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Gardner Denver Reports Strong First Quarter 2019 Results

MILWAUKEE--(BUSINESS WIRE)--

  • Revenues of $620 million, flat to prior year, and up 4% excluding the impact of foreign exchange (“FX”)
  • Reported net income of $47 million increased 11% over the prior year
  • Adjusted EBITDA of $140 million decreased 5% over the prior year, and down 2% excluding the impact of FX, with a margin of 22.6%
  • Free cash flow of $55 million increased 9% over the prior year
  • Completed debt repayment of $27 million from available cash on hand
  • Reaffirming full year 2019 Adjusted EBITDA guidance range of $680 million to $710 million

Gardner Denver Holdings, Inc. (GDI) announced today first quarter 2019 results.

First quarter revenues of $620 million were flat compared to the prior year and up 4% excluding the impact of FX. Net income in the quarter was $47 million, or $0.23 per share based on diluted share count of 208 million, compared to prior year net income of $42 million, or $0.20 per share based on diluted share count of 210 million. Adjusted net income decreased 2% to $79 million, or $0.38 per share, compared to $81 million, or $0.38 per share, in the prior year. Adjusted EBITDA was $140 million, down 5% compared to the prior year. Adjusted EBITDA as a percentage of revenues decreased 130 basis points to 22.6% as compared to 23.9% in the prior year.

In the first quarter, Gardner Denver generated $69 million of cash flow from operating activities and invested $14 million in capital expenditures, resulting in free cash flow of $55 million, compared to $50 million in the prior year. First quarter net debt to Adjusted EBITDA leverage improved to 2.0x from 2.1x in the fourth quarter of 2018.

Business Trends

“The first quarter was a solid quarter of balanced commercial and operational execution as the teams continued to utilize the principles of the Gardner Denver Execution Excellence process (“GDX”) to drive strong results,” said Vicente Reynal, Chief Executive Officer. “We continue to build a more resilient portfolio and delivered solid performance in spite of the known headwinds of FX, tariffs, European market concerns and expected declines in the upstream Energy business. In addition, Innovate–to-Value (“i2V”) and other operational efficiency efforts helped drive strong triple digit basis point margin expansion in our Industrials and Medical segments and offset some of the expected margin declines in the Energy segment.”

“Our Industrials segment continues to see resilient performance across all major geographies and delivered positive FX-adjusted orders and revenue growth. In particular, many of our niche products we have previously highlighted saw strong end market growth in food and beverage, pharmaceuticals and marine applications,” continued Reynal. “Within our Energy segment, the upstream business was consistent with expectations with the first quarter being the low point for the year. As expected, original equipment revenues were down due to minimal new build pump demand, but partially offset by double digit growth in consumables. I am particularly pleased with upstream margin performance as Adjusted EBITDA margins remained well above total Energy segment average. The mid and downstream businesses saw strong double digit revenue growth due in large part to solid execution on project backlog and stable end market order activity. Our Medical segment continued to execute on innovation and prior design wins driving double digit revenue growth and 260 basis points of Adjusted EBITDA margin expansion.”

“From a balance sheet perspective, I continue to be pleased with our working capital management and overall cash generation progress,” added Reynal. “Working capital improved over 400 basis points from prior year levels and our solid cash generation in the quarter allowed us to pay down another $27 million of debt.”

First quarter 2019 performance:

Industrials

  • Orders of $335 million, down 1% compared to the prior year, and up 4% excluding the impact of FX
  • Revenues of $318 million, flat compared to the prior year, and up 6% excluding the impact of FX
  • Segment Adjusted EBITDA of $71 million, up 6% from $67 million in the prior year
  • Segment Adjusted EBITDA margin of 22.3%, up 120 basis points from 21.1% in the prior year, driven by the impacts of growth, targeted cost actions and operational excellence initiatives

Energy

  • Orders of $208 million, down 28% compared to the prior year, and down 26% excluding the impact of FX
    • Upstream Energy orders of $113 million, down 41% compared to the prior year
  • Revenues of $233 million, down 4% compared to the prior year, and down 1% excluding the impact of FX
  • Upstream Energy revenues of $136 million, down 17% compared to the prior year
  • Segment Adjusted EBITDA of $60 million, down 12% from $68 million in the prior year
  • Segment Adjusted EBITDA margin of 25.7%, down 240 basis points from 28.1% in the prior year, driven largely by the expected decrease in original equipment pumps in the upstream business and mix due to an increase in project shipments from the lower margin midstream business partially offset by volume growth in the downstream business and targeted cost actions

Medical

  • Orders of $71 million, down 5% compared to the prior year, and down 1% excluding the impact of FX
  • Revenues of $69 million, up 14% compared to the prior year, and up 19% excluding the impact of FX
  • Segment Adjusted EBITDA of $20 million, up 26% from $16 million in the prior year
  • Segment Adjusted EBITDA margin of 28.9%, up 260 basis points from the prior year, driven primarily by strong organic volume growth and operational efficiencies

2019 Guidance and Outlook

“Given the solid first quarter performance and the expectation of continued commercial and operational execution, we are reaffirming our full year 2019 Adjusted EBITDA guidance range of $680 million to $710 million,” stated Reynal. “In addition, due to our prudent capital allocation process and continued, disciplined working capital management, we expect free cash flow to Adjusted Net Income conversion to be approximately 100%.”

Conference Call

Gardner Denver will broadcast a conference call to discuss results for the first quarter of 2019 on Tuesday, April 30, 2019 at 9:00 a.m. Eastern time (8:00 a.m. Central time) through a live webcast. This webcast will be available in listen-only mode and can be accessed, for up to ninety days following the call, through the Investors section on the Gardner Denver website at http://investors.gardnerdenver.com.

Forward Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934. These statements include, but are not limited to, statements related to our expectations regarding the performance of our business, our financial results, our liquidity and capital resources and other non-historical statements, including the statements in the "Business Trends” and “2019 Guidance and Outlook" sections of this press release. You can identify these forward-looking statements by the use of words such as "outlook," “guidance,” "believes," "expects," "potential," "continues," "may," "will," "should," "could," "seeks," "projects," "predicts," "intends," "plans," "estimates," "anticipates" or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties, including macroeconomic factors beyond the Company’s control, risks of doing business outside the United States, the Company’s dependence on the level of activity in the energy industry, potential governmental regulations restricting the use of hydraulic fracturing, raw material costs and availability, the risk of a loss or reduction of business with key customers or consolidation or the vertical integration of the Company’s customer base, loss of or disruption in the Company’s distribution network, the risk that ongoing and expected restructuring plans may not be as effective as the Company anticipates, and the Company’s substantial indebtedness. Additional factors that could cause Gardner Denver’s results to differ materially from those described in the forward-looking statements can be found under the section entitled "Risk Factors" in our most recent annual report on form 10-K filed with the Securities and Exchange Commission (“SEC”), as such factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC's website at www.sec.gov. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this release and in our filings with the SEC. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

About Gardner Denver

Gardner Denver (GDI) is a leading global provider of mission-critical flow control and compression equipment and associated aftermarket parts, consumables and services, which it sells across multiple attractive end-markets within the industrial, energy and medical industries. Its broad and complete range of compressor, pump, vacuum and blower products and services, along with its application expertise and over 155 years of engineering heritage, allows Gardner Denver to provide differentiated product and service offerings for its customers' specific uses. Gardner Denver supports its customers through its global geographic footprint of 41 key manufacturing facilities, more than 30 complementary service and repair centers across six continents, and approximately 6,700 employees world-wide.

Gardner Denver uses its website www.gardnerdenver.com as a channel of distribution of Company information. Financial and other important information regarding the Company is routinely accessible through and posted on its website. Accordingly, investors should monitor Gardner Denver’s website, in addition to following the Company’s press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive e-mail alerts and other information about Gardner Denver when you enroll your e-mail address by visiting the “Email Alerts” section of Gardner Denver’s website at http://investors.gardnerdenver.com.

Non-U.S. GAAP Measures of Financial Performance

In addition to consolidated GAAP financial measures, Gardner Denver reviews various non-GAAP financial measures, including “Adjusted EBITDA,” “Adjusted Net Income,” “Adjusted Diluted EPS” and “Free Cash Flow.”

Gardner Denver believes Adjusted EBITDA, Adjusted Net Income and Adjusted Diluted EPS are helpful supplemental measures to assist management and investors in evaluating the Company’s operating results as they exclude certain items that are unusual in nature or whose fluctuation from period to period do not necessarily correspond to changes in the operations of Gardner Denver’s business. Adjusted EBITDA represents net income before interest, taxes, depreciation, amortization and certain non-cash, non-recurring and other adjustment items. Adjusted Net Income is defined as net income including interest, depreciation and amortization of non-acquisition related intangible assets and excluding other items used to calculate Adjusted EBITDA and further adjusted for the tax effect of these exclusions. Gardner Denver believes that the adjustments applied in presenting Adjusted EBITDA and Adjusted Net Income are appropriate to provide additional information to investors about certain material non-cash items and about non-recurring items that the Company does not expect to continue at the same level in the future. Adjusted Diluted EPS is defined as Adjusted Net Income divided by Adjusted Diluted Average Shares Outstanding.

Gardner Denver uses Free Cash Flow to review the liquidity of its operations. Gardner Denver measures Free Cash Flow as cash flows from operating activities less capital expenditures. Gardner Denver believes Free Cash Flow is a useful supplemental financial measure for management and investors in assessing the Company’s ability to pursue business opportunities and investments and to service its debt. Free Cash Flow is not a measure of our liquidity under GAAP and should not be considered as an alternative to cash flows from operating activities.

Management and Gardner Denver’s board of directors regularly use these measures as tools in evaluating the Company’s operating and financial performance and in establishing discretionary annual compensation. Such measures are provided in addition to, and should not be considered to be a substitute for, or superior to, the comparable measures under GAAP. In addition, Gardner Denver believes that Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS and Free Cash Flow are frequently used by investors and other interested parties in the evaluation of issuers, many of which also present Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS and Free Cash Flow when reporting their results in an effort to facilitate an understanding of their operating and financial results and liquidity.

Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS and Free Cash Flow should not be considered as alternatives to net income, diluted earnings per share or any other performance measure derived in accordance with GAAP, or as alternatives to cash flow from operating activities as a measure of our liquidity. Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS and Free Cash Flow have limitations as analytical tools, and you should not consider such measures either in isolation or as substitutes for analyzing Gardner Denver’s results as reported under GAAP.

Reconciliations of Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS and Free Cash Flow to their most comparable U.S. GAAP financial metrics for historical periods are presented in the tables below.

Reconciliations of non-GAAP measures related to full year 2019 guidance have not been provided due to the unreasonable efforts it would take to provide such reconciliations.

 
GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share amounts)
(Unaudited)
 
      For the Three Month Period Ended
March 31,
2019     2018
 
Revenues $ 620.3 $ 619.6
Cost of sales   389.8     387.7  
Gross Profit 230.5 231.9
Selling and administrative expenses 107.7 106.9
Amortization of intangible assets 31.4 30.9
Other operating expense, net   11.2     4.3  
Operating Income 80.2 89.8
Interest expense 22.4 26.0
Other income, net   (1.3 )   (2.0 )
Income Before Income Taxes 59.1 65.8
Provision for income taxes   12.0     23.4  
Net Income $ 47.1   $ 42.4  
Basic earnings per share $ 0.23   $ 0.21  
Diluted earnings per share $ 0.23   $ 0.20  
 
GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except share and per share amounts)
(Unaudited)
 
        March 31,     December 31,
2019 2018
Assets
Current assets:
Cash and cash equivalents $ 263.7 $ 221.2
Accounts receivable, net of allowance for doubtful accounts
of $17.9 and $17.4, respectively 509.9 525.4
Inventories 555.1 523.9
Other current assets   69.6     60.7  
Total current assets   1,398.3     1,331.2  
Property, plant and equipment, net of accumulated depreciation
of $256.4 and $250.0, respectively 349.5 356.6
Goodwill 1,283.3 1,289.5
Other intangible assets, net 1,335.3 1,368.4
Deferred tax assets 1.2 1.3
Other assets   199.2     140.1  
Total assets $ 4,566.8   $ 4,487.1  
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings and current maturities of long-term debt $ 7.9 $ 7.9
Accounts payable 342.4 340.0
Accrued liabilities   265.9     248.5  
Total current liabilities   616.2     596.4  
Long-term debt, less current maturities 1,622.3 1,664.2
Pensions and other postretirement benefits 91.9 94.8
Deferred income taxes 263.8 265.5
Other liabilities   234.9     190.2  
Total liabilities   2,829.1     2,811.1  
Stockholders' equity:
Common stock, $0.01 par value; 1,000,000,000 shares authorized;
203,299,647 and 201,051,291 shares issued at March 31, 2019
and December 31, 2018, respectively 2.0 2.0
Capital in excess of par value 2,289.3 2,282.7
Accumulated deficit (253.4 ) (308.7 )
Accumulated other comprehensive loss (253.2 ) (247.0 )
Treasury stock at cost; 2,435,272 and 2,881,436 shares at March 31, 2019
and December 31, 2018, respectively   (47.0 )   (53.0 )
Total stockholders' equity   1,737.7     1,676.0  
Total liabilities and stockholders' equity $ 4,566.8   $ 4,487.1  
 
GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(Unaudited)
 
          For the Three Month Period Ended
March 31,

 

2019     2018
 
Cash Flows From Operating Activities:
Net income $ 47.1 $ 42.4
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of intangible assets 31.4 30.9
Depreciation in cost of sales 11.8 11.4
Depreciation in selling and administrative expenses 2.3 2.7
Stock-based compensation expense 7.5 3.4
Foreign currency transaction losses, net 3.1 2.6
Net loss (gain) on asset dispositions 0.1 (1.2 )
Deferred income taxes (5.1 ) 2.8
Changes in assets and liabilities:
Receivables 5.4 10.0
Inventories (33.5 ) (42.9 )
Accounts payable 8.8 8.4
Accrued liabilities 15.5 2.0
Other assets and liabilities, net   (25.6 )   (12.3 )
Net cash provided by operating activities   68.8     60.2  
Cash Flows From Investing Activities:
Capital expenditures (14.1 ) (10.1 )
Net cash paid in business combinations (0.5 ) (94.9 )
Disposals of property, plant and equipment   (0.1 )   3.0  
Net cash used in investing activities   (14.7 )   (102.0 )
Cash Flows From Financing Activities:
Principal payments on long-term debt (26.9 ) (5.3 )
Purchases of treasury stock (8.5 ) (6.2 )
Proceeds from stock option exercises   18.1     3.3  
Net cash used in financing activities   (17.3 )   (8.2 )
Effect of exchange rate changes on cash and cash equivalents   5.7     10.5  
Net increase (decrease) in cash and cash equivalents 42.5 (39.5 )
Cash and cash equivalents, beginning of year   221.2     393.3  
Cash and cash equivalents, end of year $ 263.7   $ 353.8  
 
GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES

RECONCILIATION OF NET INCOME AND EARNINGS PER SHARE TO

ADJUSTED NET INCOME AND ADJUSTED EARNINGS PER SHARE

(Dollars in millions, except per share amounts)
(Unaudited)
 
      For the Three
Month Period Ended

 

March 31,
2019     2018
Net Income $ 47.1   $ 42.4  
Basic Earnings Per Share (As Reported) $ 0.23   $ 0.21  
Diluted Earnings Per Share (As Reported) $ 0.23   $ 0.20  
Plus:
Provision for income taxes 12.0 23.4
Amortization of acquisition related intangible assets 28.4 28.0
Restructuring and related business transformation costs 4.1 4.5
Acquisition related expenses and non-cash charges 1.6 4.6
Expenses related to public stock offerings - 1.4
Establish public company financial reporting compliance 0.6 0.8
Stock-based compensation 9.3 2.7
Foreign currency transaction losses, net 3.1 2.6
Shareholder litigation settlement recoveries (6.0 ) (4.5 )
Other adjustments 0.4 (0.7 )
Minus:
Income tax provision, as adjusted   21.3     24.5  
Adjusted Net Income $ 79.3   $ 80.7  
Adjusted Basic Earnings Per Share $ 0.39   $ 0.40  
Adjusted Diluted Earnings Per Share1 $ 0.38   $ 0.38  
 
Average shares outstanding:
Basic, as reported   201.6     201.6  
Diluted, as reported   207.7     209.9  
Adjusted diluted1   207.7     209.9  
 

1 Adjusted diluted share count and adjusted diluted earnings per share include incremental

dilutive shares, using the treasury stock method, which are added to average shares outstanding.

 
GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES

RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA AND ADJUSTED NET

INCOME AND CASH FLOWS - OPERATING ACTIVITIES TO FREE CASH FLOW

(Dollars in millions)
(Unaudited)
   
  For the Three
Month Period Ended
March 31,
2019     2018
Net Income $ 47.1 $ 42.4
Plus:
Interest expense 22.4 26.0
Provision for income taxes 12.0 23.4
Depreciation expense 14.1 14.1
Amortization expense 31.4 30.9
Restructuring and related business transformation costs 4.1 4.5
Acquisition related expenses and non-cash charges 1.6 4.6
Expenses related to public stock offerings - 1.4
Establish public company financial reporting compliance 0.6 0.8
Stock-based compensation 9.3 2.7
Foreign currency transaction losses, net 3.1 2.6
Shareholder litigation settlement recoveries (6.0 ) (4.5 )
Other adjustments   0.4     (0.7 )
Adjusted EBITDA $ 140.1   $ 148.2  
Minus:
Interest expense 22.4 26.0
Income tax provision, as adjusted 21.3 24.5
Depreciation expense 14.1 14.1
Amortization of non-acquisition related intangible assets   3.0     2.9  
Adjusted Net Income $ 79.3   $ 80.7  
Free Cash Flow
Cash flows - operating activities $ 68.8 $ 60.2
Minus:
Capital expenditures   14.1     10.1  
Free Cash Flow $ 54.7   $ 50.1  
 
GARDNER DENVER HOLDINGS, INC. AND SUBSIDIARIES
RECONCILIATION OF SEGMENT ADJUSTED EBITDA TO INCOME BEFORE INCOME TAXES
(Dollars in millions)
(Unaudited)
 
      For the Three
Month Period Ended
March 31,
2019     2018
 
Revenue
Industrials $ 318.1 $ 316.9
Energy 233.1 242.2
Medical   69.1     60.5  
Total Revenue $ 620.3   $ 619.6  
Segment Adjusted EBITDA
Industrials $ 71.0 $ 66.8
Energy 60.0 68.0
Medical   20.0     15.9  
Total Segment Adjusted EBITDA $ 151.0 $ 150.7
Less items to reconcile Segment Adjusted EBITDA to
Income Before Income Taxes:
Corporate expenses not allocated to segments $ 10.9 $ 2.5
Interest expense 22.4 26.0
Depreciation and amortization expense 45.5 45.0
Restructuring and related business transformation costs 4.1 4.5
Acquisition related expenses and non-cash charges 1.6 4.6
Expenses related to public stock offerings - 1.4
Establish public company financial reporting compliance 0.6 0.8
Stock-based compensation 9.3 2.7
Foreign currency transaction losses, net 3.1 2.6
Shareholder litigation settlement recoveries (6.0 ) (4.5 )
Other adjustments   0.4     (0.7 )
Income Before Income Taxes $ 59.1   $ 65.8  
 

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