Balchem Corporation (NASDAQ: BCPC) today reported for the second
quarter 2018 record second quarter net earnings of $19.7 million,
compared to net earnings of $16.5 million for the second quarter
2017. Record adjusted net earnings(a) were $24.5 million, compared
to $20.5 million in the prior year quarter. Record adjusted
EBITDA(a) was $41.0 million, compared to $36.3 million in the prior
year quarter.
Second Quarter 2018 Financial Highlights:
- Record quarterly net sales of $163.7 million in the second
quarter 2018, an increase of $16.6 million, or 11.3%, compared to
the prior year quarter.
- Year over year sales growth in all four of our segments, with
record quarterly sales for our Human Nutrition & Health and
Specialty Products segments.
- Year over year earnings from operations growth in three of the
four segments.
- Record second quarter net earnings were $19.7 million, an
increase of $3.1 million, or 19.0%, from the prior year, resulting
in earnings per share of $0.61.
- Record quarterly adjusted net earnings of $24.5 million
increased $4.0 million or 19.5% from the prior year, resulting in
adjusted earnings per share(a) of $0.76.
- Record quarterly adjusted EBITDA of $41.0 million increased
$4.7 million or 13.0% from the prior year.
- Second quarter cash flows from operations were $21.2 million
for 2018 compared to $22.9 million for 2017. Free cash flow(a) for
the second quarter 2018 was $17.3 million compared to $15.0 million
for the second quarter 2017, an increase of $2.2 million.
Recent Highlights:
- Entered into a new credit agreement with lenders in the form of
a senior secured revolving credit facility, due 2023. The new
revolving credit agreement allows for up to $500 million of
borrowing. The Company used initial proceeds from the new credit
agreement to repay the outstanding balance of $210.8 million on its
senior secured term loan A, due May 2019.
- Collaborated with several leading dairy research institutions
to present seven new research projects demonstrating the benefits
of Choline in dairy cows and calves at the recent American Dairy
Science Association (ADSA) annual meeting.
Ted Harris, Chairman, CEO, and President of
Balchem said, “We are extremely pleased to report second quarter
sales growth in all four of our segments, along with all-time
record adjusted net earnings and adjusted EBITDA, and continued
solid cash generation. In addition, our new revolving credit
agreement enhances our strong financial profile and provides
increased flexibility. The available funds from this new credit
facility, combined with our strong cash flow, strengthen our
ability to execute on our growth plans.”
Results for Period Ended June 30, 2018
(unaudited)($000 Omitted Except for Net Earnings per
Share)
| For the Three Months Ended June
30, |
|
|
|
|
|
|
|
|
|
|
2018 |
|
|
2017 |
| |
|
|
|
|
|
|
| |
Unaudited |
| |
|
| Net sales |
$ |
163,687 |
|
|
$ |
147,082 |
| Gross margin |
|
53,466 |
|
|
|
46,761 |
| Operating expenses |
|
25,847 |
|
|
|
21,930 |
| Earnings from
operations |
|
27,619 |
|
|
|
24,831 |
| Other expense |
|
2,558 |
|
|
|
2,271 |
| Earnings before income
tax expense |
|
25,061 |
|
|
|
22,560 |
| Income tax expense |
|
5,382 |
|
|
|
6,024 |
| Net earnings |
$ |
19,679 |
|
|
$ |
16,536 |
| |
|
|
|
|
|
|
| Diluted net earnings
per common share |
$ |
0.61 |
|
|
$ |
0.51 |
| |
|
|
|
|
|
|
| Adjusted EBITDA(a) |
$ |
41,046 |
|
|
$ |
36,315 |
| Adjusted net
earnings(a) |
$ |
24,530 |
|
|
$ |
20,527 |
| Adjusted net earnings
per common share(a) |
$ |
0.76 |
|
|
$ |
0.64 |
| |
|
|
|
|
|
|
| Shares used in the
calculations of diluted and adjusted net earnings per common
share |
|
32,438 |
|
|
|
32,203 |
| |
|
|
|
|
|
|
| For the Six Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
2018 |
|
|
2017 |
| |
|
|
|
|
|
|
| |
Unaudited |
| |
|
|
|
|
|
|
| Net sales |
$ |
325,097 |
|
|
$ |
284,810 |
| Gross margin |
|
104,925 |
|
|
|
91,190 |
| Operating expenses |
|
49,894 |
|
|
|
43,656 |
| Earnings from
operations |
|
55,031 |
|
|
|
47,534 |
| Other expense |
|
4,793 |
|
|
|
4,265 |
| Earnings before income
tax expense |
|
50,238 |
|
|
|
43,269 |
| Income tax expense |
|
11,213 |
|
|
|
11,216 |
| Net earnings |
$ |
39,025 |
|
|
$ |
32,053 |
| |
|
|
|
|
|
|
| Diluted net earnings
per common share |
$ |
1.21 |
|
|
$ |
1.00 |
| |
|
|
|
|
|
|
| Adjusted EBITDA(a) |
$ |
81,958 |
|
|
$ |
72,122 |
| Adjusted net
earnings(a) |
$ |
48,948 |
|
|
$ |
39,440 |
| Adjusted net earnings
per common share(a) |
$ |
1.51 |
|
|
$ |
1.23 |
| |
|
|
|
|
|
|
| Shares used in the
calculation of diluted and adjusted net earnings per common
share |
|
32,378 |
|
|
|
32,195 |
| |
|
|
|
|
|
|
(a)See “Non-GAAP Financial Information” for a
reconciliation of GAAP and non-GAAP financial measures.
Segment Financial Results for the Second Quarter of
2018:
The Human Nutrition &
Health segment generated record quarterly sales of $85.0
million, an increase of $7.0 million or 8.9% compared to the prior
year quarter. The increase was primarily driven by added sales from
the IFP acquisition, higher powder systems and encapsulated
products sales into food and beverage markets, strong chelated
minerals, and increased choline nutrients sales, partially offset
by lower flavor systems sales. Second quarter earnings from
operations for this segment of $10.1 million decreased $1.3 million
or 11.1% compared to $11.3 million in the prior year quarter,
primarily due to unfavorable mix, higher raw material costs,
additional expenses related to manufacturing site consolidation and
expansion activities, the timing of a prior year insurance
recovery, and increased research & development spending.
The Animal Nutrition &
Health segment sales of $42.0 million increased $5.0
million or 13.5% compared to the prior year quarter. The increased
sales were primarily due to higher monogastric species sales,
driven by healthy demand in North America and Europe, higher
average selling prices, and additional sales realized as a result
of the continuing supply disruptions of Chinese imports, partially
offset by lower ruminant species sales. Second quarter earnings
from operations for this segment of $7.1 million were $3.4 million
or 92.8% higher than the prior year comparable quarter of $3.7
million, primarily due to the aforementioned higher monogastric
sales volumes and higher average selling prices.
The Specialty Products segment
generated record quarterly sales of $22.9 million, an increase of
$2.1 million or 10.1% compared to the prior year quarter, primarily
due to increased plant nutrition volumes and higher sales of
ethylene oxide for the medical device sterilization market. Record
quarterly earnings from operations for this segment were $8.7
million, versus $8.1 million in the prior year comparable quarter,
an increase of $0.6 million or 7.8%, primarily due to the
aforementioned higher sales.
The Industrial Products segment
sales of $13.8 million increased $2.5 million or 22.5% 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 $2.7 million, an increase of $1.1 million or
68.1% compared with the prior year comparable quarter, and were
primarily a reflection of the aforementioned higher sales
volumes.
Consolidated gross margin for the quarter ended
June 30, 2018 of $53.5 million increased by $6.7 million or 14.3%,
compared to $46.8 million for the prior year comparable period.
Gross margin as a percentage of sales increased to 32.7% as
compared to 31.8% in the prior year period. The increase was
primarily due to strong sales volumes, mix and certain higher
average selling prices. Operating expenses of $25.8 million for the
second quarter were up $3.9 million from the prior year comparable
quarter, principally due to the prior year including a favorable
indemnification settlement, the inclusion of three months of IFP
expenses compared to one month in the prior year comparable period,
increased research and development spend, and certain
compensation-related expenses, partially offset by lower
transaction and integration costs. Excluding transaction and
integration costs of $0.9 million and non-cash operating expense
associated with amortization of intangible assets of $5.4 million,
operating expenses were $19.5 million, or 11.9% of
sales.
Interest expense was $2.3 million in the second quarter of 2018 and
includes a write-off of $0.4 million of deferred financing costs in
connection with the extinguished debt in 2018. Our effective tax
rates for the three months ended June 30, 2018 and 2017 were 21.5%
and 26.7%, respectively. The company’s effective tax rate for the
three months ended June 30, 2018 is lower primarily due to the
impact of the Tax Cuts and Jobs Act.
For the quarter ended June 30, 2018, cash flows
provided by operating activities were $21.2 million, and free cash
flow was $17.3 million. The $180.5 million of net working capital
on June 30, 2018 included a $35 million reduction in the current
portion of long-term debt, resulting from the 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 $62.5 million, which reflects capital
expenditures of $4.0 million in the second quarter of 2018. The
Company continues to invest in projects across all facilities to
improve capabilities and operating efficiencies.
Ted Harris said, “We are very proud of the
strong performance we reported in the second quarter of 2018.
We delivered outstanding financial results, with quarterly sales
growth in all of our four segments and all-time record adjusted net
earnings, while progressing our strategic growth initiatives, and
strengthening our financial profile through our new revolving
credit agreement.”
Quarterly Conference CallA
quarterly conference call will be held on Friday, August 3, 2018,
at 11:00 AM Eastern Time (ET) to review second quarter 2018
results. Ted Harris, Chairman of the Board, CEO and President, and
Terry Coelho, CFO 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 Friday, August 17, 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 #13681749.
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($ in
000’s)
Business Segment Net Sales:
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
|
|
June 30, |
|
June 30, |
|
|
|
|
2018 |
2017 |
|
2018 |
|
2017 |
| Human Nutrition &
Health |
|
|
$ |
85,013 |
|
$ |
78,031 |
|
|
$ |
|
168,076 |
|
|
$ |
151,158 |
|
| Animal Nutrition &
Health |
|
|
|
42,036 |
|
|
37,048 |
|
|
|
|
88,177 |
|
|
|
75,126 |
|
| Specialty Products |
|
|
|
22,864 |
|
|
20,759 |
|
|
|
|
40,604 |
|
|
|
39,549 |
|
|
Industrial Products |
|
|
|
13,774 |
|
|
11,244 |
|
|
|
|
28,240 |
|
|
|
18,977 |
|
|
Total |
|
|
$ |
163,687 |
|
$ |
147,082 |
|
|
$ |
|
325,097 |
|
|
$ |
284,810 |
|
|
|
Business Segment Earnings Before Income
Taxes:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
June 30, |
|
|
June 30, |
|
|
2018 |
2017 |
|
2018 |
|
2017 |
| Human Nutrition &
Health |
$ |
10,066 |
|
$ |
11,320 |
|
|
$ |
|
23,069 |
|
|
$ |
21,516 |
|
| Animal Nutrition &
Health |
|
7,113 |
|
|
3,689 |
|
|
|
|
14,597 |
|
|
|
9,065 |
|
| Specialty Products |
|
8,679 |
|
|
8,055 |
|
|
|
|
13,814 |
|
|
|
14,518 |
|
| Industrial
Products |
|
2,654 |
|
|
1,579 |
|
|
|
|
5,133 |
|
|
|
2,301 |
|
| Transaction and
integration costs |
|
(893 |
) |
|
(1,899 |
) |
|
|
|
(1,582 |
) |
|
|
(1,953 |
) |
| Indemnification
settlement |
|
- |
|
|
2,087 |
|
|
|
|
- |
|
|
|
2,087 |
|
| Interest and other
expense |
|
(2,558 |
) |
|
(2,271 |
) |
|
|
|
(4,793 |
) |
|
|
(4,265 |
) |
|
Total |
$ |
25,061 |
|
$ |
22,560 |
|
|
$ |
|
50,238 |
|
|
$ |
43,269 |
|
|
|
| Selected
Balance Sheet Items |
June 30, 2018 |
|
|
|
December 31, 2017 |
| Cash and Cash
Equivalents |
$ |
62,476 |
|
|
|
$ |
40,416 |
| Accounts Receivable,
net |
|
98,595 |
|
|
|
|
91,226 |
| Inventories |
|
70,071 |
|
|
|
|
60,696 |
| Other Current
Assets |
|
9,995 |
|
|
|
|
6,998 |
| Total Current
Assets |
|
241,137 |
|
|
|
|
199,336 |
| |
|
|
|
|
|
|
|
| Property, Plant &
Equipment, net |
|
184,767 |
|
|
|
|
189,793 |
| Goodwill |
|
441,554 |
|
|
|
|
441,361 |
| Intangible Assets With
Finite Lives, net |
|
115,873 |
|
|
|
|
128,073 |
| Other Assets |
|
6,136 |
|
|
|
|
5,073 |
| Total Assets |
$ |
989,467 |
|
|
|
$ |
963,636 |
| |
|
|
|
|
|
|
|
| Current
Liabilities |
$ |
60,632 |
|
|
|
$ |
73,396 |
| Current Portion of
Long-Term Debt |
|
- |
|
|
|
|
35,000 |
| Long-Term Debt |
|
210,750 |
|
|
|
|
183,964 |
| Deferred Income
Taxes |
|
48,547 |
|
|
|
|
48,548 |
| Long-Term
Obligations |
|
6,318 |
|
|
|
|
5,847 |
| Total Liabilities |
|
326,247 |
|
|
|
|
346,755 |
| |
|
|
|
|
|
|
|
| Stockholders'
Equity |
|
663,220 |
|
|
|
|
616,881 |
| |
|
|
|
|
|
|
|
| Total Liabilities and
Stockholders' Equity |
$ |
989,467 |
|
|
|
$ |
963,636 |
| |
| Balchem Corporation |
| Condensed Consolidated Statements of Cash
Flows |
| (Dollars in thousands) |
| (unaudited) |
| |
|
|
Six Months Ended June
30, |
|
|
2018 |
2017 |
| |
|
| Cash flows from
operating activities: |
|
| Net
earnings |
$ |
39,025 |
|
$ |
32,053 |
|
| Adjustments to
reconcile net earnings to net cash provided by operating
activities: |
|
|
|
Depreciation and amortization |
|
22,426 |
|
|
22,083 |
|
|
Stock compensation expense |
|
3,459 |
|
|
2,885 |
|
|
Other adjustments |
|
62 |
|
|
565 |
|
|
Changes in assets and liabilities |
|
(18,276 |
) |
|
(11,894 |
) |
|
Net cash provided by operating
activities |
|
46,696 |
|
|
45,692 |
|
|
|
|
|
| Cash flow from
investing activities: |
|
|
| Cash paid for
acquisition, net of cash acquired |
|
- |
|
|
(16,759 |
) |
| Capital
expenditures and intangible assets acquired |
|
(7,996 |
) |
|
(11,149 |
) |
| Proceeds from
insurance and sale of assets |
|
2,166 |
|
|
2,000 |
|
|
Net cash used in investing activities |
|
(5,830 |
) |
|
(25,908 |
) |
| |
|
|
| Cash flows from
financing activities: |
|
|
| Proceeds from
revolving debt |
|
210,750 |
|
|
22,000 |
|
| Principal
payments on long-term and revolving debt |
|
(219,500 |
) |
|
(29,384 |
) |
| Proceeds from
stock options exercised |
|
6,578 |
|
|
4,893 |
|
| Dividends
paid |
|
(13,428 |
) |
|
(12,069 |
) |
| Other |
|
(2,346 |
) |
|
(1,741 |
) |
|
Net cash used in financing activities |
|
(17,946 |
) |
|
(16,301 |
) |
| |
|
|
| Effect of
exchange rate changes on cash |
|
(860 |
) |
|
1,473 |
|
| |
|
|
|
Increase/(Decrease) in cash and cash
equivalents |
|
22,060 |
|
|
4,956 |
|
| |
|
|
| Cash and cash
equivalents, beginning of period |
|
40,416 |
|
|
38,643 |
|
| Cash and cash
equivalents, end of period |
$ |
62,476 |
|
$ |
43,599 |
|
| |
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
GAA |
| (Dollars in thousands, except per share data) |
| (unaudited) |
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2018 |
2017 |
2018 |
2017 |
| |
|
|
|
|
|
|
|
|
| Reconciliation of
adjusted gross margin |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| GAAP gross margin |
$ |
53,466 |
|
$ |
46,761 |
|
$ |
104,925 |
|
$ |
91,190 |
|
| Amortization of
intangible assets (1) |
|
755 |
|
|
659 |
|
|
1,597 |
|
|
1,300 |
|
| Adjusted gross
margin |
$ |
54,221 |
|
$ |
47,420 |
|
$ |
106,522 |
|
$ |
92,490 |
|
| |
|
|
|
|
|
|
|
|
| Reconciliation of
adjusted earnings from operations |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| GAAP earnings from
operations |
|
27,619 |
|
|
24,831 |
|
|
55,031 |
|
|
47,534 |
|
| Amortization of
intangible assets (1) |
|
6,190 |
|
|
6,452 |
|
|
12,472 |
|
|
13,543 |
|
| Transaction and
integration costs (2) |
|
893 |
|
|
1,899 |
|
|
1,582 |
|
|
1,953 |
|
| Indemnification
settlement (3) |
|
- |
|
|
(2,087 |
) |
|
- |
|
|
(2,087 |
) |
| Adjusted earnings from
operations |
|
34,702 |
|
|
31,095 |
|
|
69,085 |
|
|
60,943 |
|
| |
|
|
|
|
|
|
|
|
| Reconciliation of
adjusted net earnings |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| GAAP net earnings |
|
19,679 |
|
|
16,536 |
|
|
39,025 |
|
|
32,053 |
|
| Amortization of
intangible assets (1) |
|
6,621 |
|
|
6,572 |
|
|
13,012 |
|
|
13,787 |
|
| Transaction and
integration costs (2) |
|
893 |
|
|
1,899 |
|
|
1,582 |
|
|
1,953 |
|
| Indemnification
settlement (3) |
|
- |
|
|
(2,087 |
) |
|
- |
|
|
(2,087 |
) |
| Income tax adjustment
(4) |
|
(2,663 |
) |
|
(2,393 |
) |
|
(4,671 |
) |
|
(6,266 |
) |
| Adjusted net
earnings |
$ |
24,530 |
|
$ |
20,527 |
|
$ |
48,948 |
|
$ |
39,440 |
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Adjusted net earnings
per common share – diluted |
$ |
0.76 |
|
$ |
0.64 |
|
$ |
1.51 |
|
$ |
1.23 |
|
|
|
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 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 June 30, 2018 and 2017,
respectively, is calculated as the difference between the June 30,
2018 and 2017 year-to-date income tax adjustment, respectively, and
the March 31, 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 six
months ended June 30, 2018 and 2017.
|
Table 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Six Months |
|
|
Ended |
|
Ended |
|
|
June 30, |
|
June 30, |
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
| Net
income - as reported |
$ |
19,679 |
|
|
$ |
16,536 |
|
|
$ |
39,025 |
|
|
$ |
32,053 |
|
| Add
back: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
5,382 |
|
|
|
6,024 |
|
|
|
11,213 |
|
|
|
11,216 |
|
| Other
expense |
|
2,558 |
|
|
|
2,271 |
|
|
|
4,793 |
|
|
|
4,265 |
|
|
Depreciation and amortization |
|
10,868 |
|
|
|
10,628 |
|
|
|
21,886 |
|
|
|
21,837 |
|
|
EBITDA |
|
38,487 |
|
|
|
35,459 |
|
|
|
76,917 |
|
|
|
69,371 |
|
| Add back
certain items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Non-cash
compensation expense related to equity awards |
|
1,666 |
|
|
|
1,044 |
|
|
|
3,459 |
|
|
|
2,885 |
|
|
Transaction and integration costs |
|
893 |
|
|
|
1,899 |
|
|
|
1,582 |
|
|
|
1,953 |
|
|
Indemnification settlement |
|
- |
|
|
|
(2,087 |
) |
|
|
- |
|
|
|
(2,087 |
) |
| Adjusted
EBITDA |
$ |
41,046 |
|
|
$ |
36,315 |
|
|
$ |
81,958 |
|
|
$ |
72,122 |
|
| |
The following table sets forth a reconciliation
of our GAAP effective income tax rate to our non-GAAP effective
income tax rate for the six months ended June 30, 2018 and
2017.
|
Table 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months |
|
|
Ended |
|
|
June 30, |
|
|
2018 |
|
Effective Tax Rate |
|
2017 |
|
Effective Tax Rate |
| GAAP
Income Tax Expense |
$ |
11,213 |
|
22.3 |
% |
|
$ |
11,216 |
|
25.9 |
% |
| Impact
of ASU 2016-09 adoption(5) |
|
1,095 |
|
|
|
|
|
1,739 |
|
|
|
| Adjusted
Income Tax Expense |
$ |
12,308 |
|
24.5 |
% |
|
$ |
12,955 |
|
29.9 |
% |
| |
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 six months ended June 30, 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 six months ended June 30, 2018 and 2017.
| Table 4 |
| |
|
|
Three Months |
|
Six Months |
|
|
Ended |
|
Ended |
|
|
June 30, |
|
June 30, |
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
| Net cash
provided by operating activities |
$ |
21,217 |
|
|
$ |
22,890 |
|
|
$ |
46,696 |
|
|
$ |
45,692 |
|
| Capital
expenditures |
|
(3,965 |
) |
|
|
(7,885 |
) |
|
|
(7,700 |
) |
|
|
(10,819 |
) |
| Free
cash flow |
$ |
17,252 |
|
|
$ |
15,005 |
|
|
$ |
38,996 |
|
|
$ |
34,873 |
|
| |
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