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Innophos Holdings, Inc. Reports Second-Quarter 2017 Results

Q2 Revenue and Earnings Performance Exceeds Guidance
Positive Volume Trends and Operational Excellence Achievements Position Innophos to Deliver Robust Second Half 2017 In Line with Full Year Guidance
Innophos To Acquire Novel Ingredients To Create A Nearly $0.5 Billion Food, Health And Nutrition Platform Advancing Vision 2022 Growth Strategy

CRANBURY, N.J., Aug. 1, 2017 /PRNewswire/ -- Innophos Holdings, Inc. (NASDAQ:  IPHS) today announced its financial results for the second quarter ended June 30, 2017. In a separate press release, Innophos announced today that it has entered into a definitive merger agreement to acquire Novel Ingredients, a New Jersey-based provider of dietary supplement ingredient solutions.

Highlights

"We delivered a very robust second quarter with top and bottom line results above our expectations," said Kim Ann Mink, Ph.D., Chairman, President and Chief Executive Officer. "By remaining focused on cost savings from performance improvement initiatives, we grew margins on a year-over-year basis despite continuing market pressure. As we transition into the second half of the year, we are encouraged by several recent developments, including improvements in sales volume. We are confident in our ability to deliver on a strong second half of the year and are reiterating our guidance, excluding the Novel Ingredients acquisition.

"Executing against our Operational Excellence and Commercial Excellence pillars remains paramount to our strategy," continued Mink. "We now have completed our Phase 1 Operational Excellence efforts and are on schedule to begin delivering Phase 2 savings in the third quarter. We continue to look at additional opportunities to achieve further productivity improvements in 2018 and beyond, including in the areas of manufacturing optimization and strategic supply chain enhancements.

"Under the Strategic Growth pillar, we took a significant step forward toward achieving our Vision 2022 goals with our announced acquisition of Novel Ingredients, which creates a $0.5 billion FHN platform," continued Mink.  "With an enhanced set of innovative products and capabilities that serve high-growth nutrition markets, we are strengthening our ability to deliver value to our customers, more closely aligning Innophos with consumer mega-trends such as health and wellness, energized aging, and clean labels, and advancing toward our goal to be a leading specialty ingredient solutions provider to attractive FHN markets." 

Second Quarter Results
Variance $ and Variance % in the following tables may not foot due to rounding

$ Millions except EPS

Quarter 2

2017

2016

Variance $

Variance %

Sales

179

182

(3)

(2)%

Net Income

11

12

(1)

(7)%

Adj. Net Income

11

12

(1)

(8)%

EBITDA

28

28

--

(1)%

Adj. EBITDA

30

30

--

--

Diluted EPS

0.57

0.61

(0.05)

(8)%

Adj. Diluted EPS

0.57

0.63

(0.05)

(8)%

Cash from Ops

30

45

(15)

(33)%

Free Cash Flow

23

35

(12)

(35)%

 

Q2 Segment Financials

Sales

2017 $ Millions

2016 $ Millions

Variance $

Variance %

FHN

92

95

(2)

(3)%

IS

67

72

(5)

(6)%

Other

20

15

4

28%

Total Innophos

179

182

(3)

(2)%

 

Adj. EBITDA

2017 $ Millions

2016 $ Millions

2017 Margin

2016 Margin

FHN

18

20

20%

22%

IS

10

11

14%

15%

Other

2

(1)

12%

(8)%

Total IPHS

30

30

17%

17%

Note: See Adjusted EBITDA reconciliation to EBITDA in the financial tables that follow

Year-to-date Results
Variance $ and Variance % in the following tables may not foot due to rounding

$ Millions except EPS

YTD Quarter 2

2017

2016

Variance $

Variance %

Sales

345

371

(26)

(7)%

Net Income

22

25

(3)

(11)%

Adj. Net Income

23

25

(2)

(9)%

EBITDA

54

59

(5)

(9)%

Adj. EBITDA

58

61

(4)

(6)%

Diluted EPS

1.12

1.27

(0.15)

(12)%

Adj. Diluted EPS

1.16

1.28

(0.12)

(9)%

Cash from Ops

19

42

(23)

(54)%

Free Cash Flow

3

24

(21)

(86)%

 

YTD Quarter 2 Segment Financials

Sales

2017 $ Millions

2016 $ Millions

Variance $

Variance %

FHN

183

193

(10)

(5)%

IS

131

147

(15)

(11)%

Other

31

32

(1)

(4)%

Total Innophos

345

372

(26)

(7)%

 

Adj. EBITDA

2017 $ Millions

2016 $ Millions

2017 Margin

2016 Margin

FHN

35

41

19%

21%

IS

20

20

15%

14%

Other

3

--

11%

--

Total IPHS

58

61

17%

16%

Note: See Adjusted EBITDA reconciliation to EBITDA in the financial tables that follow

Recent Trends and Outlook 

Q3 2017
Sales in Q3 are expected to be similar to the second quarter 2017, down approximately 4% year over year, but with an anticipated mix improvement towards FHN.

Earnings in the third quarter are forecast to be positively affected sequentially by reduced implementation fees and first-time cost savings from Phase 2 operational excellence. Input costs are otherwise expected to be in line with second quarter 2017.

The Company anticipates that the tax rate will be at the more normalized level of approximately 33% in the third quarter.

Full Year 2017
The Company is reiterating its revenue and earnings guidance for full year 2017, excluding the impact of the Novel Ingredients acquisition. 

On a full-year basis, overall market conditions and the competitive landscape for 2017 are expected to be similar to 2016.

The Company anticipates that the Phase 2 Operational Excellence fees incurred in the first half of the year will be more than offset by the Phase 2 savings, of which $5 million is estimated to take effect in the second half of 2017.

As a result of these factors, the Company continues to expect full-year revenues to be down by approximately 4% compared with 2016. The Company further continues to expect full-year earnings to be broadly in line with 2016, reflecting the impact of management's focus on cost actions and productivity initiatives given the challenging market conditions.

Conference Call

Innophos will host its second quarter 2017 conference call on Tuesday, August 1, 2017 at 9:00 am ET to discuss its earnings results and the Novel Ingredients acquisition. The call can be accessed by dialing 1-800-708-4539 (U.S.) or 1-847-619-6396 (international) and entering passcode 4532-6485. Please dial in approximately 15 minutes ahead of the start time to ensure timely entry to the call. The Q2 2017 earnings call presentation will be made available on the Company's website the morning of the call. A replay will be available between 11:30 am ET on August 1 and 11:59 pm ET on August 15, 2017. The replay is accessible by dialing 1-888-843-7419 ( U.S.) or 1-630-652-3042 (international) and entering passcode 4532-6485#. Additional information on Innophos' second quarter 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 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; (5) the Company's ability to successfully identify and complete acquisitions in line with its Vision 2022 and effectively operate and integrate acquired businesses to realize the anticipated benefits of those acquisitions; (5) the Company's ability to realize expected cost savings and efficiencies from its performance improvement and other optimization initiatives; (6) the Company's ability to effectively compete in its markets, and to successfully develop new and competitive products that appeal to its customers; (7) changes in consumer preferences and demand for the Company's products or a decline in consumer confidence and spending; (8) the Company's ability to benefit from its investments in assets and human capital and the ability to complete projects successfully and on budget; (9) economic, regulatory and political risks associated with the Company's international operations, most notably Mexico and China; (10) 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; (11) the impact of a disruption in the Company's supply chain or its relationship with its suppliers; (12) the Company's ability to comply with, and the costs associated with compliance with, U.S. and foreign environmental protection laws; (13) the Company's ability to meet quality and regulatory standards in the various jurisdictions in which it has operations or conducts business and (14) the Company's ability to consummate the acquisition of Novel Ingredients and to achieve the benefits anticipated from such acquisition. 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 June 30,


 

Six Months Ended June 30,


2017


2016


2017


2016









Net sales

$179,140


$181,888


$345,084


$371,518

Cost of goods sold

140,064


145,738


269,465


294,652

Gross profit

39,076


36,150


75,619


76,866

Operating expenses:








     Selling, general and administrative

19,867


15,732


39,175


33,967

     Research & development expenses

818


1,021


1,648


2,017

     Total operating expenses

20,685


16,753


40,823


35,984

Operating income

18,391


19,397


34,796


40,882

Interest expense, net

1,452


1,913


2,805


3,712

Foreign exchange loss (gain)

(78)


355


(135)


316

Income before income taxes

17,017


17,129


32,126


36,854

Provision for income taxes

5,794


5,025


9,980


11,908

Net income

$11,223


$12,104


$22,146


$24,946









Diluted Earnings Per Participating Share

$0.57


$0.61


$1.12


$1.27

Diluted weighted average participating shares outstanding

19,692,690


19,613,807


19,693,682


19,521,960

Dividends paid per share of common stock

$0.48


$0.48


$0.96


$0.96

Dividends declared per share of common stock

$0.48


$0.48


$0.96


$0.96









 

 

Adjusted EBITDA Reconciliation to Net Income













(Dollars in thousands)

 

Three Months Ended June 30,


 

Six Months Ended June 30,


2017


2016


2017


2016

Net Income

$11,223


$12,104


$22,146


$24,946

Interest expense, net

1,452


1,913


2,805


3,712

Provision for income taxes

5,794


5,025


9,980


11,908

Depreciation & amortization

9,550


9,282


19,131


18,564

EBITDA

28,019


28,324


54,062


59,130









Adjustments








Non-cash stock compensation *

1,568


1,292


2,285


1,826

Foreign exchange loss (gain)

(78)


355


(135)


316

Severance/Restructuring expense (income)

326


-


1,326


(43)

Adjusted EBITDA

$29,835


$29,971


$57,538


$61,229









Percent of Sales

16.7%


16.5%


16.7%


16.5%









* Not adjusted when calculating Adjusted EPS







 

 









Adjusted Net Income Reconciliation to Net Income













(Dollars in thousands, except EPS)

Three Months Ended June 30,


Six Months Ended June 30,


2017


2016


2017


2016

Net Income (loss)

$11,223


$12,104


$22,146


$24,946









Pre-tax Adjustments








Foreign exchange loss (gain)

(78)


355


(135)


316

Severance/Restructuring expense (income)

326


-


1,326


(43)

Total Pre-tax Adjustments

248


355


1,191


273









Income tax effects on Adjustments

84


104


346


76

Adjusted Net Income

$11,387


$12,355


$22,991


$25,143









Adjusted Diluted Earnings
Per Participating Share

$0.57


$0.63


$1.16


$1.28

 

 

Segment Adjusted EBITDA Reconciliation to EBITDA
















(Dollars in thousands)

Three Months Ended June 30, 2017


Three Months Ended June 30, 2016












    FHN   

      IS     

  Other  

   Total   


    FHN   

      IS     

  Other  

   Total   

EBITDA

$17,032

$8,654

$2,333

$28,019


$19,744

$10,136

($1,556)

$28,324











Non-cash stock compensation

887

621

60

1,568


732

534

26

1,292

Foreign exchange loss (gain)

(26)

0

(52)

(78)


0

0

355

355

Severance/Restructuring exp.(inc.)

130

196

0

326


0

0

0

0

Adjusted EBITDA

$18,023

$9,471

$2,341

$29,835


$20,476

$10,670

($1,175)

$29,971












Six Months Ended June 30, 2017


Six Months Ended June 30, 2016












    FHN   

      IS     

  Other  

   Total   


    FHN   

      IS     

  Other  

   Total   

EBITDA

$32,656

$18,175

$3,231

$54,062


$39,677

$19,697

($244)

$59,130











Non-cash stock compensation

1,293

905

87

2,285


1,039

715

72

1,826

Foreign exchange loss (gain)

(30)

0

(105)

(135)


0

0

316

316

Severance/Restructuring exp.(inc.)

665

635

26

1,326


145

0

(188)

(43)

Adjusted EBITDA

$34,584

$19,715

$3,239

$57,538


$40,861

$20,412

($44)

$61,229

 

 

Cash From Operations Reconciliation to EBITDA 














(Dollars in thousands)

 

Three Months Ended June 30,


 

Six Months Ended June 30,



2017


2016


2017


2016


EBITDA

$28,019


$28,324


$54,062


$59,130











Operating Working Capital

7,840


24,987


(21,382)


13,701


Taxes paid

(5,940)


(6,425)


(11,365)


(26,443)


Interest paid

(1,380)


(1,788)


(2,685)


(3,498)


All other including non-cash stock compensation and changes in other     
long-term assets and liabilities

1,496


15


726


(851)


Net cash provided from operations

$30,035


$45,113


$19,356


$42,039


 

 

Cash From Operations Reconciliation to Adjusted EBITDA 












(Dollars in thousands)

 

Three Months Ended June 30,


 

Six Months Ended June 30,


2017


2016


2017


2016

Adjusted EBITDA

$29,835


$29,971


$57,538


$61,229









Operating Working Capital

7,592


24,632


(22,573)


13,428

Taxes paid

(5,940)


(6,425)


(11,365)


(26,443)

Interest paid

(1,380)


(1,788)


(2,685)


(3,498)

All other including changes in other     
long-term assets and liabilities

(72)


(1,277)


(1,559)


(2,677)

Net cash provided from operations

$30,035


$45,113


$19,356


$42,039

 

 

Free Cash Flow Reconciliation to Cash From Operations










Three Months Ended June 30,


Six Months Ended June 30,

(Dollars in thousands)

2017


2016


2017


2016









Cash From Operations

$30,035


$45,113


$19,356


$42,039

Capital Expenditures

(7,524)


(10,514)


(16,077)


(18,538)

Free Cash Flow

$22,511


$34,599


$3,279


$23,501

 

 

Segment Reporting - Second Quarter











Three Months Ended June 30,


Net Sales


2017


2016


% Change

Segment Net Sales






Food, Health and Nutrition

$92,198


$94,662


(2.6)%

Industrial Specialties

67,368


71,912


(6.3)%

Other

19,574


15,314


27.8%

Total

$179,140


$181,888


(1.5)%







Segment EBITDA






Food, Health and Nutrition

$17,032


$19,744



Industrial Specialties

8,654


10,136



Other

2,333


(1,556)



Total

$28,019


$28,324









Segment EBITDA % of net sales






Food, Health and Nutrition

18.5%


20.9%



Industrial Specialties

12.8%


14.1%



Other

11.9%


(10.2)%



Total

15.6%


15.6%









Depreciation and amortization expense






Food, Health and Nutrition

$5,498


$5,252



Industrial Specialties

3,486


3,538



Other

566


492



Total

$9,550


$9,282



 

 

Segment Reporting - Year-to-date











 

Six Months Ended June 30,


Net Sales


2017


2016


% Change

Segment Net Sales






Food, Health and Nutrition

$183,281


$193,074


(5.1)%

Industrial Specialties

131,040


146,467


(10.5)%

Other

30,763


31,977


(3.8)%

Total

$345,084


$371,518


(7.1)%







Segment EBITDA






Food, Health and Nutrition

$32,656


$39,677



Industrial Specialties

18,175


19,697



Other

3,231


(244)



Total

$54,062


$59,130









Segment EBITDA % of net sales






Food, Health and Nutrition

17.8%


20.6%



Industrial Specialties

13.9%


13.4%



Other

10.5%


(0.8)%



Total

15.7%


15.9%









Depreciation and amortization expense






Food, Health and Nutrition

$11,220


$10,043



Industrial Specialties

6,858


6,597



Other

1,053


1,924



Total

$19,131


$18,564



 

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 variance is calculated as the total sales variance minus the selling price variance and refers to the revenue effect of changes in tons sold at the relative prices applicable to the variation in tons, otherwise known as volume/mix.

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, 2017


Six Months Ended June 30, 2017













Reportable Segments

  Price  


Volume/Mix


  Total  


  Price  


Volume/Mix


  Total  

Food, Health and Nutrition

(4.5)%


1.9%


(2.6)%


(3.7)%


(1.4)%


(5.1)%

Industrial Specialties

(6.5)%


0.2%


(6.3)%


(6.8)%


(3.7)%


(10.5)%

Other

(2.7)%


30.5%


27.8%


(6.9)%


3.1%


(3.8)%

Total

(5.1)%


3.6%


(1.5)%


(5.2)%


(1.9)%


(7.1)%

 

Summary Cash Flow Statement 

INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)






Six Months Ended June 30,


2017


2016

Cash flows provided from operating activities




     Net income

$22,146


$24,946

     Adjustments to reconcile net income to net cash provided from




     operating activities:




          Depreciation and amortization

19,131


18,564

          Amortization of deferred financing charges

215


337

          Deferred income tax provision

14


363

          Gain on sale of building

(153)


-

          Share-based compensation

2,285


1,301

     Changes in assets and liabilities:




         Increase in accounts receivable

(7,797)


(5,302)

         Decrease in inventories

1,650


16,480

         (Increase) decrease in other current assets

(5,975)


5,947

         (Decrease) increase in accounts payable

(6,389)


2,328

         Decrease in other current liabilities

(2,688)


(18,327)

         Changes in other long-term assets and liabilities

(3,083)


(4,598)

              Net cash provided from operating activities

19,356


42,039

Cash flows used for investing activities:




      Capital expenditures

(16,077)


(18,538)

      Proceeds from sale of building

1,028


-

             Net cash used for investing activities

(15,049)


(18,538)

Cash flows used for financing activities:




     Proceeds from exercise of stock options

-


9

     Long-term debt borrowings

14,000


36,000

     Long-term debt repayments

(19,000)


(19,002)

     Excess tax (deficiency) benefit from exercise of stock options

-


(331)

     Restricted stock forfeitures

(738)


(318)

     Dividends paid

(18,722)


(18,564)

            Net cash used for financing activities

(24,460)


(2,206)

Effect of foreign exchange rate changes on cash and cash equivalents

162


12

Net change in cash

(19,991)


21,307

Cash and cash equivalents at beginning of period

53,487


17,905

Cash and cash equivalents at end of period

$33,496


$39,212

 

Summary Balance Sheets 

INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)

(Dollars In thousands)






June 30,
2017


December 31,
2016

ASSETS




Current assets:




     Cash and cash equivalents

$33,496


$53,487

     Accounts receivable, net

85,493


77,692

     Inventories

126,652


128,295

     Other current assets

30,090


23,894

               Total current assets

275,731


283,368

Property, plant and equipment, net

206,683


205,459

Goodwill

84,373


84,373

Intangibles and other assets, net

64,889


69,811

               Total assets

$631,676


$643,011

LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




     Accounts payable, trade and other

$45,458


$51,611

     Other current liabilities

40,934


43,605

               Total current liabilities

86,392


95,216

Long-term debt

180,000


185,000

Other long-term liabilities

14,139


15,569

               Total stockholders' equity

351,145


347,226

               Total liabilities and stockholders' equity

$631,676


$643,011

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.

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 less total current liabilities.  

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 2022 expectation for Adjusted EBITDA margin to GAAP net income due to the number of variables in the projected EBITDA margin for 2022 and because we are currently unable to quantify accurately certain amounts that would be required to be included in GAAP net income 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.

 

Investor Contact                                                                      

Media Contact

Mark Feuerbach                                                                       

Ryan Flaim

Innophos                                                                                 

Sharon Merrill Associates

609-366-1204                                                                            

617-542-5300

investor.relations@innophos.com                                             

iphs@investorrelations.com

 

 

View original content:http://www.prnewswire.com/news-releases/innophos-holdings-inc-reports-second-quarter-2017-results-300496989.html

SOURCE Innophos Holdings, Inc.

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