KLX Reports 2Q Financial Results
OREANDA-NEWS. KLX Inc., the world’s leading distributor and value added service provider of aerospace fasteners and consumables, and a provider of services and products to the oil and gas exploration and production industry, today reported its second fiscal quarter ended July 31, 2016 financial results.
SECOND QUARTER HIGHLIGHTS COMPARED TO FIRST QUARTER 2016
- Consolidated revenues of $391.4 million increased 6.3 percent
- Aerospace Solutions Group (“ASG”) revenues of $359.1 million increased 8.5 percent; ASG revenues, exclusive of acquisitions, were essentially flat
- Consolidated operating earnings of $35.0 million increased 20.3 percent
- EBITDA, adjusted to exclude non-cash compensation expense (“Adjusted EBITDA”), of $57.1 million increased 13.1 percent
- Free cash flow of $29.9 million was 116 percent of Adjusted Net Earnings and increased 35 percent
SECOND QUARTER HIGHLIGHTS COMPARED WITH PRIOR YEAR
- Consolidated revenues of $391.4 million decreased 5.2 percent; ASG revenues increased by $7.4 million, offset by a $28.7 million decline in Energy Services Group (“ESG”) revenues.
- Consolidated operating earnings increased 6.7 percent to $35.0 million
- ESG’s cash burn rate, defined as Adjusted EBITDA minus capital expenditures, decreased by 63 percent to $(14.6) million
- On a GAAP basis, net earnings and net earnings per diluted share of $9.6 million and $0.18 per diluted share, respectively, increased approximately 30 percent
- Net earnings and net earnings per diluted share, adjusted to exclude amortization and to include the tax benefit from the amortization of tax deductible goodwill (“Adjusted Net Earnings”) were $25.8 million and $0.49 per diluted share, respectively
- Free cash flow of $29.9 million was 116% of Adjusted Net Earnings
“We are pleased to report that the Company delivered substantially improved sequential quarterly revenues and operating earnings of $391.4 million and $35.0 million, up approximately 6 percent and 20 percent, respectively, as compared to the first quarter of 2016. In addition, the Company generated strong free cash flow of $29.9 million, a sequential quarterly increase of approximately 35 percent and representing a free cash flow conversion ratio of 116 percent of Adjusted Net Earnings,” stated Amin J. Khoury, Chairman and Chief Executive Officer of KLX.
Mr. Khoury continued, “On a segment level, our ASG business had a very successful quarter with respect to new program wins and market share gains that are expected to begin to be reflected in our quarterly results as early as the third quarter of the current year, and more significantly during the fourth quarter and in 2017. We have also made significant progress in the first phase of the Herndon integration.”
Mr. Khoury concluded, “With respect to ESG, our second quarter performance has begun to reflect our business realignment and cost reduction initiatives, as evidenced by a 37 percent improvement in Adjusted EBITDA as compared with first quarter of 2016. ESG’s cash burn rate, defined as Adjusted EBITDA less capital expenditures, was $(14.6) million, a sequential quarterly improvement of $20.8 million, or approximately 60 percent. As compared with the same period in the prior year, ESG’s second quarter cash burn rate improved by $25.0 million, or approximately 63 percent. We are continuing to carefully manage our costs, while continuing to invest in differentiating technologies, personnel and innovative product and service lines, as we build an industry leading platform in the services niche in which we operate.”
We have presented Adjusted Net Earnings and Adjusted Earnings per diluted share to reflect net earnings before amortization and non-cash compensation expense, and to include the tax benefit from the amortization of tax deductible goodwill (“Adjusted Net Earnings” and “Adjusted Net Earnings per diluted share”). See “Reconciliation of Non-GAAP Financial Measures.”
SECOND QUARTER ENDED JULY 31, 2016 CONSOLIDATED RESULTS
Second quarter 2016 revenues of $391.4 million decreased 5.2 percent, as compared to the prior year period. The consolidated results reflect a $7.4 million increase in ASG revenues offset by a $28.7 million decline in ESG revenues as compared with the prior year. On a sequential quarterly basis, consolidated revenues increased by 6.3 percent as a result a $28.0 million increase in ASG revenues, offset by a $4.8 million decline in ESG revenues. ASG organic revenues were essentially flat with the first quarter of 2016.
Operating earnings were $35.0 million and operating margin was 8.9 percent. Adjusted EBITDA and Adjusted EBITDA margin were $57.1 million and 14.6 percent, respectively. Included in operating earnings and Adjusted EBITDA are approximately $2.6 million of costs and expenses associated with the recent Herndon acquisition and the cost of maintaining duplicative IT systems as the Company transitions to a stand-alone IT platform.
Second quarter 2016 Adjusted Net Earnings and Adjusted Net Earnings per diluted share were $25.8 million and $0.49 per diluted share, respectively. Free cash flow was $29.9 million or 116 percent of Adjusted Net Earnings.