YOUNGSVILLE, N.C.--Xerium Technologies Inc. (NYSE:XRM) reported a Q4 2015 net loss of $(6.3) million (which included $(5.1) million in non-recurring charges), compared to Q4 2014 net income of $11.2 million (which included $4.5 million in non-recurring income).
View the full release here: www.xerium.com/investor-relations
Net sales for Q4 2015 decreased by (5.4)% compared to Q4 2014, on a constant currency basis. Key negative market dynamics were higher-than-expected declines in the graphical markets in North America, a weak Brazilian economy and oversupply of machine clothing in Europe. Table 1 summarizes Q4 net sales and the effect of currency translation rates.
Net Sales For The
Q4 2015 gross profit was $44.2 million, or 38.4% of net sales, compared to $52.8 million, or 40.3% of net sales in Q4 2014. Machine clothing gross margin, excluding startup costs and inventory write-offs at closed plants declined to 42.1% in Q4 2015 from 43.0% in Q4 2014. The decline in gross profit margin primarily is due to unfavorable fixed cost absorption and sales mix, partially offset by cost reduction initiatives, net of inflation and favorable currency effects. Rolls and service gross margin, excluding startup costs and inventory write-offs at closed plants, declined to 35.3% in Q4 2015, from a gross margin of 36.9% in Q4 2014. The decline was primarily due to unfavorable currency effects, partially offset by cost reduction initiatives, net of inflation and favorable sales mix.
SG&A expenses (including Selling, G&A and R&D expenses) were $33.5 million, or 29.0% of net sales, in Q4 2015, versus Q4 2014 SG&A expenses of $32.8 million, or 25.1% of net sales. The increase in SG&A expenses is primarily due a lump-sum distribution we offered in Q4 2015 to certain US pension participants, as part of the Company’s plan to reduce future pension costs, increased employee benefit expenses, and increased legal expenses related to the delay of a debt refinancing effort, partially offset by favorable currency effects, cost out initiatives and decreased sales commissions.
Q4 2015 basic loss per share was $(0.40) per share versus Q4 2014 basic income per share of $0.72. Excluding adjustments (see Table 5) losses per share were $(0.09) in Q4 2015, compared to $0.43 in Q4 2014 as a result of lower sales volumes and gross margins and increased SG&A, partially offset by favorable currency effects.
Q4 2015 Adjusted EBITDA declined 28% to $21.3 million, or 18.4% of net sales, compared to Q4 2014 Adjusted EBITDA of $29.4 million, or 22.4% of net sales, due primarily to the decline in the graphical markets in North America, a weak Brazilian economy, and declines in gross margin, largely as a result of start-up costs, inventory write-offs at closed plants and unfavorable absorption and sales mix, partially offset by favorable currency (see Table 6).
EVP and Chief Financial Officer, Cliff Pietrafitta said "We finished the majority of the capital- intensive elements of our repositioning program in 2015. We spent approximately $64 million of cash on capital expenditures and restructuring costs in 2015. In 2016, we will generate $15 to $20 million of free cash flow that we will use to pay down debt. Free cash flow generation is expected to begin in Q1 of 2016. At year-end 2015, we had total liquidity of $42 million. Full year 2015 free cash flow (defined as cash flow from operations less capital expenditures, net of proceeds on sales of assets) improved to $(16.4) million from $(34.9) million in 2014, primarily as a result of the Brazil tax settlement that occurred in 2014.
Net debt (which is defined as total debt less cash) was essentially unchanged at $480.6 million at the end of Q4 2015 versus $478.7 million at the end of Q3 2015. Our net debt leverage ratio was 4.6x at year-end 2015 (see below table).
|Current maturities of long term debt||5,410||10,887||4,406|
|Capitalized lease liability||8,737||5,067||3,945|
|Total debt and capitalized lease liability||490,466||489,383||469,435|
|Net Debt Leverage||4.6X||4.3X||4.0X|
Our effective income tax rate was 148.2% for the full year 2015 compared to 132.5% for 2014. Excluding the effects of settling a tax assessment in Brazil in 2014, restructuring costs, and valuation allowance releases, our effective tax rate was 76.0% for the full year 2015 compared to 39.2% for 2014. This rate is primarily impacted by income the company earns in tax paying jurisdictions relative to income it earns in non-taxpaying jurisdictions, primarily the United States (see table below)."
|For the year ended December 31, 2015|
|Non-recurring tax adjustments||(14,649||)||4,573||(10,076||)||31.2||%|
|Income (loss) before provision for income taxes excluding non-recurring tax adjustments||$||23,734||$||(18,038||)||$||5,696||76.0||%|
CEO and President, Harold Bevis said “The second half of 2015 was a cross-over point for Xerium as it headed into 2016. The permanent closure of graphical grade paper machine capacity was in full effect, and the company’s results were negatively impacted. But this is temporary, and is confirmation of the need to permanently reposition the company away from exposure to these issues. Xerium was successfully bringing on-line its transformational and offsetting repositioning programs in 2015.
- In Q4, we commissioned two new rolls plant expansions to better serve the North American tissue and containerboard market by expanding mechanical service offerings for suction box repair and associated mechanical services.
- In Q4, we opened a new high-tech press felt plant in China with state-of-the art tissue and containerboard designs for Asian machines. The plant is operating at planned levels in Q1 2016 as a result of successful advance trials and customer approvals throughout Asia. Approximately half of this production is for China with the remaining half supporting the rest of Asia.
- In Q4, we opened a new rolls plant in Turkey to serve emerging Europe containerboard and tissue makers. The plant opened up with business volume equivalent to the 2nd year of its business plan as a result of successful advance trials and customer approvals throughout the region.
- In Q4, we opened a new machine clothing operation in Canada and introduced a new dryer fabric design for North America containerboard machines. The operation is currently producing at capacity in Q1 2016 as a result of successful advance trials and customer approvals.
The graphical grade segment of the world market will continue to decline, and we are underway with a repositioning plan that we expect will more than offset the negative impact to the company. To this end, we are proceeding in 2016 with five additional repositioning projects, three of which will be launched in 2016, with the remainder launching in 2017. We already have the majority of the equipment on hand, from previous plant closures. These include:
- A new forming fabric operation in China to serve tissue and containerboard customers in Asia. This will be the first time that Xerium has had market competitive lead-times and cost structures for its forming fabrics in Asia.
- An expansion of the Neenah, WI rolls and mechanical services plant.
- An expansion of nonwoven capacity at the Piracicaba, Brazil plant
- A new rolls plant in a large pulp, tissue and containerboard market in Latin America.
- A new rolls plant in Southeast Asia to serve tissue and containerboard producers in the region.
The 2016 and go-forward capex requirements are materially smaller. We need to re-install the equipment in new plants, and re-purpose them with our new market-winning designs, but the cash investments will be materially less. Xerium will be cash-generative going forward, beginning in Q1 2016. The repositioning plan is not designed to catch-up to competition, but instead to beat and exceed them. The early results from our second half 2015 projects that came on-line are meeting expectations."
- Xerium enters 2016 with material completion of its repositioning investments and has already gained over 1,000 new positions through successful pre-trials. The company is underway with the same program again in 2016 and has a plan to win over 1,000 new positions in 2016 through the success of its new product designs.
- Even though Adjusted EBITDA was less than expected in 2015, we believe the business will generate EBITDA of $105 to $115 million annually, over the next 3 years, depending on the currency environment.
- Sales - For rolls sales specifically, we anticipate positive revenue growth despite the contracting segments of the market. For machine clothing sales specifically, we anticipate the strong market declines to continue to impact Xerium but become less severe as the company brings on board new wins from its new plant investments, new products and new customers.
- Free Cash Flow - We believe Xerium will generate ~$15 to $30 million annually, over the next 3 years, depending on the currency environment. Free Cash Flow will further accelerate as the company completes its repositioning projects.
Our future performance will be negatively impacted from time-to-time by the specific timing of the decline in graphical grade paper production. However, coupling the base business with the company’s repositioning program, we foresee rising EBITDA and free cash flow from today’s levels.
The Company plans to hold a conference call on the following morning:
|Date: March 15, 2016|
|Start Time: 9:00 a.m. Eastern Time|
|Domestic Dial-In: +1-844-818-4921|
|International Dial-In: +1-484-880-4582|
|Conference ID: 28250516|
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/investor-relations. Click on the webcast link appearing above our conference call details, then click on the link appearing below "Webcast Presentation" on the following page.
ABOUT XERIUM TECHNOLOGIES, INC.
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 27 manufacturing facilities in 13 countries around the world, Xerium has approximately 3,000 employees.
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 Adjusted EPS, 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 the applicable table 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 Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission on March 14, 2016 and our presentation that will accompany our conference call tomorrow.
CONSTANT CURRENCY NET SALES
Table 4 summarizes YTD net sales and the effect of changes in currency translation rates:
|Net Sales For The Year Ended|
Effect of $
BASIC ADJUSTED EARNINGS PER SHARE (net of taxes)
Table 5 represents a reconciliation of basic net (loss) earnings per share to basic adjusted (loss) earnings per share for the three months ended December 31, 2015 and 2014:
|Three Months Ended|
|Basic net (loss) income per share||$||(0.40||)||$||0.72|
|Pension settlement loss||0.07||—|
|Non-recurring tax reserve adjustment||(0.04||)||—|
|Valuation allowance reversal||0.05||(0.43||)|
|Plant start-up costs||0.05||0.04|
|Impairment of idle machinery and equipment||0.02||—|
|Inventory write-down at a closed plant||0.01||—|
|Loss on debt extinguishment||0.02||—|
|Basic adjusted (loss) earnings per share||$||(0.09||)||$||0.43|
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 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. Table 6 provides a reconciliation from net income and operating cash flows, which are the most directly comparable GAAP financial measures, to EBITDA and Adjusted EBITDA.
|Q4 2015||Q4 2014||YTD 2015||YTD 2014|
|Net (loss) income||$||(6,325||)||$||11,160||$||(4,380||)||$||(7,382||)|
|Amortization of intangibles||70||310||298||1,540|
|Pension settlement losses||1,108||—||1,108||—|
|Deferred financing cost amortization||821||895||3,462||3,303|
|Unrealized foreign exchange (gain) loss on revaluation of debt||(1,311||)||82||(3,426||)||(259||)|
|Gain on disposition of property and equipment||(1,298||)||(1,031||)||(1,383||)||(1,036||)|
|Loss on extinguishment of debt||388||—||388||—|
|Net change in operating assets and liabilities||5,545||(7,824||)||4,091||(19,853||)|
|Net cash provided by operating activities||6,308||5,576||31,163||6,892|
|Interest expense, excluding amortization||9,448||8,887||34,951||33,465|
|Net change in operating assets and liabilities||(5,545||)||7,824||(4,091||)||19,853|
|Current portion of income tax expense||5,466||3,008||16,246||34,937|
|Pension settlement losses||(1,108||)||—||(1,108||)||—|
|Loss on extinguishment of debt||(388||)||—||(388||)||—|
|Unrealized foreign exchange (gain) loss on revaluation of debt||1,311||(82||)||3,426||259|
|Gain on disposition of property and equipment||1,298||1,031||1,383||1,036|
|Operational restructuring expenses||1,916||2,430||14,649||18,142|
|Loss on extinguishment of debt||388||—||388||—|
|Pension settlement losses||1,108||—||1,108||—|
|Non-restructuring impairment expense||345||—||494||—|
|Plant startup costs||776||446||3,886||1,521|
|Inventory write-off of closed facilities||121||—||587||—|
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) we are subject to execution risk related to the startup of our new facilities in China and Turkey and expansion projects elsewhere; (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, 2015 filed on March 14, 2016 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.
|Xerium Technologies, Inc.|
|Consolidated Statements of Operations and Comprehensive Loss|
|(Dollars in thousands, except per share data)|
|Three Months Ended||Year Ended|
|December 31,||December 31,|
|Costs and expenses:|
|Cost of products sold||71,099||78,207||288,512||327,161|
|General and administrative||15,987||13,202||56,250||56,539|
|Research and development||1,709||2,004||7,404||7,903|
|Income from operations||8,866||17,483||46,014||60,185|
|Interest expense, net||(10,269||)||(9,782||)||(38,413||)||(36,768||)|
|Loss on debt extinguishment||(388||)||—||(388||)||—|
|Foreign exchange (loss) gain||(278||)||98||1,872||(719||)|
|(Loss) income before provision for income taxes||(2,069||)||7,799||9,085||22,698|
|(Provision) benefit for income taxes||(4,256||)||3,360||(13,465||)||(30,080||)|
|Net (loss) income||$||(6,325||)||$||11,159||$||(4,380||)||$||(7,382||)|
|Net (loss) income per share:|
|Shares used in computing net (loss) income per share:|
|Consolidated Selected Financial Data|
|Cash Flow Data: (in thousands)||Year Ended|
|December 31, 2015||December 31, 2014|
|Net cash provided by operating activities||$||31,163||$||6,892|
|Net cash used in investing activities||$||(47,605||)||$||(41,788||)|
|Net cash provided by financing activities||$||16,574||$||20,693|
|Other Financial Data: (in thousands)|
|Depreciation and amortization||$||29,250||$||34,292|
|Capital expenditures, gross||$||(50,871||)||$||(45,218||)|
|Balance Sheet Data: (in thousands)||December 31, 2015||December 31, 2014|
|Cash and cash equivalents||$||9,839||$||9,517|
|Total debt (including capital leases)||$||490,466||$||469,435|
|Total stockholders' deficit||$||(113,070||)||$||(74,110||)|