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