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Innophos Holdings, Inc. Reports Third Quarter 2016 Results

Strong and Consistent Earnings Performance
Improved Margin Profile and Strong Cash Generation
Announces Strategic Two-year Tolling Agreement for GTSP Co-Product Business

CRANBURY, N.J., Oct. 27, 2016 /PRNewswire/ -- Innophos Holdings, Inc. (NASDAQ: IPHS), today announced its financial results for the third quarter ending September 30, 2016.

Q3 2016 Highlights

"Innophos delivered another solid quarter highlighted by significant improvements in net income, the highest adjusted EBITDA in eight quarters, and strong cash generation," said Kim Ann Mink, Ph.D., chief executive officer. "Our ability to maintain margins despite ongoing market headwinds is the direct result of our ability to reduce costs across the organization through our operational excellence initiatives. Through these efforts we have now identified a procurement savings pipeline of $13 to $15 million, 75% of which we expect to be recognized in our 2016 P&L.

"Our focus on efficient working capital drove another period of strong free cash flow generation. As a result, we are well positioned to invest in both organic and inorganic strategic growth opportunities, while also continuing to return value to our shareholders through our dividend program."

Dr. Mink continued, "The GTSP tolling agreement announced today reflects our commitment to deliver on what we promise. Once the agreement takes effect it will provide us with an outlet for our GTSP co-product and reduce GTSP earnings volatility. Further, this arrangement will eliminate the need for us to expend valuable resources on managing this non-core product line and market. 

"We are making significant headway in realizing our vision of transforming Innophos into a market-oriented growth company that provides a broad set of value-added and innovative technology-based ingredient solutions for the food, health and nutrition markets," Dr. Mink said. "The three strategic pillars of our transformation are at the core of realizing this vision. As we look ahead, our priorities remain to finalize our strategic growth roadmap and strengthen the foundation of our business by continuing to execute against our operational excellence and commercial excellence initiatives."

 

Third Quarter Results


$ Millions except EPS

Quarter 3

2016

2015

Variance $

Variance %

Sales

186

200

(14)

(7)%

Net Income

14

5

8

151%

Adj Net Income

15

13

2

13%

Adj EBITDA

34

31

3

11%

Diluted EPS

0.69

0.28

0.41

150%

Adj Diluted EPS

0.75

0.66

0.09

14%

Cash from Ops

40

21

19

92%

Variance $ and Variance % may not foot due to rounding.

 

Net sales for the third quarter 2016 of $186 million were down 7% compared with the third quarter 2015.

Net Income of $14 million for the third quarter 2016, up $8 million or 151% from the third quarter of 2015. Net income as a percent of sales was 7%, up from 3% in the third quarter 2015 due to improved mix and cost actions.

Adjusted EBITDA of $34 million for the third quarter 2016 yielded a margin of 18%, up 291 basis points compared with the prior-year quarter. Specialty Phosphates adjusted EBITDA margins of 19% improved 392 basis points versus the same quarter last year, partially offset by lower results recorded in GTSP & Other.

Diluted EPS of $0.69, compared with diluted EPS of $0.28 for the third quarter 2015.

Adjusted diluted EPS for the third quarter 2016 was $0.75, up 14% from an adjusted diluted EPS of $0.66 for the third quarter 2015, and also improved sequentially.

Net Cash from operations of $40 million in the third quarter 2016 was nearly double the same period of 2015.

Free cash flow of $33 million in the third quarter 2016 was driven primarily by working capital reductions that enabled net debt to decrease $23 million sequentially to $166 million.

 

Year-to-date Results


$ Millions except EPS

YTD Quarter 3

2016

2015

Variance $

Variance %

Sales

558

619

(61)

(10)%

Net Income

39

31

8

25%

Adj Net Income

40

40

---

(1)%

Adj EBITDA

95

96

---

---

Diluted EPS

1.96

1.50

0.46

31%

Adj Diluted EPS

2.03

1.94

0.09

5%

Cash from Ops

82

76

6

8%

Variance $ and Variance % may not foot due to rounding.

 

Net sales for 2016 YTD of $558 million were down 10% compared with the same period of 2015.

Net Income of $39 million for 2016 YTD, up $8 million, or 25%, from the same period last year. Net income as a percent of sales was 7% YTD in 2016, up from 5% in the same period of 2015 due to gross margin improvements and cost actions. 

Adjusted EBITDA of $95 million for 2016 YTD yielded a margin of 17%, up 164 basis points compared with the same period in 2015. Specialty Phosphates adjusted EBITDA margins of 19% improved 219 basis points versus the same period last year.

Diluted EPS for YTD 2016 was $1.96 compared with diluted EPS of $1.50 for the first three quarters of 2015.

Adjusted diluted EPS for YTD 2016 was $2.03 compared with an adjusted EPS of $1.94 for the first three quarters of 2015.

Net Cash from operations for YTD 2016 was $82 million, up $6 million from the same period last year.

Free cash flow for YTD 2016 was $56 million, up $2 million from the same period last year despite $25 million higher tax payments, of which $19 million, paid in the first quarter of 2016, related to the cash repatriation program.

Recent Trends and Outlook

Specialty Phosphates volumes are expected to decline by 6-8% for full year 2016 compared with 2015, primarily due to reduced sales in lower margin, less differentiated applications and weak end market demand due to continued pressures on packaged foods.

Market phosphate rock and sulfur prices declined modestly for the third quarter 2016. Raw material costs are expected to continue at current levels in the fourth quarter.

Cost improvements from the restructuring program implemented in the third quarter 2015 were in line with expectations, with $3 million lower costs realized in the current quarter against the third-quarter 2015 baseline. Additional year-on-year cost savings were delivered due to detailed cost management. Management continues to review cost actions and productivity initiatives given the challenging market conditions.   

Net income and adjusted EBITDA for the fourth quarter are expected to be somewhat softer compared with first and second quarter 2016 when considering the following net effects.

2016 capital expenditures are expected to be in the range of $34 million to $36 million, below prior projections, due to timing of certain projects that will fall into 2017.

Conference Call

Innophos will host its third quarter 2016 conference call on Friday, October 28, 2016 at 9:00 am ET. The call can be accessed by dialing 1-888-771-4371 (U.S.) or 1-847-585-4405 (international) and entering passcode 43529234. Please dial in approximately 15 minutes ahead of the start time to ensure timely entry to the call. The Q3 2016 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 October 28 and 12:00 pm ET on November 11, 2016. The replay is accessible by dialing 1-888-843-7419 (U.S.) or 1-630-652-3042 (international) and entering passcode 43529234#. Additional information on Innophos' third 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'

Contacts

Investors: Mark Feuerbach, 609-366-1204 or investor.relations@innophos.com

Media: Ryan Flaim, Sharron Merrill Associates, 617-542-5300 or IPHS@investorrelations.com

Financial Tables Follow

Safe Harbor for Forward-Looking and Cautionary Statements

This release contains 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. As such, final results could differ from estimates or expectations due to risks and uncertainties, including but not limited to: incomplete or preliminary information; changes in government regulations and policies; continued acceptance of Innophos' products and services in the marketplace; competitive factors; technological changes; Innophos' dependence upon suppliers; and other risks. For any of these factors, Innophos claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, as amended.


 

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 September 30,


 

Nine Months Ended September 30,


2016


2015


2016


2015









Net sales

$186,037


$199,612


$557,555


$618,515

Cost of goods sold

145,497


162,491


440,149


499,873

Gross profit

40,540


37,121


117,406


118,642

Operating expenses:








     Selling, general and administrative

17,749


23,368


51,716


60,026

     Research & development expenses

896


1,193


2,913


3,430

     Total operating expenses

18,645


24,561


54,629


63,456

Operating income

21,895


12,560


62,777


55,186

Interest expense, net

1,915


1,869


5,627


4,423

Foreign exchange loss 

110


2,629


426


5,061

Income before income taxes

19,870


8,062


56,724


45,702

Provision for income taxes

6,227


2,629


18,135


14,723

Net income

$13,643


$5,433


$38,589


$30,979









Diluted Earnings Per Participating Share

$0.69


$0.28


$1.96


$1.50

Diluted weighted average participating shares outstanding

19,670,159


19,662,591


19,572,003


20,633,609

Dividends paid per share of common stock

$0.48


$0.48


$1.44


$1.44

Dividends declared per share of common stock

$0.48


$0.48


$1.44


$1.44

 

Adjusted EBITDA Reconciliation to Net Income













(Dollars in thousands)

 

Three Months Ended September 30,


 

Nine Months Ended September 30,


2016


2015


2016


2015









Net Income

$13,643


$5,433


$38,589


$30,979

Interest

1,915


1,869


5,627


4,423

Taxes

6,227


2,629


18,135


14,723

Depreciation & Amortization

10,043


9,048


28,607


29,681

EBITDA

31,828


18,979


90,958


79,806









Adjustments








Non-cash stock compensation *

758


658


2,584


2,243

Translation (income) expense 

110


2,629


426


5,061

Restructuring (income) expense 

1,508


8,621


1,465


8,621

Adjusted EBITDA

$34,204


$30,887


$95,433


$95,731









Percent of Sales

18.4%


15.5%


17.1%


15.5%









* Not adjusted when calculating Adjusted EPS







































Adjusted Net Income Reconciliation to Net Income












(Dollars in thousands, except EPS)

 

Three Months Ended September 30,


 

Nine Months Ended September 30,


2016


2015


2016


2015









Net Income 

$13,643


$5,433


$38,589


$30,979









Pre-tax Adjustments








Translation (income) expense 

110


2,629


426


5,061

Restructuring (income) expense 

1,508


8,621


1,465


8,621

Total Pre-tax Adjustments

1,618


11,250


1,891


13,682









Income tax effects on Adjustments

507


3,669


582


4,475

Adjusted Net Income

$14,754


$13,014


$39,898


$40,186









Adjusted Diluted Earnings
Per Participating Share

$0.75


$0.66


$2.03


$1.94

 

Segment Reporting - Third Quarter

The Company reports its operations in three segments: Specialty Phosphates US & Canada, Specialty Phosphates Mexico and GTSP & Other. The primary performance indicators for the chief operating decision maker are sales and EBITDA, with sales presented on a ship-from basis. Sales on a ship-from basis are on the same revenue recognition principle as a ship-to basis and are recognized when delivery has occurred and title and risk of loss passes to the customer. The following table sets forth the historical results of these indicators by segment:

 









 

Three Months Ended September 30,


Net Sales



2016


2015


% Change


Segment Net Sales







Specialty Phosphates US & Canada

$127,796


$145,617


(12.2)%


Specialty Phosphates Mexico

41,326


40,304


2.5%


Total Specialty Phosphates

169,122


185,921


(9.0)%


GTSP & Other

16,915


13,691


23.5%


Total

$186,037


$199,612


(6.8)%









Segment EBITDA







Specialty Phosphates US & Canada

$15,300


$21,015




Specialty Phosphates Mexico

16,145


5,068




Total Specialty Phosphates

31,445


26,083




GTSP & Other (a) (b)

383


(7,104)




Total

$31,828


$18,979











Segment EBITDA % of net sales







Specialty Phosphates US & Canada

12.0%


14.4%




Specialty Phosphates Mexico

39.1%


12.6%




Total Specialty Phosphates

18.6%


14.0%




GTSP & Other 

2.3%


(51.9)%




Total

17.1%


9.5%











Depreciation and amortization expense







Specialty Phosphates US & Canada

$7,218


$6,622




Specialty Phosphates Mexico

1,576


1,637




Total Specialty Phosphates

8,794


8,259




GTSP & Other

1,249


789




Total

$10,043


$9,048











(a) The three months ended September 30, 2016 includes a $1.5 million charge to earnings for restructuring costs.

(b) The three months ended September 30, 2015 includes an $8.6 million charge to earnings for restructuring costs.








 

Segment Reporting - Year-to-date














 

Nine Months Ended September 30,


Net Sales



2016


2015


% Change


Segment Net Sales







Specialty Phosphates US & Canada

$395,069


$441,116


(10.4)%


Specialty Phosphates Mexico

122,188


126,410


(3.3)%


Total Specialty Phosphates

517,257


567,526


(8.9)%


GTSP & Other

40,298


50,989


(21.0)%


Total

$557,555


$618,515


(9.9)%









Segment EBITDA







Specialty Phosphates US & Canada

$54,338


$63,449




Specialty Phosphates Mexico

38,562


22,216




Total Specialty Phosphates

92,900


85,665




GTSP & Other (a) (b)

(1,942)


(5,859)




Total

$90,958


$79,806











Segment EBITDA % of net sales







Specialty Phosphates US & Canada

13.8%


14.4%




Specialty Phosphates Mexico

31.6%


17.6%




Total Specialty Phosphates

18.0%


15.1%




GTSP & Other 

(4.8)%


(11.5)%




Total

16.3%


12.9%











Depreciation and amortization expense







Specialty Phosphates US & Canada

$19,902


$20,348




Specialty Phosphates Mexico

5,600


6,930




Total Specialty Phosphates

25,502


27,278




GTSP & Other

3,105


2,403




Total

$28,607


$29,681











(a) The nine months ended September 30, 2016 includes a $1.5 million charge to earnings for restructuring costs.

(b) The nine months ended September 30, 2015 includes an $8.6 million charge to earnings for restructuring costs.

 

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 September 30, 2016


Nine Months Ended September 30, 2016













Reportable Segments

 Price  


Volume/Mix


 Total 


 Price  


Volume/Mix


 Total  

Specialty Phosphates US & Canada

(0.7)%


(11.5)%


(12.2)%


(0.5)%


(9.9)%


(10.4)%

Specialty Phosphates Mexico

0.2%


2.3%


2.5%


(2.4)%


(0.9)%


(3.3)%

Total Specialty Phosphates

(0.5)%


(8.5)%


(9.0)%


(0.9)%


(8.0)%


(8.9)%

GTSP & Other

(26.9)%


50.4%


23.5%


(19.8)%


(1.2)%


(21.0)%

Total

(2.3)%


(4.5)%


(6.8)%


(2.5)%


(7.4)%


(9.9)%

 

Summary Cash Flow Statement 


INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)






 

Nine Months Ended September 30,


2016


2015

Cash flows provided from operating activities




     Net income

$38,589


$30,979

     Adjustments to reconcile net income to net cash provided from




     operating activities:




          Depreciation and amortization

28,607


29,681

          Amortization of deferred financing charges

505


445

          Deferred income tax provision

363


169

          Share-based compensation

2,329


2,243

     Changes in assets and liabilities:




         Increase in accounts receivable

(107)


(10,091)

         Decrease in inventories

33,092


15,057

         Decrease in other current assets

2,102


11,241

         Decrease in accounts payable

(2,545)


(10,609)

         (Decrease) increase in other current liabilities

(16,145)


5,342

         Changes in other long-term assets and liabilities

(4,986)


1,480

              Net cash provided from operating activities

81,804


75,937

Cash flows used for investing activities:




      Capital expenditures

(25,675)


(21,770)

             Net cash used for investing activities

(25,675)


(21,770)

Cash flows used for financing activities:




     Proceeds from exercise of stock options

9


190

     Long-term debt borrowings

36,000


156,000

     Long-term debt repayments

(49,002)


(6,002)

     Deferred financing costs

-


(277)

     Excess tax (deficiency) benefit from exercise of stock options

(346)


771

     Common stock repurchases and restricted stock forfeitures

(331)


(125,402)

     Dividends paid

(27,891)


(29,322)

            Net cash used for financing activities

(41,561)


(4,042)

Effect of foreign exchange rate changes on cash and cash equivalents

323


(285)

Net change in cash

14,891


49,840

Cash and cash equivalents at beginning of period

17,905


36,207

Cash and cash equivalents at end of period

$32,796


$86,047

 

Summary Balance Sheets 


INNOPHOS HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)

(Dollars In thousands)






September 30,
2016


December 31,
2015

ASSETS




Current assets:




     Cash and cash equivalents

$32,796


$17,905

     Accounts receivable, net

79,845


79,743

     Inventories

139,481


172,667

     Other current assets

21,248


23,514

               Total current assets

273,370


293,829

Property, plant and equipment, net

202,861


199,494

Goodwill

84,373


84,373

Intangibles and other assets, net

84,209


90,522

               Total assets

$644,813


$668,218

LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




     Current portion of long-term debt

$4,000


$4,002

     Accounts payable, trade and other

34,524


36,898

     Other current liabilities

46,339


63,204

               Total current liabilities

84,863


104,104

Long-term debt

195,170


207,665

Other long-term liabilities

19,411


23,189

               Total stockholders' equity

345,369


333,260

               Total liabilities and stockholders' equity

$644,813


$668,218

 

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 net cash used for investing purposes.

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.

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/innophos-holdings-inc-reports-third-quarter-2016-results-300352916.html

SOURCE Innophos Holdings, Inc.

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