DEERFIELD, Ill., Feb. 21, 2018 /PRNewswire/ -- Essendant Inc. (Nasdaq: ESND), a leading national distributor of workplace items, today announced financial results for the fourth quarter and year ended December 31, 2017. The Company also announced details of a restructuring program to support the execution of its strategic drivers.
Fourth Quarter 2017 Summary
"We are continuing to implement the strategic drivers that I described last quarter: 1) improving efficiency across our distribution network and reducing our cost base, 2) accelerating sales performance in key channels where we are positioned to grow, and 3) advancing supplier partnerships that leverage our network and capabilities," said Ric Phillips, President and Chief Executive Officer of Essendant. "I am pleased with our early progress and we continue to build momentum. We have seen growth in our key JanSan reseller channel and the Industrial reseller channel, though overall sales continued to be significantly pressured by changes in the sourcing strategies of the national resellers, as reflected in our product category sales results. We also have advanced our inbound freight consolidation consistent with our plans. Today we are providing details of our restructuring program to consolidate our distribution network, reduce administrative costs, and refine our product assortment. These actions enable our strategic drivers and will create value over time."
Fourth Quarter Performance
Full Year 2017 Summary
Restructuring Program
Essendant has launched a restructuring program to advance the Company's strategic drivers by reducing its cost base, aligning organizational infrastructure and leadership with the Company's growth channels to drive sales, and providing capacity to invest in products with preferred suppliers and in growth categories. The Company expects the restructuring program and other initiatives to reduce costs beginning in 2018 and reach run-rate annual savings of more than $50 million by 2020, with more than half achieved in 2018.
The program includes facility consolidations and workforce reductions with an estimated cash cost of $30 million to $40 million over the restructuring period, which began in the first quarter of 2018.
Product assortment refinements are also planned to eliminate items that have limited availability and lower sales. This is expected to improve service levels while having a minimal impact on sales. It will also increase capacity to support expansion into new categories to support customer growth, and is also necessary to execute the planned facility consolidations. A non-cash charge related to these refinements is expected in the first quarter of 2018 and estimated in the range of $42 million to $48 million.
Outlook for 2018
The following outlooks exclude the impacts of any new acquisitions or unusual charges.
Conference Call
Essendant will hold a conference call followed by a question and answer session on Thursday, February 22, 2018, at 7:30 a.m. CST, to discuss fourth quarter and full year 2017 results. Investors may participate in the earnings call by dialing (877) 358-2531 in the U.S. and Canada or (412) 902-6623 if international and ask to be joined into the Essendant call. To listen to the webcast, participants should visit the Investors section of the company's website (investors.essendant.com), and click on the "Essendant Q4 2017 Earnings Call" button on the right side of the page, several minutes before the event is broadcast. Interested parties can access an archived version of the call, this news release, a financial slide presentation and other information related to the call, also located on the quarterly results section of Essendant's investor website, within hours after the call ends.
Forward-Looking Statements
This news release contains forward-looking statements, including references to goals, plans, strategies, objectives, projected costs or savings, anticipated future performance, results or events and other statements that are not strictly historical in nature. These statements are based on management's current expectations, forecasts and assumptions. This means they involve a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied here. These risks and uncertainties include, but are not limited to the following: market dynamics that create sales risks, including Essendant's reliance on key customers, the risks inherent in continuing or increased customer concentration and consolidations, efforts by suppliers and customers to bypass the Company and transact directly with each other, and competition from e-commerce businesses and other resellers increasing their presence at the wholesale level; the impact of price transparency, customer consolidation and product sales mix changes on the Company's sales and margins; Essendant's reliance on supplier allowances and promotional incentives; Essendant's exposure to the credit risk of its customers; potential disruptions to the Company's relationships with customers and suppliers due to the Company's significant cost reduction initiatives; continuing or increasing competitive activity and pricing pressures within existing or expanded product categories, including competition from e-commerce businesses and the online branches of brick-and-mortar businesses; the impact of supply chain disruptions or changes in key suppliers' distribution strategies; continued declines in end-user demand for products in the office, technology and furniture product categories; financial cycles due to secular consumer demand, recession or other events, most notably in the Company's Industrial and Automotive businesses; the impact of the Company's strategic drivers and possible disruption of business operations and relationships with customers and suppliers; Essendant's ability to manage inventory in order to maximize sales and supplier allowances while minimizing excess and obsolete inventory; Essendant's success in effectively identifying, consummating and integrating acquisitions; Essendant's ability to attract and retain key management personnel; the costs and risks related to compliance with laws, regulations and industry standards affecting Essendant's business; Essendant's ability to maintain its existing information technology systems and to successfully procure, develop and implement new systems and services without business disruption or other unanticipated difficulties or costs; the impact on the Company's reputation and relationships of a breach of the Company's information technology systems or a failure to maintain the security of private information; the availability of financing sources to meet Essendant's business needs; and unexpected events that could disrupt business operations, increasing costs and decreasing revenues.
Shareholders, potential investors and other readers are urged to consider these risks and uncertainties in evaluating forward-looking statements and are cautioned not to place undue reliance on the forward-looking statements. For additional information about risks and uncertainties that could materially affect Essendant's results, please see the company's Securities and Exchange Commission filings. The forward-looking information in this news release is made as of this date only, and the company does not undertake any obligation to update any forward-looking statement. Investors are advised to consult any further disclosure by Essendant regarding the matters discussed in this news release in its filings with the Securities and Exchange Commission and in other written statements it makes from time to time. It is not possible to anticipate or foresee all risks and uncertainties, and investors should not consider any list of risks and uncertainties to be exhaustive or complete.
Company Overview
Essendant Inc. is a leading national distributor of workplace items, with 2017 net sales of $5.0 billion. The company provides access to a broad assortment of over 170,000 items, including janitorial and breakroom supplies, technology products, traditional office products, industrial supplies, cut sheet paper products, automotive products and office furniture. Essendant serves a diverse group of customers, including independent resellers, national resellers and e-commerce businesses. The Company's network of distribution centers enables the Company to ship most products overnight to more than ninety percent of the U.S. For more information, visit www.essendant.com.
Essendant common stock trades on the Nasdaq Global Select Market under the symbol ESND.
(1) |
This is non-GAAP information. See the Reconciliation of Non-GAAP Financial Measures section of this document for more information. |
Note: All EPS numbers in this document are diluted, except losses or unless stated otherwise. |
Essendant Inc. and Subsidiaries | ||||||||||||||||
Condensed Consolidated Statements of Operations | ||||||||||||||||
(in thousands, except per share data) | ||||||||||||||||
For the Three Months Ended |
For the Years Ended |
|||||||||||||||
December 31, |
December 31, |
|||||||||||||||
2017 |
2016 |
2017 |
2016 |
|||||||||||||
Net sales |
$ |
1,198,309 |
$ |
1,254,699 |
$ |
5,037,327 |
$ |
5,369,022 |
||||||||
Cost of goods sold |
1,027,441 |
1,089,597 |
4,331,273 |
4,609,161 |
||||||||||||
Gross profit |
170,868 |
165,102 |
706,054 |
759,861 |
||||||||||||
Operating expenses: |
||||||||||||||||
Warehousing, marketing and administrative expenses |
161,037 |
166,415 |
664,280 |
629,825 |
||||||||||||
Impairments of goodwill and intangible assets |
- |
- |
285,166 |
- |
||||||||||||
Defined benefit plan settlement loss |
- |
347 |
- |
12,510 |
||||||||||||
Operating income (loss) |
9,831 |
(1,660) |
(243,392) |
117,526 |
||||||||||||
Interest expense, net |
6,463 |
4,813 |
25,618 |
22,871 |
||||||||||||
Income (loss) before income taxes |
3,368 |
(6,473) |
(269,010) |
94,655 |
||||||||||||
Income tax (benefit) expense |
4,914 |
(4,120) |
(2,029) |
30,803 |
||||||||||||
Net income (loss) |
$ |
(1,546) |
$ |
(2,353) |
$ |
(266,981) |
$ |
63,852 |
||||||||
Net income (loss) per share - basic |
$ |
(0.04) |
$ |
(0.06) |
$ |
(7.27) |
$ |
1.75 |
||||||||
Average number of common shares outstanding - basic |
36,846 |
36,638 |
36,729 |
36,580 |
||||||||||||
Net income (loss) per share - diluted |
$ |
(0.04) |
$ |
(0.06) |
$ |
(7.27) |
$ |
1.73 |
||||||||
Average number of common shares outstanding - diluted |
36,846 |
36,638 |
36,729 |
36,918 |
||||||||||||
Essendant Inc. and Subsidiaries | ||||||||
Condensed Consolidated Balance Sheets | ||||||||
(dollars in thousands, except share data) | ||||||||
As of December 31, |
||||||||
2017 |
2016 |
|||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ |
28,802 |
$ |
21,329 |
||||
Accounts receivable, less allowance for doubtful accounts of $17,102 in 2017 and $18,196 in 2016 |
619,200 |
678,184 |
||||||
Inventories |
821,683 |
876,837 |
||||||
Other current assets |
43,044 |
32,100 |
||||||
Total current assets |
1,512,729 |
1,608,450 |
||||||
Property, plant and equipment, at cost |
132,793 |
128,251 |
||||||
Intangible assets, net |
73,441 |
83,690 |
||||||
Goodwill |
13,153 |
297,906 |
||||||
Other long-term assets |
42,134 |
45,209 |
||||||
Total assets |
$ |
1,774,250 |
$ |
2,163,506 |
||||
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ |
500,883 |
$ |
484,602 |
||||
Accrued liabilities |
189,916 |
197,804 |
||||||
Current maturities of long-term debt |
6,079 |
28 |
||||||
Total current liabilities |
696,878 |
682,434 |
||||||
Deferred income taxes |
1,192 |
6,378 |
||||||
Long-term debt |
492,044 |
608,941 |
||||||
Other long-term liabilities |
89,222 |
84,647 |
||||||
Total liabilities |
1,279,336 |
1,382,400 |
||||||
Stockholders' equity: |
||||||||
Common stock, $0.10 par value; authorized - 100,000,000 shares, issued - 74,435,628 shares in 2017 and 2016 |
7,444 |
7,444 |
||||||
Additional paid-in capital |
412,987 |
409,805 |
||||||
Treasury stock, at cost ? 36,811,366 shares in 2017 and 36,951,522 shares in 2016 |
(1,093,813) |
(1,096,744) |
||||||
Retained earnings |
1,219,309 |
1,507,057 |
||||||
Accumulated other comprehensive loss |
(51,013) |
(46,456) |
||||||
Total stockholders' equity |
494,914 |
781,106 |
||||||
Total liabilities and stockholders' equity |
$ |
1,774,250 |
$ |
2,163,506 |
Essendant Inc. and Subsidiaries | |||||||
Consolidated Statements of Cash Flows | |||||||
(in thousands) | |||||||
Years Ended December 31, |
|||||||
2017 |
2016 |
||||||
Cash Flows From Operating Activities: |
|||||||
Net (loss) income |
$ |
(266,981) |
$ |
63,852 |
|||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
|||||||
Depreciation |
32,497 |
33,289 |
|||||
Amortization of intangible assets |
10,805 |
12,238 |
|||||
Share-based compensation |
7,295 |
10,202 |
|||||
Gain on the disposition of property, plant and equipment |
(1,197) |
(20,965) |
|||||
Amortization of capitalized financing costs |
1,433 |
681 |
|||||
Excess tax cost related to share-based compensation |
- |
1,034 |
|||||
Impairment of goodwill |
285,166 |
- |
|||||
Change in contingent consideration |
(4,457) |
- |
|||||
Deferred income taxes |
(8,900) |
(10,624) |
|||||
Pension settlement charge |
- |
12,510 |
|||||
Changes in operating assets and liabilities: |
|||||||
Decrease in accounts receivable, net |
59,304 |
38,499 |
|||||
Decrease in inventory |
55,751 |
47,148 |
|||||
Increase in other assets |
(2,611) |
(12,631) |
|||||
Increase (decrease) in accounts payable |
16,478 |
(47,262) |
|||||
Increase in accrued liabilities |
4,234 |
17,534 |
|||||
Decrease in other liabilities |
(3,274) |
(14,563) |
|||||
Net cash provided by operating activities |
185,543 |
130,942 |
|||||
Cash Flows From Investing Activities: |
|||||||
Capital expenditures |
(38,579) |
(37,709) |
|||||
Proceeds from the disposition of property, plant and equipment |
124 |
33,940 |
|||||
Net cash used in investing activities |
(38,455) |
(3,769) |
|||||
Cash Flows From Financing Activities: |
|||||||
Net borrowings (repayments) under revolving credit facility |
20,872 |
(108,052) |
|||||
Borrowings under Term loan |
77,600 |
- |
|||||
Repayments under Term loan |
(4,554) |
- |
|||||
Net repayments under Securitization program |
(200,000) |
- |
|||||
Net (disbursements) proceeds from share-based compensation arrangements |
(1,320) |
554 |
|||||
Acquisition of treasury stock, at cost |
- |
(6,839) |
|||||
Payment of cash dividends |
(20,726) |
(20,487) |
|||||
Excess tax cost related to share-based compensation |
- |
(1,034) |
|||||
Payment of debt issuance costs |
(6,330) |
(106) |
|||||
Contingent consideration |
(5,543) |
- |
|||||
Net cash used in financing activities |
(140,001) |
(135,964) |
|||||
Effect of exchange rate changes on cash and cash equivalents |
386 |
137 |
|||||
Net change in cash and cash equivalents |
7,473 |
(8,654) |
|||||
Cash and cash equivalents, beginning of period |
21,329 |
29,983 |
|||||
Cash and cash equivalents, end of period |
$ |
28,802 |
$ |
21,329 |
|||
Essendant Inc. and Subsidiaries
Reconciliation of Non-GAAP Financial Measures
Adjusted Operating Expenses, Adjusted Operating Income,
Adjusted Net Income, Adjusted Diluted Earnings Per Share, Adjusted EBITDA, and Free Cash Flow
The Non-GAAP table below presents Adjusted Operating Expenses, Adjusted Operating Income, Adjusted Net Income, Adjusted Diluted Earnings per Share, Adjusted EBITDA and Free Cash Flow for the three and twelve months ended December 31, 2017 and 2016. These non-GAAP measures exclude certain non-recurring items and exclude other items that do not reflect the Company's ongoing operations, and are included to provide investors with useful information about the financial performance of the business. The presented non-GAAP financial measures should not be considered in isolation or as substitutes for the comparable GAAP financial measures. The non-GAAP financial measures do not reflect all of the amounts associated with the Company's results of operations as determined in accordance with GAAP, and these non-GAAP financial measures should only be used to evaluate results of operations in conjunction with the corresponding GAAP financial measures.
In order to calculate the non-GAAP measures, management excludes the following items to the extent they occur in the reporting period, to facilitate the comparison of current and prior year results and ongoing operations, as management believes these items do not reflect the underlying cost structure of the Company's business. These items can vary significantly in amount and frequency.
Adjusted operating expenses and adjusted operating income. Adjusted operating expenses and adjusted operating income provide management and investors with an understanding of the results from the primary operations of the Company's business by excluding the effects of items described above that do not reflect the ordinary expenses and earnings of operations. Adjusted operating expenses and adjusted operating income are used to evaluate period-over-period operating performance as they are more comparable measures of the continuing business. These measures may be useful to an investor in evaluating the underlying operating performance of the Company's business.
Adjusted net income and adjusted diluted earnings per share. Adjusted net income and adjusted diluted earnings per share provide a more comparable view of the Company's underlying performance and trends than the comparable GAAP measures. Net income and diluted earnings per share are adjusted for the effect of items described above that do not reflect the ordinary earnings of operations.
Adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA"). Adjusted EBITDA is helpful in evaluating operating performance and is used by management for various purposes, including as a measure of performance and as a basis for strategic planning and forecasting. Net income is adjusted for the effect of interest, taxes, depreciation and amortization and stock-based compensation expense. Management believes that adjusted EBITDA is also commonly used by investors to evaluate operating performance between competitors because it helps reduce variability caused by differences in capital structures, income taxes, stock-based compensation accounting policies, and depreciation and amortization policies.
Free cash flow. Free cash flow is useful to management and investors as it is a measure of the Company's liquidity. The Company believes that it provides a more complete understanding of factors and trends affecting our cash flows than the comparable GAAP measure. Net cash provided by (used in) operating activities and net cash provided by (used in) investing activities are aggregated and adjusted to exclude the impact of acquisitions, net of cash acquired and divestitures.
Outlook. Adjusted diluted earnings per share and free cash flow are non-GAAP measures. A quantitative reconciliation of non-GAAP guidance to the corresponding GAAP information is not available because the non-GAAP guidance excludes certain GAAP information that is uncertain and difficult to predict. The factors that will be excluded are currently unknown due to the level of unpredictability and uncertainty associated with these items, but may include actions such as gain or loss on future sales of assets or businesses, future restructuring charges, non-GAAP tax adjustments, cash flow impacts of acquisitions, and other actions.
Essendant Inc. and Subsidiaries | |||||||||||||||
Reconciliation of Non-GAAP Financial Measures | |||||||||||||||
Adjusted Operating Expenses, Adjusted Operating Income, | |||||||||||||||
Adjusted Net Income, Adjusted Diluted Earnings Per Share, Adjusted EBITDA, and Free Cash Flow | |||||||||||||||
(unaudited) | |||||||||||||||
(in thousands, except per share data) | |||||||||||||||
For the Three Months Ended December 31, |
For the Years Ended December 31, |
||||||||||||||
2017 |
2016 |
2017 |
2016 |
||||||||||||
Operating expenses |
$ |
161,037 |
$ |
166,762 |
$ |
949,446 |
$ |
642,335 |
|||||||
Impairment of goodwill |
- |
- |
(285,166) |
- |
|||||||||||
Transformational expenses |
(5,252) |
- |
(19,745) |
- |
|||||||||||
Litigation reserve |
- |
(4,000) |
(9,000) |
(4,000) |
|||||||||||
Recovery of notes receivable |
150 |
- |
300 |
- |
|||||||||||
Gain on sale of City of Industry facility |
- |
- |
- |
20,541 |
|||||||||||
Defined benefit plan settlement charge |
- |
(347) |
- |
(12,510) |
|||||||||||
Severance costs for operating leadership |
- |
- |
- |
(1,245) |
|||||||||||
Restructuring charges |
- |
- |
- |
956 |
|||||||||||
Adjusted operating expenses |
$ |
155,935 |
$ |
162,415 |
$ |
635,835 |
$ |
646,077 |
|||||||
Operating income (loss) |
$ |
9,831 |
$ |
(1,660) |
$ |
(243,392) |
$ |
117,526 |
|||||||
Gross profit and operating expense adjustments noted above |
5,102 |
4,347 |
313,611 |
(3,742) |
|||||||||||
Adjusted operating income |
$ |
14,933 |
$ |
2,687 |
$ |
70,219 |
$ |
113,784 |
|||||||
Net (loss) income |
$ |
(1,546) |
$ |
(2,353) |
$ |
(266,981) |
$ |
63,852 |
|||||||
Gross profit and operating expense adjustments noted above |
5,102 |
4,347 |
313,611 |
(3,742) |
|||||||||||
Non-GAAP tax provision on adjustments |
|||||||||||||||
Impairment of goodwill |
- |
- |
(13,356) |
- |
|||||||||||
Transformational expenses |
(2,043) |
- |
(7,655) |
- |
|||||||||||
Litigation reserve |
- |
(1,508) |
(3,488) |
(1,508) |
|||||||||||
Tax reform adjustment |
2,545 |
- |
2,545 |
- |
|||||||||||
Recovery of notes receivable |
58 |
- |
118 |
- |
|||||||||||
Gain on sale of City of Industry facility |
- |
(1,651) |
- |
1,138 |
|||||||||||
Defined benefit plan settlement charge |
- |
(131) |
- |
(4,705) |
|||||||||||
Dividend from foreign entity |
- |
- |
- |
1,666 |
|||||||||||
Severance costs for operating leadership |
- |
- |
- |
(469) |
|||||||||||
State income tax reserve adjustment |
- |
417 |
- |
417 |
|||||||||||
Restructuring charges |
- |
- |
- |
357 |
|||||||||||
Income tax provision on adjusted net income |
560 |
(2,873) |
(21,836) |
(3,104) |
|||||||||||
Adjusted net income (loss) |
$ |
4,116 |
$ |
(879) |
$ |
24,794 |
$ |
57,006 |
|||||||
Diluted (loss) earnings per share (1) |
$ |
(0.04) |
$ |
(0.06) |
$ |
(7.23) |
$ |
1.73 |
|||||||
Per share gross profit and operating expense adjustments noted above |
0.14 |
0.12 |
8.49 |
(0.10) |
|||||||||||
Non-GAAP tax benefit (provision) on adjustments |
0.01 |
(0.08) |
(0.59) |
(0.09) |
|||||||||||
Adjusted diluted net income per share |
$ |
0.11 |
$ |
(0.02) |
$ |
0.67 |
$ |
1.54 |
|||||||
Net (loss) income |
$ |
(1,546) |
$ |
(2,353) |
$ |
(266,981) |
$ |
63,852 |
|||||||
Income tax expense (benefit) |
4,914 |
(4,120) |
(2,029) |
30,803 |
|||||||||||
Interest expense, net |
6,463 |
4,813 |
25,618 |
22,871 |
|||||||||||
Depreciation and amortization |
10,735 |
11,328 |
43,302 |
45,527 |
|||||||||||
Equity compensation expense |
1,180 |
3,158 |
7,295 |
10,202 |
|||||||||||
Gross profit and operating expense adjustments noted above |
5,102 |
4,347 |
313,611 |
(3,742) |
|||||||||||
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) |
$ |
26,848 |
$ |
17,173 |
$ |
120,816 |
$ |
169,513 |
|||||||
Net cash (used in) provided by operating activities |
$ |
(19,450) |
$ |
24,974 |
$ |
185,543 |
$ |
130,942 |
|||||||
Less: Net cash used in investing activities |
(13,992) |
(9,492) |
(38,455) |
(3,769) |
|||||||||||
Free cash flow |
$ |
(33,442) |
$ |
15,482 |
$ |
147,088 |
$ |
127,173 |
(1) |
Diluted (loss) earnings per share for the three months ended December 31, 2017 and 2016 and the for the year ended December 31, 2017, under GAAP reflect an adjustment to the basic earnings per share due to the net loss. The diluted earnings per share shown here do not reflect this adjustment. |
For Further Information Contact:
[email protected]
(847) 627-2900
SOURCE Essendant Inc.
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