Market Overview

Lydall Announces Financial Results for the Third Quarter Ended September 30, 2019

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MANCHESTER, Conn., Oct. 29, 2019 (GLOBE NEWSWIRE) -- LYDALL, INC. (NYSE:LDL) today announced financial results for the third quarter ended September 30, 2019.

HIGHLIGHTS - Q3 2019 vs. Q3 2018

GAAP Financials

  • Net sales of $205.3 million, up 3.7%
       – Acquisitions and divestitures netted growth of 8.9%
       – Unfavorable foreign currency translation of 1.6%
  • Gross margin of 17.7%, down 10 basis points
  • Operating margin of 3.6%, down 130 basis points
       – Incremental intangibles amortization of $3.0 million, or 150 basis points
  • Earnings per share ("EPS") of $0.17, compared to $0.36
  • Cash generated from operations of $26.7 million, compared to $6.5 million

Non-GAAP Financial Measures*

  • Organic sales decline of 2.2%
  • Adjusted gross margin of 17.8%, down 90 basis points
  • Adjusted operating margin of 3.7%, down 290 basis points
  • Adjusted EPS of $0.19, compared to adjusted $0.54 per share
      – Includes incremental intangibles amortization of $0.14 per share
  • Adjusted EBITDA of $20.9 million, compared to $21.4 million

    *Reconciliations of the Non-GAAP financial measures to Lydall's GAAP financial results are included at the end of this release.  See also "Use of Non-GAAP Financial Measures" below.

Dale G. Barnhart, President and Chief Executive Officer, stated, "Third quarter sales declined 2% organically as on-going global trade tensions drove uncertainty in key markets.  Third quarter sales were negatively impacted by a significant drop in demand in China, global weakness in sealing product markets and lower volume due to the strike at General Motors.

"From a profitability standpoint, adjusted EBITDA was negatively impacted by higher labor and overhead costs in the Thermal Acoustical Solutions segment and lower gross margin in the Performance Materials segment.  Despite lower sales volumes, the Technical Nonwovens segment delivered healthy adjusted EBITDA margin of 16.5%.

"The business continues to drive strong cash generation, producing $27 million and $63 million from operations for the quarter and nine months ended, respectively, enabling us to pay down $13 million of outstanding credit facility borrowings in the quarter and $38 million year-to-date."

Q3 2019 Results

Net sales increased by $7.4 million, or 3.7%, to $205.3 million, compared to $197.9 million in the third quarter of 2018 primarily from the acquisition of Interface Performance Materials ("Interface"), which increased Performance Materials ("PM") segment net sales by $18.6 million.  Organically, PM segment sales declined by 3.9% from lower sealing product sales. The Technical Nonwovens ("TNW") segment reported organic sales compression of 6.8% primarily from weak demand for industrial filtration products in China which is being impacted by on-going trade uncertainties.  Organic sales growth was 4.2% in the Thermal Acoustical Solutions ("TAS") segment primarily from increased parts sales in Europe and North America.

Gross margin was 17.7%, a decline of 10 basis points from the third quarter of 2018, but on an adjusted basis, declined 90 basis points.  Improved TNW segment adjusted gross margin, was offset by the TAS and PM segments.  The TAS segment gross margin was lower due to increased labor, outsourcing and logistics costs at the Company's North American and European automotive facilities.  Lower gross margin from the PM segment was primarily driven by product mix and unfavorable cost absorption on lower volumes.

Operating margin was 3.6%, down 130 basis points, compared to the third quarter of 2018, or down 290 basis points on an adjusted basis, primarily due to lower adjusted gross margin of 90 basis points, incremental intangible assets amortization of 150 basis points and increased selling, product development and administrative expenses from the Interface business acquired on August 31, 2018.  Adjusted EBITDA margin of 10.2% dropped by 60 basis points compared to the third quarter of 2018.

The third quarter 2019 effective tax rate was 35.1% compared to 25.1% in the third quarter 2018.  The Company's third quarter 2019 effective tax rate was negatively impacted by losses in jurisdictions where a tax benefit is not recognized.

Net income was $3.0 million, or $0.17 per diluted share, compared to net income of $6.3 million, or $0.36 per diluted share in the third quarter of 2018.  Adjusted earnings per share were $0.19, including incremental intangibles amortization of $0.14 per share, compared to $0.54 per share in the third quarter of 2018.

Liquidity

Cash was $48.9 million at September 30, 2019, compared to $49.2 million at December 31, 2018.  Net cash provided by operations was $26.7 million in the third quarter of 2019 compared to $6.5 million in the third quarter of 2018, and $63.0 million through September 30, 2019 compared to $14.5 million through September 30, 2018.  There was approximately $110 million of availability under the Company's credit facility at September 30, 2019.

Outlook

Mr. Barnhart concluded, "The market weakness we have seen in both the Technical Nonwovens and Performance Materials segments is not expected to improve in the fourth quarter and may further deteriorate.  As a result, the Company is aggressively adjusting its cost structure, and will record one-time severance-related expenses of $2.0 million to $2.5 million in the fourth quarter, with savings of $4.0 million to $5.0 million anticipated in 2020.  Further, while the General Motors strike just ended, we will be negatively impacted by the strike in the fourth quarter and are sharpening our focus on reducing manufacturing costs in our Thermal Acoustical Solutions segment.  As we close out 2019, we expect strong cash generation in the fourth quarter that will allow the Company to continue to reduce its outstanding debt."

Conference Call

Lydall will host a conference call on October 30, 2019, at 10:00 a.m. Eastern Time to discuss results for its third quarter and nine months ended September 30, 2019 as well as general matters related to its businesses and markets.  The call may be accessed at (888) 338-7142, from within the U.S., or (412) 902-4181, internationally.  In addition, the audio of the call will be webcast live and will be available for replay on the Company's website at www.lydall.com in the Investor Relations' Section.  A recording of the call will be available from 12:00 p.m. Eastern Time on October 30, 2019 through 11:59 p.m. Eastern Time on November 6, 2019 at (877) 344-7529, from within the U.S., or (412) 317-0088, internationally, pass code 10135999.  Additional information, including a presentation outlining key financial data supporting the conference call, can be found on the Company's website www.lydall.com under the Investors Relations' section.

Use of Non-GAAP Financial Measures

In addition to the financial measures prepared in accordance with generally accepted accounting principles ("GAAP"), the Company uses certain non-GAAP financial measures, including organic sales, adjusted gross profit, adjusted gross margin, adjusted operating income, adjusted operating margin, adjusted earnings per share, consolidated and segment EBITDA and adjusted EBITDA.  The attached financial tables address the non-GAAP measures used in this press release and reconcile non-GAAP measures to the most directly comparable GAAP measures.  The Company believes that the use of non-GAAP measures helps investors gain a better understanding of our core operating results and future prospects, consistent with how management measures and forecasts the Company's performance, especially when comparing such results to previous periods or forecasts.  Adjusted segment EBITDA is used as a basis to internally evaluate the financial performance of the Company's segments because the Company believes it reflects current core operating performance and provides an indicator of the segment's ability to generate cash.  Non-GAAP measures should be considered in addition to, and not as a replacement for or superior to, the corresponding GAAP measures, and may not be comparable to similarly titled measures reported by other companies.

Cautionary Note Concerning Forward-Looking Statements

This press release contains "forward-looking statements" within the Private Securities Litigation Reform Act of 1995.  Any statements contained in this press release that are not statements of historical fact, including statements about the outlook for the fourth quarter of 2019, planned reductions to the Company's cost structure and improvements to margins, and cash flow generation may be deemed to be forward-looking statements.  All such forward-looking statements are intended to provide management's current expectations for the future operating and financial performance of the Company based on current expectations and assumptions relating to the Company's business, the economy and other future conditions.  Forward-looking statements generally can be identified through the use of words such as "believes," "anticipates," "may," "should," "will," "plans," "projects," "expects," "expectations," "estimates," "forecasts," "predicts," "targets," "prospects," "strategy," "signs," and other words of similar meaning in connection with the discussion of future operating or financial performance.  Because forward-looking statements relate to the future, they are subject to inherent risks, uncertainties and changes in circumstances that are difficult to predict.  Such risks and uncertainties which include, among others, worldwide economic or political changes that affect the markets that the Company's businesses serve which could have an effect on demand for the Company's products and impact the Company's profitability, challenges encountered by the Company in the execution of restructuring programs, challenges in integrating acquired companies, disruptions in the global credit and financial markets, including diminished liquidity and credit availability, changes in international trade agreements, including tariffs and trade restrictions, foreign currency volatility, swings in consumer confidence and spending, unstable economic growth, raw material pricing and supply issues, fluctuations in unemployment rates, retention of key employees and the successful execution of the recently announced CEO transition, increases in fuel prices, and outcomes of legal proceedings, claims and investigations.  Accordingly, the Company's actual results may differ materially from those contemplated by these forward-looking statements.  Investors, therefore, are cautioned against relying on any of these forward-looking statements.  They are neither statements of historical fact nor guarantees or assurances of future performance.  Additional information regarding the factors that may cause actual results to differ materially from these forward-looking statements is available in Lydall's filings with the Securities and Exchange Commission, including the risks and uncertainties identified in Part I, Item 1A - Risk Factors of Lydall's Annual Report on Form 10-K for the year ended December 31, 2018.

These forward-looking statements speak only as of the date of this press release, and Lydall does not assume any obligation to update or revise any forward-looking statement made in this press release or that may from time to time be made by or on behalf of the Company.

Lydall, Inc. is a New York Stock Exchange listed company, headquartered in Manchester, Connecticut with global manufacturing operations producing specialty engineered products for the thermal/acoustical and filtration/separation markets. For more information, visit http://www.lydall.com. Lydall® is a registered trademark of Lydall, Inc. in the U.S. and other countries.


Summary of Operations              
In thousands except per share data              
(Unaudited)              
  Quarters Ended   Nine Months Ended
  September 30,   September 30,
  2019   2018   2019   2018
               
Net sales $ 205,274     $ 197,886     $ 644,110     $ 575,959  
Cost of sales 168,918     162,747     520,423     465,186  
Gross profit 36,356     35,139     123,687     110,773  
               
Selling, product development and administrative expenses 28,909     25,406     94,011     74,755  
Operating income 7,447     9,733     29,676     36,018  
               
Pension plan settlement expense 186         25,701      
Interest expense 3,666     1,505     11,025     2,617  
Other income, net (885 )   (40 )   (1,359 )   (93 )
Income (loss) before income taxes 4,480     8,268     (5,691 )   33,494  
               
Income tax expense (benefit) 1,574     2,076     (5,519 )   5,854  
Income from equity method investment (98 )   (64 )   (120 )   (120 )
Net income (loss) $ 3,004     $ 6,256     $ (52 )   $ 27,760  
               
Earnings per share              
  Basic $ 0.17     $ 0.36     $ 0.00     $ 1.61  
  Diluted $ 0.17     $ 0.36     $ 0.00     $ 1.60  
               
Weighted average number of common shares outstanding 17,270     17,216     17,264     17,189  
Weighted average number of common shares and equivalents outstandin
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