Milacron Holdings Corp. Reports First Quarter 2016 Results

May 5, 2016 | By Business Wire News

CINCINNATI

Milacron Holdings Corp. (“Milacron”) (NYSE:MCRN), a leading industrial technology company serving the plastic processing industry, today announced financial results for the first quarter ended March 31, 2016.


	Three Months Ended March 31,
In millions (except per share data)	2016			2015			Change			% Change (Constant Currency)
Sales	$	277.3		$	279.2		(0.7		)%	1.7%

Adjusted EBITDA⁽¹⁾	$	47.1		$	44.5		5.8		%
% of sales	17.0		%	15.9		%	+110 bps

Adjusted Net Income ⁽¹⁾	$	18.8		$	14.4		30.6		%

Fully diluted adjusted EPS ⁽¹⁾⁽²⁾	$	0.27		$	0.21		28.6		%

Free cash flow	$	16.5		$	(14.4	)	$	30.9


⁽¹⁾		See Non-GAAP reconciliations included in the accompanying financial tables for the reconciliation of each non- GAAP measure to its most directly comparable GAAP measure.

⁽²⁾		Represents fully diluted adjusted EPS for the period ending 3/31/15 on a pro-forma basis; calculation uses the total diluted shares used for the 3/31/16 period (69.7 million shares).

“We are off to a solid start in 2016, as constant currency sales increased 1.7% and our adjusted EBITDA increased 5.8% versus the prior year. Order rates were flat on a constant currency basis, free cash flow improved substantially from the prior year and we made progress on our cost structure realignment efforts,” said Milacron Chief Executive Officer, Tom Goeke. “Our results are a significant accomplishment in light of the uncertain economic conditions we encountered during the first quarter. The first quarter is seasonally our lowest sales and adjusted EBITDA quarter of the year, and we remain confident in our ability to drive full year sales growth, expand margins and create shareholder value. We maintain our full year outlook of 0-2% organic sales growth and adjusted EBITDA margins between 18.5 percent and 19.0 percent.”

Milacron Chief Financial Officer, Bruce Chalmers, added, “Our balance sheet continues to strengthen, as free cash flow generation of $16.5 million represents an increase of over $30 million versus the prior year. The improvement in working capital and our disciplined approach to capital allocation led to the year over year increase.”

First Quarter Results

For the first quarter of 2016, sales of $277.3 million decreased 0.7% from sales of $279.2 million in the same period a year ago. Excluding the unfavorable effects of currency movements and the impact of the CanGen acquisition, organic sales for the first quarter of 2016 were flat versus the prior year period. Adjusted EBITDA for the first quarter of 2016 increased 5.8% to $47.1 million, or 17.0% of sales, compared to Adjusted EBITDA of $44.5 million, or 15.9% of sales, in the prior year period. Net earnings totaled $9.8 million, or $0.15 per basic and $0.14 per diluted share, in the first quarter of 2016 compared to a net loss of $15.9 million, or a loss of $0.30 per basic and diluted share, in the prior year period. Adjusted net income totaled $18.8 million, or $0.27 per diluted share, in the first quarter of 2016 compared to adjusted net income of $14.4 million in the prior year period.

Segment Results

Advanced Plastic Processing Technologies (APPT)

For the first quarter of 2016, sales were $156.1 million compared to $154.0 million in the same period a year ago. Excluding $3.1 million of unfavorable effects of currency movements, sales increased 3.4% over the prior year period. Adjusted EBITDA for the first quarter decreased 3.5% to $16.6 million, or 10.6% of sales, from Adjusted EBITDA of $17.2 million, or 11.2% of sales, in the prior year period.

Melt Delivery & Control Systems (MDCS)

For the first quarter of 2016, sales were $93.0 million compared to sales of $96.8 million in the same period a year ago. Excluding $2.5 million of unfavorable effects of currency movements, sales decreased 1.3% over the prior year period. Adjusted EBITDA for the first quarter increased 10.7% to $31.0 million, or 33.3% of sales, from Adjusted EBITDA of $28.0 million, or 28.9% of sales, in the prior year period.

Fluid Technologies

For the first quarter of 2016, sales were $28.2 million compared to sales of $28.4 million in the same period a year ago. Excluding $1.1 million of unfavorable effects of currency movements, sales increased 3.2% over the prior year period. Adjusted EBITDA for the first quarter increased 19.6% to $6.1 million, or 21.6% of sales, from Adjusted EBITDA of $5.1 million, or 18.0% of sales, in the prior year period.

Additional Financial Information

Milacron ended the first quarter of 2016 with cash and cash equivalents of $87.4 million and total debt of $954.3 million at March 31, 2016, resulting in net debt of $866.9 million and a net total leverage ratio of 4.0x.

Outlook

Milacron reaffirms fiscal 2016 guidance of 0% to 2% organic sales growth and adjusted EBITDA margins to be between 18.5% and 19.0%. Additionally, the Company expects capital expenditures of approximately $50 to $55 million, interest expense to be approximately $60 million, cash taxes to be between $30 to $35 million, an effective tax rate of approximately 30% and shares outstanding to remain flat in 2016.

Conference Call

Milacron will host a conference call to discuss its first quarter 2016 financial results at 8 a.m. Eastern Time on May 5, 2016. The live webcast of the call can be accessed at the Milacron Investor Relations website at http://investors.milacron.com, along with the company’s earnings press release and related presentation materials. The U.S. dial-in for the call is 1-877-407-8037 (1-201-689-8037 for non-U.S. callers). A replay of the conference call will be available until May 19, 2016 at 11:59 p.m. Eastern Time, while an archived version of the webcast will be available on the Milacron Investor Relations website for 90 days. The U.S. dial-in for the conference call replay is 1-877-660-6853 (1-201-612-7415). The replay access code is 13635788.

About Milacron

Milacron is a global leader in the manufacture, distribution and service of highly engineered and customized systems within the plastic technology and processing industry. Milacron is the only global company with a full-line product portfolio that includes hot runner systems, injection molding, blow molding and extrusion equipment.

Forward-Looking Statements

This press release contains forward-looking statements. The words “believe,” “expect,” “anticipate,” “plan,” “intend,” “should,” “estimate” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Although forward-looking statements reflect management’s good faith beliefs, reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements speak only as of the date the statements are made. Except as required by law, Milacron undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to demand for our products being significantly affected by general economic conditions, any decline in the use of plastic, the competitiveness of the industries in which we operate and the financial resources of our competitors, our ability to successfully develop and implement strategic initiatives to increase cost savings and improve operating margins and the other risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC on March 2, 2016, and other SEC filings, copies of which are available free of charge on our website at investors.milacron.com.

Non-GAAP Financial Measures

We prepare our financial statements in conformity with United States generally accepted accounting principles (“U.S. GAAP”). To supplement this information, we also use the following non-GAAP financial measures: Adjusted EBITDA and Adjusted Net Income. Because not all companies use identical calculations, these presentations may not be comparable to other similarly titled measures of other companies.

Adjusted EBITDA

Adjusted EBITDA represents net income before interest expense, taxes, depreciation and amortization, as further adjusted for the other items reflected in the reconciliation table set forth below. Adjusted EBITDA is a measure used by management to measure operating performance. Adjusted EBITDA is not a presentation made in accordance with U.S. GAAP, is not a measure of financial condition or profitability, and should not be considered as an alternative to net earnings (loss) determined in accordance with U.S. GAAP or operating cash flows determined in accordance with U.S. GAAP or any other performance measure derived in accordance with U.S. GAAP and should not be construed as an inference that our future results will be unaffected by unusual non-recurring items. Additionally, Adjusted EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not include certain cash requirements such as interest payments, tax payments, debt service requirements and certain other cash costs that may recur in the future.

We view Adjusted EBITDA as a key measure of our performance. We present Adjusted EBITDA not only due to its importance for purposes of our credit agreements but also because it assists us in comparing our performance across reporting periods on a consistent basis as it excludes items that we do not believe are indicative of our core operating performance. Our management uses Adjusted EBITDA:

as a measurement used in evaluating our consolidated and segment-level operating performance on a consistent basis;
to calculate incentive compensation for our employees;
for planning purposes, including the preparation of our internal annual operating budget;
to evaluate the performance and effectiveness of our operational strategies; and
to assess compliance with various metrics associated with our debt agreements.

We believe that the inclusion of Adjusted EBITDA is useful to provide additional information to investors about certain material non-cash items as well as items considered to be one-time or non-recurring to the operations of the business. While we believe these financial measures are commonly used by investors to evaluate our performance and that of our competitors, because not all companies use identical calculations, this presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies and should not be considered as an alternative to performance measures derived in accordance with U.S. GAAP. Adjusted EBITDA is calculated as net earnings (loss) before income tax expense, interest expense, net, depreciation and amortization further adjusted to exclude other items as reflected in the reconciliation table below.

In evaluating Adjusted EBITDA, you should be aware that in the future we will incur expenses such as those used in calculating Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by usual or non-recurring items. Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using Adjusted EBITDA only supplementary.

Adjusted Net Income

Adjusted Net Income measures our operating performance by adjusting net earnings (loss) to exclude amortization expense, non-cash currency effect on intercompany loans, organizational redesign costs, long-term equity awards and shareholder fees, acquisition integration costs, professional services and certain other non-recurring items. Management uses this measure to evaluate our core operating results as it excludes certain items whose fluctuations from period-to-period do not necessarily correspond to changes in the core operations of the business, but includes certain items such as depreciation, interest expense and interest tax expense, which are otherwise excluded from Adjusted EBITDA. We believe the presentation of Adjusted Net Income enhances our investors’ overall understanding of the financial performance and cash flow of our business. You should not consider Adjusted Net Income as an alternative to net earnings (loss), determined in accordance with U.S. GAAP, as an indicator of operating performance.

Adjusted Earnings Per Share

Adjusted Earnings Per Share is defined as Adjusted Net Income divided by diluted weighted average shares outstanding. We believe Adjusted Earnings Per Share is useful to investors because it measures our operating performance, on a per share basis, by adjusting net earnings (loss), on a per share basis, to exclude amortization expense, non-cash currency effect on intercompany loans, organizational redesign costs, long-term equity awards and shareholder fees, acquisition integration costs, professional services and certain other non-recurring items. We believe the presentation of Adjusted Earnings Per Share enhances our investors’ overall understanding of the financial performance and cash flow of our business. You should not consider Adjusted Earnings Per Share as an alternative to earnings per share, determined in accordance with U.S. GAAP, as an indicator of operating performance.


MILACRON HOLDINGS CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2016 (Unaudited)		December 31, 2015
	(in millions)
Assets
Current assets:
Cash and cash equivalents	$	87.4	$	67.5
Accounts receivable, net	189.3		204.4
Inventories, net:
Raw materials	84.8		81.1
Work-in-process	55.5		48.3
Finished products	112.2		109.5
Total inventories	252.5		238.9
Prepaid and other current assets	49.8		38.6
Total current assets	579.0		549.4
Property and equipment, net	217.8		221.8
Goodwill	534.4		530.1
Intangible assets, net	380.5		380.1
Other noncurrent assets	15.4		14.9
Total assets	$	1,727.1	$	1,696.3
Liabilities and shareholders’ equity
Current liabilities:
Short-term borrowings	$	7.8	$	7.4
Long-term debt and capital lease obligations due within one year	0.3		0.4
Accounts payable	79.5		79.2
Advanced billings and deposits	49.7		39.7
Accrued salaries, wages and other compensation	29.4		30.8
Accrued interest	4.9		13.9
Other current liabilities	57.9		52.5
Total current liabilities	229.5		223.9
Long-term debt and capital lease obligations	932.0		931.9
Deferred income tax liabilities	66.4		66.2
Accrued pension liabilities	25.8		25.2
Other noncurrent accrued liabilities	8.9		8.2
Total liabilities	1,262.6		1,255.4
Shareholders’ equity:
Preferred stock	—		—
Common stock	0.7		0.7
Capital in excess of par value	652.0		648.7
Retained deficit	(89.6)		(99.4)
Accumulated other comprehensive loss	(98.6)		(109.1)
Total shareholders’ equity	464.5		440.9
Total liabilities and shareholders’ equity	$	1,727.1	$	1,696.3


MILACRON HOLDINGS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

		Three Months Ended March 31,
		2016		2015
	(in millions, except share and per share data)

Net sales		$	277.3	$	279.2
Cost of sales		181.2		181.3
Manufacturing margins		96.1		97.9
Operating expenses:
Selling, general and administrative expenses		62.8		66.2
Amortization expense		7.7		9.4
(Gain) loss on currency translation		(6.8)		11.2
Other expense, net		0.4		3.7
Total operating expenses		64.1		90.5
Operating earnings		32.0		7.4
Interest expense, net		15.3		18.4
Earnings (loss) before income taxes		16.7		(11.0)
Income tax expense		6.9		4.9
Net earnings (loss)		$	9.8	$	(15.9)

Weighted average shares outstanding:
Basic		67,179,348		52,288,757
Diluted		69,675,468		52,288,757

Earnings (loss) per share:
Basic		$	0.15	$	(0.30)
Diluted		$	0.14	$	(0.30)


MILACRON HOLDINGS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Three Months Ended March 31,
	2016		2015
	( in millions)
Operating activities
Net earnings (loss)	$	9.8	$	(15.9)
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	14.8		16.2
Unrealized (gain) loss on currency translation of intercompany advances	(7.0)		11.4
Amortization of deferred financing costs	0.9		1.1
Non-cash stock-based compensation expense	1.1		1.1
Deferred income taxes	(0.5)		0.3
Changes in assets and liabilities:
Accounts receivable	17.3		(2.3)
Inventories	(11.2)		(11.8)
Prepaid and other current assets	(4.1)		(2.7)
Accounts payable	0.7		3.3
Advanced billings and deposits	9.4		(3.2)
Other current liabilities	(7.8)		2.6
Other noncurrent assets	0.2		—
Other noncurrent accrued liabilities	0.3		(0.5)
Net cash provided by (used in) operating activities	23.9		(0.4)
Investing activities
Purchases of property and equipment	(8.0)		(14.6)
Proceeds from disposals of property and equipment	0.6		0.6
Net cash used in investing activities	(7.4)		(14.0)
Financing activities
Payments on long-term debt and capital lease obligations (original maturities longer than 90 days)	(0.7)		(0.9)
Net increase (decrease) in short-term borrowings (original maturities of 90 days or less)	0.3		(0.5)
Proceeds from exercise of stock options	2.2		—
Debt issuance costs	—		(0.4)
Net cash provided by (used in) financing activities	1.8		(1.8)
Effect of exchange rate changes on cash	1.6		(2.5)
Increase (decrease) in cash and cash equivalents	19.9		(18.7)
Cash and cash equivalents at beginning of period	67.5		81.5
Cash and cash equivalents at end of period	$	87.4	$	62.8


MILACRON HOLDINGS CORP.

SALES BY BUSINESS SEGMENT
(Unaudited)

		Three Months Ended March 31,
		2016		2015
	( in millions)
Sales by segment:
Advanced Plastic Processing Technologies		$	156.1	$	154.0
Melt Delivery and Control Systems		93.0		96.8
Fluid Technologies		28.2		28.4
Total		$	277.3	$	279.2


MILACRON HOLDINGS CORP.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited)

		Three Months Ended March 31,
		2016		2015
	(in millions)
Net earnings (loss)		$	9.8	$	(15.9)
Amortization expense		7.7		9.4
Currency effect on intercompany advances (a)		(7.0)		11.4
Organizational redesign costs (b)		3.1		5.3
Long-term equity awards and shareholder fees (c)		2.3		1.3
Acquisition integration costs (d)		—		2.3
Professional services (e)		1.1		0.7
Fair market value adjustments (f)		0.3		—
Annual effective tax rate adjustment (g)		1.0		—
Other (h)		0.5		(0.1)
Adjusted Net Income		$	18.8	$	14.4
Income tax expense (g)		5.9		4.9
Interest expense, net		15.3		18.4
Depreciation expense		7.1		6.8
Adjusted EBITDA		$	47.1	$	44.5


(a)		Non-cash currency effect on intercompany advances primarily relates to advances denominated in foreign currencies. The most significant exposure relates to the Canadian dollar pursuant to intercompany advances within the MDCS segment.

(b)		Organizational redesign costs in the three months ended March 31, 2016 primarily included $1.2 million for termination costs as a result of eliminated positions, $0.7 million of costs related to the shutdown of facilities and $0.3 million of costs related to relocating our facility in Belgium to the Czech Republic. Organizational redesign costs in the three months ended March 31, 2015 primarily included $2.6 million of severance and $0.5 million of project costs related to relocating our warehouse in Belgium to the Czech Republic, $1.5 million for termination costs as a result of eliminated positions, and $0.3 million of costs related to the transition of positions to low-cost countries.

(c)		Long-term equity options and shareholder fees include the charges associated with stock-based compensation awards granted to certain executives and independent directors and a cash advisory fee paid to CCMP in the three months ended March 31, 2016 and 2015. The cash advisory payment to CCMP ceased as of the effective date of our IPO.

(d)		In the three months ended March 31, 2015, we incurred $0.8 million of costs to introduce the integration and new branding of all Milacron companies. In addition, acquisition integration costs in the three months ended March 31, 2015 included $1.4 million of costs related to the Kortec, Inc. (“Kortec”) and TIRAD s.r.o. (“TIRAD”) acquisitions for product line integration and other strategic alignment initiatives.

(e)		Professional fees in the three months ended March 31, 2016 included $1.1 million of costs for strategic organizational initiatives. Professional fees in the three months ended March 31, 2015 included $0.4 million of fees for readiness initiatives associated with our IPO and $0.3 million of costs for strategic organizational initiatives.

(f)		Non-cash fair market value adjustments relate to acquisition accounting for the fair market value of inventory as part of our acquisition of CanGen Holdings, Inc. in the fourth quarter of 2015.

(g)		The annual effective tax rate adjustment reflects the impact to the quarterly tax provision utilizing the annual effective tax rate recomputed with anticipated tax rate reductions that have not been recognized for U.S. GAAP purposes as the Company is awaiting regulatory approval. The reductions have historically been approved, or are expected to be approved, although there are no guarantees that the regulatory authorities will accept the Company’s applications.

(h)		Other costs for the three months ended March 31, 2016 includes the write-off of a $0.5 million non-trade receivable.


MILACRON HOLDINGS CORP.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Unaudited)

		Three Months Ended March 31,
		2016		2015
	(in millions)
Operating earnings (loss):
APPT		$	9.8	$	10.3
MDCS		28.2		2.9
Fluids		4.1		2.8
Corporate		(10.1)		(8.6)
Total operating earnings		32.0		7.4
Adjustments to operating earnings:
APPT Adjustments:
Depreciation and amortization		5.1		5.3
Organizational redesign costs (b)		1.4		1.0
Acquisition integration costs (d)		—		0.6
Fair market value adjustments (f)		0.3		—
Total APPT Adjustments		6.8		6.9
MDCS Adjustments:
Depreciation and amortization		8.2		9.1
Currency effect on intercompany advances (a)		(6.3)		11.1
Organizational redesign costs (b)		1.0		3.6
Acquisition integration costs (d)		—		1.4
Other (g)		(0.1)		(0.1)
Total MDCS Adjustments		2.8		25.1
Fluids Adjustments:
Depreciation and amortization		1.4		1.7
Organizational redesign costs (b)		0.1		0.5
Professional services (e)		—		0.1
Other (g)		0.5		—
Total Fluids Adjustments		2.0		2.3
Corporate Adjustments:
Depreciation and amortization		0.1		0.1
Currency effect on intercompany advances (a)		(0.7)		0.3
Organizational redesign costs (b)		0.6		0.2
Long-term equity awards and shareholder fees (c)		2.3		1.3
Acquisition integration costs (d)		—		0.3
Professional services (e)		1.1		0.6
Other (g)		0.1		—
Total Corporate Adjustments		3.5		2.8
Adjusted EBITDA:
APPT		16.6		17.2
MDCS		31.0		28.0
Fluids		6.1		5.1
Corporate		(6.6)		(5.8)
Total Adjusted EBITDA		$	47.1	$	44.5


(a)		Non-cash currency effect on intercompany advances primarily relates to advances denominated in foreign currencies. The most significant exposure relates to the Canadian dollar pursuant to intercompany advances within the MDCS segment.

(b)		Organizational redesign costs in the three months ended March 31, 2016 included $0.7 million of costs related to the shutdown of facilities in APPT and $0.3 million of costs related to relocating our facility on Belgium to the Czech Republic in MDCS. In the three months ended March 31, 2016, organizational redesign costs across all segments included $1.2 million for termination costs as a result of eliminated positions. Organizational redesign costs for MDCS in the three months ended March 31, 2015 included $2.6 million of severance and $0.5 million of project costs related to relocating our Belgium warehouse to the Czech Republic. In the three months ended March 31, 2015, organizational redesign costs across all segments included $1.5 million for termination costs as a result of eliminated positions and $0.3 million of costs related to the transition of positions to low-cost countries.

(c)		Long-term equity options and shareholder fees in Corporate included the charges associated with stock-based compensation awards granted to certain executives and independent directors and a cash advisory fee paid to CCMP during the three months ended March 31, 2016 and 2015. The cash advisory payment to CCMP ceased as of the effective date of our IPO.

(d)		Acquisition integration costs across all segments in the three months ended March 31, 2015 include $1.4 million related to the Kortec and TIRAD acquisitions for product line integration and other strategic alignment initiatives. In addition, APPT and Corporate’s acquisition integration costs include $0.8 million of one-time costs to introduce the integration and new branding of all Milacron companies at an industry trade show.

(e)		Professional fees incurred by Corporate in the three months ended March 31, 2016 included $1.1 million of costs for strategic organizational initiatives. Professional fees incurred by Corporate in the three months ended March 31, 2015 included $0.4 million for readiness initiatives related to our IPO. In addition, professional fees incurred by Corporate and Fluids in the three months ended March 31, 2015 included $0.3 million of costs for strategic organizational initiatives, respectively.

(f)		Non-cash fair market value adjustments relate to acquisition accounting for the fair market value of inventory as part of our acquisition of CanGen Holdings, Inc. in the fourth quarter of 2015.

(g)		Other costs for the three months ended March 31, 2016 includes the write-off of a $0.5 million non-trade receivable.


MILACRON HOLDINGS CORP.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited)

		Three Months Ended March 31,
		2016		2015
	(in millions)
GAAP diluted earnings per share (a)		$	0.14	$	(0.23)
Amortization expense		0.11		0.14
Currency effect on intercompany advances		(0.10)		0.16
Organizational redesign costs		0.05		0.08
Long-term equity awards and shareholder fees		0.03		0.02
Acquisition integration costs		—		0.03
Professional services		0.02		0.01
Fair market value adjustments		—		—
Annual effective tax rate adjustment		0.01		—
Other		0.01		—
Adjusted diluted earnings per share (a)		$	0.27	$	0.21


(a)		Represents fully diluted earnings per share for the period ending 3/31/15 on a pro-forma basis; calculation uses the total diluted shares used for the 3/31/16 period (69.7 million shares).