American Woodmark Corporation announces second quarter results

Net sales for the second fiscal quarter increased 55% to $424.9 million compared with the same quarter of the prior fiscal year.  Net sales for the first six months of the current fiscal year increased 55% to $853.8 million from the comparable period of the prior fiscal year.  The current second fiscal quarter and first six months results include three and six months, respectively, of results from the Company's acquisition of RSI Home Products, Inc. ("RSI"), which closed December 29, 2017.  Excluding the impact of the RSI acquisition, net sales for the second fiscal quarter increased 8% to $297.7 million compared with the same quarter of the prior fiscal year and net sales for the first six months of the current fiscal year increased 8% to $596.7 million compared to the first six months of the prior fiscal year.  Excluding the impact of the RSI acquisition, the Company experienced growth in all channels during the second quarter and first six months of fiscal year 2019 versus the comparable prior year period.

Net income was $18.5 million ($1.05 per diluted share) for the second quarter of the current fiscal year compared with $19.8 million ($1.21 per diluted share) in the same quarter of the prior fiscal year.  Net income was positively impacted by the RSI acquisition and additional sales volumes which were offset by intangible amortization of $12.3 million, unrealized loss on foreign exchange forward contracts of $1.0 million and a gross margin decline in the core business.  Net income for the first six months of the current fiscal year was $43.3 million ($2.46 per diluted share) compared with $42.0 million ($2.58 per diluted share) for the same period of the prior fiscal year.  Adjusted EPS per diluted share was $1.60 for the second quarter of the current fiscal year compared with $1.21 in the same quarter of the prior fiscal year and $3.64 for the first six months of the current fiscal year compared with $2.58 for the same period of the prior fiscal year.

Adjusted EBITDA for the second fiscal quarter was $60.8 million or 14.3% of net sales compared to $37.0 million or 13.5% of net sales for the same quarter of the prior fiscal year.  Adjusted EBITDA for the first six months of the fiscal year was $128.9 million or 15.1% of net sales compared to $74.4 million or 13.5% of net sales for the same period of the prior fiscal year. The increase is primarily due to sales growth in the quarter and the inclusion of three and six months, respectively, of results for RSI.

"Our second fiscal quarter proved to be more challenging," said Cary Dunston, Chairman and CEO.  "We did experience growth in all channels, continuing to gain share and over-index the market.  However, we faced cost pressures in the quarter that were a challenge to offset in the short-term.  In the mid-term, we remain extremely confident in our efficient supply chain and our ability to offset much of the inflationary headwinds."

Cash provided by operating activities for the first six months of the current fiscal year was $107.7 million.  Free cash flow totaled $89.5 million for the first six months of the current fiscal year. The Company paid down $93.0 million of its term loan facility during the first six months of the current fiscal year and repurchased 189,633 shares of common stock at a cost of $13.2 million.

On November 28, 2018, the Board of Directors authorized an additional stock repurchase program of up to $14 million of the Company's outstanding common shares.  This authorization is in addition to the $22.8 million remaining from the November 30, 2016 authorization.

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, 2018, the Company operated eighteen manufacturing facilities in the United States and Mexico and seven 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.

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, (2) inventory step-up amortization due to the increase in the fair value of inventory acquired through the RSI acquisition, (3) the amortization of intangible assets, and (4) the tax benefit of RSI acquisition expenses and the inventory step-up and intangible amortization.  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 (income) 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) inventory step-up amortization, (7) stock-based compensation expense, (8) gain/loss on asset disposal and (9) unrealized gain/loss on foreign exchange forward contracts.  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 sales excluding RSI sales

To better understand and compare the performance of our core American Woodmark business by our management and our investors, we believe it is helpful to subtract the amount of sales from our recently acquired and now wholly-owned subsidiary, RSI, from our net sales and report this amount with our quarterly earnings announcements.  We may discontinue using this non-GAAP financial measure at a later juncture once RSI has become fully integrated into our Company and the quarter to quarter comparisons of our core business are no longer as helpful to compare performance.

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:

(1) Acquisition related expenses are comprised of expenses related to the RSI acquisition 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.

(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 2019 and 2018, approximately $4.6 million and $6.3 million, respectively, in cash outflows were incurred related to the new company headquarters.

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SOURCE American Woodmark Corporation