Xerium Full Year 2015 Outlook Improves to
$120-$122 Million of Adjusted EBITDA
Q1 2015 Highlights:
- Adjusted EBITDA increased to $26.2
million
- Backlog increased sequentially by
4%
- SG&A declined year over year by
8%
- Adjusted EBITDA guidance improved to
a range of $120-$122 million
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.
CEO Comments
"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."
2015 Outlook
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.
CFO Comments
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.
SEGMENT INFORMATION
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 TheQuarter
Ended
3/31/2015 3/31/2014 $ Change
Currency Effectof $
Change
% Change
% ChangeExcluding
Currency
Roll Covers $43,745 $44,413 ($668 ) ($3,973 ) (1.5)% 7.4% Machine
Clothing $77,284 $88,971 ($11,687 )
($7,198 ) (13.1)% (5.0)% Total $121,029
$133,384 ($12,355 ) ($11,171 )
(9.3)% (0.9)%
TRADE WORKING CAPITAL
The following table presents trade working capital as of March
31, 2015 and December 31, 2014 (in thousands):
3/31/2015
12/31/2014 Fav/(Unfav)
Change
Trade receivables, net (1) $76,837 $81,998 $5,161 Inventories, net
75,811 83,550 7,739 Trade accounts payable (2) (30,027 )
(33,962 ) (3,935 ) Total $122,621 $131,586
$8,965
(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 Pre-tax
Amounts
Tax
Amounts
After-tax
Amounts
Effective
Tax Rate
Income before provision for income taxes $5,508 ($3,775 ) $1,733
68.5 %
Restructuring expense and non-recurring
taxreserve adjustment
(2,224 ) (470 ) (2,694 ) (21.1 )%
Income before provision for income
taxesexcluding restructuring and non-recurring taxreserve
adjustment
$7,732 ($3,305 ) $4,427 42.7 %
BASIC ADJUSTED EARNINGS PER SHARE (net
of taxes)
Three Months Ended March 31,
2015 2014 Net income per share $0.11
$0.08 Adjustments: Restructuring 0.10 0.22 Goodwill Amortization —
(0.03 ) 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
CONFERENCE CALL
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
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.
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.
FORWARD-LOOKING
STATEMENTS
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
March 31, 2015 2014 Net
Sales $121,029 $133,384 Costs and expenses: Cost of products sold
72,476 81,218 Selling 16,326 18,178 General and administrative
13,846 14,797 Research and development 1,962 1,946 Restructuring
2,224 4,651 106,834 120,790 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 $1,733 $1,167
Comprehensive loss ($29,398 ) ($758 ) Net income per share: Basic
$0.11 $0.08 Diluted $0.11 $0.07 Shares
used in computing net income per share: Basic 15,560,995
15,391,391 Diluted 16,479,368 16,371,772
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 assets
$561,021 $594,044 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 EndedMarch
31,
Trailing Twelve MonthsEnded
March 31,
2015 2014
2015 2014 Net income
(loss) $1,733 $1,167 ($6,815 ) ($165 )
Stock-based compensation 822 509 2,861 1,950 Depreciation 7,163
8,233 31,682 33,898 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 )
Asset impairment — — 136 426 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 Stock-based compensation (822 ) (509 ) (2,861 ) (1,950 )
Foreign exchange gain (loss) on revaluation of debt 1,973 1,103
1,129 (721 ) Asset impairment — — (136 ) (426 ) (Loss) gain on
disposition of property and equipment (14 ) (27 ) 1,049 (239 ) Loss
on extinguishment of debt — — —
(3,123 )
EBITDA 22,414 20,365 95,807 79,229 Loss on
extinguishment of debt — — — 3,123 Stock-based compensation 822 509
2,861 1,950 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
Adjusted EBITDA $26,210 $25,701
$116,478 $103,883
Xerium Technologies, Inc.Cliff Pietrafitta, 919-526-1444Investor
RelationsIR@xerium.com
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