Item 2.02. Results of Operations and Financial Condition.
On May 12, 2020, SPX FLOW, Inc. (the “Company”) issued the press release attached as Exhibit 99.1 hereto and incorporated herein by reference.
The press release incorporated by reference into this Item 2.02 contains disclosure regarding organic revenue decline, defined as net revenue decline excluding the effects of foreign currency fluctuations. Such amounts, for purposes of this reconciliation, include revenues from continuing operations only. The Company’s management believes that this metric is a useful financial measure for investors in evaluating its operating performance because excluding the effects of currency fluctuations, when read in conjunction with the Company’s revenues, presents a useful tool to evaluate the Company’s ongoing operations and provides investors with a tool they can use to evaluate the Company’s management of assets held from period to period. In addition, organic revenue growth (decline) is one of the factors the Company’s management uses in internal evaluations of the overall performance of its business.
The press release also contains disclosure regarding (i) net debt, defined as total debt net of cash and cash equivalents, and (ii) adjusted net debt, defined as net debt less debt outstanding under a purchase card program. Such amounts, for purposes of these reconciliations, include balances related to both continuing and discontinued operations. The Company views these measures, when read in conjunction with their comparable GAAP amount, as giving investors useful tools to assess the financial health and leverage of the Company. Additionally, the Company’s management uses these metrics as a measure of the Company’s leverage and net leverage (with net leverage defined by the Company’s credit facility).
The press release also contains disclosure regarding free cash flow from (used in) operations, defined as net cash from (used in) operations reduced by cash paid for capital expenditures. Such amounts, for purposes of this reconciliation, relate to both continuing and discontinued operations. The Company’s management believes that free cash flow from (used in) operations is a useful financial measure for investors in evaluating the cash flow performance of multi-industrial companies, since the measure provides insight into the cash flow available to fund such things as equity repurchases, dividends, mandatory and discretionary debt reduction and acquisitions or other strategic investments. In addition, although the use of free cash flow from (used in) operations is limited by the fact that the measure can exclude certain cash items within management’s discretion, free cash flow from (used in) operations is a factor used by the Company’s management in internal evaluations of the overall performance of its business.
In the three months ended March 28, 2020, we recognized the following within results of continuing operations:
(i)asset impairment charges of $1.9 million, which resulted primarily from management’s decision within the first quarter of 2020 to discontinue a product line within the Industrial reportable segment, as described in Note 9 to our condensed consolidated financial statements included in our Form 10-Q as of March 28, 2020 and for the three months then ended,
(ii)certain restructuring and other related charges of $2.6 million, as described substantially in Note 7 to our condensed consolidated financial statements,
(iii)charges and fees of $0.8 million, associated with strategic actions, including the further development of the Company’s enterprise strategy and long-term growth plans, and
(iv)certain discrete income tax charges (benefits), as described further in Note 15 to the condensed consolidated financial statements.
To aid investors who seek comparability period-to-period, the Company, in the press release and related schedules incorporated by reference into this Item 2.02, adjusted certain metrics to exclude the above items, as well as the results of discontinued operations for certain of the adjusted metrics. These metrics include disclosure of:
(i)adjusted operating income, which is defined as operating income from continuing operations only, and excluding (i) asset impairment charges, (ii) certain restructuring and other related charges, and (iii) charges and fees associated with strategic actions, each as described above and each of which is presented on a continuing operations basis only, for purposes of this adjusted operating income reconciliation;
(ii)EBITDA, determined including the results of continuing and discontinued operations, which is defined as net income (loss) attributable to SPX FLOW, Inc. and excluding income tax provision (benefit), net interest expense, and depreciation and amortization, each of which includes the results of both continuing and discontinued operations, for purposes of this EBITDA reconciliation;
(iii)adjusted EBITDA from continuing operations, which is defined as EBITDA, calculated including the results of continuing operations only, and excluding (i) asset impairment charges, (ii) certain restructuring and other related charges, (iii) charges and fees associated with strategic actions and (iv) fair value adjustments related to an equity investment (applicable only in the 2019 period), with each of the items recognized during the first quarter of 2020 as described above and each of which is presented on a continuing operations basis only, for purposes of this adjusted EBITDA reconciliation;
(iv)adjusted diluted earnings (loss) per share (“EPS”) from continuing operations, which is defined as diluted EPS from continuing operations attributable to SPX FLOW, Inc., and excluding the dilutive EPS effects of each of the items excluded from EBITDA noted in item (iii) above, on a net of tax basis, and also excluding the dilutive EPS effects of other tax charges (benefits), each as described above.
The Company views each of the above measures, when read in conjunction with its comparable GAAP number or amount, as giving investors a useful tool to assess the health and prospects of the Company. Additionally, the Company’s management uses each of these adjusted metrics as a measure of the Company’s performance.
None of the non-GAAP measures described above is a measure of financial performance under accounting principles generally accepted in the United States (“GAAP”), and such measures should not be considered a substitute for, and should be used in combination with, the GAAP number or amount from which each is reconciled. Non-GAAP measures used by the Company may not be comparable to similarly titled measures reported by other companies.
Refer to the tables included in the press release for the components of each of the Company’s non-GAAP numbers or amounts referred to above, and for the reconciliations of these numbers or amounts from their respective most comparable GAAP measures.
The information in this Report is being furnished and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information in this Report shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.
Item 9.01. Financial Statements and Exhibits.
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Exhibit
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Number
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Description
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Press Release dated May 12, 2020, furnished solely pursuant to Item 2.02 of Form 8-K.
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104
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Cover Page Interactive Data File (embedded in the cover page formatted in Inline XBRL)
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