Chase Corporation (NYSE American: CCF), a global specialty
chemicals company that is a leading manufacturer of protective
materials for high-reliability applications across diverse market
sectors, today announced financial results for the quarter ended
February 29, 2020, the second quarter of its fiscal 2020.
Fiscal Second Quarter Key Highlights
• Total Revenue of $65.6 million, compared to $66.6 million in
the year-ago period
• Gross Margin of 38%, compared to 35% in the year-ago
period
• Net Income of $7.9 million, compared to $5.3 million in the
year-ago period
• Adjusted EBITDA of $14.8 million, compared to $14.1 million in
the year-ago period
• Free Cash Flow of $9.2 million, compared to $5.1 million in
the year-ago period
• Ended transitional toll manufacturing services agreement
• Finalized relocation of pulling and detection product line
operations to Hickory, North Carolina
“Positive trends from the first quarter continued with increased
relative gross margins and cash flows from operations,” said Adam
P. Chase, President and Chief Executive Officer of Chase
Corporation. “These improvements came despite a challenging trading
environment, which saw continued headwinds in Asian markets,
coupled with certain North American retractions and the usual
seasonal softness in the quarter. Financial flexibility is a core
component of our strategy and we are in a strong financial position
during the coronavirus (COVID-19) pandemic, with our $67.7 million
cash on hand and a $150 million credit facility fully available to
support our global operations.
“Currently, all but one of our facilities are operating, with
our smallest location, Pune, India, temporarily suspending
operations in response to a general order issued by the Indian
government. This speaks to the essential nature of our products and
the industries that purchase them. Chase is a strategically
diversified manufacturer serving a varied customer base. It is
important for us to reinforce our strengths and tenets as we report
on the second fiscal quarter of 2020 and comment on the global
effects that the COVID-19 pandemic may have on our people and our
business as we move forward.
“Through our operational discipline and proactive initiatives,
we were able to make progress on multiple improvement efforts
during the quarter. We completed the relocation of our pulling and
detection product line, which immediately translated to an improved
bottom line in our Industrial Tapes segment, and we successfully
exited from providing low-margin transitional toll manufacturing
services, which improved our sales mix. We remain focused on
driving optimization initiatives and will respond to the changing
environment with our disciplined approach that balances short-term
requirements with long-term objectives to create value for our
shareholders.”
Financial Highlights
- Total Revenue fell 2% to $65.6 million, compared to Q2 FY19,
due to a decline in revenue in the Adhesives, Sealants and
Additives and Industrial Tapes segments, which was partially offset
by increased revenue from Corrosion Protection and
Waterproofing.
- Gross Margin of 38%, compared to 35% in Q2 FY19, benefited by
production efficiencies following plant consolidations, more
favorable sales mix and the full-period effects of price increases
the Company instituted during fiscal 2019 to address inflation in
raw material costs.
- Selling, General and Administrative expenses rose 6% to $13.8
million from the year-ago period, largely attributable to an
increase of $283,000 in non-cash stock-based compensation
expenses.
- Interest expense of $56,000 declined 65% from the year-ago
period as a result of the lower average outstanding balance of the
Company’s revolving debt facility.
- Income Tax expense of $2.9 million, compared to $1.7 million in
the year-ago period.
- Other expense totaled $185,000, compared to $828,000 in the
year-ago period, on lower foreign exchange transactional losses in
the current year quarter and certain nonrecurring pension expenses
in the prior year.
- Net Income for the second fiscal quarter of 2020 was $7.9
million, or $0.83 per diluted share, compared to a Net Income of
$5.3 million, or $0.56 per diluted share, for the second fiscal
quarter of 2019. Adjusted Net Income for the quarter was also $0.83
per basic and diluted share.
- Adjusted EBITDA for the second fiscal quarter of 2020 was $14.8
million, compared to Adjusted EBITDA of $14.1 million in the
prior-year quarter. The reconciliation of Net Income to Adjusted
EBITDA is included at the end of this news release.
- Free Cash Flow in the second fiscal quarter of 2020 was $9.2
million, compared to Free Cash Flow of $5.1 million in the
prior-year quarter.
“Our manufacturing footprint rationalization yielded positive
improvements in our business during the second quarter of fiscal
2020, as we improved the relative gross margin of each of our three
operating segments,” said Christian J. Talma, Treasurer and Chief
Financial Officer of Chase Corporation. “As we see the full benefit
of the plant rationalization initiatives throughout the balance of
2020, we remain focused on growing the profitability of our product
lines and elevating our Company’s market leadership. With ample
liquidity on the balance sheet, we remain opportunistic in our
capital allocation strategy and continue to take a diligent
approach in evaluating potential acquisitions. We are in a good
position to capitalize on inorganic opportunities.”
Adhesives, Sealants and Additives
For the Three Months
For the Six Months
February 29, 2020
February 28, 2019
February 29, 2020
February 28, 2019
Revenue
$
24,440
$
26,107
$
50,262
$
52,805
Cost of products and services sold
14,255
15,331
28,787
30,323
Gross Margin
$
10,185
$
10,776
$
21,475
$
22,482
Gross Margin %
42%
41%
43%
43%
Our Adhesives, Sealants and Additives segment’s revenue declined
6% to $24.4 million compared to Q2 FY19 largely as a result of
certain reductions in North America and continued headwinds from
Asia in the electronic and industrial coatings product lines.
Declines in the latter part of the quarter were amplified by
temporary regional shutdowns by manufacturers related to the
coronavirus. The cost of products and services sold declined 7% to
$14.3 million compared to the year-ago period.
Industrial Tapes
For the Three Months
For the Six Months
February 29, 2020
February 28, 2019
February 29, 2020
February 28, 2019
Revenue
$
30,055
$
31,158
$
60,179
$
64,620
Cost of products and services sold
20,203
22,227
41,522
46,844
Gross Margin
$
9,852
$
8,931
$
18,657
$
17,776
Gross Margin %
33%
29%
31%
28%
Our Industrial Tapes segment’s top-line of $30.1 million was 4%
lower than the year-ago period, driven by reduced lower-margin
transitional tolling revenue from our specialty products product
line, lower North American demand for cable materials and lower
sales volume from our Asia-based electronic materials customers.
The cost of products and services sold for the segment declined 9%
to $20.2 million compared to the year ago period in part due to
production efficiencies at the Oxford, MA and Lenoir, NC locations
following the consolidation of the former Pawtucket, RI plant, and
at our Hickory, NC location following the consolidation of our
Granite Falls, NC facility.
Corrosion Protection and Waterproofing
For the Three Months
For the Six Months
February 29, 2020
February 28, 2019
February 29, 2020
February 28, 2019
Revenue
$
11,087
$
9,366
$
21,943
$
21,709
Cost of products and services sold
6,208
5,655
12,140
12,621
Gross Margin
$
4,879
$
3,711
$
9,803
$
9,088
Gross Margin %
44%
40%
45%
42%
Sales from our Corrosion Protection and Waterproofing segment
rose 18% to $11.1 million compared to the year-ago period, largely
as a result of favorable domestic demand for our coating and lining
systems, as well as our pipeline coatings and bridge and highway
products. The cost of products and services sold increased 10% to
$6.2 million compared to the year-ago period.
Outlook
Mr. Chase continued, “Ensuring the safety and wellbeing of our
employees and the communities we operate in has always been a
priority for Chase, and we encourage investors and interested
parties to visit our website, www.chasecorp.com, for continued
updates on how we as a Company are affected by and are addressing
COVID-19. While the coronavirus caused some temporary business
disruptions in certain geographies, our balance sheet strength and
liquidity have us well-positioned to drive performance and emerge
from these uncertain times with continued resiliency and strength.
Although there remain some short-term uncertainties in the global
economies in which we operate, we continue to see a long-term path
toward growth through both organic and inorganic methods, while
streamlining our operations to drive positive free cash flows and
continue creating value for our shareholders.”
About Chase Corporation
Chase Corporation, a global specialty chemicals company that was
founded in 1946, is a leading manufacturer of protective materials
for high-reliability applications throughout the world. More
information can be found on our website https://chasecorp.com/
Use of Non-GAAP Financial Measures
The Company has used non-GAAP financial measures in this press
release. Adjusted net income, Adjusted diluted EPS, EBITDA,
Adjusted EBITDA and Free cash flow are non-GAAP financial measures.
The Company believes that Adjusted net income, Adjusted diluted
EPS, EBITDA, Adjusted EBITDA and Free cash flow are useful
performance measures as they are used by its executive management
team to measure operating performance, to allocate resources to
enhance the financial performance of its business, to evaluate the
effectiveness of its business strategies and to communicate with
its board of directors and investors concerning its financial
performance. The Company believes Adjusted net income, Adjusted
diluted EPS, EBITDA, Adjusted EBITDA and Free cash flow are
commonly used by financial analysts and others in the industries in
which the Company operates, and thus provide useful information to
investors. However, Chase’s calculation of Adjusted net income,
Adjusted diluted EPS, EBITDA, Adjusted EBITDA and Free cash flow
may not be comparable to similarly-titled measures published by
others. Non-GAAP financial measures should be considered in
addition to, and not as an alternative to, the Company’s reported
results prepared in accordance with GAAP. This press release
provides reconciliations from the most directly comparable
financial measure presented in accordance with U.S. GAAP to each
non-GAAP financial measure.
Cautionary Note Concerning Forward-Looking Statements
Certain statements in this press release are forward-looking.
These may be identified by the use of forward-looking words or
phrases such as “believe”; “expect”; “anticipate”; “should”;
“planned”; “estimated” and “potential”, among others. These
forward-looking statements are based on Chase Corporation’s current
expectations. The Private Securities Litigation Reform Act of 1995
provides a “safe harbor” for such forward-looking statements. To
comply with the terms of the safe harbor, the Company cautions
investors that any forward-looking statements made by the Company
are not guarantees of future performance and that a variety of
factors could cause the Company's actual results and experience to
differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements.
The risks and uncertainties which may affect the operations,
performance, development and results of the Company's business
include, but are not limited to, the following: uncertainties
relating to economic conditions; uncertainties relating to customer
plans and commitments; the pricing and availability of equipment,
materials and inventories; technological developments; performance
issues with suppliers and subcontractors; economic growth; delays
in testing of new products; the Company’s ability to successfully
integrate acquired operations; the effectiveness of cost-reduction
plans; rapid technology changes; the highly competitive environment
in which the Company operates; as well as expected impact of the
coronavirus disease (COVID-19) pandemic on the Company's
businesses. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date
the statement was made.
The following table summarizes the Company’s unaudited financial
results for the three and six months ended February 29, 2020 and
February 28, 2019.
For the Three Months
For the Six Months
All figures in thousands, except per
share figures
February 29, 2020
February 28, 2019
February 29, 2020
February 28, 2019
Revenue
$
65,582
$
66,631
$
132,384
$
139,134
Costs and Expenses
Cost of products and services sold
40,666
43,213
82,449
89,788
Selling, general and administrative
expenses
13,810
13,086
27,450
26,448
Operations optimization costs
60
—
709
260
Loss on impairment of goodwill
—
2,410
—
2,410
Operating income
11,046
7,922
21,776
20,228
Interest expense
(56)
(162)
(111)
(366)
Other income (expense)
(185)
(828)
(789)
(1,122)
Income before income taxes
10,805
6,932
20,876
18,740
Income taxes
2,926
1,659
5,635
4,644
Net income
$
7,879
$
5,273
$
15,241
$
14,096
Net income per diluted share
$
0.83
$
0.56
$
1.60
$
1.49
Weighted average diluted shares
outstanding
9,444
9,373
9,439
9,377
Reconciliation of net income to EBITDA and
adjusted EBITDA
Net income
$
7,879
$
5,273
$
15,241
$
14,096
Interest expense
56
162
111
366
Income taxes
2,926
1,659
5,635
4,644
Depreciation expense
988
1,253
2,041
2,491
Amortization expense
2,912
3,112
5,826
6,225
EBITDA
$
14,761
$
11,459
$
28,854
$
27,822
Operations optimization costs
60
—
709
260
Loss on impairment of goodwill
—
2,410
—
2,410
Pension settlement costs
—
273
—
473
Adjusted EBITDA
$
14,821
$
14,142
$
29,563
$
30,965
For the Three Months
For the Six Months
February 29, 2020
February 28, 2019
February 29, 2020
February 28, 2019
Reconciliation of net income to adjusted
net income
Net income
$
7,879
$
5,273
$
15,241
$
14,096
Transitional impact of the Tax Cuts and
Jobs Act, net
—
(140)
—
(140)
Operations optimization costs
60
—
709
260
Loss on impairment of goodwill
—
2,410
—
2,410
Pension settlement costs
—
273
—
473
Income taxes *
(13)
(563)
(149)
(660)
Adjusted net income
$
7,926
$
7,253
$
15,801
$
16,439
Adjusted net income per diluted share
(Adjusted diluted EPS)
$
0.83
$
0.77
$
1.66
$
1.74
* For the three and six months ended February 29, 2020 and
February 28, 2019 represents the aggregate tax effect assuming a
21% tax rate for the items impacting pre-tax income, which is our
estimated effective U.S. statutory Federal tax rate for fiscal 2020
and which was our effective U.S. statutory Federal tax rate for
fiscal year 2019.
For the Three Months
For the Six Months
February 29, 2020
February 28, 2019
February 29, 2020
February 28, 2019
Reconciliation of cash provided by
operations to free cash flow
Net cash provided by operating
activities
$
9,308
$
5,726
$
27,461
$
17,303
Purchases of property, plant and
equipment
(128)
(665)
(827)
(1,304)
Free cash flow
$
9,180
$
5,061
$
26,634
$
15,999
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200409005828/en/
Investor & Media Contact: Ruthanne Hawkins
Shareholder & Investor Relations Department Phone: (781)
332-0700 E-mail: investorrelations@chasecorp.com Website:
www.chasecorp.com
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