Press Release
View printer-friendly version << Back
Steel Connect Reports First Quarter Financial Results
First Quarter 2021 Highlights
-
Net revenue totaled
$169.9 million , as compared to$225.2 million in the prior year -
Net (loss) income for the quarter was
$(3.6) million , as compared to$4.8 million in the prior year -
Net (loss) income attributable to common stockholders was
$(4.1) million , as compared to$4.3 million in the prior year -
Adjusted EBITDA* was
$22.5 million , as compared to$22.8 million in the prior year -
Net cash provided by operating activities was
$25.7 million -
Free Cash Flow* totaled
$24.7 million -
Total debt was
$378.0 million ; Net Debt* totaled$280.9 million
|
|
Three Months Ended |
||||||
|
|
2020 |
|
2019 |
||||
|
|
(in thousands) |
||||||
Net revenue |
|
$ |
169,934 |
|
|
$ |
225,153 |
|
Net (loss) income |
|
(3,551 |
) |
|
4,792 |
|
||
Net (loss) income attributable to common stockholders |
|
(4,088 |
) |
|
4,256 |
|
||
Adjusted EBITDA* |
|
22,536 |
|
|
22,843 |
|
||
Adjusted EBITDA margin* |
|
13.3 |
% |
|
10.1 |
% |
||
Net cash provided by operating activities |
|
25,727 |
|
|
22,410 |
|
||
Additions to property and equipment |
|
1,059 |
|
|
4,072 |
|
||
Free cash flow* |
|
24,668 |
|
|
18,338 |
|
* |
See reconciliations of these non-GAAP measurements to the most directly comparable GAAP measures included in the financial tables. See also "Note Regarding Use of Non-GAAP Financial Measurements" below for the definitions of these non-GAAP measures. |
"In the face of the challenges presented by the global pandemic, our employees have shown resiliency and creativity as they have continued to deliver for our customers during this unprecedented time," said
The Company continues to evaluate the global risks and the slowdown in business activity related to COVID-19, including the potential impacts on its employees, customers, suppliers, and financial results. The severity of the impact on the Company's business for the remainder of calendar 2020 and beyond will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic, the extent and severity of the impact on the Company's customers and suppliers, the continued disruption to the demand for our businesses' products and services, and the impact of the global business and economic environment on liquidity and the availability of capital, all of which are uncertain and cannot be predicted. For the fiscal year ended
To help mitigate the financial impact of the COVID-19 pandemic, the Company initiated cost reduction actions, including waiver of board fees, hiring freezes, staffing and force reductions, Company-wide salary reductions, bonus payment deferrals and temporary 401(k) match suspension. The temporary waiver of board fees and Company-wide salary reduction actions taken in the prior fiscal year were fully restored prior to the beginning of the current fiscal year. The Company continues its focus on cash management and liquidity, which includes reduction of discretionary spending, aggressive working capital management, strict approvals for capital expenditures and other actions. The Company will evaluate further actions if circumstances warrant.
Recent Developments
Non-binding Expression of Interest
On
No decision has yet been made with respect to the Company's response to the Expression of Interest or any alternatives thereto. The Board cautions that it has only received a proposal, which does not constitute an offer or proposal capable of acceptance and may be withdrawn at any time and in any manner. There can be no assurance that any definitive offer will be made, that any agreement will be executed or that the transaction proposed in the Expression of Interest or any other transaction will be approved or completed. The Company is not obligated to disclose any further developments or updates on the progress of the proposed transaction until either the Company enters into a definitive agreement or the Acquisition Proposal Special Committee determines no such transaction will be approved.
MidCap Credit Facility
On
Amendment No. 1 amends the MidCap credit agreement to permit special cash dividends to be made on or prior to
Results of Operations
Comparison of the First Quarter Ended
|
Three Months Ended
|
||||||
|
2020 |
|
2019 |
|
|||
|
(unaudited, in thousands) |
||||||
Net revenue: |
|
|
|
||||
Products |
$ |
105,708 |
|
|
$ |
133,003 |
|
Services |
64,226 |
|
|
92,150 |
|
||
Total net revenue |
169,934 |
|
|
225,153 |
|
||
Cost of revenue |
129,466 |
|
|
180,907 |
|
||
Gross profit margin |
23.8 |
% |
|
19.7 |
% |
||
Selling, general and administrative |
26,858 |
|
|
22,227 |
|
||
Amortization of intangible assets |
6,535 |
|
|
7,277 |
|
||
Interest expense |
7,823 |
|
|
9,169 |
|
||
All other expenses (income), net |
1,999 |
|
|
(574) |
|
||
Total costs and expenses |
43,215 |
|
|
38,099 |
|
||
(Loss) income before income taxes |
(2,747 |
) |
|
6,147 |
|
||
Income tax expense |
804 |
|
|
1,355 |
|
||
Net (loss) income |
$ |
(3,551 |
) |
|
$ |
4,792 |
|
Net Revenue
Total net revenue for the first quarter ended
Cost of Revenue
Cost of revenue for the first quarter decreased
The increase in gross profit margin during the first quarter is attributable to a change in customer mix, our focus on customer rationalization to improve profitability, as well as cost reduction initiatives in both segments to offset the impact of COVID-19.
Selling, General and Administrative
Selling, general and administrative expenses for the first quarter increased
Amortization of Intangible Assets
Amortization of intangibles assets for the first quarter decreased
Interest Expense
Interest expense for the first quarter decreased
All Other Expenses (Income), Net
All other expenses (income), net for the first quarter decreased
Income Tax Expense
Income tax expense for the first quarter decreased
Additions to Property and Equipment (Capital Expenditures)
Capital expenditures for the first quarter totaled
Adjusted EBITDA
Adjusted EBITDA for the first quarter decreased
Liquidity and Capital Resources
As of
As of
About
– Financial Tables Follow –
Condensed Consolidated Balance Sheets (in thousands) |
|||||||
|
|
|
|
||||
|
(unaudited) |
|
|
||||
Assets: |
|||||||
Cash and cash equivalents |
$ |
104,522 |
|
|
$ |
75,887 |
|
Accounts receivable, trade, net |
79,898 |
|
|
93,072 |
|
||
Inventories, net |
14,829 |
|
|
15,354 |
|
||
Funds held for clients |
12,468 |
|
|
18,755 |
|
||
Prepaid expenses and other current assets |
24,683 |
|
|
20,475 |
|
||
Total current assets |
236,400 |
|
|
223,543 |
|
||
Property and equipment, net |
74,871 |
|
|
79,678 |
|
||
|
257,128 |
|
|
257,128 |
|
||
Other intangible assets, net |
128,728 |
|
|
135,263 |
|
||
Operating lease right-of-use assets |
52,165 |
|
|
56,140 |
|
||
Other assets |
7,065 |
|
|
7,420 |
|
||
Total assets |
$ |
756,357 |
|
|
$ |
759,172 |
|
|
|
|
|
||||
Liabilities: |
|||||||
Accounts payable |
$ |
70,539 |
|
|
$ |
70,002 |
|
Accrued expenses |
116,994 |
|
|
111,380 |
|
||
Funds held for clients |
12,468 |
|
|
18,755 |
|
||
Current portion of long-term debt |
5,572 |
|
|
5,527 |
|
||
Current lease obligations |
13,960 |
|
|
14,318 |
|
||
Other current liabilities |
29,188 |
|
|
29,950 |
|
||
Total current liabilities |
248,721 |
|
|
249,932 |
|
||
Convertible note payable |
8,346 |
|
|
8,054 |
|
||
Long-term debt, excluding current portion |
364,037 |
|
|
365,468 |
|
||
Long-term lease obligations |
39,976 |
|
|
43,211 |
|
||
Other long-term liabilities |
12,203 |
|
|
8,509 |
|
||
Total liabilities |
673,283 |
|
|
675,174 |
|
||
|
|
|
|
||||
Contingently redeemable preferred stock |
35,180 |
|
|
35,180 |
|
||
|
|
|
|
||||
Total stockholders' equity |
47,894 |
|
|
48,818 |
|
||
|
|
|
|
||||
Total liabilities, contingently redeemable preferred stock and stockholders' equity |
$ |
756,357 |
|
|
$ |
759,172 |
|
Condensed Consolidated Statements of Operations (in thousands, except per share amounts) (unaudited) |
||||||||||
|
Three Months Ended
|
|||||||||
|
2020 |
|
2019 |
|
Fav (Unfav) |
|||||
Net revenue: |
|
|
|
|
|
|||||
Products |
$ |
105,708 |
|
|
$ |
133,003 |
|
|
(20.5 |
)% |
Services |
64,226 |
|
|
92,150 |
|
|
(30.3 |
)% |
||
Total net revenue |
169,934 |
|
|
225,153 |
|
|
(24.5 |
)% |
||
Cost of revenue |
129,466 |
|
|
180,907 |
|
|
28.4 |
% |
||
Gross profit |
40,468 |
|
|
44,246 |
|
|
(8.5 |
)% |
||
Gross profit margin |
23.8 |
% |
|
19.7 |
% |
|
|
|||
Operating expenses: |
|
|
|
|
|
|||||
Selling, general and administrative |
26,858 |
|
|
22,227 |
|
|
(20.8 |
)% |
||
Amortization of intangible assets |
6,535 |
|
|
7,277 |
|
|
10.2 |
% |
||
Total operating expenses |
33,393 |
|
|
29,504 |
|
|
(13.2 |
)% |
||
Operating income |
7,075 |
|
|
14,742 |
|
|
(52.0 |
)% |
||
Total other expense |
(9,822 |
) |
|
(8,595 |
) |
|
(14.3 |
)% |
||
(Loss) income before income taxes |
(2,747 |
) |
|
6,147 |
|
|
(144.7 |
)% |
||
Income tax expense |
804 |
|
|
1,355 |
|
|
40.7 |
% |
||
Net (loss) income |
(3,551 |
) |
|
4,792 |
|
|
(174.1 |
)% |
||
Less: Preferred dividends on redeemable preferred stock |
(537 |
) |
|
(536 |
) |
|
(0.2 |
)% |
||
Net (loss) income attributable to common stockholders |
$ |
(4,088 |
) |
|
$ |
4,256 |
|
|
(196.1 |
)% |
|
|
|
|
|
|
|||||
Basic net (loss) earnings per share attributable to common stockholders |
$ |
(0.07 |
) |
|
$ |
0.07 |
|
|
|
|
Diluted net (loss) earnings per share attributable to common stockholders |
$ |
(0.07 |
) |
|
$ |
0.06 |
|
|
|
|
Weighted average common shares used in: |
|
|
|
|
|
|||||
Basic (loss) earnings per share |
61,893 |
|
|
61,401 |
|
|
|
|||
Diluted (loss) earnings per share |
61,893 |
|
|
86,006 |
|
|
|
|||
Segment Data (unaudited) |
|||||||
|
Three Months Ended
|
||||||
|
2020 |
|
2019 |
||||
|
(In thousands) |
||||||
Net revenue: |
|
|
|
||||
Direct Marketing |
$ |
105,708 |
|
|
$ |
133,003 |
|
Supply Chain |
64,226 |
|
|
92,150 |
|
||
|
$ |
169,934 |
|
|
$ |
225,153 |
|
Operating income: |
|
|
|
||||
Direct Marketing |
$ |
4,937 |
|
|
$ |
11,203 |
|
Supply Chain |
5,151 |
|
|
6,510 |
|
||
Total segment operating income |
10,088 |
|
|
17,713 |
|
||
Corporate-level activity |
(3,013 |
) |
|
(2,971 |
) |
||
Total operating income |
7,075 |
|
|
14,742 |
|
||
Total other expense |
(9,822 |
) |
|
(8,595 |
) |
||
(Loss) income before income taxes |
$ |
(2,747 |
) |
|
$ |
6,147 |
|
Reconciliation of Non-GAAP Measures to GAAP Measures (in thousands) (unaudited) |
|||||||
EBITDA and Adjusted EBITDA Reconciliations: |
|||||||
|
Three Months Ended
|
||||||
|
2020 |
|
2019 |
||||
Net (loss) income |
$ |
(3,551 |
) |
|
$ |
4,792 |
|
|
|
|
|
||||
Interest income |
(20 |
) |
|
(16 |
) |
||
Interest expense |
7,823 |
|
|
9,169 |
|
||
Income tax expense |
804 |
|
|
1,355 |
|
||
Depreciation |
5,780 |
|
|
5,589 |
|
||
Amortization of intangible assets |
6,535 |
|
|
7,277 |
|
||
EBITDA |
17,371 |
|
|
28,166 |
|
||
|
|
|
|
||||
Strategic consulting and other related professional fees |
63 |
|
|
— |
|
||
Executive severance and employee retention |
— |
|
|
310 |
|
||
Restructuring and restructuring-related expense |
1,181 |
|
|
— |
|
||
Share-based compensation |
188 |
|
|
176 |
|
||
Loss on sale of long-lived assets |
3 |
|
|
30 |
|
||
Impairment of long-lived assets |
— |
|
|
10 |
|
||
Unrealized foreign exchange losses, net |
2,061 |
|
|
190 |
|
||
Other non-cash losses (gains), net |
304 |
|
|
(94 |
) |
||
Adjustments related to certain tax liabilities |
1,365 |
|
|
(5,945 |
) |
||
Adjusted EBITDA |
$ |
22,536 |
|
|
$ |
22,843 |
|
|
|
|
|
||||
Net revenue |
$ |
169,934 |
|
|
$ |
225,153 |
|
Adjusted EBITDA margin |
13.3 |
% |
|
10.1 |
% |
Free Cash Flow Reconciliation: |
|||||||
|
Three Months Ended
|
||||||
|
2020 |
|
2019 |
||||
Net cash provided by operating activities |
$ |
25,727 |
|
|
$ |
22,410 |
|
Additions to property and equipment |
(1,059 |
) |
|
(4,072 |
) |
||
Free cash flow |
$ |
24,668 |
|
|
$ |
18,338 |
Net Debt Reconciliation: |
|||||
|
|
|
|
||
Total debt, net |
377,955 |
|
|
379,049 |
|
Unamortized discounts and issuance costs |
7,457 |
|
|
7,863 |
|
Cash and cash equivalents |
(104,522 |
) |
|
(75,887 |
) |
Net debt |
280,890 |
|
|
311,025 |
|
Note Regarding Use of Non-GAAP Financial Measurements
In addition to the financial measures prepared in accordance with generally accepted accounting principles, the Company uses EBITDA, Adjusted EBITDA, Free Cash Flow and Net Debt, non-GAAP financial measures, to assess its performance. EBITDA represents earnings (loss) before interest income, interest expense, income tax expense, depreciation and amortization of intangible assets. We define Adjusted EBITDA as net income (loss) excluding net charges related to interest income, interest expense, income tax expense, depreciation, amortization of intangible assets, strategic consulting and other related professional fees, executive severance and employee retention, restructuring and restructuring-related expense, share-based compensation, (gain) loss on sale of long-lived assets, impairment of long-lived assets, unrealized foreign exchange (gains) losses, net, other non-cash (gains) losses, net, adjustments related to certain tax liabilities and (gains) losses on investments in affiliates. The Company defines Free Cash Flow as net cash provided by (used in) operating activities less additions to property and equipment, and defines Net Debt as the sum of total debt, net, prior to reductions for unamortized discounts and issuance costs, less cash and cash equivalents.
We believe that providing these non-GAAP measurements to investors is useful, as these measures provide important supplemental information of our performance to investors and permit investors and management to evaluate the operating performance of our business. These measures provide useful supplemental information to management and investors regarding our operating results as they exclude certain items whose fluctuation from period-to-period do not necessarily correspond to changes in the operating results of our business. We use EBITDA and Adjusted EBITDA in internal forecasts and models when establishing internal operating budgets, supplementing the financial results and forecasts reported to our Board of Directors, determining a component of certain incentive compensation for executive officers and other key employees based on operating performance, determining compliance with certain covenants in the Company's credit facilities, and evaluating short-term and long-term operating trends in our core business segments. We use Free Cash Flow to conduct and evaluate our business because, although it is similar to cash flow from operations, we believe it is a useful measure of cash flows since purchases of property and equipment are a necessary component of ongoing operations, and similar to the use of Net Debt, assists management with its capital planning and financing considerations.
We believe that these non-GAAP financial measures assist in providing an enhanced understanding of our underlying operational measures to manage our core businesses, to evaluate performance compared to prior periods and the marketplace, and to establish operational goals. Further, we believe that these non-GAAP financial adjustments are useful to investors because they allow investors to evaluate the effectiveness of the methodology and information used by management in our financial and operational decision-making. These non-GAAP financial measures should not be considered in isolation or as a substitute for financial information provided in accordance with
Some of the limitations of EBITDA and Adjusted EBITDA include:
- EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;
- EBITDA and Adjusted EBITDA do not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;
- EBITDA and Adjusted EBITDA do not reflect our tax expense or the cash requirements to pay our taxes;
- EBITDA and Adjusted EBITDA do not reflect historical capital expenditures or future requirements for capital expenditures or contractual commitments;
- although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; and
- other companies in our industry may calculate EBITDA and Adjusted EBITDA differently, limiting their usefulness as comparative measures.
In addition, Net Debt assumes the Company's cash and cash equivalents can be used to reduce outstanding debt without restriction, while Free Cash Flow has limitations due to the fact that it does not represent the residual cash flow available for discretionary expenditures and excludes the Company's remaining investing activities and financing activities, including the requirement for principal payments on the Company's outstanding indebtedness.
See reconciliations of these non-GAAP measures to the most directly comparable GAAP measures included in the financial tables of this release.
Net Operating Loss Carryforwards
The Company's Restated Certificate of Incorporation includes provisions designed to protect the tax benefits of the Company's net operating loss carryforwards by preventing certain transfers of our securities that could result in an "ownership change" (as defined under Section 382 of the Internal Revenue Code). Pursuant to the tax plan and subject to certain exceptions, if a stockholder (or group) becomes a 4.99-percent stockholder after adoption of the tax plan, certain rights attached to each outstanding share of our common stock would generally become exercisable and entitle stockholders (other than the new 4.99-percent stockholder or group) to purchase additional shares of the Company at a significant discount, resulting in substantial dilution in the economic interest and voting power of the new 4.99-percent stockholder (or group). In addition, under certain circumstances in which the Company is acquired in a merger or other business combination after an non-exempt stockholder (or group) becomes a new 4.99-percent stockholder, each holder of a right (other than the new 4.99-percent stockholder or group) would then be entitled to purchase shares of the acquiring company's common stock at a discount. For further discussion of the Company's tax benefits preservation plan, please see the Company's filings with the
Forward-Looking Statements
This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements in this release that are not historical facts are hereby identified as "forward-looking statements" for the purpose of the safe harbor provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. This release contains forward-looking statements pertaining to, but not limited to, information with respect to a proposed transaction between the Company and
All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that actual results will not differ materially from expectations, and, therefore, you are cautioned not to place undue reliance on such statements. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.
View source version on businesswire.com: https://www.businesswire.com/news/home/20201211005618/en/
Investor Relations Contact
914-461-1276
investorrelations@steelconnectinc.com
Source: