Market Overview

Chase Corporation Announces Fiscal 2018 Results

Share:

Revenue of $284.2 Million
Earnings Per Share of $4.56
Approves
Dividend of $0.80 Per Share

Chase
Corporation
(NYSE:CCF), a global specialty chemicals
company that is a leading manufacturer of protective materials for
high-reliability applications, today announced financial results for
both the fiscal year and quarter ended August 31, 2018. The Company also
announced a cash dividend of $0.80 per share to shareholders of record
on November 23, 2018 and payable on December 5, 2018.

HIGHLIGHTS – Fiscal 2018 vs. Fiscal 2017

GAAP Financials

  • Revenue of $284.19 million, up $31.63 million, or 13%, from $252.56
    million
  • Operating income of $55.09 million, down $3.04 million, or 5%, from
    $58.13 million
  • Net income of $43.14 million, up $1.13 million, or 3%, from $42.01
    million
  • Earnings per diluted share ("EPS") of $4.56, up $0.12, or 3%, from
    $4.44

Non-GAAP Financial Measures *

  • EBITDA of $75.76 million, down $0.23 million, or less than one
    percent, from $76.00 million
  • Adjusted EBITDA of $75.25 million, up $1.28 million, or 2%, from
    $73.97 million
  • Adjusted diluted EPS of $4.44, up $0.34 or 8%, from $4.10

HIGHLIGHTS – Q4 2018 vs. Q4 2017

GAAP Financials

  • Revenue of $77.48 million, up $8.48 million, or 12%, from $68.99
    million
  • Operating income of $13.81 million, down $2.61 million, or 16%, from
    $16.43 million
  • Net income of $11.16 million, down $0.25 million, or 2%, from $11.41
    million
  • EPS of $1.18, down $0.03 or 2%, from $1.21

Non-GAAP Financial Measures *

  • EBITDA of $19.58 million, down $0.62 million, or 3%, from $20.20
    million
  • Adjusted EBITDA of $19.71 million, down $0.53 million, or 3%, from
    $20.23 million
  • Adjusted diluted EPS of $1.15 down $0.03, or 3%, from $1.18

* Reconciliations of the non-GAAP financial measures to
Chase's GAAP financial results are included at the end of this release.

See also "Use of Non-GAAP Financial Measures" below.

Adam P. Chase, President and Chief Executive Officer, commented,
"Year-over-year revenue increases were achieved across our Industrial
Materials and Construction Materials segments for both the fourth
quarter and year-to-date periods. These increases came mostly from
volume, but with some revenue gains coming on price.

"Product cost and mix trends noted in last quarter's press release
continued in the fourth quarter. Raw material costs further increased in
the quarter, straining margins in certain product areas. We are
experiencing a shift from relative stability to instability because of
commodity price inflation and trade policy-driven supply chain
disruptions. There is a lag period from when we realize cost increases
until we pass them along in the marketplace. Rising material prices more
severely impacted the Industrial Materials segment's margin in the
second half of our fiscal year, primarily due to petroleum-based inputs.
While higher costs did affect our Construction Materials segment, its
margin contraction has been less pronounced, and it has been more
strongly affected by a less favorable sales mix in the current year and
quarter.

"In a time of greater uncertainty, we will continue to pursue both
tactical business model changes to reduce variable cost and further
consolidation initiatives to reduce fixed cost. Beyond working to
address the immediate impacts of raw material costs and tariffs, Chase
remains focused on reducing future fixed costs in manufacturing. The
consolidation of the Pawtucket, RI plant into our Lenoir, NC and Oxford,
MA locations, noted in last quarter's release, was substantially
completed in the fourth quarter. We incurred certain one-time charges
related to the plant closure that reduced our fourth quarter operating
income and operational efficiency, but we expect to realize ongoing
savings beginning after the first quarter of fiscal 2019.

"Operationally, we were active in the fourth quarter with continued
acquisition integration activities. We rolled out our company-wide ERP
system in the acquired operations of Zappa Stewart. Concurrently, rising
healthcare costs and tight labor markets have made it more difficult to
hire qualified employees to support our growth and consolidation
efforts. These and material cost pressures continue in the first quarter
of fiscal 2019. We are proud of the sustained hard work and dedication
of our associates in taking on these challenges.

"Over the past few years we completed some asset and business
divestitures that have helped to focus the organization on core and
related specialty chemical technologies. However, in the short term, our
Industrial Materials segment's margin has been compressed as we continue
to engage in low-margin tolling work following the divestiture of both
our fiber optic cable components and our structural composites
businesses where one-time gains were recognized in fiscal years 2018,
2017 and 2016."

Industrial Materials:

                   
For the Three Months Ended August 31, For the Years Ended August 31,
2018 2017 2018 2017
Revenue $ 61,647 $ 53,248 $ 232,288 $ 202,956
Cost of products and services sold   39,654   32,181   145,742   119,109
Gross Margin $ 21,993 $ 21,067 $ 86,546 $ 83,847
Gross Margin % ** 36% 40% 37% 41%
 

**Adjusted to remove the impact of inventory step up (which was
adjusted downward in the fourth quarter as part of our purchase price
accounting) the GM% would be 35% and 38% for the quarter and year ended
August 31, 2018, respectively.

Mr. Chase continued, "Sales totals for our Industrial Materials segment
increased over the prior year mainly on volume, especially when
including the effects of our December 2017 acquisition of Zappa Stewart.
Consistent with earlier this year, our pulling and detection and
electronic and industrial coatings product lines continued to lead the
positive sales trend, with volume playing a part in both of their
increases, and price favorably affecting electronic and industrial
coatings' results. Our cable materials product line revenue, affected by
both volume and price, fared favorably against the prior year fourth
quarter, but with year-to-date results falling short."

Construction Materials:

      For the Three Months Ended August 31,       For the Years Ended August 31,
2018     2017 2018     2017
Revenue $ 15,831 $ 15,746 $ 51,900 $ 49,604
Cost of products and services sold   8,344   8,197   29,394   26,927
Gross Margin $ 7,487 $ 7,549 $ 22,506 $ 22,677
Gross Margin % 47% 48% 43% 46%
 

"Our Construction Materials segment's strong top-line results continued
in the fourth quarter," noted Mr. Chase. "Our coating and lining systems
saw the largest growth for the quarter over the prior year, on both
volume and price, but came up just short of last year on a year-to-date
basis. Pipeline products, which include both domestic and U.K.-produced
products, far outpaced the prior year on the year-to-date basis but
could not match prior year revenue in the fourth quarter. Bridge and
highway products capped off another impressive year, growing over the
prior year on a whole-year basis and making sales into marquee
infrastructure projects such as the new Tappan Zee ("Governor Mario
Cuomo") Bridge in New York and the Norris Bridge in Virginia."

Other matters affecting financial results:

Kenneth J. Feroldi, Treasurer and Chief Financial Officer, added, "U.S.
tax reform continued to benefit our Company's bottom line and overall
profitability as we recognized an effective tax rate of 20.1% in the
quarter; this compared to 30.8% in the prior year fourth quarter.

"We made further preliminary and conditional entries related to the
adoption of the Tax Act in the fourth quarter, without any significant
net changes to those recorded in the second and third quarters. We
continue to anticipate that in fiscal 2019 and beyond, aside from any
discrete items, our all-in rate will be approximately 25%, depending on
state income tax impact as states adjust to the impact of the new
Federal rate.

"Our continued application of ASU 2016-09 in the quarter resulted in a
$0.94 million discrete benefit related to stock compensation,
representing the kind of period-to-period volatility this standard can
cause.

"Tax reform enabled us to repatriate over $10 million during fiscal
2018, with no additional tax effects, allowing us to pay down debt on
our revolver, consistent with our stated cash management strategy, as we
continue to evaluate potential acquisition targets. This practice will
continue in future periods depending on our global cash needs, with
another paydown of $10 million already made in Q1 of fiscal 2019.

"Foreign currency effects were not significant in the fourth quarter of
either the current or prior year. The Company ended the year-to-date
period with a small gain recorded in Other income (expense), slightly
below the gain recognized in the prior year.

"A material weakness in the Company's internal control over financial
reporting was identified in the fourth quarter, relating to the
valuation of certain assets acquired in the Zappa Stewart acquisition.
This identified control issue resulted in the adjustment of certain
amounts including goodwill, inventory step-up, customer relationship
intangibles and related amortization expense and income taxes. This
adjustment had no material effect on Net income and EPS, and no
restatement of previously issued financials is anticipated. The Company
intends to file a Form 12b-25 which will extend the normal filing
deadline of our Annual Report on Form 10-K, so we can, in part, finalize
documentation concerning this material weakness.

"Our announced dividend of $0.80 per share, which will be paid this
coming December, is relatively consistent with that distributed for the
prior year as a percentage of Net income achieved. We continue to
recognize the importance of the annual dividend, while also considering
the Company's cash needs and debt structure to facilitate its
sustainable growth strategies."

Mr. Chase also commented, "Our balance sheet remains strong. As of
August 31, 2018, the Company's cash on hand was $34.83 million and our
$150 million revolving credit facility had $125 million of unused
availability. Chase will continue to leverage this strength in fiscal
2019 to pursue our strategic goals and invest in value-enhancing organic
and inorganic growth opportunities along with operational consolidation
and rationalization."

The following table summarizes the Company's financial results for the
three months and years ended August 31, 2018 and 2017.

                   
For the Three Months Ended August 31, For the Years Ended August 31,
All figures in thousands, except per share figures 2018 2017 2018 2017
Revenue $ 77,478   $ 68,994   $ 284,188   $ 252,560  
Costs and Expenses
Cost of products and services sold 47,998 40,378 175,136 146,036
Selling, general and administrative expenses 14,395 12,169 52,297 47,736
Acquisition-related costs 393 584
Exit costs related to idle facility   1,272     20     1,272     70  
Operating income 13,813 16,427 55,090 58,134
Interest expense (298 ) (128 ) (1,172 ) (839 )
Gain on sale of real estate 860
Gain on sale of license 1,085
Gain on sale of businesses 1,480 2,013
Other income (expense)   459     188     482     724  
Income before income taxes 13,974 16,487 56,965 60,892
Income taxes   2,811     5,074     13,822     18,878  
Net income $ 11,163   $ 11,413   $ 43,143   $ 42,014  
Net income per diluted share $ 1.18   $ 1.21   $ 4.56   $ 4.44  
Weighted average diluted shares outstanding   9,377     9,362     9,366     9,357  
Reconciliation of net income to EBITDA and adjusted EBITDA
Net income $ 11,163 $ 11,413 $ 43,143 $ 42,014
Interest expense 298 128 1,172 839
Income taxes 2,811 5,074 13,822 18,878
Depreciation expense 1,947 1,271 5,817 5,130
Amortization expense   3,357     2,311     11,807     9,127  
EBITDA $ 19,576 $ 20,197 $ 75,761 $ 75,988
Cost of sale of inventory step-up (460 ) 1,070 190
Acquisition-related costs 393 584
Gain on sale of license (1,085 )
Gain on sale of businesses (1,480 ) (2,013 )
Exit costs related to idle facility (cash expense) 590 20 590 70
Pension settlement costs 14 14
Gain on sale of real estate               (860 )
Adjusted EBITDA $ 19,706   $ 20,231   $ 75,249   $ 73,973  
Reconciliation of net income to adjusted net income
Net income $ 11,163 $ 11,413 $ 43,143 $ 42,014
Transitional impact of the Tax Cuts and Jobs Act, net 84 681
Excess tax benefit related to ASU No. 2016-09 (944 ) (262 ) (1,921 ) (1,917 )
Cost of sale of inventory step-up (460 ) 1,070 190
Acquisition-related costs 393 584
Gain on sale of license (1,085 )
Gain on sale of businesses (1,480 ) (2,013 )
Exit costs related to idle facility (cash and depreciation expense) 1,272 20 1,272 70
Pension settlement costs 14 14
Gain on sale of real estate (860 )
Income taxes ***   (209 )   (12 )   (44 )   705  
Adjusted net income $ 10,906   $ 11,173   $ 42,029   $ 38,787  
Adjusted net income per diluted share (Adjusted diluted EPS) $ 1.15   $ 1.18   $ 4.44   $ 4.10  
 

***For the three months and year ended August 31, 2018, represents
the aggregate tax effect assuming a 25.7% tax rate for the items
impacting pre-tax income, which is our effective U.S. statutory Federal
tax rate for fiscal year 2018 following the enactment of the Tax Cuts
and Jobs Act in December 2017. For the three months and year ended
August 31, 2017, represents the aggregate tax effect assuming a 35% tax
rate for the items impacting pre-tax income, our then-effective U.S.
statutory Federal tax rate.

Chase Corporation, a global specialty chemicals company that was founded
in 1946, is a leading manufacturer of protective materials for
high-reliability applications throughout the world.

Use of Non-GAAP Financial Measures

The Company has used non-GAAP financial measures in this press release.
Adjusted net income, Adjusted diluted EPS, EBITDA and Adjusted EBITDA
are non-GAAP financial measures. The Company believes that Adjusted net
income, Adjusted diluted EPS, EBITDA and Adjusted EBITDA are useful
performance measures as they are used by its executive management team
to measure operating performance, to allocate resources to enhance the
financial performance of its business, to evaluate the effectiveness of
its business strategies and to communicate with its board of directors
and investors concerning its financial performance. The Company believes
Adjusted net income, Adjusted diluted EPS, EBITDA and Adjusted EBITDA
are commonly used by financial analysts and others in the industries in
which the Company operates, and thus provide useful information to
investors. Non-GAAP financial measures should be considered in addition
to, and not as an alternative to, the Company's reported results
prepared in accordance with GAAP.

Cautionary Note Concerning Forward-Looking Statements

Certain statements in this press release are forward-looking. These may
be identified by the use of forward-looking words or phrases such as
"believe"; "expect"; "anticipate"; "should"; "planned"; "estimated" and
"potential", among others. These forward-looking statements are based on
Chase Corporation's current expectations. The Private Securities
Litigation Reform Act of 1995 provides a "safe harbor" for such
forward-looking statements. To comply with the terms of the safe harbor,
the Company cautions investors that any forward-looking statements made
by the Company are not guarantees of future performance and that a
variety of factors could cause the Company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements. The
risks and uncertainties which may affect the operations, performance,
development and results of the Company's business include, but are not
limited to, the following: uncertainties relating to economic
conditions; uncertainties relating to customer plans and commitments;
the pricing and availability of equipment, materials and inventories;
technological developments; performance issues with suppliers and
subcontractors; economic growth; delays in testing of new products; the
Company's ability to successfully integrate acquired operations; the
effectiveness of cost-reduction plans; rapid technology changes; and the
highly competitive environment in which the Company operates. Readers
are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date the statement was made.

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