Xerium Technologies, Inc. (NYSE:XRM) a leading global provider of industrial consumable products and services, confirmed today that final results for the first quarter of 2013 match the previously issued preliminary results for the quarter.
Adjusted EBITDA in the first quarter of 2013 was $29.1 million, bringing last twelve months EBITDA up to $99.6 million, or 18.3% of net sales. The quarterly EBITDA performance was an increase of 41% from $20.6 million in the fourth quarter of 2012 and an increase of 55% versus the first quarter of 2012. The sequential increase reflects a better than expected sales mix in the first quarter compared to a worse than average mix in the fourth quarter of 2012. The company's gross margin performance over the past twelve months is consistent with its goal of a 37% gross margin baseline, and its cost reduction initiatives are on track. See "Non-GAAP Financial Measures" below.
Net sales for the quarter were $139.8 million. The industries served by Xerium remain stable globally overall, according to external forecasts. Net sales and margins in the first quarter were higher than last year's averages due to normal fluctuations in the timing of sales and product mix. The company remains optimistic that external market forecasts are realistic and that its sales performance will continue to be similar. Backlog, defined as orders to be shipped within twelve months, at the end of the first quarter remained solid at $166 million.
Net debt at the end of the quarter was $400.9 million and last twelve months EBITDA was $99.6 million creating net leverage of 4.0x. The company is currently underway with a refinancing of a portion of its debt.
Harold Bevis, Xerium's President and Chief Executive Officer stated, "We are pleased with the company's first quarter 2013 results. Our sales performance has been fairly consistent for the last year with normal quarter to quarter sales mix variations. If you look at sales over a few quarters, the business has been pretty steady. We have some regional contractions and/or expansions due primarily to paper and containerboard segment shifts. We are underway with some fundamental repositioning activities and they are on track. Our actions in the quarter were on pace to achieve the previously announced plan to lower costs $12 million, net, in 2013. With regards to a potential refinancing of a portion of our debt, we remain optimistic that we will complete this refinancing in May, and will issue a press release at that time describing the terms of the refinancing."
FIRST QUARTER FINANCIAL HIGHLIGHTS
- Net sales in the first quarter were $139.8 million, an increase of 4.0% compared to $134.4 million in the first quarter of 2012. Excluding unfavorable currency effects of $1.0 million, first quarter 2013 net sales increased 4.8% from the first quarter of 2012, with an increase of 2.4% in the clothing segment and an increase of 9.5% in the roll covers segment largely as the result of increased sales in North America and Europe. Net sales in the first quarter of 2013 increased 4.5% compared to $133.8 million in the fourth quarter of 2012. Excluding favorable currency effects of $0.2 million, net sales increased 4.3%, with an increase of 1.7% in the clothing segment and an increase of 9.5% in the roll covers segment due to improved sales in Asia, North America and Europe. See “Segment Information” and “Non-GAAP Financial Measures” below for further discussion.
- Gross profit in the first quarter of 2013 was $54.5 million an increase of $8.1 million or 17.5% from $46.4 million in the first quarter of 2012. Compared to the fourth quarter of 2012 gross profit increased $7.5 million or 16.0% from $47.0 million. Improvements in both periods were primarily due to the increase in sales volume, reductions in cost of goods sold resulting from our previously announced cost cutting initiatives and increased sales of product lines with higher gross profit.
- The Company's operating expenses (selling, general and administrative and research and development expenses) of $35.8 million for the first quarter of 2013 decreased by $4.5 million, or 11.2%, from operating expenses of $40.3 million in the first quarter of 2012. This decrease is largely comprised of our cost reduction activities of $2.1 million, a decrease of $0.8 million due to charges recorded in 2012 related to CEO transition costs, a gain of $0.7 million related to insurance recovery from a plant fire and favorable currency effects of $0.6 million.
- Restructuring expenses were $1.3 million in the first quarter of 2013. These included charges relating to previously announced headcount reductions, the closure of a roll covering facility in France and the closure of a clothing facility in Argentina.
- Interest expense was $9.2 million for the first quarter of 2013 compared to $9.6 million for the first quarter of 2012, as the decline in debt balances was partially offset by higher interest rates in the first quarter of 2013 due to the credit facility amendment executed in June 2012. In addition, cash interest expense, or interest expense less amortization of deferred financing costs, was $8.5 million for the first quarter of 2013 and 2012.
- Income tax provision increased to $2.5 million in the first quarter of 2013 from a $0.7 million provision in the first quarter of 2012. The increase in income tax expense reflects the improvement in our pretax results in the first quarter of 2013. Our overall effective tax rate for the first quarter was 31.3% and reflects the fact that we have losses in certain jurisdiction were we receive no tax benefit.
- Net income for the first quarter of 2013 was $5.5 million or $0.36 per diluted share, compared to net loss of $(7.5) million or $(0.50) per diluted share for the first quarter of 2012.
- Adjusted EBITDA (as defined by the Company’s credit facility) of $29.1 million increased $8.5 million or 41.3% in the first quarter from $20.6 million in the fourth quarter of 2012, and increased $10.3 million or 54.8% from $18.8 million in the first quarter of 2012. See "Non-GAAP Financial Measures" below.
- Cash at March 31, 2013 was $40.8 million, compared to $34.8 million at December 31, 2012. The increase of $6.0 million in the cash balances was primarily due to cash provided by operating activities of $10.3 million and proceeds from the disposition of machinery of $0.3 million, partially offset by capital expenditures of $3.7 million, $0.6 million in repayments of debt and unfavorable currency effects of $0.3 million. Included as a reduction to cash provided by operating activities was $4.7 million in cash payments for restructuring activities.
- Trade working capital at March 31, 2013 was $138.7 million compared to $131.1 million at December 31, 2012. This increase was the result of the increased sales volume impact on accounts receivables, a decrease in accounts payable partially offset by decreased inventories. See “Trade Working Capital Information” and “Non-GAAP Financial Measures” below for further discussion.
- Total Debt at March 31, 2013 was $441.7 million compared to $445.0 million at December 31, 2012. The decrease of $3.3 million is primarily due to favorable currency effects and a paydown of approximately $0.6 million in the first quarter of 2013.
- Capital expenditures for the quarter ended March 31, 2013 were $3.7 million and $3.3 million for the same period in 2012. We are currently targeting total capital expenditures for 2013 at approximately $34.0 million.
The following table presents net sales for the first quarter of 2013 and the first quarter of 2012 by segment and the effect of currency on first quarter 2012 net sales (dollars in thousands):
|Net Sales For The|
|Three Months Ended|
|March 31, 2013|
Effect of $
The following table presents net sales for the first quarter of 2013 and the fourth quarter of 2012 by segment and the effect of currency on fourth quarter 2012 net sales (dollars in thousands):
|Net Sales For The|
|Three Months Ended|
|March 31, 2013|
Effect of $
TRADE WORKING CAPITAL
The following table presents trade working capital as of March 31, 2013 and December 31, 2012 (in thousands):
|March 31, 2013|
|Trade Receivables, Net (1)||$||91,388||$||83,567||$||(7,821||)|
|Trade Accounts Payable (2)||(27,961||)||(29,908||)||(1,947||)|
(1) Trade Receivables, Net equals Accounts Receivable less Other Receivables of $972 and $889 for 2013 and 2012, respectively.
(2) Trade Accounts Payables equals Accounts Payable less Deposits Received of $5,230 and $3,810 for 2013 and 2012, respectively and Other Payables of $2,229 and $3,166 for 2013 and 2012, respectively.
The Company plans to hold a conference call on the following morning:
|Date: Wednesday, May 8, 2013|
|Start Time: 9:00 a.m. Eastern Time|
|Domestic Dial-In: +1-866-953-6856|
|International Dial-In: +1-617-399-3480|
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.
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 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. The Company’s credit facility includes covenants based upon Adjusted EBITDA. If Adjusted EBITDA declines below certain levels, the Company could go into default under its credit facility or be required to prepay the credit facility. 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” and "Trade Working Capital" 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 documents to be filed with the Securities and Exchange Commission.
About Xerium Technologies
Xerium Technologies, Inc. (NYSE:XRM) is a leading global manufacturer of specially engineered fabrics, belts and roll cover technology used in the production of paper, paperboard, building products, non-wovens, and specific industrial processes. The Company, 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 28 manufacturing facilities in 13 countries around the world, Xerium has approximately 3,200 employees.
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 backlog and plans to refinance our outstanding term loan debt. 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) our backlog of sales may not be fully realized; (2) we may not complete a refinancing at all or on terms that are as favorable as we expect; (3) our cost reduction efforts, including our restructuring activities, may not have the positive impacts we anticipate; (4) our financial results could be adversely affected by fluctuations in interest rates and currency exchange rates, for instance a marked decline in the value of the Euro relative to the U.S. Dollar; (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; (8) our plans to develop and market new products, enhance operational efficiencies, and reduce costs may not be successful; and (9) the other risks and uncertainties discussed elsewhere in this press release, our Form 10-K for the year ended December 31, 2012 filed on March 11, 2013 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 Income (Loss)
(dollars in thousands, except per share data)
|Three Months Ended|
|Costs and expenses:|
|Cost of products sold||85,298||87,921|
|General and administrative||14,634||17,825|
|Research and development||2,654||2,962|
|Income from operations||17,443||2,194|
|Interest expense, net||(9,206||)||(9,598||)|
|Foreign exchange (loss) gain||(249||)||539|
|Income (loss) before provision for income taxes||7,988||(6,865||)|
|Provision for income taxes||(2,503||)||(657||)|
|Net income (loss)||$||5,485||$||(7,522||)|
|Comprehensive income (loss)||$||2,727||$||(3,478||)|
|Net income (loss) per share:|
|Shares used in computing net (loss) income per share:|
Consolidated Selected Financial Data
|Cash Flow Data: (in thousands)||Three Months Ended|
|Net cash provided by operating activities||$||10,283||$||10,152|
|Net cash used in investing activities||$||(3,396||)||$||(2,548||)|
|Net cash used in financing activities||$||(603||)||$||(13,240||)|
|Other Financial Data: (in thousands)|
|Depreciation and amortization||$||9,542||$||10,340|
|Capital expenditures, gross||$||(3,713||)||$||(3,251||)|
|Balance Sheet Data: (in thousands)||March 31, 2013||December 31, 2012|
|Cash and cash equivalents||$||40,763||$||34,777|
|Total stockholders’ deficit||(26,038||)||(29,061||)|
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. The credit facility includes covenants based on Adjusted EBITDA. If our Adjusted EBITDA declines below certain levels, we may violate the covenants resulting in a default condition under the credit facility or be required to prepay the credit facility. 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”, under our credit facility 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, subject to annual limitations provided for in our credit facility, (vi) noncash charges or gains 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 gains resulting from the returned surplus assets of any pension plan.
The following table provides reconciliation from net (loss) income and operating cash flows, which are the most directly comparable GAAP financial measures, to EBITDA and Adjusted EBITDA.
|Three Months Ended|
|Net income (loss)||$||5,485||$||(7,522||)||$||(9,082||)||$||(5,028||)|
|Amortization of intangibles||576||576||576||2,305|
|Deferred financing cost amortization||709||1,054||717||3,079|
|Foreign exchange (gain) loss on revaluation of debt||(118||)||8||413||456|
|Gain on disposition of property and equipment||(10||)||(446||)||81||(140||)|
|(Gain) loss on extinguishment of debt||—||—||(243||)||(243||)|
|Net change in operating assets and liabilities||(6,830||)||5,928||12,050||3,200|
|Net cash provided by operating activities||10,283||10,152||9,117||39,453|
|Interest expense, excluding amortization||8,497||8,544||8,667||34,408|
|Net change in operating assets and liabilities||6,830||(5,928||)||(12,050||)||(3,200||)|
|Current portion of income tax expense||2,221||839||1,199||6,069|
|Unrealized foreign exchange gain (loss) on revaluation of debt||118||(8||)||(413||)||(456||)|
|Gain on disposition of property and equipment||10||446||(81||)||140|
|(Gain) loss on extinguishment of debt||—||—||243||243|
|(Gain) loss on extinguishment of debt||—||—||(243||)||(243||)|
|Operational restructuring expenses||1,255||3,974||14,765||22,989|
|Expenses incurred in connection with indebtedness or refinancing transaction||—||—||—||115|
|Non-restructuring impairment expense||857||—||1,195||2,052|
|Non-recurring CEO retirement expenses||—||801||289||2,584|
Phillip B. Kennedy, Investor Relations