Jason Industries Reports First Quarter 2019 Results

Actions Cost Reductions

Acquires Schaffner Manufacturing Company, Inc.

MILWAUKEE–(BUSINESS WIRE)–Jason Industries, Inc. (NASDAQ: JASN, JASNW) (“Jason” or the “Company”)
today reported results for first quarter 2019.


Key financial results for the first quarter 2019 versus the year ago
period include:

  • Net sales of $142.0 million decreased 15.1 percent and included a
    negative 3.4 percent impact from the divestiture and planned exit of
    non-core businesses and a negative 1.7 percent from foreign currency
    translation. Organic sales declined 10.0 percent primarily due to
    lower overall production volumes, with platform changes in Fiber
    Solutions, softer end market demand in Engineered Components, and weak
    European markets in Industrial.
  • Net loss of $5.3 million, or $0.22 diluted loss per share, increased
    $4.5 million and $0.13 per share.
  • Adjusted net loss of $3.1 million, or $0.10 adjusted loss per share,
    increased $0.12 per share.
  • Adjusted EBITDA of $14.1 million, or 9.9 percent of net sales,
    decreased $5.7 million from 11.8 percent of net sales, driven by lower
    volumes.
  • Free cash flow was negative $10.7 million, a decrease of $10.9
    million, due to lower adjusted EBITDA, higher working capital, and
    increased restructuring costs.

“Our results for the quarter reflect mixed end markets and lower volumes
with our OEM customers. While we saw continued growth in U.S. industrial
markets, the overall economic environment is clearly softer than it was
a year ago. However, we are responding to the changing markets and there
are many positives happening across the business,” said Brian
Kobylinski, chief executive officer of Jason. “We are winning new
business and our operations continue to improve. We are excited about
the Schaffner acquisition and the synergies we see with our Osborn
business.”

Highlights during the quarter include:

  • Actioned the consolidation of one of our two Redgranite, Wisconsin
    seating manufacturing facilities in the Engineered Components segment
    and the consolidation of certain off-site warehouse facilities into
    primary manufacturing plants, all scheduled to be completed in the
    third quarter. In response to softer OEM demand and a weaker European
    industrial market, the Company implemented headcount reductions that
    will reduce costs beginning in the second quarter. These actions and
    other on-going restructuring activities are expected to result in
    approximately $4 million of restructuring costs in 2019.
  • Subsequent to the quarter, completed the purchase of Schaffner
    Manufacturing Company, Inc. (“Schaffner”) in an all cash transaction
    valued at $11 million. Schaffner is a manufacturer of high-quality
    polishing and finishing products with annual sales of approximately
    $20 million, and provides Jason’s Industrial segment with an expansion
    of its product line offerings within North America. The integration of
    Schaffner is expected to result in approximately $1.5 million of
    annual cost synergies from supply chain, facility, and fixed overhead
    reductions by the end of 2020 with restructuring costs of
    approximately $1 million.

Key financial results within the segments for the first quarter 2019
versus the year ago period include:

  • Industrial net sales of $49.7 million decreased $4.2 million, or 7.9
    percent, including a negative foreign currency translation impact of
    5.0 percent. Organic sales decreased 2.9 percent driven by lower
    volumes in Europe due to weaker industrial markets and partially
    offset by stable North American conditions. Adjusted EBITDA was $6.8
    million, or 13.8 percent of net sales, a decrease of $1.0 million from
    14.4 percent of net sales. Adjusted EBITDA decreased on lower volumes
    partially offset by improved product pricing.
  • Engineered Components net sales of $56.6 million decreased $12.8
    million, or 18.5 percent, including a negative 8.3 percent from the
    exit of the non-core smart meter product line. Organic sales decreased
    10.2 percent due to softer demand for heavy industry and motorcycle
    seating, increased competitive pressures in the rail and safety
    grating product lines, partially offset by higher volumes in turf
    care. Adjusted EBITDA was $5.7 million, or 10.1 percent of net sales,
    compared with 13.0 percent of net sales in the prior year. The
    adjusted EBITDA decrease was driven by lower volumes and material
    inflation.
  • Fiber Solutions net sales of $35.7 million decreased $8.2 million, or
    18.7 percent, due to end-of-life platform changes that occurred in the
    third quarter of 2018 and overall lower vehicle production. Adjusted
    EBITDA was $3.6 million, or 10.0 percent of net sales, compared with
    13.2 percent of net sales in the prior year. Adjusted EBITDA margin
    decreased due to lower sales and material inflation, partially
    mitigated by continuous improvement projects and savings related to
    the consolidation of the Richmond, Indiana facility.
  • Corporate expenses of $2.1 million decreased $0.8 million versus the
    prior year due to lower professional fees and incentive compensation.

Other Information:

  • Net debt to Adjusted EBITDA on a trailing twelve-month basis was 5.7x
    as of the end of the first quarter, an increase from 5.1x as of the
    end of 2018. Total liquidity as of the end of the first quarter was
    $85.7 million, comprised of $45.2 million of cash and cash equivalents
    and $40.5 million of availability on revolving loan facilities
    globally.

2019 Guidance:

Kobylinski stated, “We expect continued softness in several end markets
to impact our sales results for the year and as such initiated cost
reduction actions to preserve our full year EBITDA. Our customers are
recognizing our improved operational performance and our team is
securing new business that will drive future sales impacting late 2019
and beyond. Despite top line pressure we remain encouraged by our
elevated operations, improved customer relationships, new business
awards, and are excited about our Schaffner acquisition.”

For the full year 2019, Jason reaffirms guidance of net sales in the
range of $565 to $585 million and adjusted EBITDA of $65 to $68 million,
inclusive of the Schaffner acquisition. Jason now expects free cash flow
in the range of $8 to $12 million, compared to prior guidance of $12 to
$16 million, primarily due to higher restructuring costs. These ranges
result in an implied net debt to Adjusted EBITDA range of 5.2 to 5.0
times.

Conference Call:

The Company will hold a conference call to discuss its first quarter
results today at 10:00 a.m. Eastern time. A live webcast of the call may
be accessed over the Internet from the Company’s Investor Relations
website at investors.jasoninc.com. Participants should follow the
instructions provided on the website to download and install the
necessary audio applications. The conference call is also available by
dialing 877-451-6152 (domestic) or 201-389-0879 (international).
Participants should ask for the Jason Industries First Quarter 2019
Earnings conference call.

A replay of the live conference call will be available beginning
approximately one hour after the call. The replay will be available on
the Company’s website or by dialing 844-512-2921 (domestic) or
412-317-6671 (international) and entering the replay passcode 13642137.
The telephonic replay will be available until 11:59 pm (Eastern Time),
May 9, 2019. The online replay will be available on the website
immediately following the call.

About Jason Industries, Inc.

The Company is the parent company to a global family of manufacturing
leaders within the finishing, components, seating, and automotive
acoustics markets, including Osborn (Richmond, Ind. and Burgwald,
Germany), Metalex (Libertyville, Ill.), Milsco (Milwaukee, Wis.), and
Janesville Acoustics (Southfield, Mich.). Headquartered in Milwaukee,
Wis., Jason employs more than 3,600 people in 13 countries.

Forward Looking Statements

This press release includes “forward-looking statements” within the
meaning of the “safe harbor” provisions of the United States Private
Securities Litigation Reform Act of 1995. Forward-looking statements may
be identified by the use of words such as “anticipate,” “believe,”
“expect,” “estimate,” “plan,” “guidance,” and “project” and other
similar expressions that predict or indicate future events or trends or
that are not statements of historical matters. Such forward-looking
statements include projected financial information. Such forward-looking
statements with respect to revenues, earnings, performance, strategies,
prospects and other aspects of the Company’s businesses are based on
current expectations that are subject to risks and uncertainties. A
number of factors could cause actual results or outcomes to differ
materially from those indicated by such forward-looking statements. Such
factors include, but are not limited to, the level of demand for the
Company’s products; competition in the Company’s markets; the Company’s
ability to grow and manage growth profitably; the Company’s ability to
access additional capital; changes in applicable laws or regulations;
the Company’s ability to attract and retain qualified personnel; the
impact of the recent Tax Reform Act; the possibility that the Company
may be adversely affected by other economic, business and/or competitive
factors; and other risks and uncertainties identified in the Company’s
most recent Annual Report on Form 10-K, as such may be amended or
supplemented by subsequent Quarterly Reports on Form 10-Q or other
reports filed with the Securities and Exchange Commission.

The forward-looking statements contained in this press release are based
on assumptions that we have made in light of our industry experience and
our perceptions of historical trends, current conditions, expected
future developments and other factors we believe are appropriate under
the circumstances. As you review and consider this press release, you
should understand that these statements are not guarantees of
performance or results. They involve risks, uncertainties (some of which
are beyond our control) and assumptions. Although we believe that these
forward-looking statements are based on reasonable assumptions, you
should be aware that many factors could affect our actual results and
cause them to differ materially from those anticipated in the
forward-looking statements.

Any forward-looking statement made by us in this press release speaks
only as of the date on which we make it. We undertake no obligation to
publicly update any forward-looking statement, whether as a result of
new information, future developments or otherwise, except as may be
required by law.

Non-GAAP and Other Company Information

Included in this press release are certain non-GAAP financial measures
designed to complement the financial information presented in accordance
with generally accepted accounting principles in the United States of
America because management believes such measures are useful to
investors. Because the Company’s calculations of these measures may
differ from similar measures used by other companies, you should be
careful when comparing the Company’s non-GAAP financial measures to
those of other companies. In this earnings release, we disclose the
following non-GAAP financial measures, and we reconcile these non-GAAP
financial measures to the most directly comparable GAAP financial
measures: EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net
Income, Adjusted Earnings Per Share, Net Debt to Adjusted EBITDA, and
Free Cash Flow.

EBITDA, Adjusted EBITDA, and Adjusted EBITDA Margin – The Company
defines EBITDA as net income (loss) before interest expense, provision
(benefit) for income taxes, depreciation and amortization. The Company
defines Adjusted EBITDA as EBITDA, excluding the impact of operational
restructuring charges and non-cash or non-operational losses or gains,
including goodwill and long-lived asset impairment charges, gains or
losses on disposal of property, plant and equipment, integration and
other restructuring charges, transaction-related expenses, other
professional fees, purchase accounting adjustments, lease expense
associated with vacated facilities and non-cash share based compensation
expense. The Company defines Adjusted EBITDA Margin as Adjusted EBITDA
as a percentage of net sales.

Management believes that Adjusted EBITDA provides a more clear picture
of the Company’s operating results by eliminating expenses and income
that are not reflective of the underlying business performance. The
Company uses this metric to facilitate a comparison of operating
performance on a consistent basis from period to period and to analyze
the factors and trends affecting its segments. The Company’s internal
plans, budgets and forecasts use Adjusted EBITDA as a key metric and the
Company uses this measure to evaluate its operating performance and
segment operating performance and to determine the level of incentive
compensation paid to its employees.

Adjusted Net Income and Adjusted Earnings Per Share – The Company
defines Adjusted Net Income and Adjusted Earnings Per Share (calculated
on a diluted basis) as net income and earnings per share (as defined by
GAAP), excluding the impact of operational restructuring charges and
non-cash or non-operational losses or gains, including goodwill and
long-lived asset impairment charges, gains or losses on disposal of
property, plant and equipment, integration and other operational
restructuring charges, transactional legal fees, other professional
fees, purchase accounting adjustments, and non-cash share based
compensation expense, net of their income tax impact. The tax rates used
to calculate adjusted net income and adjusted earnings per share are
based on a transaction specific basis. Adjusted earnings per share
includes the impact of share based compensation to the extent it is
dilutive in each period. Adjusted earnings per share includes the impact
to Jason Industries common shares upon conversion of JPHI Holdings Inc.
rollover shares and conversion of preferred stock. Management believes
that Adjusted Net Income and Adjusted Earnings Per Share are useful in
assessing the Company’s financial performance by eliminating expenses
and income that are not reflective of the underlying business
performance.

Net Debt to Adjusted EBITDA – The Company defines Net Debt to
Adjusted EBITDA as current and long-term debt plus debt discounts less
cash and cash equivalents, divided by pro forma Adjusted EBITDA for the
trailing twelve months. Pro forma Adjusted EBITDA is calculated as
Adjusted EBITDA as reported plus Adjusted EBITDA of acquisitions prior
to the date of the acquisition during the trailing twelve months.
Management believes that Net Debt to Adjusted EBITDA is useful in
assessing the Company’s financial leverage.

Free Cash Flow – The Company defines Free Cash Flow as net cash
flows from operating activities (as defined by GAAP) less capital
expenditures and cash dividends on preferred stock. Management believes
that Free Cash Flow is useful in assessing our ability to generate cash
from business operations that is available for strategic capital
decisions.

In addition to these non-GAAP financial measures, we also use the term
“organic sales” to refer to GAAP net sales from existing operations
excluding (i) sales from acquired businesses recorded prior to the first
anniversary of the acquisition, (ii) sales from divested businesses or
exited non-core businesses, and (iii) the impact of foreign currency
translation. The impact of foreign currency translation is calculated as
the difference between (a) the period-to-period change in results
(excluding acquisitions, divestitures, and exited non-core businesses)
and (b) the period-to-period change in results (excluding acquisitions,
divestitures, and exited non-core businesses) after applying current
period average foreign exchange rates to the prior year period. We use
the term “organic sales growth” to refer to the measure of comparing
current period organic sales with the corresponding prior year period
organic sales.

 
Jason Industries, Inc.
Condensed Consolidated Statements of Operations

(In thousands, except per share amounts) (Unaudited)

 
Three Months Ended
March 29,   March 30,
2019 2018
Net sales $ 141,978 $ 167,254
Cost of goods sold 113,398   131,582  
Gross profit 28,580 35,672
Selling and administrative expenses 25,221 27,524
Loss on disposals of property, plant and equipment – net 8 234
Restructuring 1,573   602  
Operating income 1,778 7,312
Interest expense (8,231 ) (8,027 )
Equity income 84 100
Other income – net 24   71  
Loss before income taxes (6,345 ) (544 )
Tax (benefit) provision (1,009 ) 275  
Net loss $ (5,336 ) $ (819 )
Redemption premium and accretion of dividends on preferred stock 812   1,727  
Net loss available to common shareholders of Jason Industries $ (6,148 ) $ (2,546 )
 
Net loss per share available to common shareholders of Jason
Industries:
Basic and diluted $ (0.22 ) $ (0.09 )
 
Weighted average number of common shares outstanding:
Basic and diluted 27,962 27,329
 
Jason Industries, Inc.
Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts) (Unaudited)

 
March 29, 2019   December 31, 2018
Assets
Current assets
Cash and cash equivalents $ 45,153 $ 58,169
Accounts receivable – net 74,956 60,559
Inventories 66,700 63,747
Other current assets 12,246   13,664  
Total current assets 199,055 196,139
Property, plant and equipment – net 131,285 134,869
Right-of-use operating lease assets 41,522
Goodwill 43,623 44,065
Other intangible assets – net 112,191 116,529
Other assets – net 10,961   11,995  
Total assets $ 538,637   $ 503,597  
 
Liabilities and Shareholders’ (Deficit) Equity
Current liabilities
Current portion of long-term debt $ 6,515 $ 6,544
Current portion of operating lease liabilities 7,564
Accounts payable 56,395 47,497
Accrued compensation and employee benefits 15,643 14,452
Accrued interest 86 89
Other current liabilities 12,822   17,281  
Total current liabilities 99,025 85,863
Long-term debt 386,425 387,244
Long-term operating lease liabilities 35,467
Deferred income taxes 21,133 23,882
Other long-term liabilities 16,796   20,548  
Total liabilities 558,846   517,537  
 
Shareholders’ (Deficit) Equity
Preferred stock 41,421 40,612
Jason Industries common stock 3 3
Additional paid-in capital 155,203 155,533
Retained deficit (191,077 ) (186,517 )
Accumulated other comprehensive loss (25,759 ) (23,571 )
Total shareholders’ (deficit) equity (20,209 ) (13,940 )
Total liabilities and shareholders’ (deficit) equity $ 538,637   $ 503,597  
 
Jason Industries, Inc.
Condensed Consolidated Statements of Cash Flows

(In thousands) (Unaudited)

 
 
Three Months Ended
March 29, 2019   March 30, 2018
Cash flows from operating activities
Net loss $ (5,336 ) $ (819 )
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Depreciation 6,460 6,709
Amortization of intangible assets 2,901 4,098
Amortization of deferred financing costs and debt discount 737 711
Non-cash operating lease expense 2,043
Equity income (84 ) (100 )
Deferred income taxes (2,605 ) (1,073 )
Loss on disposals of property, plant and equipment – net 8 234
Dividends from joint venture 728
Share-based compensation 876 231
Net increase (decrease) in cash due to changes in:
Accounts receivable (14,806 ) (14,500 )
Inventories (3,338 ) (4,076 )
Other current assets 65 (1,150 )
Accounts payable 8,882 8,980
Accrued compensation and employee benefits 1,263 3,985
Accrued interest (3 ) (61 )
Accrued income taxes 321 17
Operating lease liabilities, net (2,126 )
Other – net (3,235 ) 631  
Total adjustments (1,913 ) 4,636  
Net cash (used in) provided by operating activities (7,249 ) 3,817  
Cash flows from investing activities
Proceeds from disposals of property, plant and equipment 189 49
Payments for property, plant and equipment (3,468 ) (3,622 )
Acquisitions of patents (5 ) (9 )
Net cash used in investing activities (3,284 ) (3,582 )
Cash flows from financing activities
Payments of First and Second Lien term loans (775 ) (775 )
Proceeds from other long-term debt 1,641 1,247
Payments of other long-term debt (1,992 ) (1,963 )
Payments of finance lease obligation (89 )
Value added tax paid from building sale (707 )
Other financing activities – net (396 ) (13 )
Net cash used in financing activities (2,318 ) (1,504 )
Effect of exchange rate changes on cash and cash equivalents (165 ) 373  
Net decrease in cash and cash equivalents (13,016 ) (896 )
Cash and cash equivalents, beginning of period 58,169   48,887  
Cash and cash equivalents, end of period $ 45,153   $ 47,991  
   
Jason Industries, Inc.
Quarterly Financial Information by Segment

(In thousands) (Unaudited)

 
2018 2019
1Q   2Q   3Q   4Q   FY 1Q   2Q   3Q   4Q   YTD
Industrial
Net sales $ 53,978 $ 55,454 $ 51,016 $ 47,189 $ 207,637 $ 49,737 $ 49,737
Adjusted EBITDA 7,799 8,437 7,579 5,164 28,979 6,841 6,841
Adjusted EBITDA % net sales 14.4 % 15.2 % 14.9 % 10.9 % 14.0 % 13.8 % 13.8 %
 
Engineered Components
Net sales $ 69,427 $ 69,552 $ 56,013 $ 48,358 $ 243,350 $ 56,588 $ 56,588
Adjusted EBITDA 9,003 10,433 6,151 3,906 29,493 5,736 5,736
Adjusted EBITDA % net sales 13.0 % 15.0 % 11.0 % 8.1 % 12.1 % 10.1 % 10.1 %
 
Fiber Solutions
Net sales $ 43,849 $ 43,418 $ 38,266 $ 36,428 $ 161,961 $ 35,653 $ 35,653
Adjusted EBITDA 5,778 6,044 4,465 4,581 20,868 3,566 3,566
Adjusted EBITDA % net sales 13.2 % 13.9 % 11.7 % 12.6 % 12.9 % 10.0 % 10.0 %
 
Corporate
Adjusted EBITDA $ (2,867 ) $ (3,550 ) $ (2,965 ) $ (2,747 ) $ (12,129 ) $ (2,085 ) $ (2,085 )
 
Consolidated
Net sales $ 167,254 $ 168,424 $ 145,295 $ 131,975 $ 612,948 $ 141,978 $ 141,978
Adjusted EBITDA 19,713 21,364 15,230 10,904 67,211 14,058 14,058
Adjusted EBITDA % net sales 11.8 % 12.7 % 10.5 % 8.3 % 11.0 % 9.9 % 9.9 %
 
Jason Industries, Inc.
Reconciliation of GAAP to Non-GAAP Measures

(In thousands) (Unaudited)

 
Organic Sales Growth
 
1Q 2019
 

Engineered

 

Fiber

 

Jason

Industrial

Components

Solutions

Consolidated

 

Net sales

Organic sales growth (2.9)% (10.2)% (18.7)% (10.0)%
Currency impact (5.0)% —% —% (1.7)%
Divestiture & Non-Core Exit —% (8.3)% —% (3.4)%
Growth as reported (7.9)% (18.5)% (18.7)% (15.1)%
 

Free Cash Flow

 
1Q
2018   2019
Operating Cash Flow $ 3,817 $ (7,249 )
Less: Capital Expenditures (3,622 ) (3,468 )
Free Cash Flow $ 195 $ (10,717 )
 

Net Debt to Adjusted EBITDA

 
March 29, 2019
Current and long-term debt $ 392,940
Add: Debt discounts and deferred financing costs 6,118
Less: Cash and cash equivalents (45,153 )
Net Debt $ 353,905
 
Adjusted EBITDA
2Q18 $ 21,364
3Q18 15,230
4Q18 10,904
1Q19 14,058  
TTM Adjusted EBITDA 61,556
 
Net Debt to Adjusted EBITDA* 5.7x

*Note the consolidated first lien net leverage ratio under the Company’s
senior secured credit facilities was 4.16x as of March 29, 2019. See
Form 10-Q for further discussion of the Company’s senior secured credit
facilities.

   
Jason Industries, Inc.
Reconciliation of GAAP to Non-GAAP Measures
Adjusted EBITDA

(In thousands) (Unaudited)

 
2018 2019
1Q   2Q   3Q   4Q   FY 1Q   2Q   3Q   4Q   YTD
Net (loss) income $ (819 ) $ (587 ) $ (5,512 ) $ (12,399 ) $ (19,317 ) $ (5,336 ) $ (5,336 )
Interest expense 8,027 8,403 8,348 8,659 33,437 8,231 8,231
Tax provision 275 (238 ) 552 3,463 4,052 (1,009 ) (1,009 )
Depreciation and amortization 10,807   11,046   9,804   10,947   42,604   9,361         9,361  
EBITDA 18,290   18,624   13,192   10,670   60,776   11,247         11,247  
Adjustments:
Restructuring(1) 602 1,464 1,185 1,207 4,458 1,573 1,573
Transaction-related expenses(2) 340 340
Integration and other restructuring costs(3) 356 712 (658 ) 410 14 14
Share-based compensation(4) 231 553 944 981 2,709 876 876
Loss (gain) on disposals of property, plant and equipment—net(5) 234   11   (91 ) (1,296 ) (1,142 ) 8         8  
Total adjustments 1,423   2,740   2,038   234   6,435   2,811         2,811  
Adjusted EBITDA $ 19,713   $ 21,364   $ 15,230   $ 10,904   $ 67,211   $ 14,058         $ 14,058  

Contacts

Investor Relations:
Rachel Zabkowicz
investors@jasoninc.com
414.277.2007

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