Xerium Reports First Quarter 2015 Financial Results
By Business Wire News
Xerium Technologies, Inc. (NYSE:XRM), a leading global provider of industrial consumable products and services announced its Q1 2015 results.
Q1 2015 Adjusted EBITDA increased 2% compared to Q1 2014, driven primarily by favorable currency effects and continued cost reduction, partially offset by lower sales volumes.
Net sales for Q1 2015 were $121.0 million, a decrease of $1.2 million, or 0.9% compared to Q1 2014, on a constant currency basis. Rolls net sales increased by 7.4% from Q1 2014, primarily driven by increased roll cover, new core and mechanical services sales. Machine clothing sales decreased by (5.0)% from Q1 2014, primarily driven by the continued decline in the graphical grade markets, mill closures in North America and Europe, as well as soft sales in Japan in Q1 2015. See “Non-GAAP Financial Measures” and “Segment Information” below.
Q1 2015 gross profit was $48.6 million, or 40.1% of net sales, compared to $52.2 million, or 39.1% of net sales in Q1 2014. Machine clothing gross margin improved to 43.5% (excluding $0.5 million of Kunshan, China startup costs) in Q1 2015 from 41.9% in Q1 2014, and roll covers gross margin improved to 35.5% (excluding $0.1 million of Corlu,Turkey start-up costs) in Q1 2015, from a gross margin of 33.9% in Q1 2014. These improvements are a direct result of foreign currency effects, continued cost reductions and operational excellence programs and lower quality costs, partially offset by unfavorable fixed cost absorption in Europe and inflationary increases.
Selling, general and administrative and research and development (SG&A) expenses were $32.1 million, or 26.6% of net sales, in Q1 2015, down from Q1 2014 SG&A expenses of $34.9 million, or 26.2% of net sales, primarily due to favorable currency effects, partially offset by increased management incentive compensation.
Q1 2015 basic earnings per share were $0.11 per share versus Q1 2014 basic earnings per share of $0.08 per share. The increase of $0.03 per share was primarily driven by favorable currency effects and decreased restructuring costs partially offset by lower sales, non-recurring income tax reserves and new plant start-up costs in Q1 2015.
Excluding non-recurring items such as restructuring costs, foreign currency gains/(losses) and increases in non-recurring income tax reserves, basic adjusted earnings per share were $0.28 in Q1 2015, compared to $0.32 in Q1 2014, a decrease of 12.5%, primarily driven by decreased sales volumes and unfavorable absorption, partially offset by improved gross margins. See “Basic Adjusted Earnings Per Share” below.
“Our first quarter 2015 results were in line with our expectations” said Harold Bevis, President and CEO of Xerium Technologies, Inc. “The decrease in sales was primarily driven by the continued decline in the graphical grade markets, mill closures in North America and Europe, as well as soft sales in Japan in Q1 of 2015. These decreases were partially offset by our continued success in our Rolls and Service business, which drove a 7% increase in results for Q1 2015, and improved gross margins. The Company’s backlog increased by $6 million at the end of Q1 2015 from Q4 2014, and reflects the seasonal pattern at Xerium, where Q2 and Q3 results are stronger than Q1 and Q4. Xerium is continuing its multi-pronged program to optimize the Company’s performance in the current market environment. This involves both cost and sales growth programs. In addition, we are increasing our industry-leading innovation program, and our invention rate has dramatically increased. Xerium has 415 issued patents and 92 patents in process. These actions will open many new sales doors for Xerium. Lastly, the Company is in either the implementation or startup phase of ten projects in eight countries. This will significantly expand the Company’s ability to grow and perform in the coming years.”
We are incrementally more confident in our full-year performance due to the acceleration of our earnings optimization programs. As previously noted, we are underway with a multi-year program to optimize our machine clothing business. In addition, we are also taking actions this year to continue the successful growth of our global rolls and services business. Consequently, we are confident that we will achieve full year 2015 Adjusted EBITDA of $120-122 million.
EVP and Chief Financial Officer, Cliff Pietrafitta said: “Q1 2015 constant currency net sales were (0.9)% below Q1 2014. Constant currency rolls net sales increased by 7.4% from Q1 2014, primarily driven by increased roll cover, new core and mechanical services sales. Constant currency machine clothing sales decreased by (5.0)% from Q1 2014, primarily driven by the continued decline in the graphical grade markets, mill closures in North America and Europe, as well as soft sales in Japan in Q1 of 2015. These latest trends further support our ongoing investments to more attractively re-position our global footprint.”
Income from operations in Q1 2015 increased by $1.6 million, or 12.7%, to $14.2 million from $12.6 million, due to favorable currency effects, reduced restructuring expenses and continued cost reduction efforts, partially offset by the decline in sales. Adjusted EBITDA in Q1 2015 was $26.2 million, or 21.7% of net sales. See “Non-GAAP Financial Measures” below.
During the first quarter we continued to take costs out of the business with quarterly savings of $5.3 million. We spent approximately $15.2 million of cash on capital expenditures and restructuring costs in Q1 2015 and we expect to spend approximately $50 million in 2015 on capital expenditures and between $5 and $10 million on restructuring costs for the entire year of 2015.
As of March 31, 2015, we had an aggregate of $37.5 million available for additional borrowings under our Credit Facility and smaller lines of credit and our cash balances totaled $8.8 million. Q1 2015 free cash flow (defined as cash-flow from operations less capital expenditures) increased $3.5 million to $(4.2) million from $(7.7) million in Q1 of 2014, primarily as a result of improved working capital.
Net debt (which is defined as total debt less cash) increased to $464.7 million in Q1 2015 from $459.9 million in Q4 2014. However, our net debt leverage ratio remained at approximately 4.0x in Q1 2015 as a result of increased Adjusted EBITDA in Q1 of 2015.
Trade working capital decreased $9.0 million to $122.6 million at March 31, 2015 from $131.6 million at December 31, 2014. Excluding favorable currency impacts of $9.5 million, trade working capital increased slightly due to a decrease in Trade Payables, offset by a decrease in inventory levels, largely due to our productivity initiatives. See “Trade Working Capital Information” and “Non-GAAP Financial Measures” below.
Our effective income tax rate for Q1 2015 was 68.5% compared to 61.9% in Q1 2014. Excluding the effects of restructuring and a non-recurring tax reserve adjustment, our effective tax rate was 42.7%. See “Effective Tax Rate” below.
The following table presents net sales for Q1 2015 and Q1 2014 by segment and the effect of currency on Q1 2015 net sales (dollars in thousands):
Net Sales For The
TRADE WORKING CAPITAL
The following table presents trade working capital as of March 31, 2015 and December 31, 2014 (in thousands):
|Trade receivables, net (1)||$76,837||$81,998||$5,161|
|Trade accounts payable (2)||(30,027||)||(33,962||)||(3,935||)|
(1) Trade Receivables, Net equals Accounts Receivable less Other Receivables of $1.1 million at March 31, 2015 and December 31, 2014.
(2) Trade Accounts Payables equals Accounts Payable less Deposits Received and Other Payables of $7.0 million and $7.9 at March 31, 2015 and December 31, 2014, respectively.
EFFECTIVE TAX RATE
The following table presents a reconciliation of effective tax rate excluding restructuring expenses and non-recurring tax reserve adjustments to our effective tax rate for the three months ended March 31, 2015 (in thousands):
|For the three months ended March 31, 2015|
|Income before provision for income taxes||$5,508||($3,775||)||$1,733||68.5||%|
Restructuring expense and non-recurring tax
Income before provision for income taxes
BASIC ADJUSTED EARNINGS PER SHARE (net of taxes)
|Three Months Ended|
|Net income per share||$0.11||$0.08|
|Deferred Tax Valuation Allowance Reversal||(0.01||)||—|
|Plant start-up costs||0.05||0.01|
|Non-recurring tax reserve adjustment||0.07||—|
|FX (gain) loss||(0.04||)||0.04|
|Basic adjusted earnings per share||$0.28||$0.32|
The Company plans to hold a conference call on the following morning:
|Date: May 12, 2015|
|Start Time: 9:00 a.m. Eastern Time|
|Domestic Dial-In: +1-844-818-4921|
|International Dial-In: +1-484-880-4582|
|Conference ID: 31324661|
To participate on the call, please dial in at least 10 minutes prior to the scheduled start. A live audio webcast and replay of the call may be found in the investor relations section of the Company’s website at www.xerium.com. To follow along with the presentation that will accompany the Company’s conference call, please join the webcast by going to www.xerium.com/investorrelations. Click on the webcast link appearing above our conference call details, then click on the link appearing below “Webcast Presentation” on the following page. You may also click here and you will be taken directly to the webcast registration page.
NON-GAAP FINANCIAL MEASURES
This press release includes measures of performance that differ from the Company’s financial results as reported under generally accepted accounting principles (“GAAP”). The Company uses supplementary non-GAAP measures, including EBITDA, Adjusted EBITDA, currency effects on Net Sales, Effective Tax Rate and the effects of Restructuring and Trade Working Capital to assist in evaluating its liquidity and financial performance. EBITDA and Adjusted EBITDA are specifically used in evaluating the ability to service indebtedness and to fund ongoing capital expenditures. Neither Adjusted EBITDA nor EBITDA should be considered in isolation or as a substitute for income (loss) or cash flows from operations (as determined in accordance with GAAP).
For additional information regarding non-GAAP financial measures and a reconciliation of such measures to the most comparable financial measures under GAAP, please see “Segment Information,” “Trade Working Capital”, “Basic Adjusted earnings Per Share” and “Effective Tax Rate” above and our Selected Financial Data below. In addition, the information in this press release should be read in conjunction with the corresponding exhibits, financial statements and footnotes contained in our Report on Form 10-Q for the year ended March 31, 2015 filed with the Securities and Exchange Commission on May 11, 2015 and our presentation that will accompany our conference call tomorrow.
About Xerium Technologies
Xerium Technologies, Inc. (NYSE:XRM) is a leading global provider of industrial consumable products and services. Xerium, which operates around the world under a variety of brand names, utilizes a broad portfolio of patented and proprietary technologies to provide customers with tailored solutions and products integral to production, all designed to optimize performance and reduce operational costs. With 26 manufacturing facilities in 12 countries around the world, Xerium has approximately 3,100 employees.
This press release contains forward-looking statements. The words “believe,” “estimate,” “expect,” “intend,” “anticipate,” “goals,” variations of such words, and similar expressions identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. The forward-looking statements in this release include statements regarding our full year Adjusted EBITDA performance, anticipated sales performance, capital expenditures, cost savings measures, future efforts to improve overall performance and free cash flow. Forward-looking statements are not guarantees of future performance, and actual results may vary materially from the results expressed or implied in such statements. Differences may result from actions taken by us, as well as from risks and uncertainties beyond our control. These risks and uncertainties include the following items: (1) we may not realize the Adjusted EBITDA performance we are projecting (2) our expected sales performance and our backlog of sales may not be fully realized; (3) our cost reduction efforts, including our restructuring activities, may not have the positive impacts we anticipate; (4) we are subject to execution risk related to the startup of our proposed new facilities in China and Turkey; (5) our plans to develop and market new products, enhance operational efficiencies and reduce costs may not be successful; (6) market improvement in our industry may occur more slowly than we anticipate, may stall or may not occur at all; (7) variations in demand for our products, including our new products, could negatively affect our revenues and profitability; (8) our manufacturing facilities may be required to quickly increase or decrease production, which could negatively affect our production facilities, customer order lead time, product quality, labor relations or gross margin; and (9) the other risks and uncertainties discussed elsewhere in this press release, our Form 10-K for the year ended December 31, 2014 filed on March 4, 2015 and our other SEC filings. If any of these risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary significantly from what we projected. Any forward-looking statement in this press release reflects our current views with respect to future events. Except as required by law, we assume no obligation to publicly update or revise these forward-looking statements for any reason, whether as a result of new information, future events, or otherwise. As discussed above, we are subject to substantial risks and uncertainties related to current economic conditions, and we encourage investors to refer to our SEC filings for additional information. Copies of these filings are available from the SEC and in the investor relations section of our website at www.xerium.com.
Selected Financial Data Follows
|Xerium Technologies, Inc.|
|Consolidated Statements of Operations and Comprehensive Loss|
|(Dollars in thousands, except per share data)|
|Three Months Ended|
|Costs and expenses:|
|Cost of products sold||72,476||81,218|
|General and administrative||13,846||14,797|
|Research and development||1,962||1,946|
|Income from operations||14,195||12,594|
|Interest expense, net||(9,664||)||(8,657||)|
|Foreign exchange gain (loss)||977||(877||)|
|Income before provision for income taxes||5,508||3,060|
|Provision for income taxes||(3,775||)||(1,893||)|
|Net income per share:|
|Shares used in computing net income per share:|
|Consolidated Selected Financial Data|
|Cash Flow Data: (in thousands)||Three Months Ended|
|March 31, 2015||March 31, 2014|
|Net cash provided by operating activities||$8,001||$2,763|
|Net cash used in investing activities||($12,123||)||($10,451||)|
|Net cash provided by financing activities||$3,947||$80|
|Other Financial Data: (in thousands)|
|Depreciation and amortization||$7,242||$8,649|
|Capital expenditures, gross||($12,155||)||($10,494||)|
|Balance Sheet Data: (in thousands)||March 31, 2015||December 31, 2014|
|Cash and cash equivalents||$8,826||$9,517|
|Total debt (including capital leases)||$473,568||$469,435|
|Total stockholders’ deficit||($102,907||)||($74,110||)|
EBITDA and Adjusted EBITDA Non-GAAP Measures
Non-GAAP Financial Measures
We use EBITDA and Adjusted EBITDA (as defined in our credit facility) as supplementary non-GAAP liquidity measures to assist us in evaluating our liquidity and financial performance, specifically our ability to service indebtedness and to fund ongoing capital expenditures. Neither EBITDA nor Adjusted EBITDA should be considered in isolation or as a substitute for income (loss) or cash flows from operations (as determined in accordance with GAAP).
EBITDA is defined as net income (loss) before interest expense, income tax provision (benefit) and depreciation (including non-cash impairment charges) and amortization.
“Adjusted EBITDA” means, with respect to any period, the total of (A) the consolidated net income for such period, plus (B) without duplication, to the extent that any of the following were deducted in computing such consolidated net income for such period: (i) provision for taxes based on income or profits, including, without limitation, federal, state, provincial, franchise and similar taxes, including any penalties and interest relating to any tax examinations, (ii) consolidated interest expense, (iii) consolidated depreciation and amortization expense, (iv) reserves for inventory in connection with plant closures, (v) consolidated operational restructuring costs, (vi) noncash charges resulting from the application of purchase accounting, including push-down accounting, (vii) non-cash expenses resulting from the granting of common stock, stock options, restricted stock or restricted stock unit awards under equity compensation programs solely with respect to common stock, and cash expenses for compensation mandatorily applied to purchase common stock, (viii) non-cash items relating to a change in or adoption of accounting policies, (ix) non-cash expenses relating to pension or benefit arrangements, (x) expenses incurred as a result of the repurchase, redemption or retention of common stock earned under equity compensation programs solely in order to make withholding tax payments, (xi) amortization or write-offs of deferred financing costs, (xii) any non-cash losses resulting from mark to market hedging obligations (to the extent the cash impact resulting from such loss has not been realized in such period) and (xiii) other non-cash losses or charges (excluding, however, any non-cash loss or charge which represents an accrual of, or a reserve for, a cash disbursement in a future period), minus (C) without duplication, to the extent any of the following were included in computing consolidated net income for such period, (i) non-cash gains with respect to the items described in clauses (vi), (vii), (ix), (xi), (xii) and (xiii) (other than, in the case of clause (xiii), any such gain to the extent that it represents a reversal of an accrual of, or reserve for, a cash disbursement in a future period) of clause (B) above and (ii) provisions for tax benefits based on income or profits. Notwithstanding the foregoing, Adjusted EBITDA, as defined in the credit facility and calculated below, may not be comparable to similarly titled measurements used by other companies.
Consolidated net income is defined as net income (loss) determined on a consolidated basis in accordance with GAAP; provided, however, that the following, without duplication, shall be excluded in determining consolidated net income: (i) any net after-tax extraordinary or non-recurring gains, losses or expenses (less all fees and expenses relating thereto), (ii) the cumulative effect of changes in accounting principles, (iii) any fees and expenses incurred during such period in connection with the issuance or repayment of indebtedness, any refinancing transaction or amendment or modification of any debt instrument, in each case, as permitted under the credit facility and (iv) any cancellation of indebtedness income.
The following table provides reconciliation from net income and operating cash flows, which are the most directly comparable GAAP financial measures, to EBITDA and Adjusted EBITDA.
Three Months Ended
Trailing Twelve Months
|Net income (loss)||$1,733||$1,167||($6,815||)||($165||)|
|Amortization of intangibles||79||416||1,023||1,612|
|Deferred financing cost amortization||875||716||3,463||2,970|
|Foreign exchange (gain) loss on revaluation of debt||(1,973||)||(1,103||)||(1,129||)||721|
|Deferred tax expense||979||(808||)||(3,071||)||(6,776||)|
|Loss (gain) on disposition of property and equipment||14||27||(1,049||)||239|
|Loss on extinguishment of debt||—||—||—||3,123|
|Net change in operating assets and liabilities||(1,691||)||(6,394||)||(14,970||)||(9,404||)|
|Net cash provided by operating activities||8,001||2,763||12,131||28,594|
|Interest expense, excluding amortization||8,789||7,941||34,491||37,162|
|Net change in operating assets and liabilities||1,691||6,394||14,970||9,404|
|Current portion of income tax expense||2,796||2,700||35,034||10,528|
|Foreign exchange gain (loss) on revaluation of debt||1,973||1,103||1,129||(721||)|
|(Loss) gain on disposition of property and equipment||(14||)||(27||)||1,049||(239||)|
|Loss on extinguishment of debt||—||—||—||(3,123||)|
|Loss on extinguishment of debt||—||—||—||3,123|
|Operational restructuring expenses||2,224||4,651||15,715||18,240|
|Non-restructuring impairment expense||—||—||—||(190||)|
|Inventory write off due to plant closures||—||—||—||954|
|Plant startup costs||750||176||2,095||577|
Xerium Technologies, Inc.
Cliff Pietrafitta, 919-526-1444