- On a constant currency basis, Q3 2013 sales increased 0.2% from Q3 2012. See “Segment Information” and “Non-GAAP Financial Measures” below for further discussion.
- Q3 2013 sales per employee were $171k, remaining at a four year high.
- Backlog at September 30, 2013 was $156 million, slightly down from backlog at June 30, 2013, but consistent with seasonal expectations regarding orders.
- 2013 September Year-To-Date (YTD) sales were $413.2 million. Excluding foreign currency effects, YTD sales increased $9.1 million, or 2.2%, versus the comparable prior year period. This sales growth is in line with global paper market trade group estimates.
- Excluding foreign currency effects, sales increased across all regions, $4.2 million or 5.5% in Asia, $2.8 million or 2.0% in Europe and $2.1 million or 1.1% in the Americas.
- Constant currency sales growth was higher in rolls & mechanical services at $5.7 million, or 4.1%, than in machine clothing, which grew $3.4 million, or 1.3%.
- Sales growth continues to be hampered by lack of production capacity in multiple product areas. The Company is progressively working to eliminate these bottlenecks.
- For the last twelve months, sales and orders are exactly balanced on a constant currency basis at $542.2 million.
- Q3 2013 Adjusted EBITDA was $27.2 million, or 20.2% of sales. This is an increase of $2.8 million or 11.5% versus Q3 2012. See "Non-GAAP Financial Measures" below.
- September 2013 YTD Adjusted EBITDA was $83.3 million. This is an increase of $14.6 million or 21% over the comparable prior year period.
- Sales growth accounts for 27% and net cost reduction accounts for 73% of the September 2013 YTD Adjusted EBITDA improvement.
- SG&A continues to trend lower in both dollars and percentage. The improvement is primarily driven by cost reduction programs.
- Gross profit and gross margin continue to trend higher. The improvement is primarily driven by cost reduction programs.
- Compared to last year, cost reduction programs delivered an incremental $7.0 million in Q3 and an incremental $18.0 million through September 2013. This compares to $5.4 million in Q1 2013 and $5.6 in Q2 2013.
- Plant efficiency programs (waste reduction, procurement programs, productivity and logistics programs) account for approximately 40% of the YTD cost reduction improvements while restructuring programs account for 60% of the YTD cost reduction improvements.
- In Q3, Xerium announced plans to build a new, high-end press felt plant near Shanghai, China. This is anticipated to deliver both cost reduction and sales growth results.
- In Q3, the Company identified its restructuring goals targeted for implementation in Q1 2014.
- Ordering long lead time equipment;
- Making restructuring/severance payments;
- Finishing 4 plant closures, while 7 plant expansions are currently underway;
- Initiating the next plant closure;
- Building the new greenfield plant in China;
- Expanding the Company's after-market rolls and service footprint and capabilities;
- Implementing 10 new product programs that open new market aperture for Xerium to grow sales in the future; and
- Lowering its net debt to $394.4 million. Net debt leverage continues to improve in line with Adjusted EBITDA improvements, declining to approximately 3.8x Adjusted EBITDA.
Harold Bevis, Xerium's President and Chief Executive Officer said:“Third quarter 2013 performance was as expected. The business continues to be commercially steady and predictable with established trends. Adjusted EBITDA rates continue to increase due to explicit cost reduction actions which are being progressively implemented. We have identified numerous opportunities to advance the Company’s sales and Adjusted EBITDA, and we have prioritized them to achieve the proper balance amongst: * Short-term results versus long term results; * High-risk projects versus low-risk projects; * Cost reduction programs versus sales growth programs; * New product development versus next generation advancement of existing products; and * Maintenance of current business/capabilities versus implementation of new business/capabilities." “We have a large backlog going into the 4 th quarter of 2013 and into 2014, and we see no substantial commercial changes to the business right now, including any end-of-the-year timing events in the industry. The Company is committed to the continuous pursuit and implementation of measurable and sustainable advancement. We intend to keep increasing our Adjusted EBITDA for multiple years including 2014 and we are finalizing the next slate of major actions right now. We are already committed to a significant portion of our discretionary 2014 capex spend as we have advance-ordered multiple long lead time machines." “We are reinvesting the majority of our free cash flow back into the business right now and we will continue to do that in 2014. We will not need to do this indefinitely, but we feel we are catching-up right now, on top of normal needs. We need a few less plants in high-cost areas, a few more machines to debottleneck our sales growth avenues, a bit more production in low cost areas, more removal of SG&A redundancy and reorganization of our human resources into a leaner forward-looking profile."
“The new China clothing plant positively impacts 2016 and beyond. It will be a game-changer cost structure for the Company as well as increasing our customer service response times to Chinese customers. The China market is the largest in the world and we need to get set up correctly for the long term. The China investment decision demonstrates our top-down commitment to making material changes to Xerium’s business model."“2014 and 2015 improvements are based upon a different set of decisions and actions. These improvements involve risk-taking and benefit from thoughtful planning. We like our improvement pace and we are designing plans for meaningful Adjusted EBITDA improvements for 2014 and 2015." “Our cumulative goal is to progressively lay the foundation for higher performance. Our historical and legacy customers are doing well, but some are undergoing change. They need Xerium to be an even stronger valued partner than before, and we feel we are doing that. Our R&D function is focused and we are pursuing a slate of both next generation and new products. The collective goal of our 3,200 employees is to deliver incrementally higher value and achieve incrementally better results. Expect steady and solid advancement, built upon explicit and measurable actions.” Third Quarter Financial Highlights:
- Net sales in the third quarter were $135.0 million, an increase of 0.6% compared to $134.2 million in the third quarter of 2012. Excluding favorable currency effects of $0.6 million, third quarter 2013 net sales increased 0.2% from the third quarter of 2012, with an increase of 2.2% in the roll covers segment partially offset by a decrease of (0.9)% in the clothing segment. Net sales for the nine months ended September 30, 2013 were $413.2 million, an increase of 2.0% from $405.0 million in 2012. Excluding unfavorable currency effects of $(0.9) million, net sales for the nine months ended September 30, 2013 increased 2.2% from 2012, with an increase of 1.3% in the clothing segment and an increase of 4.1% in the roll covers segment. See “Segment Information” and “Non-GAAP Financial Measures” below for further discussion.
- Gross profit increased $4.2 million, or 8.6% from gross profit in the third quarter of 2012, and gross margin improved to 39.5% in the third quarter of 2013 from 36.6% in the third quarter of 2012. These improved results were largely due to reduced operating costs as a result of restructuring savings and operational efficiencies, partially offset by unfavorable regional and product sales mix. For the nine months ended September 30, 2013, gross profit increased by 9.5% over gross profit for the nine months ended September 30, 2012, and gross margin increased to 38.9% from 36.2% for the nine months ended September 30, 2012. These increases were primarily driven by incremental savings from cost reduction programs and operational efficiencies and favorable factory overhead absorption, partially offset by unfavorable regional and product sales mix.
- The Company's operating expenses (selling, general and administrative and research and development expenses) of $34.9 million for the third quarter of 2013 decreased by $2.0 million, or 5.4%, from operating expenses of $36.9 million in the third quarter of 2012. This decrease is comprised of our cost reduction activities of $2.9 million and a decrease of $1.6 million due to charges recorded in 2012 related to CEO transition costs. Offsetting these decreases was an increase of $1.3 million in management incentive expense in 2013, an increase of $0.6 million in professional fees and China press felt plant startup costs of $0.3 million.
- Restructuring expenses were $3.0 million in the third quarter of 2013. These included charges relating to previously announced headcount reductions and the closure of a clothing facility in Spain.
- Net interest expense was $9.4 million for the third quarter of 2013 compared to $9.8 million for the third quarter of 2012. The decrease was primarily related to lower average debt balances and amortization of deferred financing fees during the third quarter of 2013 versus the third quarter of 2012. Interest expense less amortization of deferred financing costs was $8.7 million for the third quarter of 2013 and $8.8 million for the third quarter of 2012.
- Income tax provision increased to $3.1 million in the third quarter of 2013 from $0.1 million in the third quarter of 2012. Excluding the effects of restructuring activities, our effective tax rate for the third quarter of 2013 was 37.0%. This overall effective tax rate reflects the fact that we have losses in certain jurisdictions where we receive no tax benefit.
- Net income for the third quarter of 2013 was $2.1 million or $0.13 per diluted share, compared to net loss of $(3.7) million or $(0.24) per diluted share for the third quarter of 2012. Included in the per diluted share amounts was $(0.19) and $(0.38) of restructuring costs per diluted share in 2013 and 2012, respectively. The increase in the diluted share amounts was primarily driven by the impact of our cost reduction initiatives and the absence of CEO transition costs in 2013, partially offset by increased management incentive expenses.
- Q3 2013 Adjusted EBITDA was $27.2 million, up 11.5% versus prior year and 2013 year to date Adjusted EBITDA was $83.3 million, an increase of 21% over prior year and ahead of internal plans. Trailing twelve months (TTM) Adjusted EBITDA was $103.9 million, up 14% over the same period last year. See "Non-GAAP Financial Measures" below.
- Cash at September 30, 2013 was $48.8 million, compared to $34.8 million at December 31, 2012. The increase of $14.0 million in the cash balances was primarily due to cash provided by operating activities of $30.4 million, proceeds from the disposition of property and equipment of $2.2 million, partially offset by capital expenditures of $15.6 million and $3.0 million in payment of debt refinancing fees. Included as a reduction to cash provided by operating activities was $12.9 million in cash payments for restructuring activities.
- Trade Working Capital increased to $145.8 million at September 30, 2013 from $131.1 million at December 31, 2012. This increase was primarily the result of the increased sales volume impact on accounts receivable, a temporary lag in accounts receivable days outstanding and an increase in inventory levels due to an anticipated increase in production levels. See "Trade Working Capital" below.
- Total Debt at September 30, 2013 was $443.2 million compared to $445.0 million at December 31, 2012. The decrease of $1.8 million is primarily due to favorable currency effects of $2.0 million.
- Capital expenditures for the nine months ended September 30, 2013 were $15.6 million and $13.2 million for the same period in 2012.
|Net Sales For The|
|Three Months Ended|
|September 30, 2013||September 30, 2012||$ Change||Currency Effect of $ Change||% Change||% Change Excluding Currency|
|Net Sales For The|
|Nine Months Ended|
|September 30, 2013||September 30, 2012||$ Change||Currency Effect of $ Change||% Change||% Change Excluding Currency|
|September 30, 2013||December 31, 2012||$ Fav/ (Unfav) Change|
|Trade Receivables, Net (1)||$||91,793||$||83,567||$||(8,226||)|
|Trade Accounts Payable (2)||(27,453||)||(29,909||)||(2,456||)|
CONFERENCE CALLThe Company plans to hold a conference call on the following morning:
|Date: Thursday, November 7, 2013|
|Start Time: 9:00 a.m. Eastern Time|
|Domestic Dial-In: +1-800-510-0219|
|International Dial-In: +1-617-614-3451|
About Xerium TechnologiesXerium Technologies, Inc. (NYSE:XRM) is a leading global provider of industrial consumable products and services. Xerium, which operates around the world under a variety of brand names, utilizes a broad portfolio of patented and proprietary technologies to provide customers with tailored solutions and products integral to production, all designed to optimize performance and reduce operational costs. With 28 manufacturing facilities in 12 countries around the world, Xerium has approximately 3,200 employees. FORWARD-LOOKING STATEMENTS This press release contains forward-looking statements. The words “believe,” “estimate,” “expect,” “intend,” “anticipate,” “goals,” variations of such words, and similar expressions identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. The forward-looking statements in this release include statements regarding our anticipated sales performance, cost savings measures, future efforts to improve overall performance and backlog. Forward-looking statements are not guarantees of future performance, and actual results may vary materially from the results expressed or implied in such statements. Differences may result from actions taken by us, as well as from risks and uncertainties beyond our control. These risks and uncertainties include the following items: (1) our expected sales performance and our backlog of sales may not be fully realized; (2) our cost reduction efforts, including our restructuring activities, may not have the positive impacts we anticipate; (3) our financial results could be adversely affected by fluctuations in interest rates and currency exchange rates, for instance a marked decline in the value of the Euro relative to the U.S. Dollar; (4) market improvement in our industry may occur more slowly than we anticipate, may stall or may not occur at all; (5) variations in demand for our products, including our new products, could negatively affect our revenues and profitability; (6) our manufacturing facilities may be required to quickly increase or decrease production, which could negatively affect our production facilities, customer order lead time, product quality, labor relations or gross margin; (7) our plans to develop and market new products, enhance operational efficiencies, and reduce costs may not be successful; (8) we are subject to execution risk related to the startup of our proposed new facility in China and (9) the other risks and uncertainties discussed elsewhere in this press release, our Form 10-K for the year ended December 31, 2012 filed on March 11, 2013 and our other SEC filings. If any of these risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary significantly from what we projected. Any forward-looking statement in this press release reflects our current views with respect to future events. Except as required by law, we assume no obligation to publicly update or revise these forward-looking statements for any reason, whether as a result of new information, future events, or otherwise. As discussed above, we are subject to substantial risks and uncertainties related to current economic conditions, and we encourage investors to refer to our SEC filings for additional information. Copies of these filings are available from the SEC and in the investor relations section of our website at www.xerium.com. Selected Financial Data Follows
|Xerium Technologies, Inc. Consolidated Statements of Operations and Comprehensive Income (Loss) (dollars in thousands, except per share data)|
|Three months ended September 30,||Nine months ended September 30,|
|Costs and expenses:|
|Cost of products sold||81,656||85,079||252,628||258,396|
|General and administrative||15,278||15,650||45,418||47,509|
|Research and development||2,382||2,700||7,634||8,531|
|Income from operations||15,450||6,416||45,688||22,490|
|Interest expense, net||(9,378||)||(9,777||)||(31,697||)||(28,494||)|
|Loss on extinguishment of debt||—||—||(3,123||)||—|
|Foreign exchange (loss) gain||(905||)||(202||)||(1,102||)||157|
|Income (loss) before provision for income taxes||5,167||(3,563||)||9,766||(5,847||)|
|Provision for income taxes||(3,063||)||(94||)||(9,055||)||(3,105||)|
|Net income (loss)||$||2,104||$||(3,657||)||$||711||$||(8,952||)|
|Comprehensive income (loss)||$||9,182||$||(1,781||)||$||2,665||$||(15,490||)|
|Net income (loss) per share:|
|Shares used in computing net income (loss) per share:|
|Consolidated Selected Financial Data|
|Cash Flow Data: (in thousands)||Nine months ended September 30,|
|Net cash provided by operating activities||$||30,431||$||30,917|
|Net cash used in investing activities||$||(13,327||)||$||(11,844||)|
|Net cash used in financing activities||$||(2,878||)||$||(22,382||)|
|Other Financial Data: (in thousands)|
|Depreciation and amortization||$||27,419||$||30,242|
|Capital expenditures, gross||$||(15,562||)||$||(13,222||)|
|Balance Sheet Data: (in thousands)||September 30, 2013||December 31, 2012|
|Cash and cash equivalents||$||48,782||$||34,777|
|Total stockholders’ deficit||$||(25,369||)||$||(29,061||)|
EBITDA is defined as net income (loss) before interest expense, income tax provision (benefit) and depreciation (including non-cash impairment charges) and amortization.“Adjusted EBITDA” means, with respect to any period, the total of (A) the consolidated net income for such period, plus (B) without duplication, to the extent that any of the following were deducted in computing such consolidated net income for such period: (i) provision for taxes based on income or profits, including, without limitation, federal, state, provincial, franchise and similar taxes, including any penalties and interest relating to any tax examinations, (ii) consolidated interest expense, (iii) consolidated depreciation and amortization expense, (iv) reserves for inventory in connection with plant closures, (v) consolidated operational restructuring costs, subject to annual limitations provided for in our credit facility, (vi) noncash charges resulting from the application of purchase accounting, including push-down accounting, (vii) non-cash expenses resulting from the granting of common stock, stock options, restricted stock or restricted stock unit awards under equity compensation programs solely with respect to common stock, and cash expenses for compensation mandatorily applied to purchase common stock, (viii) non-cash items relating to a change in or adoption of accounting policies, (ix) non-cash expenses relating to pension or benefit arrangements, (x) expenses incurred as a result of the repurchase, redemption or retention of common stock earned under equity compensation programs solely in order to make withholding tax payments, (xi) amortization or write-offs of deferred financing costs, (xii) any non-cash losses resulting from mark to market hedging obligations (to the extent the cash impact resulting from such loss has not been realized in such period) and (xiii) other non-cash losses or charges (excluding, however, any non-cash loss or charge which represents an accrual of, or a reserve for, a cash disbursement in a future period), minus (C) without duplication, to the extent any of the following were included in computing consolidated net income for such period, (i) non-cash gains with respect to the items described in clauses (vi), (vii), (ix), (xi), (xii) and (xiii) (other than, in the case of clause (xiii), any such gain to the extent that it represents a reversal of an accrual of, or reserve for, a cash disbursement in a future period) of clause (B) above and (ii) provisions for tax benefits based on income or profits. Notwithstanding the foregoing, Adjusted EBITDA, as defined in the credit facility and calculated below, may not be comparable to similarly titled measurements used by other companies.
Consolidated net income is defined as net income (loss) determined on a consolidated basis in accordance with GAAP; provided, however, that the following, without duplication, shall be excluded in determining consolidated net income: (i) any net after-tax extraordinary or non-recurring gains, losses or expenses (less all fees and expenses relating thereto), (ii) the cumulative effect of changes in accounting principles, (iii) any fees and expenses incurred during such period in connection with the issuance or repayment of indebtedness, any refinancing transaction or amendment or modification of any debt instrument, in each case, as permitted under the credit facility and (iv) any cancellation of indebtedness income.The following table provides reconciliation from net income (loss) and operating cash flows, which are the most directly comparable GAAP financial measures, to EBITDA and Adjusted EBITDA.
|Three Months Ended September 30,||Nine months ended September 30,||Twelve Months Ended September 30,|
|Net income (loss)||$||2,104||$||(3,657||)||711||$||(8,952||)||(8,371||)|
|Amortization of intangibles||407||576||1,368||1,729||1,944|
|Deferred financing cost amortization||675||971||2,293||2,707||3,010|
|Foreign exchange loss on revaluation of debt||(1,296||)||344||1,626||879||2,039|
|Gain (loss) on disposition of property and equipment||161||(40||)||154||(656||)||235|
|Loss on extinguishment of debt||—||—||3,123||—||2,880|
|Net change in operating assets and liabilities||4,986||7,053||(8,453||)||3,906||3,597|
|Net cash provided by operating activities||16,559||16,966||30,431||30,917||39,548|
|Interest expense, excluding amortization||8,703||8,806||29,404||25,787||38,071|
|Net change in operating assets and liabilities||(4,986||)||(7,053||)||8,453||(3,906||)||(3,597||)|
|Current portion of income tax expense||2,472||116||7,716||3,488||8,915|
|Foreign exchange loss on revaluation of debt||1,296||(344||)||(1,626||)||(879||)||(2,039||)|
|(Loss) gain on disposition of property and equipment||(161||)||40||(154||)||656||(235||)|
|Loss on extinguishment of debt||—||—||(3,123||)||—||(2,880||)|
|Loss on extinguishment of debt||—||—||3,123||—||2,880|
|Operational restructuring expenses||3,034||5,840||8,454||10,943||23,219|
|Legal fees related to term debt amendment||—||30||—||115||—|
|Inventory write off||—||—||692||—||692|
|Non-restructuring impairment expense||1||—||667||—||1,862|
|Non-recurring CEO retirement expenses||—||1,600||—||3,096||289|
|China plant startup costs||296||—||296||—||296|