Press release

American Woodmark Corporation announces third quarter results

February 26, 2019

WINCHESTER, Va., Feb. 26, 2019 /PRNewswire/ -- American Woodmark Corporation (NASDAQ: AMWD) (the "Company") today announced results for its third fiscal quarter ended January 31, 2019.

Net sales for the third fiscal quarter increased 31% to $384 million compared with the same quarter of the prior fiscal year.  Net sales for the first nine months of the current fiscal year increased 47% to $1,238 million from the comparable period of the prior fiscal year.  The current third fiscal quarter and first nine months results include two incremental months (November and December) and eight incremental months (May through December), 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 third fiscal quarter increased 1% to $257 million compared with the same quarter of the prior fiscal year and net sales for the first nine months of the current fiscal year increased 6% to $854 million compared to the first nine months of the prior fiscal year.  Excluding the impact of the RSI acquisition, the Company experienced growth in the builder channel and independent dealers and distributors channel during the third quarter of fiscal year 2019.  Excluding the impact of the RSI acquisition, the Company experienced growth in all channels during the first nine months of fiscal year 2019 versus the comparable prior year period.

Net income was $18.4 million ($1.07 per diluted share) for the third quarter of the current fiscal year compared with $2.0 million ($0.12 per diluted share) in the same quarter of the prior fiscal year.  Net income for the current quarter was positively impacted by the RSI acquisition, lower acquisition related expenses of $15.9 million, an unrealized gain on foreign exchange contracts of $0.5 million and a net gain on debt forgiveness and modification of $5.2 million which were all partially offset by additional intangible asset amortization of $8.2 million.  Net income for the first nine months of the current fiscal year was $61.7 million ($3.53 per diluted share) compared with $44.0 million ($2.67 per diluted share) for the same period of the prior fiscal year.  Adjusted EPS per diluted share was $1.40 for the third quarter of the current fiscal year compared with $1.00 in the same quarter of the prior fiscal year and $5.05 for the first nine months of the current fiscal year compared with $3.57 for the same period of the prior fiscal year.

Adjusted EBITDA for the third fiscal quarter was $52.2 million, or 13.6% of net sales, compared to $36.0 million, or 12.3% of net sales, for the same quarter of the prior fiscal year.  Adjusted EBITDA for the first nine months of the fiscal year was $181.1 million, or 14.6% of net sales, compared to $110.4 million, or 13.1% of net sales, for the same period of the prior fiscal year.  The increase is primarily due to the inclusion of two incremental months during the current fiscal third quarter and eight incremental months during the current fiscal year, respectively, of results for RSI.

"Despite the volatility within our industry, we are pleased with the overall performance of our third fiscal quarter," said Cary Dunston, Chairman and CEO.  "We saw solid growth in our new construction and dealer/distributor businesses while continuing to drive leverage through our low cost supply chain.  Although market uncertainty continues, we remain very focused on our strategic positioning and continuing to strengthen our competitive advantage in the market."

Cash provided by operating activities for the first nine months of the current fiscal year was $138.0 million.  Free cash flow totaled $106.2 million for the first nine months of the current fiscal year.  The Company paid down $99.0 million of its term loan facility during the first nine months of the current fiscal year and repurchased 628,714 shares of common stock at a cost of $41.0 million.

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 January 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

 

Nine Months Ended

     

January 31

 

January 31

     

2019

 

2018

 

2019

 

2018

                   

Net sales

 

$

384,080

   

$

292,791

   

$

1,237,920

   

$

844,387

 

Cost of sales & distribution

 

307,227

   

242,412

   

978,569

   

678,179

 
 

Gross profit

 

76,853

   

50,379

   

259,351

   

166,208

 

Sales & marketing expense

 

22,215

   

19,167

   

68,139

   

55,397

 

General & administrative expense

 

27,462

   

23,492

   

86,010

   

41,442

 

Restructuring charges

 

26

   

   

2,061

   

 
 

Operating income

 

27,150

   

7,720

   

103,141

   

69,369

 

Interest expense, net

 

8,836

   

4,035

   

27,204

   

2,887

 

Other income, net

 

(5,812)

   

(79)

   

(6,137)

   

(117)

 

Income tax expense

 

5,717

   

1,768

   

20,410

   

22,567

 
 

Net income

 

$

18,409

   

$

1,996

   

$

61,664

   

$

44,032

 

 

Earnings Per Share:

               

Weighted average shares outstanding - diluted

 

17,216,327

   

16,690,760

   

17,466,936

   

16,461,509

 
                   

Net income per diluted share

 

$

1.07

   

$

0.12

   

$

3.53

   

$

2.67

 

 

Condensed Consolidated Balance Sheet

(Unaudited)

     

January 31

 

 April 30

     

2019

 

2018

           

Cash & cash equivalents

 

$

42,009

   

$

78,410

 

Investments - certificates of deposit

 

2,500

   

8,000

 

Customer receivables

 

117,198

   

136,355

 

Inventories

 

116,116

   

104,801

 

Income taxes receivable

 

791

   

25,996

 

Other current assets

 

13,884

   

10,805

 
 

Total current assets

 

292,498

   

364,367

 

Property, plant & equipment, net

 

211,977

   

218,102

 

Investments - certificates of deposit

 

   

1,500

 

Trademarks, net

 

6,389

   

8,889

 

Customer relationship intangibles, net

 

224,528

   

258,778

 

Goodwill

 

767,612

   

767,451

 

Other assets

 

29,832

   

26,258

 
 

Total assets

 

$

1,532,836

   

$

1,645,345

 
           

Current portion - long-term debt

 

$

2,300

   

$

4,143

 

Accounts payable & accrued expenses

 

140,212

   

166,312

 
 

Total current liabilities

 

142,512

   

170,455

 

Long-term debt

 

709,818

   

809,897

 

Deferred income taxes

 

66,284

   

71,563

 

Other liabilities

 

6,250

   

11,765

 
 

Total liabilities

 

924,864

   

1,063,680

 

Stockholders' equity

 

607,972

   

581,665

 
 

Total liabilities & stockholders' equity

 

$

1,532,836

   

$

1,645,345

 

 

Condensed Consolidated Statements of Cash Flows

(Unaudited)

     

Nine Months Ended

     

January 31

     

2019

 

2018

           

Net cash provided by operating activities

 

$

137,950

   

$

48,881

 

Net cash used by investing activities

 

(31,299)

   

(28,355)

 

Net cash used by financing activities

 

(143,052)

   

(57,880)

 

Net decrease in cash and cash equivalents

 

(36,401)

   

(37,354)

 

Cash and cash equivalents, beginning of period

 

78,410

   

176,978

 
           

Cash and cash equivalents, end of period

 

$

42,009

   

$

139,624

 

 

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) inventory step-up amortization due to the increase in the fair value of inventory acquired through the RSI acquisition, (3) the amortization of customer relationship intangibles and trademarks, (4) net gain on debt forgiveness and modification and (5) the tax benefit of RSI acquisition expenses and subsequent restructuring charges, the inventory step-up amortization, 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 (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 due to the increase in the fair value of inventory acquired through the RSI acquisition, (7) stock-based compensation expense, (8) gain/loss on asset disposals, (9) unrealized gain/loss on foreign exchange forward contracts and (10) 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 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:

 

Reconciliation of Net Sales and Percentage of Net Sales Excluding RSI

         
   

Three Months Ended

 

Nine Months Ended

   

January 31

 

January 31

(in thousands)

 

2019

 

2018

 

Percent Change

 

2019

 

2018

 

Percent Change

                         

Net sales excluding RSI

 

$

256,940

   

$

254,220

   

1

%

 

$

853,652

   

$

805,816

   

6

%

RSI sales (1)

 

127,140

   

38,571

   

230

%

 

384,268

   

38,571

   

896

%

Net Sales

 

$

384,080

   

$

292,791

   

31

%

 

$

1,237,920

   

$

844,387

   

47

%

 

(1) The current third fiscal quarter and first nine months results include two incremental months (November and December) and eight incremental months (May through December), respectively, of results from the Company's acquisition of RSI Home Products, Inc. ("RSI"), which closed December 29, 2017.

 

Reconciliation of Adjusted Non-GAAP Financial Measures to the GAAP Equivalents

         
   

Three Months Ended

 

Nine Months Ended

   

January 31

 

January 31

(in thousands)

 

2019

 

2018

 

2019

 

2018

                 

Net income (GAAP)

 

$

18,409

   

$

1,996

   

$

61,664

   

$

44,032

 

Add back:

               

      Income tax expense

 

5,717

   

1,768

   

20,410

   

22,567

 

      Interest (income) expense, net

 

8,836

   

4,035

   

27,204

   

2,887

 

      Depreciation and amortization expense

 

11,308

   

6,602

   

33,534

   

17,579

 

      Amortization of customer relationship intangibles

               

         and trademarks

 

12,250

   

4,083

   

36,750

   

4,083

 

EBITDA (Non-GAAP)

 

$

56,520

   

$

18,484

   

$

179,562

   

$

91,148

 

Add back:

               

      Acquisition related expenses (1)

 

593

   

10,163

   

4,002

   

10,163

 

      Inventory step-up amortization

 

   

6,334

   

   

6,334

 

      Unrealized gain on foreign exchange forward

               

         contracts (2)

 

(490)

   

   

(291)

   

 

      Net gain on debt forgiveness and modification (3)

 

(5,171)

   

   

(5,171)

   

 

      Stock-based compensation expense

 

668

   

897

   

2,290

   

2,506

 

      Loss on asset disposal

 

76

   

147

   

661

   

280

 

Adjusted EBITDA (Non-GAAP)

 

$

52,196

   

$

36,025

   

$

181,053

   

$

110,431

 
                 

Net Sales

 

$

384,080

   

$

292,791

   

$

1,237,920

   

$

844,387

 

Adjusted EBITDA margin (Non-GAAP)

 

13.6

%

 

12.3

%

 

14.6

%

 

13.1

%

 

(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.

(3)The Company had loans and interest forgiven relating to four separate economic development loans totaling $5.5 million and the Company incurred $0.3 million in loan modification expense with amendment to the credit agreement during the third quarter of fiscal 2019.

 

Reconciliation of Net Income to Adjusted Net Income

         
   

Three Months Ended

 

Nine Months Ended

   

January 31,

 

January 31,

(in thousands, except share data)

 

2019

 

2018

 

2019

 

2018

                 

Net income (GAAP)

 

$

18,409

   

$

1,996

   

$

61,664

   

$

44,032

 

Add back:

               

      Acquisition related expenses

 

593

   

10,163

   

4,002

   

10,163

 

      Inventory step-up amortization

 

   

6,334

   

   

6,334

 

      Amortization of customer relationship intangibles

               

         and trademarks

 

12,250

   

4,083

   

36,750

   

4,083

 

      Net gain on debt forgiveness and modification

 

(5,171)

   

   

(5,171)

   

 

      Tax benefit of add backs

 

(1,972)

   

(5,836)

   

(9,061)

   

(5,836)

 

Adjusted net income (Non-GAAP)

 

$

24,109

   

$

16,740

   

$

88,184

   

$

58,776

 
                 

Weighted average diluted shares

 

17,216,327

   

16,690,760

   

17,466,936

   

16,451,509

 

Adjusted EPS per diluted share (Non-GAAP)

 

$

1.40

   

$

1.00

   

$

5.05

   

$

3.57

 

 

Free Cash Flow

     
   

Nine Months Ended

   

January 31,

   

2019

 

2018

         

Cash provided by operating activities

 

$

137,950

   

$

48,881

 

Less: Capital expenditures (1)

 

31,756

   

32,919

 

Free cash flow

 

$

106,194

   

$

15,962

 

 

(1) Capital expenditures consist of cash payments for property, plant and equipment and cash payments for investments in displays.  During the first nine months of fiscal 2019 and 2018, approximately $6.6 million and $12.4 million, respectively, in cash outflows were incurred related to the new company headquarters.

 

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SOURCE American Woodmark Corporation

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