DEERFIELD, Ill., Oct. 25, 2018 /PRNewswire/ -- Essendant Inc.
(NASDAQ: ESND), a leading national distributor of workplace items,
today announced financial results for the third quarter ended
September 30, 2018, as follows:
Third Quarter 2018 Summary
- Net sales declined 1.2% to $1.3
billion in the quarter, compared to the prior year
quarter.
- Loss per share in the quarter was $(0.12) compared to $(2.23) in the prior year quarter. Net loss was
$(4.5) million in the quarter
compared to $(81.9) million in the
prior year quarter.
- Adjusted diluted earnings per share(1) in the
quarter was $0.14, compared to
$0.03 in the prior year quarter.
Adjusted net income(1) was $5.4
million in the quarter compared to $1.2 million in the third quarter of 2017.
- Free cash flow(1) was $23.0
million in the nine months ended September 30, 2018, including transaction costs
of $13.1 million year-to-date.
"Essendant's results in the third quarter were in line with our
expectations, reflecting the team's execution of our strategic
drivers," said Ric Phillips,
President and Chief Executive Officer of Essendant. "We
continue to expect the Staples transaction to close in the fourth
quarter of this year and are confident in the clear benefits the
transaction will enable us to deliver to our customers and the
definitive value it provides our shareholders."
Third Quarter Performance
- Net sales decreased 1.2% compared to the prior year quarter,
driven by reduced sales in the national reseller channel being
partially offset by higher sales in the industrial and automotive
customer channels. Net sales by product category were:
-
- JanSan Products: decreased $0.5
million or 0.2% to $353.1
million.
- Technology Products: decreased $13.6
million or 4.1% to $317.2
million.
- Traditional Office Products: decreased $14.5 million or 6.9% to $194.9 million.
- Industrial Supplies: increased $17.2
million or 12.0% to $160.6
million.
- Cut-sheet Paper Products: increased $6.3
million or 5.5% to $120.1
million.
- Automotive Products: increased $2.2
million or 2.8% to $77.9
million.
- Office Furniture: decreased $9.7
million or 13.0% to $64.7
million.
- Gross profit was $181.3 million,
an increase of $9.3 million versus
the prior year quarter primarily due to increased product margin
due to higher supplier allowances and a reduction in product
assortment reserves of $4.4 million,
partially offset by increased freight costs. Adjusted gross
profit(1) was $176.9
million compared to $172.0
million in the prior year quarter which was driven by
increased product margin due to higher supplier allowances,
partially offset by increased freight costs.
- Operating expenses were $177.9
million, a decrease from $254.1
million in the prior year quarter primarily due to a prior
year goodwill impairment charge of $86.3
million. Adjusted operating expenses were $160.3 million, a decrease of $1.5 million from the prior year quarter due to a
reduction in distribution center costs.
- Income tax benefit was $0.8
million in the third quarter of 2018, compared to a benefit
of $7.1 million in the prior year
quarter due to net losses in each period. Income tax expense on
adjusted net income was $3.3 million,
compared to income tax expense on adjusted net income was
$9.1 million in the prior year
quarter.
- Loss per share was $(0.12)
compared to $(2.23) in the prior year
quarter. Adjusted diluted earnings per share(1) was
$0.14 compared to $0.03 in the prior year quarter.
- Cash inflow for the nine months ended September 30, 2018, was $2.5 million. Operating cash flow in the period
included $13.1 million in transaction
costs. Investing cash flow in the period included $22.1 million of investment in the independent
reseller channel. Free cash flow(1) totaled $23.0 million in the nine months ended
September 30, 2018.
Outstanding Tender Offer with Staples
On September 14, 2018, Essendant
entered into a definitive merger agreement with Staples, Inc. and
its affiliates Egg Parent Inc. and Egg Merger Sub Inc.
Pursuant to the merger agreement, Egg Merger Sub Inc. commenced a
tender offer for all outstanding shares of Essendant's common stock
at a purchase price of $12.80 per
share. The completion of the tender offer is conditioned
upon, among other things, satisfaction of a minimum tender
condition and expiration or termination of any waiting period under
the Hart-Scott Rodino (HSR) Antitrust Improvements Act of
1976. The tender offer and withdrawal rights are scheduled to
expire at 5:00 p.m., New York City time on November 5, 2018, unless extended in accordance
with the terms of the merger agreement. Essendant expects this
transaction to close in the fourth quarter of 2018 and at that time
Essendant will become a privately held company.
Forward-Looking Statements
This release contains forward-looking statements, including
statements regarding the proposed acquisition of Essendant Inc. by
an affiliate of Staples, Inc. From time to time, oral or written
forward-looking statements may also be included in other
information released to the public. These forward-looking
statements are intended to provide management's current
expectations or plans for Essendant's future operating and
financial performance, based on assumptions currently believed to
be valid. Forward-looking statements often contain words such as
"may," "can," "could," "would," "should," "expects," "anticipates,"
"estimates," "intends," "plans," "believes," "seeks," "will," "is
likely to," "scheduled," "positioned to," "continue," "forecast,"
"aim," "goal," "target," "predicting," "projection," "potential" or
similar expressions, although not all forward-looking statements
contain these words. Forward-looking statements may include
references to goals, plans, strategies, objectives, projected costs
or savings, anticipated future performance, results, events or
transactions of Essendant and the expected timing of the proposed
transaction with Staples and other statements that are not strictly
historical in nature. These forward-looking statements are based on
management's current expectations, forecasts and assumptions and
could ultimately prove inaccurate. This means the forward-looking
statements involve a number of risks and uncertainties that could
cause actual results to differ materially from those expressed or
implied in the forward-looking statements, including, but not
limited to: market dynamics that create sales risks, including the
Company's reliance on key customers, including key customers in the
independent reseller channel, the risks inherent in continuing or
increased customer concentration and consolidations, efforts by
suppliers and customers to bypass the Company and transact directly
with each other, and competition from e-commerce businesses and
other resellers increasing their presence at the wholesale level;
the impact of price transparency, customer consolidation and
product sales mix changes on the Company's sales and margins; the
Company's reliance on supplier allowances and promotional
incentives; the Company's exposure to the credit risk of its
customers; potential disruptions to the Company's relationships
with customers and suppliers due to the Company's significant cost
reduction initiatives; continuing or increasing competitive
activity and pricing pressures within existing or expanded product
categories, including competition from e-commerce businesses and
the online branches of brick-and-mortar businesses; the impact of
supply chain disruptions or changes in key suppliers' distribution
strategies; continued declines in end-user demand for products in
the office, technology and furniture product categories; financial
cycles due to secular consumer demand, recession or other events,
most notably in the Company's Industrial and Automotive businesses;
the impact of the Company's strategic objectives and possible
disruption of business operations and relationships with customers
and suppliers; the Company's ability to manage inventory in order
to maximize sales and supplier allowances while minimizing excess
and obsolete inventory; the Company's success in effectively
identifying, consummating and integrating acquisitions; the
Company's ability to attract and retain key management personnel;
the costs and risks related to compliance with laws, regulations
and industry standards affecting the Company's business; the
Company's ability to maintain its existing information technology
systems and to successfully procure, develop and implement new
systems and services without business disruption or other
unanticipated difficulties or costs; the impact on the Company's
reputation and relationships of a breach of the Company's
information technology systems or a failure to maintain the
security of private information; the availability of financing
sources to meet the Company's business needs; unexpected events
that could disrupt business operations, increasing costs and
decreasing revenues; uncertainties as to the timing of the tender
offer closing and the subsequent merger with Staples' affiliate;
uncertainties as to how many Essendant stockholders will tender
their shares in the offer; the possibility that competing offers
will be made; the ability to receive the required consents and
regulatory approvals for the proposed transaction and to satisfy
the other conditions to the closing of the transaction with Staples
on a timely basis or at all, including under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (HSR Act); the occurrence of
events that may give rise to a right of one or both of Essendant
and Staples to terminate the merger agreement; the risk that, prior
to the completion of the transaction, Essendant's business and its
relationships with employees, customers, vendors and other business
partners could experience significant disruption due to
transaction-related uncertainty; the risk that stockholder
litigation in connection with the tender offer or the merger or
other transaction-related litigation may result in significant
costs of defense, indemnification and liability; negative effects
of the announcement of the transaction with Staples on the market
price of Essendant's common stock and/or on its business, financial
condition, results of operations and financial performance; and the
risks and uncertainties pertaining to Essendant's business,
including those detailed under "Risk Factors" and elsewhere in
Essendant's public periodic filings with the U.S Securities and
Exchange Commission (the "SEC"). There can be no assurance that the
proposed transaction with Staples or any other transaction will in
fact be consummated in the manner described or at all.
Stockholders, potential investors and other readers are urged to
consider these risks and uncertainties in evaluating
forward-looking statements and are cautioned not to place undue
reliance on the forward-looking statements. It is not possible to
anticipate or foresee all risks and uncertainties, and investors
should not consider any list of risks and uncertainties to be
exhaustive or complete. For additional information on identifying
factors that may cause actual results to vary materially from those
stated in forward-looking statements, please see Essendant's
statements and reports on Forms 10-K, 10-Q, 8-K and Schedule 14D-9
filed with or furnished to the SEC and other written statements
made by Essendant from time to time. The forward-looking
information herein is given as of this date only and is qualified
in its entirety by this cautionary statement, and Essendant
undertakes no obligation to revise or update it.
Additional Information
This release does not constitute an offer to buy or a
solicitation of an offer to sell any securities. On September 24, 2018, Staples, Egg Parent Inc. and
Egg Merger Sub Inc. filed with the SEC a Tender Offer Statement on
Schedule TO with respect to the tender offer, and Essendant filed
with the SEC a Solicitation/Recommendation Statement on Schedule
14D-9 with respect to the tender offer. INVESTORS AND STOCKHOLDERS
ARE ADVISED TO READ THE SCHEDULE TO (INCLUDING AN OFFER TO
PURCHASE, A RELATED LETTER OF TRANSMITTAL AND OTHER TENDER OFFER
DOCUMENTS) AND THE SCHEDULE 14D-9, INCLUDING ALL AMENDMENTS AND
SUPPLEMENTS THERETO, AND OTHER RELEVANT DOCUMENTS FILED WITH THE
SEC WHEN THEY BECOME AVAILABLE CAREFULLY AND IN THEIR ENTIRETY
BECAUSE THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT
THE PROPOSED TRANSACTION AND THE PARTIES THERETO. Investors and
stockholders may obtain the Schedule TO, Schedule 14D-9 and other
relevant documents filed with the SEC free of charge from the SEC's
website at www.sec.gov. The documents filed by Essendant with the
SEC may also be obtained free of charge at Essendant's website at
www.essendant.com or by contacting Essendant's Investor Relations
Department at (847) 627-2900.
Company Overview
Essendant Inc. is a leading national distributor of workplace
items, with 2017 net sales of $5.0
billion. The company provides access to a broad assortment
of over 170,000 items, including janitorial and breakroom supplies,
technology products, traditional office products, industrial
supplies, cut sheet paper products, automotive products and office
furniture. Essendant serves a diverse group of customers, including
independent resellers, national resellers and e-commerce
businesses. The Company's network of 61 distribution centers
enables the Company to ship most products overnight to more than
ninety percent of the U.S. For more information, visit
www.essendant.com.
Essendant common stock trades on the NASDAQ Global Select Market
under the symbol ESND.
(1)
|
This is non-GAAP
information. See the Reconciliation of Non-GAAP Financial Measures
section of this document for more information.
|
For Further Information Contact:
investorrelations@essendant.com
(847) 627-2900
Essendant Inc. and
Subsidiaries
|
Condensed
Consolidated Statements of Operations
|
(in
thousands, except per share data)
|
|
|
For the Three
Months Ended
|
|
|
For the Nine
Months Ended
|
|
|
September 30,
|
|
|
September 30,
|
|
|
2018
|
|
|
2017*
Revised
|
|
|
2018
|
|
|
2017*
Revised
|
|
Net sales
|
$
|
1,294,530
|
|
|
$
|
1,308,979
|
|
|
$
|
3,788,907
|
|
|
$
|
3,839,018
|
|
Cost of goods
sold
|
|
1,113,251
|
|
|
|
1,137,025
|
|
|
|
3,313,246
|
|
|
|
3,303,832
|
|
Gross
profit
|
|
181,279
|
|
|
|
171,954
|
|
|
|
475,661
|
|
|
|
535,186
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warehousing, marketing
and administrative expenses
|
|
173,957
|
|
|
|
167,802
|
|
|
|
496,076
|
|
|
|
501,072
|
|
Restructuring
charges
|
|
3,967
|
|
|
|
-
|
|
|
|
26,047
|
|
|
|
-
|
|
Impairment of
goodwill
|
|
-
|
|
|
|
86,339
|
|
|
|
-
|
|
|
|
285,166
|
|
Operating income
(loss)
|
|
3,355
|
|
|
|
(82,187)
|
|
|
|
(46,462)
|
|
|
|
(251,052)
|
|
Interest and other
expense, net
|
|
8,678
|
|
|
|
6,840
|
|
|
|
25,751
|
|
|
|
21,325
|
|
Loss before income
taxes
|
|
(5,323)
|
|
|
|
(89,027)
|
|
|
|
(72,213)
|
|
|
|
(272,377)
|
|
Income tax
benefit
|
|
(828)
|
|
|
|
(7,089)
|
|
|
|
(16,181)
|
|
|
|
(6,943)
|
|
Net loss
|
$
|
(4,495)
|
|
|
$
|
(81,938)
|
|
|
$
|
(56,032)
|
|
|
$
|
(265,434)
|
|
Net loss per share -
basic:
|
$
|
(0.12)
|
|
|
$
|
(2.23)
|
|
|
$
|
(1.52)
|
|
|
$
|
(7.23)
|
|
Average number of common
shares outstanding - basic
|
|
37,026
|
|
|
|
36,750
|
|
|
|
36,940
|
|
|
|
36,692
|
|
Net loss per share -
diluted:
|
$
|
(0.12)
|
|
|
$
|
(2.23)
|
|
|
$
|
(1.52)
|
|
|
$
|
(7.23)
|
|
Average number of common
shares outstanding - diluted
|
|
37,026
|
|
|
|
36,750
|
|
|
|
36,940
|
|
|
|
36,692
|
|
Dividends declared
per share
|
$
|
0.14
|
|
|
$
|
0.14
|
|
|
$
|
0.42
|
|
|
$
|
0.42
|
|
|
* Revised for the
impact of the adoption of a new pension accounting
pronouncement.
|
Essendant Inc. and
Subsidiaries
|
Condensed
Consolidated Balance Sheets
|
(in thousands,
except share data)
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
As of
September 30,
|
|
|
As of
December 31,
|
|
|
2018
|
|
|
2017
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
31,305
|
|
|
$
|
28,802
|
|
Accounts receivable,
less allowance for doubtful accounts of $14,774 in 2018 and $17,102
in 2017
|
|
668,038
|
|
|
|
619,200
|
|
Inventories
|
|
752,599
|
|
|
|
821,683
|
|
Other current
assets
|
|
52,882
|
|
|
|
43,044
|
|
Total current
assets
|
|
1,504,824
|
|
|
|
1,512,729
|
|
Property, plant and
equipment, net
|
|
128,975
|
|
|
|
132,793
|
|
Intangible assets,
net
|
|
66,899
|
|
|
|
73,441
|
|
Goodwill
|
|
13,099
|
|
|
|
13,153
|
|
Other long-term
assets
|
|
77,268
|
|
|
|
42,134
|
|
Total
assets
|
$
|
1,791,065
|
|
|
$
|
1,774,250
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
$
|
546,875
|
|
|
$
|
500,883
|
|
Accrued
liabilities
|
|
213,767
|
|
|
|
189,916
|
|
Current maturities of
long-term debt
|
|
7,632
|
|
|
|
6,079
|
|
Total current
liabilities
|
|
768,274
|
|
|
|
696,878
|
|
Deferred income
taxes
|
|
1,082
|
|
|
|
1,192
|
|
Long-term
debt
|
|
512,316
|
|
|
|
492,044
|
|
Other long-term
liabilities
|
|
76,226
|
|
|
|
89,222
|
|
Total
liabilities
|
|
1,357,898
|
|
|
|
1,279,336
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
Common stock, $0.10
par value; authorized - 100,000,000 shares, issued - 74,435,628
shares in 2018 and 2017
|
|
7,444
|
|
|
|
7,444
|
|
Additional paid-in
capital
|
|
417,383
|
|
|
|
412,987
|
|
Treasury stock, at
cost – 36,792,213 shares in 2018 and 36,811,366 shares in
2017
|
|
(1,092,315)
|
|
|
|
(1,093,813)
|
|
Retained
earnings
|
|
1,147,169
|
|
|
|
1,219,309
|
|
Accumulated other
comprehensive loss
|
|
(46,514)
|
|
|
|
(51,013)
|
|
Total stockholders'
equity
|
|
433,167
|
|
|
|
494,914
|
|
Total liabilities and
stockholders' equity
|
$
|
1,791,065
|
|
|
$
|
1,774,250
|
|
Essendant Inc. and
Subsidiaries
|
Condensed
Consolidated Statements of Cash Flows
|
(in
thousands)
|
|
|
For the Nine
Months Ended
|
|
|
September 30,
|
|
|
2018
|
|
|
2017
|
|
Cash Flows From
Operating Activities:
|
|
|
|
|
|
|
|
Net loss
|
$
|
(56,032)
|
|
|
$
|
(265,434)
|
|
Adjustments to
reconcile net loss to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
31,412
|
|
|
|
32,567
|
|
Share-based
compensation
|
|
6,612
|
|
|
|
6,115
|
|
Gain on the
disposition of property, plant and equipment
|
|
(977)
|
|
|
|
(906)
|
|
Amortization of
capitalized financing costs
|
|
1,101
|
|
|
|
1,065
|
|
Deferred income
taxes
|
|
(11,340)
|
|
|
|
(15,887)
|
|
Change in contingent
consideration
|
|
(700)
|
|
|
|
(4,457)
|
|
Impairment of
goodwill
|
|
-
|
|
|
|
285,166
|
|
Changes in operating
assets and liabilities:
|
|
|
|
|
|
|
|
Increase in accounts
receivable, net
|
|
(49,180)
|
|
|
|
(10,611)
|
|
Decrease in
inventory
|
|
68,725
|
|
|
|
123,870
|
|
Increase in other
assets
|
|
(10,063)
|
|
|
|
(1,664)
|
|
Increase in accounts
payable
|
|
45,871
|
|
|
|
60,706
|
|
Increase in accrued
liabilities
|
|
30,530
|
|
|
|
2,349
|
|
Decrease in other
liabilities
|
|
(9,020)
|
|
|
|
(7,886)
|
|
Net cash provided by
operating activities
|
|
46,939
|
|
|
|
204,993
|
|
Cash Flows From
Investing Activities:
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
(24,414)
|
|
|
|
(24,509)
|
|
Proceeds from the
disposition of property, plant and equipment
|
|
510
|
|
|
|
46
|
|
Investment in
independent reseller channel
|
|
(22,060)
|
|
|
|
-
|
|
Net cash used in
investing activities
|
|
(45,964)
|
|
|
|
(24,463)
|
|
Cash Flows From
Financing Activities:
|
|
|
|
|
|
|
|
Net borrowing under
revolving credit facility
|
|
23,620
|
|
|
|
(19,122)
|
|
Borrowings under Term
Loan
|
|
-
|
|
|
|
77,600
|
|
Repayments under Term
Loan
|
|
(4,554)
|
|
|
|
(3,036)
|
|
Contingent
consideration
|
|
(967)
|
|
|
|
(5,543)
|
|
Net repayments under
Securitization Program
|
|
-
|
|
|
|
(200,000)
|
|
Net disbursements from
share-based compensation arrangements
|
|
(837)
|
|
|
|
(1,273)
|
|
Payment of cash
dividends
|
|
(15,655)
|
|
|
|
(15,518)
|
|
Payment of debt
issuance costs
|
|
-
|
|
|
|
(6,317)
|
|
Net cash provided by
(used in) financing activities
|
|
1,607
|
|
|
|
(173,209)
|
|
Effect of exchange
rate changes on cash and cash equivalents
|
|
(79)
|
|
|
|
435
|
|
Net change in cash
and cash equivalents
|
|
2,503
|
|
|
|
7,756
|
|
Cash and cash
equivalents, beginning of period
|
|
28,802
|
|
|
|
21,329
|
|
Cash and cash
equivalents, end of period
|
$
|
31,305
|
|
|
$
|
29,085
|
|
Other Cash Flow
Information:
|
|
|
|
|
|
|
|
Income tax payments,
net
|
$
|
1,281
|
|
|
$
|
23,165
|
|
Interest
paid
|
|
23,493
|
|
|
|
19,187
|
|
Non-cash
investment
|
|
1,560
|
|
|
|
-
|
|
Essendant Inc. and Subsidiaries
Reconciliation of Non-GAAP Financial Measures
Adjusted Gross Profit, Adjusted Operating Expenses, Adjusted
Operating Income,
Adjusted Net Income, Adjusted Diluted Earnings Per Share,
Adjusted EBITDA, and Free Cash Flow
The Non-GAAP table below presents Adjusted Gross Profit,
Adjusted Operating Expenses, Adjusted Operating Income, Adjusted
Net Income, Adjusted Diluted Earnings per Share, Adjusted EBITDA
and Free Cash Flow for the three and nine months ended September 30, 2018 and 2017 (in thousands, except
per share data). These non-GAAP measures exclude certain
non-recurring items and exclude other items that do not reflect the
Company's ongoing operations and are included to provide investors
with useful information about the financial performance of our
business. The presented non-GAAP financial measures should not be
considered in isolation or as substitutes for the comparable GAAP
financial measures. The non-GAAP financial measures do not reflect
all of the amounts associated with our results of operations as
determined in accordance with GAAP, and these non-GAAP financial
measures should only be used to evaluate our results of operations
in conjunction with the corresponding GAAP financial measures.
In order to calculate the non-GAAP measures, management excludes
the following items to the extent they occur in the reporting
period, to facilitate the comparison of current and prior year
results and ongoing operations, as management believes these items
do not reflect the underlying cost structure of our business. These
items can vary significantly in amount and frequency.
- Restructuring charges. Workforce reduction and facility
closure charges such as employee termination costs, facility
closure and consolidation costs, and other costs directly
associated with shifting business strategies or business conditions
that are part of a restructuring program.
Restructuring actions were taken in the three and nine months ended
September 30, 2018 that included
facility consolidations, workforce reductions and product
assortment refinements.
- Gain or loss on sale of assets or businesses. Sales of
assets, such as buildings or equipment, and businesses can cause
gains or losses. These transactions occur as the Company is
repositioning its business and reviewing its cost structure.
- Severance costs for operating leadership.
Employee termination costs related to members of the Company's
operating leadership team are excluded as they are based upon
individual agreements.
- Asset impairments. Changes in strategy or
macroeconomic events may cause asset impairments.
In the three and nine months ended September
30, 2017, the Company recorded goodwill impairment which
resulted from declines in sales, earnings and market
capitalization.
- Other actions. Actions, which may be non-recurring
events, that result from the changing strategies and needs of the
Company and do not reflect the underlying expense of the on-going
business.
In the three and nine months ended September
30, 2018, these were charges related to transformational
expenses, including potential merger, acquisition and equity
investment transactions and a gain reflecting receipt of payment on
notes receivable reserved in 2015. In the three and nine months
ended September 30, 2017, other
actions included litigation and transformational expenses and a
gain reflecting receipt of payment on notes receivable reserved in
2015.
Adjusted Gross Profit, adjusted operating expenses and
adjusted operating income. Adjusted gross profit, adjusted
operating expenses and adjusted operating income provide management
and our investors with an understanding of the results from the
primary operations of our business by excluding the effects of
items described above that do not reflect the ordinary expenses and
earnings of our operations. Adjusted gross profit, adjusted
operating expenses and adjusted operating income are used to
evaluate our period-over-period operating performance as they are
more comparable measures of our continuing business. These measures
may be useful to an investor in evaluating the underlying operating
performance of our business.
Adjusted net income and adjusted diluted earnings per
share. Adjusted net income and adjusted diluted earnings per
share provide a more comparable view of our Company's underlying
performance and trends than the comparable GAAP measures. Net
(loss) income and diluted (loss) earnings per share are adjusted
for the effect of items described above that do not reflect the
ordinary earnings of our operations.
Adjusted earnings before interest, taxes, depreciation and
amortization (EBITDA). Adjusted EBITDA is helpful in evaluating
our operating performance and is used by management for various
purposes, including as a measure of performance and as a basis for
strategic planning and forecasting. Net (loss) income is adjusted
for the effect of interest and other expenses, net, taxes,
depreciation and amortization and stock-based compensation expense.
Management believes that adjusted EBITDA is also commonly used by
investors to evaluate operating performance between competitors
because it helps reduce variability caused by differences in
capital structures, income taxes, stock-based compensation
accounting policies, and depreciation and amortization
policies.
Free cash flow. Free cash flow is useful to management
and our investors as it is a measure of the Company's liquidity. It
provides a more complete understanding of factors and trends
affecting our cash flows than the comparable GAAP measure. Net cash
provided by operating activities and net cash used in investing
activities are aggregated and adjusted to exclude the impact of
acquisitions and equity investments, net of cash acquired and
divestitures.
Essendant Inc. and
Subsidiaries
|
Reconciliation of
Non-GAAP Financial Measures (Unaudited)
|
Adjusted Gross
Profit, Adjusted Operating Expenses, Adjusted Operating
Income,
|
Adjusted Net
Income, Adjusted Diluted Earnings Per Share, Adjusted EBITDA, and
Free Cash Flow
|
(in
thousands, except per share data)
|
|
|
For the Three
Months Ended September 30,
|
|
|
2018
|
|
|
2017
(2)
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
$
|
181,279
|
|
|
$
|
171,954
|
|
Restructuring charges
- product assortment refinements
|
|
(4,406)
|
|
|
|
-
|
|
Adjusted gross
profit
|
$
|
176,873
|
|
|
$
|
171,954
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
$
|
177,924
|
|
|
$
|
254,141
|
|
Restructuring
charges
|
|
(3,967)
|
|
|
|
-
|
|
Transformational
expenses
|
|
(13,615)
|
|
|
|
(6,099)
|
|
Impairment of
goodwill
|
|
-
|
|
|
|
(86,339)
|
|
Payment on notes
receivable
|
|
-
|
|
|
|
150
|
|
Adjusted operating
expenses
|
$
|
160,342
|
|
|
$
|
161,853
|
|
|
|
|
|
|
|
|
|
Operating income
(loss)
|
$
|
3,355
|
|
|
$
|
(82,187)
|
|
Gross profit and
operating expense adjustments noted above
|
|
13,176
|
|
|
|
92,288
|
|
Adjusted operating
income
|
$
|
16,531
|
|
|
$
|
10,101
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(4,495)
|
|
|
$
|
(81,938)
|
|
Gross profit and operating expense adjustments noted
above
|
|
13,176
|
|
|
|
92,288
|
|
Non-GAAP tax
provision on adjustments
|
|
|
|
|
|
|
|
Product assortment
refinements
|
|
1,090
|
|
|
|
-
|
|
Restructuring
charges
|
|
(982)
|
|
|
|
-
|
|
Transformational
expenses
|
|
(3,369)
|
|
|
|
(2,409)
|
|
Impairment of
goodwill
|
|
-
|
|
|
|
(6,798)
|
|
Payment on notes
receivable
|
|
-
|
|
|
|
59
|
|
Income tax provision
on adjusted net loss
|
|
(3,260)
|
|
|
|
(9,148)
|
|
Adjusted net
income
|
$
|
5,421
|
|
|
$
|
1,202
|
|
|
|
|
|
|
|
|
|
Diluted loss per share
(1)
|
$
|
(0.12)
|
|
|
$
|
(2.23)
|
|
Gross profit and
operating expense adjustments noted above
|
|
0.35
|
|
|
|
2.51
|
|
Non-GAAP tax provision
on adjustments
|
|
(0.09)
|
|
|
|
(0.26)
|
|
Adjusted diluted
earnings per share
|
$
|
0.14
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(4,495)
|
|
|
$
|
(81,938)
|
|
Income tax
benefit
|
|
(828)
|
|
|
|
(7,089)
|
|
Interest and other
expense, net
|
|
8,678
|
|
|
|
6,840
|
|
Depreciation and
amortization
|
|
10,023
|
|
|
|
11,033
|
|
Equity compensation
expense
|
|
2,171
|
|
|
|
2,077
|
|
Gross profit and
operating expense adjustments noted above
|
|
13,176
|
|
|
|
92,288
|
|
(Less) depreciation
and amortization in adjustments above
|
|
(715)
|
|
|
|
-
|
|
Adjusted earnings
before interest, taxes, depreciation and amortization
(EBITDA)
|
$
|
28,010
|
|
|
$
|
23,211
|
|
|
|
(1)
|
Per share amounts for
the three months ended September 30, 2018 and 2017, under GAAP
reflect basic earnings per share due to the net loss. The adjusted
diluted earnings per share is based on diluted shares
outstanding.
|
(2)
|
Revised for the
impact of the adoption of a new pension accounting
pronouncement.
|
|
For the Nine
Months Ended September 30,
|
|
|
2018
|
|
|
2017
(2)
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
$
|
475,661
|
|
|
$
|
535,186
|
|
Restructuring charges
- product assortment refinements
|
|
29,863
|
|
|
|
-
|
|
Adjusted gross
profit
|
$
|
505,524
|
|
|
$
|
535,186
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
$
|
522,123
|
|
|
$
|
786,238
|
|
Restructuring
charges
|
|
(26,047)
|
|
|
|
-
|
|
Transformational
expenses
|
|
(27,699)
|
|
|
|
(14,493)
|
|
Payment on notes
receivable
|
|
110
|
|
|
|
150
|
|
Impairment of
goodwill
|
|
-
|
|
|
|
(285,166)
|
|
Litigation
reserve
|
|
-
|
|
|
|
(9,000)
|
|
Adjusted operating
expenses
|
$
|
468,487
|
|
|
$
|
477,729
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
$
|
(46,462)
|
|
|
$
|
(251,052)
|
|
Gross profit and
operating expense adjustments noted above
|
|
83,499
|
|
|
|
308,509
|
|
Adjusted operating
income
|
$
|
37,037
|
|
|
$
|
57,457
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(56,032)
|
|
|
$
|
(265,434)
|
|
Gross
profit and operating expense adjustments noted above
|
|
83,499
|
|
|
|
308,509
|
|
Non-GAAP tax provision
on adjustments
|
|
|
|
|
|
|
|
Product assortment
refinements
|
|
(5,773)
|
|
|
|
-
|
|
Restructuring
charges
|
|
(6,868)
|
|
|
|
-
|
|
Transformational
expenses
|
|
(7,637)
|
|
|
|
(5,612)
|
|
Payment on notes
receivable
|
|
25
|
|
|
|
59
|
|
Impairment of
goodwill
|
|
-
|
|
|
|
(13,356)
|
|
Litigation
reserve
|
|
-
|
|
|
|
(3,488)
|
|
Income tax provision
on adjusted net loss
|
|
(20,253)
|
|
|
|
(22,397)
|
|
Adjusted net
income
|
$
|
7,214
|
|
|
$
|
20,678
|
|
|
|
|
|
|
|
|
|
Diluted loss per share
(1)
|
$
|
(1.49)
|
|
|
$
|
(7.20)
|
|
Gross profit and
operating expense adjustments noted above
|
|
2.23
|
|
|
|
8.37
|
|
Non-GAAP tax provision
on adjustments
|
|
(0.55)
|
|
|
|
(0.61)
|
|
Adjusted diluted
earnings per share
|
$
|
0.19
|
|
|
$
|
0.56
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(56,032)
|
|
|
$
|
(265,434)
|
|
Income tax
benefit
|
|
(16,181)
|
|
|
|
(6,943)
|
|
Interest and other
expense, net
|
|
25,751
|
|
|
|
21,325
|
|
Depreciation and
amortization
|
|
31,412
|
|
|
|
32,567
|
|
Equity compensation
expense
|
|
6,612
|
|
|
|
6,115
|
|
Gross profit and
operating expense adjustments noted above
|
|
83,499
|
|
|
|
308,509
|
|
(Less) depreciation
and amortization in adjustments above
|
|
(715)
|
|
|
|
-
|
|
Adjusted earnings
before interest, taxes, depreciation and amortization
(EBITDA)
|
$
|
74,346
|
|
|
$
|
96,139
|
|
|
|
|
|
|
|
|
|
Net cash provided by
operating activities
|
$
|
46,939
|
|
|
$
|
204,993
|
|
Net cash used in
investing activities
|
|
(45,964)
|
|
|
|
(24,463)
|
|
Add: Investment in
independent reseller channel (3)
|
|
22,060
|
|
|
|
-
|
|
Free cash
flow
|
$
|
23,035
|
|
|
$
|
180,530
|
|
|
|
(1)
|
Per share amounts for
the nine months ended September 30, 2018 and 2017 under GAAP
reflect basic earnings per share due to the net loss. The adjusted
diluted earnings per share is based on diluted shares
outstanding.
|
(2)
|
Revised for the
impact of the adoption of a new pension accounting
pronouncement.
|
(3)
|
The Company invested
$23.6 million during the nine months of 2018, including a $1.6
million note, in the independent reseller channel as part of its
strategic driver to accelerate sales performance in key channels.
The Company's share of earnings and losses of its investees is
reflected in the Condensed Consolidated Statement of Operations and
includes the investments in the Condensed Consolidated Balance
Sheet.
|
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SOURCE Essendant Inc.