Stoneridge Reports Strong Fourth-Quarter 2017 And Full-Year Results
NOVI, Mich., Feb. 28, 2018 /PRNewswire/ --
2017 Results
-- Reports full-year 2017 earnings per diluted share from continuing
operations attributable to Stoneridge, Inc. ("EPS") of $1.57
-- Full-year 2017 adjusted EPS of $1.57 - Adjusted EPS excludes transaction
costs, expenses related to the step-up in the fair value of inventory
and expenses related to the step-up in the fair value of the earn-outs
related to the Orlaco and PST acquisitions, as well as non-recurring
income and expenses related to insurance proceeds and certain business
realignment costs and the one-time impact of the US Tax Cuts and Jobs
Act in the fourth quarter
-- Full-year sales of $824.4 million increased by $128.5 million, or 18.4%,
compared with 2016
-- Gross profit of $248.1 million (30.1% of sales)
-- Adjusted gross profit of $249.8 million (30.3% of sales) improved
approximately 220 basis points in 2017 resulting in an increase of $54.4
million, or 27.8%, compared with 2016
-- Operating income of $57.4 million (7.0% of sales)
-- Adjusted operating income of $66.9 million (8.1% of sales) improved
approximately 180 basis points in 2017 resulting in an increase of $22.8
million, or 51.8%, compared with 2016
-- Adjusted EBITDA of $95.8 million (11.6% of sales) improved approximately
170 basis points in 2017 resulting in an increase of $27.1 million, or
39.5%, compared with 2016
2018 Guidance
-- Sales of $840 - $860 million compared with 2017 sales of $824.4 million
(midpoint growth of 3.1%)
-- Adjusted gross margin of 31.0% - 32.0% (midpoint improvement of 120
basis points)
-- Adjusted operating margin of 9.0% - 10.0% (midpoint improvement of 140
basis points)
-- Adjusted EBITDA margin of 12.5% - 13.5% (midpoint improvement of 140
basis points)
-- Adjusted EPS of $1.90 - $2.10, including the impact of the US Tax Cuts
and Jobs Act, which is expected to increase adjusted EPS through a
reduction to the Company's effective tax rate to 20% - 25% (comparable
to adjusted EPS of $1.70 - $1.90 utilizing a 31.6% effective tax rate as
calculated considering 2017 results, which implies midpoint improvement
of approximately 15%)
Stoneridge, Inc. (NYSE: SRI) today announced financial results for the fourth quarter and full-year ended December 31, 2017. For the full year 2017, Stoneridge reported sales of $824.4 million, an increase of $128.5 million, or 18.4%, compared with 2016. In addition, the Company reported EPS of $1.57, and adjusted EPS of $1.57 for 2017.
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Jon DeGaynor, President and Chief Executive Officer, commented, "2017 was a tremendous year for Stoneridge. We continued to build on our foundation of continuous improvement, exceeding our expectations for each of our key financial metrics while at the same time strengthening our leadership team and successfully integrating Orlaco into our Electronics business. Our ability to execute in multiple dimensions helped to accelerate our long-term strategy and achieve financial success during the year. I believe that all of our business segments are well positioned to continue to deliver sustainable, profitable growth in 2018 and beyond."
For the full year 2017, Stoneridge reported gross profit of $248.1 million (30.1% of sales) and adjusted gross profit of $249.8 million (30.3% of sales) which improved approximately 220 basis points in 2017 resulting in an increase of $54.4 million, or 27.8%, compared with 2016. Operating income for the full year 2017 was $57.4 million (7.0% of sales) and adjusted operating income was $66.9 million (8.1% of sales) which improved approximately 180 basis points in 2017 resulting in an increase of $22.8 million, or 51.8%, compared with the prior year. 2017 adjusted EBITDA was $95.8 million (11.6% of sales) which improved approximately 170 basis points in 2017 resulting in an increase of $27.1 million, or 39.5%, relative to 2016.
Fourth quarter 2017 sales were $207.4 million, an increase of 20.2% over fourth quarter 2016, with EPS of $0.65. Adjusted EPS was $0.42 considering, (i) the expense resulting from the step-up in the fair value of the earn-out related to the Orlaco and PST acquisitions, (ii) fixed asset gains related to an insurance claim, (iii) expenses related to certain business realignment costs, and (iv) one-time gains related to the impact of the US Tax Cuts and Jobs Act, which have been removed to reflect normalized earnings and a normalized tax rate.
Full Year in Review
Control Devices segment sales increased by 10.4% primarily as a result of new product sales and increased sales volume in the North American automotive market as well as increased sales volume in China, and to a lesser extent, the commercial vehicle market. Segment operating income increased by 17.4% relative to 2016 while operating margin expanded by 90 basis points.
Electronics segment sales increased by 34.9% primarily due to an increase in European and North American off-highway vehicle product sales substantially related to the acquired Orlaco business, as well as an increase in sales volume in European and North American commercial vehicle products. Segment gross margin improved primarily due to lower material and overhead costs as a percentage of sales as well as a favorable mix related to Orlaco product sales. Adjusted operating income for the segment increased by 61.1% while operating margin expanded by 120 basis points relative to 2016.
PST segment sales increased by 15.1% primarily due to an increase in monitoring service revenues as well as a favorable foreign currency translation that increased sales. Adjusted operating margin improved by $8.7 million relative to 2016, finishing the year with a 5.5% adjusted operating income (loss) margin relative to a (4.2%) operating income (loss) margin in 2016. Margin improved due to lower direct material costs related to a favorable movement in foreign currency exchange rates and favorable sales mix related to higher monitoring service revenues.
DeGaynor added, "Each of our segments contributed to our success in 2017 with double-digit sales growth and impressive margin expansion. Control Devices continued to drive global revenue growth with significant expansion in China and continued success in our actuation and sensor product groups. Electronics leveraged the addition of Orlaco to increase revenue by over $80.0 million with margin expansion of 120 basis points. Additionally, we have announced some large recent awards which contributed to an impressive 14.9% growth in our backlog in 2017. Finally, PST ended the year with 15% revenue growth and a 970 basis point improvement in operating margin."
Cash and Debt Balances
As of December 31, 2017, Stoneridge had cash and cash equivalent balances totaling $66.0 million. Total debt as of December 31, 2017, was $129.0 million. Total debt less cash and cash equivalents yields a current net debt to trailing-twelve-month adjusted EBITDA ratio of approximately 0.7x.
In 2017, Stoneridge generated $78.9 million of cash from operations, compared with $65.3 million for the previous year. Adjusted capital expenditures in 2017 were $32.9 million compared with $24.5 million in 2016. As a result of cash from operations less adjusted capital expenditures, adjusted free cash flow in 2017 was $46.0 million compared with $40.8 million in 2016.
2018 Outlook
The Company announces 2018 sales guidance of $840 - $860 million compared with 2017 sales of $824.4 million, which implies midpoint growth of 3.1%.
Further, the Company announces guidance for 2018 adjusted gross margin of 31.0% - 32.0% (midpoint improvement of 120 basis points), adjusted operating margin of 9.0% - 10.0% (midpoint improvement of 140 basis points) and adjusted EBITDA margin of 12.5% - 13.5% (midpoint improvement of 140 basis points).
The Company also announces 2018 adjusted EPS guidance of $1.90 - $2.10, including the impact of the US Tax Cuts and Jobs Act, which is expected to increase adjusted EPS through a reduction to the Company's effective tax rate to 20.0% - 25.0%.
Conference Call on the Web
A live Internet broadcast of Stoneridge's conference call regarding 2017 fourth-quarter results can be accessed at 9:00 a.m. Eastern time on Thursday, March 1, 2018, at www.stoneridge.com, which will also offer a webcast replay.
About Stoneridge, Inc.
Stoneridge, Inc., headquartered in Novi, Michigan, is an independent designer and manufacturer of highly engineered electrical and electronic components, modules and systems principally for the automotive, commercial, off-highway, motorcycle, and agricultural vehicle markets. Additional information about Stoneridge can be found at www.stoneridge.com.
Forward-Looking Statements
Statements in this release contain "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this report and may include statements regarding the intent, belief or current expectations of the Company, with respect to, among other things, our (i) future product and facility expansion, (ii) acquisition strategy, (iii) investments and new product development, (iv) growth opportunities related to awarded business and (v) operational expectations. Forward-looking statements may be identified by the words "will," "may," "should," "designed to," "believes," "plans," "projects," "intends," "expects," "estimates," "anticipates," "continue," and similar words and expressions. The forward-looking statements are subject to risks and uncertainties that could cause actual events or results to differ materially from those expressed in or implied by the statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, among other factors:
-- the reduced purchases, loss or bankruptcy of a major customer or
supplier;
-- the costs and timing of business realignment, facility closures or
similar actions;
-- a significant change in automotive, commercial, off-highway, motorcycle
or agricultural vehicle production;
-- competitive market conditions and resulting effects on sales and
pricing;
-- the impact of changes in foreign currency exchange rates on sales, costs
and results, particularly the Argentinian peso, Brazilian real, Chinese
renminbi, euro, Mexican peso and Swedish krona;
-- our ability to achieve cost reductions that offset or exceed
customer-mandated selling price reductions;
-- customer acceptance of new products;
-- our ability to successfully launch/produce products for awarded
business;
-- adverse changes in laws, government regulations or market conditions
affecting our products or our customers' products;
-- our ability to protect our intellectual property and successfully defend
against assertions made against us;
-- liabilities arising from warranty claims, product recall or field
actions, product liability and legal proceedings to which we are or may
become a party, or the impact of product recall or field actions on our
customers;
-- labor disruptions at our facilities or at any of our significant
customers or suppliers;
-- the ability of our suppliers to supply us with parts and components at
competitive prices on a timely basis;
-- the amount of our indebtedness and the restrictive covenants contained
in the agreements governing our indebtedness, including our revolving
credit facility;
-- capital availability or costs, including changes in interest rates or
market perceptions;
-- the failure to achieve the successful integration of any acquired
company or business;
-- risks related to a failure of our information technology systems and
networks, and risks associated with current and emerging technology
threats and damage from computer viruses, unauthorized access, cyber
attack and other similar disruptions; and
-- the items described in Part I, Item IA ("Risk Factors") of our 10-K
filed with the SEC.
In addition, the forward-looking statements contained herein represent our estimates only as of the date of this release and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, whether to reflect actual results, changes in assumptions, changes in other factors affecting such forward-looking statements or otherwise.
Use of Non-GAAP Financial Information
This press release contains information about Stoneridge's financial results which is not presented in accordance with accounting principles generally accepted in the United States ("GAAP"). Such non-GAAP financial measures are reconciled to their closest GAAP financial measures at the end of this press release. The provision of these non-GAAP financial measures for 2017 is not intended to indicate that Stoneridge is explicitly or implicitly providing projections on those non-GAAP financial measures, and actual results for such measures are likely to vary from those presented. The reconciliations include all information reasonably available to the Company at the date of this press release and the adjustments that management can reasonably predict.
Management believes the non-GAAP financial measures used in this press release are useful to both management and investors in their analysis of the Company's financial position and results of operations. In particular, management believes that adjusted gross profit, adjusted operating income, adjusted net income, adjusted earnings per share, adjusted EBITDA, adjusted capital expenditures and adjusted free cash flow are useful measures in assessing the Company's financial performance by excluding certain items that are not indicative of the Company's core operating performance or that may obscure trends useful in evaluating the Company's continuing operating activities. Management also believes that these measures are useful to both management and investors in their analysis of the Company's results of operations and provide improved comparability between fiscal periods. Management believes that free cash flow is useful to both management and investors in their analysis of the Company's ability to service and repay its debt.
Adjusted gross profit, adjusted operating income, adjusted net income, adjusted earnings per share, adjusted EBITDA, adjusted capital expenditures and adjusted free cash flow should not be considered in isolation or as a substitute for gross profit, operating income, net income, earnings per share, capital expenditures, cash provided by operating activities or other income statement or cash flow statement data prepared in accordance with GAAP.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31 (in thousands, except per share data) 2017 2016 2015
------------------------------------------------------------ ---- ---- ----
Net sales $824,444 $695,977 644,812
Costs and expenses:
Cost of goods sold 576,304 500,538 467,834
Selling, general and administrative 141,893 111,145 110,371
Design and development 48,877 40,212 38,792
------ ------ ------
Operating income 57,370 44,082 27,815
Interest expense, net 5,783 6,277 6,365
Equity in earnings of investee (1,636) (1,233) (608)
Other expense (income), net 641 (147) 1,828
--- ---- -----
Income before income taxes 52,582 39,185 20,230
Provision (benefit) for income taxes 7,533 (36,389) (547)
----- ------- ----
Income from continuing operations 45,049 75,574 20,777
Discontinued operations:
Loss on disposal, net of tax - - (210)
--- --- ----
Loss from discontinued operations - - (210)
--- --- ----
Net income 45,049 75,574 20,567
Net loss attributable to noncontrolling interest (130) (1,887) (2,207)
---- ------ ------
Net income attributable to Stoneridge, Inc. $45,179 $77,461 22,774
======= ======= ======
Earnings per share from continuing operations attributable to
Stoneridge, Inc.:
Basic $1.61 $2.79 0.84
===== ===== ====
Diluted $1.57 $2.74 0.82
===== ===== ====
Loss per share attributable to discontinued operations:
Basic $0.00 $0.00 (0.01)
===== ===== =====
Diluted $0.00 $0.00 (0.01)
===== ===== =====
Earnings per share attributable to Stoneridge, Inc.:
Basic $1.61 $2.79 0.83
===== ===== ====
Diluted $1.57 $2.74 0.81
===== ===== ====
Weighted-average shares outstanding:
Basic 28,082 27,764 27,338
====== ====== ======
Diluted 28,772 28,309 27,959
====== ====== ======
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
(in thousands) 2017 2016
------------- ---- ----
ASSETS
Current assets:
Cash and cash equivalents $66,003 $50,389
Accounts receivable,
less reserves of
$1,109 and $1,630,
respectively 142,438 113,225
Inventories, net 73,471 60,117
Prepaid expenses and other current assets 21,457 17,162
------
Total current assets 303,369 240,893
------- -------
Long-term assets:
Property, plant and equipment, net 110,402 91,500
Intangible assets, net 75,243 39,260
Goodwill 38,419 931
Investments and other long-term assets, net 31,604 21,945
Total long-term assets 255,668 153,636
Total assets $559,037 $394,529
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of debt $4,192 $8,626
Accounts payable 79,386 62,594
Accrued expenses and other current liabilities 52,546 41,489
Total current liabilities 136,124 112,709
------- -------
Long-term liabilities:
Revolving credit facility 121,000 67,000
Long-term debt, net 3,852 8,060
Deferred income taxes 18,874 9,760
Other long-term liabilities 35,115 4,923
------ -----
Total long-term liabilities 178,841 89,743
------- ------
Shareholders' equity:
Preferred Shares, without par value, 5,000
shares authorized, none issued - -
Common Shares, without par value, 60,000
shares authorized,
28,966 and 28,966 shares issued and
28,180 and 27,850 shares outstanding
at
December 31, 2017 and 2016,
respectively, with no stated value - -
Additional paid-in capital 228,486 206,504
Common Shares held in treasury, 786
and 1,116 shares at December 31,
2017
and 2016, respectively, at cost (7,118) (5,632)
Retained earnings 92,264 45,356
Accumulated other comprehensive loss (69,560) (67,913)
------- -------
Total Stoneridge, Inc. shareholders' equity 244,072 178,315
Noncontrolling interest - 13,762
--- ------
Total shareholders' equity 244,072 192,077
------- -------
Total liabilities and shareholders' equity $559,037 $394,529
======== ========
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December
31, (in thousands) 2017 2016 2015
--------------------- ---- ---- ----
OPERATING ACTIVITIES:
Net income $45,049 $75,574 $20,567
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 21,490 19,998 18,964
Amortization, including accretion of
deferred financing costs 6,764 3,615 3,833
Deferred income taxes (5,959) (38,747) (2,165)
Earnings of equity method investee (1,636) (1,233) (608)
(Gain) loss on fixed assets (1,796) 48 74
Share-based compensation expense 7,265 6,134 7,224
Tax benefit related to share-based
compensation expense (858) (977) -
Change in fair value of earn-out
contingent consideration 7,485 - -
Loss on disposal of Wiring business - - 210
Changes in operating assets
and liabilities, net of
effect of business
combination:
Accounts receivable, net (15,156) (18,694) (489)
Inventories, net (2,132) 4,519 (4,340)
Prepaid expenses and other assets (10,177) 2,652 (295)
Accounts payable 10,492 10,980 6,577
Accrued expenses and other liabilities 18,077 1,408 5,253
Net cash provided by operating
activities 78,908 65,277 54,805
------ ------ ------
INVESTING ACTIVITIES:
Capital expenditures (32,170) (24,476) (28,735)
Proceeds from sale of fixed assets 77 652 64
Insurance proceeds for fixed assets 711 - -
Business acquisition, net of cash
acquired (77,258) - (469)
Payments related to sale of Wiring
business - - (1,230)
Net cash used for investing activities (108,640) (23,824) (30,370)
-------- ------- -------
FINANCING ACTIVITIES:
Acquisition of noncontrolling interest,
including transaction costs (1,848) - -
Revolving credit facility borrowings 95,000 - -
Revolving credit facility payments (41,000) (33,000) -
Proceeds from issuance of debt 2,748 16,223 22,540
Repayments of debt (11,573) (25,748) (30,586)
Other financing costs (61) (399) (49)
Repurchase of Common Shares to satisfy
employee tax withholding (2,481) (1,424) (2,924)
Tax benefits related to share-based
compensation expense - 977 -
--- --- ---
Net cash provided by (used for)
financing activities 40,785 (43,371) (11,019)
------ ------- -------
Effect of exchange rate changes on cash
and cash equivalents 4,561 (2,054) (2,076)
----- ------ ------
Net change in cash and cash equivalents 15,614 (3,972) 11,340
Cash and cash equivalents at beginning
of period 50,389 54,361 43,021
------ ------ ------
Cash and cash equivalents at end of
period $66,003 $50,389 $54,361
======= ======= =======
Supplemental disclosure of cash flow
information:
Cash paid for interest $5,746 $5,786 $6,092
Cash paid for income taxes, net $7,093 $3,386 $2,494
Supplemental disclosure of non-cash
operating and financing activities:
Bank payment of
vendor payables
under short-term
debt obligations $ - $3,764 $5,323
Regulation G Non-GAAP Financial Measure Reconciliations
Reconciliation to
US GAAP
Exhibit 1 -
Adjusted EPS (Q4
and 2017)
-----------------
Reconciliation of Q4 2017
Adjusted EPS
--------------------------
(USD in millions) Q4 2017 Q4 2017 EPS
------- -------
Net Income Attributable to
Stoneridge $18.9 0.65
Add: After-Tax Step-Up in Fair
Value of Acquired Inventory
from Orlaco - -
Add: After-Tax Step-Up in Fair
Value of Earn-Out (Orlaco) 0.9 0.03
Add: After-Tax Step-Up in Fair
Value of Earn-Out (PST) 1.9 0.07
Add: After-Tax Severance Costs 0.9 0.03
Less: After-Tax PP&E Gain on
Insurance Proceeds (1.3) (0.05)
Less: After-Tax Impact of US
Tax Cut and Jobs Act (9.1) (0.31)
Adjusted Net Income $12.2 $0.42
----- -----
Reconciliation of 2017
Adjusted EPS
-----------------------
(USD in millions) 2017 2017 EPS
---- ----
Net Income Attributable to
Stoneridge $45.2 $1.57
Add: After-Tax Step-Up in
Acquired Inventory from Orlaco 1.2 0.04
Add: After-Tax Step-Up in Fair
Value of Earn-Out (Orlaco) 4.9 0.17
Add: After-Tax Step-Up in Fair
Value of Earn-Out (PST) 2.6 0.09
Add: After-Tax Transaction
Costs Adjustment (Orlaco) 0.8 0.03
Add: After-Tax Severance Costs 0.9 0.03
Less: After-Tax PP&E Gain on
Insurance Proceeds (1.3) (0.05)
Less: After-Tax Impact of US
Tax Cut and Jobs Act (9.1) (0.31)
Adjusted Net Income $45.1 $1.57
----- -----
Exhibit 2 -
Adjusted Gross
Profit
---------------
Reconciliation of Stoneridge
Adjusted Gross Profit
-----------------------------
(USD in millions) Q4 2017 2017
------- ----
Gross Profit $61.0 $248.1
Add: Pre-Tax Step-Up in
Acquired Inventory from Orlaco - 1.6
Adjusted Gross Profit $61.0 $249.8
----- -----
Exhibit 3 -
Adjusted
Operating Income
-----------------
Reconciliation of Stoneridge
Adjusted Operating Income
-----------------------------
(USD in millions) Q4 2017 2017
------- ----
Operating Income $13.2 $57.4
Add: Pre-Tax Step-Up in
Acquired Inventory from Orlaco - 1.6
Add: Pre-Tax Step-Up in Fair
Value of Earn-Out (Orlaco) 0.9 4.9
Add: Pre-Tax Step-Up in Fair
Value of Earn-Out (PST) 1.9 2.6
Add: Pre-Tax Transaction Costs
Adjustment (Orlaco) - 1.2
Add: Pre-Tax Severance Costs 1.2 1.2
Less: Pre-Tax PP&E Gain on
Insurance Proceeds (1.9) (1.9)
Adjusted Operating Income $15.3 $66.9
----- -----
Exhibit 4 - Adjusted EBITDA
---------------------------
Reconciliation of Q4 Adjusted EBITDA
------------------------------------
(USD in millions) Q4 2017 2017 Q4 2016 2016
------- ---- ------- ----
Income before tax $12.9 $52.6 $9.0 $39.2
Interest expense, net 1.3 5.8 1.2 6.3
Depreciation and amortization 7.3 27.9 6.1 23.3
EBITDA $21.5 $86.3 $16.4 $68.7
----- ----- ----- -----
Add: Pre-Tax Step-Up in
Acquired Inventory from Orlaco - 1.6 - -
Add: Pre-Tax Step-Up in Fair
Value of Earn-Out (Orlaco) 0.9 4.9 - -
Add: Pre-Tax Step-Up in Fair
Value of Earn-Out (PST) 1.9 2.6 - -
Add: Pre-Tax Transaction Costs
Adjustment (Orlaco) - 1.2 - -
Add: Pre-Tax Severance Costs 1.2 1.2 - -
Less: Pre-Tax PP&E Gain on
Insurance Proceeds (1.9) (1.9) - -
Adjusted EBITDA $23.5 $95.8 $16.4 $68.7
----- ----- ----- -----
Exhibit 5 - Adjusted Capital Expenditures
-----------------------------------------
Adjusted Capital
Expenditures
-----------------
(USD in millions) 2017 2016
---- ----
Capital Expenditures $32.2 $24.5
Plus: Insurance Proceeds 0.7 -
--- ---
Adjusted Capital Expenditures $32.9 $24.5
----- -----
Exhibit 6 - Adjusted Free Cash Flow
-----------------------------------
Adjusted Free Cash Flow
-----------------------
(USD in millions) 2017 2016
---- ----
Net Cash Provided by Operating
Activities $78.9 $65.3
Less: Adjusted Capital
Expenditures (32.9) (24.5)
------ -----
Adjusted Free Cash Flow $46.0 $40.8
----- -----
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SOURCE Stoneridge, Inc.
