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Xerium Technologies, Inc. (XRM)

Q2 2012 Earnings Call

August 7, 2012 9:00 AM ET


Kevin McDougall – EVP and General Counsel

Stephen Light – Chairman, President and CEO

Clifford Pietrafitta – EVP and CFO


Mark Tobin – ROTH Capital Partners

John Pace – Stone Harbor Investments

Swaraj Chowdhury – Dalton Investments

Richard Kus – Jefferies

John Koerber – Bennett Management

Thomas Howard – UBS



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Ladies and gentlemen, welcome to the Xerium Technologies second quarter 2012 financial results conference call on August 7, 2012. I would now like to hand the conference over to Kevin McDougall, Executive Vice President and General Counsel.

Kevin McDougall

Thank you and welcome to Xerium Technologies second quarter 2012 financial results conference call. Joining me this morning are Stephen Light, CEO, Chairman and President of Xerium Technologies, and Cliff Pietrafitta, Executive Vice President and Chief Financial Officer.

Stephen will start the discussion this morning with an update on our progress and then we’ll provide further financial details with respect to the quarter. Subsequently, we will open the lines for questions.

Xerium Technologies financial results for the quarter were announced in a press release after market close on Monday, August 6, 2012. Notification of this call was broadly disclosed and this conference call is being webcast using the link on the Investor Relations home page on our website at

We have also posted a slide presentation on our website which we will refer to during this conference call. I’d also note that we’ll make comments today about future expectations, plans, and prospects for the company such as our general expectations for 2012.

These statements constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Legal Reform Act of 1995.

Our actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors including those described in Monday’s press release, in our slide presentation, and in our SEC filings. The forward-looking statements represent our view as of today, August 7, 2012, and we specifically disclaim any obligation to update these forward-looking statements.

Lastly on this call, we plan to discuss supplementary non-GAAP financial measures such as adjusted EBITDA that are key metrics for our credit facility covenants and that we use internally to assess liquidity and financial performance and, therefore, believe will assist you in better understanding our company.

Reconciliations of these measures through comparable GAAP numbers are available on our press release and in our materials which are each posted in the Investor Relations section of our website at With that, I’d like to turn the call over the Stephan.

Stephen Light

Thanks, Kevin. Good morning, ladies and gentlemen. Thank you for joining us this morning to review Xerium’s second quarter performance. Much has occurred during the second quarter that advances our business and we’ll discuss some of that this morning.

When we last spoke in May, we were optimistic about the initial signs of Europe’s recovery we were seeing. However, the European crisis continues to linger and the Euro remains depressed, so our business in Europe in Q2 was slower than we’d anticipated.

Meanwhile, the other markets we serve are stable or growing. In fact, this quarter’s results paint two distinctly different pictures – Europe and the rest of the world – in stark contrast with the rest of the world performing at improving levels while Europe being the one drag we have.

But even with the European crisis continuing, we substantially improved our consolidated gross margins by nearly three full percentage points from the first quarter as a result of our cost reduction activities and favorable product mix which partially offset Europe’s below expectation volume.

We also significantly improved our adjusted EBITDA from Q1. In the quarter, we increased consolidated adjusted EBITDA by 35% over Q1’s results and 21% without unusual adjustments on just a 1.5% consolidated revenue increase.

When we look at these results without Europe, Xerium posted a 5% volume increase and a very strong 78.4% adjusted EBITDA improvement over the prior quarter without consideration of currency changes.

I want to reiterate that this substantial improvement is a result of our relentless focus on continuously reducing operating expenses, improving our product mix, particularly in the roll segment, and to maximizing returns from the new products we’re developing and selling.

Digging in a little deeper, Q2 2012 bookings, as shown on Chart 3 posted on our website, declined 4.9% from Q1 2012. Bookings declined 10.6% from Q2 2011 but just 3% at constant currency rates.

The rolls segments bookings shown on Chart 5 performed better than the PMC segment shown on Chart 4 with only a one-half of 1% quarter over prior quarter reduction while clothing declined 7.5% from the prior quarter without adjusting for currency and just 2.2% at constant currency exchange rates. These bookings decline occurred primarily in Europe.

Regionally, we saw very strong Asian order intake of 17.4% with rolls up 34.5% and clothing up 11.6% when compared the prior sequential quarter. Our customers in Europe remain justifiably concerned about their end markets and they’re doing all they can to hold down their PMC ordering and inventories and they’re stretching the life of their roll covers, so they’re ordering is significantly constrained in both segments.

While we remain optimistic that the pressure on European governments to spur growth will eventually drive the European government to a positive set of actions, we’ve adjusted our expectations of that market’s recovery lower than we had at the end of Q1.

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