cash provided by
operating activities less capital expenditures and capitalized ERP
implementation costs.
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 December
31, |
|
Year Ended December 31, |
| |
2019 |
|
2018 |
|
2019 |
|
2018 |
| Reconciliation of
adjusted gross margin |
|
|
|
|
|
|
|
|
GAAP gross margin |
$ |
54,346 |
|
|
$ |
51,325 |
|
|
$ |
211,367 |
|
|
$ |
204,252 |
|
| Inventory valuation adjustment
(1) |
147 |
|
|
— |
|
|
147 |
|
|
— |
|
| Amortization of intangible
assets (2) |
633 |
|
|
735 |
|
|
2,644 |
|
|
3,097 |
|
| Adjusted gross margin |
$ |
55,126 |
|
|
$ |
52,060 |
|
|
$ |
214,158 |
|
|
$ |
207,349 |
|
| |
|
|
|
|
|
|
|
| Reconciliation of
adjusted earnings from operations |
|
|
|
|
|
|
|
| GAAP earnings from
operations |
$ |
23,641 |
|
|
$ |
27,234 |
|
|
$ |
102,553 |
|
|
$ |
107,100 |
|
| Inventory valuation adjustment
(1) |
147 |
|
|
— |
|
|
147 |
|
|
— |
|
| Amortization of intangible
assets (2) |
7,065 |
|
|
6,308 |
|
|
25,788 |
|
|
24,988 |
|
| Transaction and integration
costs, ERP implementation costs, and unallocated legal fees
(3) |
1,183 |
|
|
2 |
|
|
3,436 |
|
|
1,786 |
|
| Restructuring costs (4) |
1,026 |
|
|
— |
|
|
1,026 |
|
|
— |
|
| Adjusted earnings from
operations |
$ |
33,062 |
|
|
$ |
33,544 |
|
|
$ |
132,950 |
|
|
$ |
133,874 |
|
| |
|
|
|
|
|
|
|
| Reconciliation of
adjusted net earnings |
|
|
|
|
|
|
|
| GAAP net earnings |
$ |
20,383 |
|
|
$ |
20,334 |
|
|
$ |
79,671 |
|
|
$ |
78,573 |
|
| Inventory valuation adjustment
(1) |
147 |
|
|
— |
|
|
147 |
|
|
— |
|
| Amortization of intangible
assets (2) |
7,136 |
|
|
6,378 |
|
|
26,071 |
|
|
25,668 |
|
| Transaction and integration
costs, ERP implementation costs, and unallocated legal fees
(3) |
1,183 |
|
|
2 |
|
|
3,436 |
|
|
1,786 |
|
| Restructuring costs (4) |
1,026 |
|
|
— |
|
|
1,026 |
|
|
— |
|
| Income tax adjustment (5) |
(1,476 |
) |
|
(1,568 |
) |
|
(6,667 |
) |
|
(8,280 |
) |
| Adjusted net earnings |
$ |
28,399 |
|
|
$ |
25,146 |
|
|
$ |
103,684 |
|
|
$ |
97,747 |
|
| |
|
|
|
|
|
|
|
| Adjusted net earnings per
common share - diluted |
$ |
0.88 |
|
|
$ |
0.77 |
|
|
$ |
3.19 |
|
|
$ |
3.01 |
|
| (1)
Inventory valuation adjustment: Business combination accounting
principles require us to measure acquired inventory at fair value.
The fair value of inventory reflects the acquired company’s cost of
manufacturing plus a portion of the expected profit margin. The
non-GAAP adjustment to our cost of sales excludes the expected
profit margin component that is recorded under business combination
accounting principles. We believe the adjustment is useful to
investors as an additional means to reflect cost of sales and gross
margin trends of our business. |
| (2)
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, capitalized loan
issuance costs, 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. |
| (3)
Transaction and integration costs, ERP implementation costs and
unallocated legal fees: Transaction and integration costs related
to acquisitions and divestitures are expensed in our GAAP financial
statements. ERP implementation costs related to a company-wide ERP
system implementation are expensed in our GAAP financial
statements. Unallocated legal fees for transaction-related
non-compete agreement disputes are expensed in our GAAP financial
statements. Management excludes these items for the purposes of
calculating Adjusted EBITDA and other non-GAAP financial measures.
We believe that excluding these items from our non-GAAP financial
measures is useful to investors because these are items associated
with each transaction and are inconsistent in amount and frequency
causing comparison of current and historical financial results to
be difficult. |
| (4) Restructuring costs:
Expenses related to a reorganization of the business. |
|
(5) 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 uses our non-GAAP effective rate applied to
both our GAAP earnings before income tax expense and non-GAAP
adjustments described above. 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, 2019 and 2018.
Table 2 (unaudited)
| |
Three Months Ended December
31, |
|
Year Ended December 31, |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
Net income - as reported |
$ |
20,383 |
|
|
$ |
20,334 |
|
|
$ |
79,671 |
|
|
$ |
78,573 |
|
| Add back: |
|
|
|
|
|
|
|
| Provision for income
taxes |
1,985 |
|
|
4,929 |
|
|
16,807 |
|
|
20,457 |
|
| Other expense |
1,273 |
|
|
1,971 |
|
|
6,075 |
|
|
8,070 |
|
| Depreciation and
amortization |
12,307 |
|
|
11,136 |
|
|
45,580 |
|
|
43,986 |
|
| EBITDA |
35,948 |
|
|
38,370 |
|
|
148,133 |
|
|
151,086 |
|
| Add back certain items: |
|
|
|
|
|
|
|
| Non-cash compensation expense
related to equity awards |
1,685 |
|
|
1,205 |
|
|
7,273 |
|
|
6,413 |
|
| Inventory valuation
adjustment |
147 |
|
|
— |
|
|
147 |
|
|
— |
|
| Transaction and integration
costs, ERP implementation costs, and unallocated legal fees |
1,183 |
|
|
2 |
|
|
3,436 |
|
|
1,786 |
|
| Restructuring costs |
1,026 |
|
|
— |
|
|
1,026 |
|
|
— |
|
| Adjusted EBITDA |
$ |
39,989 |
|
|
$ |
39,577 |
|
|
$ |
160,015 |
|
|
$ |
159,285 |
|
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,
2019 and 2018.
Table 3(unaudited)
| |
|
Three Months Ended December
31, |
| |
2019 |
|
Effective Tax Rate |
|
2018 |
|
Effective Tax Rate |
|
GAAP Income Tax Expense |
|
$ |
1,985 |
|
|
8.9 |
% |
|
$ |
4,929 |
|
|
19.5 |
% |
| Impact of ASU 2016-09(6) |
|
263 |
|
|
|
|
273 |
|
|
|
| Adjusted Income Tax
Expense |
|
$ |
2,248 |
|
|
10.1 |
% |
|
$ |
5,202 |
|
|
20.6 |
% |
| |
|
Year Ended December 31, |
| |
2019 |
|
Effective Tax Rate |
|
2018 |
|
Effective Tax Rate |
|
GAAP Income Tax Expense |
|
$ |
16,807 |
|
|
17.4 |
% |
|
$ |
20,457 |
|
|
20.7 |
% |
| Impact of ASU 2016-09(6) |
|
1,004 |
|
|
|
|
2,043 |
|
|
|
| Adjusted Income Tax
Expense |
|
$ |
17,811 |
|
|
18.5 |
% |
|
$ |
22,500 |
|
|
22.7 |
% |
| (6)
Impact of ASU 2016-09: The primary impact of ASU No. 2016-09,
"Improvements to Employee Share-Based Payment Accounting" ("ASU
2016-09"), was the recognition during the three and twelve months
ended December 31, 2019 and 2018, 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 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, 2019 and 2018.
Table 4(unaudited)
| |
Three Months Ended December
31, |
|
Year Ended December 31, |
| |
2019 |
|
2018 |
|
2019 |
|
2018 |
|
Net cash provided by operating activities |
$ |
32,967 |
|
|
$ |
39,512 |
|
|
$ |
124,461 |
|
|
$ |
118,697 |
|
| Capital expenditures and
capitalized ERP implementation costs |
(6,700 |
) |
|
(5,917 |
) |
|
(28,315 |
) |
|
(19,170 |
) |
| Free cash flow |
$ |
26,267 |
|
|
$ |
33,595 |
|
|
$ |
96,146 |
|
|
$ |
99,527 |
|
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