Balchem Corporation (NASDAQ:BCPC) today reported for the fourth
quarter 2017 record quarterly net earnings of $42.0 million,
compared to net earnings of $15.9 million for the fourth quarter
2016. Record adjusted net earnings(a) were $21.9 million, compared
to $21.4 million in the prior year quarter. Record Adjusted
EBITDA(a) was $40.0 million, compared to $37.7 million in the prior
year quarter.
Fourth Quarter 2017 Financial Highlights:
- Fourth quarter net sales of $159.3 million in 2017, an increase
of 13.2%, compared to the fourth quarter of 2016.
- Year over year sales growth in each of our four Segments, with
record sales for our Human Nutrition & Health segment and
record fourth quarter sales for our Specialty Products segment,
resulting in earnings from operations growth in three of the four
segments.
- Record fourth quarter net earnings were $42.0 million, an
increase of $26.1 million, or 163.6% from the prior year, resulting
in earnings per share of $1.30, with the earnings favorably
impacted by a one-time $24.9 million tax benefit, primarily due to
the revaluation of deferred tax assets and liabilities associated
with the Tax Cuts and Jobs Act. Fourth quarter adjusted net
earnings of $21.9 million increased $0.5 million or 2.4% from the
prior year, resulting in adjusted earnings per share(a) of
$0.68.
- Fourth quarter adjusted EBITDA of $40.0 million increased $2.3
million or 6.1% from the prior year.
- Fourth quarter cash flows from operations were $31.2 million
for 2017 compared to $27.8 million for 2016. Scheduled and
accelerated principal payments made of $16.8 million on long-term
debt, with our revolver continuing to be fully available to provide
flexibility for both organic and acquisitive growth.
Full Year 2017 Financial
Highlights:
- Record full year sales of $594.8 million, an increase of 7.5%
over the prior year.
- Record net earnings of $90.1 million, resulting in record
earnings per share of $2.79, along with record adjusted net
earnings of $81.7 million and record adjusted earnings per share(a)
of $2.53.
- Adjusted EBITDA of $147.8 million compared with $149.3 million
from the prior year.
- Record full year 2017 cash flows from operations were $110.6
million compared to $107.6 million in 2016.
Recent Highlights:
- Paid a $13.4 million dividend on common stock of $0.42 per
share, which was nearly an 11% per share increase over the prior
year cash dividend. This dividend represented the ninth consecutive
increase in the annual dividend.
- The National Institutes of Health granted $2.6M to the
University of North Carolina Nutrition Research Institute for Dr.
Steven Zeisel to develop a test to determine the level of choline
present in humans. This grant followed a successful pilot study
performed by Dr. Zeisel, which was funded by Balchem.
- The American Academy of Pediatrics has identified choline as
one of the most essential brain building nutrients for infants and
young children in their first 1,000 days of life.
Ted Harris, Chairman, CEO, and President of
Balchem said, “We are very proud to report these fourth quarter
results as well as another full year of sales and earnings growth.
Our results in the fourth quarter reflected strong sales growth,
all-time record net earnings, and continued solid cash
generation.”
Mr. Harris added, “While we faced certain
headwinds in 2017, we are pleased with the strategic progress we
have made as a company, including the two acquisitions we made, the
earnings growth we delivered in three of our four business
segments, and the record cash flows from operations we
generated.”
|
Results for Period Ended December 31, 2017
(unaudited) |
($000 Omitted Except for Net Earnings per Share) |
|
For the Three Months Ended December
31, |
|
|
|
|
|
|
|
|
|
2017 |
|
|
|
2016 |
|
Unaudited |
Net sales |
$ |
159,264 |
|
|
$ |
140,760 |
Gross margin |
|
51,638 |
|
|
|
46,932 |
Operating expenses |
|
24,972 |
|
|
|
22,341 |
Earnings from
operations |
|
26,666 |
|
|
|
24,591 |
Other expense |
|
2,144 |
|
|
|
1,792 |
Earnings before income
tax expense |
|
24,522 |
|
|
|
22,799 |
Income tax
expense |
|
(17,453 |
) |
|
|
6,875 |
Net earnings |
$ |
41,975 |
|
|
$ |
15,924 |
|
|
|
|
|
|
Diluted net earnings
per common share |
$ |
1.30 |
|
|
$ |
0.50 |
|
|
|
Adjusted
EBITDA(a) |
$ |
39,992 |
|
|
$ |
37,684 |
Adjusted net
earnings(a) |
$ |
21,889 |
|
|
$ |
21,382 |
Adjusted net earnings
per common share(a) |
$ |
0.68 |
|
|
$ |
0.67 |
|
|
|
Shares used in the
calculations of diluted and adjusted net earnings per common
share |
|
32,305 |
|
|
|
32,074 |
|
|
|
|
|
|
|
|
For the Year Ended December 31, |
|
|
|
|
|
2017 |
|
|
|
2016 |
|
Unaudited |
Net sales |
$ |
594,790 |
|
|
$ |
553,204 |
Gross margin |
|
189,009 |
|
|
|
180,861 |
Operating expenses |
|
91,754 |
|
|
|
90,023 |
Earnings from
operations |
|
97,255 |
|
|
|
90,838 |
Other expense |
|
8,767 |
|
|
|
7,904 |
Earnings before income
tax expense |
|
88,488 |
|
|
|
82,934 |
Income tax
expense |
|
(1,583 |
) |
|
|
26,962 |
Net earnings |
$ |
90,071 |
|
|
$ |
55,972 |
|
|
|
|
|
|
Diluted net earnings
per common share |
$ |
2.79 |
|
|
$ |
1.75 |
|
|
|
Adjusted EBITDA(a) |
$ |
147,833 |
|
|
$ |
149,263 |
Adjusted net
earnings(a) |
$ |
81,689 |
|
|
$ |
80,363 |
Adjusted net earnings
per common share(a) |
$ |
2.53 |
|
|
$ |
2.52 |
|
|
|
Shares used in the
calculation of diluted and adjusted net earnings per common
share |
|
32,230 |
|
|
|
31,923 |
|
|
|
(a)See “Non-GAAP Financial Information” for a
reconciliation of GAAP and non-GAAP financial measures.
Segment Financial Results for the Fourth Quarter of
2017:
The Human Nutrition &
Health segment generated record sales of $83.3 million, an
increase of $7.4 million or 9.8% compared to the prior year
quarter. The increase was primarily driven by added sales from the
IFP acquisition, strong choline nutrients and chelated minerals
volumes, and higher powder systems’ product sales into food and
beverage markets, partially offset by lower flavor systems’ sales.
Fourth quarter earnings from operations for this segment of $12.1
million increased $1.8 million, or 17.2%, from $10.3 million in the
prior year, with the benefits of the aforementioned sales growth
and a favorable mix contributing to improved margins and
profitability. Excluding the effect of non-cash expense associated
with amortization of acquired intangible assets for 2017 and 2016
of $5.8 million and $6.1 million, respectively, adjusted earnings
from operations(a) for this segment were $17.9 million, compared to
$16.4 million in the prior year quarter.
The Animal Nutrition &
Health segment sales of $44.6 million increased 4.7%, or
$2.0 million. The increased sales were primarily due to higher
monogastric species sales, partially offset by lower ruminant
species sales. Earnings from operations for the Animal Nutrition
& Health segment were slightly higher at $8.1 million as
compared to the prior year comparable quarter, as the
aforementioned higher sales were offset by mix. On a sequential
basis, results for the Animal Nutrition & Health segment
improved significantly, with sales up $6.5 million, or 17.2%, and
earnings from operations up $2.9 million, or 56.7%, on higher sales
and improved margins for both ruminant and monogastric species.
The Specialty Products segment
generated record fourth quarter sales of $16.5 million, a $0.3
million or 2.1% increase from the comparable prior year quarter,
driven by higher ethylene oxide sales for medical device
sterilization. Quarterly earnings from operations for this segment
were $4.8 million, versus $5.3 million in the prior year comparable
quarter, a decrease of $0.5 million or 9.3%, primarily due to mix
and higher raw
material costs. Excluding the effect of non-cash
expense associated with amortization of acquired intangible assets
for 2017 and 2016 of $0.8 million, adjusted earnings from
operations for this segment were $5.6 million, compared to $6.1
million in the prior year quarter.
The Industrial Products segment
sales of $14.9 million increased $8.7 million or 141.8% from the
prior year comparable quarter, primarily due to significantly
higher sales of choline and choline derivatives used in shale
fracking applications. Earnings from operations for the Industrial
Products segment were $2.0 million, an increase of $1.1 million, or
116.8%, compared with the prior year comparable quarter, and were
primarily a reflection of the aforementioned higher sales,
partially offset by certain higher raw material costs.
Consolidated gross margin for the quarter ended
December 31, 2017 of $51.6 million increased by $4.7 million or
10.0%, compared to $46.9 million for the prior year comparable
period. Gross margin as a percentage of sales decreased to 32.4% as
compared to 33.3% in the prior year comparative period. Adjusted
gross margin(a) for the quarter ended December 31, 2017 increased
10.1% to $52.4 million, as compared to $47.6 million for the prior
year comparable period. For the three months ended December 31,
2017, adjusted gross margin as a percentage of sales was 32.9%
compared to 33.8% in the prior year comparative period. The
decrease was primarily due to mix and higher raw material costs.
Operating expenses of $25.0 million for the fourth quarter were up
$2.6 million from the prior year comparable quarter, principally
due to the addition of IFP’s operating expenses, increased spending
in research and development, and certain compensation related
expenses. Excluding non-cash operating expense associated with
amortization of intangible assets of $5.9 million, operating
expenses were $18.8 million, or 11.8% of
sales.
Interest expense was $1.8 million in the fourth quarter of 2017.
Our effective tax rates for the three months ended December 31,
2017 and 2016 were (71.2%) and 30.2%, respectively. The company’s
effective tax rate for the three months ended December 31, 2017 is
lower primarily due to the impact of the Tax Cuts and Jobs Act (the
“Tax Reform Act”) and the excess tax benefits from stock-based
compensation, due to the adoption of ASU 2016-09, being recognized
as a decrease to the provision for income taxes (see Table 3). The
Tax Reform Act reduces the federal corporate tax rate from a
maximum of 35% to a flat 21% rate, modifies policies, credits, and
deductions and has international tax consequences. The rate
reduction is effective January 1, 2018. As a result, Balchem was
required to revalue its deferred tax assets and liabilities to
account for the future impact of lower corporate tax rates and
other provisions of the Tax Reform Act. During the fourth quarter
2017, Balchem recorded an income tax benefit of $24.9 million
related to the Tax Reform Act. The fourth quarter 2017 income tax
benefit may require further adjustments in 2018 due to anticipated
additional guidance from the U.S. Department of the Treasury,
changes in Balchem’s assumptions, completion of 2017 tax returns,
and further information and interpretations that become
available.
For the quarter ended December 31, 2017, cash
flows provided by operating activities were $31.2 million, and free
cash flow was $21.3 million. The $90.9 million of net working
capital on December 31, 2017 included a cash balance of $40.4
million, which reflects scheduled and accelerated principal
payments on long-term debt of $16.8 million, and capital
expenditures of $9.9 million in the fourth quarter of 2017. The
Company continues to invest in projects across all facilities to
improve capabilities and operating efficiencies.
Ted Harris said, “Our strong fourth quarter
results once again highlight the strength and resilience of our
business model. We are pleased with the quarterly sales growth in
all four of our segments, the record net earnings achieved, and
continued solid cash flows.”
Mr. Harris went on to add, “As we focus now on
2018, we will continue to drive strategic growth initiatives,
particularly in Human Nutrition & Health and Animal Nutrition
& Health, through both organic investments in new manufacturing
capabilities and new product development, as well as by pursuing
strategic acquisitions. In addition, the IFP integration is
progressing nicely, with significant synergies realized, and is
on
track to meet our expectations. The
further improvement in our balance sheet over the course of the
quarter and full availability of our revolver provide financial
strength as we continue to progress our aforementioned strategic
growth initiatives.”
Quarterly Conference CallA
quarterly conference call will be held on Tuesday, February 27,
2018, at 11:00 AM Eastern Time (ET) to review fourth quarter 2017
results. Ted Harris, Chairman of the Board, CEO and President,
Terry Coelho, 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 Tuesday, March 13, 2018. To access the
replay of the conference call, dial 1-877-660-6853 (local dial-in
1-201-612-7415), and use conference ID #13676648.
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, 2016. 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($ in
000’s)
Business
Segment Net Sales: |
|
|
|
|
Three Months Ended |
|
Year Ended |
|
December 31, |
|
December 31, |
|
|
2017 |
|
|
2016 |
|
|
2017 |
2016 |
Human Nutrition &
Health |
$ |
83,273 |
|
$ |
75,853 |
|
$ |
15,796 |
|
$ |
297,134 |
Animal Nutrition &
Health |
|
44,552 |
|
|
42,540 |
|
|
157,688 |
|
|
161,119 |
Specialty Products |
|
16,542 |
|
|
16,207 |
|
|
73,355 |
|
|
70,126 |
Industrial Products |
|
14,897 |
|
|
6,160 |
|
|
47,951 |
|
|
24,825 |
Total |
$ |
159,264 |
|
$ |
140,760 |
|
$ |
594,790 |
|
$ |
553,204 |
|
|
|
|
|
|
|
|
|
|
|
|
Business
Segment Earnings Before Income Taxes: |
|
|
|
Three Months Ended |
Year Ended |
|
December 31, |
December 31, |
|
|
2017 |
|
|
|
2016 |
|
|
|
2017 |
|
|
|
2016 |
|
Human Nutrition &
Health |
$ |
12,068 |
|
|
$ |
10,300 |
|
|
$ |
44,010 |
|
|
$ |
38,156 |
|
Animal Nutrition &
Health |
|
8,073 |
|
|
|
8,063 |
|
|
|
22,292 |
|
|
|
28,686 |
|
Specialty Products |
|
4,824 |
|
|
|
5,321 |
|
|
|
24,949 |
|
|
|
22,862 |
|
Industrial
Products |
|
2,016 |
|
|
|
930 |
|
|
|
6,413 |
|
|
|
1,949 |
|
Transaction costs,
integration costs and legal settlement |
|
(315 |
) |
|
|
(23 |
) |
|
|
(2,496 |
) |
|
|
(815 |
) |
Indemnification
settlement |
|
- |
|
|
|
- |
|
|
|
2,087 |
|
|
|
- |
|
Interest and other
expense |
|
(2,144 |
) |
|
|
(1,792 |
) |
|
|
(8,767 |
) |
|
|
(7,904 |
) |
Total |
$ |
24,522 |
|
|
$ |
22,799 |
|
|
$ |
88,488 |
|
|
$ |
82,934 |
|
Selected
Balance Sheet Items |
December 31, |
|
December 31, |
|
2017 |
|
2016 |
Cash and Cash
Equivalents |
$ |
40,416 |
|
$ |
38,643 |
Accounts Receivable,
net |
|
91,226 |
|
|
83,252 |
Inventories |
|
60,696 |
|
|
57,245 |
Other Current
Assets |
|
6,998 |
|
|
9,302 |
Total Current
Assets |
|
199,336 |
|
|
188,442 |
|
|
|
|
|
|
Property, Plant &
Equipment, net |
|
189,793 |
|
|
165,754 |
Goodwill |
|
441,361 |
|
|
439,811 |
Intangible Assets With
Finite Lives, net |
|
128,073 |
|
|
147,484 |
Other Assets |
|
5,073 |
|
|
7,135 |
Total Assets |
$ |
963,636 |
|
$ |
948,626 |
|
|
|
|
|
|
Current
Liabilities |
$ |
73,396 |
|
$ |
66,008 |
Current Portion of Long
Term-Debt |
|
35,000 |
|
|
35,000 |
Long-Term Debt |
|
183,964 |
|
|
226,490 |
Revolving Loan –
Long-Term |
|
- |
|
|
19,000 |
Deferred Income
Taxes |
|
48,548 |
|
|
74,199 |
Long-Term
Obligations |
|
5,847 |
|
|
6,896 |
Total Liabilities |
|
346,755 |
|
|
427,593 |
|
|
|
|
|
|
Stockholders'
Equity |
|
616,881 |
|
|
521,033 |
|
|
|
|
|
|
Total Liabilities and
Stockholders' Equity |
$ |
963,636 |
|
$ |
948,626 |
|
|
|
|
|
|
|
Balchem CorporationCondensed
Consolidated Statements of Cash Flows(Dollars in
thousands)(unaudited) |
|
Year Ended December
31, |
|
|
2017 |
|
|
2016 |
|
|
|
Cash flows from
operating activities: |
|
Net
earnings |
$ |
90,071 |
|
|
55,972 |
|
Adjustments to
reconcile net earnings to net cash provided by operating
activities: |
|
|
Depreciation and
amortization |
|
44,379 |
|
|
46,202 |
|
Stock
compensation expense |
|
6,264 |
|
|
7,024 |
|
Other
adjustments |
|
(28,114 |
) |
|
(6,319 |
) |
Changes in
assets and liabilities |
|
(1,982 |
) |
|
4,733 |
|
Net cash provided by operating
activities |
|
110,618 |
|
|
107,612 |
|
|
|
|
Cash flow from
investing activities: |
|
|
Cash paid for
acquisition, net of cash acquired |
|
(17,393 |
) |
|
(110,601 |
) |
Capital
expenditures and intangible assets acquired |
|
(28,095 |
) |
|
(23,993 |
) |
Insurance
proceeds |
|
2,792 |
|
|
1,000 |
|
Net cash used in investing activities |
|
(42,696 |
) |
|
(133,594 |
) |
|
|
|
Cash flows from
financing activities: |
|
|
Proceeds from
long-term and revolving debt |
|
25,000 |
|
|
72,500 |
|
Principal
payments on long-term and revolving debt |
|
(89,384 |
) |
|
(89,384 |
) |
Proceeds from
stock options exercised |
|
9,732 |
|
|
7,192 |
|
Excess tax
benefits from stock compensation |
|
- |
|
|
2,546 |
|
Dividends
paid |
|
(12,069 |
) |
|
(10,720 |
) |
Other |
|
(1,905 |
) |
|
(1,588 |
) |
Net cash used in financing activities |
|
(68,626 |
) |
|
(19,454 |
) |
|
|
|
Effect of
exchange rate changes on cash |
|
2,477 |
|
|
(716 |
) |
|
|
|
Increase/(Decrease) in cash and cash
equivalents |
|
1,773 |
|
|
(46,152 |
) |
|
|
|
Cash and cash
equivalents, beginning of period |
|
38,643 |
|
|
84,795 |
|
Cash and cash
equivalents, end of period |
$ |
40,416 |
|
$ |
38,643 |
|
|
|
|
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. 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, |
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
|
|
|
|
|
|
|
|
Reconciliation of
adjusted gross margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP gross margin |
$ |
51,638 |
|
|
$ |
46,932 |
|
|
$ |
189,009 |
|
|
$ |
180,861 |
|
Inventory valuation
adjustment (1) |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,363 |
|
Amortization of
intangible assets (2) |
|
715 |
|
|
|
639 |
|
|
|
2,737 |
|
|
|
2,409 |
|
Adjusted gross
margin |
$ |
52,353 |
|
|
$ |
47,571 |
|
|
$ |
191,746 |
|
|
$ |
188,633 |
|
|
|
|
|
|
|
|
|
|
Reconciliation of
adjusted earnings from operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP earnings from
operations |
|
26,666 |
|
|
|
24,591 |
|
|
|
97,255 |
|
|
|
90,838 |
|
Inventory valuation
adjustment (1) |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,363 |
|
Amortization of
intangible assets (2) |
|
6,639 |
|
|
|
7,546 |
|
|
|
26,784 |
|
|
|
29,773 |
|
Transaction costs,
integration costs and legal settlement (3) |
|
315 |
|
|
|
23 |
|
|
|
2,496 |
|
|
|
815 |
|
Indemnification
settlement (4) |
|
- |
|
|
|
- |
|
|
|
(2,087 |
) |
|
|
- |
|
Adjusted earnings from
operations |
|
33,620 |
|
|
|
32,160 |
|
|
|
124,448 |
|
|
|
126,789 |
|
|
|
|
|
|
|
|
|
|
Reconciliation of
adjusted net earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net earnings |
|
41,975 |
|
|
|
15,924 |
|
|
|
90,071 |
|
|
|
55,972 |
|
Inventory valuation
adjustment (1) |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,363 |
|
Amortization of
intangible assets (2) |
|
6,753 |
|
|
|
7,673 |
|
|
|
27,258 |
|
|
|
30,299 |
|
Transaction costs,
integration costs and legal settlement (3) |
|
315 |
|
|
|
23 |
|
|
|
2,496 |
|
|
|
815 |
|
Indemnification
settlement (4) |
|
- |
|
|
|
- |
|
|
|
(2,087 |
) |
|
|
- |
|
Income tax adjustment
(5) |
|
(27,154 |
) |
|
|
(2,238 |
) |
|
|
(36,049 |
) |
|
|
(12,086 |
) |
Adjusted net
earnings |
$ |
21,889 |
|
|
$ |
21,382 |
|
|
$ |
81,689 |
|
|
$ |
80,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net earnings
per common share – diluted |
$ |
0.68 |
|
|
$ |
0.67 |
|
|
$ |
2.53 |
|
|
$ |
2.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 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 costs, integration costs and legal
settlement: Transaction and integration costs related to
acquisitions are expensed in our GAAP financial statements. Legal
settlements related to acquisitions are included as expense offset
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 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.
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 the 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, 2017 and 2016, respectively, is
calculated as the difference between the December 31, 2017 and 2016
year-to-date income tax adjustment, respectively, and the September
30, 2017 and 2016 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, 2017 and 2016.
Table 2
|
|
|
|
|
Three Months Ended December 31, |
|
YearEnded December 31, |
|
|
2017 |
|
|
|
2016 |
|
|
2017 |
|
|
|
2016 |
Net
income - as reported |
$ |
41,975 |
|
|
$ |
15,924 |
|
$ |
90,071 |
|
|
$ |
55,972 |
Add
back: |
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
(17,453 |
) |
|
|
6,875 |
|
|
(1,583 |
) |
|
|
26,962 |
Other
expense |
|
2,144 |
|
|
|
1,792 |
|
|
8,767 |
|
|
|
7,904 |
Depreciation and amortization |
|
11,095 |
|
|
|
11,691 |
|
|
43,905 |
|
|
|
45,676 |
EBITDA |
|
37,761 |
|
|
|
36,282 |
|
|
141,160 |
|
|
|
136,514 |
Add back
certain items: |
|
|
|
|
|
|
|
|
|
Non-cash
compensation expense related to equity awards |
|
1,916 |
|
|
|
1,379 |
|
|
6,264 |
|
|
|
6,571 |
Transaction costs, integration costs and legal settlement |
|
315 |
|
|
|
23 |
|
|
2,496 |
|
|
|
815 |
Indemnification settlement |
|
- |
|
|
|
- |
|
|
(2,087 |
) |
|
|
- |
Inventory fair value |
|
- |
|
|
|
- |
|
|
- |
|
|
|
5,363 |
Adjusted
EBITDA |
$ |
39,992 |
|
|
$ |
37,684 |
|
$ |
147,833 |
|
|
$ |
149,263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth a reconciliation
of our GAAP effective income tax rate to our non-GAAP effective
income tax rate for the twelve months ended December 31, 2017 and
2016.
Table 3
|
|
|
|
|
Twelve MonthsEnded December 31, |
|
|
2017 |
|
|
Effective Tax Rate |
|
|
|
2016 |
|
Effective Tax Rate |
|
GAAP
Income Tax Expense |
$ |
(1,583 |
) |
|
(1.8 |
%) |
|
$ |
26,962 |
|
32.5 |
% |
Impact
of ASU 2016-09 adoption(6) |
|
2,589 |
|
|
|
|
|
|
|
Impact
of the Tax Reform Act |
|
24,945 |
|
|
|
|
- |
|
|
Adjusted
Income Tax Expense |
$ |
25,951 |
|
|
29.3 |
% |
|
$ |
26,962 |
|
32.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(6)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 twelve months
ended December 31, 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, 2017 and 2016.
Table 4
|
|
|
|
|
Three MonthsEnded December 31, |
|
YearEnded December 31, |
|
|
2017 |
|
|
|
2016 |
|
|
|
2017 |
|
|
|
2016 |
|
Net cash
provided by operating activities |
$ |
31,164 |
|
|
$ |
27,795 |
|
|
$ |
110,618 |
|
|
$ |
107,612 |
|
Capital
expenditures |
|
(9,850 |
) |
|
|
(4,233 |
) |
|
|
(27,526 |
) |
|
|
(23,034 |
) |
Free
cash flow |
$ |
21,314 |
|
|
$ |
23,562 |
|
|
$ |
83,092 |
|
|
$ |
84,578 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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