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