American Woodmark Corporation Announces Second Quarter Results
WINCHESTER, Va., Nov. 26, 2019 /PRNewswire/ -- American Woodmark Corporation (NASDAQ: AMWD) (the "Company") today announced results for its second fiscal quarter ended October 31, 2019.
Net sales for the second fiscal quarter increased 0.7% to $428.0 million compared with the same quarter of the prior fiscal year. Net sales for the first six months of the current fiscal year increased 0.2% to $855.4 million from the comparable period of the prior fiscal year. The Company experienced growth in the builder channel during the second quarter and first six months of fiscal year 2020, which was offset by declines in the home center and independent dealers and distributors channels.
Net income was $22.2 million ($1.31 per diluted share) for the second quarter of the current fiscal year compared with $18.5 million ($1.05 per diluted share) in the same quarter of the prior fiscal year. Net income for the current quarter was positively impacted by higher sales, lower selling and marketing expense and lower interest expense. Net income for the first six months of the current fiscal year was $49.0 million ($2.90 per diluted share) compared with $43.3 million ($2.46 per diluted share) for the same period of the prior fiscal year. Adjusted EPS per diluted share was $1.84 for the second quarter of the current fiscal year compared with $1.60 in the same quarter of the prior fiscal year and $3.97 for the first six months of the current fiscal year compared with $3.64 for the same period of the prior fiscal year.
Adjusted EBITDA for the second fiscal quarter was $62.9 million, or 14.7% of net sales, compared to $60.8 million, or 14.3% of net sales, for the same quarter of the prior fiscal year. Adjusted EBITDA for the first six months of the fiscal year was $132.5 million, or 15.5% of net sales, compared to $128.9 million, or 15.1% of net sales, for the same period of the prior fiscal year.
"Relative to the overall market, we are pleased with our revenue and margin performance in the second fiscal quarter," said Cary Dunston, Chairman and CEO. "Our new construction and stock home center business net sales growth was strong. Adjusted EBITDA margins improved over the prior year as our operational performance allowed us to continue to offset much of the cost headwinds we are facing."
Cash provided by operating activities for the first six months of the current fiscal year was $86.2 million and free cash flow totaled $66.1 million. The Company paid down $72.0 million of its term loan facility during the first six months of the current fiscal year.
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 October 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 Six Months Ended October 31 October 31 2019 2018 2019 2018 Net sales $ 428,016 $ 424,878 $ 855,381 $ 853,840 Cost of sales & distribution 340,966 338,116 673,812 671,342 Gross profit 87,050 86,762 181,569 182,498 Sales & marketing expense 20,451 22,986 41,138 45,924 General & administrative expense 29,900 28,718 59,332 58,548 Restructuring charges (188) (406) (207) 2,035 Operating income 36,887 35,464 81,306 75,991 Interest expense, net 7,436 8,943 15,524 18,368 Other (income) expense, net (527) 1,112 (534) (325) Income tax expense 7,815 6,921 17,272 14,693 Net income $ 22,163 $ 18,488 $ 49,044 $ 43,255 Earnings Per Share: Weighted average shares outstanding - diluted 16,955,835 17,588,449 16,932,236 17,589,767 Net income per diluted share $ 1.31 $ 1.05 $ 2.90 $ 2.46
Condensed Consolidated Balance Sheet (Unaudited) October 31 April 30 2019 2019 Cash & cash equivalents $ 51,435 $ 57,656 Investments - certificates of deposit 1,500 Customer receivables 120,118 125,901 Inventories 119,758 108,528 Income taxes receivable 2,704 1,009 Other current assets 15,009 11,441 Total current assets 309,024 306,035 Property, plant & equipment, net 206,899 208,263 Operating lease assets, net 89,662 Trademarks, net 3,889 5,555 Customer relationship intangibles, net 190,278 213,111 Goodwill 767,612 767,612 Other assets 31,300 29,355 Total assets $ 1,598,664 $ 1,529,931 Current portion - long-term debt $ 2,320 $ 2,286 Accounts payable & accrued expenses 167,089 147,304 Total current liabilities 169,409 149,590 Long-term debt 617,930 689,205 Deferred income taxes 59,636 64,749 Long-term operating lease liabilities 72,067 Other liabilities 4,714 6,034 Total liabilities 923,756 909,578 Stockholders' equity 674,908 620,353 Total liabilities & stockholders' equity $ 1,598,664 $ 1,529,931
Condensed Consolidated Statements of Cash Flows (Unaudited) Six Months Ended October 31 2019 2018 Net cash provided by operating activities $ 86,232 $ 107,667 Net cash used by investing activities (18,288) (19,717) Net cash used by financing activities (74,165) (108,498) Net decrease in cash and cash equivalents (6,221) (20,548) Cash and cash equivalents, beginning of period 57,656 78,410 Cash and cash equivalents, end of period $ 51,435 $ 57,862
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) the amortization of customer relationship intangibles and trademarks, (3) net gain on debt forgiveness and modification and (4) the tax benefit of RSI acquisition expenses and subsequent restructuring charges, 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 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) stock-based compensation expense, (7) gain/loss on asset disposals, (8) change in fair value of foreign exchange forward contracts and (9) 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 leverage
Net leverage is a performance measure that we believe provides investors a more complete understanding of our leverage position and borrowing capacity after factoring in cash and cash equivalents that eventually could be used to repay outstanding debt.
We define net leverage as net debt (total debt less cash and cash equivalents) divided by the trailing 12 months Adjusted EBITDA.
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 Adjusted Non-GAAP Financial Measures to the GAAP Equivalents Three Months Ended Six Months Ended October 31 October 31 (in thousands) 2019 2018 2019 2018 --- Net income (GAAP) $ 22,163 $ 18,488 $ 49,044 $ 43,255 Add back: Income tax expense 7,815 6,921 17,272 14,693 Interest expense, net 7,436 8,943 15,524 18,368 Depreciation and amortization expense 12,164 11,458 24,027 22,226 Amortization of customer relationship intangibles and trademarks 12,250 12,250 24,500 24,500 EBITDA (Non-GAAP) $ 61,828 $ 58,060 $ 130,367 $ 123,042 Add back: Acquisition related expenses (1) (130) 649 (89) 3,410 Change in fair value of foreign exchange forward contracts (2) (152) 993 (96) 199 Stock-based compensation expense 1,178 836 2,075 1,622 Loss on asset disposal 151 230 217 584 Adjusted EBITDA (Non-GAAP) $ 62,875 $ 60,768 $ 132,474 $ 128,857 Net Sales $ 428,016 $ 424,878 $ 855,381 $ 853,840 Adjusted EBITDA margin (Non-GAAP) 14.7 % 14.3 % 15.5 % 15.1 % (1) Acquisition related expenses are comprised of expenses related to the acquisition of RSI Home Products, Inc. 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.
Reconciliation of Net Income to Adjusted Net Income Three Months Ended Six Months Ended October 31 October 31 (in thousands, except share data) 2019 2018 2019 2018 --- Net income (GAAP) $ 22,163 $ 18,488 $ 49,044 $ 43,255 Add back: Acquisition related expenses (130) 649 (89) 3,410 Amortization of customer relationship intangibles and trademarks 12,250 12,250 24,500 24,500 Tax benefit of add backs (3,103) (3,291) (6,200) (7,089) Adjusted net income (Non-GAAP) $ 31,180 $ 28,096 $ 67,255 $ 64,076 Weighted average diluted shares 16,955,835 17,588,449 16,932,236 17,589,767 Adjusted EPS per diluted share (Non-GAAP) $ 1.84 $ 1.60 $ 3.97 $ 3.64 Free Cash Flow Six Months Ended October 31 2019 2018 Cash provided by operating activities $ 86,232 $ 107,667 Less: Capital expenditures (1) 20,101 18,150 Free cash flow $ 66,131 $ 89,517 (1) Capital expenditures consist of cash payments for property, plant and equipment and cash payments for investments in displays. During the first six months of fiscal 2020 and 2019, approximately $0.6 million and $4.6 million, respectively, in cash outflows were incurred related to the new company headquarters.
Net Leverage Twelve Months Ended October 31 (in thousands) 2019 --- Net income (GAAP) $ 89,477 Add back: Income tax expense 29,779 Interest expense, net 32,808 Depreciation and amortization expense 47,247 Amortization of customer relationship intangibles and trademarks 49,000 EBITDA (Non- GAAP) $ 248,311 Add back: Acquisition related expenses (1) 619 Change in fair value of foreign exchange forward contracts (2) (295) Net gain on debt forgiveness and modification (3) (5,266) Stock-based compensation expense 3,493 Loss on asset disposal 1,605 Adjusted EBITDA (Non- GAAP) $ 248,467 As of October 31 2019 Current maturities of long-term debt $ 2,320 Long-term debt, less current maturities 617,930 Total debt 620,250 Less: cash and cash equivalents (51,435) Net debt $ 568,815 Net leverage (4) 2.29
(1) Acquisition related expenses are comprised of expenses related to the acquisition of RSI Home Products, Inc. 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 for fiscal year 2019, and the Company incurred $0.3 million in loan modification expense in connection with an amendment to the credit agreement during fiscal year 2019. (4) Net debt divided by Adjusted EBITDA for the twelve months ended October 31, 2019.
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SOURCE American Woodmark Corporation