American Woodmark Corporation Announces Third Quarter Results

WINCHESTER, Va., Feb. 26, 2019 /PRNewswire/ -- American Woodmark Corporation (NASDAQ: AMWD) (the "Company") today announced results for its third fiscal quarter ended January 31, 2019.

Net sales for the third fiscal quarter increased 31% to $384 million compared with the same quarter of the prior fiscal year. Net sales for the first nine months of the current fiscal year increased 47% to $1,238 million from the comparable period of the prior fiscal year. The current third fiscal quarter and first nine months results include two incremental months (November and December) and eight incremental months (May through December), respectively, of results from the Company's acquisition of RSI Home Products, Inc. ("RSI"), which closed December 29, 2017. Excluding the impact of the RSI acquisition, net sales for the third fiscal quarter increased 1% to $257 million compared with the same quarter of the prior fiscal year and net sales for the first nine months of the current fiscal year increased 6% to $854 million compared to the first nine months of the prior fiscal year. Excluding the impact of the RSI acquisition, the Company experienced growth in the builder channel and independent dealers and distributors channel during the third quarter of fiscal year 2019. Excluding the impact of the RSI acquisition, the Company experienced growth in all channels during the first nine months of fiscal year 2019 versus the comparable prior year period.

Net income was $18.4 million ($1.07 per diluted share) for the third quarter of the current fiscal year compared with $2.0 million ($0.12 per diluted share) in the same quarter of the prior fiscal year. Net income for the current quarter was positively impacted by the RSI acquisition, lower acquisition related expenses of $15.9 million, an unrealized gain on foreign exchange contracts of $0.5 million and a net gain on debt forgiveness and modification of $5.2 million which were all partially offset by additional intangible asset amortization of $8.2 million. Net income for the first nine months of the current fiscal year was $61.7 million ($3.53 per diluted share) compared with $44.0 million ($2.67 per diluted share) for the same period of the prior fiscal year. Adjusted EPS per diluted share was $1.40 for the third quarter of the current fiscal year compared with $1.00 in the same quarter of the prior fiscal year and $5.05 for the first nine months of the current fiscal year compared with $3.57 for the same period of the prior fiscal year.

Adjusted EBITDA for the third fiscal quarter was $52.2 million, or 13.6% of net sales, compared to $36.0 million, or 12.3% of net sales, for the same quarter of the prior fiscal year. Adjusted EBITDA for the first nine months of the fiscal year was $181.1 million, or 14.6% of net sales, compared to $110.4 million, or 13.1% of net sales, for the same period of the prior fiscal year. The increase is primarily due to the inclusion of two incremental months during the current fiscal third quarter and eight incremental months during the current fiscal year, respectively, of results for RSI.

"Despite the volatility within our industry, we are pleased with the overall performance of our third fiscal quarter," said Cary Dunston, Chairman and CEO. "We saw solid growth in our new construction and dealer/distributor businesses while continuing to drive leverage through our low cost supply chain. Although market uncertainty continues, we remain very focused on our strategic positioning and continuing to strengthen our competitive advantage in the market."

Cash provided by operating activities for the first nine months of the current fiscal year was $138.0 million. Free cash flow totaled $106.2 million for the first nine months of the current fiscal year. The Company paid down $99.0 million of its term loan facility during the first nine months of the current fiscal year and repurchased 628,714 shares of common stock at a cost of $41.0 million.

About American Woodmark

American Woodmark Corporation manufactures and distributes kitchen, bath and home organization products for the remodeling and new home construction markets. Its products are sold on a national basis directly to home centers, builders and through a network of independent dealers and distributors. At January 31, 2019, the Company operated eighteen manufacturing facilities in the United States and Mexico and eight primary service centers located throughout the United States.

Use of Non-GAAP Financial Measures

We have presented certain financial measures in this press release which have not been prepared in accordance with U.S. generally accepted accounting principles (GAAP). Definitions of our non-GAAP financial measures and a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP are provided below following the financial highlights under the heading "Non-GAAP Financial Measures."

Safe harbor statement under the Private Securities Litigation Reform Act of 1995: All forward-looking statements made by the Company involve material risks and uncertainties and are subject to change based on factors that may be beyond the Company's control. Accordingly, the Company's future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Such factors include, but are not limited to, those described in the Company's filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K. The Company does not undertake to publicly update or revise its forward looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.

                                                        
            
              AMERICAN WOODMARK CORPORATION




                                                        
            
              Unaudited Financial Highlights




                                                            
            (in thousands, except share data)




                                                              
            
              Operating Results




                                                           
            
              Three Months Ended               
            
              Nine Months Ended


                                                               
            
              January 31                       
            
              January 31


                                                           2019                                        2018                              2019         2018






     Net sales                                                  $
            384,080                               $
            292,791                         $
         1,237,920     $
         844,387



     Cost of sales & distribution                     307,227                                       242,412                             978,569                     678,179



                
            Gross profit                      76,853                                        50,379                             259,351                     166,208



     Sales & marketing expense                         22,215                                        19,167                              68,139                      55,397



     General & administrative expense                  27,462                                        23,492                              86,010                      41,442



     Restructuring charges                                 26                                                                            2,061



                
            Operating income                  27,150                                         7,720                             103,141                      69,369



     Interest expense, net                              8,836                                         4,035                              27,204                       2,887



     Other income, net                                (5,812)                                         (79)                            (6,137)                      (117)



     Income tax expense                                 5,717                                         1,768                              20,410                      22,567



                
            Net income                                  $
            18,409                                 $
            1,996                          $
           61,664      $
         44,032






     
              Earnings Per Share:



     Weighted average shares outstanding - diluted 17,216,327                                    16,690,760                          17,466,936                  16,461,509





     Net income per diluted share                                  $
            1.07                                  $
            0.12                            $
           3.53        $
         2.67

                                                          
     
       Condensed Consolidated Balance Sheet


                                                              
           (Unaudited)


                                                                                                 January 31                          April 30


                                                                                                       2019                    2018






      Cash & cash equivalents                                                                              $
      42,009                       $
      78,410



      Investments - certificates of deposit                                                      2,500                     8,000



      Customer receivables                                                                     117,198                   136,355



      Inventories                                                                              116,116                   104,801



      Income taxes receivable                                                                      791                    25,996



      Other current assets                                                                      13,884                    10,805



      
              Total current assets                                                              292,498                   364,367



      Property, plant & equipment, net                                                         211,977                   218,102



      Investments - certificates of deposit                                                                               1,500



      Trademarks, net                                                                            6,389                     8,889



      Customer relationship intangibles, net                                                   224,528                   258,778



      Goodwill                                                                                 767,612                   767,451



      Other assets                                                                              29,832                    26,258



      
              Total assets                                                                               $
      1,532,836                    $
      1,645,345






      Current portion - long-term debt                                                                      $
      2,300                        $
      4,143



      Accounts payable & accrued expenses                                                      140,212                   166,312



      
              Total current liabilities                                                         142,512                   170,455



      Long-term debt                                                                           709,818                   809,897



      Deferred income taxes                                                                     66,284                    71,563



      Other liabilities                                                                          6,250                    11,765



      
              Total liabilities                                                                 924,864                 1,063,680



      Stockholders' equity                                                                     607,972                   581,665



      
              Total liabilities & stockholders' equity                                                   $
      1,532,836                    $
      1,645,345


                                                     
     
     Condensed Consolidated Statements of Cash Flows


                                                          
              (Unaudited)


                                                                                                                    Nine Months Ended


                                                                                                         
            
         January 31


                                                                                                              2019             2018






     Net cash provided by operating activities                                                     $
         137,950                     $
      48,881



     Net cash used by investing activities                                              (31,299)                         (28,355)



     Net cash used by financing activities                                             (143,052)                         (57,880)




     Net decrease in cash and cash equivalents                                          (36,401)                         (37,354)



     Cash and cash equivalents, beginning of period                                       78,410                           176,978






     Cash and cash equivalents, end of period                                                       $
         42,009                    $
      139,624


Non-GAAP Financial Measures

We have reported our financial results in accordance with generally accepted accounting principles (GAAP). In addition, we have discussed our financial results using the non-GAAP measures described below.

Management believes all of these non-GAAP financial measures provide an additional means of analyzing the current period's results against the corresponding prior period's results. However, these non-GAAP financial measures should be viewed in addition, and not as a substitute for, the Company's reported results prepared in accordance with GAAP. Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.

Adjusted EPS per diluted share

We use Adjusted EPS per diluted share in evaluating the performance of our business and profitability. Management believes that this measure provides useful information to investors by offering additional ways of viewing the Company's results by providing an indication of performance and profitability excluding the impact of unusual and/or non-cash items. We define Adjusted EPS per diluted share as diluted earnings per share excluding the per share impact of (1) expenses related to the RSI acquisition and subsequent restructuring charges, (2) inventory step-up amortization due to the increase in the fair value of inventory acquired through the RSI acquisition, (3) the amortization of customer relationship intangibles and trademarks, (4) net gain on debt forgiveness and modification and (5) the tax benefit of RSI acquisition expenses and subsequent restructuring charges, the inventory step-up amortization, the net gain on debt forgiveness and modification and the amortization of customer relationship intangibles and trademarks. The amortization of intangible assets is driven by the RSI acquisition and will recur in future periods. Management has determined that excluding amortization of intangible assets from our definition of Adjusted EPS per diluted share will better help it evaluate the performance of our business and profitability and we have also received similar feedback from some of our investors regarding the same.

Adjusted EBITDA and Adjusted EBITDA margin

We use Adjusted EBITDA and Adjusted EBITDA margin in evaluating the performance of our business, and we use each in the preparation of our annual operating budgets and as indicators of business performance and profitability. We believe Adjusted EBITDA and Adjusted EBITDA margin allow us to readily view operating trends, perform analytical comparisons and identify strategies to improve operating performance.

We define Adjusted EBITDA as net income adjusted to exclude (1) income tax expense, (2) interest (income) expense, net, (3) depreciation and amortization expense, (4) amortization of customer relationship intangibles and trademarks, (5) expenses related to the RSI acquisition and subsequent restructuring charges, (6) inventory step-up amortization due to the increase in the fair value of inventory acquired through the RSI acquisition, (7) stock-based compensation expense, (8) gain/loss on asset disposals, (9) unrealized gain/loss on foreign exchange forward contracts and (10) net gain on debt forgiveness and modification. We believe Adjusted EBITDA, when presented in conjunction with comparable GAAP measures, is useful for investors because management uses Adjusted EBITDA in evaluating the performance of our business.

We define Adjusted EBITDA margin as Adjusted EBITDA as a percentage of net sales.

Free cash flow

To better understand trends in our business, we believe that it is helpful to subtract amounts for capital expenditures consisting of cash payments for property, plant and equipment and cash payments for investments in displays from cash flows from continuing operations which is how we define free cash flow. Management believes this measure gives investors an additional perspective on cash flow from operating activities in excess of amounts required for reinvestment. It also provides a measure of our ability to repay our debt obligations.

Net sales excluding RSI sales

To better understand and compare the performance of our core American Woodmark business by our management and our investors, we believe it is helpful to subtract the amount of sales from our recently acquired and now wholly-owned subsidiary, RSI, from our net sales and report this amount with our quarterly earnings announcements. We may discontinue using this non-GAAP financial measure at a later juncture once RSI has become fully integrated into our Company and the quarter to quarter comparisons of our core business are no longer as helpful to compare performance.

A reconciliation of these non-GAAP financial measures and the most directly comparable measures calculated and presented in accordance with GAAP are set forth on the following tables:

                                                        
             
              Reconciliation of Net Sales and Percentage of Net Sales Excluding RSI




                                           
          
           Three Months Ended                                 
              
                Nine Months Ended


                                             
            
           January 31                                         
              
                January 31



       (in thousands)             2019                       2018                                      Percent Change                 2019                    2018          Percent Change

    ---




       Net sales excluding RSI         $
         256,940                           $
              254,220                              1                                   $
       853,652          $
     805,816    6
                                                                                                                                %                                                                      %



       RSI sales (1)           127,140                       38,571                                       230                                         384,268                      38,571        896
                                                                                                           %                                                                                     %




       Net Sales                       $
         384,080                           $
              292,791                             31                                 $
       1,237,920          $
     844,387   47
                                                                                                                                %                                                                      %


              
                (1)              The current third fiscal quarter
                                               and first nine months results
                                               include two incremental months
                                               (November and December) and
                                               eight incremental months (May
                                               through December),
                                               respectively, of results from
                                               the Company's acquisition of
                                               RSI Home Products, Inc.
                                               ("RSI"), which closed December
                                               29, 2017.

                                                                
     
           Reconciliation of Adjusted Non-GAAP Financial Measures to the GAAP Equivalents




                                                                                                     Three Months Ended                                
        
               Nine Months Ended


                                                                                 
              
                January 31                                       
        
               January 31



       (in thousands)                                                        2019                                               2018                          2019                       2018

    ---




       Net income (GAAP)                                                             $
              18,409                                                 $
        1,996                              $
             61,664   $
      44,032



       Add back:



             Income tax expense                                             5,717                                                1,768                                        20,410                         22,567



             Interest (income) expense, net                                 8,836                                                4,035                                        27,204                          2,887



             Depreciation and amortization expense                         11,308                                                6,602                                        33,534                         17,579



             Amortization of customer relationship intangibles



                and trademarks                                             12,250                                                4,083                                        36,750                          4,083




       EBITDA (Non-GAAP)                                                             $
              56,520                                                $
        18,484                             $
             179,562   $
      91,148



       Add back:



             Acquisition related expenses (1)                                 593                                               10,163                                         4,002                         10,163



             Inventory step-up amortization                                                                                     6,334                                                                       6,334



             Unrealized gain on foreign exchange forward



                contracts (2)                                               (490)                                                                                            (291)



             Net gain on debt forgiveness and modification (3)            (5,171)                                                                                          (5,171)



             Stock-based compensation expense                                 668                                                  897                                         2,290                          2,506



             Loss on asset disposal                                            76                                                  147                                           661                            280



       Adjusted EBITDA (Non-GAAP)                                                    $
              52,196                                                $
        36,025                             $
             181,053  $
      110,431





       Net Sales                                                                    $
              384,080                                               $
        292,791                           $
             1,237,920  $
      844,387



       Adjusted EBITDA margin (Non-GAAP)                           13.6
            %                                      12.3
            %                               14.6
            %                 13.1
           %


              
                (1)              Acquisition related expenses are
                                               comprised of expenses related
                                               to the RSI acquisition and the
                                               subsequent restructuring
                                               charges that the Company
                                               incurred.



              
                (2)              In the normal course of business
                                               the Company is subject to risk
                                               from adverse fluctuations in
                                               foreign exchange rates.  The
                                               Company manages these risks
                                               through the use of foreign
                                               exchange forward contracts.
                                               The changes in the fair value
                                               of the forward contracts are
                                               recorded in other expense
                                               (income) in the operating
                                               results.



              
                (3)              The Company had loans and
                                               interest forgiven relating to
                                               four separate economic
                                               development loans totaling $5.5
                                               million and the Company
                                               incurred $0.3 million in loan
                                               modification expense with
                                               amendment to the credit
                                               agreement during the third
                                               quarter of fiscal 2019.

                                                                
     
               Reconciliation of Net Income to Adjusted Net Income




                                                                                               Three Months Ended                                   Nine Months Ended


                                                                            
             
                January 31,                         
        
               January 31,



       (in thousands, except share data)                                2019                              2018                   2019                       2018

    ---




       Net income (GAAP)                                                       $
              18,409                                      $
        1,996                   $
          61,664                           $
        44,032



       Add back:



             Acquisition related expenses                                593                                         10,163                               4,002               10,163



             Inventory step-up amortization                                                                          6,334                                                   6,334



             Amortization of customer relationship intangibles



                and trademarks                                        12,250                                          4,083                              36,750                4,083



             Net gain on debt forgiveness and modification           (5,171)                                                                          (5,171)



             Tax benefit of add backs                                (1,972)                                       (5,836)                            (9,061)             (5,836)




       Adjusted net income (Non-GAAP)                                          $
              24,109                                     $
        16,740                   $
          88,184                           $
        58,776





       Weighted average diluted shares                            17,216,327                                     16,690,760                          17,466,936           16,451,509



       Adjusted EPS per diluted share (Non-GAAP)                                 $
              1.40                                       $
        1.00                     $
          5.05                             $
        3.57




                                                                          
             
                Free Cash Flow




                                                                                                                                                                                            Nine Months Ended


                                                                                                                                                                                
             
        January 31,


                                                                                                                                                                                      2019                    2018






       Cash provided by operating activities                                  $
              137,950                                     $
        48,881



       Less: Capital expenditures (1)                                                                                                                                       31,756                           32,919




       Free cash flow                                                         $
              106,194                                     $
        15,962


     
     (1) Capital expenditures consist of
              cash payments for property, plant
              and equipment and cash payments
              for investments in displays.
              During the first nine months of
              fiscal 2019 and 2018,
              approximately $6.6 million and
              $12.4 million, respectively, in
              cash outflows were incurred
              related to the new company
              headquarters.

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SOURCE American Woodmark Corporation