Press release

American Woodmark Corporation announces third quarter results

February 25, 2020

WINCHESTER, Va., Feb. 25, 2020 /PRNewswire/ -- American Woodmark Corporation (NASDAQ: AMWD) (the "Company") today announced results for its third fiscal quarter ended January 31, 2020.

Net sales for the third fiscal quarter increased 3.0% to $395.8 million compared with the same quarter of the prior fiscal year.  The Company experienced growth in the builder and home center channels during the third quarter of fiscal year 2020.  Net sales for the first nine months of the current fiscal year increased 1.1% to $1,251.1 million from the comparable period of the prior fiscal year.  The Company experienced growth in the builder channel during the first nine months of fiscal year 2020, which was partially offset by declines in the home center and independent dealers and distributors channels.

Net income was $12.8 million ($0.75 per diluted share) for the third quarter of the current fiscal year compared with $18.4 million ($1.07 per diluted share) in the same quarter of the prior fiscal year.  Net income for the current quarter was negatively impacted by tariffs, particleboard supply disruption costs and expenses related to the completion of our facility move in California.  Net income for the first nine months of the current fiscal year was $61.8 million ($3.65 per diluted share) compared with $61.7 million ($3.53 per diluted share) for the same period of the prior fiscal year.  Adjusted EPS per diluted share was $1.30 for the third quarter of the current fiscal year compared with $1.40 in the same quarter of the prior fiscal year and $5.27 for the first nine months of the current fiscal year compared with $5.05 for the same period of the prior fiscal year.

Adjusted EBITDA for the third fiscal quarter was $50.1 million, or 12.7% of net sales, compared to $52.2 million, or 13.6% of net sales, for the same quarter of the prior fiscal year.  Adjusted EBITDA for the first nine months of the fiscal year was $182.6 million, or 14.6% of net sales, compared to $181.1 million, or 14.6% of net sales, for the same period of the prior fiscal year.

"Although we believe we experienced good growth relative to the market, our third fiscal quarter financials proved to be challenging due to ongoing volatility in the market and a more prominent impact from cost headwinds," said Cary Dunston, Chairman and CEO.  "We had solid growth within our builder, dealer and stock home center businesses, which was partially offset by a decline in our made-to-order home center business.  Margins were challenged due to the completion of our facility move in California and the continued cost associated with tariffs and particle board disruption."

Cash provided by operating activities for the first nine months of the current fiscal year was $112.2 million and free cash flow totaled $80.2 million.  The Company paid down $90.0 million of its term loan facility during the first nine months of the current fiscal year.

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, 2020, 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

     

2020

 

2019

 

2020

 

2019

                   

Net sales

 

$

395,755

   

$

384,080

   

$

1,251,136

   

$

1,237,920

 

Cost of sales & distribution

 

323,407

   

307,227

   

997,219

   

978,569

 
 

Gross profit

 

72,348

   

76,853

   

253,917

   

259,351

 

Sales & marketing expense

 

21,401

   

22,215

   

62,539

   

68,139

 

General & administrative expense

 

26,914

   

27,462

   

86,246

   

86,010

 

Restructuring charges

 

   

26

   

(207)

   

2,061

 
 

Operating income

 

24,033

   

27,150

   

105,339

   

103,141

 

Interest expense, net

 

6,924

   

8,836

   

22,448

   

27,204

 

Other (income) expense, net

 

(165)

   

(5,812)

   

(699)

   

(6,137)

 

Income tax expense

 

4,470

   

5,717

   

21,742

   

20,410

 
 

Net income

 

$

12,804

   

$

18,409

   

$

61,848

   

$

61,664

 

Earnings Per Share:

               

Weighted average shares outstanding - diluted

 

16,974,956

   

17,216,327

   

16,947,449

   

17,466,936

 
                   

Net income per diluted share

 

$

0.75

   

$

1.07

   

$

3.65

   

$

3.53

 

 

Condensed Consolidated Balance Sheet

(Unaudited)

     

January 31

 

 April 30

     

2020

 

2019

           

Cash & cash equivalents

 

$

47,063

   

$

57,656

 

Investments - certificates of deposit

 

   

1,500

 

Customer receivables

 

122,353

   

125,901

 

Inventories

 

121,930

   

108,528

 

Income taxes receivable

 

6,238

   

1,009

 

Other current assets

 

14,627

   

11,441

 
 

Total current assets

 

312,211

   

306,035

 

Property, plant & equipment, net

 

208,780

   

208,263

 

Operating lease assets, net

 

90,530

   

 

Trademarks, net

 

3,056

   

5,555

 

Customer relationship intangibles, net

 

178,861

   

213,111

 

Goodwill

 

767,612

   

767,612

 

Other assets

 

32,784

   

29,355

 
 

Total assets

 

$

1,593,834

   

$

1,529,931

 
           

Current portion - long-term debt

 

$

2,309

   

$

2,286

 

Short-term operating lease liabilities

 

20,837

   

 

Accounts payable & accrued expenses

 

146,056

   

147,304

 
 

Total current liabilities

 

169,202

   

149,590

 

Long-term debt

 

600,573

   

689,205

 

Deferred income taxes

 

56,634

   

64,749

 

Long-term operating lease liabilities

 

73,297

   

 

Other liabilities

 

4,843

   

6,034

 
 

Total liabilities

 

904,549

   

909,578

 

Stockholders' equity

 

689,285

   

620,353

 
 

Total liabilities & stockholders' equity

 

$

1,593,834

   

$

1,529,931

 

Condensed Consolidated Statements of Cash Flows

(Unaudited)

     

Nine Months Ended

     

January 31

     

2020

 

2019

           

Net cash provided by operating activities

 

$

112,208

   

$

137,950

 

Net cash used by investing activities

 

(30,213)

   

(31,299)

 

Net cash used by financing activities

 

(92,588)

   

(143,052)

 

Net decrease in cash and cash equivalents

 

(10,593)

   

(36,401)

 

Cash and cash equivalents, beginning of period

 

57,656

   

78,410

 
           

Cash and cash equivalents, end of period

 

$

47,063

   

$

42,009

 

 

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 acquisition of RSI Home Products, Inc. ("RSI acquisition") and subsequent restructuring charges, (2) the amortization of customer relationship intangibles and trademarks, (3) net gain on debt forgiveness and modification and (4) the tax benefit of RSI acquisition expenses and subsequent restructuring charges, 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 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) stock-based compensation expense, (7) gain/loss on asset disposals, (8) change in fair value of foreign exchange forward contracts and (9) 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 leverage

Net leverage is a performance measure that we believe provides investors a more complete understanding of our leverage position and borrowing capacity after factoring in cash and cash equivalents that eventually could be used to repay outstanding debt.

We define net leverage as net debt (total debt less cash and cash equivalents) divided by the trailing 12 months Adjusted EBITDA.

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 Adjusted Non-GAAP Financial Measures to the GAAP Equivalents

         
   

Three Months Ended

 

Nine Months Ended

   

January 31

 

January 31

(in thousands)

 

2020

 

2019

 

2020

 

2019

                 

Net income (GAAP)

 

$

12,804

   

$

18,409

   

$

61,848

   

$

61,664

 

Add back:

               

      Income tax expense

 

4,470

   

5,717

   

21,742

   

20,410

 

      Interest expense, net

 

6,924

   

8,836

   

22,448

   

27,204

 

      Depreciation and amortization expense

 

12,585

   

11,308

   

36,612

   

33,534

 

      Amortization of customer relationship intangibles

               

         and trademarks

 

12,250

   

12,250

   

36,750

   

36,750

 

EBITDA (Non-GAAP)

 

$

49,033

   

$

56,520

   

$

179,400

   

$

179,562

 

Add back:

               

      Acquisition related expenses (1)

 

60

   

593

   

(29)

   

4,002

 

      Change in fair value of foreign exchange forward

               

         contracts (2)

 

(148)

   

(490)

   

(244)

   

(291)

 

      Net gain on debt forgiveness and modification (3)

 

   

(5,171)

   

   

(5,171)

 

      Stock-based compensation expense

 

1,047

   

668

   

3,122

   

2,290

 

      Loss on asset disposal

 

133

   

76

   

350

   

661

 

Adjusted EBITDA (Non-GAAP)

 

$

50,125

   

$

52,196

   

$

182,599

   

$

181,053

 
                 

Net Sales

 

$

395,755

   

$

384,080

   

$

1,251,136

   

$

1,237,920

 

Adjusted EBITDA margin (Non-GAAP)

 

12.7

%

 

13.6

%

 

14.6

%

 

14.6

%

 

(1)  Acquisition related expenses are comprised of expenses related to the acquisition of RSI Home Products, Inc. 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)

 

2020

 

2019

 

2020

 

2019

                 

Net income (GAAP)

 

$

12,804

   

$

18,409

   

$

61,848

   

$

61,664

 

Add back:

               

      Acquisition related expenses

 

60

   

593

   

(29)

   

4,002

 

      Amortization of customer relationship intangibles

               

         and trademarks

 

12,250

   

12,250

   

36,750

   

36,750

 

      Net gain on debt forgiveness and modification

 

   

(5,171)

   

   

(5,171)

 

      Tax benefit of add backs

 

(3,127)

   

(1,972)

   

(9,327)

   

(9,061)

 

Adjusted net income (Non-GAAP)

 

$

21,987

   

$

24,109

   

$

89,242

   

$

88,184

 
                 

Weighted average diluted shares

 

16,974,956

   

17,216,327

   

16,947,449

   

17,466,936

 

Adjusted EPS per diluted share (Non-GAAP)

 

$

1.30

   

$

1.40

   

$

5.27

   

$

5.05

 

 

Free Cash Flow

                     
                   

Nine Months Ended

                   

January 31

                   

2020

 

2019

                         

Cash provided by operating activities

                 

$

112,208

   

$

137,950

 

Less: Capital expenditures (1)

                 

32,034

   

31,756

 

Free cash flow

                 

$

80,174

   

$

106,194

 

 

(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 2020 and 2019, approximately $0.6 million and $6.6 million, respectively, in cash outflows were incurred related to the new company headquarters.

 

Net Leverage

     
   

Twelve Months Ended

   

January 31

(in thousands)

 

2020

     

Net income (GAAP)

 

$

83,872

 

Add back:

   

      Income tax expense

 

28,532

 

      Interest expense, net

 

30,896

 

      Depreciation and amortization expense

 

48,524

 

      Amortization of customer relationship intangibles

   

         and trademarks

 

49,000

 

EBITDA (Non-GAAP)

 

$

240,824

 

Add back:

   

      Acquisition related expenses (1)

 

85

 

      Change in fair value of foreign exchange forward contracts (2)

 

47

 

      Net gain on debt forgiveness and modification (3)

 

(95)

 

      Stock-based compensation expense

 

3,873

 

      Loss on asset disposal

 

1,662

 

Adjusted EBITDA (Non-GAAP)

 

$

246,396

 
     
   

As of

   

January 31

   

2020

Current maturities of long-term debt

 

$

2,309

 

Long-term debt, less current maturities

 

600,573

 

Total debt

 

602,882

 

Less: cash and cash equivalents

 

(47,063)

 

Net debt

 

$

555,819

 
     

Net leverage (4)

 

2.26

 

 

(1)  Acquisition related expenses are comprised of expenses related to the acquisition of RSI Home Products, Inc. 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 $0.1 million during the fourth quarter of fiscal year 2019.

(4)  Net debt divided by Adjusted EBITDA for the twelve months ended January 31, 2020.

 

View original content: http://www.prnewswire.com/news-releases/american-woodmark-corporation-announces-third-quarter-results-301010142.html

SOURCE American Woodmark Corporation

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