Colfax Reports Fourth Quarter 2018 Results

2/13, 12:30 PM (Source: GlobeNewswire)

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ANNAPOLIS JUNCTION, MD, Feb. 13, 2019 (GLOBE NEWSWIRE) --

  • Reported net income (loss) from continuing operations per diluted share of $0.36 versus $(1.53) in the prior year quarter; achieved adjusted net income per share of $0.69 versus $0.45 for 53% growth
  • Sales increased 13% with 11% organic growth in both business platforms; strong year-over-year adjusted operating margin expansion
  • Air & Gas Handling orders grew 12% including continued strong performance in Industrial applications
  • Recently completed successful financing for DJO Global acquisition announced in November 2018; process to explore potential strategic options of Air & Gas Handling business well underway

Colfax Corporation (NYSE: CFX), a leading diversified technology company, today announced its financial results for the fourth quarter of 2018.

The Company reported net income (loss) from continuing operations of $43 million or $0.36 per diluted share, compared to $(1.53) in the prior year quarter. Colfax also reported fourth quarter 2018 adjusted net income of $81 million or $0.69 per share compared to $0.45 per share for the same prior year period. Full year 2018 net income (loss) from continuing operations of $169 million, or $1.40 per diluted share, compared to $(0.59) in the prior year. Colfax also reported full year 2018 adjusted net income of $279 million, or $2.31 per share compared to $1.74 per share in the prior year.

Fourth quarter 2018 net sales of $985 million were 13% higher than the comparable period of 2017. Excluding acquisitions and foreign currency translation effects (FX), Fabrication Technology segment sales grew 11%, and Air & Gas Handling segment sales increased 11%. Fourth quarter 2018 Air & Gas Handling orders increased 12% to $412 million compared to the prior year period. Excluding acquisitions and FX, orders increased 13%.

Fourth quarter operating income was $49 million versus an operating loss of $(129) million in the prior year comparable quarter. Excluding goodwill and intangible asset impairment charges, and costs for restructuring and portfolio transformation, adjusted operating income was $92 million as compared with $69 million, and adjusted operating margins expanded 150 basis points to 9.4%. Air & Gas Handling adjusted operating margins grew 440 basis points to 12.1% as a result of restructuring actions, improved project margins and other business improvements. Fabrication Technology adjusted operating margins were 10.3% in the quarter or 11.2% excluding the October 2018 Gas Control Equipment acquisition. Fabrication Technology segment results included a property sale gain that was offset by other non-routine charges including Argentina hyper-inflation.

“Fourth quarter operating performance was in-line with expectations, and tax benefits contributed to outperformance,” said Matt Trerotola, Colfax President and CEO. “Fabrication Technology achieved strong sales growth from continued healthy market demand as well as new product launches, and pricing actions completed throughout the year. Air & Gas Handling drove another quarter of double-digit order growth with a significant mining project win and the successful long-term diversification into higher-growth end markets. We increased this business’ margins through restructuring actions and a deeper application of our business system to improve operational execution.”

In November 2018, Colfax announced the $3.15 billion acquisition of DJO Global as well as the launch of a project to explore strategic options for its Air & Gas Handling business. The DJO Global acquisition is expected to close in the first quarter of 2019 following receipt of regulatory approvals, and the Company recently completed the financing to support the acquisition and refinance existing bank loans. A process to explore the potential sale of the Air & Gas Handling business is well underway.

“Our acquisition of DJO is consistent with our strategy to create a higher margin, faster growing and less cyclical company,” said Mr. Trerotola. “DJO is a global leader in the attractive, growing orthopedic market, and we are excited about the potential to apply our business system to further improve the business’ growth and profitability. At the same time, we are improving the performance of our existing businesses and positioning our business portfolio to create sustained long-term value for our investors.”

Conference Call and Webcast

Colfax will host a conference call to provide details about its results today at 8:30 a.m. EST. The call will be open to the public by calling +1-877-303-7908 (U.S. callers) or +1-678-373-0875 (international callers) and referencing the conference ID number 5685539 or through webcast via Colfax’s website at www.colfaxcorp.com under the “Investors” section. Access to a supplemental slide presentation can also be found at the Colfax website under the same heading. Both the audio of this call and the slide presentation will be archived on the website later today and will be available until the next quarterly call.

About Colfax Corporation – Colfax Corporation is a leading diversified technology company that provides fabrication technology and air and gas handling products and services to customers around the world, principally under the ESAB and Howden brands. Colfax believes that its brands are among the most highly recognized in each of the markets that it serves. The Company uses its Colfax Business System (“CBS”), a comprehensive set of tools, processes and values, to create superior value for customers, shareholders and associates. Colfax is traded on the NYSE under the ticker “CFX.”

Non-GAAP Financial Measures and Other Adjustments

Colfax has provided in this press release financial information that has not been prepared in accordance with GAAP. These non-GAAP financial measures are adjusted net income, adjusted net income per share, adjusted operating income, organic sales growth, and organic order growth(decline). Adjusted operating income excludes Restructuring and other related items, Goodwill and intangible asset impairment charge and DJO acquisition-related costs. Adjusted net income and adjusted net income per share exclude Restructuring and other related charges, gain or loss on short term investments, Goodwill and intangible asset impairment charge, Pension settlement (gain) loss, acquisition-related intangibles amortization, and other non-cash acquisition related charges. The effective tax rates used to calculate adjusted net income and adjusted net income per share are 16.8% and 18.2% for the fourth quarter and year ended December 31, 2018, respectively. The effective tax rates used to calculate adjusted net income and adjusted net income per share are 20.1% and 25.7% for the fourth quarter and year ended December 31, 2017, respectively. Organic sales growth and organic order growth (decline) exclude the impact of acquisitions and foreign exchange rate fluctuations. These non-GAAP financial measures assist Colfax management in comparing its operating performance over time because certain items may obscure underlying business trends and make comparisons of long-term performance difficult, as they are of a nature and/or size that occur with inconsistent frequency or relate to discrete restructuring plans that are fundamentally different from the ongoing productivity improvements of the Company. Colfax management also believes that presenting these measures allows investors to view its performance using the same measures that the Company uses in evaluating its financial and business performance and trends.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information calculated in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP measures to their most directly comparable GAAP financial measures. A reconciliation of non-GAAP financial measures presented above to GAAP results has been provided in the financial tables included in this press release.

CAUTIONARY NOTE CONCERNING FORWARD LOOKING STATEMENTS

This press release may contain forward-looking statements, including forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements include, but are not limited to, statements concerning Colfax’s plans, objectives, expectations and intentions and other statements that are not historical or current fact. Forward-looking statements are based on Colfax’s current expectations and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in such forward-looking statements. Factors that could cause Colfax’s results to differ materially from current expectations include, but are not limited to, factors detailed in Colfax’s reports filed with the U.S. Securities and Exchange Commission including its 2017 Annual Report on Form 10-K under the caption “Risk Factors.” In addition, these statements are based on assumptions that are subject to change. This press release speaks only as of the date hereof. Colfax disclaims any duty to update the information herein.

The term “Colfax” in reference to the activities described in this press release may mean one or more of Colfax’s global operating subsidiaries and/or their internal business divisions and does not necessarily indicate activities engaged in by Colfax Corporation.


Colfax Corporation
Condensed Consolidated Statements of Income
Dollars in thousands, except per share data
(Unaudited)

 Three Months Ended Year Ended
 December 31, 2018 December 31, 2017 December 31, 2018 December 31, 2017
        
Net sales$985,226  $874,083  $3,666,812  $3,300,184 
Cost of sales681,370  606,400  2,533,973  2,270,709 
Gross profit303,856  267,683  1,132,839  1,029,475 
Selling, general and administrative expense218,074  198,790  818,210  732,340 
Restructuring and other related charges36,895  45,220  77,686  68,351 
Goodwill and intangible asset impairment charge  152,700    152,700 
Operating income (loss)48,887  (129,027)  236,943  76,084 
Pension settlement (gain) loss(39)  46,933  (39)  46,933 
Interest expense, net14,899  12,031  44,052  41,137 
Loss on short term investments    10,128   
Income (loss) from continuing operations before income taxes34,027  (187,991)  182,802  (11,986) 
(Benefit) provision for income taxes(11,511)  (3,574)  (21)  42,554 
Net income (loss) from continuing operations45,538  (184,417)  182,823  (54,540) 
Income (loss) from discontinued operations, net of taxes2,912  202,257  (28,350)  224,047 
Net income48,450  17,840  154,473  169,507 
Less: income attributable to noncontrolling interest, net of taxes2,556  4,550  14,277  18,417 
Net income attributable to Colfax Corporation45,894  13,290  140,196  151,090 
Net income (loss) per share - basic       
Continuing operations$0.37  $(1.53)  $1.40  $(0.59) 
Discontinued operations$0.02  $1.64  $(0.24)  $1.82 
Consolidated operations$0.39  $0.11  $1.16  $1.23 
Net income (loss) per share - diluted       
Continuing operations$0.36  $(1.53)  $1.40  $(0.59) 
Discontinued operations$0.02  $1.63  $(0.24)  $1.81 
Consolidated operations$0.39 *$0.10  $1.16  $1.22 

* Net income per share amount does not add due to rounding.


Colfax Corporation
Reconciliation of GAAP to Non-GAAP Financial Measures
Amounts in thousands, except per share data
(Unaudited)

 Three Months Ended Year Ended
 December 31, 2018 December 31, 2017 December 31, 2018 December 31, 2017
Adjusted Net Income and Adjusted Net Income Per Share 
Net income (loss) from continuing operations attributable to Colfax Corporation (1)$42,982  $(188,967)  $168,546  $(72,957) 
Restructuring and other related charges - pretax36,895  45,220  77,686  68,351 
Goodwill and intangible asset impairment charge - pretax  152,700    152,700 
Pension settlement (gain) loss - pretax(39)  46,933  (39)  46,933 
Acquisition-related amortization and other non-cash charges - pretax(2)23,062  18,728  81,785  60,091 
Portfolio transformation costs - pretax

6,578    6,578   
Loss on short term investments - pretax    10,128   
Tax adjustment (3)(28,382)  (18,779)  (65,392)  (38,789) 
Adjusted net income from continuing operations$81,096  $55,835  $279,292  $216,329 
Adjusted net income margin from continuing operations8.2%  6.4%  7.6%  6.6% 
Weighted-average shares outstanding - diluted117,926  124,137  120,795  123,996 
        
Adjusted net income per share continuing operations$0.69  $0.45  $2.31  $1.74 
        
Net income (loss) per share- diluted from continuing operations (GAAP)$0.36  $(1.53)  $1.40  $(0.59) 

__________
(1) Net income from continuing operations attributable to Colfax Corporation for the respective periods is calculated using Net income from continuing operations less the income attributable to noncontrolling interest, net of taxes.

(2) Includes amortization of acquired intangibles and fair value charges on acquired inventory.

(3) The effective tax rates used to calculate adjusted net income and adjusted net income per share for the fourth quarter and year ended December 31, 2018 are 16.8% and 18.2%, respectively. These rates exclude the benefits of a $11.7 million deferred tax asset valuation allowance reversal and the $10.8m reduction in Transition Tax. The effective tax rates used to calculate adjusted net income and adjusted net income per share for the fourth quarter and year ended December 31, 2017 are 20.1% and 25.7%, respectively.


Colfax Corporation
Reconciliation of GAAP to Non-GAAP Financial Measures
Dollars in thousands
(Unaudited)

 Three Months Ended Year Ended
 December 31, 2018 December 31, 2017 December 31, 2018 December 31, 2017
Continuing Operations       
Operating income (loss)$48,887  $(129,027) $236,943  $76,084 
Operating income (loss) margin5.0%  (14.8)%  6.5%  2.3% 
Restructuring and other related charges36,895  45,220  77,686  68,351 
Goodwill and intangible asset impairment charge  152,700    152,700 
Portfolio transformation costs6,578    6,578   
Adjusted operating income$92,360  $68,893  $321,207  $297,135 
Adjusted operating income margin9.4%  7.9%  8.8%  9.0% 


Colfax Corporation
Change in Sales, Orders and Backlog
Dollars in millions
(Unaudited)

     Air and Gas Handling
 Net Sales Orders
 $ % $ %
  
For the three months ended December 31, 2017$874.1    $368.5   
Components of Change:       
Existing businesses(1)92.8  10.6%  48.6  13.2% 
Acquisitions(2)60.5  6.9%  6.2  1.7% 
Foreign currency translation(42.2)  (4.8)%  (11.5)  (3.1)% 
 111.1  12.7%  43.3  11.8% 
For the three months ended December 31, 2018$985.2    $411.8   


     Air and Gas Handling
 Net Sales Orders Backlog at Period End
 $ % $ % $ %
            
As of and for the year ended December 31, 2017$3,300.2    $1,306.5    $893.4   
Components of Change:           
Existing businesses(1)127.5  3.9%  (30.3)  (2.3)%  (49.4)  (5.5)% 
Acquisitions(2)260.8  7.9%  136.9  10.5%  30.8  3.4% 
Foreign currency translation(21.7)  (0.7)%  23.3  1.7%  (42.6)  (4.8)% 
 366.6  11.1%  129.9  9.9%  (61.2)  (6.9)% 
As of and for the year ended December 31, 2018$3,666.8    $1,436.4    $832.2   

__________

(1) Excludes the impact of foreign exchange rate fluctuations and acquisitions, thus providing a measure of growth due to factors such as price, product mix and volume.

(2)  Represents the incremental sales, orders and order backlog from the acquisition completed in our Air and Gas Handling segment, and incremental sales for acquisitions completed in our Fabrication Technology segment.


Colfax Corporation
Condensed Consolidated Balance Sheets
Dollars in thousands, except share amounts
(Unaudited)

 December 31, 2018 December 31, 2017
ASSETS   
CURRENT ASSETS:   
Cash and cash equivalents$245,019  $262,019 
Short term investments  149,608 
Trade receivables, less allowance for doubtful accounts of $35,152 and $31,488989,418  970,199 
Inventories, net496,535  429,627 
Other current assets227,469  258,379 
Total current assets1,958,441  2,069,832 
Property, plant and equipment, net503,344  552,802 
Goodwill2,576,617  2,538,544 
Intangible assets, net1,012,913  1,017,203 
Other assets552,557  531,316 
Total assets$6,603,872  $6,709,697 
    
LIABILITIES AND EQUITY   
CURRENT LIABILITIES:   
Current portion of long-term debt$6,334  $5,766 
Accounts payable640,667  587,129 
Customer advances and billings in excess of costs incurred147,307  145,853 
Accrued liabilities405,037  358,632 
Total current liabilities1,199,345  1,097,380 
Long-term debt, less current portion1,192,408  1,055,305 
Other liabilities735,173  829,748 
Total liabilities3,126,926  2,982,433 
Equity:   
Common stock, $0.001 par value; 400,000,000 shares authorized; 117,275,217 and 123,245,827 issued and outstanding117  123 
Additional paid-in capital3,057,982  3,228,174 
Retained earnings991,838  846,490 
Accumulated other comprehensive loss(780,177)  (574,372) 
Total Colfax Corporation equity3,269,760  3,500,415 
Noncontrolling interest207,186  226,849 
Total equity3,476,946  3,727,264 
Total liabilities and equity$6,603,872  $6,709,697 


Colfax Corporation
Condensed Consolidated Statements of Cash Flows
Dollars in thousands
(Unaudited)

 Year Ended
 December 31, 2018 December 31, 2017
    
Cash flows from operating activities:   
Net income$154,473  $169,507 
Adjustments to reconcile net income to net cash provided by operating activities:   
Impairment of goodwill, intangibles and property, plant and equipment7,086  183,751 
Depreciation and amortization141,877  132,203 
Stock-based compensation expense25,103  21,548 
Non-cash interest expense4,415  4,519 
Loss on short term investments10,128   
Deferred income tax (benefit) expense

(66,573)  12,066 
Gain on sale of property, plant and equipment(21,108)  (11,243) 
Loss (Gain) on Sale of Business4,337  (308,388) 
Pension settlement (gain) loss(39)  46,933 
Changes in operating assets and liabilities:   
Trade receivables, net(72,405)  (44,345) 
Inventories, net(47,156)  (34,023) 
Accounts payable70,085  10,266 
Customer advances and billings in excess of costs incurred18,481  (24,388) 
Changes in other operating assets and liabilities(2,337)  60,364 
Net cash provided by operating activities226,367  218,770 
Cash flows from investing activities:   
Purchases of property, plant and equipment(69,646)  (68,765) 
Proceeds from sale of property, plant and equipment34,829  21,224 
Acquisitions, net of cash received(290,918)  (346,764) 
Proceeds from sale of business, net18,404  490,308 
Sale of short term investments, net139,480   
Other, net  (6,127) 
Net cash (used in) provided by investing activities(167,851)  89,876 
Cash flows from financing activities:   
Payments under term credit facility(131,250)  (65,628) 
Proceeds from borrowings on revolving credit facilities and other1,271,051  1,046,457 
Repayments of borrowings on revolving credit facilities and other(981,563)  (1,632,658) 
Proceeds from borrowings on senior unsecured notes  374,450 
Proceeds from issuance of common stock, net4,699  6,944 
Common stock repurchases(200,000)   
Other(10,090)  (10,012) 
Net cash used in financing activities(47,153)  (280,447) 
Effect of foreign exchange rates on Cash and cash equivalents(28,363)  12,090 
(Decrease) increase in Cash and cash equivalents(17,000)  40,289 
Cash and cash equivalents, beginning of period262,019  221,730 
Cash and cash equivalents, end of period$245,019  $262,019 
    
Supplemental Disclosure of Cash Flow Information:   
Non-cash consideration received from sale of business$  $206,415 
Interest payments50,389  43,496 
Income tax payments, net97,452  70,668 


Contact:

Kevin Johnson, Vice President
Colfax Corporation
+1-301-323-9090
investorrelations@colfaxcorp.com

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