Xerium Reports Q3 2016 Results
- Q3 2016 Sales of $119.2 million compared to $117.7 in the prior-year; up 0.9% on constant currency basis.
- GAAP operating income of $11.1 million, an increase of 17.9% year-over-year.
- Adjusted EBITDA of $25.9 million, compared to $28.3 million, before giving effect to unfavorable currency impacts of $3.0 million.
- Q3 2016 GAAP operating cash flow of $4.8 million and GAAP capital expenditures of $3.6 million.
- Company reiterates full-year free cash flow guidance of $25 to $30 million and updates EBITDA and leverage guidance.
- Refinanced all existing Senior Unsecured Notes and Term Debt, extending maturities to August of 2021.
Youngsville, NC, October 27, 2016 (BUSINESS WIRE) -- Xerium Technologies, Inc. (NYSE:XRM), a leading, global provider of highly engineered, industrial consumable products and integrated services today reported third quarter 2016 financial results.
Third quarter sales were $119.2 million compared to prior-year sales of $117.7 million. On a constant currency basis, sales were up 0.9%, compared to the third quarter of 2015. Higher sales during the period reflect a 7.3% year-over-year increase in the Company’s Rolls segment, mostly from the recent acquisition of Spencer Johnston. Higher Rolls segment volume was partially offset by a 3.0% decrease in Machine Clothing segment sales on a constant currency basis, due in part to temporary production output issues that the Company is addressing.
GAAP operating income in the third quarter of 2016 was $11.1 million, or 9.3% of sales, an increase from $9.4 million, or 8.0% of sales in the year-ago period due to lower restructuring, startup and overhead costs, partially offset by lower gross margins. Third quarter Adjusted EBITDA was $22.9 million, down $(5.4) million, or (19.1%) from Q3 2015 due to $(3.0) million of unfavorable currency impacts, a weak Brazilian economy, and temporary production output issues that drove unfavorable product mix and margin compression in certain areas. These headwinds were partially offset by the impact of the Spencer Johnston acquisition. On a constant currency basis, Adjusted EBITDA is down (8.5%) from Q3 2015.
During Q3, the Company refinanced its debt and extended its maturities to August 2021 by closing on a $480 million in aggregate principal amount of 9.5% Senior Secured Notes. The Company used the net proceeds to repay all debt outstanding under its term debt facility and its 8.875% Senior Notes due 2018. This refinancing marks an important strategic milestone by extending the Company’s debt maturity to August 2021 and provides the framework for the Company’s debt pay down strategy.
At September 30, 2016, the Company had total liquidity of $34.5 million, and generated free cash flow of $1.2 million during the third quarter of 2016, marking a $3.5 million improvement over the prior year’s quarter. Net debt (which is defined as total debt less cash and excluding deferred finance fees) was $522.9 million at the end of Q3 2016 compared to $499.5 million at the end of Q2 2016. The increase was primarily due to costs of the Company’s refinancing. The Company's net debt leverage ratio on a pro forma basis is 5.2X after factoring in the acquisition of Spencer Johnston (incremental Spencer Johnston pro forma leverage includes incremental debt of $18 million and pro forma full year EBITDA of $6.0 million). The Company plans to utilize its free cash flow to pay down debt and de-lever over the remainder of the year and its debt maturities.
Harold Bevis, President and Chief Executive Officer commented, “Our strategic initiatives to reposition Xerium into better performing end-market segments continue to gain momentum and are evidenced by improving order patterns and an increase in backlog compared to the prior-year. Looking forward, we expect this pattern to continue as we gain market penetration with 49 new product introductions.”
Bevis continued “We are pleased to have extended the maturity of our long-term debt, which substantially de-risks our business and provides runway to execute the Company’s debt reduction initiative. We are equally pleased with the orders and backlog that we are developing due to the success of our commercial repositioning program. We are disappointed by the temporary back-order situation that we have in certain of our high-margin plants, but have taken the steps to redistribute that production over the next few quarters. Currency movements are impacting our US dollar reported results and we are taking the necessary actions to mitigate this as well.
Based on current plans, our net-debt peaked in the third quarter due to debt refinancing costs, and we expect debt levels to decline going forward. In the third quarter we generated our third consecutive quarter of positive free cash flow which keeps us on track to meet our full-year cash flow guidance.”
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