XRM Xerium Technologies New (delisted)

Xerium Technologies, Inc. (NYSE: XRM):

First Quarter Highlights

• Q1 2018 net sales of $126.1 million compared to $119.9 million in 2017, an increase of 5.2% (see Table 1).

• Q1 2018 operating income of $16.1 million, compared to $14.6 million in 2017, an increase of 9.9%.
• Q1 2018 net income of $2.2 million compared to Q1 2017 net loss of $(2.8) million. Q1 2018 adjusted EBITDA of $25.4 million, compared to $26.6 million in 2017 (see Table 2 and Table 3 and “Non-GAAP Financial Measures” below).
• Q1 2018 GAAP operating cash flow of $(12.2) million, net capital expenditures of $(2.4) million and free cash flow of $(14.6) million (see Table 4 and “Non-GAAP Financial Measures” below).

Xerium Technologies, Inc. (NYSE: XRM), a leading global provider of industrial consumable products and services, today reported first quarter 2018 results.

Mark Staton, President and Chief Executive Officer said, “We are pleased with our start to the year which reflects a stable market backdrop that was supported by our continued focus on execution. The quarter included some benefit from foreign currency on the top line and expected margin pressure compared to the prior year due to a significant difference in press felt production volumes that enhanced our margins in the prior year. Our underlying performance was modestly ahead of our expectations and stable with recent quarterly performance as we continue to focus on execution, cost control and debt reduction.”

Staton continued, “As we look to the remainder of 2018, overall our end markets continue to show health and stability, and we are well positioned to build our cash position throughout the year and execute on our deleveraging plans.”

Quarterly Consolidated Results

Q1 net sales were $126.1 million, an increase of 5.2% year-over-year. The increase was largely the result of currency effects. Q1 2018 Rolls and Service sales increased 6.2%, to $50.3 million driven by favorable foreign currency impacts and improved volume in North America and Asia. Q1 Machine Clothing sales increased 4.5% to $75.8 million, which largely benefitted from favorable foreign currency impacts and improved volume in Asia and Europe. This benefit was partially offset by lower sales in North America, as Q1 2017 benefitted from the catchup of sales related to 2016 Machine Clothing production shortfalls. Backlogs of $181 million are flat to Q1 2017 and $13 million ahead of the backlog at December 31, 2017. Table 1 summarizes Q1 net sales and the effect of currency translation rates.

Q1 2018 consolidated gross profit was $47.2 million, or 37.5% of net sales, compared to $47.6 million, or 39.7% of net sales in Q1 2017. Rolls and Service gross margin improved 50 basis points to 35.2% in Q1 2018 from 34.7% in Q1 2017. The increase was primarily due to cost reductions, net of inflation. Machine Clothing gross margin declined to 39.0% compared to the prior year period of 43.0% in Q1 2017. Gross margin was unfavorably impacted by 220 basis points in the current year related to production timing. First, 2016 production shortfalls required increased production levels resulting in favorable overhead absorption in early 2017. Second, planned inventory reductions in Q4 of 2017 drove unfavorable overhead absorption in Q1 2018. Additionally, there was negative product mix in the current year in Asia Pacific, partially offset by positive product mix in Europe. Overall, Q1 2018 gross margins are in line with internal expectations and the decline in Q1 year over year is due to timing. Machine Clothing 2018 gross margins are expected to be favorable in the second half of 2018 compared to the second half of 2017 and 2018 full year gross margins are expected to be in line with 2017 gross margins.

SG&A expenses (including Selling, G&A and R&D expenses) were $30.3 million, or 24.1% of net sales in Q1 2018, versus $29.8 million, or 24.9% of net sales in Q1 2017. The decrease in the SG&A rate was primarily attributable to higher sales and savings achieved through the Company’s cost-out initiatives related to previously reported 2017 actions, net of inflation.

GAAP operating income in the first quarter of 2018 was $16.1 million, or 12.7% of sales, an increase of 9.9% compared to Q1 2017 operating income of $14.6 million, or 12.2% of sales. Q1 2018 adjusted EBITDA declined to $25.4 million, or 20.1% of net sales, compared to $26.6 million, or 22.2% of net sales in 2017. In addition to interest, taxes, depreciation and amortization, adjusted EBITDA excludes expenses related to the Company’s restructuring activities, plant start-up costs, stock-based compensation, unrealized foreign currency gains and losses and certain non-recurring expenses. For a full reconciliation, refer to Table 3.

Q1 2018 basic income per share was $0.14 versus Q1 2017 basic loss per share of $(0.18) as a result of higher sales, lower restructuring costs, forex gains and lower taxes, partially offset by lower gross margin percentages.

Cash taxes were $4.3 million in Q1 2018. Cash taxes are primarily impacted by income the Company earns in tax paying jurisdictions relative to income it earns in non-tax paying jurisdictions, primarily the United States. The Tax Cuts and Jobs Act (the “Tax Act”) passed at the end of 2017 will be cash neutral to the Company in 2018. While the interest disallowance and other features of the Tax Act will put the company into a taxable position in the United States, existing NOL’s are expected to shelter the Company from an increase in cash taxes into the mid 2020’s.

GAAP cash flow from operations was a $(12.2) million use of cash during the period, mostly reflecting the Company’s semi-annual interest payments due in Q1 and Q3. Q1 net capital expenditures were $(2.4) million, and free cash flow was $(14.6) million. Total debt at the end of Q1 was $518.6 million compared to $508.9 million at Q4 2017. Net debt at the end of Q1 2018 was $520.9 million, compared to $504.7 million at the end of Q4 2017. The Company’s net debt leverage ratio increased from 5.0 at the end of Q4 2017 to 5.3 at March 31, 2018 (see Table 5 for reconciliation). The Company’s cash flow generation will be weighted to the back half of the year due to timing of cash taxes, cash restructuring and changes in trade working capital. The Company expects 2018 free cash flow to be significantly better than 2017 free cash flow of $14 million, and plans to utilize its free cash flow to reduce debt.

2018 Outlook

The Company will discuss the current industry outlook, as well as company specific factors that will drive its expected 2018 results on its live conference call, which will be available for replay at www.xerium.com/investor-relations.

CONFERENCE CALL

The Company plans to hold a conference call on the following morning:

Date: Monday, April 30, 2018 Start Time: 5:00 p.m. Eastern Time Domestic Dial-In: +1-844-818-4921 International Dial-In: +1-484-880-4582 Conference ID: 3799615

Webcast: www.xerium.com/investor-relations

 

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. You may also click here and you will be taken directly to the webcast registration page.

ABOUT XERIUM TECHNOLOGIES, INC.

Xerium Technologies, Inc. (NYSE: XRM) is a leading global provider of industrial consumable products and services. Its products and services are consumed during machine operation by its customers. Xerium operates around the world under a variety of brand names, and 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 2,850 employees.

         

Xerium Technologies, Inc.

Condensed Consolidated Balance Sheets (Dollars in thousands)             March 31, December 31, 2018 2017 ASSETS Current assets: Cash and cash equivalents $ 9,901 $ 17,253 Accounts receivable, net 82,473 76,633 Inventories, net 76,647 74,725 Prepaid expenses 13,685 11,335 Other current assets   16,845     15,316   Total current assets 199,551 195,262 Property and equipment, net 281,442 282,378 Goodwill 67,178 64,783 Intangible assets 5,658 5,965 Non-current deferred tax asset 11,198 10,103 Other assets   9,211     9,358   Total assets $ 574,238   $ 567,849     LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Notes payable $ 8,622 $ 8,398 Accounts payable 40,256 39,856 Accrued expenses 51,082 64,155 Current maturities of long-term debt   9,855     10,614   Total current liabilities 109,815 123,023 Long-term debt, net of current maturities 484,929 473,904 Liabilities under capital leases 15,189 15,952 Non-current deferred tax liability 13,601 12,897 Pension, other post-retirement and post-employment obligations 68,901 69,205 Other long-term liabilities 9,944 9,334

Stockholders' deficit

Preferred stock - - Common stock 16 16 Paid-in capital 432,785 432,489 Accumulated deficit (455,814 ) (457,712 ) Accumulated other comprehensive loss   (105,128 )   (111,259 ) Total stockholders' deficit   (128,141 )   (136,466 ) Total liabilities and stockholders' deficit $ 574,238   $ 567,849              

Xerium Technologies, Inc.Consolidated Statements of Operations and Comprehensive Income(Dollars in thousands, except per share data)

 

        Three Months Ended March 31, 2018     2017 Net sales $ 126,075     $ 119,866 Costs and expenses: Cost of products sold 78,842 72,240 Selling 15,677 15,674 General and administrative 13,097 12,423 Research and development 1,568 1,744 Restructuring 824       3,164   110,008       105,245   Income from operations 16,067 14,621 Interest expense, net (12,765 ) (13,263 ) Other components of net periodic benefit cost (266 ) (361 ) Loss on debt extinguishment - (25 ) Foreign exchange gain (loss) 532       (1,125 ) Income (loss) before provision for income taxes 3,568 (153 ) Provision for income taxes (1,337 )     (2,681 ) Net income (loss) $ 2,231       $ (2,834 ) Comprehensive income $ 8,362       $ 6,806   Net income (loss) per share: Basic $ 0.14       $ (0.18 ) Diluted $ 0.13       $ (0.18 ) Shares used in computing net income (loss) per share: Basic 16,398,076       16,153,113   Diluted 16,655,850       16,153,113               Xerium Technologies, Inc. Consolidated Statement of Cash Flows (Dollars in thousands)         Three Months Ended March 31, 2018     2017 Operating activities Net income (loss) $ 2,231 $ (2,834 )

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Stock-based compensation 355 531 Depreciation 7,954 7,819 Amortization of intangibles 307 273 Deferred financing cost amortization 932 899 Foreign exchange (gain) loss on revaluation of debt (84 ) 627 Deferred taxes (204 ) 10 Gain on disposition of property and equipment (57 ) (49 ) Loss on extinguishment of debt - 25 Provision for doubtful accounts 305 41 Change in assets and liabilities which (used) provided cash: Accounts receivable (4,583 ) (4,153 ) Inventories (956 ) (1,136 ) Prepaid expenses (2,388 ) 783 Other current assets (1,345 ) (1,785 ) Accounts payable and accrued expenses (13,793 ) (7,334 ) Deferred and other long-term liabilities   (833 )   (940 ) Net cash used in operating activities (12,159 ) (7,223 )   Investing activities Capital expenditures (2,510 ) (5,285 ) Proceeds from disposals of property and equipment   88     216   Net cash used in investing activities (2,422 ) (5,069 )   Financing activities Proceeds from borrowings 31,133 40,476 Principal payments on debt (22,513 ) (29,693 ) Payment of financing fees - (170 ) Payment of obligations under capital leases (1,424 ) (1,520 ) Employee taxes paid on equity awards   (59 )   -   Net cash provided by financing activities 7,137 9,093 Effect of exchange rate changes on cash flows   92     529   Net decrease in cash (7,352 ) (2,670 ) Cash and cash equivalents at beginning of period   17,253     12,808   Cash and cash equivalents at end of period $ 9,901   $ 10,138              

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”). Management of the Company uses supplementary non-GAAP measures, including EBITDA, free cash flow, net debt and adjusted EBITDA, internally to assist in evaluating its liquidity and financial and operational performance. Therefore, the Company believes these non-GAAP measures may also be useful to investors and financial analysts. EBITDA and free cash flow are specifically used in evaluating the ability to service indebtedness and to fund ongoing capital expenditures. Net debt presents a view of the overall change in leverage from quarter to quarter. Adjusted EBITDA excludes certain items the Company does not believe to be indicative of on-going business trends in order to better analyze historical and future business trends on a consistent basis. EBITDA, free cash flow, net debt and adjusted EBITDA should not be considered in isolation or as a substitute for net income (loss), net cash (used in) provided by operating activities or total debt.

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 tables 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, 2017 filed with the Securities and Exchange Commission on February 28, 2018 and our presentation that will accompany our conference call this evening.

NET SALES

Table 1 summarizes Q1 2018 net sales and the effect of currency translation rates. The column “$ Change Excluding Currency” is calculated taking the difference between Q1 2018 net sales at Q1 2017 FX rates (in US dollars) less Q1 2017 reported net sales.

 

Table 1

       

Net Sales For The

Three Months Ended

                (Dollars in thousands) March 31,                 2018     2017    

$ Change

   

% Change

   

$ Change

Excluding

Currency

   

% Change

Excluding

Currency

Roll Covers $ 50,318     $ 47,371 $ 2,947 6.2 % $ 602 1.3 % Machine Clothing   75,757         72,495         3,262       4.5 %         (1,297 )     (1.8 %) Total $ 126,075       $ 119,866       $ 6,209       5.2 %       $ (694 )     (0.6 %)    

ADJUSTED EBITDA

Table 2 summarizes Q1 2018 adjusted EBITDA and the effect of currency translation rates. The column “$ Change Excluding Currency” is calculated taking the difference between Q1 2018 adjusted EBITDA at Q1 2017 FX rates (in US dollars) less Q1 2017 reported adjusted EBITDA.

  Table 2        

Adjusted EBITDA For the

Three Months Ended

     

(Dollars in thousands)

March 31,                 2018     2017    

$ Change

    % Change    

$ Change

Excluding

Currency

   

% Change

Excluding

Currency

Roll Covers $ 10,756     $ 9,795 $ 961 9.8 % $ 410 4.2 % Machine Clothing 18,912 20,798 (1,886 ) (9.1 %) (2,327 ) (11.2 %) Corporate   (4,275 )       (4,037 )       (238 )     (5.9 %)       152       3.8 % Total $ 25,393       $ 26,556       $ (1,163 )     (4.4 %)     $ (1,765 )     (6.6 %)    

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 (loss) 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), (xiii) unrealized foreign currency losses and (xiv) 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 (loss) for such period, (i) unrealized foreign currency gains and (ii) non-cash gains with respect to the items described in clauses (vi), (vii), (ix), (xi), (xii) and xiv (other than, in the case of clause (xiv), 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 (iii) provisions for tax benefits based on income or profits. Notwithstanding the foregoing, Adjusted EBITDA, as defined and calculated below, may not be comparable to similarly titled measurements used by other companies.

Consolidated net income (loss) 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 (loss): (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 and (iv) any cancellation of indebtedness income. Table 3 provides a reconciliation from net income (loss), which is the most directly comparable GAAP financial measure, to EBITDA and Adjusted EBITDA.

          Table 3 (Dollars in thousands)        

Three Months Ended

March 31,

   

Trailing Twelve

Months Ended

March 31, 2018

   

Twelve Months

Ended

December 31, 2017

2018     2017         Net income (loss) $ 2,231     $ (2,834 ) $ (9,581 ) $ (14,646 ) Stock-based compensation 355 531 1,155 1,331 CEO transition stock-based compensation - - 1,187 1,187 Depreciation 7,954 7,819 31,875 31,740 Amortization of intangibles 307 273 1,399 1,365 Deferred financing cost amortization 932 899 3,667 3,634 Foreign exchange (gain) loss on revaluation of debt (84 ) 627 424 1,135 Deferred tax expense (204 ) 10 8,302 8,516 Asset impairment - - 107 107 (Gain) loss on disposition of property and equipment (57 ) (49 ) 128 136 Pension settlement loss - - 921 921 Loss on extinguishment of debt - 25 7 32 Net change in operating assets and liabilities   (23,593 )       (14,524 )       (19,812 )       (10,743 ) Net cash (used in) provided by operating activities (12,159 ) (7,223 ) 19,779 24,715 Interest expense, excluding amortization 11,833 12,365 48,649 49,181 Net change in operating assets and liabilities 23,593 14,524 19,812 10,743 Current portion of income tax expense 1,541 2,671 3,993 5,123 Stock-based compensation (355 ) (531 ) (1,155 ) (1,331 ) CEO transition stock-based compensation - - (1,187 ) (1,187 ) Pension settlement loss - - (921 ) (921 ) Asset impairment - - (107 ) (107 ) Foreign exchange gain (loss) on revaluation of debt 84 (627 ) (424 ) (1,135 ) Gain (loss) on disposition of property and equipment 57 49 (128 ) (136 ) Loss on extinguishment of debt   -         (25 )       (7 )       (32 ) EBITDA 24,594 21,203 88,304 84,913 Loss on extinguishment of debt - 25 7 32 Stock-based compensation 355 531 1,155 1,331 CEO transition expenses 157 - 3,220 3,063 Operational restructuring expenses 824 3,164 5,544 7,884 Other non-recurring expenses 122 45 199 122 Plant startup costs - 480 241 721 Unrealized foreign exchange (gain) loss   (659 )       1,108         392         2,159   Adjusted EBITDA $ 25,393       $ 26,556       $ 99,062       $ 100,225            

FREE CASH FLOW

Table 4 summarizes free cash flow which is defined as net cash used in operating activities less capital expenditures plus proceeds from disposals of property and equipment.

  Table 4 (Dollars in thousands)         Three Months Ended March 31, 2018     2017     Net cash used in operating activities $ (12,159 ) $ (7,223 ) Capital expenditures (2,510 ) (5,285 ) Proceeds from disposals of property and equipment   88         216   Free Cash flow $ (14,581 )     $ (12,292 )    

NET DEBT

Table 5 summarizes net debt which is defined as GAAP total debt less cash and deferred financing fees and net debt leverage which is defined as net debt divided by trailing twelve month Adjusted EBITDA.

  Table 5 (Dollars in thousands)         March 31, 2018     December 31, 2017     Total debt (including capital leases) $ 518,595 $ 508,868 less cash (9,901 ) (17,253 ) less deferred financing fees   12,172         13,102   Net debt $ 520,866 $ 504,717 Trailing twelve month adjusted EBITDA $ 99,062       $ 100,225   Net debt leverage   5.3         5.0        

FORWARD-LOOKING STATEMENTS

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, gross margins, cash restructuring, cash tax requirements, cash generation and debt reduction plans capital expenditures. 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 financial 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) our plans to develop and market new products, enhance operational efficiencies and reduce costs may not be successful; (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; and (9) the other risks and uncertainties discussed elsewhere in this press release, our Form 10-K for the year ended December 31, 2017 filed on February 28, 2018 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20180430006243/en/

Xerium Technologies, Inc.Cliff PietrafittaChief Financial OfficerInvestor relations line: 919-526-1444