Ongoing Price Increases and Cost Actions
Benefit Bottom Line Performance
Continued Success with Transition to Lower
Cost Value Chain Structure Positions Innophos to Improve Earnings
by End of 2019
Innophos Holdings, Inc. (NASDAQ: IPHS) today announced financial
results for its first-quarter ended March 31, 2019.
Strategic Highlights
- Continued progress executing against
our Vision 2022 strategic roadmap and Strategic Pillars
- Contributions from price actions
continued to offset input cost increases
- Advanced the transition to lower cost
value chain structure as the Geismar facility successfully
optimized the processing of the new multi-sourced supply mix and
scaled up to targeted run rates
- On track to realize adjusted diluted
EPS improvement of 10%, or $0.25 to $0.27 per share run rate by the
end of 2019
Q1 2019 Financial
Highlights
- Sales of $191 million were similar
sequentially, but down 7% compared with the prior-year quarter as
pricing power was predominantly offset by the planned
discontinuation of low-margin nutrition trading business and orders
shifting out of the quarter due to timing and Midwest flooding, as
well as weaker than expected demand in certain Industrial
Specialties categories, related in part to “indirect” tariff
effects.
- GAAP Net Income of $9 million, or $0.44
per share, was down 20% from Q1 2018 primarily due to severance
costs and Mexico natural gas supply adjustment charges incurred in
the quarter
- Q1 Adjusted EBITDA of $30 million was
sequentially flat, but down $2 million year-on-year, while adjusted
EBITDA margin of 16% was up 37 bps sequentially and up 4 bps
compared with the prior-year quarter, reflecting improved mix and
continued benefits of price and cost actions
- Q1 Adjusted Diluted EPS decreased 5%
year over year to $0.57 due to lower volumes
Management Comments
“Innophos' first-quarter performance was marked by our ability
to deliver an adjusted EBITDA margin in line with last year,
despite a difficult year-over-year comparison on the top line,”
said Kim Ann Mink, Ph.D., Chairman, President and Chief Executive
Officer. “First-quarter sales were down compared with the
prior-year quarter as Innophos’ pricing power was offset by the
planned discontinuation of low-margin nutrition trading business,
order pattern, and impact from Midwest flooding. In addition, there
was weaker than expected demand in certain industrial categories.
Our ability to maintain an adjusted EBITDA margin equal to last
year was due to our cost management efforts implemented in the
second half of 2018, continued success in capturing price increases
and improved mix. Adjusted EBITDA was sequentially flat, marking
the fourth straight quarter of relatively stable adjusted
EBITDA.
“During the quarter we made progress with our SPARC new product
development program to continue the shift of our product mix to
higher levels of attractive Food, Health & Nutrition (FHN)
business. We also advanced our efforts to transition to our
lower-cost value chain program and we remain on track to achieve
our year-end EPS improvement goal.
“As we proceed in 2019, we will continue to execute against our
key Strategic Pillar initiatives, including completing the
transition of the multi-faceted strategic value chain
repositioning, leveraging our value selling to capture price
increases, and driving growth through both our SPARC new product
development program and evaluating strategic acquisition
opportunities. The impact of these efforts, in part, positions
Innophos to maintain Adjusted EBITDA guidance for the year, despite
resetting revenue guidance to better align with softer market
demand that we began to see in Q1,” concluded Mink.
Q1 2019 Results
Variance $ and Variance % in the following tables and comments
may not foot due to rounding
$ Millions except EPS
Quarter 1 2019
2018 Variance $ Variance % Sales
191 205 (14) (7)% Net
Income 9 11 (2) (20)%
Adj. Net Income 11 12 (1)
(6)% EBITDA 26 30 (4)
(14)% Adj. EBITDA 30 32 (2)
(7)% Diluted EPS 0.44 0.55
(0.11) (20)% Adj. Diluted EPS
0.57 0.61 (0.03) (5)% Cash from Ops
(9) 1 (11) BIG Free Cash Flow
(19) (14) (6) (43)%
- Sales were 7% below prior year as 4%
selling price increases were offset by a 3% volume decline from
discontinued low-margin nutrition trading business, 6% lower
volumes from order pattern and impact from Midwest flooding, and a
2% decline from softer demand in certain industrial market
segments.
- GAAP Net Income of $9 million and
diluted EPS of $0.44 were down versus the prior year due to
severance costs and Mexico natural gas supply adjustment charges
incurred in the first quarter of 2019.
- The previously communicated supply
imbalance in Mexico’s natural gas network was sequentially similar,
with a $2 million impact in the quarter, after $1 million of
adjustments for non-GAAP purposes.
- Adjusted EBITDA of $30 million was down
7% year over year but remained relatively stable for the past four
quarters.
- Adjusted EBITDA margin of 16% was
relatively flat year over year but up 37 basis points
sequentially.
- Adjusted diluted EPS of $0.57 was down
year over year due to lower volumes.
- Free Cash Flow was a use of $19 million
due to seasonal working capital effects.
Q1 2019 Segment
Financials
Q1 Sales
2019 $ Millions 2018 $ Millions
Variance $ Variance % FHN
115 126 (11) (9)% IS
63 63 0 0% Other
13 16 (3) (16)%
Total IPHS
191 205 (14)
(7)%
Q1 Adj. EBITDA 2019 $ Millions
2018 $ Millions 2019 $ Margin
2018 $ Margin FHN 17 21
15% 16% IS 10 11 15%
17% Other 4 1 27%
5%
Total IPHS 30
32 16% 16%
Note: See Adjusted EBITDA reconciliation to EBITDA in the
financial tables that follow
- FHN sales declined 9% year over year
(price +4%, volume -13%) as strong price increases were offset by
lower volumes due to the Company’s decision to discontinue a
portion of low-margin nutrition trading business and order pattern;
adjusted EBITDA margins were sequentially similar to the past three
quarters but 173 bps below Q118 due to increased freight market
rates and other input costs
- IS sales were flat year over year
(price +4%, volume -4%) with volumes impacted by order timing
related to Midwest flooding and softer demand due in part to the
“indirect” unfavorable tariff impact on our international sales
from competition redirecting mostly technical grade product;
adjusted EBITDA margins were up 61 basis points sequentially but
167 basis points below the same quarter last year due to the noted
“indirect” tariff impact
- Other sales were down 16% (price -1%,
volume -16%) due primarily to order pattern; adjusted EBITDA
margins were 27%, up significantly from the prior year due to
improved product mix
Full Year 2019 Outlook
The Company is reiterating its previously provided 2019 Adjusted
EBITDA guidance and reducing its revenue expectations.
Revenues are now forecasted to be 1-2% below 2018 revenue
of $802 million. This revised range reflects the impact from the
softer demand the Company began to experience in Q1 in certain
industrial categories. The Company expects the order pattern and
Midwest flooding timing delays experienced in the first quarter to
rebound over the next two quarters. Additionally, Innophos
continues to expect positive year-over-year revenue contribution
from price increases and new product wins to be offset by the
discontinuation of lower-margin FHN nutrition trading business in
2018, lower co-product sales in the Other segment due to efficiency
improvements, and indirect tariffs pressure from competition
redirecting mostly technical grade product to international
markets.
Innophos continues to expect Adjusted EBITDA to grow 1-3%
in 2019 from $125 million in 2018, with phasing in the range of
42-45% in H1 and 55-58% in H2.
In Q2 2019, Innophos will undergo and complete a planned annual
maintenance shut down on one of its production units at the
Coatzacoalcos, Mexico facility. This will result in $3 million of
maintenance and under-absorption costs, which were already
reflected in the Company’s 2019 guidance.
From a GAAP and cash perspective, the expectation is that costs
will be higher during H1. The anticipated non-recurring portion is
expected to be adjusted for non-GAAP reporting purposes, such as
value chain transition expense, which was completed in Q119, and
Mexico natural gas supply adjustment charges.
Capital investments are expected to be in line with 2018
to finalize the value chain and manufacturing optimization program
that commenced last year. Average working capital is also
estimated to remain in line with 2018.
The Company expects its effective tax rate to operate in
the 28-32% range.
Conference Call
Innophos will host its first-quarter 2019 conference call today
April 30, 2019 at 9:00 am ET to discuss its earnings results. Those
who wish to listen to the conference call webcast should visit the
“Investors” section of the Company’s website at www.innophos.com. The live call also can be
accessed by dialing (877) 604-1612 (U.S.) or (201) 389-0883
(international). No passcode is required. Please dial in
approximately 15 minutes ahead of the start time to ensure timely
entry to the call. The Q1 2019 earnings call presentation will be
made available on the Company’s website prior to the call. If you
are unable to listen to the live call, the webcast will be archived
on the Company’s website. In addition,
a replay of the call will be available between April 30 and May 14,
2019. The replay is accessible by dialing (877) 660-6853 (U.S.) or
(201) 612-7415 (international) and entering the Conference ID
number 13689865.
Additional information on Innophos’ first-quarter 2019 results
can also be found on the Company’s website.
About the Company
Innophos is a leading international producer of specialty
ingredient solutions that deliver far-reaching, versatile benefits
for the food, health, nutrition and industrial markets. We leverage
our expertise in the science and technology of blending and
formulating phosphate, mineral, enzyme and botanical based
ingredients to help our customers offer products that are tasty,
healthy, nutritious and economical. Headquartered in Cranbury, New
Jersey, Innophos has manufacturing operations across the United
States, in Canada, Mexico and China. For more information, please
visit www.innophos.com. 'IPHS-G'
Financial Tables Follow
Safe Harbor for Forward-Looking and
Cautionary Statements
This press release contains or may contain forward-looking
statements within the meaning of Section 27a of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended. The Company intends these forward-looking
statements to be covered by the safe harbor provisions for such
statements. Statements made in this press release that relate
to our future performance or future financial results or other
future events (which may be identified by such terms as “expect”,
“estimate”, “anticipate”, “assume”, “believe”, “plan”, “intend’,
“may”, “will”, “should”, “outlook”, “guidance”, “target”,
“opportunity”, “potential” or similar terms and variations or the
negative thereof) are forward-looking statements, including the
Company’s expectations regarding the business environment and the
Company’s overall guidance regarding future performance and growth.
These statements are based on our current beliefs and expectations
and are subject to significant risks and uncertainties. Actual
results may materially differ from the expectations expressed in or
implied by these forward-looking statements. Factors that
could cause the Company’s actual results to differ materially
include, but are not limited to: (1) global macroeconomic
conditions and trends; (2) the behavior of financial markets,
including fluctuations in foreign currencies, interest rates and
turmoil in capital markets; (3) changes in regulatory controls
regarding tariffs, duties, taxes and income tax rates; (4) the
Company’s ability to implement and refine its Vision 2022 strategic
roadmap; (5) the Company’s ability to successfully identify and
complete acquisitions in line with its Vision 2022 strategic
roadmap and effectively operate and integrate acquired businesses
to realize the anticipated benefits of those acquisitions; (6) the
Company’s ability to realize expected cost savings and efficiencies
from its performance improvement and other optimization
initiatives; (7) the Company’s ability to effectively compete in
its markets, and to successfully develop new and competitive
products that appeal to its customers; (8) changes in consumer
preferences and demand for the Company’s products or a decline in
consumer confidence and spending; (9) the Company’s ability to
benefit from its investments in assets and human capital and the
ability to complete projects successfully and on budget; (10)
economic, regulatory and political risks associated with the
Company’s international operations, most notably Mexico and China;
(11) volatility and increases in the price of raw materials, energy
and transportation, and fluctuations in the quality and
availability of raw materials and process aids; (12) the impact of
a disruption in the Company’s supply chain or its relationship with
its suppliers; (13) the Company’s ability to comply with, and the
costs associated with compliance with, U.S. and foreign
environmental protection laws and (14) the Company’s ability to
meet quality and regulatory standards in the various jurisdictions
in which it has operations or conducts business. We caution
you to consider the important risks and other factors as set forth
in the forward-looking statements section and in Item 1A Risk
Factors in our most recent Annual Report on Form 10-K, as amended
by subsequent reports on Forms 10-Q and 8-K. We do not
undertake to update the forward-looking statements to reflect the
impact of circumstances or events that may arise after the date of
the forward-looking statements.
Summary Profit & Loss
Statement
INNOPHOS HOLDINGS, INC. AND
SUBSIDIARIES
Condensed Consolidated Statement of Operations (Unaudited)
(Dollars in thousands, except per share amounts or share
amounts) Three Months Ended March
31, 2019 2018
Net Sales $ 191,414 $ 205,440 Cost of goods sold 155,002
163,213 Gross profit 36,412
42,227 Operating expenses: Selling, general and
administrative 19,442 22,520 Research & development expenses
1,340 1,411 Total operating expenses
20,782 23,931 Operating income 15,630
18,296 Interest expense, net 3,702 2,904 Foreign exchange loss
(gain) (381 ) (196 ) Other income (3 ) (15 ) Income
before income taxes 12,312 15,603 (Benefit) provision for income
taxes 3,618 4,688 Net income $ 8,694
$ 10,915 Diluted Earnings Per Participating Share $
0.44 $ 0.55 Diluted weighted average participating shares
outstanding 19,654,291 19,711,112 Dividends paid per share of
common stock $ 0.48 $ 0.48 Dividends declared per share of common
stock $ 0.48 $ 0.48
Adjusted Net Income Reconciliation to
Net Income
(Dollars in thousands, except EPS)
Three Months Ended March
31,
2019 2018 Net Income $ 8,694 $ 10,915
Pre-tax
Adjustments
Foreign exchange loss (gain) (381 ) (196 ) Severance/Restructuring
expense (income) 1,943 980 M&A related costs 166 752 Mexico
natural gas supply imbalance charges 1,179 0 Value chain transition
1,595 0 Supplier Q418 payment amortization (1,110 ) 0 Other
312 0 Total Pre-Tax Adjustments 3,704 1,536
Income tax effects on Adjustments 1,088 461
Adjusted Net Income $ 11,310
$ 11,990 Adjusted Diluted Earnings Per
Participating Share $ 0.57 $ 0.61
Adjusted EBITDA Reconciliation to Net
Income
(Dollars in thousands)
Three Months Ended
March 31, 2019 2018 Net Income $ 8,694 $
10,915 Interest expense, net 3,702 2,904 Provision for income taxes
3,618 4,688 Depreciation & amortization 9,759
11,364
EBITDA 25,773 29,871
Adjustments
Non-cash stock compensation 787 998 Foreign exchange loss (gain)
(381 ) (196 ) Severance/Restructuring expense (income) 1,943 980
M&A related costs 166 752 Mexico natural gas supply imbalance
charges 1,179 0 Value chain transition 1,595 0 Supplier Q418
payment amortization (1,110 ) 0 Other 312 0
Adjusted EBITDA $ 30,264
$ 32,405 Percent of Sales 15.8 % 15.8 %
Segment Adjusted EBITDA Reconciliation
to EBITDA
(Dollars in thousands)
Three Months
Ended Three Months Ended March 31, 2019 March
31, 2018 FHN IS Other
Total FHN IS Other
Total EBITDA $ 14,406 $
8,056 $ 3,311 $ 25,773 $
18,992 $ 10,093 $ 786 $
29,871 Non-cash stock compensation 445 312 30 787 565 395 38
998 Foreign exchange loss (gain) (126 ) — (256 ) (382 ) (87 ) —
(109 ) (196 ) Severance/Restructuring exp(inc) 1,252 590 101 1,943
593 368 19 980 M&A related costs 166 — — 166 752 — — 752 Mexico
natural gas supply adj. 263 553 363 1,179 — — — — Value chain
transition 961 570 63 1,594 — — — — Supplier payment amortization
(577 ) (422 ) (111 ) (1,110 ) — — — — Other 171
117
23 312 — —
— —
Adjusted EBITDA $
16,962 $ 9,776 $
3,524 $ 30,262 $
20,815 $ 10,856 $ 734
$ 32,405
Segment Reporting
Three Months Ended March 31, Segment
Net Sales 2019 2018 Food, Health and
Nutrition $ 115,067 $ 126,363 Industrial Specialties 63,197 63,350
Other 13,150 15,727 Total $ 191,414
$ 205,440
Net Sales % change
Food, Health and Nutrition (8.9 )% Industrial Specialties (0.2 )%
Other (16.4 )% Total (6.8 )%
Segment EBITDA
Food, Health and Nutrition $ 14,406 $ 18,992 Industrial Specialties
8,056 10,093 Other 3,311 786 Total $
25,773 $ 29,871
Segment EBITDA % of net sales
Food, Health and Nutrition 12.5 % 15.0 % Industrial Specialties
12.7 % 15.9 % Other 25.2 % 5.0 % Total 13.5 %
14.5 %
Depreciation and amortization expense Food,
Health and Nutrition $ 6,388 $ 7,322 Industrial Specialties 3,179
3,736 Other 192 306 Total $ 9,759
$ 11,364
Price / Volume
The Company calculates pure selling price
dollar variances as the selling price for the current year to date
period minus the selling price for the prior year to date period,
and then multiplies the resulting selling price difference by the
prior year to date period volume. The current quarter selling price
dollar variance is derived from the current quarter year to date
selling price dollar variance less the previous quarter year to
date selling price dollar variance. The selling price dollar
variance is then divided by the prior period sales dollars to
calculate the percentage change. Volume/mix variance is calculated
as the total sales variance minus the selling price variance. The
following table illustrates the percentage changes in net sales by
reportable segments compared with the same period of the prior
year, including the effect of selling price and volume/mix changes
upon revenue:
Three Months Ended March 31,
2019 Reportable Segments Price
Vol/Mix Total Food, Health and Nutrition 4.4 %
(13.3 )% (8.9 )% Industrial Specialties 3.5 % (3.7 )% (0.2
)% Other (0.9 )% (15.5 )% (16.4 )% Total 3.7 % (10.5 )%
(6.8 )%
Summary Cash Flow
Statement
INNOPHOS HOLDINGS, INC. AND
SUBSIDIARIES
Condensed Consolidated Statement of Cash Flows (Unaudited)
(Dollars in thousands)
Three Months Ended March
31,
2019 2018 Cash
flows provided from (used for) operating activities Net income $
8,694 $ 10,915 Adjustments to reconcile net income to net cash
provided from (used for) operating activities: Depreciation and
amortization 9,759 11,364 Amortization of deferred financing
charges 107 108 Deferred income tax provision 69 — Share-based
compensation 787 998 Changes in assets and liabilities: Accounts
receivable (9,156 ) (175 ) Inventories 6,640 (8,772 ) Other current
assets 1,026 308 Accounts payable (20,578 ) (6,581 ) Other current
liabilities (5,542 ) (5,856 ) Changes in other long-term assets and
liabilities (1,280 ) (837 )
Net cash (used for)
provided by operating activities (9,474 )
1,472 Cash flows used for investing
activities: Capital expenditures (9,924 ) (15,065 )
Net cash used for investing activities (9,924
) (15,065 ) Cash flows provided by
(used for) financing activities: Long-term debt borrowings 35,000
40,000 Long-term debt repayments (5,000 ) (5,000 ) Restricted stock
forfeitures (212 ) (251 ) Dividends paid (9,414 )
(9,380 )
Net cash provided by (used for) financing
activities 20,374 25,369
Effect of foreign exchange rate changes on cash and cash
equivalents — 164 Net change in cash
976 11,940 Cash and cash equivalents at beginning of period
20,197 28,782 Cash and cash equivalents at end
of period $ 21,173 $ 40,722
Cash From
Operations Reconciliation to EBITDA
(Dollars in thousands)
Three Months Ended March
31,
2019 2018 EBITDA
$ 25,773 $ 29,871 Operating Working
Capital (34,218 ) (28,700 ) Taxes paid (2,625 ) (3,378 ) Interest
paid (3,614 ) (3,081 ) All other including non-cash stock
compensation and changes in other long-term assets and liabilities
5,210 6,760
Net cash provided from
operation $
(9,474
)
$ 1,472
Cash From
Operations Reconciliation to Adjusted EBITDA
(Dollars in thousands)
Three Months Ended March
31,
2019 2018 Adjusted EBITDA
$ 30,264 $ 32,405 Operating Working
Capital (37,922 ) (30,236 ) Taxes paid (2,625 ) (3,378 ) Interest
paid (3,614 ) (3,081 ) All other including non-cash stock
compensation and changes in other long-term assets and liabilities
4,423 5,762
Net cash provided from
operation $
(9,474
)
$ 1,472
Free Cash Flow
Reconciliation to Cash From Operations
(Dollars in thousands)
Three Months Ended March
31,
2019 2018 Cash from Operations $
(9,474
)
$ 1,472 Capital Expenditures
(9,924
)
(15,065
)
Free Cash Flow $
(19,398
)
$
(13,593
)
Summary Balance Sheets
INNOPHOS HOLDINGS, INC. AND
SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
March 31,2019
December 31,2018
ASSETS Current assets: Cash and cash equivalents $ 21,173 $
20,197 Accounts receivable, net 111,720 102,564 Inventories 173,563
180,203 Other current assets 23,068 24,094
Total current assets 329,524 327,058 Property, plant and equipment,
net 237,327 240,235 Lease right-of-use assets 53,305 — Goodwill
152,767 152,767 Intangibles and other assets, net 92,215
95,094 Total assets $ 865,138 $ 815,154
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable, trade and other 54,582 80,007 Other current
liabilities 50,242 49,993 Total current
liabilities 104,824 130,000 Long-term debt 330,000 300,000
Long-term lease liabilities 46,858 — Other long-term liabilities
36,910 49,639 Total stockholders' equity 346,546
335,515 Total liabilities and stockholders' equity $ 865,138
$ 815,154
Additional Information
Net debt is a supplemental financial measure that is not
required by, or presented in accordance with, US GAAP. The Company
believes net debt is helpful in analyzing leverage and as a
performance measure for purposes of presentation in this release.
The Company defines net debt as total long-term debt (including any
current portion) less cash and cash equivalents.
Free cash flow is a supplemental financial measure that is not
required by, or presented in accordance with, US GAAP. The Company
believes free cash flow is helpful in analyzing the cash flow
generating capability of the business and as a performance measure
for purposes of presentation in this release. The Company defines
free cash flow as net cash provided from operating activities plus
cash used for capital expenditures plus cash received from sale
leaseback transactions.
EBITDA, adjusted EBITDA, adjusted net income and adjusted
diluted EPS are supplemental financial measures that are not
required by, or presented in accordance with, US GAAP. The Company
believes EBITDA and adjusted EBITDA are helpful in analyzing the
cash flow generating capability of the business and as performance
measures for purposes of presentation in this release.
Net Working Capital is a supplemental financial measure that is
not required by, or presented in accordance with, US GAAP. The
Company believes net working capital is helpful in analyzing the
effects on the cash flow generating capability of the business and
as a performance measure for purposes of presentation in this
release. The Company defines net working capital as total current
assets less cash and cash equivalents less total current
liabilities plus current portion of capital leases.
Operating Working Capital is a supplemental financial measure
that is not required by, or presented in accordance with, US GAAP.
The Company believes operating working capital is helpful in
analyzing the effects on the cash flow generating capability of the
business and as a performance measure for purposes of presentation
in this release. The Company defines operating working capital as
net working capital less taxes less interest.
Innophos is not able to provide a reconciliation of its
expectation for adjusted earnings to 2019 GAAP net income given the
dynamic nature of the strategic value chain repositioning program
expenses and potential Mexico energy charges that may be incurred.
In addition, Innophos is not able to provide a reconciliation of
its 2022 expectation for adjusted EBITDA margin to GAAP net income
due to the number of variables in the projected EBITDA margin for
2022. As a result we are currently unable to quantify accurately
certain amounts that would be required to be included in GAAP net
income for 2019 or 2022 or the individual adjustments for such
reconciliation. In addition, we believe such reconciliation would
imply a degree of precision that would be confusing or misleading
to investors.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190430005268/en/
Investor ContactMark
FeuerbachInnophos609-366-1204investor.relations@innophos.com
Media ContactRyan FlaimSharon Merrill
Associates617-542-5300iphs@investorrelations.com
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