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Section 1: 8-K (8-K)

esnd-8k_20160720.htm

 

 UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

 

FORM 8-K

 

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of Earliest Event Reported):  July 20, 2016

 

ESSENDANT INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

0-10653

 

36-3141189

(State or other jurisdiction
of incorporation)

 

(Commission File Number)

 

(IRS Employer
Identification No.)

 

 

 

 

 

One Parkway North Blvd.

Suite 100

Deerfield, Illinois

 

60015-2559

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code (847) 627-7000

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

[  ]   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

[  ]   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

[  ]   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

[  ]   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

 

 


 

Item 2.02

Results of Operations and Financial Condition.

 

The following information, including Exhibit 99.1 and Exhibit 99.2, shall not be deemed “filed” hereunder for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

On July 20, 2016, Essendant Inc. (the “Registrant”) issued a press release announcing its financial results for the three- and six-month periods ended June 30, 2016. A copy of the Registrant’s press release is attached as Exhibit 99.1 hereto and is incorporated herein by reference. In addition, a slide presentation summarizing earnings and financial results is attached as Exhibit 99.2 hereto and is incorporated herein by reference.

 

 

Item 9.01

Financial Statements and Exhibits.

The following exhibits are filed herewith:

 

 

 

 

Exhibit No.

  

Description

 

 

99.1

 

Press Release, dated July 20, 2016, announcing financial results for the three- and six-month periods ended June 30, 2016.

99.2

 

Earnings Presentation, a slide presentation summarizing earnings and financial results.

 

 

 


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.  

 

 

ESSENDANT INC.

Date:  July 20, 2016

 

/s/Earl C. Shanks

 

Earl C. Shanks

Senior Vice President and Chief Financial Officer

 

 

 


 

 

ESSENDANT INC.

EXHIBIT INDEX TO CURRENT REPORT ON FORM 8-K

DATED JUNE 30, 2016

 

 

 

 

 

Exhibit No.

  

Description

Method of Filing

 

 

 

99.1

 

Press Release, dated July 20, 2016, announcing financial results for the three- and six-month periods ended June 30, 2016.

Filed Herewith

99.2

 

Earnings Presentation, a slide presentation summarizing earnings and financial results.

Filed Herewith

 

 

 

 

 

(Back To Top)

Section 2: EX-99.1 (EX-99.1)

esnd-ex991_7.htm

 

Exhibit 99.1

 

 

 

 

 

 

 

 

 

 

 

 

 

Executive Offices

One Parkway North Blvd.

Suite 100

Deerfield, IL 60015-2559

  

For Further Information Contact:

Kaveh Bakhtiari

investorrelations@essendant.com

(847) 627-2900

 

 

ESSENDANT REPORTS SECOND QUARTER 2016 RESULTS

DEERFIELD, Ill., July 20, 2016 – Essendant Inc. (NASDAQ: ESND), a leading supplier of workplace essentials, today announced financial results for the second quarter ended June 30, 2016.  Key results for Q2 2016 were as follows:

 

 

·

Continued revenue growth with net sales increase of 0.9% year-over-year, to $1.35 billion

 

·

GAAP net income of $12.9 million compared to $29.8 million last year

 

·

GAAP operating income of $26.5 million compared to $53.2 million last year

 

·

GAAP earnings per share of $0.35 compared to $0.78 per share last year

 

·

Adjusted EBITDA of $50.9 million(1) compared to $65.8 million last year

 

·

Adjusted earnings per share of $0.55(1) compared to $0.81 last year

 

·

Revised full year adjusted EPS guidance to $2.15 to $2.30 per share(2)

“In light of the challenges we faced in the quarter and our reduced outlook for the balance of the year, we are accelerating efforts to advance our strategy, improve margins and reduce costs,” said Robert B. Aiken, Jr., president and chief executive officer of Essendant.  “We plan to execute these actions while reducing our inventory levels over the balance of the year to improve the company’s return on investment. Building on our core capabilities while increasing operating and working capital efficiency is the right path forward.  With the common platform implementation of our office products and janitorial/sanitation businesses now complete, several large accounts wins on boarded and our industrial business making progress in its recovery plan, our company's core capabilities continue to offer a competitive advantage in the marketplace,” Aiken continued. 

 

Second Quarter Sales

 

 

·

Net sales increased 0.9%, driven principally by the Automotive acquisition and increased sales of office products

 

o

Automotive acquisition in 2015 contributed $18.6 million of sales in the second quarter of 2016, offsetting the impact of the loss of $18.7 million from the divestiture of the Mexico business during third quarter of 2015


 

(1)

This is non-GAAP information. See the Reconciliation of Non-GAAP Financial Measures section of this document for more information.

 

(2)

The adjusted earnings per share guidance excludes a $0.20 per share charge related to a defined benefit plan settlement and a workforce reduction and facility consolidation, and excludes any acquisitions or unusual charges that may occur in the remainder of fiscal 2016.

 

Note: All EPS numbers in this document are diluted unless stated otherwise.

 

-1-


Essendant Reports Second Quarter 2016 Results

Page 2 of 9

 

 

·

Year-over-year category performance: 

 

o

Office Products: increased $4.3 million, or 0.6% to $725.0 million

 

o

Janitorial/Sanitation:  decreased $3.4 million, or 0.9%, to $366.7 million

 

o

Industrial:  decreased $6.2 million, or 4.1%, to $144.5 million

 

o

Automotive:  increased $16.6 million, or 25.9%, to $80.6 million

 

Second Quarter Performance

 

 

·

Operating income decreased by $26.7 million to $26.5 million and adjusted EBITDA decreased by $14.8 million to $50.9 million(1), driven by a $14.3 million decline in gross profit

 

o

Year-over-year declines of $13.9 million as we experienced margin pressure resulting from a shift in customer mix to lower margin customers and product category mix to lower margin products  

 

o

Freight cost was $2.2 million higher, due to an increase in e-commerce sales and lower order sizes

 

·

GAAP net income decreased by $16.9 million to $12.9 million due to lower gross profit and approximately $7.3 million in after-tax settlement charge related to de-risking the pension plan through a lump-sum offering described in more detail below. Adjusted net income fell by $10.5 million to $20.3 million(1) due to lower adjusted EBITDA and additional interest expense.  

 

·

GAAP earnings per share were $0.35 per share compared to $0.78 per share last year and adjusted earnings per share were $0.55(1) compared to $0.81 last year

 

·

Increased accounts receivable resulting from sales growth and inventory increases led to negative free cash flow of $32.5 million(1) for the year to date 2016

 

Margin Enhancement, Cost Reduction and Improved Cash Flow

 

The company continues to reposition the business for continued success despite marketplace headwinds, which includes a plan to accelerate efforts to advance our strategy, improve margins and reduce costs, and increase cash flow in the second half of 2016.  The plan involves a number of actions including pricing that better aligns to our cost to serve, merchandising excellence, continued reduction in discretionary expenses, a plan to reduce distribution center footprint, further simplification of the organization and lower fixed cost structure, as well as significant inventory reduction driven by lower purchasing levels.  

 

The actions are designed to improve the run-rate financial performance of the company and are reflected in the updated guidance.  


 

 

-2-

 


Essendant Reports Second Quarter 2016 Results

Page 3 of 9

 

Guidance

The company currently expects the following in 2016 versus the prior year, excluding any acquisitions or unusual charges:

 

Full-Year 2016

 

Prior Estimate

 

Current Estimate

 

Revenue

 

up 1% to 5%

 

up 1% to 2%

 

 

 

$5.4 billion to $5.6 billion

 

$5.4 billion to $5.475 billion

 

 

 

 

 

 

 

Adjusted earnings per share(2)

 

$3.20 to $3.40 per share

 

$2.15 to $2.30 per share

 

 

 

 

 

 

 

Free cash flow(1)

 

“Equal to or better than net income”

 

$150 million in 2H 2016

 

Pension Lump Sum Distribution

The company significantly reduced interest rate, mortality and investment risk by offering a limited-time voluntary lump-sum payment to eligible, terminated, vested plan participants, which was concluded in the second quarter. As of June 30, 2016, shareholders’ equity improved $0.9 million as the unrecognized actuarial loss, included in Accumulated Other Comprehensive Income, was reduced by $12.6 million, partly offset by a non-cash settlement charge of $11.7 million. The pension plan trust paid $37.6 million in lump sum payments during the first five months of 2016.  This offer further reduces future pension expense recognized by the company and volatility related to the future obligation of the plan.

Conference Call

Essendant will hold a conference call followed by a question and answer session on Thursday, July 21, 2016, at 7:30 a.m. CDT, to discuss second quarter 2016 results. To participate, callers within the U.S. and Canada should dial (877) 358-2531 and international callers should dial (412) 902-6623 approximately 10 minutes before the presentation.  The conference ID is “10087894.”  To listen to the webcast, participants should visit the Investors section of the company’s website (investors.essendant.com), and click on the “Q2-16 Earnings Release” 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, about two 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: Essendant's reliance on key customers, and the risks inherent in continuing or increased customer concentration and consolidations; end-user demand for products in the office, technology, and furniture product categories may continue to decline; the impact of Essendant's repositioning activities on Essendant's customers, suppliers, and operations; Essendant's reliance on independent resellers for a significant

 

 

-3-

 


Essendant Reports Second Quarter 2016 Results

Page 4 of 9

 

percentage of its net sales and, therefore, the importance of the continued independence, viability and success of these resellers; prevailing economic conditions and changes affecting the business products industry and the general economy; 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 of price transparency, customer consolidation, and changes in product sales mix on Essendant's margins; the impact on the company’s reputation and relationships of a breach of the company’s information technology systems; the risks and expense associated with Essendant's obligations to maintain the security of private information provided by Essendant's customers; Essendant's reliance on supplier allowances and promotional incentives; the creditworthiness of Essendant's customers; continuing or increasing competitive activity and pricing pressures within existing or expanded product manufacturers who sell directly to Essendant's customers; the impact of supply chain disruptions or changes in key suppliers’ distribution strategies; 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; the costs and risks related to compliance with laws, regulations and industry standards affecting Essendant's business; the availability of financing sources to meet Essendant's business needs; Essendant's reliance on key management personnel, both in day-to-day operations and in execution of new business initiatives; and the effects of hurricanes, acts of terrorism and other natural or man-made disruptions.  

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 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 supplier of workplace essentials, with 2015 net sales of $5.4 billion. The company stocks a broad assortment of over 180,000 items, including technology products, traditional office products, janitorial and breakroom supplies, office furniture, industrial supplies, and automotive aftermarket tools. The Company’s network of 71 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.

 

 

 

 

 

 

-4-

 


Essendant Reports Second Quarter 2016 Results

Page 5 of 9

 

Essendant Inc. and Subsidiaries

Condensed Consolidated Statements of Income

(in thousands, except per share data)

(unaudited)

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2016

 

 

2015 (Revised)*

 

 

2016

 

 

2015 (Revised)*

 

Net sales

$

1,354,523

 

 

$

1,341,799

 

 

$

2,706,819

 

 

$

2,674,174

 

Cost of goods sold

 

1,158,700

 

 

 

1,131,680

 

 

 

2,310,914

 

 

 

2,263,660

 

Gross profit

 

195,823

 

 

 

210,119

 

 

 

395,905

 

 

 

410,514

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     Warehousing, marketing and administrative expenses

 

157,625

 

 

 

156,912

 

 

 

325,303

 

 

 

354,493

 

     Defined benefit plan settlement loss (Note 9)

 

11,744

 

 

 

-

 

 

 

11,744

 

 

 

-

 

Operating income

 

26,454

 

 

 

53,207

 

 

 

58,858

 

 

 

56,021

 

Interest expense, net

 

5,677

 

 

 

4,778

 

 

 

11,574

 

 

 

9,617

 

Income before income taxes

 

20,777

 

 

 

48,429

 

 

 

47,284

 

 

 

46,404

 

Income tax expense

 

7,844

 

 

 

18,595

 

 

 

17,821

 

 

 

22,577

 

Net income

$

12,933

 

 

$

29,834

 

 

$

29,463

 

 

$

23,827

 

Net income per share - basic:

$

0.35

 

 

$

0.79

 

 

$

0.81

 

 

$

0.63

 

     Average number of common shares outstanding - basic

 

36,512

 

 

 

37,765

 

 

 

36,552

 

 

 

37,939

 

Net income per share - diluted:

$

0.35

 

 

$

0.78

 

 

$

0.80

 

 

$

0.62

 

     Average number of common shares outstanding - diluted

 

36,910

 

 

 

38,106

 

 

 

36,897

 

 

 

38,317

 

Dividends declared per share

$

0.14

 

 

$

0.14

 

 

$

0.28

 

 

$

0.28

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* During the third quarter of 2015, the Company elected a change in accounting principle for the valuation method of certain inventories to the last-in, first-out (“LIFO”) method from the first-in, first out method (“FIFO”). This change required retrospective application. As such, the financial statements presented for prior periods are titled “Revised”.

 

 

 

 

 

 

 

 

 

 

 

-5-

 


Essendant Reports Second Quarter 2016 Results

Page 6 of 9

 

Essendant Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(dollars in thousands, except share data)

 

  

(Unaudited)

 

 

(Audited)

 

 

As of  June 30,

 

 

As of  December 31,

 

 

2016

 

 

2015

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

25,700

 

 

$

29,983

 

Accounts receivable, less allowance for doubtful accounts of $16,671 in 2016 and $17,810 in 2015

 

745,285

 

 

 

716,537

 

Inventories

 

968,263

 

 

 

922,162

 

Other current assets

 

48,535

 

 

 

27,310

 

Total current assets

 

1,787,783

 

 

 

1,695,992

 

Property, plant and equipment, net

 

133,437

 

 

 

133,751

 

Goodwill

 

298,474

 

 

 

299,355

 

Intangible assets, net

 

90,027

 

 

 

96,413

 

Other long-term assets

 

52,429

 

 

 

37,348

 

Total assets

$

2,362,150

 

 

$

2,262,859

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

575,225

 

 

$

531,949

 

Accrued liabilities

 

167,219

 

 

 

177,472

 

Current maturities of long-term debt

 

43

 

 

 

51

 

Total current liabilities

 

742,487

 

 

 

709,472

 

Deferred income taxes

 

10,783

 

 

 

11,901

 

Long-term debt

 

760,546

 

 

 

716,264

 

Other long-term liabilities

 

94,381

 

 

 

101,488

 

Total liabilities

 

1,608,197

 

 

 

1,539,125

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock, $0.10 par value; authorized - 100,000,000 shares, issued - 74,435,628 shares in 2016 and 2015

 

7,444

 

 

 

7,444

 

Additional paid-in capital

 

414,865

 

 

 

410,927

 

Treasury stock, at cost – 37,298,175 shares in 2016 and 37,178,394 shares in 2015

 

(1,104,806

)

 

 

(1,100,867

)

Retained earnings

 

1,483,002

 

 

 

1,463,821

 

Accumulated other comprehensive loss

 

(46,552

)

 

 

(57,591

)

Total stockholders’ equity

 

753,953

 

 

 

723,734

 

Total liabilities and stockholders’ equity

$

2,362,150

 

 

$

2,262,859

 

 

 

 

 

 

 

 

 

 

 

-6-

 


Essendant Reports Second Quarter 2016 Results

Page 7 of 9

 

Essendant Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

For the Six Months Ended

 

 

June 30,

 

 

2016

 

 

2015 (Revised)*

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

 

Net income

$

29,463

 

 

$

23,827

 

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

22,936

 

 

 

24,198

 

Share-based compensation

 

5,689

 

 

 

3,268

 

(Gain) loss on the disposition of property, plant and equipment

 

(739

)

 

 

57

 

Amortization of capitalized financing costs

 

332

 

 

 

451

 

Excess tax cost (benefit) related to share-based compensation

 

193

 

 

 

(433

)

Asset impairment charges

 

-

 

 

 

24,034

 

Deferred income taxes

 

(2,765

)

 

 

(8,294

)

Pension settlement charge

 

11,744

 

 

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

(Increase) decrease in accounts receivable, net

 

(28,439

)

 

 

28,330

 

(Increase) decrease in inventory

 

(44,017

)

 

 

48,944

 

Increase in other assets

 

(36,529

)

 

 

(10,250

)

Increase in accounts payable

 

62,162

 

 

 

3,152

 

Decrease in checks in-transit

 

(18,733

)

 

 

(19,240

)

(Decrease) increase in accrued liabilities

 

(12,219

)

 

 

3,282

 

Decrease in other liabilities

 

(5,062

)

 

 

(478

)

Net cash (used in) provided by operating activities

 

(15,984

)

 

 

120,848

 

Cash Flows From Investing Activities:

 

 

 

 

 

 

 

Capital expenditures

 

(19,327

)

 

 

(11,931

)

Proceeds from the disposition of property, plant and equipment

 

2,770

 

 

 

18

 

Acquisition, net of cash acquired

 

-

 

 

 

(532

)

Net cash used in investing activities

 

(16,557

)

 

 

(12,445

)

Cash Flows From Financing Activities:

 

 

 

 

 

 

 

Net borrowings (repayments) under revolving credit facility

 

43,876

 

 

 

(52,738

)

Net proceeds (disbursements) from share-based compensation arrangements

 

1,285

 

 

 

(759

)

Acquisition of treasury stock, at cost

 

(6,839

)

 

 

(31,227

)

Payment of cash dividends

 

(10,237

)

 

 

(10,699

)

Excess tax (cost) benefit related to share-based compensation

 

(193

)

 

 

433

 

Payment of debt issuance costs

 

-

 

 

 

(36

)

Net cash provided by (used in) financing activities

 

27,892

 

 

 

(95,026

)

Effect of exchange rate changes on cash and cash equivalents

 

366

 

 

 

(135

)

Transfer of cash to held for sale

 

-

 

 

 

(4,119

)

Net change in cash and cash equivalents

 

(4,283

)

 

 

9,123

 

Cash and cash equivalents, beginning of period

 

29,983

 

 

 

20,812

 

Cash and cash equivalents, end of period

$

25,700

 

 

$

29,935

 

Other Cash Flow Information:

 

 

 

 

 

 

 

Income tax payments, net

$

27,358

 

 

$

31,618

 

Interest paid

 

11,750

 

 

 

9,451

 

 

 

-7-

 


Essendant Reports Second Quarter 2016 Results

Page 8 of 9

 

Essendant Inc. and Subsidiaries

Reconciliation of Non-GAAP Financial Measures

Adjusted Operating Expenses, Adjusted Operating Income, Adjusted EBITDA,

Adjusted Net Income, and Adjusted Diluted Net Income Per Share

(unaudited)

(in thousands, except per share data)

 

For the Three Months Ended June 30,

 

 

2016

 

 

2015 (Revised)*

 

 

 

 

 

 

 

 

 

Operating expenses

$

169,369

 

 

$

156,912

 

Defined benefit plan settlement charge

 

(11,744

)

 

 

-

 

Workforce reduction and facility consolidations

 

-

 

 

 

138

 

Intangible asset impairment charge and accelerated amortization related to rebranding

 

-

 

 

 

(512

)

Asset held for sale impairment

 

-

 

 

 

(1,361

)

Adjusted operating expenses

$

157,625

 

 

$

155,177

 

 

 

 

 

 

 

 

 

Operating income

$

26,454

 

 

$

53,207

 

Operating expense items noted above

 

11,744

 

 

 

1,735

 

Adjusted operating income

$

38,198

 

 

$

54,942

 

Depreciation and amortization

$

9,966

 

 

$

10,221

 

Equity compensation

 

2,778

 

 

 

628

 

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA)

$

50,942

 

 

$

65,791

 

 

 

 

 

 

 

 

 

Net income

$

12,933

 

 

$

29,834

 

Operating expense items noted above, net of tax

 

7,328

 

 

 

942

 

Adjusted net income

$

20,261

 

 

$

30,776

 

 

 

 

 

 

 

 

 

Diluted net income per share

$

0.35

 

 

$

0.78

 

Per share operating expense items noted above

 

0.20

 

 

 

0.03

 

Adjusted diluted net income per share

$

0.55

 

 

$

0.81

 

 

 

Note: Adjusted Operating Expenses, Adjusted Operating Income, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings Per Share in the second quarter of 2016 exclude the effects of a defined benefit plan settlement charge. The 2015 quarter excludes the effects of a workforce reduction and facility consolidation charge, intangible asset impairment charge and accelerated amortization related to rebranding, and an impairment charge related to listing a non-strategic business for sale. Generally Accepted Accounting Principles require that the effects of these items be included in the Condensed Consolidated Statements of Income.  Management believes that excluding these items is an appropriate comparison of its ongoing operating results and to the results of the prior year. It is helpful to provide readers of its financial statements with a reconciliation of these items to its Condensed Consolidated Statements of Income reported in accordance with Generally Accepted Accounting Principles.


 

 

-8-

 


Essendant Reports Second Quarter 2016 Results

Page 9 of 9

 

Essendant Inc. and Subsidiaries

Reconciliation of Non-GAAP Financial Measures

Adjusted Operating Expenses, Adjusted Operating Income, Adjusted EBITDA,

Adjusted Net Income, and Adjusted Diluted Net Income Per Share

(unaudited)

(in thousands, except per share data)

For the Six Months Ended June 30,

 

 

2016

 

 

2015 (Revised)*

 

 

 

 

 

 

 

 

 

Operating expenses

$

337,047

 

 

$

354,493

 

Defined benefit plan settlement charge

 

(11,744

)

 

 

-

 

Workforce reduction and facility consolidations

 

(254

)

 

 

(6,295

)

Intangible asset impairment charge and accelerated amortization related to rebranding

 

-

 

 

 

(10,975

)

Asset held for sale impairment

 

-

 

 

 

(14,927

)

Adjusted operating expenses

$

325,049

 

 

$

322,296

 

 

 

 

 

 

 

 

 

Operating income

$

58,858

 

 

$

56,021

 

Operating expense items noted above

 

11,998

 

 

 

32,197

 

Adjusted operating income

$

70,856

 

 

$

88,218

 

Depreciation and amortization

$

20,454

 

 

$

20,932

 

Equity compensation

 

5,689

 

 

 

3,268

 

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA)

$

96,999

 

 

$

112,418

 

 

 

 

 

 

 

 

 

Net income

$

29,463

 

 

$

23,827

 

Operating expense items noted above, net of tax

 

7,480

 

 

 

24,837

 

Adjusted net income

$

36,943

 

 

$

48,664

 

 

 

 

 

 

 

 

 

Diluted net income per share

$

0.80

 

 

$

0.62

 

Per share operating expense items noted above

 

0.20

 

 

 

0.65

 

Adjusted diluted net income per share

$

1.00

 

 

$

1.27

 

 

 

 

 

 

 

 

 

Net cash (used in) provided by operating activities

$

(15,984

)

 

$

120,848

 

Net cash used in investing activities

 

(16,557

)

 

 

(12,445

)

Less: Acquisition, net of cash acquired

 

-

 

 

 

532

 

Free cash flow

$

(32,541

)

 

$

108,935

 

 

 

 

 

 

 

 

 

 

 

Note: Adjusted Operating Expenses, Adjusted Operating Income, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings Per Share in the first six months of 2016 exclude the effects of a defined benefit plan settlement charge and a workforce reduction and facility consolidation charge. The 2015 quarter excludes the effects of a workforce reduction and facility consolidation charge, intangible asset impairment charge and accelerated amortization related to rebranding, and an impairment charge related to listing a non-strategic business for sale. Generally Accepted Accounting Principles require that the effects of these items be included in the Condensed Consolidated Statements of Income.  Management believes that excluding these items is an appropriate comparison of its ongoing operating results and to the results of the prior year. It is helpful to provide readers of its financial statements with a reconciliation of these items to its Condensed Consolidated Statements of Income reported in accordance with Generally Accepted Accounting Principles.

 

 

-9-

 

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Section 3: EX-99.2 (EX-99.2)

esnd-ex992_8.pptx.htm

Slide 1

Earnings Presentation Second Quarter 2016 July 20, 2016 Exhibit 99.2

Slide 2

Forward-Looking Statements This presentation 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: Essendant's reliance on key customers, and the risks inherent in continuing or increased customer concentration and consolidations; end-user demand for products in the office, technology, and furniture product categories may continue to decline; the impact of Essendant's repositioning activities on Essendant's customers, suppliers, and operations; Essendant's reliance on independent resellers for a significant percentage of its net sales and, therefore, the importance of the continued independence, viability and success of these resellers; prevailing economic conditions and changes affecting the business products industry and the general economy; 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 of price transparency, customer consolidation, and changes in product sales mix on Essendant's margins; the impact on the company’s reputation and relationships of a breach of the company’s information technology systems; the risks and expense associated with Essendant's obligations to maintain the security of private information provided by Essendant's customers; Essendant's reliance on supplier allowances and promotional incentives; the creditworthiness of Essendant's customers; continuing or increasing competitive activity and pricing pressures within existing or expanded product categories, including competition from product manufacturers who sell directly to Essendant's customers; the impact of supply chain disruptions or changes in key suppliers’ distribution strategies; 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; the costs and risks related to compliance with laws, regulations and industry standards affecting Essendant's business; the availability of financing sources to meet Essendant's business needs; Essendant's reliance on key management personnel, both in day-to-day operations and in execution of new business initiatives; and the effects of hurricanes, acts of terrorism and other natural or man-made disruptions. 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 presentation is made as of this date only, and the company does not undertake to update any forward-looking statement. Investors are advised to consult any further disclosure by Essendant regarding the matters discussed in this presentation 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.

Slide 3

Q2 2016 Overview Q2 results disappointing and well below our expectation Organic sales increased 0.9% year-over-year; net sales increased 0.9% Fully ramped new account wins from Q1 Adjusted EPS(1) fell 26 cents to $0.55 Market pressures affected profitability Reducing our FY 2016 Guidance Accelerating efforts to advance strategy and increase efficiency Actions in 2H 2016 will reduce costs, increase margin and improve free cash flow Designed to improve run-rate financial performance and included in revised FY 2016 guidance For a definition and reconciliation of Adjusted EPS, please see appendix.

Slide 4

Market Pressures Affected Q2 Gross Margin Shift in mix to lower margin products and categories More items such as paper and ink & toner were sold These items have lower margin and earn less in supplier support Customer consolidation has benefits and drawbacks Consolidation of volumes from small and mid-size to larger customers ESND well-suited to partner with larger resellers and remains closely aligned Larger customers have lower profit margin than smaller customers General market pressure increased Margin pressure to convert and keep customers

Slide 5

Actions to Reduce Cost and Increase Margin & Cash Flow Pursuing additional cost reduction activities Plan to further simplify organization in recognition of challenges Trimming discretionary spend Already reduced salaried headcount by 11%+ since beginning of 2015 ex. Nestor Plan to reduce distribution center footprint Will provides future updates as detailed plan is established Aligning pricing with cost to serve Obtain rates commensurate with value we bring and reduce ongoing freight costs Pursue merchandising excellence to focus volume with key suppliers Reducing inventory purchases $100M by year-end Will lower supplier allowances, but right thing to do from ROIC standpoint Expect to drive $150 million of free cash flow in remainder of year

Slide 6

Three Key Focus Areas in 2H 2016 Apply resources to channels with best prospects for profitable growth E-tail, Vertical Markets (enterprise account focus) and strategic JanSan customers Aligns with resellers who are gaining share in OP and JanSan categories Capture more gross margin dollars through action plan More effective pricing and merchandising excellence Earn our share of industry profit pool for value we provide Continue to reduce cost structure Simplification of our businesses and rationalization of distribution footprint

Slide 7

Q2 2016 Financial Results Organic sales increased 0.9% Overall sales up 0.9% Inorganic neutral as decrease from sold Mexico business offset by Nestor automotive acquisition Adjusted EBITDA(1) decreased $14.8M due to lower gross margin of $14.3M YOY Adjusted EPS(1) of $0.55 down 26 cents YOY Adjusted EBITDA(1) ($M) Adjusted EPS(1) ($/share) For a definition and reconciliation of Adjusted EBITDA and Adjusted EPS, please see appendix. Net Sales ($M)

Slide 8

Q2 Organic Sales Increased 0.9%, Driven by Technology and Office Products ~($0) () Q2 2016 Net Sales Bridge ($M) Automotive: ($2.0M) Industrial: ($6.2M) ↓ Sale of Azerty Mexico: ($18.7M) Nestor Acquisition: $18.6M ↓ Office Products & Tech.: $23.0M JanSan: ($3.4M) ↓

Slide 9

Q2 Category Sales Trends Q2 2016 Sales Mix Q2 2016 Category Sales ($M) YOY growth rate adjusted to exclude impact of Mexico business divestiture last year. Includes acquisition of Nestor Sales LLC in July 2015. (2) (2) YOY % Δ 1.1% 16.6% 3.3% (5.4%) (0.9%) (4.1%) 25.9% (1)

Slide 10

Reducing Full-Year 2016 Guidance Expect 2H 2016 Free Cash Flow to be ~$150M, driven in part by significant reduction to inventory Guidance above excludes impact of any new acquisitions or unusual charges FY 2015A Original Guidance Range 2016E Guidance Range Revenue $5,363M $5.4B - $5.6B $5.4B - $5.475B Adjusted EPS $3.08 $3.20 - $3.40 $2.15 - $2.30

Slide 11

Appendix

Slide 12

Non-GAAP Reconciliation Note: Adjusted Operating Expenses, Adjusted Operating Income, Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings Per Share in the second quarter of 2016 exclude the effects of a defined benefit plan settlement charge. The 2015 quarter excludes the effects of a workforce reduction and facility consolidation charge, intangible asset impairment charge and accelerated amortization related to rebranding, and an impairment charge related to listing a non-strategic business for sale. Generally Accepted Accounting Principles require that the effects of these items be included in the Condensed Consolidated Statements of Income. Management believes that excluding these items is an appropriate comparison of its ongoing operating results and to the results of the prior year. It is helpful to provide readers of its financial statements with a reconciliation of these items to its Condensed Consolidated Statements of Income reported in accordance with Generally Accepted Accounting Principles.

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