Highlights
- Q2 2017 sales of $120.3 million,
compared to $124.0 million in Q2 2016 (see Table 1). Q2 2017 sales
were down (1.2%) versus Q2 2016, when measured on a
constant-currency basis.
- Q2 2017 gross margin of 40.6%, a 170
basis point increase over the prior year period of 38.9%, as
production efficiencies favorably impacted results.
- Q2 2017 income from operations of $14.9
million, up 1.7%, compared to the prior-year period due to
production efficiencies, lower restructuring and SG+A cost
reductions, partially offset by CEO transition costs and negative
currency effects.
- Q2 2017 net loss of $(3.4) million,
compared to $2.1 million of net income in the prior-year
period.
- Q2 2017 adjusted EBITDA of $27.2
million, or 22.6% of sales, compared to adjusted EBITDA of $27.7
million, or 22.3% of sales in Q2 2016 (See Tables 2 and 4).
- Order backlog at $171 million, flat to
Q2 2016 backlog levels.
Xerium Technologies, Inc. (NYSE:XRM), a leading, global provider
of industrial consumable products and services, today reported
second quarter 2017 financial results.
Mark Staton, President and Chief Executive Officer said, “We
reported a strong result in the second quarter of 2017, marking a
notable margin improvement as our restructuring efforts wind down
and our global facilities shift to execution and efficiency. This
led to a solid adjusted EBITDA result of $27.2 million during the
period, with a 30 basis point improvement in margin to 22.6%.”
Staton added, “We are now better positioned in the right
geographies with enhanced capabilities in growing end-markets, and
our business generates attractive adjusted EBITDA margins. Going
forward our priorities are very clear, to maximize adjusted EBITDA
growth and free cash flow from our enhanced platform, and
aggressively pursue balance sheet improvement.”
Q2 Financial Highlights:
Q2 net sales were $120.3 million, a decrease of (1.2%)
year-over-year on a constant currency basis (see Table 1). The
decrease was driven by a constant currency sales decrease of (0.9%)
in roll covers and (1.4%) in machine clothing. The sales decline
relative to the prior-year period was due to weaker spreader roll
sales in Europe and competitive pricing pressure in our Asian
machine clothing business.
Q2 2017 gross profit was $48.9 million, or 40.6% of net sales,
compared to $48.2 million, or 38.9% of net sales, in Q2 2016.
Machine clothing gross margin improved to 43.7% in Q2 2017 from
41.6% in Q2 2016. The increase in gross profit margin was primarily
due to production efficiencies partially offset by competitive
pricing pressure in Asia. Rolls and service gross margin improved
to 36.1% in Q2 2017 from a gross margin of 34.7% in Q2 2016 due to
production efficiencies.
SG&A expenses (including Selling, G&A and R&D
expenses) were $33.1 million, or 27.5% of net sales, in Q2 2017
versus $30.7 million, or 24.8% of net sales, in Q2 2016. The
increase in SG&A expenses was due to incremental one-time CEO
transition costs of $3.0 million incurred in Q2 of 2017, partially
offset by cost-reduction initiatives.
Q2 2017 basic loss per share was $(0.21) versus Q2 2016 basic
earnings per share of $0.13. Basic adjusted earnings per share (see
Table 3) were $0.08 in Q2 2017 compared to $0.31 in Q2 2016 as a
result of higher interest and income tax expenses, partially offset
by improved operations.
GAAP income from operations in the second quarter of 2017 was
$14.9 million, or 12.4% of sales, up $0.2 million, or 1.7% compared
to Q2 2016. Q2 2017 adjusted EBITDA declined to $27.2 million, or
22.6% of net sales, due to negative currency effects, compared to
$27.7 million, or 22.3% of net sales in 2016. Adjusted EBITDA
increased 1.1% on a constant currency basis (see Table 2). The
slight operational increase was driven by operational efficiencies,
partially offset by lower sales. In addition to interest, taxes,
depreciation and amortization, adjusted EBITDA excludes expenses
related to the Company’s restructuring activities, plant start-up
costs, stock-based compensation, unrealized foreign currency gains
and losses and non-recurring expenses, including CEO transition
costs. For a full reconciliation, refer to Table 4.
Cash taxes were $3.0 million in Q2 2017, compared to $3.9
million in Q2 of 2016. Cash taxes are primarily impacted by income
the Company earns in tax paying jurisdictions relative to income it
earns in non tax-paying jurisdictions, primarily the United
States.
Net cash provided by operating activities was $10.2 million and
free cash flow was $7.1 million (see Table 5) during the second
quarter of 2017. Free cash flow is expected to improve
substantially in the second half of 2017, as a result working
capital reductions, lower capital expenditures, and lower cash
restructuring costs.
Net debt was $519.7 million at the end of Q2 2017 compared to
$511.7 million at the end of Q4 2016. The Company's net debt
leverage ratio is 5.3x (see Table 6). The Company plans to utilize
its free cash flow to pay down debt and de-lever over the remainder
of its debt maturities.
2017 Outlook
The first half of 2017 demonstrated a stable market environment,
coupled with modestly improving sales trends. In the second half of
2017, the Company currently expects continued stability with some
moderating influences to margin performance and volume. The Company
reiterates previously disclosed guidance for 2017 full-year
adjusted EBITDA to approximate at least 2016 levels.
Free cash flow for 2017 will be impacted by several discrete
factors including CEO transition costs incurred during the period.
As a result, the Company now expects full-year free cash flow to be
in the low-teens range, with second half improvement driven by
working capital reductions, reduced capital expenditures, and lower
cash restructuring costs.
CONFERENCE CALL
The Company plans to hold a conference call this evening:
Date: July 31, 2017 Start Time: 5:00 p.m. Eastern Time
Domestic Dial-In: +1-844-818-4921 International Dial-In:
+1-484-880-4582 Conference ID: 45785479
Webcast:
www.xerium.com/investorrelations
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.
ABOUT XERIUM TECHNOLOGIES,
INC.
Xerium Technologies, Inc. (NYSE:XRM) is a leading, global
provider of industrial consumable products and services. Its
products and services are consumed during machine operation by its
customers. Xerium operates around the world under a variety of
brand names, and 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 28
manufacturing facilities in 13 countries around the world, Xerium
has approximately 2,950 employees.
Xerium Technologies, Inc. Condensed Consolidated
Balance Sheets (Dollars in thousands and unaudited)
June 30, December 31,
2017 2016 ASSETS Current assets: Cash and cash
equivalents $ 11,059 $ 12,808 Accounts receivable, net 76,245
68,667 Inventories, net 76,497 70,822 Prepaid expenses 6,892 6,325
Other current assets 17,022 15,784
Total current assets 187,715 174,406 Property and equipment, net
284,884 284,101 Goodwill 60,598 56,783 Intangible assets 7,426
7,330 Non-current deferred tax asset 12,776 10,737 Other assets
8,105 8,556 Total assets $ 561,504
$ 541,913
LIABILITIES AND STOCKHOLDERS'
DEFICIT Current liabilities: Notes payable $ 7,837 $ 7,328
Accounts payable 37,989 36,158 Accrued expenses 65,144 64,532
Current maturities of long-term debt 10,780
8,600 Total current liabilities 121,750 116,618 Long-term
debt, net of current maturities 479,773 472,923 Liabilities under
capital lease 17,464 19,236 Non-current deferred tax liability
8,661 7,157 Pension, other post-retirement and post-employment
obligations 64,217 65,026 Other long-term liabilities 8,671 7,858
Stockholders' deficit
Preferred stock - - Common stock 16 16 Paid-in capital 432,036
430,823 Accumulated deficit (449,311 ) (443,066 ) Accumulated other
comprehensive loss (121,773 ) (134,678 ) Total
stockholders' deficit (139,032 ) (146,905 ) Total
liabilities and stockholders' deficit $ 561,504 $ 541,913
Xerium Technologies, Inc.
Consolidated Statement of Operations and Comprehensive (Loss)
Income (Dollars in thousands, except per share data and
unaudited) Three Months Ended
June 30,
2017 2016 Net Sales $ 120,339 $ 123,973
Costs and expenses: Cost of products sold 71,454 75,782 Selling
15,936 15,735 General and administrative 15,460 13,427 Research and
development 1,666 1,545 Restructuring 874
2,777 105,390 109,266 Income
from operations 14,949 14,707 Interest expense, net (13,281 )
(10,658 ) Loss on extinguishment of debt (7 ) - Foreign exchange
loss (1,246 ) (72 ) Income before provision for
income taxes 415 3,977 Provision for income taxes (3,826 )
(1,867 ) Net (loss) income $ (3,411 ) $ 2,110
Comprehensive (loss) income $ (146 ) $ 6,508 Net (loss)
income per share: Basic $ (0.21 ) $ 0.13 Diluted $ (0.21 ) $
0.13 Shares used in computing net (loss) income per share:
Basic 16,262,867 15,995,071 Diluted
16,262,867 16,619,082
Xerium Technologies, Inc. Consolidated Statements of Cash
Flows (Dollars in thousands and unaudited)
Six Months Ended June 30, 2017
2016 Operating activities Net (loss) income $ (6,245
) $ 665 Adjustments to reconcile net (loss) income to net cash
provided by
operating activities:
Stock-based compensation 2,046 1,426 Depreciation 15,662 16,082
Amortization of intangibles 546 304 Deferred financing cost
amortization 1,810 1,542 Foreign exchange loss on revaluation of
debt 534 151 Deferred taxes 312 (797 ) Asset impairment 55 - (Gain)
loss on disposition of property and equipment (85 ) 78 Loss on
extinguishment of debt 32 - Provision (benefit) for doubtful
accounts 142 (16 ) Change in assets and liabilities which (used)
provided cash: Accounts receivable (5,400 ) 1,003 Inventories
(3,213 ) 2,353 Prepaid expenses (441 ) (851 ) Other current assets
(1,179 ) 71 Accounts payable and accrued expenses 528 (5,413 )
Deferred and other long-term liabilities (2,106 ) 533
Net cash provided by operating activities 2,998 17,131
Investing activities Capital expenditures (8,517 )
(5,972 ) Proceeds from disposals of property and equipment 290 117
Acquisition costs - (16,225 ) Net cash used in
investing activities (8,227 ) (22,080 )
Financing
activities Proceeds from borrowings 66,578 39,864 Principal
payments on debt (59,282 ) (29,703 ) Payment of financing fees (393
) (24 ) Payment of obligations under capital leases (2,794 ) (1,726
) Employee taxes paid on equity awards (832 ) (1,031
) Net cash provided by financing activities 3,277 7,380 Effect of
exchange rate changes on cash flows 203 (1,679
) Net (decrease) increase in cash (1,749 ) 752 Cash and cash
equivalents at beginning of period 12,808
9,839 Cash and cash equivalents at end of period $ 11,059
$ 10,591
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"). Management of the Company
uses supplementary non-GAAP measures, including Adjusted EBITDA,
Free Cash Flow, Net Debt and Adjusted EPS, internally to assist in
evaluating its liquidity and financial and operational performance.
Therefore, the Company believes these non-GAAP measures may also be
useful to investors and financial analysts. Adjusted EBITDA and
Free Cash Flow are specifically used in evaluating the ability to
service indebtedness and to fund ongoing capital expenditures. Net
Debt presents a view of the overall change in leverage from quarter
to quarter. Adjusted EPS excludes certain items the Company does
not believe to be indicative of on-going business trends in order
to better analyze historical and future business trends on a
consistent basis. Adjusted EBITDA, Free Cash Flow, Net Debt and
Adjusted EPS should not be considered in isolation or as a
substitute for net income (loss), net cash provided (used in) by
operating activities, total debt or net income (loss) per
share.
When we provide our expectations for adjusted EBITDA on a
forward-looking basis, we exclude certain significant items. A
reconciliation of differences between this non-GAAP expectation and
the corresponding GAAP measure (expected net income (loss))
generally is not available without unreasonable effort due to
potentially high variability, complexity and low visibility as to
the significant items, such as taxes, that would be included in the
GAAP measure of net income (loss). This item is uncertain and
depends on various factors. The variability of the excluded item
may have a significant, and potentially unpredictable, impact on
our future GAAP results. For the same reasons, the company is
unable to address the probable significance of the unavailable
information, which could be material to the company’s future
financial results. Our expectation of full year Free Cash Flow of
low-teens assumes operating cash flow of mid-twenties and capital
expenditures of low-teens.
For additional information regarding non-GAAP financial measures
and a reconciliation of such measures to the most comparable
financial measures under GAAP, please see the applicable tables
within this press release. In addition, the information in this
press release should be read in conjunction with the corresponding
exhibits, financial statements and footnotes contained in our
Annual Report on Form 10-K for the year ended December 31, 2016
filed with the Securities and Exchange Commission on March 1, 2017,
our Form 10-Q for the quarter ended June 30, 2017 filed with the
Securities and Exchange Commission on July 31, 2017, and our
presentation that will accompany our conference call.
NET SALES
Table 1 summarizes Q2 net sales and the effect of currency
translation rates. The column “$ Change Excluding Currency” is
calculated taking the difference between Q2 2017 net sales at Q2
2016 FX rates (in US dollars) less Q2 2016 reported net sales
Table 1
Net Sales For TheThree Months
Ended
June 30,2017
June 30,2016
$ Change
% Change
$
ChangeExcludingCurrency
%
ChangeExcludingCurrency
Roll Covers $ 47,914 $ 49,154 $ (1,240 ) -2.5
% $ (436 ) -0.9 % Machine Clothing 72,425
74,819 (2,394 )
-3.2 % (1,032 ) -1.4 % Total $
120,339 $ 123,973 $ (3,634 )
-2.9 % $ (1,468 ) -1.2 %
ADJUSTED EBITDA
Table 2 summarizes Q2 adjusted EBITDA and the effect of currency
translation rates. The column “$ Change Excluding Currency” is
calculated taking the difference between Q2 2017 adjusted EBITDA at
Q2 2016 FX rates (in US dollars) less Q2 2016 reported adjusted
EBITDA.
Table 2
Adjusted EBITDA For the Three
Months Ended
June 30,2017
June 30,2016
$ Change
% Change
$
ChangeExcludingCurrency
%
ChangeExcludingCurrency
Roll Covers $ 10,566 $ 10,594 $ (28 ) -0.3 % $ 221 2.1 % Machine
Clothing 20,906 21,186 (280 ) -1.3 % 299 1.4 % Corporate
(4,292 ) (4,088 ) (204 ) 5.0 %
(209 ) 5.1 % Total $ 27,180 $ 27,692
$ (512 ) -1.8 % $ 311 1.1 %
BASIC ADJUSTED EARNINGS PER
SHARE
Table 3 represents a reconciliation of basic net (loss) income
per share to basic adjusted earnings per share for the three months
ended June 30, 2017 and 2016:
Table 3 Three Months Ended
June 30, 2017 2016 Basic net
(loss) income per share $ (0.21 ) $ 0.13
Adjustments: CEO transition expenses 0.19 - Brazilian amnesty
interest deduction - (0.02 ) Restructuring expense 0.04 0.14 Plant
start-up costs 0.01 0.03 Unrealized foreign exchange loss 0.05 -
Other non-recurring expenses - 0.03
Basic adjusted earnings per share $ 0.08 $
0.31
EBITDA AND ADJUSTED
EBITDA
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 (loss) 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), (xiii) unrealized
foreign currency losses and (xiv) 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 (loss)
for such period, (i) unrealized foreign currency gains and (ii)
non-cash gains with respect to the items described in clauses (vi),
(vii), (ix), (xi), (xii) and xiv (other than, in the case of clause
(xiv), 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 (iii) provisions for tax benefits
based on income or profits. Notwithstanding the foregoing, Adjusted
EBITDA, as defined and calculated below, may not be comparable to
similarly titled measurements used by other companies.
Consolidated net income (loss) 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 (loss): (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 and (iv) any cancellation of indebtedness income. Table 4
provides a reconciliation from net income (loss), which is the most
directly comparable GAAP financial measure, to EBITDA and Adjusted
EBITDA.
Adjusted EBITDA Definition
Modification
During the 4th quarter of 2016, the Company modified its
definition of Adjusted EBITDA to exclude foreign exchange gains and
losses from this non-GAAP measure. This change enhances investor
insight into the Company’s operational performance. In previous
filings, Q2 2016 Adjusted EBITDA was stated at $27.6 million based
on the definition previously used.
Table
4 Three Months Ended June 30,
TrailingTwelveMonthsEndedJune
30,2017
TwelveMonthsEndedDecember
31,2016
2017 2016
Net (loss) income $ (3,411 ) $ 2,110 $ (28,528 ) $ (21,618 )
Stock-based compensation 328 834 2,045 2,612 CEO transition
stock-based compensation 1,187 - 1,187 - Depreciation 7,843 8,182
31,695 32,115 Amortization of intangibles 272 210 1,083 841
Deferred financing cost amortization 911 785 3,331 3,063 Foreign
exchange gain on revaluation of debt (93 ) (968 ) (2,884 ) (3,267 )
Deferred tax expense 302 (953 ) 1,328 219 Asset impairment 55 - 55
- (Gain) loss on disposition of property and equipment (36 ) 62
(113 ) 50 Loss on extinguishment of debt 7 - 11,970 11,938 Net
change in operating assets and liabilities 2,855
(8,234 ) 1,207
10,556
Net cash provided by
operating activities 10,220 2,028 22,376 36,509 Interest
expense, excluding amortization 12,370 9,873 48,369 43,092 Net
change in operating assets and liabilities (2,855 ) 8,234 (1,207 )
(10,556 ) Current portion of income tax expense 3,524 2,820 9,929
9,063 Stock-based compensation (328 ) (834 ) (2,045 ) (2,612 ) CEO
transition stock-based compensation (1,187 ) - (1,187 ) - Asset
impairment (55 ) - (55 ) - Foreign exchange gain on revaluation of
debt 93 968 2,884 3,267 Gain (loss) on disposition of property and
equipment 36 (62 ) 113 (50 ) Loss on extinguishment of debt
(7 ) - (11,970 )
(11,938 )
EBITDA 21,811 23,027 67,207
66,775 Loss on extinguishment of debt 7 - 11,970 11,938 Stock-based
compensation 328 834 2,045 2,612 CEO transition expenses 3,039 -
3,039 - Operational restructuring expenses 874 2,777 8,791 10,362
Other non-recurring expenses 69 433 562 1,116 Plant startup costs
166 539 1,537 2,176 Unrealized foreign exchange loss 886
82 2,283
313
Adjusted EBITDA $
27,180 $ 27,692 $ 97,434
$ 95,292
FREE CASH FLOW
Table 5 summarizes free cash flow which is defined as net cash
provided by operating activities less capital expenditures plus
proceeds from disposals of property and equipment.
Table 5 Three Months Ended June
30, 2017 2016 Net cash provided by
operating activities $ 10,220 $ 2,028 Capital expenditures (3,232 )
(2,422 ) Proceeds from disposals of property and equipment
74 97 Free Cash flow $ 7,062
$ (297 )
NET DEBT
Table 6 summarizes net debt which is defined as GAAP total debt
less cash and deferred financing fees and net debt leverage which
is defined as net debt divided by trailing twelve month Adjusted
EBITDA.
Table 6
June 30, 2017 December
31, 2016 Total debt (including capital leases) $ 515,854
$ 508,087 less cash (11,059 ) (12,808 ) less deferred financing
fees 14,946 16,436 Net
debt $ 519,741 $ 511,715 Trailing twelve month adjusted EBITDA $
97,434 $ 95,292 Net debt leverage
5.3 5.4
FORWARD-LOOKING
STATEMENTS
This press release contains forward-looking statements. The
words "will", "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 EBITDA and 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 EBITDA and
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) our plans to develop and market new products,
enhance operational efficiencies and reduce costs may not be
successful; (5) market improvement in our industry may occur more
slowly than we anticipate, may stall or may not occur at all; (6)
variations in demand for our products, including our new products,
could negatively affect our revenues and profitability; (7) 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 (8) the other risks and
uncertainties discussed elsewhere in this press release, our Form
10-K for the year ended December 31, 2016 filed on March 1, 2017
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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170731006160/en/
Xerium Technologies, Inc.Cliff Pietrafitta, 919-526-1403Chief
Financial Officer
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