Jason Industries, Inc. (NASDAQ:JASN) today reported third quarter 2016 net sales of $170.1 million, net loss of $2.5 million and diluted loss per share of $0.13. These results included pre-tax restructuring of $0.6 million. For the third quarter of 2016, adjusted net loss was $1.8 million and adjusted loss per share was $0.06. Third quarter Adjusted EBITDA was $16.5 million or 9.7 percent of net sales. Net cash provided by operating activities during the quarter was $2.1 million and free cash flow was negative $1.9 million.
“We continue to operate in a challenged industrial demand environment, with several declining end markets,” said Jeffry N. Quinn, chairman and chief executive officer of Jason. “Seating was impacted by decreases in heavyweight motorcycle volumes which were driven by our customers’ lower new equipment builds. Components experienced lower railcar volumes as expected, and Finishing saw softness in general industrial markets.”
“In spite of our top-line headwinds, we are making progress on initiatives to structurally improve our margins. While we did not see the operational improvement at the speed and magnitude we anticipated during the quarter and are disappointed with the results, we are confident we will deliver on our cost reduction and margin expansion commitments. We will continue to devote significant resources to improving manufacturing efficiency in our plants and improving our operational talent. Our team is committed to investing in our businesses for long-term success with our customers and employees, and value creation for our shareholders,” added Quinn.
Cost Reduction and Margin Expansion Program:
As part of the previously announced Cost Reduction and Margin Expansion program, the Company announced the following business portfolio optimization and cost reduction actions:
| • | Acoustics has initiated a sale process for its European operations to divest approximately $30 million in non-core revenue. The Company expects to complete the sale of the European operations in the next two quarters. The sale of this business will drive margin expansion and a focus on growth in the core North American automotive market. |
| • | Finishing will close operations in Brazil by the end of 2016, exiting approximately $6 million of revenue in a non-core geographic end market. The exit from this market will drive margin expansion, strategic focus, and simplification of the Finishing business. |
| • | Components will close a manufacturing facility in Libertyville, Ill. as part of the Company’s ongoing footprint rationalization. The facility closure will consolidate two existing facilities in Libertyville, optimizing footprint and capacity in response to declining demand in the railcar market better positioning the business to serve customers through a single manufacturing facility in the Midwest. The closure will achieve annual run-rate cost savings of $1.3 million beginning in the fourth quarter of 2017. As a result of this action, Jason expects to record a pre-tax restructuring charge to earnings of approximately $1.5 million in the first half of 2017. |
In addition to these actions, the Company announced it has commenced a process to evaluate monetizing certain real estate assets through a sale leaseback transaction to accelerate net debt reduction.
“We reviewed our portfolio and identified assets that are not core to our strategy. We are in the process of monetizing the value of our Acoustics European operations, redeploying capital to invest in our other businesses and restructuring projects, and reducing net debt. In Finishing, we will expand margins by exiting a break-even business in Brazil, simplifying the business and focusing our resources on growing our core,” said Brian Kobylinski, president and chief operating officer of Jason. “We are also responding to the rapidly declining railcar volumes by consolidating facilities and right-sizing our capacity in Components.”
Cost Reduction and Margin Expansion actions taken and announced to-date will achieve $11 million in annual run-rate savings in selling and administrative costs, and $11 million in annual run-rate savings in supply chain and footprint rationalization savings by the end of 2017. Global cost reduction program savings were $2.4 million in the third quarter and $4.8 million year-to-date in 2016.
Third Quarter 2016 Financial Results (versus the year ago period):
Lower volumes in Seating, Components and Finishing offset growth in Acoustics. Net sales of $170.1 million decreased $1.1 million, or 0.6 percent. Net sales were negatively impacted by $0.8 million, or 0.4 percent, of foreign currency translation. Excluding the impact of foreign currency, organic sales decreased 0.2 percent.
Net loss was $2.5 million compared with net loss of $3.2 million. Diluted loss per share was $0.13 compared with diluted loss per share of $0.16. Adjusted net loss was $1.8 million compared with adjusted net loss of $0.5 million. Adjusted loss per share was $0.06 compared with adjusted loss per share of $0.02.
Adjusted EBITDA was $16.5 million, or 9.7 percent of net sales, compared with $18.6 million, or 10.9 percent of net sales. Adjusted EBITDA decreased $2.1 million on lower volumes in Seating, Components and Finishing, and corporate investments in supply chain initiatives. Global cost reduction program savings and lower incentive compensation expense of $1.4 million favorably impacted Adjusted EBITDA compared with prior year.
For the nine months ended September 30, 2016, net cash provided by operating activities was $22.9 million compared with $33.0 million. Capital expenditures were $16.1 million, a decrease of $7.8 million. Free cash flow was $4.1 million compared with free cash flow of $6.5 million, and was reduced by $6.6 million due to timing of interest payments relative to the end of the fiscal period.
Net debt to Adjusted EBITDA on a pro forma trailing twelve-month basis was 5.8x as of the end of the third quarter. Total liquidity as of the end of the third quarter was $85.4 million, comprised of $39.5 million of cash and cash equivalents and $45.9 million of availability on revolving loan facilities globally.
Third Quarter 2016 Segment Results (versus the year ago period):
Seating
Seating net sales of $32.3 million decreased $4.9 million, or 13.1 percent, with lower volumes in motorcycle, construction and turf care. Excluding the impact of foreign currency, organic sales decreased 12.5 percent. Adjusted EBITDA was $2.5 million, or 7.8 percent of net sales, compared with $2.9 million, or 7.8 percent of net sales. Adjusted EBITDA was negatively impacted by lower volumes and favorably impacted by savings resulting from the global cost reduction program.
Finishing
Finishing net sales of $49.2 million decreased $3.2 million, or 6.1 percent, including a negative foreign currency translation impact of $0.6 million, or 1.0 percent. Excluding the impact of foreign currency, organic sales decreased 5.1 percent with lower global industrial demand. Adjusted EBITDA was $7.0 million, or 14.3 percent of net sales, compared with $7.2 million, or 13.8 percent of net sales, and was negatively impacted by lower volumes and favorably impacted by $1.1 million of savings resulting from the global cost reduction program.
Acoustics
Acoustics net sales of $63.7 million increased $12.0 million, or 23.2 percent, driven by increased volumes on new platform awards. Adjusted EBITDA was $7.4 million, or 11.6 percent of net sales, compared with $7.0 million, or 13.6 percent of net sales. Adjusted EBITDA margin decreased due to operational inefficiencies resulting in lower labor and material productivity, and was favorably impacted by lower incentive compensation expense, and savings resulting from the global cost reduction program.
Components
Net sales in Components of $24.9 million decreased $5.0 million, or 16.8 percent, with significantly lower rail car component volumes and lower demand for industrial metal products. Adjusted EBITDA was $3.7 million, or 14.7 percent of net sales, compared with $5.2 million, or 17.4 percent of net sales. Adjusted EBITDA decreased on lower volumes and unfavorable product mix, and was favorably impacted by lower raw material costs and incentive compensation expense.
Corporate
Corporate expenses of $4.1 million increased $0.3 million, primarily due to $1.2 million of costs for manufacturing and supply chain improvement initiatives, and investments in enhancing the Company’s organizational structure, and was favorably impacted by lower incentive compensation expenses.
2016 Guidance:
“We expect fourth quarter demand to remain challenged with a more significant impact to higher margin products, and as a result, we have lowered our guidance for the full year. We continue to focus on improving free cash flow through reductions in working capital and non-essential capital expenditures to mitigate the impact of lower earnings and reduce leverage,” added Kobylinski.
For 2016, Jason now expects net sales in the range of $695 to $705 million and Adjusted EBITDA in the range of $62 to $65 million. Prior guidance was net sales in the range of $715 to $730 million and Adjusted EBITDA in the range of $73 to $76 million.
Kobylinski noted, “Since joining Jason, I’ve immersed myself in our businesses and I see opportunity for significant long-term improvement. In addition to the larger actions that we have announced, there are many basic operational process changes that will be made that drive simplification, consistency, and better performance over time.”
Conference Call:
The Company will hold a conference call to discuss its third 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 877-407-3982 (domestic) or 201-493-6780 (international). Participants should ask for the Jason Industries Third Quarter 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 877-870-5176 (domestic) or 858-384-5517 (international) and entering the replay passcode 13642137. The telephonic replay will be available until 11:59 pm (Eastern Time), November 11, 2016. 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 seating, finishing, components and automotive acoustics markets, including DRONCO (Wunsiedel, Germany), Janesville Acoustics (Southfield, Mich.), Metalex (Libertyville, Ill.), Milsco (Milwaukee, Wis.), Osborn (Richmond, Ind. and Burgwald, Germany) and Sealeze (Richmond, Va.). Headquartered in Milwaukee, Wis., Jason employs more than 4,400 people in 14 countries.
