EAGAN, MN - Norcraft Companies, Inc. ("we", the “Company” or “Norcraft”) (NYSE:NCFT), a leading manufacturer of kitchen and bathroom cabinetry in the United States and Canada, today reported financial results for the first quarter ended March 31, 2014.
“We continued to successfully achieve mix and price gains in our core product lines, while carefully managing our promotional activity,” stated Mark Buller, Chairman and Chief Executive Officer of the Company. "We are encouraged by the 8.6% sales growth we achieved amid adverse weather conditions which impacted our volumes to start the year. During the first quarter, we also worked hard to leverage sales and extract additional efficiencies to offset weather-related production disruptions and modest material inflation, resulting in our adjusted EBITDA up 11.1% over the first quarter, to $10.6 million. Looking to the full year of 2014, we remain positive on the recovery in residential end markets and are well positioned to continue growing our business as cabinetry demand improves.”
FINANCIAL RESULTS
First Quarter of 2014 Compared with First Quarter of 2013
In the first quarter of 2014, net sales increased $6.7 million, or 8.6%, to $84.0 million, as compared to $77.3 million in the first quarter of 2013. Sales increased in nearly all the Company’s divisions, driven largely by mix/price gains and promotional activity during the quarter, with a partial offset from delayed deliveries and project activity due to adverse winter weather conditions.
Income from operations in the first quarter of 2014 increased $0.9 million, or 15.2%, to $6.8 million from $5.9 million for the first quarter of 2013. The increase was mainly attributable to higher sales and lower freight costs. These positive factors were partly offset by moderately higher material costs, the adverse impacts of production inefficiencies related to labor and supply chain disruptions caused by unfavorable weather conditions, and increased incentive stock compensation expense from stock options issued in connection with the Company’s recently completed initial public offering.
Net income of $2.4 million, or $0.12 per diluted share, in the first quarter of 2014 represented an increase of $3.7 million compared to a net loss of $1.3 million in the first quarter of 2013.
Adjusted EBITDA in the first quarter of 2014 increased $1.1 million, or 11.1%, to $10.6 million, as compared to $9.5 million for the same quarter of 2013 (Adjusted EBITDA is a non-GAAP measure defined in the table below).
At March 31, 2014, the Company had cash of $35.7 million and total long-term debt of $149.6 million, as compared to cash of $39.1 million and total long-term debt of $150.0 million at December 31, 2013.
ABOUT NORCRAFT COMPANIES
Norcraft is a leading manufacturer of kitchen and bathroom cabinetry in the United States and Canada. Norcraft provides its customers with a single source for a broad range of high-quality cabinetry, including stock and semi-custom cabinets manufactured in both framed and frameless (full access) construction. Norcraft markets its products through seven main brands: Mid Continent Cabinetry, Norcraft Cabinetry, UltraCraft, StarMark Cabinetry, Fieldstone Cabinetry, Brookwood and Urban Effects.
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Norcraft Companies, Inc. |
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Consolidated Balance Sheets |
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(dollar amounts in thousands, except share and per share data) |
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March 31, |
December 31, |
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2014 |
2013 |
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(unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
$ |
35,660 |
$ |
39,106 |
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Trade accounts receivable, net |
26,298 |
21,449 |
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Inventories |
24,565 |
22,591 |
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Prepaid and other current assets |
2,384 |
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2,590 |
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Total current assets |
88,907 |
85,736 |
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Non-current assets: |
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Property, plant and equipment, net |
24,808 |
25,208 |
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Goodwill |
88,456 |
88,466 |
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Intangible assets, net |
59,063 |
60,108 |
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Display cabinets, net |
6,055 |
5,864 |
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Other assets |
79 |
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84 |
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Total non-current assets |
178,461 |
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179,730 |
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Total assets |
$ |
267,368 |
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$ |
265,466 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Current portion of long-term debt |
$ |
1,500 |
$ |
1,500 |
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Accounts payable |
12,802 |
8,523 |
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Accrued expenses |
16,244 |
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21,203 |
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Total current liabilities |
30,546 |
31,226 |
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Non-current liabilities: |
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Long-term debt |
148,125 |
148,500 |
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Unamortized discount on long-term debt |
(719 |
) |
(746 |
) |
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Deferred tax liabilities and other liabilities |
36,991 |
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36,560 |
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Total non-current liabilities |
184,397 |
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184,314 |
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Total liabilities |
214,943 |
215,540 |
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Commitments and contingencies |
- |
- |
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Equity: |
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Common stock, $0.01 par value; 100,000,000 shares authorized, 17,311,573 issued and outstanding at March 31, 2014 |
173 |
173 |
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Additional paid-in capital |
52,321 |
51,795 |
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Accumulated deficit |
(11,690 |
) |
(13,703 |
) |
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Accumulated other comprehensive income |
508 |
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845 |
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Total Norcraft Companies, Inc. equity |
41,312 |
39,110 |
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Noncontrolling interests |
11,113 |
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10,816 |
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Total equity |
52,425 |
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49,926 |
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Total liabilities and equity |
$ |
267,368 |
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$ |
265,466 |
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Norcraft Companies, Inc. |
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Consolidated Statements of Comprehensive Income (Loss) |
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(dollar amounts in thousands, except share and per share data) |
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(unaudited) |
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Three Months Ended |
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March 31, |
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2014 |
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2013 |
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Net sales |
$ |
84,030 |
$ |
77,348 |
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Cost of sales |
62,542 |
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57,578 |
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Gross profit |
21,488 |
19,770 |
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Selling, general and administrative expenses |
14,674 |
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13,856 |
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Income from operations |
6,814 |
5,914 |
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Other expense: |
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Interest expense, net |
2,176 |
6,447 |
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Amortization of deferred financing costs |
142 |
780 |
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Expense related to tax receivable agreements |
1,643 |
- |
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Other expense, net |
59 |
|
10 |
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Total other expense |
4,020 |
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7,237 |
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Income (loss) before income taxes |
2,794 |
(1,323 |
) |
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Income tax expense |
437 |
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- |
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Net income (loss) |
2,357 |
(1,323 |
) |
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Less: net income attributable to noncontrolling interests |
344 |
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- |
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Net income (loss) attributable to Norcraft Companies, Inc. |
2,013 |
(1,323 |
) |
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Other comprehensive loss: |
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Foreign currency translation adjustment |
(384 |
) |
(191 |
) |
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Less: other comprehensive loss attributable to noncontrolling interest |
(47 |
) |
- |
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Other comprehensive loss attributable to Norcraft Companies, Inc. |
(337 |
) |
(191 |
) |
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Comprehensive income (loss) |
1,973 |
(1,514 |
) |
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Less: comprehensive income attributable to noncontrolling interests |
297 |
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- |
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Comprehensive income (loss) attributable to Norcraft Companies, Inc. |
$ |
1,676 |
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$ |
(1,514 |
) |
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Net income per share attributable to Norcraft Companies, Inc. |
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Basic and diluted |
$ |
0.12 |
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Norcraft Companies, Inc. |
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Consolidated Statements of Cash Flows |
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(dollar amounts in thousands) |
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(unaudited) |
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Three Months Ended |
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March 31, |
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2014 |
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2013 |
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Cash flows from operating activities: |
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Net income (loss) |
$ |
2,357 |
$ |
(1,323 |
) |
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Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
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Depreciation and amortization of property, plant and equipment |
1,031 |
1,112 |
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Amortization: |
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Customer relationships |
1,117 |
1,116 |
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Deferred financing costs |
142 |
780 |
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Display cabinets |
1,085 |
1,136 |
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Discount amortization/accreted interest |
27 |
(10 |
) |
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Provision for uncollectible accounts receivable |
52 |
51 |
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Provision for obsolete and excess inventories |
136 |
66 |
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Provision for warranty claims |
1,281 |
753 |
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Stock compensation expense |
526 |
5 |
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Deferred income tax expense |
428 |
- |
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Gain on disposal of assets |
(15 |
) |
- |
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Change in operating assets and liabilities: |
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Trade accounts receivable |
(4,994 |
) |
(4,807 |
) |
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Inventories |
(2,176 |
) |
(2,011 |
) |
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Prepaid expenses |
203 |
410 |
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Other assets |
4 |
77 |
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Accounts payable and accrued expenses |
(1,898 |
) |
8,823 |
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Net cash provided by (used in) operating activities |
(694 |
) |
6,178 |
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Cash flows from investing activities: |
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Proceeds from sale of property, plant and equipment |
15 |
- |
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Purchase of property, plant and equipment |
(825 |
) |
(816 |
) |
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Additions to display cabinets |
(1,276 |
) |
(921 |
) |
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Net cash used in investing activities |
(2,086 |
) |
(1,737 |
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Cash flows from financing activities: |
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Payment of financing costs |
(214 |
) |
- |
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Repayment of long-term debt |
(375 |
) |
- |
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Proceeds from issuance of member interests |
- |
|
3 |
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Net cash provided by (used in) financing activities |
(589 |
) |
3 |
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Effect of exchange rates on cash and cash equivalents |
(77 |
) |
(32 |
) |
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Net increase (decrease) in cash and cash equivalents |
(3,446 |
) |
4,412 |
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Cash and cash equivalents, beginning of the period |
39,106 |
|
23,019 |
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Cash and cash equivalents, end of period |
$ |
35,660 |
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$ |
27,431 |
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Supplemental disclosure of cash flow information: |
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Cash paid during the period for interest |
$ |
2,448 |
$ |
59 |
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Cash paid during the period for income taxes |
$ |
- |
$ |
- |
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Norcraft Companies, Inc.
Reconciliation of Net Income (Loss) to Adjusted EBITDA
(dollar amounts in thousands)
EBITDA is net income (loss) before interest expense, income tax expense, depreciation and amortization. Adjusted EBITDA is EBITDA before the effect of the footnoted items in the table below. The Company believes EBITDA and Adjusted EBITDA are useful to investors in evaluating the Company's operating performance compared to that of other companies in the industry, as their calculation eliminates the effects of financing, income taxes and the accounting effects of capital spending, as these items may vary for different companies for reasons unrelated to overall operating performance. The Company also believes these financial metrics provide information relevant to investors regarding the Company's ability to service and/or incur debt. Neither EBITDA nor Adjusted EBITDA is a presentation made in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). Accordingly, when analyzing the Company's operating performance, investors should not consider EBITDA or Adjusted EBITDA in isolation or as substitutes for net income (loss), cash flows from operating activities or other operation statement or cash flow statement data prepared in accordance with U.S. GAAP. The Company's calculation of EBITDA and Adjusted EBITDA are not necessarily comparable to those of other similarly titled measures reported by other companies. The calculations of EBITDA and Adjusted EBITDA are shown below:
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Twelve Months |
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Ended |
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Three Months Ended March 31, |
March 31, |
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2014 |
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2013 |
2014 |
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Net income (loss) |
$ |
2,357 |
$ |
(1,323 |
) |
$ |
(11,493 |
) |
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Interest expense, net |
2,176 |
6,447 |
20,992 |
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Depreciation |
1,031 |
1,112 |
4,257 |
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Amortization of deferred financing costs |
142 |
780 |
2,361 |
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Amortization of customer relationships |
1,117 |
1,116 |
4,467 |
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Display cabinet amortization |
1,085 |
1,136 |
4,279 |
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Income tax expense |
437 |
- |
1,316 |
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State taxes |
75 |
12 |
|
171 |
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Non-GAAP EBITDA |
$ |
8,420 |
$ |
9,280 |
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$ |
26,350 |
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Stock compensation expense |
526 |
- |
872 |
(1) |
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Management fees |
- |
250 |
619 |
(2) |
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Restructuring costs associated with initial public offering |
- |
- |
1,540 |
(3) |
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Expense related to tax receivable agreements |
1,643 |
- |
1,643 |
(4) |
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Loss on debt extinguishment |
- |
- |
|
12,499 |
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(5) |
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Non-GAAP adjusted EBITDA |
$ |
10,589 |
$ |
9,530 |
|
$ |
43,523 |
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(1) Prior to completion of the Company's initial public offering, the Company's board of directors adopted the Norcraft Companies, Inc. 2013 Incentive Plan. Stock compensation expense related to this plan was $0.5 million and $0.9 million during the three and twelve months ended March 31, 2014, respectively.
(2) In connection with the Company's initial public offering, the Company terminated the Management and Monitoring Agreement, which included a $1.0 million annual management fee. Certain expense reimbursement and indemnification obligations survived the termination of the Management and Monitoring Agreement. See the "Related Party Transactions" footnote in Part IV, Item 15 of the Company's 2013 Annual Report on Form 10-K.
(3) Net income (loss) during the twelve months ended March 31, 2014 included the effect of the restructuring costs associated with the Company's initial public offering in the amount of $1.5 million, which decreased net income (loss) and correspondingly decreased EBITDA, but the effect has been backed out for Adjusted EBITDA.
(4) Net income (loss) during the three and twelve months ended March 31, 2014 included expense related to tax receivable agreements in the amount of $1.6 million, which decreased net income and correspondingly decreased EBITDA, but the effect has been backed out for Adjusted EBITDA.
(5) Net income (loss) during the twelve months ended March 31, 2014 included the effect of a loss on debt extinguishment in the amount of $12.5 million, which decreased net income (loss) and correspondingly decreased EBITDA, but the effect has been backed out for Adjusted EBITDA.
Source: Norcraft Companies Inc.
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