Exited 2016 with Strengthened Balance Sheet and
Significantly Improved Bottom Line Results;
Summer Infant, Inc. ("Summer Infant" or the "Company")
(NASDAQ:SUMR), a global leader in premium infant and juvenile
products, today announced financial results for the fiscal fourth
quarter ended December 31, 2016.
“Looking back on 2016, we accomplished a great
deal and took the necessary steps to position the Company for even
better operating performance going forward,” said Mark Messner,
President and CEO. “Using $8.8 million of cash generation, we paid
down $6.5 million of debt – further strengthening the balance sheet
– and lowered our interest expense in tandem. At the same time,
even including certain one-time expenses, we reduced G&A by
more than 10%, and the Company’s prior litigation issue is now
behind us. All in all, Summer Infant is stronger now than it’s been
in years.
“We also took strategic measures in the fourth
quarter to further focus the Company’s product portfolio after a
thorough review of our brands and consumer trends. Such actions,
which had a negative impact on both revenue and bottom line
results, were appropriate given our new emphasis on more profitable
products, stronger retail partnerships, and improved channel
management. We continue to develop a brand strategy to elevate our
position in the market and yield better results vis-à-vis new
product introductions, and initial results appear promising. I feel
confident that the Company is making significant progress
leveraging its talents and core strengths to develop and bring to
market innovative concepts that will delight parents, spur higher
demand from our retail partners, and, ultimately, gratify
shareholders.”
Fourth Quarter Results
Net sales for the three months ended December
31, 2016 were $45.5 million compared with $50.8 million for the
three months ended January 2, 2016. Revenue was down due to lower
than expected sales of Born Free® Breeze™ bottles and certain
Summer® monitors, partially offset by increased sales of safety and
gear products. The three months ended December 31, 2016 also
included $0.5 million of unfavorable foreign exchange on a constant
currency basis, primarily due to the decline in the value of the
British pound.
Gross profit for the fourth quarter of 2016 was
$14.3 million compared with $15.6 million for the fourth quarter of
2015, and gross margin was 31.4% in 2016 versus 30.7% in the
prior-year period. The three months ended December 31, 2016
included $0.3 million of unfavorable foreign exchange on a constant
currency basis. The fiscal 2015 fourth quarter included $0.1
million in losses on the sale of inventory below cost (related to
the Company’s bank-approved inventory reduction plan) and $0.4
million in temporary costs related to Summer Infant’s West Coast
distribution center.
Selling expenses were $3.8 million in the fourth
quarter of 2016 compared with $4.5 million in the fourth quarter of
2015. General and administrative expenses (G&A) were $10.8
million in 2016 versus $10.9 million last year; the fourth quarter
of 2016 included $0.2 million of litigation costs, versus $1.0
million of litigation costs in the fourth quarter of 2015. G&A
as a percent of sales was 23.8% in the 2016 fourth quarter versus
21.5% last year. Interest expense was $0.8 million in the fourth
quarter of 2016 compared to $0.6 million in the prior-year
period.
The Company reported a net loss of $4.5 million,
or $(0.24) per share, in the fourth quarter of 2016 compared with a
net loss of $3.1 million, or $(0.17) per share, in the prior-year
period. In the fourth quarter of 2016, the Company undertook an
intangible asset impairment analysis and subsequently recorded a
non-cash impairment charge of $3.0 million related to its Born
Free® brand.
Adjusted EBITDA for the fourth quarter of 2016
was $0.9 million versus $1.8 million for the fourth quarter of
2015. Adjusted EBITDA in 2016 includes $1.1 million in bank
permitted add-back charges compared with $1.5 million in the
prior-year period, as defined in our amended credit facility as of
February 2017.
Adjusted EBITDA is a non-GAAP metric. An
explanation is included under the heading below "Use of Non-GAAP
Financial Information," and reconciliations to GAAP measures can be
found in the tables at the end of this release.
Full Year Results
Net sales for the twelve months ended December
31, 2016 were $194.3 million compared with $205.8 million in the
prior fiscal year. Taking into consideration $8.3 million of sales
related to the Company’s bank-approved inventory reduction plan and
furniture exit in 2015, revenue was down modestly year-over-year.
Fiscal 2016 also included $2.1 million of unfavorable foreign
exchange on a constant currency basis, primarily due to the decline
in the value of the British pound. The year-over-year performance
reflected lower than expected sales of Born Free® Breeze™ bottles
and certain Summer monitors, partially offset by increased sales of
safety and gear products.
Gross profit for the full year was $61.8 million
compared with $62.0 million for fiscal 2015, and gross margin was
31.8% in 2016 versus 30.1% in the prior-year period. Fiscal 2016
included $0.9 million of unfavorable foreign exchange on a constant
currency basis, $0.9 million in cost overages for certain product
introductions, and $0.3 million in temporary additional costs due
to inventory mix changes at Summer’s West Coast distribution
center. Fiscal 2015 included $1.9 million in losses on the sale of
inventory below cost (related to the aforementioned inventory
reduction plan), $0.9 million of inventory charges tied to exiting
the furniture business, and $0.7 million in temporary costs related
to the Company’s West Coast distribution center.
Selling expenses were $15.3 million in 2016
compared with $17.8 million in 2015. General and administrative
expenses (G&A) were $41.3 million in 2016 versus $46.1 million
last year – a decline of 10.5% -- as litigation costs fell to $2.4
million from $6.6 million in fiscal 2015. G&A as a percent of
sales fell to 21.2% in 2016 from 22.4% last year. Interest expense
declined to $2.7 million in 2016 from $3.3 million in 2015.
The Company reported a net loss of $4.3 million,
or $(0.23) per share, in 2016 compared with a net loss of $8.7
million, or $(0.47) per share, in 2015. Adjusted EBITDA for 2016
was $10.6 million versus $9.7 million last year. Adjusted EBITDA in
2016 includes $4.9 million in bank permitted add-back charges
compared with $10.8 million in the prior-year period,as defined in
our amended credit facility in February 2017.
Balance Sheet Highlights
As of December 31, 2016, Summer Infant had
approximately $1.0 million of cash and $46.9 million of bank debt
compared with $0.9 million of cash and $53.6 million of bank debt
as of January 2, 2016. The Company’s bank leverage ratio was
5.1 times the trailing twelve months’ Adjusted EBITDA at year end,
as compared with 5.5 at the beginning of the fiscal year.
Inventory as of December 31, 2016 was $36.1
million compared with $36.8 million as of January 2, 2016. Trade
receivables at the end of the year were $34.1 million compared with
$40.5 million as of January 2, 2016. Accounts payable and accrued
expenses were $38.4 million as of December 31, 2016 compared with
$39.1 million at the beginning of the fiscal year.
Conference Call Information
Management will host a conference call to
discuss the financial results tomorrow, February 23, at 9:00 a.m.
Eastern. To listen to the live call, visit the Investor Relations
section of the Company's website at www.summerinfant.com or
dial 866-652-5200 or 412-317-6060. An archive of the webcast will
be available on the Company's website.
About Summer Infant, Inc.Based
in Woonsocket, Rhode Island, the Company is a global leader of
premium infant and juvenile products which are sold principally to
large North American and international retailers. The Company
currently sells proprietary products in a number of different
categories including nursery, audio/video monitors, safety gates,
durable bath products, bed rails, nursery products, strollers,
booster and potty seats, swaddling blankets, bouncers, travel
accessories, highchairs, swings, and infant feeding products. For
more information about the Company, please visit
www.summerinfant.com.
Use of Non-GAAP Financial
Information This release and the referenced webcast
include presentations of non-GAAP financial measures, including
Adjusted EBITDA, constant currency, adjusted net income and
adjusted earnings per share. Adjusted EBITDA means earnings
before interest and taxes plus depreciation, amortization, non-cash
stock-based compensation expenses and other items added back as
detailed in the reconciliation table included in this
release. Constant currency sales are determined by applying a
fixed exchange rate, calculated as the 12-month average, to the
current local currency sales amounts, with the difference in
reported sales being attributable to currency. Non-GAAP adjusted
net income/loss and adjusted earnings/loss per share exclude
certain items, and the tax impact of these items, as detailed in
the reconciliation table included in this release. Such
information is supplemental to information presented in accordance
with GAAP and is not intended to represent a presentation in
accordance with GAAP. The Company believes that the presentation of
these non-GAAP financial measures provide useful information to
investors to better understand, on a period-to-period comparable
basis, financial amounts both including and excluding these
identified items, as they indicate more clearly the Company’s
operations and its ability to meet capital expenditure and working
capital requirements and comply with the financial covenants of its
loan agreements. These non-GAAP measures should not be
considered in isolation or as an alternative to such GAAP measures
as net income, cash flows provided by or used in operating,
investing or financing activities or other financial statement data
presented in the Company’s consolidated financial statements as an
indicator of financial performance or liquidity. The Company
provides reconciliations of these non-GAAP measures in its press
releases of historical performance. Because these measures
are not determined in accordance with GAAP and are susceptible to
varying calculations, these non-GAAP measures, as presented, may
not be comparable to other similarly titled measures of other
companies.
Forward-Looking
StatementsCertain statements in this release that are not
historical fact may be deemed “forward-looking statements” within
the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, and the Company
intends that such forward-looking statements be subject to the safe
harbor created thereby. These statements are accompanied by
words such as “anticipate,” “expect,” “project,” “will,”
“believes,” “estimate” and similar expressions, and include
statements regarding the Company’s expectations regarding future
operating performance and the impact of its brand strategy for 2017
and beyond. The Company cautions that these statements are
qualified by important factors that could cause actual results to
differ materially from those reflected by such forward-looking
statements. Such factors include the concentration of the
Company’s business with retail customers; the ability of the
Company to compete in its industry; the Company’s ability to
continue to control costs and expenses, including legal expenses;
the Company’s dependence on key personnel; the Company’s reliance
on foreign suppliers; the Company’s ability to develop, market and
launch new products; the Company’s ability to grow sales with
existing and new customers and in new channels; the Company’s
ability to meet required financial covenants under its loan
agreements; and other risks as detailed in the Company’s Annual
Report on Form 10-K for the fiscal year ended January 2, 2016, and
subsequent filings with the Securities and Exchange
Commission. The Company assumes no obligation to update the
information contained in this release.
Tables to Follow
|
|
Summer Infant, Inc |
|
Consolidated Balance Sheet |
|
(amounts in thousands of US
dollars) |
|
|
|
|
|
|
|
|
|
|
December 31, 2016 |
|
|
January 2, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents |
$ |
999 |
|
$ |
923 |
|
Trade
receivables, net |
|
34,137 |
|
|
40,514 |
|
Inventory, net |
|
36,140 |
|
|
36,846 |
|
Property and equipment, net |
|
9,965 |
|
|
12,007 |
|
Intangible assets,
net |
|
14,813 |
|
|
18,512 |
|
Other assets |
|
5,683 |
|
|
4,336 |
|
Total
assets |
$ |
101,737 |
|
$ |
113,138 |
|
|
|
|
|
|
|
|
Accounts payable |
$ |
30,684 |
|
$ |
29,541 |
|
Accrued expenses |
|
7,757 |
|
|
9,584 |
|
Current portion of long-term debt |
|
4,500 |
|
|
3,318 |
|
Long
term debt, less current portion (1) |
|
41,206 |
|
|
48,767 |
|
Other
long term liabilities |
|
2,770 |
|
|
2,962 |
|
Total
liabilities |
|
86,917 |
|
|
94,172 |
|
|
|
|
|
|
|
|
Total
stockholders’ equity |
|
14,820 |
|
|
18,966 |
|
Total
liabilities and stockholders’ equity |
$ |
101,737 |
|
$ |
113,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Under new U.S. GAAP, long term debt is reported net of
unamortized financing fees. As a result, reported long term
debt is reduced by $1,226 and $1,489 of unamortized financing fees
in the periods ending December 31, 2016 and January 2, 2016,
respectively. |
|
|
|
|
|
|
|
|
Summer Infant, Inc. |
Consolidated Statements of
Operations |
(amounts in thousands of US dollars, except
share and per share data) |
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Twelve Months Ended |
|
|
December 31, 2016 |
|
January 2, 2016 |
|
December 31, 2016 |
|
January 2, 2016 |
|
|
|
|
|
|
|
|
|
Net
sales |
|
$ |
45,531 |
|
|
$ |
50,779 |
|
|
$ |
194,328 |
|
|
$ |
205,804 |
|
Cost of
goods sold |
|
|
31,233 |
|
|
|
35,180 |
|
|
|
132,577 |
|
|
|
143,854 |
|
Gross
profit |
|
$ |
14,298 |
|
|
$ |
15,599 |
|
|
$ |
61,751 |
|
|
$ |
61,950 |
|
General
and administrative expenses(1) |
|
|
10,823 |
|
|
|
10,897 |
|
|
|
41,292 |
|
|
|
46,132 |
|
Selling
expense |
|
|
3,785 |
|
|
|
4,485 |
|
|
|
15,269 |
|
|
|
17,780 |
|
Depreciation and amortization |
|
|
1,568 |
|
|
|
2,853 |
|
|
|
5,011 |
|
|
|
6,780 |
|
Impairment of intangible assets |
|
|
2,993 |
|
|
|
- |
|
|
|
2,993 |
|
|
|
- |
|
Operating loss |
|
$ |
(4,871 |
) |
|
$ |
(2,636 |
) |
|
$ |
(2,814 |
) |
|
$ |
(8,742 |
) |
Interest
expense |
|
|
781 |
|
|
|
580 |
|
|
|
2,682 |
|
|
|
3,333 |
|
Loss
before taxes |
|
$ |
(5,652 |
) |
|
$ |
(3,216 |
) |
|
$ |
(5,496 |
) |
|
$ |
(12,075 |
) |
Income
tax expense benefit |
|
|
(1,174 |
) |
|
|
(111 |
) |
|
|
(1,174 |
) |
|
|
(3,424 |
) |
Net
loss |
|
$ |
(4,478 |
) |
|
$ |
(3,105 |
) |
|
$ |
(4,322 |
) |
|
$ |
(8,651 |
) |
Loss per
diluted share |
|
$ |
(0.24 |
) |
|
$ |
(0.17 |
) |
|
$ |
(0.23 |
) |
|
$ |
(0.47 |
) |
|
|
|
|
|
|
|
|
|
Shares
used in fully diluted EPS |
|
|
18,488,342 |
|
|
|
18,351,914 |
|
|
|
18,440,436 |
|
|
|
18,267,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes stock based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of GAAP to Non-GAAP Financial
Measures |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Twelve Months Ended |
|
|
December 31, 2016 |
|
January 2, 2016 |
|
December 31, 2016 |
|
January 2, 2016 |
|
|
|
|
|
|
|
|
|
Reconciliation of Adjusted EBITDA |
|
|
|
|
|
|
|
|
Net loss
(GAAP) |
|
$ |
(4,478 |
) |
|
$ |
(3,105 |
) |
|
$ |
(4,322 |
) |
|
$ |
(8,651 |
) |
Plus:
interest expense |
|
|
781 |
|
|
|
580 |
|
|
|
2,682 |
|
|
|
3,333 |
|
Plus:
benefit for income taxes |
|
|
(1,174 |
) |
|
|
(111 |
) |
|
|
(1,174 |
) |
|
|
(3,424 |
) |
Plus:
depreciation and amortization |
|
|
1,568 |
|
|
|
2,853 |
|
|
|
5,011 |
|
|
|
6,780 |
|
Plus:
impairment of intangible assets |
|
|
2,993 |
|
|
|
- |
|
|
|
2,993 |
|
|
|
- |
|
Plus:
non-cash stock based compensation expense |
|
|
88 |
|
|
|
165 |
|
|
|
482 |
|
|
|
865 |
|
Plus:
permitted add-backs (a) |
|
|
1,088 |
|
|
|
1,454 |
|
|
|
4,934 |
|
|
|
10,794 |
|
Adjusted
EBITDA (Non-GAAP) (b) |
|
$ |
866 |
|
|
$ |
1,836 |
|
|
$ |
10,606 |
|
|
$ |
9,697 |
|
|
|
|
|
|
|
|
|
|
Reconciliation of Adjusted EPS |
|
|
|
|
|
|
|
|
Net loss
(GAAP) |
|
$ |
(4,478 |
) |
|
$ |
(3,105 |
) |
|
$ |
(4,322 |
) |
|
$ |
(8,651 |
) |
Plus:
permitted add-backs(a) |
|
|
1,088 |
|
|
|
1,454 |
|
|
|
4,934 |
|
|
|
10,794 |
|
Plus: accelerated amortization(c) |
|
|
- |
|
|
|
1,532 |
|
|
|
- |
|
|
|
1,532 |
|
Plus:
impairment of intangible assets (d) |
|
|
2,993 |
|
|
|
- |
|
|
|
2,993 |
|
|
|
- |
|
Plus:
unamortized financing costs (e) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
685 |
|
Tax
impact of items impacting comparability(f) |
|
|
(1,072 |
) |
|
|
(973 |
) |
|
|
(2,322 |
) |
|
|
(4,241 |
) |
Adjusted
Net (loss)/income (Non-GAAP) |
|
$ |
(1,469 |
) |
|
$ |
(1,092 |
) |
|
$ |
1,283 |
|
|
$ |
119 |
|
Adjusted
(Loss)/Earnings per diluted share (Non-GAAP) |
|
$ |
(0.08 |
) |
|
$ |
(0.06 |
) |
|
$ |
0.07 |
|
|
$ |
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Permitted add-backs consist of items that the Company is
permitted to add-back to the calculation of consolidated EBITDA
under its credit agreements, as amended on February 2017.
Permitted add-backs for the three months ended December 31, 2016
consisted of Born Free cost overages $236 ($77 tax impact), company
bonus $550 ($179 tax impact), special projects, primarily
litigation fees $159 ($52 tax impact), board fees $108 ($35
tax impact), and restructuring fees $35 ($11 tax impact). Permitted
add-backs for the three months ended January 2, 2016 consisted of
special projects, primarily litigation fees $1,119 ($366 tax
impact), severance costs $179 ($58 tax impact), board fees $97 ($32
tax impact), and losses from the inventory liquidation plan $59
($19 tax impact). Permitted add-backs for the twelve months
ended December 31, 2016 consisted of special projects, primarily
litigation fees $2,566 ($834 tax impact), Born Free cost overages
$890 ($289 tax impact), company bonus $550 ($179 tax impact), board
fees $476 ($155 tax impact), restructuring fees $353 ($115 tax
impact) and severance related costs $99 ($32 tax impact).
Permitted add-backs for the twelve months ended January 2, 2016
consisted of special projects, primarily litigation fees $7,140
($2,329 tax impact), losses from the inventory liquidation plan
$1,937 ($632 tax impact), losses from exiting the furniture
category $949 ($309 tax impact), board fees $538 ($175 tax impact),
and severance related costs $230 ($75 tax impact). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) As defined in our February 2017 amendment to our credit
facilities. |
|
(c) Accelerated amortization on old technology was $1,532
($498 tax impact), as we moved to our next generation of technology
being developed in our product lines. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d) Impairment of intangible assets was $2,993 ($718 tax
impact), as we wrote down the value of an indefinite-lived
asset. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(e) Write off of unamortized deferred financing costs and
termination fees associated with the Company's old credit facility,
reflecting a $685 ($223 tax impact) charge for the twelve months
ending January 2, 2016. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(f) Represents the aggregate tax impact of the adjusted items
set forth above based on the applicable tax rate for the periods
presented relevant to their jurisdictions and the nature of
the adjustments. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company Contact:
Chris Witty
Investor Relations
646-438-9385
cwitty@darrowir.com
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