Q EARNINGS CALL July 30, :00 am ET

Transcription

1 Q EARNINGS CALL July 30, :00 am ET

2 Forward-Looking Statements This presentation contains or may contain forward-looking statements within the meaning of Section 27a of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The company intends these forward-looking statements to be covered by the safe harbor provisions for such statements. Statements made in this presentation that relate to our future performance or future financial results or other future events (which may be identified by such terms as expect, estimate, anticipate, assume, believe, plan, intend, may, will, should, outlook, guidance, target, opportunity, potential or similar terms and variations or the negative thereof) are forward-looking statements, including the Company s expectations regarding the business environment and the Company s overall guidance regarding future performance and growth. These statements are based on our current beliefs and expectations and are subject to significant risks and uncertainties. Actual results may materially differ from the expectations expressed in or implied by these forward-looking statements. Factors that could cause the Company s actual results to differ materially include, but are not limited to: (1) global macroeconomic conditions and trends; (2) the behavior of financial markets, including fluctuations in foreign currencies, interest rates and turmoil in capital markets; (3) changes in regulatory controls regarding tariffs, duties, taxes and income tax rates; (4) the Company s ability to implement and refine its Vision 2022 strategic roadmap; (5) the Company s ability to successfully identify and complete acquisitions in line with its Vision 2022 strategic roadmap and effectively operate and integrate acquired businesses to realize the anticipated benefits of those acquisitions; (6) the Company s ability to realize expected cost savings and efficiencies from its performance improvement and other optimization initiatives; (7) the Company s ability to effectively compete in its markets, and to successfully develop new and competitive products that appeal to its customers; (8) changes in consumer preferences and demand for the Company s products or a decline in consumer confidence and spending; (9) the Company s ability to benefit from its investments in assets and human capital and the ability to complete projects successfully and on budget; (10) economic, regulatory and political risks associated with the Company s international operations, most notably Mexico and China; (11) volatility and increases in the price of raw materials, energy and transportation, and fluctuations in the quality and availability of raw materials and process aids; (12) the impact of a disruption in the Company s supply chain or its relationship with its suppliers; (13) the Company s ability to comply with, and the costs associated with compliance with, U.S. and foreign environmental protection laws and (14) the Company s ability to meet quality and regulatory standards in different jurisdictions in which it has operations or conducts business. We caution you to consider the important risks and other factors as set forth in the forward-looking statements section and in Item 1A Risk Factors in our most recent Annual Report on Form 10-K, as amended by subsequent reports on Forms 10-Q and 8-K. We do not undertake to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of the forward-looking statements. Regulation G: Adjusted Results The information presented herein regarding certain unaudited adjusted results does not conform to generally accepted accounting principles in the U.S. (U.S. GAAP). Innophos has included this non-gaap information to assist in understanding the operating performance of the company and its reporting segments. Please see reconciliations to the most directly comparable financial measure prescribed by U.S. GAAP in the appendix. Totals in this presentation may not foot due to rounding. Page 2

3 Agenda 1. Executive Overview 2. Financial Review 3. Outlook 4. Q&A Kim Ann Mink, Ph.D. Chairman, President and Chief Executive Officer Han Kieftenbeld Senior Vice President and Chief Financial Officer Page 3

4 Q2 Financial Highlights +15% TOTAL SALES +3% ADJUSTED EBITDA 2-5% ADJUSTED DILUTED EPS 2 Continued revenue growth in FHN driven by strength in legacy and acquired portfolios Food, Health and Nutrition (FHN) sales grew 36%, with FHN segment sales now 61% of total sales Continued momentum with pricing actions in the legacy business Adjusted EBITDA ahead of last year Earnings impacted by annual plant maintenance stoppage and value chain transition expenses 1 1 Value chain transition expense excluded from adjusted earnings 2 Excluding annual plant maintenance stoppage, adjusted EBITDA would have been +12% YOY, adjusted diluted EPS would have been +14% YOY Page 4

5 Strategic Pillars Highlights Strong progress toward Vision 2022 strategy Continued pricing actions offsetting input cost increases OPERATIONAL EXCELLENCE COMMERCIAL EXCELLENCE STRATEGIC GROWTH Significant progress advancing multi-faceted value chain repositioning and manufacturing optimization program Acquisition integration on track Active M&A pipeline to further build FHN platform and align Innophos with consumer mega-trends Momentum behind SPARC program to drive organic growth Page 5

6 Strategic Value Chain Repositioning And Manufacturing Optimization Initiative Targeting 10% improvement to adjusted diluted EPS by end of 2019 OBJECTIVES Create supply agility Diversify supply base Sustainably lower cost position Achievements Completed milestone strategic supply agreements with Nutrien Negotiated $20m payment to compensate over time for value chain transition charges Increased self-sufficiency and diversified supply sources Completed annual maintenance stoppage in Mexico plant Social responsibility no longer indirectly sourcing from Western Sahara Q2 Impacts $4m value chain transition charges - excluded from adjusted results $3m annual maintenance stoppage costs Page 6

7 Q Performance Highlights Q2 $m Variance Sales % Gross Profit Gross Margin 36 (3) (7%) 18% -421 bps Net Income 6 (5) (44%) Adj. Net Income (4%) Adj. EBITDA Adj. EBITDA% % 15% -184 bps Diluted EPS 0.31 (0.25) (45%) Adj. Diluted EPS 0.55 (0.03) (5%) OCF 16 (14) (46)% FCF (3) (26) (115)% $10m Adjusted EBITDA ($ Millions) ($9m) A Vol/Mix Price Inp Cost Mfg SG&A FX 2018A Net income impacted by specific value chain transition charges ($4m) and Mexico annual stoppage costs ($3m) Adjusted EBITDA of $31m up $1m YOY; margin of 15% down due to lower margin acquisitions and plant stoppage costs Page 7 Sales improvement due to acquisitions ($31m) and selling price increases in legacy business. Core sales (FHN and IS) up YOY with a shortfall seen in the Other segment Input costs impacted by higher raw material and freight market prices SG&A and manufacturing cost increase due to addition of acquisitions and Mexico stoppage timing OCF/FCF mostly driven by capex and working capital investments related to value chain and manufacturing optimization program

8 Q Sales Revenue And Gross Margin $250 $200 22% 22% 17% 21% 18% 25% 20% Sales Revenue Bridge Q2 YTD $m % $m % Volume/Mix 23 12% 59 17% Price 5 3% 8 2% $150 15% Variance 28 15% 67 19% $ % Quarterly Comments $50 5% Sales Revenue up 15% YOY; 17% from acquisitions and down 2% legacy business (+3% selling price, volume -5% mostly due to Other segment) $0 Q2 Q3 Q4 Q1 Q % Food Health and Nutrition: up 34% from acquisitions and 2% in the legacy business (1% volume, 1% selling price) Industrial Specialties: down 1% with 3% higher selling price offsetting 4% lower volume Sales ($m) Gross Margin (% of Sales) Other sales down 27% on lower co-product volumes and 9% higher selling price Page 8

9 $20 $10 $0 ($10) ($20) $40 $30 $20 $10 $0 Q Earnings Net Income (11) *Excl. $1.8m in Q2 2017, $6.5m in Q3 2017, $5.9m in Q4 2017, $2.5m in Q and $8.1m in Q Q2 Q3 Q4 Q1 Q2 17% Adjusted EBITDA* 19% % 27 16% % 31 Q2 Q3 Q4 Q1 Q2 Adjustment ($m) Reported ($m) Adjusted EBITDA margin (% of Sales) 25% 20% 15% 10% 5% 0% Adj. EBITDA Bridge Quarterly Comments Net income lower versus prior year quarter due to impact from value chain transition costs and higher D&A and interest Adjusted EBITDA up $1m YOY despite plant maintenance stoppage costs in the current quarter Q2 YTD $m % $m % Volume/Mix 5 16% 15 26% Price 5 17% 8 13% Input costs (3) -11% (5) -9% Manufacturing (3) -11% (6) -10% SG&A (3) -11% (7) -12% FX Variance 1 3% 5 10% Volume/mix up significantly due to acquisitions, partly offset by volume erosion in the Other segment of the legacy business Selling price increases offset higher raw material costs Higher manufacturing/sg&a primarily due to acquisitions Page 9

10 $12 0 $10 0 $80 $60 $40 $20 $0 Earnings Conference Call Second Quarter 2018 July 30, % 20% 15% 10% 5% 0% $12 0 $10 0 $80 $60 $40 $20 $0 25% 20% 15% 10% 5% 0% Q Performance By Segment 32% 7% Q Sales $207m 61% Food, Health and Nutrition 17% 15% 19% 20% 19% Industrial Specialties 21% 17% 16% 14% 4% Food, Health and Nutrition Industrial Specialties Other Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 Sales Revenue ($m) Adj. EBITDA % of Sales 11% Q2 Sales Bridge FHN IS Other Total 38% Q Sales $179m 51% % % % % Volume/Mix 32 35% (3) -4% (7) -36% 22 12% Price 1 1% 2 3% 2 9% 5 3% % 67 99% 14 73% % YOY Variance 33 36% (1) -1% (5) -27% 28 15% Page 10

11 Q Other Items Item Q Q Comment Net interest expense $3m $1m Effective tax rate 24% 34% Capital expenditures $20m $8m Dividends $9m $9m Up $2m due to higher debt levels and leverage related to 2017 acquisitions along with higher market interest rates Down YOY due to settlement of state income tax examinations in the current quarter and lower US Federal tax rates Up due to strategic value chain and manufacturing optimization investments $1.92/sh. annual dividend rate maintained Net Debt $318m $146m Net Debt / LTM Adjusted EBITDA Increase due to $151m spent on 2017 acquisitions plus 2018 WC and capex value chain investments 2.5x 1.2x Increase due to increased net debt Page 11

12 Q Earnings Per Share Diluted EPS (0.58) Q2 Q3 Q4 Q1 Q2 Earnings per share Q2 YTD 2017 Diluted Adjustments Adj. Diluted YOY Variance (0.02) (0.01) 2018 Adj. Diluted Adjustments Diluted YOY Variance Breakdown (Adj. Diluted) Adjusted Diluted EPS* Volume/mix Price Costs (0.46) (0.90) FX Operational items Q2 Q3 Q4 Q1 Q Diluted EPS ($ per share) Adjusted Diluted EPS ($ per share) 2018 Financing (0.09) (0.17) Tax Shares outstanding Other (0.08) (0.17) Other items (0.04) (0.25) *Excl. pre-tax costs of $0.2m in Q2 2017, $5.7m in Q3 2017, $5.0m in Q4 2017, $1.5m in Q and $6.1m in Q Also excludes $17.3m of tax expense related to tax reform in Q Page 12

13 Q Cash Delivery Cash from Operations ($ Millions) Cash Flow Bridge Q2 YTD $m Variance $m Variance Adj. EBITDA % % Working Cap (2) (10) -132% (33) (10) -47% Tax (9) (3) -59% (13) (1) -13% (4) Q2 Q3 Q4 Q1 Q2 Free Cash Flow ($ Millions) Interest (4) (2) -168% (7) (4) -153% Other 1 1 BIG % OCF 16 (14) -46% 12 (7) -37% Capex (20) (12) -161% (29) (13) -81% FCF (3) (26) -115% (17) (20) BIG 23 Q Q3 Q4 (14) Q (3) Q2 Quarterly Comments Working capital and capex investments in value chain repositioning resulted in lower OCF and FCF compared to 2017 Tax increased due to interim federal estimated tax payments Opening FCF (14) (3) Interest up due to higher debt levels and leverage related to 2017 acquisitions along with higher market interest rates Financing* (19) (20) (21) 26 (25) Closing *Includes cash spent on acquisition of businesses Page 13

14 2018 Outlook Reiterating guidance for full year 2018 revenue growth of 12%-14% and 2018 adjusted EBITDA growth of 15%-17% Impact from specific value chain transition charges will lower 2018 GAAP earnings as these costs will be incurred ahead of the $20m payment accruing to earnings Overall market conditions and the competitive landscape are expected to be similar in H2 compared with H1 of this year The operating environment continues to show cost inflation; further price increase actions taken Effective tax rate anticipated to operate in the 28-30% range given the geographical mix in earnings Free cash flow expected to modestly decrease versus prior year, principally to support the strategic value chain repositioning and manufacturing optimization program The Company continues to diligently work through the multi-faceted value chain repositioning and manufacturing optimization program and expects full benefits to materialize in H The program is estimated to deliver adjusted diluted EPS improvement of 10% by the end of 2019 Page 14

15 Transformation In Action Strategic Pillars activities provide focus and drive performance Continued topline growth in Q Progressing multi-faceted strategic value chain and manufacturing optimization program Clear strategic direction and continued execution of Vision 2022 Page 15

16 Q EARNINGS CALL July 30, :00 am ET Q&A Page 16

17 Non-GAAP Reconciliations Long Term Targets Innophos is not able to provide a reconciliation of its expectation for adjusted earnings to 2018 and 2019 GAAP net income given the dynamic nature of the strategic value chain repositioning program expenses that may be incurred. In addition Innophos is not able to provide a reconciliation of its 2022 expectation for Adjusted EBITDA margin to GAAP net income due to the number of variables in the projected EBITDA margin for 2022 and because we are currently unable to quantify accurately certain amounts that would be required to be included in GAAP net income or the individual adjustments for such reconciliation. In addition, we believe such reconciliation would imply a degree of precision that would be confusing or misleading to investors. Additional Information Free cash flow is a supplemental financial measure that is not required by, or presented in accordance with, US GAAP. The Company believes free cash flow is helpful in analyzing the cash flow generating capability of the business and as a performance measure for purposes of presentation in this investor presentation. The Company defines free cash flow as net cash provided from operating activities plus net cash used for investing purposes. EBITDA, adjusted EBITDA, adjusted net income and adjusted diluted EPS are supplemental financial measures that are not required by, or presented in accordance with, US GAAP. The Company believes EBITDA and adjusted EBITDA are helpful in analyzing the cash flow generating capability of the business and as performance measures for purposes of presentation in this investor presentation. Net Working Capital and Operating Working Capital are supplemental financial measures that are not required by, or presented in accordance with, US GAAP. The Company believes net working capital and operating working capital are helpful in analyzing the effects on the cash flow generating capability of the business and as a performance measure for purposes of presentation in this release. The Company defines net working capital as total current assets less cash and cash equivalents less total current liabilities plus current portion of capital leases, and defines operating working capital as net working capital less taxes less interest. Page 17

18 Non-GAAP Reconciliations Adjusted EBITDA Reconciliation to Net Income (Dollars in thousands) Three Months Ended June 30, Six Month Ended June 30, Net Income $6,246 $11,223 $17,161 $22,146 Interest expense, net 3,198 1,452 6,102 2,805 Provision for income taxes 1,977 5,794 6,665 9,980 Depreciation & amortization 11,089 9,550 22,453 19,131 EBITDA 22,510 28,019 52,381 54,062 Adjustments Non-cash stock compensation 1,993 1,568 2,992 2,285 Foreign exchange loss (gain) 1,136 (78) 940 (135) Severance/Restructuring expense ,284 1,326 M&A related costs Value chain transition 4,493-4,493 - Adjusted EBITDA $30,622 $29,835 $63,028 $57,538 Percent of Sales 14.8% 16.7% 15.3% 16.7% Adjusted Net Income Reconciliation to Net Income (Dollars in thousands, except EPS) Three Months Ended June 30, Six Month Ended June 30, Net Income $6,246 $11,223 $17,161 $22,146 Pre-tax Adjustments Foreign exchange loss (gain) 1,136 (78) 940 (135) Severance/Restructuring expense ,284 1,326 M&A related costs Value chain transition 4,493-4,493 - Total Pre-tax Adjustments 6, ,655 1,191 Income tax effects on Adjustments 1, , Adjusted Net Income $10,894 $11,387 $22,883 $22,991 Adjusted Diluted Earnings Per Participating Share $0.55 $0.57 $1.15 $1.16 Page 18

19 Non-GAAP Reconciliations Segment Adjusted EBITDA Reconciliation to EBITDA (Dollars in thousands) Three Months Ended June 30, 2018 Three Months Ended June 30, 2017 FHN IS Other Total FHN IS Other Total EBITDA $14,939 $7,794 ($223) $22,510 $17,032 $8,654 $2,333 $28,019 Non-cash stock compensation 1, , ,568 Foreign exchange loss (gain) ,040 1,136 (26) 0 (52) (78) Severance/Restructuring exp M&A related costs Value chain transition 1,666 2, , Adjusted EBITDA $18,170 $10,916 $1,536 $30,622 $18,023 $9,471 $2,341 $29,835 Six Months Ended June 30, 2018 Six Months Ended June 30, 2017 FHN IS Other Total FHN IS Other Total EBITDA $33,931 $17,886 $564 $52,381 $32,656 $18,175 $3,231 $54,062 Non-cash stock compensation 1,703 1, ,992 1, ,285 Foreign exchange loss (gain) (30) 0 (105) (135) Severance/Restructuring exp.(inc.) , ,326 M&A related costs Value chain transition 1,666 2, , Adjusted EBITDA $38,985 $21,772 $2,271 63,028 $34,584 $19,715 $3,239 $57,538 Page 19

20 Non-GAAP Reconciliations Cash From Operations Reconciliation to EBITDA (Dollars in thousands) Three Months Ended June 30, Six Month Ended June 30, EBITDA $22,510 $28,019 $52,381 $54,062 Operating Working Capital 3,714 7,712 (24,986) (21,058) Taxes paid (9,420) (5,940) (12,798) (11,365) Interest paid (3,699) (1,380) (6,780) (2,685) All other including non-cash stock compensation and changes in other 3,197 1,624 4, long-term assets and liabilities Net cash provided from operations $16,302 $30,035 $12,108 $19,356 Cash From Operations Reconciliation to Adjusted EBITDA (Dollars in thousands) Three Months Ended June 30, Six Month Ended June 30, Adjusted EBITDA $30,622 $29,835 $63,028 $57,538 Operating Working Capital (2,405) 7,464 (32,641) (22,249) Taxes paid (9,420) (5,940) (12,798) (11,365) Interest paid (3,699) (1,380) (6,780) (2,685) All other including changes in other long-term assets and liabilities 1, ,299 (1,883) Net cash provided from operations $16,302 $30,035 $12,108 $19,356 Free Cash Flow Reconciliation to Cash From Operations (Dollars in thousands) Three Months Ended June 30, Six Month Ended June 30, Cash From Operations $16,302 $30,035 $12,108 $19,356 Capital Expenditures (19,627) (7,524) (29,026) (16,077) Free Cash Flow ($3,325) $22,511 ($16,918) $3,279 Page 20

21 ABOUT THE COMPANY Innophos (NASDAQ: IPHS) is a leading international producer of specialty ingredient solutions that deliver farreaching, versatile benefits for the food, health, nutrition and industrial markets. We leverage our expertise in the science and technology of blending and formulating phosphate, mineral and botanical based ingredients to help our customers offer products that are tasty, healthy, nutritious and economical. Headquartered in Cranbury, New Jersey, Innophos has manufacturing operations across the United States, in Canada, Mexico and China. For more information please visit CONTACT Investors: Mark Feuerbach, or investor.relations@innophos.com Media: Ryan Flaim, Sharon Merrill Associates, or iphs@investorrelations.com Page 21