Innophos Holdings, Inc. Reports Fourth-Quarter and Full-Year 2018 Results

Delivered Top and Bottom Line Results in Line with Expectations

Double Digit Year-on-Year Revenue Growth in 2018 Driven by FHN
Acquisitions and Base Business Strength due to Pricing Actions

Significant Progress Made in Advancing Strategic Value Chain
Initiative and Positioning Innophos to Improve Earnings

CRANBURY, N.J.–(BUSINESS WIRE)–Innophos Holdings, Inc. (NASDAQ:IPHS) today announced financial results
for its fourth-quarter ended December 31, 2018.

Strategic Highlights

  • Contributions from price actions continued to offset input cost
    increases
  • Completed Phase II operational excellence that delivered 2018 cost
    reductions of $5 million
  • Significant progress made in advancing strategic value chain
    initiative including signing of strategic supply agreements, receipt
    of long lead-time government permits and progress in advancing capex
    investments
  • Switched to the new multi-source supply structure at the end of 2018
    making a major step forward in the strategic value chain
    transition
  • On track to realize adjusted diluted EPS improvement of 10%, or $0.25
    to $0.27 per share run rate by the end of 2019 from the value chain
    and manufacturing optimization program
  • Received $20 million Nutrien payment and completed $23 million sale
    leaseback in Q4

Financial Highlights

  • Full-year 2018 performance was in line with expectations with sales up
    11% to $802 million, net income up 61% to $36 million, and Adjusted
    EBITDA up 4% to $125 million, compared with 2017
  • Q4 Sales of $193 million were flat compared with the prior-year
    quarter as stabilized base business and pricing power were partially
    offset by the planned discontinuation of a portion of low-margin
    nutrition trading business
  • Q4 GAAP Net Income of $5 million, or $0.24 per share, was 143% ahead
    of Q4 2017 due primarily to tax reform charges in the prior year
    quarter
  • Q4 Adjusted EBITDA of $30 million was up 10% and adjusted EBITDA
    margin was up 143 basis points year-over-year
  • Q4 Adjusted Diluted EPS increased 3% year-over-year to $0.54
  • Paid down $45 million in debt in Q4 resulting in net leverage of 2.2x
  • Average working capital for the quarter and the full year was 23% of
    annualized sales

Management Comments

“2018 was an important year for Innophos as we executed against our
Vision 2022 strategic roadmap to transform the growth profile of the
Company, prepare for a sustainably lower cost structure and develop
science-backed solutions that better serve our customers and enhance our
position in attractive Food, Health and Nutrition end-markets,” said Kim
Ann Mink, Ph.D., Chairman, President and Chief Executive Officer.
“Notably, before the end of the year, we achieved a major milestone with
our strategic value chain program as our Geismar facility was switched
to the new supply chain structure and is now taking intermediate product
from internal as well as external sources per the new supply agreements
that were completed in 2018.

“Our Q4 financial performance was in line with our expectations on both
the top and bottom line as we capitalized on the stability of our base
business, leveraged our pricing power and reduced operating expense. On
a full-year basis, we grew sales by 11%, GAAP Net Income by 61% and
adjusted EBITDA by 4%. In addition, by remaining disciplined with the
management of our liquidity position, we further reduced our debt
position and ended the year with net leverage of 2.2x.

“We have continued to take actions to proactively manage near-term
market dynamics while simultaneously advancing our key initiatives under
our Strategic Pillars,” said Mink. “Our priorities this year are to
continue executing against the Strategic Pillar key initiatives. These
include completing the transition of the multi-faceted strategic value
chain repositioning, continuing to leverage our value selling to capture
price increases, and delivering wins through our SPARC new product
development program to drive organic growth. Further, we remain
disciplined in our evaluation of M&A opportunities that meet our
financial and strategic criteria.”

Q4 2018 Results

Variance $ and Variance % in the following tables and comments may
not foot due to rounding

$ Millions except EPS

 
Quarter 4   2018   2017   Variance $   Variance %
Sales       193           193       0   0%
Net Income       5           (11)       16   143%
Adj. Net Income       11           10       0   4%
EBITDA       23           21       2   11%
Adj. EBITDA       30           27       3   10%
Diluted EPS       0.24           (0.58)       0.82   142%
Adj. Diluted EPS       0.54           0.52       0.02   3%
Cash from Ops       43           27       15   56%
Free Cash Flow       52           17       35   204%
 
  • Sales were in line with the prior year as the 3% increase in the base
    business was offset by a decrease due to the previously communicated
    decision to discontinue a portion of low-margin nutrition trading
    business
  • GAAP Net Income of $5 million, and diluted EPS of $0.24, were up
    versus the prior year due to tax reform provisions taken in the
    prior-year period
  • The supply imbalance in Mexico’s natural gas network that was
    communicated in the Company’s Q3 release has continued and resulted in
    sizable rate increases. Supply to the Southern part of the country,
    where Innophos’ Coatzacoalcos facility is located, has been impacted
    as a result of low levels of storage and pipeline investments falling
    behind schedule. The impact in the quarter was $2 million, after $1
    million of adjustments for non-GAAP purposes.
  • Adjusted EBITDA of $30 million was up 10% and Adjusted EBITDA margin
    of 15% was up 143 basis points compared with Q4 2017, which included a
    plant maintenance outage
  • Adjusted diluted EPS of $0.54 was up $0.02 year over year as the
    increase in EBITDA was largely offset by a $0.07 impact from higher
    tax rates
  • Free Cash Flow was $52 million, mostly driven by the receipt of the
    $20 million Nutrien payment and $23 million from the sale leaseback
    transaction completed in Q4 2018

Q4 2018 Segment Financials

                 
Q4 Sales   2018 $ Millions   2017 $ Millions   Variance $   Variance %
FHN   113   116   (3)   -2%
IS   65   64   1   1%
Other   15   13   2   11%
Total IPHS   193   193   0   0%
       
                 
Q4 Adj. EBITDA   2018 $ Millions   2017 $ Millions   2018 $ Margin   2017 $ Margin
FHN   17   22   15%   19%
IS   10   3   15%   4%
Other   3   3   22%   22%
Total IPHS   30   27   15%   14%

Note: See Adjusted EBITDA reconciliation to EBITDA in the
financial tables that follow

 
  • FHN sales declined 2% year over year (price +5%, volume -8%) as the
    strength in the base portfolio was offset by the Company’s decision to
    discontinue a portion of low-margin nutrition trading business;
    adjusted EBITDA margins were sequentially similar to the past two
    quarters but 377 bps below 2017 due to continued increases in freight
    market rates and other input costs
  • IS sales were up 1% year over year (price +6%, volume -5%); adjusted
    EBITDA margins were up markedly versus the prior-year quarter due to
    the improved selling prices in 2018 and maintenance outage expense in
    Q4 2017
  • Other sales were up 11% (price +22%, volume -11%) due primarily to
    higher co-product prices; adjusted EBITDA margins were 22%, up 90 bps
    from prior year

Year-to-Date Results

Variance $ and Variance % in the following tables and comments may
not foot due to rounding

$ Millions except EPS

 
YTD Q4   2018   2017   Variance $   Variance %
Sales       802           722       80   11%
Net Income       36           22       14   61%
Adj. Net Income       45           49       (4)   (7)%
EBITDA       102           104       (2)   (2)%
Adj. EBITDA       125           120       5   4%
Diluted EPS       1.82           1.13       0.69   60%
Adj. Diluted EPS       2.28           2.46       (0.18)   (7)%
Cash from Ops       74           74       0   (1)%
Free Cash Flow       40           39       1   1%
 
  • Sales improved 11% reflecting the benefit of acquisitions and
    proactive pricing programs
  • GAAP Net Income of $36 million was up $14 million due primarily to tax
    reform charges in the prior year
  • Adjusted EBITDA grew 4% due to contributions from acquisitions as well
    as base business price increases which offset input cost increases
  • Average working capital was 23% of annualized sales

YTD Quarter 4 Segment Financials

 
YTD Q4 Segment Sales   2018 $ Millions   2017 $ Millions   Variance $   Variance %
FHN   480   397   83   21%
IS   261   263   (2)   (1)%
Other   61   62   (1)   (2)%
Total IPHS   802   722   80   11%
 
 
YTD Q4 Segment Adj. EBITDA   2018 $ Millions   2017 $ Millions   2018 $ Margin   2017 $ Margin
FHN   73   75   15%   19%
IS   44   37   17%   14%
Other   8   8   13%   13%
Total IPHS   125   120   16%   17%

Note: See Adjusted EBITDA reconciliation to EBITDA in the
financial tables that follow

 
  • FHN represented 60% of total Company sales and was up 21% year over
    year (price +3%, volume +18%) due to the contribution from
    acquisitions and strength of the base portfolio; adjusted EBITDA
    margins were 362 bps below 2017 due to the dilutive effects from
    lower-margin acquisitions, isolated operational issues in Q3 and
    higher freight costs
  • IS sales were down 1% with selling price increases nearly offsetting
    volume decreases (price +5%, volume -5%); adjusted EBITDA margins were
    up 270 bps due to effective price increases
  • Other sales were down 2% (price +10%, volume -11%) due primarily to
    lower level of co-product sales. Other adjusted EBITDA margins were 13%

Full Year 2019 Outlook

Overall market conditions and the competitive landscape in
2019 are expected to be similar to 2018.

Revenues are expected to be largely in line with 2018 revenue of
$802 million and approximately equally split between H1 and H2. The
underlying base business is expected to remain stable.

  • Positive year-over-year contributors to 2019 revenue are:

    • Selling price increases with a particular focus on Food, Health
      and Nutrition,
    • New product development wins, and
    • New business gains.
  • These gains are expected to be offset by:

    • The discontinuation of lower-margin FHN nutrition trading business
      in 2018,
    • Lower co-product sales in the Other segment due to efficiency
      improvements delivered from the strategic value chain initiative,
      and
    • Indirect tariffs pressure from competition redirecting mostly
      technical grade product to international markets. The Company
      anticipates limited direct impact on its North American sales.

Adjusted EBITDA is expected to grow 1-3% in 2019 from $125
million in 2018, with phasing in the range of 42-45% in H1 and 55-58% in
H2.

  • Positive year-over-year contributions to 2019 earnings are expected
    from:

    • Selling price increases,
    • Margin contribution from business gains and new product
      development, and
    • The strategic value chain program, which is on track to realize
      adjusted diluted EPS improvement of 10%, or $0.25 to $0.27 per
      share run rate by the end of 2019.
  • These gains are expected to be partly offset by:

    • Input cost increases for raw materials and freight, and
    • Higher costs related to the Mexico energy supply shortages that
      are expected through H1 2019. The anticipated non-recurring
      portion is expected to be adjusted for non-GAAP purposes.

From a GAAP and cash perspective, the expectation is that costs will be
higher during H1. The anticipated non-recurring portion is expected to
be adjusted for non-GAAP reporting purposes such as value chain
transition expense and Mexico natural gas supply adjustment charges.

Capital investments are expected to be in line with 2018 to
finalize the value chain and manufacturing optimization program that
commenced in 2018. Average working capital is estimated to remain
in line with 2018.

The Company expects its effective tax rate to operate in the
28-32% range.

Conference Call

Innophos will host its fourth-quarter 2018 conference call today
February 20, 2019 at 9:00 am ET to discuss its earnings results. Those
who wish to listen to the conference call webcast should visit the
“Investors” section of the Company’s website at www.innophos.com.
The live call also can be accessed by dialing (877) 604-1612 (U.S.) or
(201) 389-0883 (international). No passcode is required. Please dial in
approximately 15 minutes ahead of the start time to ensure timely entry
to the call. The Q4 2018 earnings call presentation will be made
available on the Company’s website
the morning of the call. If you are unable to listen to the live call,
the webcast will be archived on the Company’s website. In addition, a
replay of the call will be available between February 20 and March 6,
2019. The replay is accessible by dialing (877) 660-6853 (U.S.) or (201)
612-7415 (international) and entering the Conference ID number 13686718.

Additional information on Innophos’ fourth quarter 2018 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, enzyme 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’

Financial Tables Follow

Safe Harbor for Forward-Looking and Cautionary
Statements

This press release contains or may contain 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. The Company intends these forward-looking statements to be
covered by the safe harbor provisions for such statements. Statements
made in this press release that relate to our future performance or
future financial results or other future events (which may be identified
by such terms as “expect”, “estimate”, “anticipate”, “assume”,
“believe”, “plan”, “intend’, “may”, “will”, “should”, “outlook”,
“guidance”, “target”, “opportunity”, “potential” or similar terms and
variations or the negative thereof) are forward-looking statements,
including the Company’s expectations regarding the business environment
and the Company’s overall guidance regarding future performance and
growth. These statements are based on our current beliefs and
expectations and are subject to significant risks and uncertainties.
Actual results may materially differ from the expectations expressed in
or implied by these forward-looking statements. Factors that could cause
the Company’s actual results to differ materially include, but are not
limited to: (1) global macroeconomic conditions and trends; (2) the
behavior of financial markets, including fluctuations in foreign
currencies, interest rates and turmoil in capital markets; (3) changes
in regulatory controls regarding tariffs, duties, taxes and income tax
rates; (4) the Company’s ability to implement and refine its Vision 2022
strategic roadmap; (5) the Company’s ability to successfully identify
and complete acquisitions in line with its Vision 2022 strategic roadmap
and effectively operate and integrate acquired businesses to realize the
anticipated benefits of those acquisitions; (6) the Company’s ability to
realize expected cost savings and efficiencies from its performance
improvement and other optimization initiatives; (7) the Company’s
ability to effectively compete in its markets, and to successfully
develop new and competitive products that appeal to its customers; (8)
changes in consumer preferences and demand for the Company’s products or
a decline in consumer confidence and spending; (9) the Company’s ability
to benefit from its investments in assets and human capital and the
ability to complete projects successfully and on budget; (10) economic,
regulatory and political risks associated with the Company’s
international operations, most notably Mexico and China; (11) volatility
and increases in the price of raw materials, energy and transportation,
and fluctuations in the quality and availability of raw materials and
process aids; (12) the impact of a disruption in the Company’s supply
chain or its relationship with its suppliers; (13) the Company’s ability
to comply with, and the costs associated with compliance with, U.S. and
foreign environmental protection laws and (14) the Company’s ability to
meet quality and regulatory standards in the various jurisdictions in
which it has operations or conducts business. We caution you to consider
the important risks and other factors as set forth in the
forward-looking statements section and in Item 1A Risk Factors in our
most recent Annual Report on Form 10-K, as amended by subsequent reports
on Forms 10-Q and 8-K. We do not undertake to update the forward-looking
statements to reflect the impact of circumstances or events that may
arise after the date of the forward-looking statements.

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
December 31,

 

Twelve Months Ended
December 31,

2018   2017

2018

  2017
Net Sales $192,744 $193,100 $801,842 $722,024
Cost of goods sold 163,192   160,659   658,451   572,995  
Gross profit 29,552   32,441   143,391   149,029  
Operating expenses:
Selling, general and administrative 16,553 22,190 81,101 82,301
Research & development expenses 1,087   1,020   5,076   3,733  
Total operating expenses 17,640   23,210   86,177   86,034  
Operating income 11,912 9,231 57,214 62,995
Interest expense, net 3,993 2,572 13,523 7,008
Foreign exchange loss (gain) 119 (543 ) 528 (578 )
Other income (26 ) (30 ) (69 ) (72 )
Income before income taxes 7,826 7,232 43,232 56,637
(Benefit) provision for income taxes 3,006   18,515   7,161   34,192  
Net income $4,820   $(11,283 ) $36,071   $22,445  
Diluted Earnings Per Participating Share $0.24 $(0.58 ) $1.82 $1.13
 
Diluted weighted average participating shares outstanding 19,671,101 19,530,339 19,760,259 19,733,410
 
Dividends paid per share of common stock $0.48 $0.48 $1.92 $1.92
 
Dividends declared per share of common stock $0.48 $0.48 $1.92 $1.92
 

Adjusted Net Income Reconciliation to Net Income

(Dollars in thousands, except EPS)  

Three Months Ended
December 31,

 

Twelve Months Ended
December 31,

2018   2017 2018   2017
Net Income $4,820 $(11,283 ) $36,071 $22,445

Pre-tax Adjustments

Foreign exchange loss (gain) 119 (543 ) 528 (578 )
Severance/Restructuring expense (51 ) 358 2,530 2,982
Inventory fair value adjustment 0 2,905 0 4,300
M&A related costs 1,212 2,325 2,194 5,279
Mexico natural gas supply imbalance charges 970 0 2,827 0
Value chain transition 3,002 0 9,880 0
Other 40 0 40 0
D&A – mining concession & value chain 2,194   0   2,194   0  
Total Pre-Tax Adjustments 7,486 5,045 20,193 11,983
Income tax effects on Adjustments 2,383 857 5,831 3,097
Tax reform and foreign exchange adjustments 660   17,286   (5,322 ) 17,286  
Adjusted Net Income $10,583   $10,191   $45,111   $48,617  
Adjusted Diluted Earnings Per Participating Share $0.54 $0.52 $2.28 $2.46
 

Adjusted EBITDA Reconciliation to Net Income

(Dollars in thousands)  

Three Months Ended
December 31,

 

Twelve Months Ended
December 31,

2018   2017 2018   2017
Net Income $4,820 ($11,283 ) $36,071 $22,445
Interest expense, net 3,993 2,572 13,523 7,008
Provision for income taxes 3,006 18,515 7,161 34,192
Depreciation & amortization 11,614   11,395   44,931   40,404  
EBITDA 23,433 21,199 101,686 104,049

Adjustments

Non-cash stock compensation 1,044 827 5,187 3,823
Foreign exchange loss (gain) 119 (543 ) 528 (578 )
Severance/Restructuring expense (51 ) 358 2,530 2,982
Inventory fair value adjustment 0 2,905 0 4,300
M&A related costs 1,212 2,325 2,194 5,279
Mexico natural gas supply imbalance charges 970 0 2,827 0
Value chain transition 3,002 0 9,880 0
Other 40   0   40   0  
Adjusted EBITDA $29,769   $27,071   $124,872   $119,855  
Percent of Sales 15.4 % 14.0 % 15.6 % 16.6 %
 

Segment Adjusted EBITDA Reconciliation to EBITDA

(Dollars in thousands)   Three Months Ended   Three Months Ended
December 31, 2018 December 31, 2017
FHN   IS   Other   Total FHN   IS   Other   Total
EBITDA $13,297 $7,351 $2,783 $23,431 $18,058 $2,167 $973 $21,198
Non-cash stock compensation 591 414 40 1,045 468 327 31 826
Foreign exchange loss (gain) (38 ) 157 119 (76 ) (467 ) (543 )
Severance/Restructuring exp(inc) (2 ) (43 ) (7 ) (52 ) 209 132 17 358
Inventory fair value adjustment

 

2,905 2,905
M&A related costs 1,212 1,212 2,325 2,325
Mexico natural gas supply adj. 216 455 299 970
Value chain transition 1,493 1,442 66 3,001
Other 22  

 

15   3   40        
Adjusted EBITDA $16,792   $9,634   $3,341   $29,767   $21,564   $2,626 $2,879   $27,069  
 
Twelve Months Ended Twelve Months Ended
December 31, 2018 December 31, 2017
FHN IS Other Total FHN IS Other Total
EBITDA $61,791 $34,124 $5,771 $101,686 $67,156 $33,833 $3,060 $104,049
Non-cash stock compensation 2,936 2,054 197 5,187 2,164 1,514 145 3,823
Foreign exchange loss (gain) 38 490 528 (176 ) (402 ) (578 )
Severance/Restructuring exp(inc) 1,526 879 125 2,530 1,504 1,435 43 2,982
Inventory fair value adjustment 4,300 4,300
M&A related costs 2,180 14 2,194 5,279 5,279
Mexico natural gas supply adj. 630 1,326 871 2,827
Value chain transition 4,068 5,127 685 9,880
Other 22   15   3   40        
Adjusted EBITDA $73,191   $43,525   $8,156   $124,872   $74,948   $36,782 $8,125   $119,855  
 

Segment Reporting

 

Three Months Ended
December 31,

 

Twelve Months Ended
December 31,

Segment Net Sales 2018   2017 2018   2017
Food, Health and Nutrition $113,008 $115,740 $480,166 $397,298
Industrial Specialties 64,838 63,982 260,605 262,704
Other 14,899   13,378   61,071   62,022  
Total $192,745   $193,100   $801,842   $722,024  
Net Sales % change

 

 

 

 

 

 

 

 

Food, Health and Nutrition (2.4 )% 20.9 %
Industrial Specialties 1.3 % (0.8 )%
Other 11.4 % (1.5 )%
Total (0.2 )% 11.1 %
Segment EBITDA
Food, Health and Nutrition $13,297 $18,058 $61,791 $67,156
Industrial Specialties 7,351 2,167 34,124 33,833
Other 2,783   973   5,771   3,060  
Total $23,431   $21,198   $101,686   $104,049  
Segment EBITDA % of net sales
Food, Health and Nutrition 11.8 % 15.6 % 12.9 % 16.9 %
Industrial Specialties 11.3 % 3.4 % 13.1 % 12.9 %
Other 18.7 % 7.3 % 9.4 % 4.9 %
Total 12.2 % 11.0 % 12.7 % 14.4 %
Depreciation and amortization expense
Food, Health and Nutrition $7,018 $7,328 $28,695 $24,212
Industrial Specialties 4,090 3,517 14,347 13,863
Other 506   550   1,889   2,329  
Total $11,614   $11,395   $44,931   $40,404  
 

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/mix variance is
calculated as the total sales variance minus the selling price variance.
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   Twelve Months Ended
December 31, 2018 December 31, 2018
Reportable Segments Price   Vol/Mix   Total Price   Vol/Mix   Total
Food, Health and Nutrition   5.4 %   (7.8 )%     (2.4 )%   2.6 %   18.3 %     20.9 %
Industrial Specialties 6.5 % (5.2 )% 1.3 % 4.6 % (5.4 )% (0.8 )%
Other   22.0 %   (10.6 )%     11.4 %   9.6 %   (11.1 )%     (1.5 )%
Total   6.9 %   (7.1 )%     (0.2 )%   3.9 %   7.2 %     11.1 %
 

Summary Cash Flow Stat

Contacts

Investors
Mark Feuerbach
Innophos
609-366-1204
investor.relations@innophos.com

Media
Ryan Flaim
Sharon Merrill Associates
617-542-5300
iphs@investorrelations.com

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