Q EARNINGS CALL February 21, :00 am ET REVITALIZED FOR GROWTH

Transcription

1 Q EARNINGS CALL February 21, :00 am ET REVITALIZED FOR GROWTH

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 SVP and Chief Financial Officer Page 3

4 2017: A Year of Great Progress Q and Full-Year Revenue and Earnings performance in line with expectations; Strong momentum going into 2018 Implemented Vision 2022 roadmap Closed on Novel Ingredients and NutraGenesis acquisitions Advanced cultural and organizational transformation Operational Excellence initiatives delivered bottom-line benefits Commercial Excellence positioning Innophos as partner of choice Developing innovative solutions to better serve customers 2018 guidance for double-digit revenue and adjusted EPS growth Page 4

5 2017 Achievements Enhancing Growth & Earnings Profile Strategic Pillars activities provided strategic focus and drove performance Operational Excellence Completed Phase 1 delivering total of $16 million of savings Delivered $3m of Phase 2 savings in On track to achieve $13m total Phase 2 savings Commercial Excellence Market focused global sales organization 3-in-the-box model in place Strategic Growth Completed two strategic acquisitions Novel Ingredients and NutraGenesis Actively evaluating robust pipeline of opportunities that further build upon FHN platform and align Innophos with consumer mega-trends Page 5

6 Vision 2022 Strategy Enhancing Our Growth And Earnings Profile Earnings Conference Call Fourth Quarter 2017 February 21, 2018 Strategic Approach 5% 20% Strengthen the core 75% Pursue inorganic growth Food, Health and Nutrition Industrial Specialties Other 2022 Projected Revenue: $1.25bn Forge strategic partnerships Continuous improvement *Please refer to Appendix for reconciliation of non-gaap items. Page 6

7 Strategic Growth in Action Two Complementary Acquisitions Novel Ingredients and NutraGenesis strengthen and grow Innophos FHN platform Combination creates nearly $0.5 billion Food, Health & Nutrition (FHN) platform; 60% of total Company sales Combined Advances Vision 2022 growth strategy and accelerates innovation Expands Innophos offering in high-growth Nutrition end-markets 33% 7% 60% Enhances branded ingredients portfolio Capitalizing on cross-selling and new business opportunities Food, Health and Nutrition Industrial Specialties Other Page 7

8 Building Bench Strength, Making a Positive Social Impact Organizational and cultural transformation is foundation to strategic pillars Continued building bench strength across all levels of the organization Further strengthened leadership Eugenia Erlij, VP of Marketing Nicolas Meyrial VP of Sales - Nutrition Rob Sklans, SVP and Chief HR Officer Committed to having a positive social impact Positive SOCIAL IMPACT Recognized for our commitment to diversity Champion of STEM education Page 8

9 Q Performance Highlights Q4 $m Variance Sales % Gross Profit Gross Margin % 17% -286 bps Net Income (11) (21) -220% Adj. Net Income % Adj. EBITDA Adj. EBITDA% % 14% -164 bps Diluted EPS (0.58) (1.05) -222% Adj. Diluted EPS OCF 34 (23) -41% FCF 17 (29) -63% $4m Adjusted EBITDA ($ Millions) ($3m) A Vol/Mix Price Inp Cost Mfg SG&A FX 2017A Net Income impacted by $17m of tax reform charges for foreign earnings toll charges and re-measurement of deferred tax assets Adjusted EBITDA of $27m up $1m YOY, margin of 14% down 164 bps YOY Sales improvement due to acquisitions; base business volumes and selling prices stabilized Manufacturing impacted by $4m of maintenance stoppage costs which decreased margins by 221 bps SG&A and manufacturing were unfavorable due to inclusion of acquisitions in cost base Operational Excellence Phase 2 savings of $2m in the quarter Good OCF/FCF for the current quarter but comps down YOY due to higher WC reductions and tax refunds in the prior year Page 9

10 Q Sales Revenue And Gross Margin $250 22% 22% 22% 25% Sales Revenue Bridge Q4 YTD $m % $m % $200 20% 17% 20% Volume/Mix 26 15% 25 3% Price (1) --- (28) -4% $150 15% YOY Variance 25 15% (3) -1% $100 $ % 5% Quarterly Comments Sales Revenue up 15% YOY due to the Novel and NutraGenesis acquisitions. Base business volumes and selling prices stabilized Food, Health and Nutrition: up 29% YOY due to acquisitions $0 Q4 Q1 Q2 Q3 Q4 0% Industrial Specialties: up 4% on higher volumes that exceeded price competition in technical grade products 2016 Sales ($m) Gross Margin (% of Sales) 2017 Other sales down 16% on reduced volumes to low value fertilizer markets which led to improved pricing Page 10

11 $15 $10 $5 $0 ($5) ($10) ($15) $40 $30 $20 $10 $0 Q Earnings 16% Net Income Adjusted EBITDA* 17% 17% % (11) Q4 Q1 Q2 Q3 Q4 14% 27 Q4 Q1 Q2 Q3 Q4 Adjustment ($m) Reported ($m) Adjusted EBITDA margin (% of Sales) 25% 20% 15% 10% 5% 0% Adj. EBITDA Bridge Q4 Quarterly Comments YTD $m % $m % Volume/Mix 5 19% 2 2% Price (1) -4% (28) -23% Input costs 7 27% 36 30% Manufacturing (6) -23% (4) -3% SG&A (4) -15% (8) -7% FX YOY Variance 1 4% (2) -2% Net income down $21m versus prior year due to $17m of tax reform charges and $5m of pre-tax purchase accounting and M&A related expenses. Adjusted Net Income flat YOY and margin of 5% down 84 bps due primarily to maintenance stoppage costs in the current period Adjusted EBITDA up $1m YOY. Margin of 14% down 164 bps YOY due to 221 bps of maintenance stoppage effects Selling prices and base business volumes both stabilized *Excl. $1.8m in Q4 2016, $1.7m in Q1 2017, $1.8m in Q2 2017, $6.5m in Q and $5.9m in Q Page 11

12 $12 0 $10 0 $80 $60 $40 $20 $0 Earnings Conference Call Fourth Quarter 2017 February 21, % 20% 15% 10% 5% 0% $12 0 $10 0 $80 $60 $40 $20 $0 25% 20% 15% 10% 5% 0% Q Performance By Segment 7% Food, Health and Nutrition Industrial Specialties 33% Q Sales $193m 60% 22% 18% 20% 19% % % 16% 11% 14% 4% Food, Health and Nutrition Industrial Specialties Other Q4 Q1 Q2 Q3 Q4 Q4 Q1 Q2 Q3 Q4 Sales Revenue ($m) Adj. EBITDA % of Sales 36% 9% FY 2017 Sales $722m 55% Q4 Sales Bridge FHN IS Other Total % % % % Volume/Mix 27 29% 4 8% (5) -31% 26 15% Price (1) -1% (2) -4% 2 14% (1) % % 13 84% % YOY Variance 26 29% 2 4% (3) -16% 25 15% Page 12

13 Q Other Items Item Q Q Comment Net interest expense $2m $2m Flat due to higher debt levels and leverage related to recent acquisitions, offset by lower applicable margins Effective tax rate 256% (17% excluding tax reform) 31% Artificially inflated due to non-recurring tax reform charges. Favorable Q417 rate excl. tax reform due to exchange rate effects on Mexico permanent items Capital expenditures $17m $11m Increase due to completion of Geismar deep well, some initial payments for 2018 capital program equipment and maintenance stoppage Dividends $9m $9m $1.92/sh. annual dividend maintained Net Debt $281m $132m Net Debt / LTM Adjusted EBITDA 2.3x 1.1x Increase due to $151m spent on Novel and NutraGenesis acquisitions Increase due to acquisitions completed in second half of 2017 Page 13

14 Q Earnings Per Share Diluted EPS (0.58) Q4 Q1 Q2 Q3 Q4 Earnings per share Q4 YTD 2016 Diluted Adjustments Adj. Diluted YOY Variance --- (0.09) 2017 Adj. Diluted Adjustments Diluted (0.58) 1.13 YOY Variance Breakdown (Adj. Diluted) Adjusted Diluted EPS* Volume/mix Price (0.04) (1.44) Costs (0.37) 1.16 FX Operational items 0.04 (0.12) Q4 Q1 Q2 Q3 Q Diluted EPS ($ per share) Adjusted Diluted EPS ($ per share) 2017 Financing (0.02) 0.04 Tax Shares outstanding --- (0.01) Other (0.14) (0.17) Other items (0.04) 0.03 *Excl. pre-tax costs of $1.3m in Q4 2016, $0.9m in Q1 2017, $0.2m in Q2 2017, $5.7m in Q and $5.0m in Q Also excludes $17.3m of tax expense related to tax reform in Q Page 14

15 Q Cash Delivery Cash from Operations ($ Millions) (11) Q4 Q1 Q2 Q3 Q4 Free Cash Flow ($ Millions) Cash Flow Bridge Q4 YTD $m Variance $m Variance Adj. EBITDA % 120 (2) -2% Working Cap 10 (14) -57% (16) (70) BIG Tax (1) (8) -113% (15) 13 47% Interest (2) % (7) 1 16% Other --- (3) BIG (2) (1) -105% OCF 34 (23) -41% 81 (58) -42% Capex (17) (6) -54% (41) (5) -13% FCF 17 (29) -63% 39 (63) -62% 46 Q Q4 (19) Q2 Q3 Q Opening FCF 46 (19) Financing* (26) (4) (19) (20) (21) Closing Quarterly Comments Good cash from operations at $34m, but lower YOY due to significant 2016 working capital reductions and tax refunds Free cash flow of $17m used for dividends and some debt reduction after borrowing $28m for NutraGenesis acquisition Capital expenditure of $17m in the quarter, up $6m YOY due to the completion of the Geismar deep well project, some initial payments for 2018 capital program equipment and Q4 maintenance stoppage *Includes cash spent on acquisition of businesses Page 15

16 2018 Outlook 2018 revenue growth of 12% to 14% due to acquisitions, favorable nutrition market growth and stabilization in the base business Effective tax rate of 27% to 29%, lower than recent years due primarily to tax reform GAAP diluted EPS expected to more than double Adjusted EPS and Adjusted EBITDA are expected to grow by 10% to 14% and 15% to 17%, respectively. Adjusted EBITDA margin is expected to approximate 17% of sales Adjusted EBITDA is forecasted to be weighted 45% toward H1 and 55% toward H2 given the phasing of the benefits of the strategic value chain repositioning and manufacturing optimization program as well as the integration of the acquisitions completed in Expect to only modestly increase the use of cash to make targeted 2018 capital investments to support the aforementioned program Our proactive selling price increase program implemented in Q417 is well underway and expected to sufficiently offset forecasted input cost increases On track to deliver $4 million of acquisition cost synergies and $10 million phase 2 Operational Excellence savings Page 16

17 Executing on Strategy to Drive Shareholder Value Clear strategic direction Financial strength to achieve our goals 2018 priorities: Pursue inorganic growth opportunities in high growth FHN markets Execute on Strategic Value Chain & Manufacturing Optimization program Develop new and innovative science-backed solutions Complete Phase 2 Operational Excellence Past Present REVITALIZED FOR GROWTH Future Page 17

18 Q EARNINGS CALL February 21, :00 am ET Q&A Page 18

19 Non-GAAP Reconciliations Long Term Targets 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 less total current liabilities, and defines operating working capital as net working capital less taxes less interest. Our current 2018 guidance assumes that GAAP EPS equals Adjusted EPS. Page 19

20 Non-GAAP Reconciliations Adjusted EBITDA Reconciliation to Net Income (Dollars in thousands) Three Months Ended December 31, Year Ended December 31, Net Income ($11,283) $9,382 $22,445 $47,971 Interest expense, net 2,572 2,042 7,008 7,669 Provision for income taxes 18,515 4,212 34,192 22,347 Depreciation & amortization 11,395 8,872 40,404 37,479 EBITDA 21,199 24, , ,466 Adjustments Non-cash stock compensation ,823 3,077 Foreign exchange loss (gain) (543) 684 (578) 1,111 Severance/Restructuring expense (income) 358-2,982 1,465 Inventory fair value adjustment 2,905-4,300 - M&A related costs 2,325-5,279 - Operating expenses related to refinancing Adjusted EBITDA $27,070 $26,270 $119,855 $121,704 Percent of Sales 14.0% 15.7% 16.6% 16.8% Adjusted Net Income Reconciliation to Net Income (Dollars in thousands, except EPS) Three Months Ended December 31, Year Ended December 31, Net Income (loss) ($11,283) $9,382 $22,445 $47,971 Pre-tax Adjustments Foreign exchange loss (gain) (543) 684 (578) 1,110 Severance/Restructuring expense (income) 358-2,982 1,465 Inventory fair value adjustment 2,905-4,300 - M&A related costs 2,325-5,279 - Operating expense related to refinancing Total Pre-tax Adjustments 5,045 1,269 11,983 3,160 Income tax effects on Adjustments , Addback tax reform charges 17,286-17,286 - Adjusted Net Income $10,191 $10,257 $48,617 $50,155 Adjusted Diluted Earnings Per Participating Share $0.52 $0.52 $2.46 $2.55 Page 20

21 Non-GAAP Reconciliations Segment Adjusted EBITDA Reconciliation to EBITDA (Dollars in thousands) Three Months Ended December 31, 2017 Three Months Ended December 31, 2016 FHN IS Other Total FHN IS Other Total EBITDA $18,058 $2,167 $974 $21,199 $18,802 $6,095 ($389) $24,508 Non-cash stock compensation Foreign exchange loss (gain) (75) 0 (468) (543) Severance/Restructuring exp.(inc.) Inventory fair value adjustment 2, , M&A related costs 0 0 2,325 2, Operating exp. related to refinancing Adjusted EBITDA $21,565 $2,626 $2,879 $27,070 $19,359 $6,554 $357 $26,270 Year Ended December 31, 2017 Year Ended December 31, 2016 FHN IS Other Total FHN IS Other Total EBITDA $67,156 $33,833 $3,060 $104,049 $78,128 $36,029 $1,309 $115,466 Non-cash stock compensation 2,164 1, ,823 1,761 1, ,077 Foreign exchange loss (gain) (176) 0 (402) (578) 0 0 1,111 1,111 Severance/Restructuring exp.(inc.) 1,505 1, , ,125 1,465 Inventory fair value adjustment 4, , M&A related costs 0 0 5,279 5, Operating exp. related to refinancing Adjusted EBITDA $74,949 $36,781 $8,125 $119,855 $80,504 $37,521 $3,679 $121,704 Page 21

22 Non-GAAP Reconciliations Cash From Operations Reconciliation to EBITDA (Dollars in thousands) Three Months Ended December 31, Year Ended December 31, EBITDA $21,199 $24,508 $104,049 $115,466 Operating Working Capital 15,246 25,224 (3,786) 57,611 Taxes paid (866) 6,892 (14,890) (27,945) Interest paid (2,462) (2,747) (6,753) (8,045) All other including non-cash stock compensation and changes in other 843 3,428 1,997 2,022 long-term assets and liabilities Net cash provided from operations $33,960 $57,305 $80,617 $139,109 Cash From Operations Reconciliation to Adjusted EBITDA (Dollars in thousands) Three Months Ended December 31, Year Ended December 31, Adjusted EBITDA $27,070 $26,270 $119,855 $121,704 Operating Working Capital 10,201 23,955 (15,769) 54,450 Taxes paid (866) 6,892 (14,890) (27,945) Interest paid (2,462) (2,747) (6,753) (8,045) All other including changes in other long-term assets and liabilities 17 2,935 (1,826) (1,055) Net cash provided from operations $33,960 $57,305 $80,617 $139,109 Free Cash Flow Reconciliation to Cash From Operations (Dollars in thousands) Three Months Ended December 31, Year Ended December 31, Cash From Operations $33,960 $57,305 $80,617 $139,109 Capital Expenditures (16,837) (10,924) (41,487) (36,599) Free Cash Flow $17,123 $46,381 $39,130 $102,510 Page 22

23 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 23