LYDALL, INC. (NYSE: LDL) today announced financial results for the
first quarter ended March 31, 2019.
HIGHLIGHTS - Q1 2019 vs. Q1
2018
GAAP Financials
- Net sales of $218.0 million, up 13.8% – Acquisitions
completed in Q3 2018 contributed growth of 17.6% – Unfavorable
foreign currency translation of 3.3%
- Gross margin of 19.3%, down 130 basis points
- Operating margin of 4.2%, down 310 basis points –
Incremental intangibles amortization of $3.9 million, or 180 basis
points
- Earnings per share ("EPS") of $0.22, compared to $0.64 –
Incremental intangibles amortization of $0.18 per share –
Incremental interest expense of $0.14 per share
- Cash generated from operations of $14.4 million, compared to
cash usage of $4.0 million
Non-GAAP Financial
Measures*
- Organic sales growth of 1.1%
- Adjusted gross margin of 19.5%, down 130 basis points
- Adjusted operating margin of 4.7%, down 300 basis points
- Adjusted EPS of $0.28, compared to adjusted $0.67 per
share
- Adjusted EBITDA of $21.8 million, compared to $21.5
million*Reconciliations of the Non-GAAP financial measures to
Lydall’s GAAP financial results are included at the end of this
release. See also “Use of Non-GAAP Financial Measures”
below.
Dale G. Barnhart, President and Chief Executive
Officer, stated, “We reported consolidated sales growth of nearly
14%, driven by the acquired Interface business. Organic sales
growth was 1.1%, led by 3.6% from the Performance Materials
segment. The Interface business was accretive to the
Performance Materials segment's gross margin, but weakness in
Interface's sealing products end markets, combined with lower gross
margin from the Thermal Acoustical Solutions and the Technical
Nonwovens segments, resulted in consolidated adjusted EBITDA being
modestly above the first quarter of 2018. We are, however,
pleased that the Thermal Acoustical Solutions segment continued its
trend of sequential quarterly improvement in parts gross
margin.
"We had strong cash generation from operations
of over $14 million during the quarter, a significant improvement
from first quarter 2018, which allowed us to pay down $7 million of
outstanding borrowings on our credit facility and fund capital
investments."
Q1 2019 Results
Net sales increased by $26.4 million, or 13.8%,
to $218.0 million, compared to $191.7 million in the first quarter
of 2018 primarily from the acquisition of Interface Performance
Materials ("Interface"), which increased Performance Materials
("PM") segment net sales by $32.9 million. Organic sales
growth was 3.6% in the PM segment driven primarily by improved
sales of filtration products. The Technical Nonwovens ("TNW")
segment reported organic sales growth of 1.5% from improved demand
for industrial filtration products, partially offset by lower
advanced materials sales. The Thermal Acoustical Solutions
("TAS") segment reported a 1.5% reduction in organic sales
primarily from reduced parts sales in North America.
Gross margin was 19.3%, compared to 20.6% in the
first quarter of 2018. The PM segment favorably impacted
consolidated gross margin by approximately 300 basis points due to
higher gross margin Interface sales, which was offset primarily by
the TAS segment, and to a lesser extent, the TNW segment. The
TAS segment gross margin was negatively impacted by increased
material and labor expenses and unfavorable product mix. The
TNW segment gross margin was negatively impacted by product mix and
commodity inflation, which was partially offset by improved
customer pricing.
Operating margin was 4.2%, down 310 basis
points, compared to the first quarter of 2018 due to incremental
intangible assets amortization of 180 basis points and lower gross
margin of 130 basis points. Adjusted EBITDA margin was 10.0%
compared to 11.2% in the first quarter of 2018. Lower
operating income of $3.1 million from the TAS segment, and to a
lesser extent the TNW segment, led to the reduction in adjusted
EBITDA margin in the quarter.
Interest expense increased by $3.1 million,
compared to the first quarter of 2018, due to borrowings incurred
to finance the Interface acquisition.
The effective tax rate in the first quarter was
22.0% compared to 16.1% in the first quarter of 2018.
Increased tax valuation allowance expenses and less tax benefits
related to stock compensation primarily contributed to a higher tax
rate in the first quarter of 2019.
Net income was $3.9 million, or $0.22 per
diluted share, compared to $11.1 million, or $0.64 per diluted
share in the first quarter of 2018. Adjusted earnings per
share were $0.28, including incremental intangibles amortization of
$0.18 per share, compared to $0.67 per share in the first quarter
of 2018.
Liquidity
Cash was $47.9 million at March 31, 2019,
compared to $49.2 million at December 31, 2018. Net cash
provided by operations was $14.4 million in the first quarter of
2019 compared to cash used in operations of $4.0 million in the
first quarter of 2018 as improved tooling collections and accounts
payable timing led to improvement. As of March 31, 2019,
there was approximately $108 million of availability under the
Company's credit facility.
Outlook
Mr. Barnhart concluded, "As we enter the second quarter, demand
remains generally steady in the Thermal Acoustical Solutions and
the Technical Nonwovens segments. In the Performance
Materials segment, we are continuing to experience stable
conditions in filtration markets, but we expect weakness to persist
in the sealing products end markets during the quarter.
EBITDA will be favorably impacted by the Interface acquisition, and
we anticipate continued operational improvements in Thermal
Acoustical Solutions and seasonally higher sales in Technical
Nonwovens to drive incremental EBITDA compared to the first
quarter. We remain focused on cost control and margin
improvement plans across the businesses as well as working capital
initiatives to enhance cash flow generation."
Conference Call
Lydall will host a conference call on May 1,
2019, at 10:00 a.m. Eastern Time to discuss results for its first
quarter ended March 31, 2019 as well as general matters related to
its businesses and markets. The call may be accessed at (888)
338-7142, from within the U.S., or (412) 902-4181,
internationally. In addition, the audio of the call will be
webcast live and will be available for replay on the Company's
website at www.lydall.com in the Investor Relations' Section.
A recording of the call will be available from 12:00 p.m. Eastern
Time on May 1, 2019 through 11:59 p.m. Eastern Time on May 8, 2019
at (877) 344-7529, from within the U.S., or (412) 317-0088,
internationally, pass code 10130798. Additional information,
including a presentation outlining key financial data supporting
the conference call, can be found on the Company’s website
www.lydall.com under the Investors Relations’ section.
Use of Non-GAAP Financial
Measures
In addition to the financial measures prepared
in accordance with generally accepted accounting principles
(“GAAP”), the Company uses certain non-GAAP financial measures,
including organic sales, adjusted gross profit, adjusted gross
margin, adjusted operating income, adjusted operating margin,
adjusted earnings per share, consolidated and segment EBITDA and
adjusted EBITDA. The attached financial tables address the
non-GAAP measures used in this press release and reconcile non-GAAP
measures to the most directly comparable GAAP measures. The
Company believes that the use of non-GAAP measures helps investors
gain a better understanding of our core operating results and
future prospects, consistent with how management measures and
forecasts the Company's performance, especially when comparing such
results to previous periods or forecasts. Adjusted segment
EBITDA is used as a basis to internally evaluate the financial
performance of the Company's segments because the Company believes
it reflects current core operating performance and provides an
indicator of the segment's ability to generate cash. Non-GAAP
measures should be considered in addition to, and not as a
replacement for or superior to, the corresponding GAAP measures,
and may not be comparable to similarly titled measures reported by
other companies.
Cautionary Note Concerning
Forward-Looking Statements
This press release contains “forward-looking
statements” within the Private Securities Litigation Reform Act of
1995. Any statements contained in this press release that are
not statements of historical fact, including statements about the
outlook for second quarter of 2019, the Company's ability to
successfully integrate the Interface businesses and improve margins
and cash flow generation across the Company may be deemed to be
forward-looking statements. All such forward-looking
statements are intended to provide management’s current
expectations for the future operating and financial performance of
the Company based on current expectations and assumptions relating
to the Company’s business, the economy and other future
conditions. Forward-looking statements generally can be
identified through the use of words such as “believes,”
“anticipates,” “may,” “should,” “will,” “plans,” “projects,”
“expects,” “expectations,” “estimates,” “forecasts,” “predicts,”
“targets,” “prospects,” “strategy,” “signs,” and other words of
similar meaning in connection with the discussion of future
operating or financial performance. Because forward-looking
statements relate to the future, they are subject to inherent
risks, uncertainties and changes in circumstances that are
difficult to predict. Such risks and uncertainties which
include, among others, worldwide economic or political changes that
affect the markets that the Company’s businesses serve which could
have an effect on demand for the Company’s products and impact the
Company’s profitability, challenges encountered by the Company in
the execution of restructuring programs, disruptions in the global
credit and financial markets, including diminished liquidity and
credit availability, changes in international trade agreements,
including tariffs and trade restrictions, foreign currency
volatility, swings in consumer confidence and spending, unstable
economic growth, raw material pricing and supply issues,
fluctuations in unemployment rates, retention of key employees,
increases in fuel prices, and outcomes of legal proceedings, claims
and investigations. Accordingly, the Company’s actual results
may differ materially from those contemplated by these
forward-looking statements. Investors, therefore, are
cautioned against relying on any of these forward-looking
statements. They are neither statements of historical fact
nor guarantees or assurances of future performance.
Additional information regarding the factors that may cause actual
results to differ materially from these forward-looking statements
is available in Lydall’s filings with the Securities and Exchange
Commission, including the risks and uncertainties identified in
Part I, Item 1A - Risk Factors of Lydall’s Annual Report on Form
10-K for the year ended December 31, 2018.
These forward-looking statements speak only as
of the date of this press release, and Lydall does not assume any
obligation to update or revise any forward-looking statement made
in this press release or that may from time to time be made by or
on behalf of the Company.
Lydall, Inc. is a New York Stock Exchange listed
company, headquartered in Manchester, Connecticut with global
manufacturing operations producing specialty engineered products
for the thermal/acoustical and filtration/separation markets. For
more information, visit http://www.lydall.com. Lydall® is a
registered trademark of Lydall, Inc. in the U.S. and other
countries.
Summary of
Operations |
|
|
|
In thousands except per
share data |
|
|
|
(Unaudited) |
|
|
|
|
Quarters Ended |
|
March 31, |
|
2019 |
|
2018 |
|
|
|
|
Net
sales |
$ |
218,025 |
|
|
$ |
191,660 |
|
Cost of sales |
175,969 |
|
|
152,153 |
|
Gross profit |
42,056 |
|
|
39,507 |
|
|
|
|
|
Selling, product
development and administrative expenses |
33,006 |
|
|
25,471 |
|
Operating income |
9,050 |
|
|
14,036 |
|
|
|
|
|
Interest expense |
3,628 |
|
|
540 |
|
Other expense, net |
399 |
|
|
315 |
|
Income before income
taxes |
5,023 |
|
|
13,181 |
|
|
|
|
|
Income tax expense |
1,106 |
|
|
2,123 |
|
Loss from equity method
investment |
27 |
|
|
4 |
|
Net
income |
$ |
3,890 |
|
|
$ |
11,054 |
|
|
|
|
|
Earnings per
share: |
|
|
|
Basic |
$ |
0.23 |
|
|
$ |
0.64 |
|
Diluted |
$ |
0.22 |
|
|
$ |
0.64 |
|
|
|
|
|
Weighted average number
of common shares outstanding |
17,254 |
|
|
17,164 |
|
Weighted average number
of common shares and equivalents outstanding |
17,318 |
|
|
17,339 |
|
Summary of
Segment Information |
|
|
|
and Corporate
Office Expenses |
|
|
|
In thousands |
|
|
|
(Unaudited) |
|
|
|
|
Quarters Ended |
|
March 31, |
|
2019 |
|
2018 |
Net
Sales |
|
|
|
|
|
|
|
Performance Materials
Segment (1) |
$ |
64,580 |
|
|
$ |
30,693 |
|
Technical Nonwovens
Segment (2) |
65,606 |
|
|
67,541 |
|
Thermal Acoustical
Solutions |
94,313 |
|
|
101,437 |
|
Eliminations and Other
(2) |
(6,474 |
) |
|
(8,011 |
) |
Consolidated Net
Sales |
$ |
218,025 |
|
|
$ |
191,660 |
|
|
|
|
|
Operating
Income |
|
|
|
|
|
|
|
Performance Materials
Segment (1) |
$ |
1,459 |
|
|
$ |
2,641 |
|
Technical Nonwovens
Segment |
4,734 |
|
|
5,006 |
|
Thermal Acoustical
Solutions |
9,491 |
|
|
12,614 |
|
Corporate Office
Expenses |
(6,634 |
) |
|
(6,225 |
) |
Consolidated Operating
Income |
$ |
9,050 |
|
|
$ |
14,036 |
|
(1) The Performance Materials segment reports results of
Interface and PCC for the periods following the dates of
acquisitions of August 31, 2018 and July 12, 2018, respectively,
and included $4.0 million of incremental intangible assets
amortization for the quarter ended March 31, 2019.
(2) Included in the Technical Nonwovens segment and Eliminations
and Other is $4.7 million and $7.1 million in intercompany sales to
the Thermal Acoustical Solutions segment for the quarters ended
March 31, 2019 and 2018, respectively.
Financial
Position |
|
|
|
In thousands except
ratio data |
|
|
|
(Unaudited) |
|
|
|
|
March 31, 2019 |
|
December 31, 2018 |
|
|
|
|
Cash and cash
equivalents |
$ |
47,874 |
|
|
$ |
49,237 |
|
Working capital |
$ |
191,664 |
|
|
$ |
195,732 |
|
Total debt |
$ |
317,767 |
|
|
$ |
324,813 |
|
Stockholders'
equity |
$ |
373,214 |
|
|
$ |
369,275 |
|
Total
capitalization |
$ |
690,981 |
|
|
$ |
694,088 |
|
Total debt to total
capitalization |
46.0 |
% |
|
46.8 |
% |
Cash
Flows |
|
|
|
In thousands |
Quarters Ended |
(Unaudited) |
March 31, |
|
2019 |
|
2018 |
|
|
|
|
Net cash provided by
(used for) operating activities |
$ |
14,370 |
|
|
$ |
(3,962 |
) |
Net cash used for
investing activities |
$ |
(8,983 |
) |
|
$ |
(7,676 |
) |
Net cash used for
financing activities |
$ |
(7,110 |
) |
|
$ |
(214 |
) |
Depreciation and
amortization |
$ |
11,935 |
|
|
$ |
7,220 |
|
Capital
expenditures |
$ |
(9,239 |
) |
|
$ |
(7,676 |
) |
Common Stock
Data |
|
|
|
|
Quarters Ended March 31, |
|
2019 |
|
2018 |
|
|
|
|
High |
$ |
31.71 |
|
|
$ |
51.85 |
|
Low |
$ |
19.96 |
|
|
$ |
42.51 |
|
Close |
$ |
23.46 |
|
|
$ |
48.25 |
|
During the first quarter of 2019, 8,665,659 shares of Lydall
common stock (LDL) were traded on the New York Stock Exchange.
Non-GAAP MeasuresIn thousands except ratio and
per share data(Unaudited)
The following tables address the non-GAAP measures used in this
press release and reconcile the non-GAAP measures to the most
directly comparable GAAP measures:
|
Quarters Ended March 31, |
|
2019 |
|
2018 |
|
|
|
|
Net
sales |
$ |
218,025 |
|
|
$ |
191,660 |
|
|
|
|
|
Gross Profit,
as reported |
$ |
42,056 |
|
|
$ |
39,507 |
|
TNW restructuring expenses |
351 |
|
|
449 |
|
Gross Profit,
adjusted |
$ |
42,407 |
|
|
$ |
39,956 |
|
|
|
|
|
Gross Margin,
as reported |
19.3 |
% |
|
20.6 |
% |
Gross Margin,
adjusted |
19.5 |
% |
|
20.8 |
% |
|
|
|
|
Operating
income, as reported |
$ |
9,050 |
|
|
$ |
14,036 |
|
Strategic initiatives expenses |
841 |
|
|
122 |
|
TNW restructuring expenses |
376 |
|
|
534 |
|
Operating
income, adjusted |
$ |
10,267 |
|
|
$ |
14,692 |
|
|
|
|
|
Operating
margin, as reported |
4.2 |
% |
|
7.3 |
% |
Operating
margin, adjusted |
4.7 |
% |
|
7.7 |
% |
|
|
|
|
Diluted
earnings per share, reported |
$ |
0.22 |
|
|
$ |
0.64 |
|
Strategic initiatives expenses |
$ |
0.05 |
|
|
$ |
0.01 |
|
TNW restructuring expenses |
$ |
0.02 |
|
|
$ |
0.03 |
|
Tax effect of above
adjustments |
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
Diluted
earnings per share, adjusted |
$ |
0.28 |
|
|
$ |
0.67 |
|
This press release reports adjusted results for
the quarters ended March 31, 2019 and 2018, which excludes
strategic initiatives expenses and restructuring expenses in the
Technical Nonwovens segment.
CONSOLIDATED AND SEGMENT EBITDA/ADJUSTED
EBITDAIn thousands except ratio data(Unaudited)
The following tables report consolidated and
segment earnings before interest, taxes, depreciation and
amortization ("EBITDA") and adjusted EBITDA for the quarters ended
March 31, 2019 and 2018. The Company uses segment
operating income (loss) for the purpose of calculating segment
EBITDA and adjusted EBITDA. Adjusted EBITDA excludes
strategic initiatives expenses and restructuring expenses.
|
|
For the Quarter Ended March 31, 2019 |
|
|
Segments |
|
|
|
|
|
|
Performance Materials |
|
Technical Nonwovens |
|
Thermal Acoustical Solutions |
|
Total |
|
Corporate Office |
|
Consolidated Lydall |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
|
|
$ |
3,890 |
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
3,628 |
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
1,106 |
|
Other expense, net |
|
|
|
|
|
|
|
|
|
|
|
399 |
|
Loss from equity method
investment |
|
|
|
|
|
|
|
|
|
|
|
27 |
|
Operating income |
|
$ |
1,459 |
|
|
$ |
4,734 |
|
|
$ |
9,491 |
|
|
$ |
15,684 |
|
|
$ |
(6,634 |
) |
|
$ |
9,050 |
|
Depreciation and
amortization |
|
6,170 |
|
|
3,143 |
|
|
2,432 |
|
|
11,745 |
|
|
173 |
|
|
11,918 |
|
Other expense, net |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
399 |
|
|
399 |
|
Loss from equity method
investment |
|
— |
|
|
27 |
|
|
— |
|
|
27 |
|
|
— |
|
|
27 |
|
EBITDA |
|
$ |
7,629 |
|
|
$ |
7,850 |
|
|
$ |
11,923 |
|
|
$ |
27,402 |
|
|
$ |
(6,860 |
) |
|
$ |
20,542 |
|
% of net
sales |
|
11.8 |
% |
|
12.0 |
% |
|
12.6 |
% |
|
12.2 |
% |
|
|
|
9.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic initiatives expenses |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
841 |
|
|
$ |
841 |
|
TNW restructuring expenses |
|
— |
|
|
376 |
|
|
— |
|
|
376 |
|
|
— |
|
|
376 |
|
EBITDA,
adjusted |
|
$ |
7,629 |
|
|
$ |
8,226 |
|
|
$ |
11,923 |
|
|
$ |
27,778 |
|
|
$ |
(6,019 |
) |
|
$ |
21,759 |
|
% of net
sales |
|
11.8 |
% |
|
12.5 |
% |
|
12.6 |
% |
|
12.4 |
% |
|
|
|
10.0 |
% |
|
|
For the Quarter Ended March 31, 2018 |
|
|
Segments |
|
|
|
|
|
|
Performance Materials |
|
Technical Nonwovens |
|
Thermal Acoustical Solutions |
|
Total |
|
Corporate Office |
|
Consolidated Lydall |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
|
|
$ |
11,054 |
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
540 |
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
2,123 |
|
Other expense, net |
|
|
|
|
|
|
|
|
|
|
|
315 |
|
Loss from equity method
investment |
|
|
|
|
|
|
|
|
|
|
|
4 |
|
Operating income |
|
$ |
2,641 |
|
|
$ |
5,006 |
|
|
$ |
12,614 |
|
|
$ |
20,261 |
|
|
$ |
(6,225 |
) |
|
$ |
14,036 |
|
Depreciation and
amortization |
|
1,022 |
|
|
3,622 |
|
|
2,336 |
|
|
6,980 |
|
|
161 |
|
|
7,141 |
|
Other expense, net |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
315 |
|
|
315 |
|
Loss from equity method
investment |
|
— |
|
|
4 |
|
|
— |
|
|
4 |
|
|
— |
|
|
4 |
|
EBITDA |
|
$ |
3,663 |
|
|
$ |
8,624 |
|
|
$ |
14,950 |
|
|
$ |
27,237 |
|
|
$ |
(6,379 |
) |
|
$ |
20,858 |
|
% of net
sales |
|
11.9 |
% |
|
12.8 |
% |
|
14.7 |
% |
|
13.6 |
% |
|
|
|
10.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic initiatives expenses |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
122 |
|
|
$ |
122 |
|
TNW restructuring expenses |
|
— |
|
|
534 |
|
|
— |
|
|
534 |
|
|
— |
|
|
534 |
|
EBITDA,
adjusted |
|
$ |
3,663 |
|
|
$ |
9,158 |
|
|
$ |
14,950 |
|
|
$ |
27,771 |
|
|
$ |
(6,257 |
) |
|
$ |
21,514 |
|
% of net
sales |
|
11.9 |
% |
|
13.6 |
% |
|
14.7 |
% |
|
13.9 |
% |
|
|
|
11.2 |
% |
Organic Sales(Unaudited)
|
|
Quarter Ended March 31, 2019 |
|
|
Performance Materials |
|
Technical Nonwovens |
|
Thermal Acoustical Solutions |
|
Consolidated |
Sales growth, as
reported |
|
110.4 |
% |
|
(2.9 |
)% |
|
(7.0 |
)% |
|
13.8 |
% |
Acquisitions |
|
109.9 |
% |
|
— |
% |
|
— |
% |
|
17.6 |
% |
Change in
tooling sales |
|
— |
% |
|
— |
% |
|
(3.1 |
)% |
|
(1.6 |
)% |
Foreign currency
translation |
|
(3.1 |
)% |
|
(4.4 |
)% |
|
(2.4 |
)% |
|
(3.3 |
)% |
Organic sales
growth |
|
3.6 |
% |
|
1.5 |
% |
|
(1.5 |
)% |
|
1.1 |
% |
This press release provides information
regarding organic sales change, defined as net sales change
excluding (1) sales from acquired businesses (2) the impact of
foreign currency translation and (3) tooling sales.
Management believes that the presentation of organic sales change
is useful to investors because it enables them to assess, on a
consistent basis, sales trends related to the Company selling
products to customers, without the impact of foreign currency rate
changes that are not under management's control and do not reflect
the performance of the Company and management. Tooling sales
are excluded because tooling revenue is not generated from selling
the Company's products to customers, but rather is reimbursement
from our customers for the design and production of tools used by
the Company in our manufacturing processes. Tooling sales can
be sporadic and may mask underlying business conditions and obscure
business trends.
For further information:
Brendan Moynihan
Vice President, Financial Planning and Investor Relations
Telephone 860-646-1233
Facsimile 860-646-4917
info@lydall.com
www.lydall.com)
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