Form 8-K BALCHEM CORP For: Nov 06
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E-mailUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (date of earliest event reported): November 6, 2018
Balchem Corporation
(Exact name of registrant as specified in its charter)
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Maryland
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1-13648
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13-2578432
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(State or other jurisdiction of incorporation)
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(Commission File Number)
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(IRS Employer Identification No.)
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52 Sunrise Park Road, New Hampton, NY 10958
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (845) 326-5600
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under
any of the following provisions:
| ☐ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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☐
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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☐
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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☐
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2
of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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Item 2.02
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Results of Operations and Financial Condition
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On November 6, 2018, Balchem Corporation, reported earnings for its third quarter ended September 30, 2018, and certain other information. The full text of
the press release issued in connection with the announcement is attached as Exhibit 99.1.
The information in this Form 8-K (including Exhibit 99.1) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the
“Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference in
such a filing.
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Item 9.01
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Financial Statements and Exhibits
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(c) Exhibits.
| 99.1 |
Press Release of Balchem Corporation, dated November 6, 2018, reporting its financial results for the third quarter of 2018 and certain other information.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
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BALCHEM CORPORATION
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By:/s/ Mark A. Stach
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Mark A. Stach
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General Counsel & Secretary
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||
Dated: November 6, 2018
Exhibit Index
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Exhibit Number
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Description
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Press Release of Balchem Corporation, dated November 6, 2018.
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Exhibit 99.1
 |
 |
Balchem Corporation Reports Quarterly Sales of $155.0 Million, Record Third Quarter Net Earnings of $19.2 Million, Record
Third Quarter Adjusted Net Earnings of $23.7 Million, and Record Third Quarter Adjusted EBITDA of $38.4 Million
New Hampton, NY, November 6, 2018 – Balchem Corporation (NASDAQ: BCPC) today reported for the third quarter 2018 record third quarter net
earnings of $19.2 million, compared to net earnings of $16.0 million for the third quarter 2017. Record third quarter adjusted net earnings(a) were $23.7 million, compared to $20.4 million in the prior year quarter. Record third quarter
adjusted EBITDA(a) was $38.4 million, compared to $35.7 million in the prior year quarter.
Third Quarter 2018 Financial Highlights:
| · |
Quarterly net sales of $155.0 million in the third quarter 2018, an increase of $4.3 million, or 2.9%, compared to the prior year quarter.
|
| · |
Year over year sales growth in three of our four segments, with record quarterly sales for our Human Nutrition & Health segment and record third quarter sales
for our Specialty Products segment.
|
| · |
Record third quarter earnings from operations of $25.5 million, an increase of $2.4 million, or 10.5%, from the prior year.
|
| · |
Record third quarter net earnings were $19.2 million, an increase of $3.2 million, or 19.8%, from the prior year, resulting in earnings per share of $0.59.
|
| · |
Record third quarter adjusted EBITDA of $38.4 million increased $2.7 million, or 7.4%, from the prior year.
|
| · |
Record third quarter adjusted net earnings of $23.7 million increased $3.3 million or 16.2% from the prior year, resulting in adjusted earnings per share(a)
of $0.73.
|
| · |
Third quarter cash flows from operations were $32.5 million for 2018 with record third quarter free cash flow(a) of $26.9 million.
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Recent Highlights:
| · |
On August 29, 2018 the Company acquired 100% of the outstanding common shares of Bioscreen Technologies, S.r.l., a privately held manufacturer of encapsulated and
fermented feed nutrition ingredients, headquartered in Bertinoro, Italy. Bioscreen manufactures high-performance encapsulates and fermented products that deliver value-added solutions to an international animal nutrition and health
customer base.
|
| · |
The Company reduced its revolving loan by $32.8 million in the third quarter of 2018, reducing net debt to $135.3 million as of September 30, 2018.
|
Ted Harris, Chairman, CEO, and President of Balchem said, “We are pleased to report record third quarter adjusted net earnings
and adjusted EBITDA, quarterly sales growth in three of our four segments, along with record third quarter free cash flow. In addition, while the closing of the Bioscreen acquisition only occurred on August 29th, our team has already made good
progress with the integration efforts, and we are pleased with the capabilities this acquisition adds to our portfolio. As we further strengthen our balance sheet, with our net debt leverage ratio at 0.8, as of September 30, 2018, and with the
current economic uncertainties, we are pleased that our strong balance sheet and revolving credit facility provide us the flexibility to capitalize on both organic and acquisition opportunities.”
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Balchem Corporation (NASDAQ: BCPC)
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Results for Period Ended September 30, 2018 (unaudited)
($000 Omitted Except for Net Earnings per Share)
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For the Three Months Ended September 30,
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||||||||
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2018
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2017
|
|||||||
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Unaudited
|
||||||||
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Net sales
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$
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155,043
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$
|
150,716
|
||||
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Gross margin
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48,002
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46,181
|
||||||
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Operating expenses
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22,537
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23,126
|
||||||
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Earnings from operations
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25,465
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23,055
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||||||
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Other expense
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1,936
|
2,358
|
||||||
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Earnings before income tax expense
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23,529
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20,697
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||||||
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Income tax expense
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4,315
|
4,654
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||||||
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Net earnings
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$
|
19,214
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$
|
16,043
|
||||
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Diluted net earnings per common share
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$
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0.59
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$
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0.50
|
||||
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Adjusted EBITDA(a)
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$
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38,380
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$
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35,720
|
||||
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Adjusted net earnings(a)
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$
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23,653
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$
|
20,360
|
||||
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Adjusted net earnings per common share(a)
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$
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0.73
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$
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0.63
|
||||
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Shares used in the calculations of diluted and adjusted net earnings per common share
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32,566
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32,241
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||||||
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For the Nine Months Ended September 30,
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||||||||
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2018
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2017
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|||||||
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Unaudited
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||||||||
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Net sales
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$
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480,140
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$
|
435,526
|
||||
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Gross margin
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152,927
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137,371
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||||||
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Operating expenses
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72,431
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66,782
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||||||
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Earnings from operations
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80,496
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70,589
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||||||
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Other expense
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6,729
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6,623
|
||||||
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Earnings before income tax expense
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73,767
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63,966
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||||||
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Income tax expense
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15,528
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15,870
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||||||
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Net earnings
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$
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58,239
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$
|
48,096
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||||
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Diluted net earnings per common share
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$
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1.79
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$
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1.49
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||||
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Adjusted EBITDA(a)
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$
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120,338
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$
|
107,841
|
||||
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Adjusted net earnings(a)
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$
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72,601
|
$
|
59,800
|
||||
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Adjusted net earnings per common share(a)
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$
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2.24
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$
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1.86
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||||
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Shares used in the calculation of diluted and adjusted net earnings per common share
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32,452
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32,203
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||||||
(a)See “Non-GAAP Financial Information” for a reconciliation of GAAP and non-GAAP financial measures.
Segment Financial Results for the Third Quarter of
2018:
The Human Nutrition &
Health segment generated record quarterly sales of $85.9 million, an increase of $4.5 million or 5.6% compared to the prior year quarter. The increase was primarily driven by higher powder systems sales into food and beverage markets and
higher chelated minerals and choline nutrients sales, partially offset by lower flavor systems sales. Record quarterly earnings from operations for this segment of $13.1 million increased $2.7 million or 25.7% compared to $10.4 million in the
prior year quarter, primarily due to the aforementioned higher sales and lower operating expenses, partially offset by mix and certain higher raw material costs.
The Animal Nutrition &
Health segment sales of $40.4 million increased $2.4 million or 6.3% compared to the prior year quarter. The increased sales were primarily due to increased monogastric species sales primarily due to higher volumes and average selling
prices, partially offset by lower ruminant species sales. Third quarter earnings from operations for this segment of $5.1 million were down slightly from the prior year comparable quarter of $5.2 million, with the higher sales being offset by
mix, increased raw material costs and certain higher selling, marketing, and research expenses.
The Specialty Products
segment generated record third quarter sales of $17.6 million, an increase of $0.4 million or 2.1% compared to the prior year quarter, primarily due to increased plant nutrition volumes and higher sales of ethylene oxide for the medical device
sterilization market. Quarterly earnings from operations for this segment were $5.8 million, versus $5.6 million in the prior year comparable quarter, an increase of $0.2 million or 2.9%, primarily due to the aforementioned higher sales.
The Industrial Products
segment sales of $11.1 million decreased $3.0 million or 21.0% from the prior year comparable quarter, primarily due to reduced sales of choline and choline derivatives used in shale fracking applications. Earnings from operations for the
Industrial Products segment were $1.7 million, a decrease of $0.4 million or 17.6% compared with the prior year comparable quarter, and were primarily a reflection of the aforementioned lower sales volumes.
Consolidated gross margin for the quarter ended September 30, 2018 of $48.0 million increased by $1.8 million or 3.9%,
compared to $46.2 million for the prior year comparable period. Gross margin as a percentage of sales increased to 31.0% as compared to 30.6% in the prior year period. The increase was primarily due to mix and certain higher average selling
prices. Operating expenses of $22.5 million for the third quarter were down $0.6 million from the prior year comparable quarter, principally due to the timing of an insurance recovery, partially offset by certain higher compensation-related
expenses and an impairment charge related to the IFP tradename. Excluding transaction and integration costs of $0.2 million and non-cash operating expense associated with amortization of intangible assets of $5.4 million, operating expenses were
$16.9 million, or 10.9% of sales.
Interest expense was $1.8 million in the third quarter of 2018. Our effective tax rates for the three months ended September
30, 2018 and 2017 were 18.3% and 22.5%, respectively. The company’s effective tax rate for the three months ended September 30, 2018 is lower primarily due to the impact of the Tax Cuts and Jobs Act.
For the quarter ended September 30, 2018, cash flows provided by operating activities were $32.5 million, and record third
quarter free cash flow was $26.9 million. The $159.8 million of net working capital on September 30, 2018 included a $35 million reduction in the current portion of long-term debt, resulting from the second quarter repayment of existing debt
through the initial use of revolving debt from our new credit facility, and this revolving debt is classified as long-term debt on our balance sheet. In addition, the net working capital included a cash balance of $42.7 million, which reflects
capital expenditures of $5.6 million and accelerated principal payments on the revolving loan of $32.8 million in the third quarter of 2018. The Company continues to invest in projects across all facilities to improve capabilities and operating
efficiencies.
Ted Harris said, “Our results in the third quarter reflected sales growth in three of our four segments and record third
quarter adjusted net earnings and adjusted EBITDA. We are proud of this strong performance, particularly in light of the macroeconomic challenges we are facing across several of our reporting segments.”
Mr. Harris went on to add, “We are progressing our strategic growth initiatives and are pleased with the Bioscreen
acquisition and the opportunities it affords us, as its manufacturing, technical and commercial capabilities provide a platform to accelerate our growth in Europe and broaden the range of health and nutrition solutions that we bring to our
customers.”
Quarterly Conference Call
A quarterly conference call will be held on Tuesday, November 6, 2018, at 11:00 AM Eastern Time (ET) to review third quarter 2018 results. Ted
Harris, Chairman of the Board, CEO and President, and Bill Backus, Chief Accounting Officer will host the call. We invite you to listen to the conference by calling toll-free 1-877-407-8289 (local dial-in 1-201-689-8341), five minutes prior to
the scheduled start time of the conference call. The conference call will be available for replay two hours after the conclusion of the call through end of day Tuesday, November 20, 2018. To access the replay of the conference call, dial
1-877-660-6853 (local dial-in 1-201-612-7415), and use conference ID #13684529.
Segment Information
Balchem Corporation reports four business segments: Human Nutrition & Health; Animal Nutrition & Health; Specialty Products; and
Industrial Products. The Human Nutrition & Health segment delivers customized food and beverage ingredient systems, as well as key nutrients into a variety of applications across the food, supplement and pharmaceutical industries. The Animal
Nutrition & Health segment manufactures and supplies products to numerous animal health markets. Through Specialty Products, Balchem provides specialty-packaged chemicals for use in healthcare and other industries, and also provides chelated
minerals to the micronutrient agricultural market. The Industrial Products segment manufactures and supplies certain derivative products into industrial applications.
Forward-Looking Statements
This release contains forward-looking statements, which reflect Balchem’s expectation or belief concerning future events that involve risks and
uncertainties. Balchem can give no assurance that the expectations reflected in forward-looking statements will prove correct and various factors could cause results to differ materially from Balchem’s expectations, including risks and factors
identified in Balchem’s annual report on Form 10-K for the year ended December 31, 2017. Forward-looking statements are qualified in their entirety by the above cautionary statement. Balchem assumes no duty to update its outlook or other
forward-looking statements as of any future date.
Contact: Mary Ann Brush, Balchem Corporation (Telephone: 845-326-5600)
Selected Financial Data
($ in 000’s)
Business Segment Net Sales:
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
|
2018
|
2017
|
2018
|
2017
|
|||||||||||||
|
Human Nutrition & Health
|
$
|
85,890
|
$
|
81,365
|
$
|
253,966
|
$
|
232,523
|
||||||||
|
Animal Nutrition & Health
|
40,410
|
38,010
|
128,587
|
113,136
|
||||||||||||
|
Specialty Products
|
17,629
|
17,264
|
58,233
|
56,813
|
||||||||||||
|
Industrial Products
|
11,114
|
14,077
|
39,354
|
33,054
|
||||||||||||
|
Total
|
$
|
155,043
|
$
|
150,716
|
$
|
480,140
|
$
|
435,526
|
||||||||
Business Segment Earnings Before Income Taxes:
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
|
2018
|
2017
|
2018
|
2017
|
|||||||||||||
|
Human Nutrition & Health
|
$
|
13,106
|
$
|
10,426
|
$
|
36,175
|
$
|
31,942
|
||||||||
|
Animal Nutrition & Health
|
5,064
|
5,154
|
19,661
|
14,219
|
||||||||||||
|
Specialty Products
|
5,769
|
5,607
|
19,583
|
20,125
|
||||||||||||
|
Industrial Products
|
1,728
|
2,096
|
6,861
|
4,397
|
||||||||||||
|
Transaction and integration costs
|
(202
|
)
|
(228
|
)
|
(1,784
|
)
|
(2,181
|
)
|
||||||||
|
Indemnification settlement
|
-
|
-
|
-
|
2,087
|
||||||||||||
|
Interest and other expense
|
(1,936
|
)
|
(2,358
|
)
|
(6,729
|
)
|
(6,623
|
)
|
||||||||
|
Total
|
$
|
23,529
|
$
|
20,697
|
$
|
73,767
|
$
|
63,966
|
||||||||
|
Selected Balance Sheet Items
|
September 30,
2018 |
December 31,
2017 |
||||||
|
Cash and Cash Equivalents
|
$
|
42,671
|
$
|
40,416
|
||||
|
Accounts Receivable, net
|
101,205
|
91,226
|
||||||
|
Inventories
|
71,778
|
60,696
|
||||||
|
Other Current Assets
|
10,052
|
6,998
|
||||||
|
Total Current Assets
|
225,706
|
199,336
|
||||||
|
Property, Plant & Equipment, net
|
194,081
|
189,793
|
||||||
|
Goodwill
|
449,015
|
441,361
|
||||||
|
Intangible Assets With Finite Lives, net
|
111,142
|
128,073
|
||||||
|
Other Assets
|
6,132
|
5,073
|
||||||
|
Total Assets
|
$
|
986,076
|
$
|
963,636
|
||||
|
Current Liabilities
|
$
|
65,951
|
$
|
73,396
|
||||
|
Current Portion of Long-Term Debt
|
-
|
35,000
|
||||||
|
Long-Term Debt
|
178,000
|
183,964
|
||||||
|
Deferred Income Taxes
|
49,461
|
48,548
|
||||||
|
Long-Term Obligations
|
7,462
|
5,847
|
||||||
|
Total Liabilities
|
300,874
|
346,755
|
||||||
|
Stockholders' Equity
|
685,202
|
616,881
|
||||||
|
Total Liabilities and Stockholders' Equity
|
$
|
986,076
|
$
|
963,636
|
||||
Balchem Corporation
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(unaudited)
|
Nine Months Ended
September 30,
|
||||||||
|
2018
|
2017
|
|||||||
|
Cash flows from operating activities:
|
||||||||
|
Net earnings
|
$
|
58,239
|
$
|
48,096
|
||||
|
Adjustments to reconcile net earnings to net cash provided by operating activities:
|
||||||||
|
Depreciation and amortization
|
33,460
|
33,170
|
||||||
|
Stock compensation expense
|
5,208
|
4,348
|
||||||
|
Other adjustments
|
(1,708
|
)
|
526
|
|||||
|
Changes in assets and liabilities
|
(16,014
|
)
|
(6,686
|
)
|
||||
|
Net cash provided by operating activities
|
79,185
|
79,454
|
||||||
|
Cash flow from investing activities:
|
||||||||
|
Cash paid for acquisition, net of cash acquired
|
(17,399
|
)
|
(17,393
|
)
|
||||
|
Capital expenditures and intangible assets acquired
|
(13,691
|
)
|
(18,084
|
)
|
||||
|
Proceeds from insurance and sale of assets
|
4,741
|
2,000
|
||||||
|
Net cash used in investing activities
|
(26,349
|
)
|
(33,477
|
)
|
||||
|
Cash flows from financing activities:
|
||||||||
|
Proceeds from revolving debt
|
210,750
|
22,000
|
||||||
|
Principal payments on long-term and revolving debt
|
(252,250
|
)
|
(69,634
|
)
|
||||
|
Proceeds from stock options exercised
|
8,133
|
9,524
|
||||||
|
Dividends paid
|
(13,428
|
)
|
(12,069
|
)
|
||||
|
Other
|
(2,616
|
)
|
(1,833
|
)
|
||||
|
Net cash used in financing activities
|
(49,411
|
)
|
(52,012
|
)
|
||||
|
Effect of exchange rate changes on cash
|
(1,170
|
)
|
2,133
|
|||||
|
Increase/(Decrease) in cash and cash equivalents
|
2,255
|
(3,902
|
)
|
|||||
|
Cash and cash equivalents, beginning of period
|
40,416
|
38,643
|
||||||
|
Cash and cash equivalents, end of period
|
$
|
42,671
|
$
|
34,741
|
||||
Non-GAAP Financial Information
In addition to disclosing financial results in accordance with United States (U.S.) generally accepted accounting principles (GAAP), this
earnings release contains non-GAAP financial measures that we believe are helpful in understanding and comparing our past financial performance and our future results. The non-GAAP financial measures disclosed by the company exclude certain
business combination accounting adjustments and certain other items related to acquisitions, certain unallocated equity compensation, and certain one-time or unusual transactions. These non-GAAP financial measures should not be considered a
substitute for, or superior to, financial measures calculated in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations from these results should be carefully evaluated. Management believes that
these non-GAAP measures provide useful information about the Company's core operating results and thus are appropriate to enhance the overall understanding of the Company's past financial performance and its prospects for the future. The non-GAAP
financial measures in this press release include adjusted gross margin, adjusted earnings from operations, adjusted net earnings and the related adjusted per diluted share amounts, EBITDA, adjusted EBITDA, adjusted income tax expense, and free
cash flow. EBITDA is defined as earnings before interest, other expense/income, taxes, depreciation and amortization. Adjusted EBITDA is defined as earnings before interest, other expense/income, taxes, depreciation, amortization, stock-based
compensation, acquisition-related expenses, indemnification settlements, legal settlements, and the fair valuation of acquired inventory. Adjusted income tax expense is defined as income tax expense adjusted for the impact of ASU 2016-09. Free
cash flow is defined as net cash provided by operating activities less capital expenditures.
Set forth below are reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures.
Table 1
Reconciliation of Non-GAAP Measures to GAAP
(Dollars in thousands, except per share data)
(unaudited)
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
|
2018
|
2017
|
2018
|
2017
|
|||||||||||||
|
Reconciliation of adjusted gross margin
|
||||||||||||||||
|
GAAP gross margin
|
$
|
48,002
|
$
|
46,181
|
$
|
152,927
|
$
|
137,371
|
||||||||
|
Amortization of intangible assets (1)
|
765
|
722
|
2,362
|
2,022
|
||||||||||||
|
Adjusted gross margin
|
$
|
48,767
|
$
|
46,903
|
$
|
155,289
|
$
|
139,393
|
||||||||
|
Reconciliation of adjusted earnings from operations
|
||||||||||||||||
|
GAAP earnings from operations
|
$
|
25,465
|
$
|
23,055
|
$
|
80,496
|
$
|
70,589
|
||||||||
|
Amortization of intangible assets (1)
|
6,208
|
6,602
|
18,680
|
20,145
|
||||||||||||
|
Transaction and integration costs (2)
|
202
|
228
|
1,784
|
2,181
|
||||||||||||
|
Indemnification settlement (3)
|
-
|
-
|
-
|
(2,087
|
)
|
|||||||||||
|
Adjusted earnings from operations
|
$
|
31,875
|
$
|
29,885
|
$
|
100,960
|
$
|
90,828
|
||||||||
|
Reconciliation of adjusted net earnings
|
||||||||||||||||
|
GAAP net earnings
|
$
|
19,214
|
$
|
16,043
|
$
|
58,239
|
$
|
48,096
|
||||||||
|
Amortization of intangible assets (1)
|
6,278
|
6,718
|
19,290
|
20,505
|
||||||||||||
|
Transaction and integration costs (2)
|
202
|
228
|
1,784
|
2,181
|
||||||||||||
|
Indemnification settlement (3)
|
-
|
-
|
-
|
(2,087
|
)
|
|||||||||||
|
Income tax adjustment (4)
|
(2,041
|
)
|
(2,630
|
)
|
(6,712
|
)
|
(8,895
|
)
|
||||||||
|
Adjusted net earnings
|
$
|
23,653
|
$
|
20,359
|
$
|
72,601
|
$
|
59,800
|
||||||||
|
Adjusted net earnings per common share – diluted
|
$
|
0.73
|
$
|
0.63
|
$
|
2.24
|
$
|
1.86
|
||||||||
1 Amortization of intangible assets:
Amortization of intangible assets consists of amortization of customer relationships, trademarks and trade names, developed technology, regulatory registration costs, patents and trade secrets, and other intangibles acquired primarily in
connection with business combinations. We record expense relating to the amortization of these intangibles in our GAAP financial statements. Amortization expenses for our intangible assets are inconsistent in amount and are significantly impacted
by the timing and valuation of an acquisition. Consequently, our non-GAAP adjustments exclude these expenses to facilitate an evaluation of our current operating performance and comparisons to our past operating performance.
2 Transaction and integration costs:
Transaction and integration costs related to acquisitions are expensed in our GAAP financial statements. Management excludes this item for the purposes of calculating Adjusted EBITDA and other non-GAAP financial measures. We believe that
excluding this item from our non-GAAP financial measures is useful to investors because this item is associated with each transaction, and is inconsistent in amount and frequency causing comparison of current and historical financial results to
be difficult.
3 Indemnification settlement:
Indemnification settlement related to a favorable settlement we received relating to the SensoryEffects acquisition which is included in our GAAP financial statements. Management excluded this settlement for the purposes of calculating Adjusted
EBITDA and other non-GAAP financial measures. We believe that excluding the settlement from our non-GAAP financial measures is useful to investors because this type of settlement is infrequent causing comparison of current and historical
financial results to be difficult.
4 Income tax adjustment:
For purposes of calculating adjusted net earnings and adjusted diluted earnings per share, we adjust the provision for (benefit from) income taxes to tax effect the taxable and deductible non-GAAP adjustments described above as they have a
significant impact on our income tax (benefit) provision. Additionally, the income tax adjustment is adjusted for the impact of adopting ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting”, and uses our non-GAAP effective
rate applied to both our GAAP earnings before income tax expense and non-GAAP adjustments described above. The income tax adjustment for the three months ended September 30, 2018 and 2017, respectively, is calculated as the difference between
the September 30, 2018 and 2017 year-to-date income tax adjustment, respectively, and the June 30, 2018 and 2017 year-to-date income tax adjustment, respectively. See Table 3 for the calculation of our non-GAAP effective tax rate.
The following table sets forth a reconciliation of Net Income calculated using amounts determined in accordance with GAAP to EBITDA and to
Adjusted EBITDA for the three and nine months ended September 30, 2018 and 2017.
Table 2
|
Three Months
Ended
September 30,
|
Nine Months
Ended
September 30,
|
|||||||||||||||
|
2018
|
2017
|
2018
|
2017
|
|||||||||||||
|
Net income - as reported
|
$
|
19,214
|
$
|
16,043
|
$
|
58,239
|
$
|
48,096
|
||||||||
|
Add back:
|
||||||||||||||||
|
Provision for income taxes
|
4,315
|
4,654
|
15,528
|
15,870
|
||||||||||||
|
Other expense
|
1,936
|
2,358
|
6,729
|
6,623
|
||||||||||||
|
Depreciation and amortization
|
10,964
|
10,973
|
32,850
|
32,810
|
||||||||||||
|
EBITDA
|
36,429
|
34,028
|
113,346
|
103,399
|
||||||||||||
|
Add back certain items:
|
||||||||||||||||
|
Non-cash compensation expense related to equity awards
|
1,749
|
1,463
|
5,208
|
4,348
|
||||||||||||
|
Transaction and integration costs
|
202
|
228
|
1,784
|
2,181
|
||||||||||||
|
Indemnification settlement
|
-
|
-
|
-
|
(2,087
|
)
|
|||||||||||
|
Adjusted EBITDA
|
$
|
38,380
|
$
|
35,719
|
$
|
120,338
|
$
|
107,841
|
||||||||
The following table sets forth a reconciliation of our GAAP effective income tax rate to our non-GAAP effective income tax rate for the nine
months ended September 30, 2018 and 2017.
Table 3
|
Nine Months
Ended
September 30,
|
||||||||||||||||
|
2018
|
Effective
Tax Rate
|
2017
|
Effective
Tax Rate
|
|||||||||||||
|
GAAP Income Tax Expense
|
$
|
15,528
|
21.1
|
%
|
$
|
15,870
|
24.8
|
%
|
||||||||
|
Impact of ASU 2016-09 adoption(5)
|
1,770
|
2,552
|
||||||||||||||
|
Adjusted Income Tax Expense
|
$
|
17,298
|
23.4
|
%
|
$
|
18,422
|
28.8
|
%
|
||||||||
5 Impact of ASU 2016-09 adoption:
In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”), which addresses the accounting for share-based payment transactions, including the income tax consequences, classification
of awards as either equity or liabilities, and classification on the statement of cash flows. The Company adopted ASU 2016-09 on January 1, 2017 prospectively (prior
periods have not been restated). The primary impact of adoption was the recognition during the three and nine months ended September 30, 2018 and 2017, of excess tax benefits as a reduction to the provision for income taxes and the
classification of these excess tax benefits in operating activities in the consolidated statement of cash flows instead of financing activities. The presentation requirements for cash flows related to employee taxes paid for withheld shares had
no impact to any of the periods presented in the consolidated statement of cash flows, since such cash flows have historically been presented in financing activities. The Company also elected to continue estimating forfeitures when determining
the amount of stock-based compensation costs to be recognized in each period. No other provisions of ASU 2016-09 had a material impact on the Company’s financial statements or disclosures.
The following table sets forth a reconciliation of net cash provided by operating activities to free cash flow for the three and nine months
ended September 30, 2018 and 2017.
Table 4
|
Three Months
Ended
September 30,
|
Nine Months
Ended
September 30,
|
|||||||||||||||
|
2018
|
2017
|
2018
|
2017
|
|||||||||||||
|
Net cash provided by operating activities
|
$
|
32,489
|
$
|
33,762
|
$
|
79,185
|
$
|
79,454
|
||||||||
|
Capital expenditures
|
(5,553
|
)
|
(6,857
|
)
|
(13,253
|
)
|
(17,676
|
)
|
||||||||
|
Free cash flow
|
$
|
26,936
|
$
|
26,905
|
$
|
65,932
|
$
|
61,778
|
||||||||
|
Page | 10
|
 |
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