Xerium Technologies, Inc. (NYSE: XRM) a leading global provider of industrial consumable products and services, today announced its Q2 2013 results.
Key 2013 Highlights:
- Q2 sales were $138 million, up 1.8% versus prior year (Q2 2012) on a constant currency basis
- Our roll repair and mechanical services business unit grew 5% year to date, with higher growth than industry rates, indicating a secular shift to outsource these services
- We kicked off 10 new product development programs in 2013, aimed at generating incremental future sales growth above current rates
- We received 16 new patents year to date, with more expected for Q3
- We began implementing a 350 ton press felt expansion in multiple countries aimed at generating incremental future sales growth above current rates
- We began implementing an expansion of roll repair and mechanical services capacity at several rolls service centers aimed at generating incremental future sales growth above current rates
- The transformation of our operational structure has continued with the previously announced closure of 4 manufacturing facilities and the expansion of 6 manufacturing facilities. Redeployment of assets is underway
- Sales per employee in the first half of 2013 are at a four year high of $173K per employee
- Order backlog at June 30, 2013 remained solid at $161 million
- In Q2, we refinanced a portion of our debt structure, increased our liquidity, lengthened our debt maturities and eliminated maintenance covenants while leaving our European assets unencumbered
- In Q2, we incorporated a $75 million debt expansion provision into our new debt structure that can be used for bolt-on acquisitions and/or accelerated restructuring
- Q2 Adjusted EBITDA was $26.9 million, up 5.9% versus prior year
- Last twelve months (LTM) Adjusted EBITDA was $101.1 million, up 6% over the same period last year, and is expected to increase in the second half of 2013. Net debt is $407.8 million and leverage is 4.0x
- 2013 year to date Adjusted EBITDA is $56.0 million, an increase of 27% over prior year and ahead of internal plans. On a constant currency basis, we expect the second half to be similar to the first half
- Xerium's stock has been added to 3 Russell equity indexes and options on Xerium's stock have become available on 4 exchanges
Harold Bevis, Xerium's President and Chief Executive Officer said, “Q2 2013 was another good quarter for both of the businesses - our synthetic textiles business and our service and repair business. The paper industry is our primary end-market and industry growth is a couple of percent, according to published sources. Our service and repair business continues to grow a little higher than this, indicating a shift by our customers to perform services externally versus internally."
“A large portion of our higher-growing areas are capacity limited and we are working to resolve these bottlenecks. In almost all cases, there are long lead times involved. But we are setting the stage for higher growth and lower costs pointed at higher growing market opportunities. These are long-term moves for the company. Additionally, we are expanding and increasing our sales growth initiatives, especially outside core legacy markets."
“I have been at Xerium for less than a year. However, I have visited and assessed almost all of our plants and have met with all of our sales force and technical teams. Our goal is to think ahead and implement a lower-cost, higher-growth business platform. We have closed four plants so far and have a few more to go. At the same time, we are adding technical staff, new product development programs and high-end factory workers to advance our product service offerings. We are transforming our company both operationally and commercially. Yet, we are moving at a measured pace in order to ensure our expected quality levels. We are also expanding plants in other areas, especially Asia and our services product offerings. Xerium's skilled mechanics and machinists are the differentiator in superior quality and customer value. We have a very strong team and deep technology in what we do. The second half of the year looks solid from external forecasts and we see the same in the fundamentals of our business.”
Second Quarter Financial Highlights:
- Net sales in the second quarter were $138.3 million, an increase of 1.4% compared to $136.4 million in the second quarter of 2012. Excluding unfavorable currency effects of $0.5 million, second quarter 2013 net sales increased 1.8% from the second quarter of 2012, with an increase of 2.3% in the clothing segment and an increase of 0.8% in the roll covers segment. Net sales for the six months ended June 30, 2013 were $278.1 million, an increase of 2.7% from $270.7 million in 2012. Excluding unfavorable currency effects of $1.5 million, net sales for the six months ended June 30, 2013 increased 3.3% from 2012, with an increase of 2.4% in the clothing segment and an increase of 5.0% in the roll covers segment. See “Segment Information” and “Non-GAAP Financial Measures” below for further discussion.
- Gross profit increased $1.7 million, or 3.3%, and gross margin, as a percentage of sales, improved to 38.1% in the second quarter of 2013 from 37.4% in the second quarter of 2012. These improved results were largely due to reduced operating costs as a result of restructuring savings and operational efficiencies. For the six months ended June 30, 2013, gross profit increased by 10.0% and gross margin, as a percentage of sales, increased to 38.5% from 36.0% for the six months ended June 30, 2012. These increases were driven by higher sales volume, incremental savings from cost reduction programs and favorable product mix.
- The Company's operating expenses (selling, general and administrative and research and development expenses) of $35.7 million for the second quarter of 2013 decreased by $0.3 million, or 0.8%, from operating expenses of $36.0 million in the second quarter of 2012. This decrease is comprised of our cost reduction activities of $2.4 million, a decrease of $0.9 million due to charges recorded in 2012 related to CEO transition costs, a decrease of $0.4 million in other general and administrative costs and favorable currency effects of $0.4 million. Offsetting these decreases was an increase of $2.8 million in management incentive expense in 2013 and the reversal of $1.0 million accrual in 2012 related to a contingent liability that was favorably resolved.
- Restructuring expenses were $4.2 million in the second quarter of 2013. These included charges relating to previously announced headcount reductions, the closure of clothing facilities in Spain and Argentina and the closure of a rolls facility in Charlotte, NC.
Interest expense was $13.1 million for the second quarter of 2013
compared to $9.1 million for the second quarter of 2012. The increase
was primarily due to $3.7 million in financing fees paid in connection
with our May 2013 refinancing that were charged to interest expense.
In addition the Company also recorded $3.1 million of loss on early
extinguishment of debt related to the write off of deferred financing
costs related to our prior senior debt.
Cash interest expense, or interest expense less amortization of deferred financing costs and refinancing fees, was $8.6 million for the second quarter of 2013 and $8.4 million for the second quarter of 2012. In addition, during the second quarter of 2013, we paid $7.4 million cash for fees related to the May 2013 refinancing of a portion of our debt. $3.7 million was charged to interest expense and $3.7 million was capitalized and included in deferred financing and long-term debt on the balance sheet.
- Income tax provision increased to $3.5 million in the second quarter of 2013 from a $2.4 million provision in the second quarter of 2012. Excluding the restructuring and debt refinancing expenses, our effective tax rate for the second quarter of 2013 was 32.0%. This overall effective tax rate reflects the fact that we have losses in certain jurisdictions where we receive no tax benefit.
- Net loss for the second quarter of 2013 was $(6.9) million or $(0.45) per diluted share, compared to net income of $2.2 million or $0.15 per diluted share for the second quarter of 2012. Refinancing fees, the loss on early extinguishment of debt and restructuring costs, were partially offset by increased net sales and our cost reduction initiatives during the second quarter of 2013.
Adjusted EBITDA of $26.9 million increased $1.5 million or 5.9% in the
second quarter of 2013 from $25.4 million in the second quarter of
2012. On a year to date basis, Adjusted EBITDA increased 27% to $56.0
million in 2013 from $44.2 million in 2012. See "Non-GAAP Financial
- Cash at June 30, 2013 was $36.5 million, compared to $34.8 million at December 31, 2012. The increase of $1.7 million in the cash balances was primarily due to cash provided by operating activities of $12.3 million, $0.6 million in net borrowings of debt and proceeds from the disposition of machinery of $0.4 million, partially offset by capital expenditures of $8.5 million, $2.8 million in payment of deferred financing fees and unfavorable currency effects of $0.3 million. Included as a reduction to cash provided by operating activities was $10.1 million in cash payments for restructuring activities.
- Trade Working Capital (TWC) increased to $136.1 million at June 30, 2013 from $131.1 million at December 31, 2012. This increase was the result of the increased sales volume impact on accounts receivable, and a decrease in accounts payable as a result of increased capital expenditures in accounts payable at December 31, 2012. These increases were partially offset by decreased inventories due to the increased sales volume. See “Trade Working Capital Information” and “Non-GAAP Financial Measures” below for further discussion.
- Total Debt at June 30, 2013 was $443.4 million compared to $445.0 million at December 31, 2012. The decrease of $1.6 million is primarily due to unfavorable currency effects of $2.2 million, partially offset by $0.6 new borrowings as a result of the May 2013 refinancing of our term debt.
- Capital expenditures for the quarter ended June 30, 2013 were $8.5 million and $7.3 million for the same period in 2012. We are currently targeting total capital expenditures for 2013 at approximately $33.0 million.
The following table presents net sales for the second quarter of 2013 and the second quarter of 2012 by segment and the effect of currency on second quarter 2012 net sales (dollars in thousands):
|Net Sales For The|
|Three Months Ended|
|June 30, 2013||June 30, 2012||$ Change|
The following table presents net sales for the six months ended June 30, 2013 and 2012 by segment and the effect of currency on the six months ended June 30, 2012 net sales (dollars in thousands):
|Net Sales For The|
|Six Months Ended|
|June 30, 2013||June 30, 2012||$ Change|
TRADE WORKING CAPITAL
The following table presents trade working capital as of June 30, 2013 and December 31, 2012 (in thousands):
|June 30, 2013||December 31, 2012||$ Fav/(Unfav) Change|
|Trade Receivables, Net (1)||$||88,263||$||83,567||$||(4,696||)|
|Trade Accounts Payable (2)||(27,664||)||(29,908||)||(2,244||)|
(1) Trade Receivables, Net equals Accounts Receivable less Other Receivables of $933 and $889 at June 30, 2013 and December 31, 2012, respectively.
(2) Trade Accounts Payables equals Accounts Payable less Deposits Received of $2,921 and $3,810 at June 30, 2013 and December 31, 2012, respectively and Other Payables of $1,223 and $3,166 at June 30, 2013 and December 31, 2012, respectively.
The Company plans to hold a conference call on the following morning:
|Date:||Friday, August 2, 2013|
|Start Time:||9:00 a.m. Eastern Time|
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. 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 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 28 manufacturing facilities in 12 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 anticipated sales performance, cost savings measures, the impact of our refinancing and backlog. 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 expected sales performance and our backlog of sales may not be fully realized; (2) our cost reduction efforts, including our restructuring activities, may not have the positive impacts we anticipate; (3) 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; (4) market improvement in our industry may occur more slowly than we anticipate, may stall or may not occur at all; (5) variations in demand for our products, including our new products, could negatively affect our revenues and profitability; (6) 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; (7) our plans to develop and market new products, enhance operational efficiencies, and reduce costs may not be successful; and (8) 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.
Xerium Technologies, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(dollars in thousands, except per share data)
|Three Months Ended|
|Six Months Ended|
|Costs and expenses:|
|Cost of products sold||85,674||85,396||170,972||173,317|
|General and administrative||15,506||14,034||30,140||31,860|
|Research and development||2,599||2,869||5,252||5,831|
|Income from operations||12,795||13,880||30,238||16,073|
|Interest expense, net||(13,112||)||(9,120||)||(22,318||)||(18,718||)|
|Loss on extinguishment of debt||(3,123||)||—||(3,123||)||—|
|Foreign exchange gain (loss)||50||(180||)||(198||)||360|
|(Loss) income before provision for income taxes||(3,390||)||4,580||4,599||(2,285||)|
|Provision for income taxes||(3,489||)||(2,354||)||(5,992||)||(3,011||)|
|Net (loss) income||$||(6,879||)||$||2,226||$||(1,393||)||$||(5,296||)|
|Net (loss) income per share:|
|Shares used in computing net (loss) income per share:|
Consolidated Selected Financial Data
|Cash Flow Data: (in thousands)||Six Months Ended|
|Net cash provided by operating activities||$||12,275||$||13,796|
|Net cash used in investing activities||$||(8,103||)||$||(6,349||)|
|Net cash used in financing activities||$||(2,120||)||$||(16,637||)|
|Other Financial Data: (in thousands)|
|Depreciation and amortization||$||18,628||$||20,346|
|Capital expenditures, gross||$||(8,457||)||$||(7,330||)|
|Balance Sheet Data: (in thousands)||June 30, 2013||December 31, 2012|
|Cash and cash equivalents||$||36,514||$||34,777|
|Total stockholders’ deficit||$||(35,099||)||$||(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. 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, subject to annual limitations provided for in our credit facility, (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 (loss) income and operating cash flows, which are the most directly comparable GAAP financial measures, to EBITDA and Adjusted EBITDA.
|Three Months Ended|
|Six Months Ended|
|Net (loss) income||$||(6,879||)||$||2,226||(1,393||)||(5,296||)||(14,132||)|
|Amortization of intangibles||385||576||961||1,153||2,113|
|Deferred financing cost amortization||909||682||1,618||1,736||3,306|
|Foreign exchange loss on revaluation of debt||1,268||373||1,324||381|
|Gain (loss) on disposition of property and equipment||3||(170||)||(7||)||(617||)||34|
|Loss on extinguishment of debt||3,123||—||3,123||—||2,880|
|Net change in operating assets and liabilities||(6,610||)||(9,075||)||(13,439||)||(3,148||)||5,667|
|Net cash provided by operating activities||1,817||3,644||12,275||13,796|
|Interest expense, excluding amortization||12,203||8,438||20,700||16,981||38,174|
|Net change in operating assets and liabilities||6,610||9,075||13,439||3,148||(5,667||)|
|Current portion of income tax expense||3,023||2,533||5,244||3,371||6,560|
|Foreign exchange loss on revaluation of debt||(1,268||)||(373||)||(1,324||)||(381||)|
|Gain (loss) on disposition of property and equipment||(3||)||170||7||617||(34||)|
|Loss on extinguishment of debt||(3,123||)||—||(3,123||)||—||(2,880||)|
|Loss on extinguishment of debt||3,123||—||3,123||—||2,880|
|Operational restructuring expenses||4,165||1,129||5,420||5,103||26,025|
|Legal fees related to term debt amendment||—||85||—||85||30|
|Inventory write off||692||—||692||—||692|
|Non-restructuring impairment (income) expense||(191||)||—||666||—||1,861|
|Non-recurring CEO retirement expenses||—||695||—||1,496||1,889|
Phillip B. Kennedy, 919-526-1444