2016 Second Quarter Earnings Conference Call

Transcription

1 August 2, 2016 NYSE: GLT 2016 Second Quarter Earnings Conference Call Dante C. Parrini, Chairman & CEO John P. Jacunski, EVP, CFO & President, Specialty Papers

2 Forward-Looking Statements and Use of Non-GAAP Financial Measures Any statements included in this presentation which pertain to future financial and business matters are forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of The Company uses words such as anticipates, believes, expects, future, intends, plans, and similar expressions to identify forward-looking statements. Any such statements are based on the Company s current expectations and are subject to numerous risks, uncertainties and other unpredictable or uncontrollable factors that could cause future results to differ materially from those expressed in the forward-looking statements including, but not limited to: changes in industry, business, market, political and economic conditions in the U.S. and other countries in which the Company does business, demand for or pricing of its products, changes in the cost to construct the new airlaid facility, changes in tax legislation, governmental laws, regulations and policies, initiatives of regulatory authorities, technological changes and innovations, market growth rates, and availability and costs of a qualified workforce. In light of these risks, uncertainties and other factors, the forward-looking matters discussed in this press release may not occur and readers are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements speak only as of the date of this press release and Glatfelter undertakes no obligation, and does not intend, to update these forward-looking statements to reflect events or circumstances occurring after the date of this press release. More information about these factors is contained in Glatfelter s filings with the U.S. Securities and Exchange Commission, which are available at During the course of this presentation, certain non-u.s. GAAP financial measures will be presented. A reconciliation of these measures to U.S. GAAP financial measures is included in the appendix of this presentation. 2

3 Q Highlights Adjusted EPS (EPS Before Special Items) Q net sales totaled $406 million, down 1.2% in constant currency versus Q Composite Fibers shipments up 3% mainly driven by improved shipments of wallcover products (+12%) Advanced Airlaid shipments up 8% Specialty Papers shipments up 2% again beating the broader UFS market Adjusted EPS up $0.02 from Q Composite Fibers operating profit down 8% driven by Fx Advanced Airlaid Materials operating profit more than doubled Specialty Papers operating loss declined 42%; completed annual maintenance outage for $7 million less in Q2 16 Improved operating cash flow Balance Sheet remains strong On a GAAP basis, EPS was $0.06, $0.37 and $0.04 for Q2 2015, Q and Q2 2016, respectively. Note: See appendix of this presentation for the reconciliation of adjusted EPS to its nearest GAAP measure. 3

4 Adjusted EPS Q vs. Q $0.07 $(0.07) $0.06 $- $0.01 $(0.03) $0.06 $0.04 $(0.02) Fx $(0.02) Higher professional services, incentive compensation and Fox River legal costs Q favorable tax adjustment following audit completion Q2-15 CFBU AMBU SPBU Corporate Unallocated Net Pension Net Interest Taxes Q2-16 On a GAAP basis, net income was $2.0 million or $0.04 per diluted share in Q compared to $2.8 million or $0.06 per diluted share in Q Note: See appendix of this presentation for the reconciliation of adjusted EPS to its nearest GAAP measure. 4

5 Composite Fibers Q Highlights Dollars in Thousands Q Q Q Tons shipped 39,364 36,912 40,676 Net sales $140,407 $123,542 $136,386 Operating income $16,697 $11,187 $15,306 Operating margin 11.9% 9.1% 11.2% Net sales down 2.9% on constant currency basis with shipping volume up 3.3% Selling prices declined versus Q but were flat versus Q Food & beverage shipments down 1% Wallcover shipments up 12% Raw material and energy costs favorable despite increases for abaca fiber $ in millions $16.7 $(1.6) $0.8 $0.7 $(0.3) $(1.0) $15.3 Improved operating performance was more than offset by higher depreciation expense and general inflation FX unfavorable by $1.0 million mainly driven by favorable hedging gains in Q Outlook (Q vs. Q2 2016) Expect shipping volumes to be slightly higher Expect selling prices and raw material & energy prices to be in-line Q2-15 Operating Income Selling Price Volume & Mix RM & Energy Operations & Costs Other FX Q2-16 Operating Income 5

6 Advanced Airlaid Materials Q Highlights Dollars in Thousands Q Q Q Tons shipped 22,606 24,543 24,365 Net sales $57,476 $60,790 $60,756 Operating income $3,104 $6,552 $6,768 Operating margin 5.4% 10.8% 11.1% Net sales up 4.5% on constant currency Shipping volume up 7.8% versus Q driven by growth in hygiene products Continued strong demand in North American market Lower selling prices reflect the pass through of lower raw material prices to customers $ in millions $2.2 $0.3 $6.8 Solid operations more than offset the impact of cost inflation Record airlaid production in Canadian facility for second consecutive quarter $3.1 $(1.8) $2.3 Outlook (Q vs. Q2 2016) Expect shipping volumes to increase slightly $0.7 Selling prices and raw material & energy prices are expected to be in-line Q2-15 Operating Income Selling Price Volume & Mix RM & Energy Costs Operations & Other FX Q2-16 Operating Income 6

7 Specialty Papers Q Highlights Dollars in Thousands Q Q Q Tons shipped 191, , ,702 Net sales $212,920 $217,887 $209,270 Energy and related sales, net $ in millions $715 $666 $2,001 Operating income (loss) ($9,953) $14,975 ($5,763) Operating margin (4.7%) 6.9% (2.8%) ($10.0) Q2-15 Operating Loss $(3.7) Selling Price $0.5 Volume & Mix $5.2 RM & Energy Costs $0.9 Operations & Other $1.3 Energy- Related Sales ($5.8) Q2-16 Operating Loss Net sales decreased 1.7% compared to Q Shipments up 1.8% year-over-year while the broader UFS market was down 1.4% Lower selling prices on commodity products negatively impacted operating income by $3.7 million versus last year; prices decreased $0.7 million on a sequential quarter basis Operating loss declined 42% Annual outage costs were $26.3 million in Q versus $33.4 million in Q Raw material and energy prices improved by $5.2 million which more than offset the impact from selling price declines Lower pulp production and higher incentive compensation unfavorably impacted results Outlook (Q vs. Q2 2016) Expect shipping volumes to be 5% higher Selling prices are expected to be slightly higher while increases in raw material and energy prices are expected to slightly outpace selling price increases Expect maintenance spending to decrease $23 million reflecting normal patterns of maintenance expense 7

8 Corporate Costs and Other Financial Items Details of Other and Unallocated The following sets forth details of Other and Unallocated amounts presented in the Company s Business Unit Financial Information included in the earnings release. (in millions) Q2 15 Q2 16 Gains on dispositions of plant, equipment and timberlands $0.1 $ Specialty Papers environmental compliance (1.1) Airlaid capacity expansion (0.2) Excluded from adjusted earnings Workforce efficiency (0.6) Net pension expense (1.6) (1.6) Corporate costs* (3.9) (7.8) Total corporate costs & other financial items ($6.0) ($10.7) Corporate costs in Q were higher than prior year due to increase in professional services expense, incentive compensation and Fox River legal costs. Notes: * Corporate costs are primarily comprised of legal fees, professional services fees and employee costs. The sum of individual amounts set forth above may not agree to the column totals due to rounding. 8

9 Free Cash Flow (in millions) Q2'15 Q2'16 H1'15 H1'16 Adjusted EBITDA $21.8 $25.5 $62.7 $68.7 Change in working capital (*) (3.6) (4.5) (30.4) (23.8) Taxes paid (4.9) (3.3) (10.2) (8.5) Interest paid (7.5) (7.0) (8.3) (7.5) Other Cash Flow from Operations Less: Capital expenditures (22.8) (37.1) (44.6) (80.4) Free Cash Flow 0.5 (11.9) (19.1) (43.8) Adjustment for major capital projects Exclude: CBC/AFM Credit (1.3) 0.0 (5.3) (4.3) Adjusted Free Cash Flow $5.7 $15.7 ($12.7) $7.6 Cash flow from operations improved by $2 million in Q and by $11 milion YTD Improved business unit earnings Lower cash utilization for working capital Capital expenditures in Q were $14 million higher than Q Q includes $22.4 million for boiler environmental compliance projects versus $6.5 million in Q Q includes $5.2 million for airlaid capacity expansion Continue to expect total capital expenditures for 2016 of $150 million to $170 million (see slide 14 for details) Spent $1.2 million YTD for Fox River remediation Expect full year remediation costs to be less than $10 million Notes: (*) - Working capital is defined as accounts receivable plus inventories less accounts payable. The sum of individual amounts set forth above may not agree to the column totals due to rounding. 9

10 Balance Sheet Metrics (in millions) 30-Dec Dec Jun-16 Cash $99.8 $105.3 $58.5 Debt Current portion of long term debt ⅜% Notes, due October Term Loans 1.3% - 2.4% due Revolving credit agreement Unamortized deferred financing costs (3.8) (3.2) (2.9) Total Debt $400.8 $360.7 $367.5 Net Debt $301.0 $255.4 $308.9 Shareholders Equity $649.1 $663.2 $676.2 TTM Adj. EBITDA (excl. Pension) $183.3 $161.1 $167.1 Leverage* Cash available under bank facility $232.0 $248.3 $258.4 Net debt increased $54 million from Dec 2015 Leverage at 1.8x as of June 30, 2016 Total liquidity of $317 million Sufficient financial flexibility and liquidity to meet near term investment needs and execute long term strategy Notes: *The above calculation is not intended to be used for purposes of calculating debt covenant compliance. The sum of individual amounts set forth above may not agree to the column totals due to rounding. 10

11 Appendix 11

12 Outlook Summary Q Versus Q Composite Fibers Expect shipping volumes to be slightly higher Expect selling prices and raw material & energy prices to be in-line Advanced Airlaid Materials Expect shipping volumes to increase slightly Selling prices and raw material & energy prices are expected to be in-line Specialty Papers Expect shipping volumes to be 5% higher Selling prices are expected to be slightly higher while increases in raw material and energy prices are expected to slightly outpace selling price increases Expect maintenance spending to decrease $23 million reflecting normal patterns of maintenance expense Other Corporate costs are expected to decrease by approximately $1 million to $2 million Total capital expenditures are estimated at $150 million to $170 million for 2016 Pension expense expected to decrease in 2016 to approximately $5.5 million 12

13 Financial Highlights Net Sales (in millions) Adj. EBITDA / Margin % (in millions) 10.4% 10.2% 11.0% 10.3% 10.2% 9.7% 10.2% $1,455 $1,603 $1,578 $1,723 $1,802 $1,661 $1,641 $150.9 $164.0 $174.2 $177.2 $183.3 $161.1 $ /30/2016 LTM /30/2016 LTM Adj.EBITDA Margin 13

14 Capital Expenditures and Related Cost Estimate (in millions) 2015A 2016E 2017E Normal Capital Expenditures $73 $65 - $75 $70 - $80 Major Projects Capital Expenditures Estimate Boiler Environmental Compliance (SPBU) Capacity expansion (AMBU) Total $100 $150 - $170 $107 - $132 Major Projects One-Time Costs Estimate (in millions) 2015A 2016E 2017E Boiler Environmental Compliance (SPBU) - $8 $0 Capacity expansion (AMBU) - $2 $4 Total - $10 $4 Boiler Environmental Compliance Convert/Replace boilers to use natural gas Upgrade associated infrastructure including connecting to gas pipelines Total project cost of $85 million to $90 million (net of grants) Total spend to date of $68 million (net of grants) Total capital expenditures for Advanced Airlaid Materials capacity expansion project estimated at $80 million Expect start-up in Q with commercial shipments in Q Total spend to date of $17 million (net of grants) 14

15 Pension Plan Remains Overfunded (in millions) Est. Plan Assets $498.2 $545.7 $601.2 $638.0 $594.9 N/A Plan Liabilities $470.2 $528.4 $487.7 $577.6 $541.9 N/A Funded status $28.0 $17.3 $113.5 $60.4 $53.0 N/A Pension Expense $10.4 $11.6 $14.2 $6.7 $9.1 $5.5 Cash contributions* $0 $0 $0 $0 $0 $0 Discount Rate for Expense 5.80% 5.09% 4.28% 5.20% 4.22% 4.65% Return on Asset Assumption 8.5% 8.5% 8.5% 8.0% 8.0% 7.75% * Qualified plans only No cash contribution required in 2016 or expected for the foreseeable future. Note: The sum of individual amounts set forth above may not agree to the column totals due to rounding. 15

16 Financial Overview (in millions) Q2'15 Q2'16 Net Sales $410.8 $406.4 Adjusted operating income, excl. Pension $5.9 $8.4 Adjusted EBITDA, excl. Pension $21.8 $25.5 Free Cash Flow $0.5 ($11.9) Adjusted Free Cash Flow $5.7 $15.7 (in millions) Dec Jun Net Debt $255.4 $308.9 Cash Balance $105.3 $

17 Adjusted EPS (EPS Before Special Items) $0.70 $0.55 $0.45 $0.47 $0.52 $0.40 $0.34 $0.32 $0.30 $0.37 $0.12 $0.09 $0.04 $0.06 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Note: See appendix of this presentation for the reconciliation of adjusted EPS to its nearest GAAP measure. 17

18 Composite Fibers Operating Income $16.4 $18.9 $15.5 $19.3 $17.3 $18.1 $13.6 $14.7 $16.7 $14.1 $15.9 $15.3 $11.6 $11.2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q

19 Advanced Airlaid Materials Operating Income Includes full year of electricity grid credit in Falkenhagen totaling $1.7m $7.8 $7.5 $6.8 $6.6 $6.8 $5.9 $6.2 $5.8 $6.0 $5.2 $5.3 $4.5 $3.9 $3.1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q

20 Specialty Papers Operating Income $27.8 $18.3 $18.1 $15.6 $17.5 $15.9 $15.0 $7.3 $9.5 $2.4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 $(3.9) $(7.2) $(5.8) $(10.0)

21 Reconciliation of Non-GAAP Measures Adjusted EPS In thousands, except per share Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Net income Adjustments (pre-tax) $15,629 $933 $34,119 $16,478 $14,648 $4,669 $30,372 $19,557 $13,925 $2,848 $13,504 $34,298 $16,168 $1,965 Specialty Papers' environmental compliance ,088 Airlaid capacity expansion costs Fox River environmental matter , Asset impairment charge , , Timberland sales and related costs - - (282) (1,128) (812) (1,478) (1,586) (979) (2,654) (51) - (18,162) - - Workforce efficiency charges , , Acquisition and integration related costs 1,368 4, Total adjustments (pre-tax) 1,763 5,054 2,023 (895) (812) (1,179) 1, (1,155) ,515 (17,900) 181 1,289 Income tax (benefits) provision (24) (892) (11,760) (602) (1,357) (11) 604 (1,567) (4,212) 6,503 (56) (487) Total after-tax adjustments 1,739 4,162 (9,737) (1,497) (507) (872) (551) (1,004) 7,303 (11,397) Adjusted earnings $17,368 $5,095 $24,382 $14,981 $14,141 $3,797 $30,807 $19,724 $13,374 $1,844 $20,807 $22,901 $16,293 $2,767 Adjusted EPS $0.40 $0.12 $0.55 $0.34 $0.32 $0.09 $0.70 $0.45 $0.30 $0.04 $0.47 $0.52 $0.37 $

22 Reconciliation of Non-GAAP Measures Adjusted EBITDA, Excluding Pension Adjusted Operating Income, Excluding Pension In millions Q Q H H Net Income $ 2.8 $ 2.0 $ 16.8 $ 18.1 Taxes (3.1) (0.0) Net Pension Expenses Depreciation and Amortization Net Interest Expense EBITDA, excluding pension $ 21.3 $ 24.2 $ 63.3 $ 67.3 Adjustments / exclusions: Gains on Timberland Sales and Transaction Related Costs (0.1) - (2.7) - SPBU environmental compliance AMBU capacity expansion Acquisition and Integration Related Costs Workforce Efficiency Charge Adjusted EBITDA, excluding pension $ 21.8 $ 25.5 $ 62.7 $ 68.7 Depreciation and Amortization (15.6) (16.8) (31.6) (33.4) Other (Income)/Expense (0.3) (0.3) (0.1) 0.4 Adjusted Operating Income, excluding pension $ 5.9 $ 8.4 $ 31.1 $ 35.7 Note: The sum of individual amounts set forth above may not agree to the column totals due to rounding. 22

23 Reconciliation of Non-GAAP Measures Adjusted EBITDA, Excluding Pension In millions /30/2016 LTM Net Income $ 54.4 $ 42.7 $ 59.4 $ 67.2 $ 69.2 $ 64.6 $ 65.9 Taxes (20.9) Net Pension Expenses Depreciation and Amortization Net Interest Expense EBITDA, excluding Pension $ $ $ $ $ $ $ Adjustments / exclusions: Gains on Timberland Sales and Transaction Related Costs (0.4) (3.4) (9.2) (1.4) (4.9) (20.9) (18.2) SPBU Environmental Compliance Asset Impairment Charge Debt Redemption Costs Cellulosic Bio-fuel and Alternative Fuel Mixture Credits Acquisition and Integration Related Costs Workforce Efficiency Charge International Legal Entity Restructuring Write-off of Concert Indemnification Receivable Foreign Currency Hedge on Acquisition Price AMBU Capacity Expansion Fox River Environmental matter Adjusted EBITDA, excluding pension $ $ $ $ $ $ $ Note: The sum of individual amounts set forth above may not agree to the column totals due to rounding. 23

24 Reconciliation of Non-GAAP Measures Net Debt and Leverage Net debt & Leverage December 31 December 31 June 30 In millions Current Portion of Long-Term Debt $5.7 $7.4 $9.1 Long-Term Debt Total Debt Less: Cash (99.8) (105.3) (58.5) Net Debt $301.0 $255.4 $308.9 Net Debt $301.0 $255.4 $308.9 Divided by: TTM Adjusted EBITDA Leverage* 1.6x 1.6x 1.8x * - The above calculation is not intended to be used for purposes of calculating debt covenant compliance. 24