Joe Gomes, Managing Director, Equity Research Analyst, Generalist , Noble Capital Markets, Inc.
Joshua Zoepfel, Research Associate, Noble Capital Markets, Inc.
Refer to the full report for the price target, fundamental analysis, and rating.
Moving Forward, but Cyclicality Still Here. CVG is making progress on the business transformation to a less cyclical, higher margin, faster growing business, as evidenced by the 17% y-o-y growth in the Electrical Systems business. But the cyclicality of the Vehicle Solutions business remains, and will be a headwind in 2024.
Continuing to Add New Business. CVG recorded approximately $15 million of new business wins in the quarter, increasing the YTD number to $140 million, almost to the 2023 goal of $150 million of new business wins. The majority of new business wins continue to be within the Electrical Systems segment.
Equity Research is available at no cost to Registered users of Channelchek. Not a Member? Click ‘Join’ to join the Channelchek Community. There is no cost to register, and we never collect credit card information.
This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).
*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision.
ACCO Brands Corporation is one of the world’s largest designers, marketers and manufacturers of branded academic, consumer and business products. Our widely recognized brands include AT-A-GLANCE®, Esselte®, Five Star®, GBC®, Kensington®, Leitz®, Mead®, PowerA®, Quartet®, Rapid®, Rexel®, Swingline®, Tilibra®, and many others. Our products are sold in more than 100 countries around the world. More information about ACCO Brands, the Home of Great Brands Built by Great People, can be found at www.accobrands.com.
Joe Gomes, Managing Director, Equity Research Analyst, Generalist , Noble Capital Markets, Inc.
Joshua Zoepfel, Research Associate, Noble Capital Markets, Inc.
Refer to the full report for the price target, fundamental analysis, and rating.
Continued Margin Expansion. Gross profit margin increased 400 basis points to 32.3%, primarily due to the cumulative effect of global price increases and cost reduction actions. Year-to-date, ACCO has delivered 380 basis points of gross margin improvement and is now back to 2019 gross margin rate.
But Environment Is Challenged. Macroeconomic weakness, with prolonged softer global demand for technology accessories, and a stronger U.S. dollar, led to lower than expected sales in the quarter. In addition, major retailers in North America continue to focus on holding lower inventory levels, impacting ACCO revenue. The challenged environment is expected to continue at least through the fourth quarter.
Equity Research is available at no cost to Registered users of Channelchek. Not a Member? Click ‘Join’ to join the Channelchek Community. There is no cost to register, and we never collect credit card information.
This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).
*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision.
The ongoing fighting between Israel and Hamas risks causing substantial disruptions to the global oil market, threatening to send crude prices to unprecedented levels according to a new warning from the World Bank.
In a worst-case scenario where the conflict escalates and key oil producing nations impose embargos, oil prices could surge as high as $157 per barrel. That would far surpass the previous record of $147 set in 2008 and have dramatic ripple effects across industries.
The World Bank laid out various scenarios in its latest commodity outlook report. In a “large disruption” comparable to the 1973 Arab oil embargo, global supplies could drop by 6 to 8 million barrels per day. This massive shortage of oil on the international market would cause prices to jump by 56-75%, catapulting prices up to the $140 to $157 range.
The crisis in 1973 quadrupled oil prices after Arab producers like Saudi Arabia and Iraq imposed an export ban on nations supporting Israel in the Yom Kippur War. While neither Israel nor Hamas are major oil exporters themselves, provoking producers in the surrounding region poses a major risk.
Surging crude prices would directly impact consumers at the gas pump. Each $10 rise in the cost of a barrel of crude translates to about a 25 cent increase in gas prices according to analysts. That means if oil hit $150, gas could surge above $4 per gallon nationally, far exceeding the recent highs earlier this year. Areas like California would likely see prices cross $5 or even $6 per gallon.
High fuel costs not only hurt commuters but drive up expenses for the transportation industry. Airlines would be forced to raise ticket prices to cover the inflated expense of jet fuel. Trucking and freight companies would also pass on the costs through higher shipping rates, feeding inflation throughout the economy.
Plastics and chemical manufacturers dependent on petrochemical feedstocks would see margins squeezed as oil prices stay elevated. Other goods with significant transportation expenses embedded in their supply chains would also see prices increased.
The pain would not be limited to oil-reliant sectors. As consumers are forced to spend more on transportation and energy needs, discretionary income gets reduced. This results in lower spending at retailers, restaurants and entertainment venues. Tourism also declines as pricier gas dissuades vacations and trips.
In essence, persistently high oil prices threaten to stall the economy by depressing spending, raising inflation and input costs across many industries all at once. While the US is now a net exporter of crude and refined fuels, it remains exposed to global price movements shaped by international events.
The World Bank warned that an escalation of the Israel-Hamas tensions could create a dual supply shock when combined with reduced oil and gas exports from Russia. Global markets are still reeling from the loss of Russian energy supplies due to Western sanctions and bans.
Prior to Russia’s invasion of Ukraine, investment bank Goldman Sachs had predicted oil could reach $100 per barrel this year. The fighting has already caused prices to spike above $120 at points, showing how geopolitical instability in one region can roil prices worldwide.
The grim scenarios described by the World Bank underscore the interconnectedness binding energy markets across the globe. An event thousands of miles away increasing instability in the Middle East could end up costing American consumers, businesses, and the economy dearly.
While the baseline forecast calls for prices to moderate over the next year, an expansion of the Israel-Hamas conflict could upend those predictions. Investors, businesses, and policymakers must watch the situation closely to prepare for the economic impacts of further turmoil.
All parties involved must also be cognizant of how violence that disrupts oil production and trade risks global fallout. Diplomatic solutions take on new urgency to prevent a worst-case scenario that would inflict widespread hardship as oil races past $150 per barrel into uncharted territory.
Cargo Therapeutics is gearing up for an initial public offering (IPO) that could be one of the biggest biotech listings in 2023. The cancer-focused gene therapy startup aims to raise around $300 million through the sale of 18.75 million shares priced between $15 to $17.
If successful, it would be a rare bright spot in an otherwise dreary IPO market for life science companies this year. Cargo’s offering comes at a time when biotech IPOs have slowed to a trickle amid volatile market conditions.
The company is developing CRG-022, an experimental CD22 CAR-T therapy for certain blood cancers. Cargo’s candidate takes a patient’s own T-cells and engineers them to target and kill cancerous B-cells expressing the CD22 antigen.
Cargo hopes CRG-022 can benefit patients with large B-cell lymphoma who have failed previous CD19 CAR-T treatment. It initiated a potentially pivotal Phase 2 trial for this population in September. Data from the study could support regulatory approval in 2025.
Beyond blood cancers, Cargo intends to study CRG-022 in solid tumors expressing CD22. This includes some forms of breast, lung, colorectal and liver cancers. The company believes its therapy may demonstrate activity in a wider range of advanced cancers than existing CAR-Ts.
Proceeds from the IPO will help fund Cargo’s clinical programs and earlier R&D. According to its SEC filing, the company had $42.4 million in cash at the end of June 2022 but accumulated losses exceeding $77 million. The capital infusion will provide runway through the expected interim Phase 2 data readout.
Cargo’s offering will be a key test of investor appetite for preclinical biotech IPOs. These platform companies developing multiple experimental drugs based on a core technology have fallen out of favor recently.
However, Cargo could attract more interest with CRG-022 already in mid-stage testing and potential for near-term commercialization. The FDA has approved several CAR-T cell therapies over the past five years, providing a regulatory pathway for followers like Cargo.
Companies pursuing IPOs have been forced to scale back valuations and offering sizes. Those that do list are often trading below issue price. So far in 2022, only around 15 biotechs have braved public markets compared to 60+ in recent years.
Yet some experts believe companies with innovative therapies and strong data can still obtain IPO financing. Cargo will provide a barometer of latent investor demand for biotech offerings amid the downturn.
A successful IPO could potentially reinvigorate biotech’s depressed financing environment. It may encourage other firms contemplating IPOs to move forward with planned deals.
Conversely, a lackluster response would signal biotech IPOs remain out-of-favor for now. This could lead companies to instead pursue private financing to advance programs and extend runways.
In any case, Cargo’s listing will generate insight into the health of biotech capital markets. The deal’s performance could significantly influence investment decisions and sentiment around the battered sector heading into 2023.
All eyes will be on whether one of biotech’s most promising young companies can buck the prevailing IPO trends. Cargo’s offering will help determine if the window for issuance might finally be opening back up.
STAMFORD, Conn., Nov. 02, 2023 (GLOBE NEWSWIRE) — Eagle Bulk Shipping Inc. (NYSE: EGLE) (“Eagle” or the “Company”), one of the world’s largest owner-operators within the midsize drybulk vessel segment, today reported financial results for the quarter ended September 30, 2023.
Quarter Highlights:
Generated Revenues, net of $82.6 million
Achieved TCE(1) of $11,482 based on TCE Revenue(1) of $54.1 million
Incurred a net loss of $5.2 million, or $0.55 per basic share
Adjusted net loss(1) of $2.9 million, or $0.31 per basic share(1)
Generated Adjusted EBITDA(1) of $15.6 million
Completed the sale of the Sankaty Eagle, a non-core, non-scrubber-fitted Supramax bulkcarrier
Declared a quarterly dividend of $0.10 per share for the third quarter of 2023
Dividend is payable on November 22, 2023 to shareholders of record at the close of business on November 14, 2023
1These are non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures has been provided in the financial tables included in this press release. An explanation of these measures and how they are calculated are also included below under the heading “Supplemental Information – Non-GAAP Financial Measures.”
Recent Developments:
Coverage position for the fourth quarter of 2023 is as follows:
68% of owned available days fixed at an average TCE of $15,655
Eagle’s CEO Gary Vogel commented, “Although our financial results for the third quarter are reflective of the headwinds faced by the broader industry, we were able to once again outperform the BSI (Baltic Supramax Index) by 14%, achieving a net TCE of $11,482. Specifically, market fundamentals remained challenging during the quarter, with the BSI averaging just over $10,000 for the period.
Freight rates bottomed as we moved through the quarter, with September benefiting from a strong rally as the index reached almost $15,000. The Atlantic market was the main driver for this recovery in rates, catalyzed by robust exports of soybeans and corn out of Brazil following this season’s record crop. Looking ahead to the fourth quarter, spot rates have come off from their recent highs, but remain supported with the BSI averaging approximately $13,700 quarter-to-date. Further, as of today, we have fixed approximately 68% of our owned available days, at a net TCE of $15,655.
During the quarter, we continued to focus on operational efficiencies and improvements. Our OPEX costs were down sequentially for the third quarter in a row and Eagle’s entire fleet is now leveraging SoFar Ocean’s advanced voyage optimization system achieving meaningful fuel and emissions reductions.
We remain positive about the medium-term prospects for the drybulk industry, particularly given strong supply side fundamentals, macroeconomic risks notwithstanding. With a fully modern fleet of 52, predominately scrubber-fitted vessels, and approximately $170 million in total liquidity, Eagle is well-positioned to continue to take advantage of opportunities for the benefit of our stakeholders.”
Fleet Operating Data
Three Months Ended
Nine Months Ended
September 30, 2023
September 30, 2022
September 30, 2023
September 30, 2022
Ownership Days
4,808
4,831
14,425
14,424
Owned Available Days
4,708
4,588
13,791
13,599
Fleet Development
Sankaty Eagle, a 2011-built Supramax (58k DWT)
Sold in second quarter of 2023 for $16.4 million and delivered to new owners in third quarter of 2023
Owned fleet totals 52 vessels (96% scrubber-fitted) with an average age of 10.0 years
Results of Operations for the three and nine months ended September 30, 2023 and 2022
For the three months ended September 30, 2023, the Company reported a net loss of $5.2 million, or basic and diluted net loss per share of $0.55. In the comparable quarter of 2022, the Company reported net income of $77.2 million, or basic and diluted net income per share of $5.94 and $4.77, respectively.
For the three months ended September 30, 2023, the Company reported an adjusted net loss of $2.9 million, which excludes net unrealized losses on FFAs and bunker swaps of $2.2 million, or basic and diluted adjusted net loss per share of $0.31. In the comparable quarter of 2022, the Company reported adjusted net income of $74.3 million, which excludes net unrealized gains on FFAs and bunker swaps of $7.1 million and a loss on debt extinguishment of $4.2 million, or basic and diluted adjusted net income per share of $5.72 and $4.58, respectively.
For the nine months ended September 30, 2023, the Company reported net income of $16.1 million, or basic and diluted net income per share of $1.38 and $1.36, respectively. For the nine months ended September 30, 2022, the Company reported net income of $224.7 million, or basic and diluted net income per share of $17.31 and $13.86, respectively.
For the nine months ended September 30, 2023, the Company reported adjusted net income of $17.2 million, which excludes net unrealized losses on FFAs and bunker swaps of $0.4 million and impairment of operating lease right-of-use assets of $0.7 million, or basic and diluted adjusted net income per share of $1.47 and $1.44, respectively. For the nine months ended September 30, 2022, the Company reported adjusted net income of $220.4 million, which excludes net unrealized gains on FFAs and bunker swaps of $8.5 million and a loss on debt extinguishment of $4.2 million, or basic and diluted adjusted net income per share of $16.97 and $13.59, respectively.
Revenues, net
Revenues, net for the three months ended September 30, 2023 were $82.6 million compared to $185.3 million for the comparable quarter of 2022. Revenues, net decreased $102.7 million primarily due to lower rates on both time and voyage charters, driven by a decline in the drybulk market.
Revenues, net for the nine months ended September 30, 2023 were $289.2 million compared to $568.4 million for the nine months ended September 30, 2022. Revenues, net decreased $279.2 million primarily due to lower rates on both time and voyage charters, driven by a decline in the drybulk market.
Voyage expenses
Voyage expenses for the three months ended September 30, 2023 were $23.8 million compared to $40.8 million for the comparable quarter of 2022. Voyage expenses decreased $17.0 million primarily due to a $15.0 million reduction in bunker consumption expenses primarily due to decreases in voyage charters and bunker prices and a $1.2 million decrease in broker commissions due to lower freight rates driven by a decline in the drybulk market.
Voyage expenses for the nine months ended September 30, 2023 were $82.7 million compared to $120.7 million for the nine months ended September 30, 2022. Voyage expenses decreased $38.0 million primarily due to a $25.4 million reduction in bunker consumption expenses due to decreases in voyage charters and bunker prices, a $9.1 million reduction in port expenses due to a decrease in voyage charters and a $3.5 million decrease in broker commissions due to lower freight rates driven by a decline in the drybulk market.
Vessel operating expenses
Vessel operating expenses for the three months ended September 30, 2023 were $28.8 million compared to $33.1 million for the comparable quarter of 2022. Vessel operating expenses decreased $4.3 million primarily due to a $2.6 million decrease in repair costs, a $0.8 million decrease in lube costs driven by lower purchase volume and a $0.5 million decrease in the cost of stores and spares driven by lower purchases.
Vessel operating expenses for the nine months ended September 30, 2023 were $91.1 million compared to $88.2 million for the nine months ended September 30, 2022. Vessel operating expenses increased $2.9 million primarily due to a $3.2 million increase in crewing costs driven by higher compensation and increased crew changes as a result of crewing manager transitions and a $1.4 million increase in costs driven by certain repairs and discretionary spending on upgrades to six vessels, including newly acquired ships, partially offset by a $1.3 million decrease in lube costs driven by lower purchase volume and a $0.4 million decrease in the cost of stores and spares driven by lower purchases.
Adjusted vessel operating expenses(2), which excludes one-time, non-recurring expenses related to vessel acquisitions, charges relating to a change in the crewing manager on some of the Company’s vessels and discretionary hull and hold upgrades for the three months ended September 30, 2023 were $28.5 million compared to $31.7 million for the comparable quarter in 2022. Adjusted vessel operating expenses decreased $3.2 million primarily due to a $1.5 million decrease in repair costs, a $0.8 million decrease in lube costs driven by lower purchase volume and a $0.5 million decrease in the cost of stores and spares driven by lower purchases. Average daily adjusted vessel operating expenses(1) (“Adjusted DVOE”) for the three months ended September 30, 2023 were $5,922 compared to $6,566 for the comparable quarter in 2022.
Adjusted vessel operating expenses(2), which excludes one-time, non-recurring expenses related to vessel acquisitions, charges relating to a change in the crewing manager on some of the Company’s vessels and discretionary hull and hold upgrades for the nine months ended September 30, 2023 were $87.5 million compared to $86.4 million for the nine months ended September 30, 2022. Adjusted vessel operating expenses increased $1.1 million primarily due to a $2.6 million increase in crewing costs driven by higher compensation, a $1.3 million increase in repair costs, partially offset by a $1.6 million decrease in lube costs driven by lower purchase volume and a $0.4 million decrease in the cost of stores and spares driven by lower purchases. Adjusted DVOE for the nine months ended September 30, 2023 were $6,068 compared to $5,991 for the nine months ended September 30, 2022.
2This is a non-GAAP financial measure. A reconciliation of GAAP to non-GAAP financial measures has been provided in the financial tables included in this press release. An explanation of this measure and how it is calculated is also included below under the heading “Supplemental Information – Non-GAAP Financial Measures.”
Charter hire expenses
Charter hire expenses for the three months ended September 30, 2023 were $6.9 million compared to $19.8 million for the comparable quarter of 2022. Charter hire expenses decreased $12.9 million primarily due to decreases in both charter hire rates as a result of a decline in the drybulk market and chartered-in days.
Charter hire expenses for the nine months ended September 30, 2023 were $31.0 million compared to $63.8 million for the nine months ended September 30, 2022. Charter hire expenses decreased $32.8 million primarily due to decreases in both charter hire rates as a result of a decline in the drybulk market and chartered-in days.
Chartered-in days, which is the aggregate number of days in a period during which the Company chartered-in vessels, for the three months ended September 30, 2023 and 2022 were 589 and 1,000, respectively. Chartered-in days for the nine months ended September 30, 2023 and 2022 were 2,315 and 3,102, respectively.
Depreciation and amortization
Depreciation and amortization for the three months ended September 30, 2023 was $15.5 million compared to $15.4 million for the comparable quarter of 2022. Depreciation and amortization increased $0.1 million primarily due to a $0.8 million increase in depreciation from the net impact of vessels acquired and sold during the respective periods and a $0.1 million increase in deferred drydocking cost amortization due to higher drydocking expenditures, partially offset by $0.9 million decrease in depreciation due to a change in our estimated vessel scrap value from $300 per lwt to $400 per lwt, effective January 1, 2023.
Depreciation and amortization for the nine months ended September 30, 2023 was $45.0 million compared to $45.2 million for the nine months ended September 30, 2022. Depreciation and amortization decreased $0.2 million primarily due to a $2.9 million decrease in depreciation due to a change in our estimated vessel scrap value from $300 per lwt to $400 per lwt, effective January 1, 2023, partially offset by a $1.6 million increase in depreciation from the net impact of vessels acquired and sold during the respective periods, a $0.7 million increase in deferred drydocking cost amortization due to higher drydocking expenditures and a $0.3 million increase in depreciation from an increase in installed vessel improvements.
General and administrative expenses
General and administrative expenses for the three months ended September 30, 2023 were $10.7 million compared to $9.7 million for the comparable quarter of 2022. Excluding stock-based compensation expense of $1.7 million and $1.4 million for the three months ended September 30, 2023 and 2022, respectively, general and administrative expenses for the three months ended September 30, 2023 were $9.0 million compared to $8.2 million for the comparable quarter of 2022. General and administrative expenses increased $1.0 million primarily due to a $0.6 million increase in professional fees and a $0.2 million increase in stock-based compensation expense.
General and administrative expenses for the nine months ended September 30, 2023 were $32.9 million compared to $29.6 million for the nine months ended September 30, 2022. Excluding stock-based compensation expense of $5.7 million and $4.5 million for the nine months ended September 30, 2023 and 2022, respectively, general and administrative expenses for the nine months ended September 30, 2023 were $27.2 million compared to $25.1 million for the nine months ended September 30, 2022. General and administrative expenses increased $3.3 million primarily due to a $1.1 million increase in stock-based compensation expense, a $1.1 million increase in employee-related costs and other small increases across professional fees, corporate travel and office expenses.
Other operating expense
Other operating expense for the three months ended September 30, 2023 and 2022 was $0.7 million and $2.5 million, respectively. Other operating expense for the three months ended September 30, 2023 was primarily comprised of costs related to a 2021 U.S. government investigation into an allegation that one of our vessels may have improperly disposed of ballast water that entered the engine room bilges during a repair. Other operating expense for the three months ended September 30, 2022 was primarily comprised of costs associated with a corporate transaction that did not materialize.
Other operating expense for each of the nine months ended September 30, 2023 and 2022 was $0.9 million and $2.6 million, respectively. Other operating expense for the nine months ended September 30, 2023 was primarily comprised of costs related to a 2021 U.S. government investigation into an allegation that one of our vessels may have improperly disposed of ballast water that entered the engine room bilges during a repair. Other operating expense for the nine months ended September 30, 2022 was primarily comprised of costs associated with a corporate transaction that did not materialize.
Gain on sale of vessels
For the three months ended September 30, 2023, the Company recorded a gain on the sale of the vessel Sankaty Eagle of $4.9 million. For the three months ended September 30, 2022, the Company recorded a gain on the sale of the vessel Cardinal of $9.3 million.
For the nine months ended September 30, 2023, the Company recorded a gain on the sale of the vessels Jaeger, Montauk Eagle, Newport Eagle and Sankaty Eagle of $19.7 million. For the nine months ended September 30, 2022, the Company recorded a gain on the sale of the vessel Cardinal of $9.3 million.
Interest expense
Interest expense for the three months ended September 30, 2023 and 2022 was $7.7 million and $4.2 million, respectively. Interest expense increased $3.5 million due to the impact of increased amounts outstanding under the Global Ultraco Debt Facility and higher interest rates.
Interest expense for the nine months ended September 30, 2023 and 2022 was $16.0 million and $13.0 million, respectively. Interest expense increased $3.0 million primarily due to the impact of increased amounts outstanding under the Global Ultraco Debt Facility and higher interest rates.
Interest income
Interest income for the three months ended September 30, 2023 and 2022 was $1.5 million and $0.9 million, respectively. Interest income increased primarily due to higher interest rates on the Company’s cash balances.
Interest income for the nine months ended September 30, 2023 and 2022 was $5.1 million and $1.1 million, respectively. Interest income increased primarily due to higher interest rates on the Company’s cash balances.
Realized and unrealized loss/(gain) on derivative instruments, net
Realized and unrealized loss/(gain) on derivative instruments, net for the three months ended September 30, 2023 was a loss of $0.1 million compared to a gain of $11.3 million for the comparable quarter of 2022. The $11.4 million decrease was due to market movements as well as lower FFA and bunker swap activity.
Realized and unrealized loss/(gain) on derivative instruments, net for the nine months ended September 30, 2023 was a gain of $2.3 million compared to a gain of $13.3 million for the nine months ended September 30, 2022. The $11.0 million decrease was due to market movements as well as lower FFA and bunker swap activity.
A summary of outstanding FFAs as of September 30, 2023 is as follows:
FFA Period
Average FFA Contract Price
Number of Days Hedged
Quarter ending December 31, 2023 – Buy Positions
$
14,196
(345
)
Quarter ending December 31, 2023 – Sell Positions
$
12,922
1,380
Liquidity and Capital Resources
Nine Months Ended
($ in thousands)
September 30, 2023
September 30, 2022
Net cash provided by operating activities
$
35,965
$
242,491
Net cash (used in)/provided by investing activities
(27,831
)
4,090
Net cash used in financing activities
(81,434
)
(135,198
)
Net (decrease)/increase in cash, cash equivalents and restricted cash
(73,300
)
111,383
Cash, cash equivalents and restricted cash at beginning of period
189,754
86,222
Cash, cash equivalents and restricted cash at end of period
$
116,454
$
197,605
Net cash provided by operating activities for the nine months ended September 30, 2023 was $36.0 million, compared to $242.5 million for the nine months ended September 30, 2022. The decrease is primarily due to a decrease in net income driven by lower freight rates.
Net cash used in investing activities for the nine months ended September 30, 2023 was $27.8 million, compared to net cash provided by investing activities of $4.1 million for the nine months ended September 30, 2022. During the nine months ended September 30, 2023, the Company paid (i) $81.8 million to purchase three vessels and other vessel improvements, (ii) $2.1 million to purchase BWTS and (iii) $0.7 million to purchase other fixed assets. These uses of cash were partially offset by $56.6 million in net proceeds from the sale of four vessels. During the nine months ended September 30, 2022, the Company received net proceeds of $14.9 million from the sale of one vessel and paid (i) $5.7 million to purchase BWTS, (ii) $4.1 million as an advance for the purchase of a vessel, (iii) $0.8 million to purchase vessel improvements and (iv) $0.3 million to purchase other fixed assets.
Net cash used in financing activities for the nine months ended September 30, 2023 was $81.4 million, compared to $135.2 million for the nine months ended September 30, 2022. During the nine months ended September 30, 2023, the Company (i) paid $222.7 million to repurchase Common Stock, inclusive of fees, (ii) repaid $37.4 million of term loan under the Global Ultraco Debt Facility, (iii) paid $15.8 million in dividends and (iv) paid $2.0 million for taxes related to net share settlement of equity awards. These uses of cash were partially offset by (i) $123.4 million of proceeds, net of debt issuance costs, from the Revolving Facility under the Global Ultraco Debt Facility and (ii) $73.1 million of proceeds, net of debt issuance costs, from the Term Facility under the Global Ultraco Debt Facility. During the nine months ended September 30, 2022, the Company (i) paid $81.6 million in dividends, (ii) repaid $37.4 million of term loan under the Global Ultraco Debt Facility, (iii) paid $14.2 million to repurchase $10.0 million in aggregate principal amount of Convertible Bond Debt, and (iv) paid $2.4 million for taxes related to net share settlement of equity awards.
As of September 30, 2023, cash and cash equivalents including noncurrent restricted cash was $116.5 million compared to $189.8 million as of December 31, 2022.
A summary of the Company’s debt as of September 30, 2023 and December 31, 2022 is as follows:
September 30, 2023
December 31, 2022
($ in thousands)
Principal Amount Outstanding
Debt Discounts and Debt Issuance Costs
Carrying Value
Principal Amount Outstanding
Debt Discounts and Debt Issuance Costs
Carrying Value
Convertible Bond Debt
$
104,119
$
(328
)
$
103,791
$
104,119
$
(620
)
$
103,499
Global Ultraco Debt Facility – Term Facility
275,400
(5,778
)
269,622
237,750
(6,767
)
230,983
Global Ultraco Debt Facility – Revolving Facility
125,000
(2,941
)
122,059
—
—
—
Total debt
504,519
(9,047
)
495,472
341,869
(7,387
)
334,482
Less: Current portion – Convertible Bond Debt
(104,119
)
328
(103,791
)
—
—
—
Less: Current portion – Global Ultraco Debt Facility
(49,800
)
—
(49,800
)
(49,800
)
—
(49,800
)
Total long-term debt
$
350,600
$
(8,719
)
$
341,881
$
292,069
$
(7,387
)
$
284,682
(1
)
As of September 30, 2023 and December 31, 2022, the undrawn revolving facility under the Global Ultraco Debt Facility was $55 million and $100 million, respectively.
As of September 30, 2023, the effective conversion price of the Convertible Bond Debt equals $31.70 per share of Common Stock. If the market value of the Company’s Common Stock remains above this price, we would expect the holders of the Convertible Bond Debt to elect conversion prior to maturity. Upon conversion of the remaining Convertible Bond Debt, the Company will pay or deliver, as the case may be, either cash, shares of Common Stock or a combination of cash and shares of Common Stock, at the Company’s election, to the holder (subject to shareholder approval requirements in accordance with the indenture that governs the Convertible Bond Debt).
The Company continuously evaluates potential transactions that it expects to be accretive to earnings, enhance shareholder value or are in the best interests of the Company, including without limitation, business combinations, the acquisition of vessels or related businesses, repayment or refinancing of existing debt, the issuance of new securities, share and debt repurchases or other transactions.
Capital Expenditures and Drydocking
Our capital expenditures primarily relate to the purchase of vessels as well as regularly scheduled drydocking and other vessel improvements, which are expected to enhance their revenue earning capabilities, efficiency and/or safety and to comply with international shipping standards and environmental laws and regulations. Certain vessel improvement costs and costs incurred in connection with drydocking are necessary to comply with international shipping standards and environmental laws and regulations, while others are discretionary in nature and evaluated on a business case-by-case basis.
During the fourth quarter of 2022, the Company entered into a memorandum of agreement to acquire a high-specification 2015-built Ultramax bulkcarrier for total consideration of $24.3 million. The vessel was delivered to the Company during the first quarter of 2023.
On January 30, 2023, the Company entered into a memorandum of agreement to acquire a high-specification 2020-built scrubber-fitted Ultramax bulkcarrier for total consideration of $30.1 million. The vessel was delivered to the Company during the second quarter of 2023.
On February 28, 2023, the Company entered into a memorandum of agreement to acquire a high-specification 2020-built scrubber-fitted Ultramax bulkcarrier for total consideration of $30.1 million. The vessel was delivered to the Company during the second quarter of 2023.
Although the Company has some flexibility regarding the timing of vessel drydockings, the timing of costs are relatively predictable. In accordance with statutory requirements, we expect vessels less than 15 years old to be drydocked every 60 months and vessels older than 15 years to be drydocked every 30 months. We intend to fund drydocking costs with cash from operations, cash on hand or with amounts available under the Global Ultraco Debt Facility. In addition, drydocking typically requires us to reposition vessels from a discharge port to shipyard facilities, which will reduce our owned available days and revenues during that period.
Drydocking costs incurred are deferred and amortized through depreciation and amortization on the condensed consolidated statements of operations on a straight-line basis over the period through the date the next drydocking is required to become due. During the nine months ended September 30, 2023, five of our vessels completed drydock and we incurred $10.6 million for drydocking costs. During the nine months ended September 30, 2022, eight of our vessels completed drydock and we incurred $18.5 million for drydocking costs.
Vessel improvements generally include systems and equipment intended to enhance a vessel’s efficiency and revenue earning capability. We intend to fund these costs through cash from operations, cash on hand or amounts available under the Global Ultraco Debt Facility.
The following table provides certain information about the estimated costs for anticipated vessel drydockings and improvements in the next four quarters, along with the anticipated off-hire days:
Projected Costs (1) ($ in millions)
Quarters Ending
Off-hire Days(2)
Drydocks
Vessel Improvements(3)
December 31, 2023
224
$
4.1
$
1.8
March 31, 2024
232
$
4.7
$
0.8
June 30, 2024
143
$
2.0
$
0.4
September 30, 2024
165
$
2.4
$
—
(1
)
We intend to fund these costs with cash from operations, cash on hand or with amounts available under the Global Ultraco Debt Facility.
(2
)
Actual duration of off-hire days will vary based on the age and condition of the vessel, yard schedules and other factors. Projected off-hire days includes an allowance for unforeseen events.
(3
)
Projected costs for vessel improvements are primarily comprised of costs for ballast water treatment systems (“BWTS”).
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following table summarizes the Company’s selected condensed consolidated financial statements and other data for the periods indicated below.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except share and per share data)
Three Months Ended
Nine Months Ended
September 30, 2023
September 30, 2022
September 30, 2023
September 30, 2022
Revenues, net
$
82,606
$
185,313
$
289,210
$
568,406
Voyage expenses
23,791
40,792
82,737
120,710
Vessel operating expenses
28,822
33,091
91,077
88,213
Charter hire expenses
6,868
19,772
31,014
63,768
Depreciation and amortization
15,472
15,407
45,035
45,241
General and administrative expenses
10,652
9,666
32,871
29,611
Impairment of operating lease right-of-use assets
—
—
722
—
Other operating expense
677
2,469
860
2,643
Gain on sale of vessels
(4,855
)
(9,336
)
(19,731
)
(9,336
)
Total operating expenses, net
81,427
111,861
264,585
340,850
Operating income
1,179
73,452
24,625
227,556
Interest expense
7,714
4,236
16,005
13,021
Interest income
(1,488
)
(881
)
(5,139
)
(1,100
)
Realized and unrealized loss/(gain) on derivative instruments, net
104
(11,293
)
(2,318
)
(13,281
)
Loss on debt extinguishment
—
4,173
—
4,173
Total other expense/(income), net
6,330
(3,765
)
8,548
2,813
Net (loss)/income
$
(5,151
)
$
77,217
$
16,077
$
224,743
Weighted average shares outstanding:
Basic
9,313,051
12,993,450
11,686,433
12,985,329
Diluted
9,313,051
16,201,852
15,057,652
16,219,264
Per share amounts:
Basic net (loss)/income
$
(0.55
)
$
5.94
$
1.38
$
17.31
Diluted net (loss)/income
$
(0.55
)
$
4.77
$
1.36
$
13.86
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except share data and par values)
September 30, 2023
December 31, 2022
ASSETS:
Current assets:
Cash and cash equivalents
$
113,879
$
187,155
Accounts receivable, net of a reserve of $2,933 and $3,169, respectively
24,594
32,311
Prepaid expenses
5,832
4,531
Inventories
26,881
28,081
Collateral on derivatives
4,380
909
Fair value of derivative assets – current
8,653
8,479
Other current assets
652
558
Total current assets
184,871
262,024
Noncurrent assets:
Vessels and vessel improvements, at cost, net of accumulated depreciation of $289,819 and $261,725, respectively
914,108
891,877
Advances for vessel purchases
—
3,638
Advances for BWTS and other assets
1,984
2,722
Deferred drydock costs, net
37,756
42,849
Other fixed assets, net of accumulated depreciation of $1,324 and $1,623, respectively
952
310
Operating lease right-of-use assets
10,892
23,006
Restricted cash – noncurrent
2,575
2,599
Fair value of derivative assets – noncurrent
5,435
8,184
Total noncurrent assets
973,702
975,185
Total assets
$
1,158,573
$
1,237,209
LIABILITIES & STOCKHOLDERS’ EQUITY:
Current liabilities:
Accounts payable
$
20,938
$
20,129
Accrued interest
2,092
3,061
Other accrued liabilities
19,198
24,097
Fair value of derivative liabilities – current
585
163
Current portion of operating lease liabilities
10,109
22,045
Unearned charter hire revenue
8,201
9,670
Current portion of long-term debt – Global Ultraco Debt Facility
49,800
49,800
Current portion of long-term debt – Convertible Bond Debt, net of debt discount and debt issuance costs
103,791
—
Total current liabilities
214,714
128,965
Noncurrent liabilities:
Long-term debt – Global Ultraco Debt Facility, net of debt discount and debt issuance costs
341,881
181,183
Convertible Bond Debt, net of debt discount and debt issuance costs
—
103,499
Fair value of derivative liabilities – noncurrent
444
—
Noncurrent portion of operating lease liabilities
2,766
3,173
Other noncurrent accrued liabilities
696
1,208
Total noncurrent liabilities
345,787
289,063
Total liabilities
560,501
418,028
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, 25,000,000 shares authorized, none issued as of September 30, 2023 and December 31, 2022
—
—
Common stock, $0.01 par value, 700,000,000 shares authorized, 9,319,177 and 13,003,702 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively
93
130
Additional paid-in capital
746,898
966,058
Accumulated deficit
(162,418
)
(163,556
)
Accumulated other comprehensive income
13,499
16,549
Total stockholders’ equity
598,072
819,181
Total liabilities and stockholders’ equity
$
1,158,573
$
1,237,209
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Nine Months Ended
September 30, 2023
September 30, 2022
Cash flows from operating activities:
Net income
$
16,077
$
224,743
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
34,577
35,513
Noncash operating lease expense
17,890
21,083
Amortization of deferred drydocking costs
10,458
9,728
Amortization of debt discount and debt issuance costs
1,958
1,627
Loss on debt extinguishment
—
4,173
Impairment of operating lease right-of-use assets
722
—
Gain on sale of vessels
(19,731
)
(9,336
)
Unrealized loss/(gain) on derivative instruments, net
437
(8,517
)
Stock-based compensation expense
5,680
4,542
Drydocking expenditures
(10,562
)
(18,527
)
Changes in operating assets and liabilities:
Accounts payable
1,381
650
Accounts receivable
7,707
(5,098
)
Accrued interest
(969
)
(1,241
)
Inventories
1,199
(8,622
)
Operating lease liabilities current and noncurrent
(19,570
)
(21,076
)
Collateral on derivatives
(3,471
)
13,881
Fair value of derivatives, other current and noncurrent assets
(141
)
(183
)
Other accrued liabilities
(4,907
)
(2,332
)
Prepaid expenses
(1,301
)
(1,223
)
Unearned charter hire revenue
(1,469
)
2,706
Net cash provided by operating activities
35,965
242,491
Cash flows from investing activities:
Purchase of vessels and vessel improvements
(81,802
)
(781
)
Advances for vessel purchases
—
(4,125
)
Purchase of BWTS
(2,142
)
(5,695
)
Proceeds from hull and machinery insurance claims
174
—
Net proceeds from sale of vessels
56,609
14,944
Purchase of other fixed assets
(670
)
(253
)
Net cash (used in)/provided by investing activities
(27,831
)
4,090
Cash flows from financing activities:
Proceeds from Revolving Facility, net of debt issuance costs – Global Ultraco Debt Facility
123,361
—
Proceeds from Term Facility, net of debt issuance costs – Global Ultraco Debt Facility
73,125
—
Repayment of Term Facility – Global Ultraco Debt Facility
(37,350
)
(37,350
)
Repurchase of Common Stock and associated fees – related party
(222,688
)
—
Repurchase of Convertible Bond Debt
—
(14,188
)
Dividends paid
(15,790
)
(81,577
)
Debt issuance costs paid to lenders – Original Global Ultraco Debt Facility
—
(18
)
Cash paid for taxes related to net share settlement of equity awards
(1,989
)
(2,351
)
Other financing costs paid
(103
)
—
Cash received from exercise of stock options
—
85
Proceeds from equity offerings, net of issuance costs
—
201
Net cash used in financing activities
(81,434
)
(135,198
)
Net (decrease)/increase in cash, cash equivalents and restricted cash
(73,300
)
111,383
Cash, cash equivalents and restricted cash at beginning of period
189,754
86,222
Cash, cash equivalents and restricted cash at end of period
$
116,454
$
197,605
Cash paid for interest
$
22,064
$
12,861
Supplemental Information – Non-GAAP Financial Measures
This release includes various financial measures that are non-GAAP financial measures as defined under the rules of the Securities and Exchange Commission (“SEC”). We believe these measures provide important supplemental information to investors to use in evaluating ongoing operating results. We use these measures, together with accounting principles generally accepted in the United States (“GAAP” or “U.S. GAAP”) measures, for internal managerial purposes and as a means to evaluate period-to-period comparisons. However, we do not, and you should not, rely on non-GAAP financial measures alone as measures of our performance. We believe that non-GAAP financial measures reflect an additional way of viewing aspects of our operations, that when taken together with GAAP results and the reconciliations to corresponding GAAP financial measures that we also provide and provide a more complete understanding of factors and trends affecting our business. We strongly encourage you to review all of our financial statements and publicly-filed reports in their entirety and to not solely rely on any single non-GAAP financial measure.
Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures, even if they have similar names.
Non-GAAP Financial Measures
Adjusted net (loss)/income and Basic and Diluted adjusted net (loss)/income per share
Adjusted net (loss)/income and Basic and Diluted adjusted net (loss)/income per share represent Net (loss)/income and Basic and Diluted net (loss)/income per share, respectively, as adjusted to exclude unrealized gains and losses on FFAs and bunker swaps, gains and losses on debt extinguishment, and impairment of operating lease right-of-use assets. The Company utilizes derivative instruments such as FFAs and bunker swaps to partially hedge against its underlying long physical position in ships (as represented by owned and third-party chartered-in vessels). As the Company does not apply hedge accounting to these derivative instruments, unrealized mark-to-market gains and losses on forward hedge positions impact current quarter results, causing timing mismatches in the Condensed Consolidated Statements of Operations. Additionally, we believe that gains and losses on debt extinguishment and impairment of operating lease right-of-use assets are not representative of our normal business operations. We believe that Adjusted net (loss)/income and Adjusted net (loss)/income per share are more useful to analysts and investors in comparing the results of operations and operational trends between periods and relative to other peer companies in our industry. Our Adjusted net (loss)/income should not be considered an alternative to net income/(loss), operating income/(loss), cash flows provided by/(used in) operating activities or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP. As noted above, our Adjusted net (loss)/income and Adjusted net (loss)/income per share may not be comparable to similarly titled measures of another company because all companies may not calculate Adjusted net (loss)/income or Adjusted net (loss)/income per share in the same manner.
The following table presents the reconciliation of our Net (loss)/income to Adjusted net (loss)/income:
Reconciliation of GAAP Net (loss)/income to Adjusted net (loss)/income (in thousands, except share and per share data)
Three Months Ended
Nine Months Ended
September 30, 2023
September 30, 2022
September 30, 2023
September 30, 2022
Net (loss)/income
$
(5,151
)
$
77,217
$
16,077
$
224,743
Adjustments to reconcile net (loss)/income to adjusted net (loss)/income:
Unrealized loss/(gain) on FFAs and bunker swaps, net
2,222
(7,124
)
437
(8,517
)
Impairment of operating lease right-of-use assets
—
—
722
—
Loss on debt extinguishment
—
4,173
—
4,173
Adjusted net (loss)/income
$
(2,929
)
$
74,266
$
17,236
$
220,399
Weighted average shares outstanding:
Basic
9,313,051
12,993,450
11,686,433
12,985,329
Diluted (1)
9,313,051
16,201,852
15,057,652
16,219,264
Per share amounts:
Basic adjusted net (loss)/income
$
(0.31
)
$
5.72
$
1.47
$
16.97
Diluted adjusted net (loss)/income
$
(0.31
)
$
4.58
$
1.44
$
13.59
(1
)
Diluted weighted average shares outstanding for the three and nine months ended September 30, 2023 and 2022 includes dilutive potential common shares related to the Convertible Bond Debt based on the if-converted method and potential common shares related to stock awards and options based on the treasury stock method, unless to do so would have been anti-dilutive to Diluted adjusted net (loss)/income per share.
EBITDA and Adjusted EBITDA
We define EBITDA as Net (loss)/income under GAAP adjusted for interest, income taxes and depreciation and amortization.
Adjusted EBITDA is a non-GAAP financial measure that is used as a supplemental financial measure by our management and by external users of our financial statements, such as investors, commercial banks and others, to assess our operating performance as compared to that of other peer companies in our industry, without regard to financing methods, capital structure or historical costs basis. Our Adjusted EBITDA should not be considered an alternative to net income/(loss), operating income/(loss), cash flows provided by/(used in) operating activities or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP. Our Adjusted EBITDA may not be comparable to similarly titled measures of another company because all companies may not calculate Adjusted EBITDA in the same manner. Adjusted EBITDA represents EBITDA adjusted to exclude certain non-cash, one-time and other items that the Company believes are not indicative of the ongoing performance of its core operations such as vessel impairment, gains and losses on sale of vessels, impairment of operating lease right-of-use assets, unrealized gains and losses on FFAs and bunker swaps, gains and losses on debt extinguishment and stock-based compensation expense.
The following table presents a reconciliation of our Net (loss)/income to EBITDA and Adjusted EBITDA:
Reconciliation of GAAP Net (loss)/income to EBITDA and Adjusted EBITDA (in thousands)
Three Months Ended
Nine Months Ended
September 30, 2023
September 30, 2022
September 30, 2023
September 30, 2022
Net (loss)/income
$
(5,151
)
$
77,217
$
16,077
$
224,743
Adjustments to reconcile net (loss)/income to EBITDA:
Interest expense
7,714
4,236
16,005
13,021
Interest income
(1,488
)
(881
)
(5,139
)
(1,100
)
Income taxes
—
—
—
—
EBIT
1,075
80,572
26,943
236,664
Depreciation and amortization
15,472
15,407
45,035
45,241
EBITDA
16,547
95,979
71,978
281,905
Non-cash, one-time and other adjustments to EBITDA(1)
(963
)
(10,838
)
(12,892
)
(9,138
)
Adjusted EBITDA
$
15,584
$
85,141
$
59,086
$
272,767
(1
)
One-time and other adjustments to EBITDA for the three and nine months ended September 30, 2023 and 2022 includes gains on sale of vessels, net unrealized losses/(gains) on FFAs and bunker swaps, impairment of operating lease right-of-use assets, loss on debt extinguishment and stock-based compensation expense.
TCE revenue and TCE
Time charter equivalent revenue (“TCE revenue”) and time charter equivalent (“TCE”) are non-GAAP financial measures that are commonly used in the shipping industry primarily to compare daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters, because charter hire rates for vessels on voyage charters are generally not expressed in per-day amounts while charter hire rates for vessels on time charters generally are expressed in such amounts. The Company defines TCE revenue as revenues, net less voyage expenses and charter hire expenses, adjusted for realized gains and losses on FFAs and bunker swaps and defines TCE as TCE revenue divided by the number of owned available days. Owned available days is the number of our ownership days less the aggregate number of days that our vessels are off-hire due to vessel familiarization upon acquisition, repairs, vessel upgrades or special surveys. The shipping industry uses available days to measure the number of days in a period during which vessels should be capable of generating revenues. TCE provides additional meaningful information in conjunction with Revenues, net, the most directly comparable GAAP measure, because it assists Company management in making decisions regarding the deployment and use of its vessels and in evaluating their performance. Our TCE revenue and TCE should not be considered alternatives to net income/(loss), operating income/(loss), cash flows provided by/(used in) operating activities or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP. Our TCE revenue and TCE may not be comparable to similarly titled measures of another company because all companies may not calculate TCE revenue and TCE in the same manner.
The following table presents the reconciliation of our Revenues, net to TCE:
Reconciliation of Revenues, net to TCE (in thousands, except for Owned available days and TCE)
Three Months Ended
Nine Months Ended
September 30, 2023
September 30, 2022
September 30, 2023
September 30, 2022
Revenues, net
$
82,606
$
185,313
$
289,210
$
568,406
Less:
Voyage expenses
(23,791
)
(40,792
)
(82,737
)
(120,710
)
Charter hire expenses
(6,868
)
(19,772
)
(31,014
)
(63,768
)
Realized gain on FFAs and bunker swaps, net
2,118
4,169
2,755
4,764
TCE revenue
$
54,065
$
128,918
$
178,214
$
388,692
Owned available days
4,708
4,588
13,791
13,599
TCE
$
11,482
$
28,099
$
12,922
$
28,582
Adjusted vessel operating expenses and Adjusted DVOE
Adjusted vessel operating expenses and Adjusted DVOE are non-GAAP financial measures that are used as supplemental financial measures by our management and by external users of our financial statements to assess our operating performance as compared to that of other peer companies in our industry. The Company defines Adjusted vessel operating expenses as vessel operating expenses presented in accordance with U.S. GAAP, adjusted to exclude one-time, non-recurring expenses related to vessel acquisitions, charges relating to a change in the crewing manager on some of our vessels and discretionary spending associated with hull and hold upgrades and defines Adjusted DVOE as Adjusted vessel operating expenses divided by the number of ownership days. Ownership days is the aggregate number of days in a period during which each vessel in our fleet has been owned by us. Adjusted vessel operating expenses and Adjusted DVOE provide additional meaningful information in conjunction with Vessel operating expenses, the most directly comparable GAAP measure. Our Adjusted vessel operating expenses and Adjusted DVOE should not be considered alternatives to net income/(loss), operating income/(loss), cash flows provided by/(used in) operating activities or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP. Our Adjusted vessel operating expenses and Adjusted DVOE may not be comparable to similarly titled measures of another company because all companies may not calculate Adjusted vessel operating expenses and Adjusted DVOE in the same manner.
The following table presents the reconciliation of our Vessel operating expenses to Adjusted vessel operating expenses and Adjusted DVOE:
Reconciliation of GAAP Vessel operating expenses to Adjusted vessel operating expenses and Adjusted DVOE (in thousands, except for Ownership days and Adjusted DVOE data)
Three Months Ended
Nine Months Ended
September 30, 2023
September 30, 2022
September 30, 2023
September 30, 2022
Vessel operating expenses
$
28,822
$
33,091
$
91,077
$
88,213
Less:
Adjustments to vessel operating expenses(1):
(347
)
(1,371
)
(3,548
)
(1,796
)
Adjusted vessel operating expenses
$
28,475
$
31,720
$
87,529
$
86,417
Ownership days
4,808
4,831
14,425
14,424
Adjusted DVOE
$
5,922
$
6,566
$
6,068
$
5,991
(1
)
Adjustments to vessel operating expenses includes one-time, non-recurring expenses related to vessel acquisitions, charges relating to a change in the crewing manager on some of our vessels and discretionary spending associated with hull and hold upgrades.
Glossary of Terms
Chartered-in days: We define chartered-in days as the aggregate number of days in a period during which we charter-in vessels under operating leases. The Company charters-in vessels on a long-term and short-term basis.
Owned available days: We define owned available days as the number of ownership days less the aggregate number of days that our owned vessels are off-hire due to vessel familiarization upon acquisition, repairs, vessel upgrades or special surveys and other reasons which prevent the vessel from performing under a charter party in a period. The shipping industry uses owned available days to measure the number of days in a period during which owned vessels should be capable of generating revenues.
Ownership days: We define ownership days as the aggregate number of days in a period during which each vessel in our fleet has been owned by us. Ownership days are an indicator of the size of our fleet over a period and affect both the amount of revenues and the amount of expenses that we record during a period.
Definitions of Capitalized Terms
Convertible Bond Debt: Convertible Bond Debt refers to 5.0% Convertible Senior Notes due 2024 issued by the Company on July 29, 2019 that will mature on August 1, 2024.
Global Ultraco Debt Facility: Global Ultraco Debt Facility refers to the senior secured credit facility entered into by Eagle Bulk Ultraco LLC (“Eagle Ultraco”), a wholly-owned subsidiary of the Company, along with certain of its vessel-owning subsidiaries as guarantors, with the lenders party thereto (the “Lenders”), Credit Agricole Corporate and Investment Bank (“Credit Agricole”) as security trustee, structurer, sustainability coordinator and facility agent. The Global Ultraco Debt Facility provides for an aggregate principal amount of $485.3 million, which consists of (i) a term loan facility in an aggregate principal amount of $300.3 million (the “Term Facility”) and (ii) a revolving credit facility in an aggregate principal amount of $185.0 million (the “Revolving Facility”). The Global Ultraco Debt Facility is secured by 52 of the Company’s vessels. As of September 30, 2023, $54.6 million remains undrawn under the Revolving Facility.
Conference Call Information
As previously announced, members of Eagle’s senior management team will host a teleconference and webcast at 8:00 a.m. ET on Friday, November 3, 2023, to discuss the third quarter results.
A live webcast of the call will be available on the Investor Relations page of the Company’s website at ir.eagleships.com. To access the call by phone, please register at https://register.vevent.com/register/BIee839edd63884046b37812fb660d9ebb and you will be provided with dial-in details. A replay of the webcast will be available on the Investor Relations page of the Company’s website.
About Eagle Bulk Shipping Inc.
The Company is a U.S.-based, fully integrated shipowner-operator, providing global transportation solutions to a diverse group of customers including miners, producers, traders and end users. Headquartered in Stamford, Connecticut, with offices in Singapore and Copenhagen, Eagle focuses exclusively on the versatile midsize drybulk vessel segment and owns one of the largest fleets of Supramax/Ultramax vessels in the world. The Company performs all management services in-house (strategic, commercial, operational, technical, and administrative) and employs an active management approach to fleet trading with the objective of optimizing revenue performance and maximizing earnings on a risk-managed basis. For further information, please visit our website: www.eagleships.com.
Website Information
We intend to use our website, www.eagleships.com, as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Such disclosures will be included in our website’s Investor Relations section. Accordingly, investors should monitor the Investor Relations portion of our website, in addition to following our press releases, filings with the SEC, public conference calls, and webcasts. To subscribe to our e-mail alert service, please click the “Investor Alerts” link in the Investor Relations section of our website and submit your email address. The information contained in, or that may be accessed through, our website is not incorporated by reference into or a part of this document or any other report or document we file with or furnish to the SEC, and any references to our website are intended to be inactive textual references only.
Disclaimer: Forward-Looking Statements
Matters discussed in this release may constitute forward-looking statements that may be deemed to be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, and are intended to be covered by the safe harbor provided for under these sections. These statements may include words such as “believe,” “estimate,” “project,” “intend,” “expect,” “plan,” “anticipate,” and similar expressions in connection with any discussion of the timing or nature of future operating or financial performance or other events. Forward-looking statements in this release reflect management’s current expectations and observations with respect to future events and financial performance. Where we express an expectation or belief as to future events or results, including future plans with respect to financial performance, the payment of dividends and/or repurchase of shares, or future actions of holders of the Convertible Bond Debt, including whether or not to elect to convert any portion of the Convertible Bond Debt prior to its maturity date, such expectation or belief is expressed in good faith and believed to have a reasonable basis. However, our forward-looking statements are subject to risks, uncertainties, and other factors, which could cause actual results to differ materially from future results expressed, projected, or implied by those forward-looking statements.
Where we express an expectation or belief as to future events or results, such expectation or belief is expressed in good faith and believed to have a reasonable basis. However, our forward-looking statements are subject to risks, uncertainties, and other factors, which could cause actual results to differ materially from future results expressed, projected or implied by those forward-looking statements. The principal factors that affect our financial position, results of operations and cash flows include market freight rates, which fluctuate based on various economic and market conditions, periods of charter hire, vessel operating expenses and voyage costs, which are incurred primarily in U.S. dollars, depreciation expenses, which are a function of the purchase price of our vessels and our vessels’ estimated useful lives and scrap value, general and administrative expenses, and financing costs related to our indebtedness. The accuracy of the Company’s assumptions, expectations, beliefs and projections depends on events or conditions that change over time and are thus susceptible to change based on actual experience, new developments and known and unknown risks. The Company gives no assurance that the forward-looking statements will prove to be correct, does not undertake any duty to update them and disclaims any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors which could include the following: (i) volatility of freight rates driven by changes in demand for seaborne transportation of drybulk commodities and in supply of drybulk shipping capacity; (ii) changes in drybulk carrier capacity driven by levels of newbuilding orders, scrapping rates or fleet utilization; (iii) changes in rules and regulations applicable to the drybulk industry, including, without limitation, regulations of the International Maritime Organization and the European Union (the “EU”), requirements of the Environmental Protection Agency and other governmental and quasi-governmental agencies; (iv) changes in U.S., United Kingdom, United Nations and EU economic sanctions and trade embargo laws and regulations as well as equivalent economic sanctions laws of other relevant jurisdictions; (v) actions taken by regulatory authorities including, without limitation, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”); (vi) changes in the typical seasonal variations in drybulk freight rates; (vii) changes in national and international economic and political conditions including, without limitation, the current conflicts between Russia and Ukraine and Israel and Hamas, the current economic and political environment in China and the environment in historically high-risk geographic areas such as the South China Sea, the Indian Ocean, the Gulf of Guinea and the Gulf of Aden; (viii) changes in the condition of the Company’s vessels or applicable maintenance or regulatory standards (which may affect, among other things, our anticipated drydocking costs); (ix) the duration and impact of the novel coronavirus (“COVID-19”) pandemic and measures implemented by governments of various countries in response to the COVID-19 pandemic; (x) volatility of the cost of fuel; (xi) volatility of costs of labor and materials needed to operate our business due to inflation; (xii) any legal proceedings which we may be involved from time to time; and (xiii) other factors listed from time to time in our filings with the Securities and Exchange Commission (the “SEC”).
We have based these statements on assumptions and analyses formed by applying our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances. The Company’s future results may be impacted by adverse economic conditions, such as inflation, deflation, or lack of liquidity in the capital markets, that may negatively affect it or parties with whom it does business. Should one or more of the foregoing risks or uncertainties materialize in a way that negatively impacts the Company, or should the Company’s underlying assumptions prove incorrect, the Company’s actual results may vary materially from those anticipated in its forward-looking statements, and its business, financial condition and results of operations could be materially and adversely affected. Risks and uncertainties are further described in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 10, 2023, as updated by those risks described in Part II, Item 1A of our Quarterly Report on Form 10-Q for the three months ended June 30, 2023, filed with the SEC on August 4, 2023.
CONTACT
Company Contact: Constantine Tsoutsoplides Chief Financial Officer Eagle Bulk Shipping Inc. Tel. +1 203-276-8100 Email: investor@eagleships.com
Acquisition expands ISG Research coverage of the $800 billion software sector
STAMFORD, Conn. — Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm, today announced it has acquired Ventana Research, a leading technology research firm specializing in coverage of the $800 billion software industry.
The move expands the capabilities of ISG Research, an important and fast-growing recurring-revenue-stream business for ISG, at a time when enterprises increasingly are leveraging software and services in combination to improve operating performance, deliver better customer and employee experiences, and drive growth.
“With the addition of Ventana Research, ISG becomes a stronger global powerhouse in technology research,” said Michael P. Connors, chairman and CEO of ISG. “We are famously known for our industry-leading coverage of the managed services sector, and now we are expanding and deepening our coverage of the all-important software industry. No other firm can compete with us when it comes to our comprehensive sourcing data, market coverage, analyst insights and market-making advisor perspectives – a combination that delivers unmatched value to both buyers and sellers of technology services and software.”
Ventana Research, founded in 2002 and based in Bend, Ore., tracks more than 2,000 software vendors – including covering more than 250 in-depth – to provide the industry’s most comprehensive analyst and research coverage of the global software sector. Its team of experienced professionals provides insights and expert guidance on mainstream and disruptive technologies through a unique set of research-based products, including an online community for business and IT professionals.
“Enterprises are relying more and more on independent market research and analyst insights to guide their technology buying decisions and manage their technology ecosystems, while providers seek the same advice to improve their products and hone their go-to-market strategies,” said Mark Smith, founder and CEO of Ventana Research. “We are delighted to be joining ISG and adding our industry-leading capabilities, people, credibility, client relationships and software industry coverage to the ISG Research portfolio.”
Smith will continue to lead Ventana Research in his new role as ISG partner, Software Research.
“Ventana Research will maintain its well-known and trusted portfolio of research products and services, which are a perfect complement to the existing ISG Research portfolio,” said Paul Gottsegen, president of ISG Research and Client Experience. “As we move past the initial integration period, there will be many opportunities to create synergy as we naturally and smoothly integrate Ventana offerings fully into ISG Research and create new offerings that will deliver even more value to our clients.”
Ventana Research becomes one of five service lines of ISG Research. The others are ISG Provider Lens™ (service provider evaluation research), ISG Provider Services (go-to-market research and support for service providers), ISG ProBenchmark® (SaaS-based pricing intelligence platform) and ISG Events (producer of industry conferences and webinars).
ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 900 clients, including more than 75 of the world’s top 100 enterprises, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs more than 1,600 digital-ready professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry’s most comprehensive marketplace data. For more information, visit www.isg-one.com.
Reports GAAP revenues of $72 million, a third-quarter record
Reports net income of $3.2 million, GAAP EPS of $0.06 and adjusted EPS of $0.11
Reports third-quarter adjusted EBITDA of $11 million
Declares fourth-quarter dividend of $0.045 per share, payable December 20 to record holders as of December 5
Acquires Ventana Research; expands ISG Research coverage into $800 billion software sector
Sets fourth-quarter guidance: revenues between $68 million and $71 million and adjusted EBITDA between $9.0 million and $10.5 million
STAMFORD, Conn.–(BUSINESS WIRE)– Information Services Group (ISG) (Nasdaq: III), a leading global technology research and advisory firm, today announced financial results, including record third-quarter revenues, for the quarter ended September 30, 2023.
“ISG delivered strong results in the third quarter, with record revenues of $72 million, our best topline performance ever in a third quarter,” said Michael P. Connors, chairman and CEO. “Our recurring revenues were up 19 percent, revenues in Europe were up 14 percent and firm-wide adjusted EBITDA margin improved 120 basis points from last quarter despite a more difficult macro environment. These results were powered by a relentless focus on execution and our proactive management of the current demand environment.”
Commenting on the macro environment, Connors said: “Our enterprise clients continue to leverage our capabilities with a dual focus on all things digital and cost optimization, a traditional sweet spot for ISG. Overall, clients are slower in their decision-making and spending is being stretched over longer periods of time, amid concerns about continued economic uncertainty and rising geopolitical tensions. With that said, our pipeline remains strong, and the pace of execution will be driven by clients’ need for speed as they position themselves for 2024 when conditions are expected to improve.”
Ventana Research Acquisition
ISG said today it has acquired the business of Ventana Research, a leading technology research firm specializing in coverage of the $800 billion software industry.
The move expands the capabilities of ISG Research, an important and fast-growing recurring-revenue-stream business for ISG, at a time when enterprises increasingly are leveraging software and services in combination to improve operating performance, deliver better customer and employee experiences, and drive growth.
“With the addition of Ventana Research, ISG becomes a stronger global powerhouse in technology research,” said Connors. “We are famously known for our industry-leading coverage of the managed services sector, and now we are expanding and deepening our coverage of the all-important software industry. In addition to increasing our market research coverage, we see synergies to accelerate the growth of our Software Advisory business with enterprises.”
Citing ISG Index™ research, Connors noted that software-based XaaS solutions – both infrastructure-as-a service and software-as-a-service – account for more than 60 percent of global spending on IT and business services, up from 48 percent five years ago. “We expect spending on cloud-based, software-driven services to continue expanding in the coming years,” he said, “and with it, client demand for in-depth research and advice to guide software investment decisions.”
Ventana Research, founded in 2002 and based in Bend, Ore., tracks more than 2,000 software vendors and covers more than 250 of them in-depth to provide the industry’s most comprehensive analyst and research coverage of the global software sector. Its team of experienced professionals provides insights and expert guidance on mainstream and disruptive technologies through a unique set of research-based products, including an online community for business and IT professionals.
Third-Quarter 2023 Results
Reported revenues for the third quarter were a record $71.8 million, up 4.3 percent from $68.8 million in the prior year. Currency translation positively impacted reported revenues by $1.4 million versus the prior year. Reported revenues were $42.5 million in the Americas, up 1 percent; $22.1 million in Europe, up 14 percent; and $7.2 million in Asia Pacific, down 2 percent versus the prior year.
ISG reported third-quarter operating income of $6.2 million, down 16 percent from $7.4 million in the third quarter of 2022. Reported third-quarter net income was $3.2 million, down 42 percent from net income of $5.6 million in the prior year. Fully diluted earnings per share was $0.06, compared with $0.11 per fully diluted share in the prior year.
Adjusted net income (a non-GAAP measure defined below under “Non-GAAP Financial Measures”) for the third quarter was $5.7 million, or $0.11 per share on a fully diluted basis, compared with adjusted net income of $7.2 million, or $0.14 per share on a fully diluted basis, in the prior year’s third quarter.
Third-quarter adjusted EBITDA (a non-GAAP measure defined below under “Non-GAAP Financial Measures”) was $10.6 million, essentially flat with the prior year.
Other Financial and Operating Highlights
ISG generated $3.2 million of cash from operations in the third quarter, compared with $0.3 million used from operations in the third quarter last year. The firm’s cash balance totaled $18.7 million at September 30, 2023, down from $19.6 million at June 30, 2023.
During the third quarter, ISG paid dividends of $2.3 million and repurchased $0.9 million of shares. As of September 30, 2023, ISG had $79.2 million in debt outstanding, unchanged from December 31, 2022. The firm’s gross-debt-to-adjusted-EBITDA ratio (a non-GAAP measure calculated by dividing outstanding debt by adjusted EBITDA) was 1.8 times.
2023 Fourth-Quarter Revenue and Adjusted EBITDA Guidance
“For the fourth quarter, ISG is targeting revenues of between $68 million and $71 million and adjusted EBITDA of between $9.0 million and $10.5 million,” Connors said. “We will continue to monitor the macroeconomic and geopolitical environment, and other factors, and adjust our business plans accordingly.”
Quarterly Dividend
The ISG Board of Directors declared a fourth-quarter dividend of $0.045 per share payable on December 20, 2023, to shareholders of record on December 5, 2023.
Conference Call
ISG has scheduled a call for 9 a.m., U.S. Eastern Time, Friday, November 3, 2023, to discuss the company’s third-quarter results. The call can be accessed by dialing +1 (888) 330-2057; or, for international callers, by dialing +1 (646) 960-0203. The access code is 1482106. A recording of the conference call will be accessible on ISG’s website (www.isg-one.com) for approximately four weeks following the call.
Forward-Looking Statements
This communication contains “forward-looking statements” which represent the current expectations and beliefs of management of ISG concerning future events and their potential effects. Statements contained herein including words such as “anticipate,” “believe,” “contemplate,” “plan,” “estimate,” “target,” “expect,” “intend,” “will,” “continue,” “should,” “may,” and other similar expressions, are “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future results and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. Those risks relate to inherent business, economic and competitive uncertainties and contingencies relating to the businesses of ISG and its subsidiaries including without limitation: (1) failure to secure new engagements or loss of important clients; (2) ability to hire and retain enough qualified employees to support operations; (3) ability to maintain or increase billing and utilization rates; (4) management of growth; (5) success of expansion internationally; (6) competition; (7) ability to move the product mix into higher margin businesses; (8) general political and social conditions such as war, political unrest and terrorism; (9) healthcare and benefit cost management; (10) ability to protect ISG and its subsidiaries’ intellectual property or data and the intellectual property or data of others; (11) currency fluctuations and exchange rate adjustments; (12) ability to successfully consummate or integrate strategic acquisitions; (13) outbreaks of diseases, including coronavirus, or similar public health threats or fear of such an event; and (14) engagements may be terminated, delayed or reduced in scope by clients. Certain of these and other applicable risks, cautionary statements and factors that could cause actual results to differ from ISG’s forward-looking statements are included in ISG’s filings with the U.S. Securities and Exchange Commission. ISG undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances.
Non-GAAP Financial Measures
ISG reports all financial information required in accordance with U.S. generally accepted accounting principles (GAAP). In this release, ISG has presented both GAAP financial results as well as non-GAAP information for the three and nine months ended September 30, 2023 and September 30, 2022. ISG believes that evaluating its ongoing operating results will be enhanced if it discloses certain non-GAAP information. These non-GAAP financial measures exclude non-cash and certain other special charges that many investors believe may obscure the user’s overall understanding of ISG’s current financial performance and the Company’s prospects for the future. ISG believes that these non-GAAP measures provide useful information to investors because they improve the comparability of the financial results between periods and provide for greater transparency of key measures used to evaluate the Company’s performance.
ISG provides adjusted EBITDA (defined as net income plus interest, taxes, depreciation and amortization, foreign currency transaction gains/losses, non-cash stock compensation, interest accretion associated with contingent consideration, acquisition-related costs, and severance, integration and other expense), adjusted net income (defined as net income plus amortization of intangible assets, non-cash stock compensation, foreign currency transaction gains/losses, interest accretion associated with contingent consideration, acquisition-related costs, write-off of deferred financing costs, and severance, integration and other expense, on a tax-adjusted basis), adjusted net income per diluted share, adjusted EBITDA margin, gross-debt-to-adjusted-EBITDA ratio and selected financial data on a constant currency basis which are non-GAAP measures that the Company believes provide useful information to both management and investors by excluding certain expenses and financial implications of foreign currency translations, which management believes are not indicative of ISG’s core operations. These non-GAAP measures are used by ISG to evaluate the Company’s business strategies and management’s performance.
We evaluate our results of operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP financial measure, excludes the impact of year-over-year fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our results of operations, thereby facilitating period-to-period comparisons of our business performance and is consistent with how management evaluates the Company’s performance. We calculate constant currency percentages by converting our current and prior-periods local currency financial results using the same point in time exchange rates and then compare the adjusted current and prior period results. This calculation may differ from similarly titled measures used by others and, accordingly, the constant currency presentation is not meant to be a substitution for recorded amounts presented in conformity with GAAP, nor should such amounts be considered in isolation.
Management believes this information facilitates comparison of underlying results over time. Non-GAAP financial measures, when presented, are reconciled to the most closely applicable GAAP measure. Non-GAAP measures are provided as additional information and should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of the forward-looking non-GAAP estimates contained herein to the corresponding GAAP measures is not being provided, due to the unreasonable efforts required to prepare it.
About ISG
ISG (Information Services Group) (Nasdaq: III) is a leading global technology research and advisory firm. A trusted business partner to more than 900 clients, including more than 75 of the world’s top 100 enterprises, ISG is committed to helping corporations, public sector organizations, and service and technology providers achieve operational excellence and faster growth. The firm specializes in digital transformation services, including automation, cloud and data analytics; sourcing advisory; managed governance and risk services; network carrier services; strategy and operations design; change management; market intelligence and technology research and analysis. Founded in 2006, and based in Stamford, Conn., ISG employs 1,600 digital-ready professionals operating in more than 20 countries—a global team known for its innovative thinking, market influence, deep industry and technology expertise, and world-class research and analytical capabilities based on the industry’s most comprehensive marketplace data. For more information, visit www.isg-one.com.
Information Services Group, Inc.
Condensed Consolidated Statement of Income and Comprehensive Income
(unaudited)
(in thousands, except per share amounts)
Three Months Ended September 30,
Nine Months Ended September 30,
2023
2022
2023
2022
Revenues
$
71,773
$
68,836
$
224,868
$
212,100
Operating expenses
Direct costs and expenses for advisors
43,032
39,786
138,048
125,111
Selling, general and administrative
20,992
20,334
63,992
60,806
Depreciation and amortization
1,526
1,286
4,692
3,872
Operating income
6,223
7,430
18,136
22,311
Interest income
104
37
285
126
Interest expense
(1,533
)
(824
)
(4,676
)
(1,997
)
Foreign currency transaction (loss) gain
(2
)
131
(40
)
248
Income before taxes
4,792
6,774
13,705
20,688
Income tax provision
1,591
1,218
4,680
5,245
Net income
$
3,201
$
5,556
$
9,025
$
15,443
Weighted average shares outstanding:
Basic
48,711
47,888
48,542
48,191
Diluted
50,257
49,844
50,287
50,637
Earnings per share:
Basic
$
0.07
$
0.12
$
0.19
$
0.32
Diluted
$
0.06
$
0.11
$
0.18
$
0.30
Information Services Group, Inc.
Reconciliation from GAAP to Non-GAAP
(unaudited)
(in thousands, except per share amounts)
Three Months Ended September 30,
Nine Months Ended September 30,
2023
2022
2023
2022
Net income
$
3,201
$
5,556
$
9,025
$
15,443
Plus:
Interest expense (net of interest income)
1,429
787
4,391
1,871
Income taxes
1,591
1,218
4,680
5,245
Depreciation and amortization
1,526
1,286
4,692
3,872
Interest accretion associated with contingent consideration
26
–
77
8
Acquisition-related costs (1)
99
25
99
41
Severance, integration and other expense
674
8
2,016
458
Foreign currency transaction loss (gain)
2
(131
)
40
(248
)
Non-cash stock compensation
2,098
1,987
6,752
5,432
Adjusted EBITDA
$
10,646
$
10,736
$
31,772
$
32,122
Net income
$
3,201
$
5,556
$
9,025
$
15,443
Plus:
Non-cash stock compensation
2,098
1,987
6,752
5,432
Intangible amortization
769
525
2,352
1,580
Interest accretion associated with contingent consideration
26
–
77
8
Acquisition-related costs (1)
99
25
99
41
Severance, integration and other expense
674
8
2,016
458
Write-off of deferred financing costs
–
–
379
–
Foreign currency transaction loss (gain)
2
(131
)
40
(248
)
Tax effect (2)
(1,174
)
(772
)
(3,749
)
(2,327
)
Adjusted net income
$
5,695
$
7,198
$
16,991
$
20,387
Weighted average shares outstanding:
Basic
48,711
47,888
48,542
48,191
Diluted
50,257
49,844
50,287
50,637
Adjusted earnings per share:
Basic
$
0.12
$
0.15
$
0.35
$
0.42
Diluted
$
0.11
$
0.14
$
0.34
$
0.40
(1)
Consists of expenses from acquisition-related costs and non-cash fair value adjustments on pre-acquisition contract liabilities.
(2)
Marginal tax rate of 32%, reflecting U.S. federal income tax rate of 21% plus 11% attributable to U.S. states and foreign jurisdictions.
SANTA MONICA, Calif.–(BUSINESS WIRE)– Entravision Communications Corporation (NYSE: EVC), a leading global advertising solutions, media and technology company, today announced financial results for the three- and nine-month periods ended September 30, 2023.
Third Quarter 2023 Highlights
Record quarterly advertising revenue
Net revenue up 14% over the prior-year quarter
Net income attributable to common stockholders down 71% compared to the prior-year quarter
Consolidated EBITDA down 45% compared to the prior-year quarter
Operating cash flow up 45% over the prior-year quarter
Free cash flow down 74% compared to the prior-year quarter
Quarterly cash dividend of $0.05 per share
“We achieved a record quarterly advertising revenue of $274.4 million, up 14% year-over-year, led by strength in our Digital segment, which now comprises 84% of total revenue,” said Chris Young, Chief Financial Officer. “We continued to execute on our Digital transformation strategy during the quarter with the signing of two new partnerships with Match and Pinterest to further diversify our portfolio of digital solutions. While non-returning political revenue and sales mix contributed to the year-over-year decline in our Consolidated EBITDA, we anticipate increased political spending ahead of the 2024 elections will benefit our Television and Audio segments and Consolidated EBITDA in the quarters to come.”
Quarterly Cash Dividend
The Company announced today that its Board of Directors approved a quarterly cash dividend to shareholders of $0.05 per share on the Company’s Class A and Class U common stock, in an aggregate amount of $4.4 million. The quarterly dividend will be payable on December 29, 2023 to shareholders of record as of the close of business on December 15, 2023, and the common stock will trade ex-dividend on December 14, 2023. The Company currently anticipates that future cash dividends will be paid on a quarterly basis; however, any decision to pay future cash dividends will be subject to approval by the Board.
Non-GAAP Financial Measures
This press release contains certain non-GAAP financial measures as defined by SEC Regulation G. The GAAP financial measure most directly comparable to each of these non-GAAP financial measures, and a table reconciling each of these non-GAAP financial measures to its most directly comparable GAAP financial measure is included beginning on page 10.
Unaudited Financial Highlights (In thousands, except share and per share data)
Three-Month Period
Nine-Month Period
Ended September 30,
Ended September 30,
2023
2022
% Change
2023
2022
% Change
Net revenue
$
274,417
$
241,014
14
%
$
786,804
$
659,881
19
%
Cost of revenue – digital (1)
199,289
157,095
27
%
562,881
431,951
30
%
Operating expenses (2)
53,809
49,294
9
%
163,069
140,527
16
%
Corporate expenses (3)
13,292
9,525
40
%
35,836
26,769
34
%
Foreign currency (gain) loss
548
1,966
(72
)%
289
2,112
(86
)%
Consolidated EBITDA (4)
14,185
25,972
(45
)%
41,420
66,566
(38
)%
Free cash flow (5)
$
4,004
$
15,443
(74
)%
$
9,470
$
44,026
(78
)%
Net income (loss)
$
2,732
$
9,090
(70
)%
$
2,430
$
19,444
(88
)%
Net (income) loss attributable to redeemable noncontrolling interest
$
(13
)
$
–
*
$
(1
)
$
–
*
Net (income) loss attributable to noncontrolling interest
$
–
$
303
(100
)%
$
342
$
303
13
%
Net income (loss) attributable to common stockholders
$
2,719
$
9,393
(71
)%
$
2,771
$
19,747
(86
)%
Net income (loss) per share attributable to common stockholders, basic and diluted
$
0.03
$
0.11
(73
)%
$
0.03
$
0.23
(87
)%
Weighted average common shares outstanding, basic
87,995,567
84,945,873
87,803,770
85,469,675
Weighted average common shares outstanding, diluted
89,888,721
87,417,501
89,835,363
87,671,726
(1)
Consists primarily of the costs of online media acquired from third-party publishers. Media cost is classified as cost of revenue in the period in which the corresponding revenue is recognized.
(2)
Operating expenses include direct operating and selling, general and administrative expenses. Included in operating expenses are $2.6 million and $1.0 million of non-cash stock-based compensation for the three-month periods ended September 30, 2023 and 2022, respectively, and $7.2 million and $2.9 million of non-cash stock-based compensation for the nine-month periods ended September 30, 2023 and 2022, respectively.
(3)
Corporate expenses include $4.4 million and $1.8 million of non-cash stock-based compensation for the three-month periods ended September 30, 2023 and 2022, respectively, and $9.8 million and $5.1 million of non-cash stock-based compensation for the nine-month periods ended September 30, 2023 and 2022, respectively.
(4)
Consolidated EBITDA means net income (loss) plus gain (loss) on sale of assets, depreciation and amortization, non-cash impairment charge, non-cash stock-based compensation included in operating and corporate expenses, net interest expense, other operating gain (loss), gain (loss) on debt extinguishment, income tax (expense) benefit, equity in net income (loss) of nonconsolidated affiliate, non-cash losses, syndication programming amortization less syndication programming payments, revenue from the Federal Communications Commission, or FCC, spectrum incentive auction less related expenses, expenses associated with investments, EBITDA attributable to redeemable noncontrolling interest, acquisitions and dispositions and certain pro-forma cost savings. We use the term consolidated EBITDA because that measure is defined in our 2017 Credit Agreement and 2023 Credit Agreement, and does not include gain (loss) on sale of assets, depreciation and amortization, non-cash impairment charge, non-cash stock-based compensation, net interest expense, other income (loss), gain (loss) on debt extinguishment, income tax (expense) benefit, equity in net income (loss) of nonconsolidated affiliate, non-cash losses, syndication programming amortization less syndication programming payments, revenue from FCC spectrum incentive auction less related expenses, expenses associated with investments, EBITDA attributable to redeemable noncontrolling interest, acquisitions and dispositions and certain pro-forma cost savings.
(5)
Free cash flow is defined as consolidated EBITDA less cash paid for income taxes, net interest expense, capital expenditures (less amounts reimbursed by landlord) and non-recurring cash expenses plus dividend income, and other operating gain (loss). Net interest expense is defined as interest expense, less non-cash interest expense relating to amortization of debt finance costs, and less interest income.
Unaudited Financial Results (In thousands)
Three-Month Period
Ended September 30,
2023
2022
% Change
Net revenue
$
274,417
$
241,014
14
%
Cost of revenue – digital (1)
199,289
157,095
27
%
Operating expenses (1)
53,809
49,294
9
%
Corporate expenses (1)
13,292
9,525
40
%
Depreciation and amortization
7,356
6,554
12
%
Change in fair value of contingent consideration
(5,997
)
734
*
Impairment charge
989
—
*
Foreign currency (gain) loss
548
1,966
(72
)%
Other operating (gain) loss
—
(58
)
(100
)%
Operating income (loss)
5,131
15,904
(68
)%
Interest expense, net
(2,896
)
(2,267
)
28
%
Dividend income
—
6
(100
)%
Realized gain (loss) on marketable securities
(33
)
(473
)
(93
)%
Income (loss) before income taxes
2,202
13,170
(83
)%
Income tax benefit (expense)
530
(4,080
)
*
Net income (loss)
2,732
9,090
(70
)%
Net (income) loss attributable to redeemable noncontrolling interest
(13
)
—
*
Net (income) loss attributable to noncontrolling interest
—
303
(100
)%
Net income (loss) attributable to common stockholders
$
2,719
$
9,393
(71
)%
(1) Cost of revenue, operating expenses and corporate expenses are defined on page 2.
Net revenue in the third quarter of 2023 totaled $274.4 million, up 14% from $241.0 million in the prior-year period. Of the overall increase, $42.6 million was attributable to our digital segment and was primarily due to advertising revenue growth from our digital commercial partnerships business, and due to various acquisitions, which did not fully contribute to our financial results in our digital segment in the comparable period. The overall increase was partially offset by a decrease of $6.1 million attributable to our television segment, primarily due to decreases in political advertising revenue and national advertising revenue, partially offset by increases in local advertising revenue and spectrum usage rights revenue. In addition, the overall increase was partially offset by a decrease of $3.1 million attributable to our audio segment, primarily due to a decrease in political advertising revenue, and decreases in local and national advertising revenue.
Cost of revenue in the third quarter of 2023 totaled $199.3 million, up 27% from $157.1 million in the prior-year period. The increase was primarily due to increased cost of revenue related to advertising revenue growth from our digital commercial partnerships business, and due to various acquisitions, which did not fully contribute to our financial results in our digital segment in the comparable period.
Operating expenses in the third quarter of 2023 totaled $53.8 million, up 9% from $49.3 million in the prior-year period. Of the overall increase, $4.1 million was attributable to our digital segment and was primarily due to an increase in non-cash stock-based compensation, which is mainly a result of the timing of the 2023 annual restricted stock unit (“RSU”) grant to certain employees, which was made in February 2023 compared to the 2022 annual grant, which was made in December 2022, and due to an increase in expenses associated with the increase in digital advertising revenue, an increase in salary expense, and due to various acquisitions, which did not fully contribute to our financial results in our digital segment in the comparable period. In addition, of the overall increase in operating expenses, $0.5 million was attributable to our audio segment primarily due to an increase in non-cash stock-based compensation, which is mainly a result of the 2023 annual RSU grant timing mentioned above, and due to an increase in salaries. The overall increase was partially offset by a decrease of $0.1 million attributable to our television segment.
Corporate expenses in the third quarter of 2023 totaled $13.3 million, up 40% from $9.5 million in the prior-year period. The increase was primarily due to an increase in non-cash stock-based compensation, which is mainly a result of the 2023 annual RSU grant timing mentioned above and RSU grant to our new CEO, and increases in professional service fees.
Nine-Month Period
Ended September 30,
2023
2022
% Change
Net revenue
$
786,804
$
659,881
19
%
Cost of revenue – digital (1)
562,881
431,951
30
%
Operating expenses (1)
163,069
140,527
16
%
Corporate expenses (1)
35,836
26,769
34
%
Depreciation and amortization
20,336
19,212
6
%
Change in fair value of contingent consideration
(8,939
)
6,810
*
Impairment charge
989
—
*
Foreign currency (gain) loss
289
2,112
(86
)%
Other operating (gain) loss
—
(1,011
)
(100
)%
Operating income (loss)
12,343
33,511
(63
)%
Interest expense, net
(9,333
)
(5,309
)
76
%
Dividend income
32
20
60
%
Realized gain (loss) on marketable securities
(94
)
(473
)
(80
)%
Gain (loss) on debt extinguishment
(1,556
)
—
*
Income (loss) before income taxes
1,392
27,749
(95
)%
Income tax benefit (expense)
1,038
(8,305
)
*
Net income (loss)
2,430
19,444
(88
)%
Net (income) loss attributable to redeemable noncontrolling interest
(1
)
—
*
Net (income) loss attributable to noncontrolling interest
342
303
13
%
Net income (loss) attributable to common stockholders
$
2,771
$
19,747
(86
)%
Net revenue for the nine-month period of 2023 totaled $786.8 million, up 19% from $659.9 million in the prior-year period. Of the overall increase, $140.9 million was attributable to our digital segment and was primarily due to advertising revenue growth from our digital commercial partnerships business, and due to various acquisitions, which did not fully contribute to our financial results in our digital segment in the comparable period. The overall increase was partially offset by a decrease of $9.1 million attributable to our television segment, primarily due to decreases in political advertising revenue and national advertising revenue, partially offset by increases in local advertising revenue, spectrum usage rights revenue and retransmission consent revenue. In addition, the overall increase was partially offset by a decrease of $4.9 million attributable to our audio segment, primarily due to a decrease in political advertising revenue, and decreases in local and national advertising revenue.
Cost of revenue for the nine-month period of 2023 totaled $562.9 million, up 30% from $432.0 million in the prior-year period. The increase was due to increased cost of revenue related to advertising revenue growth from our digital commercial partnerships business, and due to various acquisitions, which did not fully contribute to our financial results in our digital segment in the comparable period.
Operating expenses for the nine-month period of 2023 totaled $163.1 million, up 16% from $140.5 million in the prior-year period. Of the overall increase, $18.2 million was attributable to our digital segment and was primarily due to an increase in non-cash stock-based compensation, which is mainly a result of the 2023 annual RSU grant timing mentioned above, and due to an increase in expenses associated with the increase in digital advertising revenue, an increase in salary expense, and due to various acquisitions, which did not fully contribute to our financial results in our digital segment in the comparable period. Additionally, of the overall increase in operating expenses, $0.9 million was attributable to our television segment primarily due to an increase in non-cash stock-based compensation, which is mainly a result of the 2023 annual RSU grant timing mentioned above, partially offset by a decrease in bad debt expense. In addition, of the overall increase in operating expenses, $3.5 million was attributable to our audio segment primarily due to an increase in non-cash stock-based compensation, which is mainly a result of the 2023 annual RSU grant timing mentioned above, and due to an increase in salaries and increased rent expense in the temporary office space until the move to our new permanent offices, which was completed in June 2023.
Corporate expenses for the nine-month period of 2023 totaled $35.8 million, up 34% from $26.8 million in the prior-year period. The increase was primarily due to an increase in non-cash stock-based compensation, which is mainly a result of the 2023 annual RSU grant timing mentioned above and RSU grant to our new CEO, and increases in professional service fees, audit fees and rent expense.
Balance Sheet and Related Metrics
Cash and marketable securities as of September 30, 2023 totaled $128.7 million. Total debt as defined in the Company’s credit agreement was $211.1 million. Net of $50 million of cash and marketable securities, total leverage as defined in the Company’s credit agreement was 2.1 times as of September 30, 2023. Net of total cash and marketable securities, total leverage was 1.1 times.
Unaudited Segment Results (In thousands)
Three-Month Period
Nine-Month Period
Ended September 30,
Ended September 30,
2023
2022
% Change
2023
2022
% Change
Net Revenue
Digital
$
231,487
$
188,877
23
%
$
657,865
$
516,966
27
%
Television
29,552
35,678
(17
)%
89,807
98,918
(9
)%
Audio
13,378
16,459
(19
)%
39,132
43,997
(11
)%
Total
$
274,417
$
241,014
14
%
$
786,804
$
659,881
19
%
Cost of Revenue – digital (1)
Digital
$
199,289
$
157,095
27
%
$
562,881
$
431,951
30
%
Operating Expenses (1)
Digital
23,173
19,080
21
%
69,755
51,577
35
%
Television
19,892
20,003
(1
)%
59,859
58,969
2
%
Audio
10,744
10,211
5
%
33,455
29,981
12
%
Total
$
53,809
$
49,294
9
%
$
163,069
$
140,527
16
%
Corporate Expenses (1)
$
13,292
$
9,525
40
%
$
35,836
$
26,769
34
%
Consolidated EBITDA (1)
$
14,185
$
25,972
(45
)%
$
41,420
$
66,566
(38
)%
(1) Cost of revenue, operating expenses, corporate expenses, and consolidated EBITDA are defined on page 2.
Notice of Conference Call
Entravision Communications Corporation will hold a conference call to discuss its third quarter 2023 results on Thursday, November 2, 2023 at 5:00 p.m. Eastern Time. To access the conference call, please dial (844) 836-8739 (U.S.) or (412) 317-5440 (Int’l) ten minutes prior to the start time and reference Conference ID number 10182461. The call will also be available via live webcast on the investor relations portion of the Company’s website located at www.entravision.com.
About Entravision Communications Corporation
Entravision is a global advertising solutions, media and technology company. Over the past three decades, we have strategically evolved into a digital powerhouse, expertly connecting brands to consumers in the U.S., Latin America, Europe, Asia and Africa. Our digital segment, the company’s largest by revenue, offers a full suite of end-to-end advertising services in 40 countries. We have commercial partnerships with Meta, X Corp. (formerly known as Twitter), TikTok, and Spotify, and marketers can use our Smadex and other platforms to deliver targeted advertising to audiences around the globe. In the U.S., we maintain a diversified portfolio of television and radio stations that target Hispanic audiences and complement our global digital services. Entravision remains the largest affiliate group of the Univision and UniMás television networks. Shares of Entravision Class A Common Stock trade on the NYSE under ticker: EVC. Learn more about our offerings at entravision.com or connect with us on LinkedIn and Facebook.
Forward-Looking Statements
This press release contains certain forward-looking statements. These forward-looking statements, which are included in accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, may involve known and unknown risks, uncertainties and other factors that may cause the Company’s actual results and performance in future periods to be materially different from any future results or performance suggested by the forward-looking statements in this press release. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that actual results will not differ materially from these expectations, and the Company disclaims any duty to update any forward-looking statements made by the Company. From time to time, these risks, uncertainties and other factors are discussed in the Company’s filings with the Securities and Exchange Commission.
(Financial Table Follows)
Entravision Communications Corporation
Consolidated Statements of Operations
(In thousands, except share and per share data)
(Unaudited)
Three-Month Period
Nine-Month Period
Ended September 30,
Ended September 30,
2023
2022
2023
2022
Net revenue
$
274,417
$
241,014
$
786,804
$
659,881
Expenses:
Cost of revenue – digital
199,289
157,095
562,881
431,951
Direct operating expenses
31,855
30,086
94,782
87,505
Selling, general and administrative expenses
21,954
19,208
68,287
53,022
Corporate expenses
13,292
9,525
35,836
26,769
Depreciation and amortization
7,356
6,554
20,336
19,212
Change in fair value of contingent consideration
(5,997
)
734
(8,939
)
6,810
Impairment charge
989
—
989
—
Foreign currency (gain) loss
548
1,966
289
2,112
Other operating (gain) loss
—
(58
)
—
(1,011
)
269,286
225,110
774,461
626,370
Operating income (loss)
5,131
15,904
12,343
33,511
Interest expense
(4,454
)
(3,055
)
(12,788
)
(7,225
)
Interest income
1,558
788
3,455
1,916
Dividend income
—
6
32
20
Realized gain (loss) on marketable securities
(33
)
(473
)
(94
)
(473
)
Gain (loss) on debt extinguishment
—
—
(1,556
)
—
Income (loss) before income taxes
2,202
13,170
1,392
27,749
Income tax benefit (expense)
530
(4,080
)
1,038
(8,305
)
Net income (loss)
2,732
9,090
2,430
19,444
Net (income) loss attributable to redeemable noncontrolling interest
(13
)
—
(1
)
—
Net (income) loss attributable to noncontrolling interest
—
303
342
303
Net income (loss) attributable to common stockholders
$
2,719
$
9,393
$
2,771
$
19,747
Basic and diluted earnings per share:
Net income (loss) per share attributable to common stockholders, basic and diluted
$
0.03
$
0.11
$
0.03
$
0.23
Cash dividends declared per common share, basic and diluted
$
0.05
$
0.03
$
0.15
$
0.08
Weighted average common shares outstanding, basic
87,995,567
84,945,873
87,803,770
85,469,675
Weighted average common shares outstanding, diluted
89,888,721
87,417,501
89,835,363
87,671,726
Entravision Communications Corporation
Consolidated Balance Sheets
(In thousands; unaudited)
September 30,
December 31,
2023
2022
ASSETS
Current assets
Cash and cash equivalents
$
110,624
$
110,691
Marketable securities
18,063
44,528
Restricted cash
765
753
Trade receivables, net of allowance for doubtful accounts
211,175
224,713
Assets held for sale
1,223
—
Prepaid expenses and other current assets
43,404
27,238
Total current assets
385,254
407,923
Property and equipment, net
67,750
61,362
Intangible assets subject to amortization, net
55,706
61,811
Intangible assets not subject to amortization
207,453
207,453
Goodwill
90,672
86,991
Deferred income taxes
2,591
2,591
Operating leases right of use asset
45,159
44,413
Other assets
21,550
8,297
Total assets
$
876,135
$
880,841
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current maturities of long-term debt
$
8,643
$
5,256
Accounts payable and accrued expenses
240,417
237,415
Operating lease liabilities
7,150
5,570
Total current liabilities
256,210
248,241
Long-term debt, less current maturities, net of unamortized debt issuance costs
201,301
207,292
Long-term operating lease liabilities
46,849
42,151
Other long-term liabilities
17,294
30,198
Deferred income taxes
68,464
67,590
Total liabilities
590,118
595,472
Redeemable noncontrolling interest
47,301
—
Stockholders’ equity
Class A common stock
8
8
Class U common stock
1
1
Additional paid-in capital
742,040
776,298
Accumulated deficit
(501,604
)
(504,375
)
Accumulated other comprehensive income (loss)
(1,729
)
(1,510
)
Total stockholders’ equity
238,716
270,422
Noncontrolling interest
–
14,947
Total equity
238,716
285,369
Total liabilities and equity
$
876,135
$
880,841
Entravision Communications Corporation
Consolidated Statements of Cash Flows
(In thousands; unaudited)
Three-Month Period
Nine-Month Period
Ended September 30,
Ended September 30,
2023
2022
2023
2022
Cash flows from operating activities:
Net income (loss)
$
2,732
$
9,090
$
2,430
$
19,444
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
7,356
6,554
20,336
19,212
Impairment charge
989
—
989
—
Deferred income taxes
(40
)
62
(169
)
(3,151
)
Non-cash interest
85
365
264
1,076
Amortization of syndication contracts
118
117
358
348
Payments on syndication contracts
(125
)
(70
)
(366
)
(304
)
Non-cash stock-based compensation
7,032
2,786
17,053
7,995
(Gain) loss on marketable securities
33
473
94
473
(Gain) loss on disposal of property and equipment
(29
)
39
(11
)
(599
)
(Gain) loss on debt extinguishment
—
—
1,556
—
Change in fair value of contingent consideration
(5,997
)
734
(8,939
)
6,810
Changes in assets and liabilities:
(Increase) decrease in accounts receivable
(1,219
)
4,708
16,261
22,296
(Increase) decrease in prepaid expenses and other current assets, operating leases right of use asset and other assets
(3,902
)
1,069
(7,199
)
(183
)
Increase (decrease) in accounts payable, accrued expenses and other liabilities
14,993
(10,691
)
26,460
4,725
Net cash provided by operating activities
22,026
15,236
69,117
78,142
Cash flows from investing activities:
Proceeds from sale of property and equipment and intangibles
33
—
83
2,671
Purchases of property and equipment
(5,023
)
(4,673
)
(19,881
)
(7,882
)
Purchase of a business, net of cash acquired
—
—
(6,930
)
—
Investment in variable interest entities, net of cash consolidated
—
(5,164
)
—
(5,164
)
Purchases of marketable securities
(1,183
)
(5,241
)
(11,355
)
(92,480
)
Proceeds from sale of marketable securities
10,000
36,369
38,093
46,868
Purchases of investments
(100
)
—
(300
)
—
Issuance of loan receivable
(5,550
)
—
(13,636
)
—
Net cash provided by (used in) investing activities
(1,823
)
21,291
(13,926
)
(55,987
)
Cash flows from financing activities:
Proceeds from stock option exercises
—
—
554
218
Tax payments related to shares withheld for share-based compensation plans
(63
)
—
(158
)
(267
)
Payments on debt
(1,250
)
(1,001
)
(214,495
)
(2,501
)
Dividends paid
(4,400
)
(2,124
)
(13,182
)
(6,415
)
Distributions to noncontrolling interest
—
—
(3,380
)
—
Repurchase of Class A common stock
—
—
—
(11,280
)
Payment of contingent consideration
(3,403
)
(21,734
)
(35,113
)
(65,340
)
Principal payments under finance lease obligation
(37
)
(33
)
(113
)
(72
)
Proceeds from borrowings on debt
1
—
212,420
—
Payments for debt issuance costs
—
—
(1,777
)
—
Net cash used in financing activities
(9,152
)
(24,892
)
(55,244
)
(85,657
)
Effect of exchange rates on cash, cash equivalents and restricted cash
(3
)
5
(2
)
(1
)
Net increase (decrease) in cash, cash equivalents and restricted cash
11,048
11,640
(55
)
(63,503
)
Cash, cash equivalents and restricted cash:
Beginning
100,341
110,700
111,444
185,843
Ending
$
111,389
$
122,340
$
111,389
$
122,340
Entravision Communications Corporation
Reconciliation of Consolidated EBITDA to Cash Flows From Operating Activities
(In thousands; unaudited)
The most directly comparable GAAP financial measure is operating cash flow. A reconciliation of this non-GAAP measure to cash flows from operating activities for each of the periods presented is as follows:
Three-Month Period
Nine-Month Period
Ended September 30,
Ended September 30,
2023
2022
2023
2022
Consolidated EBITDA (1)
$
14,185
$
25,972
$
41,420
$
66,566
EBITDA attributable to redeemable noncontrolling interest
319
—
736
—
EBITDA attributable to noncontrolling interest
—
(5
)
230
(5
)
Interest expense
(4,454
)
(3,055
)
(12,788
)
(7,225
)
Interest income
1,558
788
3,455
1,916
Dividend income
–
6
32
20
Realized gain (loss) on marketable securities
(33
)
(473
)
(94
)
(473
)
Income tax expense
530
(4,080
)
1,038
(8,305
)
Amortization of syndication contracts
(118
)
(117
)
(358
)
(348
)
Payments on syndication contracts
125
70
366
304
Non-cash stock-based compensation included in direct operating expenses
(2,637
)
(981
)
(7,218
)
(2,878
)
Non-cash stock-based compensation included in corporate expenses
(4,395
)
(1,805
)
(9,835
)
(5,117
)
Depreciation and amortization
(7,356
)
(6,554
)
(20,336
)
(19,212
)
Change in fair value of contingent consideration
5,997
(734
)
8,939
(6,810
)
Impairment charge
(989
)
—
(989
)
—
Non-recurring cash severance charge
—
—
(612
)
—
Other operating gain (loss)
—
58
—
1,011
Gain (loss) on debt extinguishment
—
—
(1,556
)
—
Net (income) loss attributable to redeemable noncontrolling interest
(13
)
—
(1
)
—
Net (income) loss attributable to noncontrolling interest
—
303
342
303
Net income (loss) attributable to common stockholders
2,719
9,393
2,771
19,747
Depreciation and amortization
7,356
6,554
20,336
19,212
Impairment charge
989
—
989
—
Deferred income taxes
(40
)
62
(169
)
(3,151
)
Non-cash interest
85
365
264
1,076
Amortization of syndication contracts
118
117
358
348
Payments on syndication contracts
(125
)
(70
)
(366
)
(304
)
Non-cash stock-based compensation
7,032
2,786
17,053
7,995
Realized (gain) loss on marketable securities
33
473
94
473
(Gain) loss on debt extinguishment
—
—
1,556
—
(Gain) loss on disposal of property and equipment
(29
)
39
(11
)
(599
)
Change in fair value of contingent consideration
(5,997
)
734
(8,939
)
6,810
Net income (loss) attributable to redeemable noncontrolling interest
13
—
1
—
Net income (loss) attributable to noncontrolling interest
—
(303
)
(342
)
(303
)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable
(1,219
)
4,708
16,261
22,296
(Increase) decrease in prepaid expenses and other current assets, operating leases right of use asset and other assets
(3,902
)
1,069
(7,199
)
(183
)
Increase (decrease) in accounts payable, accrued expenses and other liabilities
14,993
(10,691
)
26,460
4,725
Cash flows from operating activities
22,026
15,236
69,117
78,142
(1)
Consolidated EBITDA is defined on page 2.
Entravision Communications Corporation
Reconciliation of Free Cash Flow to Cash Flows From Operating Activities
(In thousands; unaudited)
The most directly comparable GAAP financial measure is operating cash flow. A reconciliation of this non-GAAP measure to cash flows from operating activities for each of the periods presented is as follows:
Three-Month Period
Nine-Month Period
Ended September 30,
Ended September 30,
2023
2022
2023
2022
Consolidated EBITDA (1)
$
14,185
$
25,972
$
41,420
$
66,566
Net interest expense (1)
(2,811
)
(1,902
)
(9,069
)
(4,233
)
Dividend income
—
6
32
20
Cash paid for income taxes
(2,347
)
(4,018
)
(5,929
)
(11,456
)
Capital expenditures (2)
(5,023
)
(4,673
)
(19,881
)
(7,882
)
Landlord incentive reimbursement
—
—
3,509
—
Non-recurring cash severance charge
—
—
(612
)
—
Other operating gain (loss)
—
58
—
1,011
Free cash flow (1)
4,004
15,443
9,470
44,026
Capital expenditures (2)
5,023
4,673
19,881
7,882
Landlord incentive reimbursement
—
—
(3,509
)
—
EBITDA attributable to redeemable noncontrolling interest
319
—
736
—
EBITDA attributable to noncontrolling interest
—
(5
)
230
(5
)
(Gain) loss on disposal of property and equipment
(29
)
39
(11
)
(599
)
Cash paid for income taxes
2,347
4,018
5,929
11,456
Deferred income taxes
(40
)
62
(169
)
(3,151
)
Income tax (expense) benefit
530
(4,080
)
1,038
(8,305
)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable
(1,219
)
4,708
16,261
22,296
(Increase) decrease in prepaid expenses and other current assets, operating leases right of use asset and other assets
(3,902
)
1,069
(7,199
)
(183
)
Increase (decrease) in accounts payable, accrued expenses and other liabilities
14,993
(10,691
)
26,460
4,725
Cash Flows From Operating Activities
$
22,026
$
15,236
$
69,117
$
78,142
(1)
Consolidated EBITDA, net interest expense, and free cash flow are defined on page 2.
(2)
Capital expenditures are not part of the consolidated statement of operations.
Christopher T. Young Chief Financial Officer and Treasurer Entravision Communications Corporation 310-447-3870
Reported net sales of $448 million, with gross margin expanding 400 basis points
Operating income of $32 million; adjusted operating income grew 8% to $46 million
EPS of $0.15; adjusted EPS of $0.24, at the high end of the Company’s outlook
Net operating cash flow improved $80 million year to date; maintains full year 2023 free cash flow outlook of at least $110 million
LAKE ZURICH, Ill.–(BUSINESS WIRE)– ACCO Brands Corporation (NYSE: ACCO) today reported financial results for the third quarter and nine months ended September 30, 2023.
“We are pleased with our overall performance and delivered significant gross margin improvement in the third quarter. Gross margins expanded 400 basis points year over year. This improvement reflects the continued recovery of margin from our pricing actions that lagged the pace of inflation last year, as well as cost savings from our restructuring and footprint rationalization efforts. However, macroeconomic weakness, with prolonged softer global demand for technology accessories, and a stronger U.S. dollar led to lower than expected sales in the quarter. Our updated full year sales outlook now reflects a continuing softer demand environment. We remain confident our margin recovery and cost mitigation efforts will drive operating income growth and improved cash flow,” said Tom Tedford, President and Chief Executive Officer of ACCO Brands.
Mr. Tedford concluded, “With our strong cash flow we have reduced debt, and lowered our leverage ratio, positioning us well for the future. We are evaluating ways to further optimize our cost structure and simplify our operations to better leverage our global scale. In addition, we are focused on accelerating our new product development and innovation, as this is a critical component for delivering organic revenue growth over the long term. I am confident that these initiatives, along with our geographically diverse portfolio of leading brands and talented employees, will enable us to further strengthen the company going forward. We are committed to expanding our margin profile and using our strong cash flow to support our quarterly dividend and reduce debt.”
Third Quarter Results
Net sales declined 7.7 percent to $448.0 million from $485.6 million in 2022. Comparable sales fell 9.9 percent, as favorable foreign exchange increased sales by $10.5 million, or 2.2 percent. Both reported and comparable sales declines reflect softer demand due to a weaker macroeconomic environment which has also led to lower global technology spending, and the stabilization of return to office trends.
Operating income was $32.2 million versus an operating loss of $63.0 million in 2022. In 2022, the operating loss was due to a non-cash goodwill impairment charge of $98.7 million related to the North America segment. In 2023, we recognized restructuring charges in EMEA of $3.0 million related to our continued footprint rationalization program. Adjusted operating income increased 7.5 percent to $46.0 million, from $42.8 million in the prior year. This increase reflects recovery of gross margin from the effect of cumulative global price increases and cost reduction actions. This was partially offset by negative fixed cost leverage, and higher SG&A expense primarily due to an increase in incentive compensation compared to the prior year.
The Company reported net income of $14.9 million, or $0.15 per share, compared with a prior year net loss of $68.7 million, or ($0.73) per share. The increase in reported net income was primarily due to the non-repeat of a goodwill impairment charge, partially offset by higher restructuring and income tax expense in the current year. Adjusted net income was $23.1 million, or $0.24 per share, compared with $24.1 million, or $0.25 per share in 2022. Reported and adjusted net income reflects higher interest and non-operating pension expenses.
Business Segment Results
ACCO Brands North America – Third quarter segment net sales of $218.9 million decreased 14.9 percent versus the prior year. Adverse foreign exchange reduced sales by 0.3 percent. Comparable sales of $219.6 million were down 14.6 percent. Both decreases reflect softer demand due to a weaker macroeconomic environment, which has caused lower volumes for technology accessories and certain office products, as well as tight inventory management by retail customers. This more than offset the effect of cumulative pricing actions.
Third quarter operating income in North America was $19.9 million versus an operating loss of $78.4 million a year earlier. The operating loss in 2022 was due to a $98.7 million non-cash goodwill impairment charge. Adjusted operating income was $25.5 million compared to $25.8 million a year ago. The benefit of pricing and cost savings actions was more than offset by the impact of lower sales, negative fixed cost leverage and higher incentive compensation.
ACCO Brands EMEA – Third quarter segment net sales of $126.6 million decreased 2.8 percent versus the prior year. Favorable foreign exchange increased sales by 5.4 percent. Comparable sales of $119.6 million decreased 8.2 percent versus the prior-year period. Both reported and comparable sales declines reflect reduced demand for technology accessories and lower overall demand in the region. This more than offset the effect of cumulative pricing actions.
Third quarter operating income in EMEA was $6.9 million compared to $4.9 million a year earlier, and adjusted operating income was $13.6 million compared to $7.4 million a year ago. In 2023, operating income includes a restructuring charge of $3.0 million related to our footprint rationalization program. The increases in both reported operating income and adjusted operating income reflect recovery of gross margins from price increases and cost savings actions, more than offsetting negative fixed cost leverage and higher incentive compensation.
ACCO Brands International – Thirdquarter segment sales of $102.5 million increased 4.5 percent versus the prior year. Favorable foreign exchange increased sales by 4.3 percent. Comparable sales of $98.3 million increased 0.2 percent versus the year-ago period. Both sales increases reflect stronger pricing and volume growth in Latin America, more than offsetting the impact of weaker economic conditions in Australia and Asia.
Third quarter operating income in the International segment was $16.4 million versus $17.3 million a year earlier. Adjusted operating income was $17.9 million compared to $19.2 million a year ago. The decline in both reflects increased spending to support go-to-market strategies and a favorable reduction of our bad debt reserve during the prior year, which more than offset pricing and cost savings actions.
Nine Month Results
Net sales decreased 7.2 percent to $1,344.2 million from $1,448.2 million in 2022. Adverse foreign exchange reduced sales by $0.9 million, or 0.1 percent. Comparable sales decreased 7.1 percent. Both reported and comparable sales declines reflect lower sales of technology accessories and softer demand in North America and EMEA due to the challenging macroeconomic environment, as well as tight inventory management by our customers. These more than offset the benefit of price increases across all segments, and volume growth in the International segment.
Operating income of $97.5 million compares to an operating loss of $0.8 million in 2022. The operating loss in 2022 was primarily due to a non-cash goodwill impairment charge of $98.7 million, partially offset by the change in value of the contingent consideration. In 2023, we recorded $6.3 million of restructuring charges, largely related to our footprint rationalization program. Adjusted operating income of $136.5 million increased from $123.5 million last year. Both reported and adjusted operating income increases reflect the benefit of global price increases and cost reduction initiatives, partially offset by negative fixed cost leverage and higher SG&A expense primarily due to increased incentive compensation.
Net income was $37.6 million, or $0.39 per share, compared with a net loss of $32.0 million, or ($0.33) per share, in 2022. The increase in reported net income was primarily due to the non-repeat of a goodwill impairment charge, partially offset by higher restructuring and income tax expense in the current year. Adjusted net income was $68.1 million, compared with $70.5 million in 2022, and adjusted earnings per share were $0.70 compared with $0.73 in 2022. Reported and adjusted net income reflect higher interest and non-operating pension expenses.
Capital Allocation and Dividend
Year to date, the Company significantly improved its operating cash flow to $70.7 million versus a cash outflow of $9.6 million in the prior year, driven primarily by improved working capital management. Adjusted free cash flow improved by $75.2 million and was an inflow of $63.2 million versus an outflow of $12.0 million a year earlier. Adjusted free cash flow in 2022 excludes the contingent earnout payment. At the end of the third quarter of 2023, our consolidated leverage ratio was 3.8x.
On October 27, 2023, ACCO Brands announced that its board of directors declared a regular quarterly cash dividend of $0.075 per share. The dividend will be paid on December 6, 2023, to stockholders of record at the close of business on November 15, 2023.
Updated Full Year 2023 Outlook
Reported sales for 2023 are now expected to be down 6 percent to 7 percent. The full year adjusted EPS outlook is now expected to be in the range of $1.03 to $1.07. Low double-digit growth in adjusted operating income is expected to be mostly offset by higher interest and non-cash, non-operating pension expenses. The update reflects the expectation of continued soft demand due to economic uncertainty and a stronger U.S. dollar. The Company is maintaining its 2023 free cash flow outlook to at least $110 million and now expects to end the year with a consolidated leverage ratio of approximately 3.5x.
Webcast
At 8:30 a.m. ET on November 3, 2023, ACCO Brands Corporation will host a conference call to discuss the Company’s third quarter 2023 results. The call will be broadcast live via webcast. The webcast can be accessed through the Investor Relations section of www.accobrands.com. The webcast will be in listen-only mode and will be available for replay following the event.
About ACCO Brands Corporation
ACCO Brands, the Home of Great Brands Built by Great People, designs, manufactures and markets consumer and end-user products that help people work, learn, play and thrive. Our widely recognized brands include AT-A-GLANCE®, Five Star®, Kensington®, Leitz®, Mead®, PowerA®, Swingline®, Tilibra® and many others. More information about ACCO Brands Corporation (NYSE: ACCO) can be found at www.accobrands.com.
Non-GAAP Financial Measures
In addition to financial results reported in accordance with generally accepted accounting principles (GAAP), we have provided certain non-GAAP financial information in this earnings release to aid investors in understanding the Company’s performance. Each non-GAAP financial measure is defined and reconciled to its most directly comparable GAAP financial measure in the “About Non-GAAP Financial Measures” section of this earnings release.
Forward-Looking Statements
Statements contained herein, other than statements of historical fact, particularly those anticipating future financial performance, business prospects, growth, strategies, business operations and similar matters, results of operations, liquidity and financial condition, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs and assumptions of management based on information available to us at the time such statements are made. These statements, which are generally identifiable by the use of the words “will,” “believe,” “expect,” “intend,” “anticipate,” “estimate,” “forecast,” “project,” “plan,” and similar expressions, are subject to certain risks and uncertainties, are made as of the date hereof, and we undertake no duty or obligation to update them. Because actual results may differ materially from those suggested or implied by such forward-looking statements, you should not place undue reliance on them when deciding whether to buy, sell or hold the Company’s securities.
Our outlook is based on certain assumptions, which we believe to be reasonable under the circumstances. These include, without limitation, assumptions regarding the impact of inflation and global geopolitical and economic uncertainties, fluctuations in foreign currency exchange rates and acquisitions; and the other factors described below.
Among the factors that could cause our actual results to differ materially from our forward-looking statements are: our ability to successfully execute our restructuring plans and realize the benefits of our productivity initiatives; our ability to obtain additional price increases and realize longer-term cost reductions; the ongoing impact of the COVID-19 pandemic; a relatively limited number of large customers account for a significant percentage of our sales; issues that influence customer and consumer discretionary spending during periods of economic uncertainty or weakness; risks associated with foreign currency exchange rate fluctuations; challenges related to the highly competitive business environment in which we operate; our ability to develop and market innovative products that meet consumer demands and to expand into new and adjacent product categories that are experiencing higher growth rates; our ability to successfully expand our business in emerging markets and the exposure to greater financial, operational, regulatory, compliance and other risks in such markets; the continued decline in the use of certain of our products; risks associated with seasonality; the sufficiency of investment returns on pension assets, risks related to actuarial assumptions, changes in government regulations and changes in the unfunded liabilities of a multi-employer pension plan; any impairment of our intangible assets; our ability to secure, protect and maintain our intellectual property rights, and our ability to license rights from major gaming console makers and video game publishers to support our gaming accessories business; continued disruptions in the global supply chain; risks associated with inflation and other changes in the cost or availability of raw materials, transportation, labor, and other necessary supplies and services and the cost of finished goods; risks associated with outsourcing production of certain of our products, information technology systems and other administrative functions; the failure, inadequacy or interruption of our information technology systems or its supporting infrastructure; risks associated with a cybersecurity incident or information security breach, including that related to a disclosure of personally identifiable information; our ability to grow profitably through acquisitions; our ability to successfully integrate acquisitions and achieve the financial and other results anticipated at the time of acquisition, including planned synergies; risks associated with our indebtedness, including limitations imposed by restrictive covenants, our debt service obligations, and our ability to comply with financial ratios and tests; a change in or discontinuance of our stock repurchase program or the payment of dividends; product liability claims, recalls or regulatory actions; the impact of litigation or other legal proceedings; our failure to comply with applicable laws, rules and regulations and self-regulatory requirements, the costs of compliance and the impact of changes in such laws; our ability to attract and retain qualified personnel; the volatility of our stock price; risks associated with circumstances outside our control, including those caused by public health crises, such as the occurrence of contagious diseases, severe weather events, war, terrorism and other geopolitical incidents; and other risks and uncertainties described in “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, and in other reports we file with the Securities and Exchange Commission.
ACCO Brands Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
September 30, 2023
December 31, 2022
(in millions)
(unaudited)
Assets
Current assets:
Cash and cash equivalents
$
73.7
$
62.2
Accounts receivable, net
351.7
384.1
Inventories
368.5
395.2
Other current assets
41.1
40.8
Total current assets
835.0
882.3
Total property, plant and equipment
585.7
589.2
Less: accumulated depreciation
(417.5
)
(404.1
)
Property, plant and equipment, net
168.2
185.1
Right of use asset, leases
86.4
88.8
Deferred income taxes
92.5
99.7
Goodwill
664.8
671.5
Identifiable intangibles, net
814.4
847.0
Other non-current assets
22.4
20.3
Total assets
$
2,683.7
$
2,794.7
Liabilities and Stockholders’ Equity
Current liabilities:
Notes payable
$
2.9
$
10.3
Current portion of long-term debt
67.2
49.7
Accounts payable
173.0
239.5
Accrued compensation
47.1
38.3
Accrued customer program liabilities
97.0
103.3
Lease liabilities
19.2
21.2
Other current liabilities
112.5
126.7
Total current liabilities
518.9
589.0
Long-term debt, net
892.2
936.5
Long-term lease liabilities
73.9
75.2
Deferred income taxes
134.0
144.1
Pension and post-retirement benefit obligations
140.3
155.5
Other non-current liabilities
86.4
84.3
Total liabilities
1,845.7
1,984.6
Stockholders’ equity:
Common stock
1.0
1.0
Treasury stock
(45.1
)
(43.4
)
Paid-in capital
1,908.5
1,897.2
Accumulated other comprehensive loss
(537.5
)
(540.3
)
Accumulated deficit
(488.9
)
(504.4
)
Total stockholders’ equity
838.0
810.1
Total liabilities and stockholders’ equity
$
2,683.7
$
2,794.7
ACCO Brands Corporation and Subsidiaries
Consolidated Statements of Income (Loss) (Unaudited)
(In millions, except per share data)
Three Months Ended September 30,
Nine Months Ended September 30,
2023
2022
% Change
2023
2022
% Change
Net sales
$
448.0
$
485.6
(7.7
)%
$
1,344.2
$
1,448.2
(7.2
)%
Cost of products sold
303.2
348.2
(12.9
)%
915.9
1,041.2
(12.0
)%
Gross profit
144.8
137.4
5.4
%
428.3
407.0
5.2
%
Operating costs and expenses:
Selling, general and administrative expenses
98.8
93.9
5.2
%
291.8
284.3
2.6
%
Amortization of intangibles
10.8
9.9
9.1
%
32.7
31.5
3.8
%
Restructuring charges
3.0
0.1
NM
6.3
2.3
NM
Goodwill impairment
—
98.7
NM
—
98.7
NM
Change in fair value of contingent consideration
—
(2.2
)
NM
—
(9.0
)
NM
Total operating costs and expenses
112.6
200.4
(43.8
)%
330.8
407.8
(18.9
)%
Operating income (loss)
32.2
(63.0
)
NM
97.5
(0.8
)
NM
Non-operating expense (income):
Interest expense
15.6
12.1
28.9
%
45.0
32.6
38.0
%
Interest income
(1.6
)
(2.6
)
(38.5
)%
(6.2
)
(6.2
)
NM
Non-operating pension expense (income)
0.2
(0.5
)
NM
0.5
(3.2
)
NM
Other income, net
(3.6
)
(7.4
)
(51.4
)%
(2.1
)
(10.2
)
(79.4
)%
Income (loss) before income tax
21.6
(64.6
)
NM
60.3
(13.8
)
NM
Income tax expense
6.7
4.1
63.4
%
22.7
18.2
24.7
%
Net income (loss)
$
14.9
$
(68.7
)
NM
$
37.6
$
(32.0
)
NM
Per share:
Basic income (loss) per share
$
0.16
$
(0.73
)
NM
$
0.40
$
(0.33
)
NM
Diluted income (loss) per share
$
0.15
$
(0.73
)
NM
$
0.39
$
(0.33
)
NM
Weighted average number of shares outstanding:
Basic
95.4
94.5
95.2
95.6
Diluted
96.7
94.5
96.8
95.6
Cash dividends declared per common share
$
0.075
$
0.075
$
0.225
$
0.225
Statistics (as a % of Net sales, except Income tax rate)
Three Months Ended September 30,
Nine Months Ended September 30,
2023
2022
2023
2022
Gross profit (Net sales, less Cost of products sold)
32.3
%
28.3
%
31.9
%
28.1
%
Selling, general and administrative expenses
22.1
%
19.3
%
21.7
%
19.6
%
Operating income (loss)
7.2
%
(13.0
)%
7.3
%
(0.1
)%
Income (loss) before income tax
4.8
%
(13.3
)%
4.5
%
(1.0
)%
Net income (loss)
3.3
%
(14.1
)%
2.8
%
(2.2
)%
Income tax rate
31.0
%
(6.3
)%
37.6
%
(131.9
)%
ACCO Brands Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30,
(in millions)
2023
2022
Operating activities
Net income (loss)
$
37.6
$
(32.0
)
Payments of contingent consideration
—
(9.2
)
Loss on disposal of assets
(0.3
)
(0.1
)
Change in fair value of contingent liability
—
(9.0
)
Depreciation
25.2
28.6
Amortization of debt issuance costs
2.3
2.0
Amortization of intangibles
32.7
31.5
Stock-based compensation
10.4
7.8
Non-cash charge for goodwill impairment
—
98.7
Changes in operating assets and liabilities:
Accounts receivable
30.9
48.8
Inventories
35.5
(20.9
)
Other assets
(5.4
)
(20.1
)
Accounts payable
(72.8
)
(80.8
)
Accrued expenses and other liabilities
(17.8
)
(47.2
)
Accrued income taxes
(7.6
)
(7.7
)
Net cash provided (used) by operating activities
70.7
(9.6
)
Investing activities
Additions to property, plant and equipment
(9.7
)
(11.8
)
Proceeds from the disposition of assets
2.2
0.2
Net cash used by investing activities
(7.5
)
(11.6
)
Financing activities
Proceeds from long-term borrowings
121.9
218.0
Repayments of long-term debt
(145.4
)
(95.2
)
Repayments of notes payable, net
(7.3
)
(7.6
)
Dividends paid
(21.4
)
(21.5
)
Payments of contingent consideration
—
(17.8
)
Repurchases of common stock
—
(19.4
)
Payments related to tax withholding for stock-based compensation
(1.7
)
(2.5
)
Proceeds from the exercise of stock options
—
4.3
Net cash (used) provided by financing activities
(53.9
)
58.3
Effect of foreign exchange rate changes on cash and cash equivalents
2.2
(0.3
)
Net increase in cash and cash equivalents
11.5
36.8
Cash and cash equivalents
Beginning of the period
62.2
41.2
End of the period
$
73.7
$
78.0
About Non-GAAP Financial Measures
We explain below how we calculate each of our non-GAAP financial measures. This is followed by a reconciliation of our current period and historical non-GAAP financial measures to the most directly comparable GAAP financial measures.
We use our non-GAAP financial measures both to explain our results to stockholders and the investment community and in the internal evaluation and management of our business. We believe our non-GAAP financial measures provide management and investors with a more complete understanding of our underlying operational results and trends, facilitate meaningful period-to-period comparisons and enhance an overall understanding of our past and future financial performance.
Our non-GAAP financial measures exclude certain items that may have a material impact upon our reported financial results such as restructuring charges, transaction and integration expenses associated with material acquisitions, the impact of foreign currency exchange rate fluctuations and acquisitions, unusual tax items, goodwill impairment charges, and other non-recurring items that we consider to be outside of our core operations. These measures should not be considered in isolation or as a substitute for, or superior to, the directly comparable GAAP financial measures and should be read in connection with the Company’s financial statements presented in accordance with GAAP.
Our non-GAAP financial measures include the following:
Comparable Sales: Represents net sales excluding the impact of material acquisitions, if any, with current-period foreign operation sales translated at prior-year currency rates. We believe comparable sales are useful to investors and management because they reflect underlying sales and sales trends without the effect of material acquisitions and fluctuations in foreign exchange rates and facilitate meaningful period-to-period comparisons. We sometimes refer to comparable sales as comparable net sales.
Adjusted Selling, General and Administrative (SG&A) Expenses: Represents selling, general and administrative expenses excluding transaction and integration expenses related to material acquisitions. We believe adjusted SG&A expenses are useful to investors and management because they reflect underlying SG&A expenses without the effect of expenses related to acquiring and integrating acquisitions that we consider to be outside our core operations and facilitate meaningful period-to-period comparisons.
Adjusted Operating Income (Loss)/Adjusted Income (Loss) Before Taxes/Adjusted Net Income (Loss)/Adjusted Net Income (Loss) Per Diluted Share:Represents operating income (loss), income (loss) before taxes, net income (loss), and net income per diluted share excluding restructuring and goodwill impairment charges, the amortization of intangibles, the amortization of the step-up in value of inventory, the change in fair value of contingent consideration, transaction and integration expenses associated with material acquisitions, non-recurring items in interest expense or other income/expense such as expenses associated with debt refinancing, a bond redemption, or a pension curtailment, and other non-recurring items as well as all unusual and discrete income tax adjustments, including income tax related to the foregoing. We believe these adjusted non-GAAP financial measures are useful to investors and management because they reflect our underlying operating performance before items that we consider to be outside our core operations and facilitate meaningful period-to-period comparisons. Senior management’s incentive compensation is derived, in part, using adjusted operating income and adjusted net income per diluted share, which is derived from adjusted net income. We sometimes refer to adjusted net income per diluted share as adjusted earnings per share or adjusted EPS.
Adjusted Income Tax Expense/Rate:Represents income tax expense/rate excluding the tax effect of the items that have been excluded from adjusted income before taxes, unusual income tax items such as the impact of tax audits and changes in laws, significant reserves for cash repatriation, excess tax benefits/losses, and other discrete tax items. We believe our adjusted income tax expense/rate is useful to investors because it reflects our baseline income tax expense/rate before benefits/losses and other discrete items that we consider to be outside our core operations and facilitates meaningful period-to-period comparisons.
Adjusted EBITDA:Represents net income excluding the effects of depreciation, stock-based compensation expense, amortization of intangibles, the change in fair value of contingent consideration, interest expense, net, other (income) expense, net, and income tax expense, the amortization of the step-up in value of inventory, transaction and integration expenses associated with material acquisitions, restructuring and goodwill impairment charges, non-recurring items in interest expense or other income/expense such as expenses associated with debt refinancing, a bond redemption, or a pension curtailment and other non-recurring items. We believe adjusted EBITDA is useful to investors because it reflects our underlying cash profitability and adjusts for certain non-cash charges, and items that we consider to be outside our core operations and facilitates meaningful period-to-period comparisons. In addition, this calculation of adjusted EBITDA is used in our loan agreement to calculate our leverage ratio covenant.
Free Cash Flow/Adjusted Free Cash Flow:Free cash flow represents cash flow from operating activities less cash used for additions to property, plant and equipment. Adjusted free cash flow represents free cash flow, less cash payments made for contingent earnouts, plus cash proceeds from the disposition of assets. We believe free cash flow and adjusted free cash flow are useful to investors because they measure our available cash flow for paying dividends, funding strategic material acquisitions, reducing debt, and repurchasing shares.
Consolidated Leverage Ratio:Represents balance sheet debt, plus debt origination costs and less any cash and cash equivalents divided by adjusted EBITDA. We believe that consolidated leverage ratio is useful to investors since the company has the ability to, and may decide to use, a portion of its cash and cash equivalents to retire debt.
We also provide forward-looking non-GAAP comparable sales, adjusted earnings per share, free cash flow, adjusted free cash flow, adjusted EBITDA, and adjusted tax rate, and historical and forward-looking consolidated leverage ratio. We do not provide a reconciliation of these forward-looking and historical non-GAAP measures to GAAP because the GAAP financial measure is not currently available and management cannot reliably predict all the necessary components of such non-GAAP measures without unreasonable effort or expense due to the inherent difficulty of forecasting and quantifying certain amounts that are necessary for such a reconciliation, including adjustments that could be made for restructuring, integration and acquisition-related expenses, the variability of our tax rate and the impact of foreign currency fluctuation and material acquisitions, and other charges reflected in our historical results. The probable significance of each of these items is high and, based on historical experience, could be material.
ACCO Brands Corporation and Subsidiaries
Reconciliation of GAAP to Adjusted Non-GAAP Information (Unaudited)
(In millions, except per share data)
The following tables set forth a reconciliation of certain Consolidated Statements of Income (Loss) information reported in accordance with GAAP to Adjusted Non-GAAP Information for the three months ended September 30, 2023 and 2022.
Three Months Ended September 30, 2023
Operating Income
% of Sales
Income before Tax
% of Sales
Income Tax Expense (A)
Tax Rate
Net Income
% of Sales
Reported GAAP
$
32.2
7.2
%
$
21.6
4.8
%
$
6.7
31.0
%
$
14.9
3.3
%
Reported GAAP diluted income per share (EPS)
$
0.15
Restructuring charges
3.0
3.0
0.7
2.3
Amortization of intangibles
10.8
10.8
2.8
8.0
Gain on sale of property
—
(1.5
)
(0.5
)
(1.0
)
Operating tax gains
(D)
—
(1.3
)
(0.4
)
(0.9
)
Other discrete tax items
—
—
0.2
(0.2
)
Adjusted Non-GAAP
$
46.0
10.3
%
$
32.6
7.3
%
$
9.5
29.1
%
$
23.1
5.2
%
Adjusted net income per diluted share (Adjusted EPS)
$
0.24
Three Months Ended September 30, 2022
SG&A
% of Sales
Operating(Loss) Income
% of Sales
(Loss) Income before Tax
% of Sales
Income Tax Expense (A)
Tax Rate
Net (Loss) Income
% of Sales
Reported GAAP
$
$
93.9
19.3
%
$
(63.0
)
(13.0
)%
$
(64.6
)
(13.3
)%
$
4.1
(6.3
)%
$
(68.7
)
(14.1
)%
Reported GAAP diluted loss per share (EPS)
$
(0.73
)
Release of charge for Russia business
0.7
(0.7
)
(0.7
)
(0.1
)
(0.6
)
Restructuring charges
—
0.1
0.1
0.1
—
Goodwill impairment charge
—
98.7
98.7
—
98.7
Amortization of intangibles
—
9.9
9.9
2.6
7.3
Change in fair value of contingent consideration
(C)
—
(2.2
)
(2.2
)
(0.6
)
(1.6
)
Operating tax gains
(D)
—
—
(7.3
)
(2.5
)
(4.8
)
Other discrete tax items
—
—
—
6.2
(6.2
)
Adjusted Non-GAAP
$
94.6
19.5
%
$
42.8
8.8
%
$
33.9
7.0
%
$
9.8
29.0
%
$
24.1
5.0
%
Adjusted net income per diluted share (Adjusted EPS)
$
0.25
See “Notes to Reconciliations of GAAP to Adjusted Non-GAAP Information and Net Income (Loss) to Adjusted EBITDA (Unaudited)” for further information regarding adjusted items.
ACCO Brands Corporation and Subsidiaries
Reconciliation of GAAP to Adjusted Non-GAAP Information (Unaudited)
(In millions, except per share data)
The following tables set forth a reconciliation of certain Consolidated Statements of Income (Loss) information reported in accordance with GAAP to Adjusted Non-GAAP Information for the nine months ended September 30, 2023 and 2022.
Nine Months Ended September 30, 2023
Operating Income
% of Sales
Income before Tax
% of Sales
Income Tax Expense (A)
Tax Rate
Net Income
% of Sales
Reported GAAP
$
97.5
7.3
%
$
60.3
4.5
%
$
22.7
37.6
%
$
37.6
2.8
%
Reported GAAP diluted income per share (EPS)
$
0.39
Restructuring charges
6.3
6.3
1.6
4.7
Amortization of intangibles
32.7
32.7
8.6
24.1
Other asset write-off
(B)
—
1.1
0.3
0.8
Gain on sale of property
—
(1.5
)
(0.5
)
(1.0
)
Operating tax gains
(D)
—
(1.3
)
(0.4
)
(0.9
)
Other discrete tax items
—
—
(2.8
)
2.8
Adjusted Non-GAAP
$
136.5
10.2
%
$
97.6
7.3
%
$
29.5
30.2
%
$
68.1
5.1
%
Adjusted net income per diluted share (Adjusted EPS)
$
0.70
Nine Months Ended September 30, 2022
SG&A
% of Sales
Operating (Loss) Income
% of Sales
(Loss) Income before Tax
% of Sales
Income Tax Expense (A)
Tax Rate
Net (Loss) Income
% of Sales
Reported GAAP
$
284.3
19.6
%
$
(0.8
)
(0.1
)%
$
(13.8
)
(1.0
)%
$
18.2
(131.9
)%
$
(32.0
)
(2.2
)%
Reported GAAP diluted loss per share (EPS)
$
(0.33
)
Charge for Russia business
(0.8
)
0.8
0.8
0.2
0.6
Restructuring charges
—
2.3
2.3
0.6
1.7
Goodwill impairment charge
—
98.7
98.7
—
98.7
Amortization of intangibles
—
31.5
31.5
8.3
23.2
Change in fair value of contingent consideration
(C)
—
(9.0
)
(9.0
)
(2.3
)
(6.7
)
Operating tax gains
(D)
—
—
(11.2
)
(3.8
)
(7.4
)
Other discrete tax items
—
—
—
7.6
(7.6
)
Adjusted Non-GAAP
$
283.5
19.6
%
$
123.5
8.5
%
$
99.3
6.9
%
$
28.8
29.0
%
$
70.5
4.9
%
Adjusted net income per diluted share (Adjusted EPS)
$
0.73
See “Notes to Reconciliations of GAAP to Adjusted Non-GAAP Information and Net Income (Loss) to Adjusted EBITDA (Unaudited)” for further information regarding adjusted items.
ACCO Brands Corporation and Subsidiaries
Reconciliation of Net Income (Loss) to Adjusted EBITDA (Unaudited)
(In millions)
The following table sets forth a reconciliation of net income (loss) reported in accordance with GAAP to Adjusted EBITDA.
Three months ended September 30,
Nine months ended September 30,
2023
2022
% Change
2023
2022
% Change
Net income (loss)
$
14.9
$
(68.7
)
NM
$
37.6
$
(32.0
)
NM
Stock-based compensation
1.5
0.6
NM
10.4
7.8
33.3
%
Depreciation
7.9
9.0
(12.2
)%
25.2
28.6
(11.9
)%
(Release) charge for Russia business
—
(0.7
)
NM
—
0.8
NM
Amortization of intangibles
10.8
9.9
9.1
%
32.7
31.5
3.8
%
Restructuring charges
3.0
0.1
NM
6.3
2.3
NM
Goodwill impairment charge
—
98.7
NM
—
98.7
NM
Change in fair value of contingent consideration
(C)
—
(2.2
)
NM
—
(9.0
)
NM
Interest expense, net
14.0
9.5
47.4
%
38.8
26.4
47.0
%
Other income, net
(3.6
)
(7.4
)
(51.4
)%
(2.1
)
(10.2
)
(79.4
)%
Income tax expense
6.7
4.1
63.4
%
22.7
18.2
24.7
%
Adjusted EBITDA (non-GAAP)
$
55.2
$
52.9
4.3
%
$
171.6
$
163.1
5.2
%
Adjusted EBITDA as a % of Net Sales
12.3
%
10.9
%
12.8
%
11.3
%
See “Notes to Reconciliations of GAAP to Adjusted Non-GAAP Information and Net Income (Loss) to Adjusted EBITDA (Unaudited)” for further information regarding adjusted items.
Reconciliation of Net Cash (Used) Provided by Operating Activities to Adjusted Free Cash Flow (Unaudited)
(In millions)
The following table sets forth a reconciliation of net cash (used) provided by operating activities reported in accordance with GAAP to Adjusted Free Cash Flow.
Three months ended September 30, 2023
Three months ended September 30, 2022
For the nine months ended September 30, 2023
For the nine months ended September 30, 2022
Net cash provided (used) by operating activities
$
110.0
$
88.3
$
70.7
$
(9.6
)
Net (used) provided by:
Additions to property, plant and equipment
(3.6
)
(4.8
)
(9.7
)
(11.8
)
Proceeds from the disposition of assets
2.2
—
2.2
0.2
Payments of contingent consideration
—
—
—
9.2
Adjusted Free Cash Flow (non-GAAP)
$
108.6
$
83.5
$
63.2
$
(12.0
)
Notes to Reconciliations of GAAP to Adjusted Non-GAAP Information and Net Income (Loss) to Adjusted EBITDA (Unaudited)
A. The income tax impact of the non-GAAP adjustments and other discrete tax items.
B. Represents the write off of assets related to a capital project.
C. Represents income from the change in fair value of the contingent consideration for the PowerA acquisition.
D. Represents gains related to the release of reserves for certain operating taxes.
ACCO Brands Corporation and Subsidiaries
Supplemental Business Segment Information and Reconciliation (Unaudited)
(In millions)
2023
2022
Changes
Adjusted
Adjusted
Reported
Adjusted
Operating
Reported
Adjusted
Operating
Adjusted
Adjusted
Operating
Operating
Income
Operating
Operating
Income
Operating
Operating
Reported
Income
Adjusted
Income
(Loss)
Reported
Income
Adjusted
Income
(Loss)
Net Sales
Net Sales
Income
Income
Margin
Net Sales
(Loss)
Items
(Loss)
Margin
Net Sales
(Loss)
Items
(Loss)
Margin
$
%
(Loss) $
(Loss) %
Points
Q1:
ACCO Brands North America
$
176.7
$
5.2
$
5.7
$
10.9
6.2
%
$
208.5
$
13.9
$
5.9
$
19.8
9.5
%
$
(31.8
)
(15.3
)%
$
(8.9
)
(44.9
)%
(330
)
ACCO Brands EMEA
135.8
7.8
5.8
13.6
10.0
%
156.1
5.6
3.5
9.1
5.8
%
(20.3
)
(13.0
)%
4.5
49.5
%
420
ACCO Brands International
90.1
9.0
2.7
11.7
13.0
%
77.0
4.2
2.0
6.2
8.1
%
13.1
17.0
%
5.5
88.7
%
490
Corporate
—
(11.9
)
—
(11.9
)
—
(16.9
)
4.4
(12.5
)
—
0.6
Total
$
402.6
$
10.1
$
14.2
$
24.3
6.0
%
$
441.6
$
6.8
$
15.8
$
22.6
5.1
%
$
(39.0
)
(8.8
)%
$
1.7
7.5
%
90
Q2:
ACCO Brands North America
$
292.6
$
55.1
$
5.6
$
60.7
20.7
%
$
306.6
$
50.7
$
6.5
$
57.2
18.7
%
$
(14.0
)
(4.6
)%
$
3.5
6.1
%
200
ACCO Brands EMEA
125.7
5.7
3.8
9.5
7.6
%
137.9
(1.5
)
3.6
2.1
1.5
%
(12.2
)
(8.8
)%
7.4
NM
610
ACCO Brands International
75.3
6.7
1.6
8.3
11.0
%
76.5
6.3
2.3
8.6
11.2
%
(1.2
)
(1.6
)%
(0.3
)
(3.5
)%
(20
)
Corporate
—
(12.3
)
—
(12.3
)
—
(0.1
)
(9.7
)
(9.8
)
—
(2.5
)
Total
$
493.6
$
55.2
$
11.0
$
66.2
13.4
%
$
521.0
$
55.4
$
2.7
$
58.1
11.2
%
$
(27.4
)
(5.3
)%
$
8.1
13.9
%
220
Q3:
ACCO Brands North America
$
218.9
$
19.9
$
5.6
$
25.5
11.6
%
$
257.2
$
(78.4
)
$
104.2
$
25.8
10.0
%
$
(38.3
)
(14.9
)%
$
(0.3
)
(1.2
)%
160
ACCO Brands EMEA
126.6
6.9
6.7
13.6
10.7
%
130.3
4.9
2.5
7.4
5.7
%
(3.7
)
(2.8
)%
6.2
83.8
%
500
ACCO Brands International
102.5
16.4
1.5
17.9
17.5
%
98.1
17.3
1.9
19.2
19.6
%
4.4
4.5
%
(1.3
)
(6.8
)%
(210
)
Corporate
—
(11.0
)
—
(11.0
)
—
(6.8
)
(2.8
)
(9.6
)
—
(1.4
)
Total
$
448.0
$
32.2
$
13.8
$
46.0
10.3
%
$
485.6
$
(63.0
)
$
105.8
$
42.8
8.8
%
$
(37.6
)
(7.7
)%
$
3.2
7.5
%
150
Q4:
ACCO Brands North America
$
225.7
$
8.9
$
9.8
$
18.7
8.3
%
ACCO Brands EMEA
156.0
12.7
5.7
18.4
11.8
%
ACCO Brands International
117.7
22.7
1.6
24.3
20.6
%
Corporate
—
(8.7
)
(0.4
)
(9.1
)
Total
$
499.4
$
35.6
$
16.7
$
52.3
10.5
%
YTD:
ACCO Brands North America
$
688.2
$
80.2
$
16.9
$
97.1
14.1
%
$
998.0
$
(4.9
)
$
126.4
$
121.5
12.2
%
ACCO Brands EMEA
388.1
20.4
16.3
36.7
9.5
%
580.3
21.7
15.3
37.0
6.4
%
ACCO Brands International
267.9
32.1
5.8
37.9
14.1
%
369.3
50.5
7.8
58.3
15.8
%
Corporate
—
(35.2
)
—
(35.2
)
—
(32.5
)
(8.5
)
(41.0
)
Total
$
1,344.2
$
97.5
$
39.0
$
136.5
10.2
%
$
1,947.6
$
34.8
$
141.0
$
175.8
9.0
%
See “Notes to Reconciliations of GAAP to Adjusted Non-GAAP Information and Net Income (Loss) to Adjusted EBITDA (Unaudited)” for further information regarding adjusted items.
ACCO Brands Corporation and Subsidiaries
Supplemental Net Sales Change Analysis (Unaudited)
% Change – Net Sales
$ Change – Net Sales (in millions)
GAAP
Non-GAAP
GAAP
Non-GAAP
Comparable
Comparable
Net Sales
Currency
Net Sales
Net Sales
Currency
Net Sales
Comparable
Change
Translation
Change (A)
Change
Translation
Change (A)
Net Sales
Q1 2023:
ACCO Brands North America
(15.3)%
(0.7)%
(14.6)%
$(31.8)
$(1.5)
$(30.3)
$178.2
ACCO Brands EMEA
(13.0)%
(5.7)%
(7.3)%
(20.3)
(9.0)
(11.3)
144.8
ACCO Brands International
17.0 %
(0.2)%
17.2 %
13.1
(0.2)
13.3
90.3
Total
(8.8)%
(2.4)%
(6.4)%
$(39.0)
$(10.6)
$(28.4)
$413.2
Q2 2023:
ACCO Brands North America
(4.6)%
(0.5)%
(4.1)%
$(14.0)
$(1.6)
$(12.4)
$294.2
ACCO Brands EMEA
(8.8)%
0.3 %
(9.1)%
(12.2)
0.4
(12.6)
125.3
ACCO Brands International
(1.6)%
0.7 %
(2.3)%
(1.2)
0.5
(1.7)
74.8
Total
(5.3)%
(0.2)%
(5.1)%
$(27.4)
$(0.8)
$(26.6)
$494.4
Q3 2023:
ACCO Brands North America
(14.9)%
(0.3)%
(14.6)%
$(38.3)
$(0.7)
$(37.6)
$219.6
ACCO Brands EMEA
(2.8)%
5.4 %
(8.2)%
(3.7)
7.0
(10.7)
119.6
ACCO Brands International
4.5 %
4.3 %
0.2 %
4.4
4.2
0.2
98.3
Total
(7.7)%
2.2 %
(9.9)%
$(37.6)
$10.5
$(48.1)
$437.5
2023 YTD:
ACCO Brands North America
(10.9)%
(0.5)%
(10.4)%
$(84.1)
$(3.8)
$(80.3)
$692.0
ACCO Brands EMEA
(8.5)%
(0.4)%
(8.1)%
(36.2)
(1.6)
(34.6)
389.7
ACCO Brands International
6.5 %
1.8 %
4.7 %
16.3
4.5
11.8
263.4
Total
(7.2)%
(0.1)%
(7.1)%
$(104.0)
$(0.9)
$(103.1)
$1,345.1
(A) Comparable sales represents net sales excluding material acquisitions, if any, and with current-period foreign operation sales translated at the prior-year currency rates.
Christopher McGinnis Investor Relations (847) 796-4320
Third Quarter 2023 Revenues of $274.6 Million Reflect 20.1 Percent Organic Growth Over Third Quarter 2022 Revenues of $228.6 Million
Third Quarter 2023 Revenues Reflect 22.0 Percent Organic Revenue Growth in Kratos Government Solutions Segment and 13.4 Percent Organic Revenue Growth in Kratos Unmanned Systems Segment
Third Quarter 2023 Consolidated Book to Bill Ratio of 1.0 to 1 and Last Twelve Months Ended October 1, 2023 Consolidated Book to Bill Ratio of 1.1 to 1
SAN DIEGO, Nov. 02, 2023 (GLOBE NEWSWIRE) — Kratos Defense & Security Solutions, Inc. (Nasdaq: KTOS), a Technology Company in the Defense, National Security and Global Markets, today reported its third quarter 2023 financial results, including Revenues of $274.6 million, Operating Income of $12.2 million, Net Loss of $1.6 million, Adjusted EBITDA of $27.7 million and a consolidated book to bill ratio of 1.0 to 1.0.
Included in third quarter 2023 Net Loss and Operating Income is non-cash stock compensation expense of $6.4 million and Company-funded Research and Development (R&D) expense of $10.3 million, including significant ongoing development efforts in our Space and Satellite Communications business to develop our virtual, software-based OpenSpace command & control (C2), telemetry tracking & control (TT&C) and other ground system solutions. The third quarter 2023 Net Loss includes $4.6 million attributable to a non-controlling interest, which includes a charge of $4.2 million adjustment recorded to reflect the estimated increase in the value of the redeemable non-controlling interest to the estimated redemption amount by Kratos.
Kratos reported third quarter 2023 GAAP Net Loss of $1.6 million and a GAAP Net Loss per share of $0.01, compared to a GAAP Net Loss of $8.0 million and a GAAP Net Loss per share of $0.06 for the third quarter of 2022. Adjusted earnings per share (EPS) was $0.12 for the third quarter of 2023, compared to $0.08 for the third quarter of 2022.
Third quarter 2023 Revenues of $274.6 million increased $46.0 million, reflecting 20.1 percent organic growth, from third quarter 2022 Revenues of $228.6 million. Third quarter 2023 Revenues include organic Revenue growth of 22.0 percent in our Government Solutions Segment (KGS) and 13.4 percent organic Revenue growth in our Unmanned Systems Segment (KUS), respectively.
Third quarter 2023 Cash Flow Used from Operations was $0.1 million, reflecting the working capital requirements associated with the 6.9 percent sequential revenue growth of $17.7 million from the second quarter of 2023. Consolidated Days Sales Outstanding continued to improve from 120 in the second quarter of 2023 to 117 days in the third quarter of 2023. Free Cash Flow Used from Operations was $14.3 million after funding of $14.2 million of capital expenditures. Capital expenditures continue to remain elevated due primarily to the manufacture of the two production lots of Valkyries prior to contract award, to meet anticipated customer orders and requirements.
For the third quarter of 2023, KUS generated Revenues of $56.7 million, as compared to $50.0 million in the third quarter of 2022, primarily reflecting increased target drone related activity. KUS’s Operating Income was $2.6 million in the third quarter of 2023 compared to Operating Loss of $0.1 million in the third quarter of 2022.
KUS’s Adjusted EBITDA for the third quarter of 2023 was $5.4 million, compared to third quarter 2022 KUS Adjusted EBITDA of $2.1 million, reflecting a more favorable mix as well as the increased volume.
KUS’s book-to-bill ratio for the third quarter of 2023 was 0.5 to 1.0 and 1.1 to 1.0 for the last twelve months ended October 1, 2023, with bookings of $27.7 million for the three months ended October 1, 2023, and bookings of $244.8 million for the last twelve months ended October 1, 2023. Total backlog for KUS at the end of the third quarter of 2023 was $227.8 million compared to $256.7 million at the end of the second quarter of 2023.
For the third quarter of 2023, KGS Revenues of $217.9 million increased organically 22.0 percent from Revenues of $178.6 million in the third quarter of 2022. The increased Revenues includes organic revenue growth in our Space, Satellite and Cyber, Turbine Technologies, C5ISR, Microwave Electronics Products and Training Solutions businesses.
KGS reported operating income of $15.9 million in the third quarter of 2023 compared to $3.3 million in the third quarter of 2022, primarily reflecting a more favorable mix and increased revenue volume. Third quarter 2023 KGS Adjusted EBITDA was $22.3 million, compared to third quarter 2022 KGS Adjusted EBITDA of $17.9 million, primarily reflecting the more favorable mix and increased revenue.
Kratos’ Space, Satellite and Cyber business generated Revenues of $105.5 million in the third quarter of 2023 compared to $85.8 million in the third quarter of 2022, reflecting a 23.0 percent organic growth rate.
KGS reported a book-to-bill ratio of 1.2 to 1.0 for the third quarter of 2023, a book to bill ratio of 1.1 to 1.0 for the last twelve months ended October 1, 2023 and bookings of $254.6 million and $863.9 million for the three and last twelve months ended October 1, 2023, respectively. KGS includes Kratos’ Space, Satellite, Cyber and Training Solutions business, which reported a book to bill ratio of 1.4 to 1.0 for the third quarter of 2023 and a book to bill ratio of 1.2 to 1.0 for the last twelve months ended October 1, 2023. Bookings for Kratos’ Space, Satellite, Cyber and Training business for the three months and last twelve months ended October 1, 2023 were $153.6 million and $472.8 million, respectively. KGS’s total backlog at the end of the third quarter of 2023 was $937.3 million, as compared to $900.6 million at the end of the second quarter of 2023.
Kratos reported consolidated bookings of $282.3 million and a book-to-bill ratio of 1.0 to 1.0 for the third quarter of 2023, and consolidated bookings of $1.11 billion and a book-to-bill ratio of 1.1 to 1.0 for the last twelve months ended October 1, 2023. Consolidated backlog was $1.17 billion on October 1, 2023 and $1.16 billion on June 25, 2023. Kratos’ bid and proposal pipeline was $10.3 billion at October 1, 2023, up from $10.0 billion at June 25, 2023. Backlog at October 1, 2023 included funded backlog of $850.9 million and unfunded backlog of $314.1 million.
Eric DeMarco, Kratos’ President and CEO, said, “Kratos continues to successfully execute our stated strategy of making targeted investments and being first to market, with relevant technology, products, systems and software, in mission critical, well-funded, high demand priority areas, which is reflected in our 20% third quarter organic growth rate. At Kratos, affordability is a technology, better is the enemy of good enough – ready to go today, and quantities have a quality all of its own, all of which are clearly being demonstrated geopolitically in multiple conflict areas.”
Mr. DeMarco continued, “Representative of the strength of Kratos’ strategy and our business, we have increased our full year 2023 revenue guidance and we are currently forecasting base case, which excludes potential tactical drone production orders, 2024 over 2023 revenue growth of 10%, with increased EBITDA. Additionally, based on recent large new program opportunities we are pursuing, we are now planning on certain additional investments in 2024, including in the tactical drone and satellite areas, in order to position the Company for potentially even greater growth in 2025 and beyond. Among the new opportunities we are pursuing, we are in discussions with a customer and hope to be under contract next year related to certain other Kratos tactical drone systems, including Thanatos and we are now in source selection on a significant new satellite opportunity with Kratos’ virtualized OpenSpace software system.”
Mr. DeMarco concluded, “Our primary operational challenge remains the obtaining, retaining, and related escalating cost of qualified individuals, including those willing and able to obtain a National Security clearance. As a result, though we expect continued future year over year profit margin expansion, including as noted with our Q3 results and affirmed Q4 EBITDA guidance, we will be cautious in our future EBITDA forecast. Also, as the industry and Kratos are currently operating under a Continuing Resolution Authorization, similar to previous years, we will wait to release our detailed fiscal 2024 business financial forecast in February 2024, when we report our fiscal 2023 results, as we should then have better budgetary and programmatic clarity.”
Financial Guidance
We are providing our initial 2023 fourth quarter financial guidance and increasing our full year 2023 Revenue and affirming our Adjusted EBITDA guidance today, which includes our current forecasted business mix, and our assumptions, including as related to: employee sourcing, hiring and retention; manufacturing, production and supply chain disruptions; parts shortages and related continued potential significant cost and price increases, including for employees, materials and components that are impacting the industry and Kratos. The range of our expected fourth quarter 2023 Revenues and Adjusted EBITDA includes assumptions of forecasted execution, including the number and estimated costs of qualified personnel expected to be obtained and retained to successfully execute on our programs and contracts, as well as expected contract awards. Our revised full year 2023 cash flow guidance reflects the ongoing impact of working capital requirements to fund revenue growth, including the increased estimated FY23 revenues, and the continued increase in inventory balances, as well as the shift of certain payment milestones primarily in our Training Solutions and C5ISR businesses.
Our fourth quarter and full year 2023 guidance ranges are as follows:
Current Guidance Range
$M
Q423
FY23
Revenues
$237 – $257
$1,000 – $1,020
R&D
$9 – $10
$40 – $42
Operating Income
$4 – $7
$25 – $28
Depreciation
$7 – $8
$27 – $28
Amortization
$2 – $3
$8 – $10
Stock Based Compensation
$6 – $7
$24 – $26
Adjusted EBITDA
$19 – $23
$85 – $89
Operating Cash Flow
$20 – $30
Capital Expenditures
$45 – $50
Free Cash Flow Use
$(20) – $(25)
Management will discuss the Company’s financial results, on a conference call beginning at 2:00 p.m. Pacific (5:00 p.m. Eastern) today. The call will be available at www.kratosdefense.com. Participants may register for the call using this Online Form. Upon registration, all telephone participants will receive the dial-in number along with a unique PIN that can be used to access the call. For those who cannot access the live broadcast, a replay will be available on Kratos’ website.
About Kratos Defense & Security Solutions Kratos Defense & Security Solutions, Inc. (NASDAQ: KTOS) is a Technology Company that develops and fields transformative, affordable systems, products and solutions for United States National Security, our allies and global commercial enterprises. At Kratos, Affordability is a Technology, and Kratos is changing the way breakthrough technology is rapidly brought to market – at a low cost – with actual products, systems, and technologies rather than slide decks or renderings. Through proven commercial and venture capital backed approaches, including proactive, internally funded research and streamlined development processes, Kratos is focused on being First to Market with our solutions, well in advance of competition. Kratos is the recognized Technology Disruptor in our core market areas, including Space and Satellite Communications, Cyber Security and Warfare, Unmanned Systems, Rocket and Hypersonic Systems, Next-Generation Jet Engines and Propulsion Systems, Microwave Electronics, C5ISR and Virtual and Augmented Reality Training Systems. For more information, visit www.KratosDefense.com.
Notice RegardingForward-LookingStatements This news release contains certain forward-looking statements that involve risks and uncertainties, including, without limitation, express or implied statements concerning the Company’s expectations regarding its future financial performance, including the Company’s expectations for its fourth quarter and full year 2023 revenues, R&D, operating income (loss), depreciation, amortization, stock based compensation expense, and Adjusted EBITDA, and full year 2023 operating cash flow, capital expenditures and other investments, and free cash flow, the Company’s future growth trajectory and ability to achieve improved revenue mix and profit in certain of its business segments and the expected timing of such improved revenue mix and profit, including the Company’s ability to achieve sustained year over year increasing revenues, profitability and cash flow, the Company’s expectation of ramp on projects and that investments in its business, including Company funded R&D expenses and ongoing development efforts, will result in an increase in the Company’s market share and total addressable market and position the Company for significant future organic growth, profitability, cash flow and an increase in shareholder value, the Company’s bid and proposal pipeline and backlog, including the Company’s ability to timely execute on its backlog, demand for its products and services, including the Company’s alignment with today’s National Security requirements and the positioning of its C5ISR and other businesses, planned 2024 investments, including in the tactical drone and satellite areas, and the related potential for additional growth in 2025, ability to successfully compete and expected new customer awards, including the magnitude and timing of funding and the future opportunity associated with such awards, including in the target and tactical drone and satellite communication areas, performance of key contracts and programs, including the timing of production and demonstration related to certain of the Company’s contracts and product offerings, the impact of the Company’s restructuring efforts and cost reduction measures, including its ability to improve profitability and cash flow in certain business units as a result of these actions and to achieve financial leverage on fixed administrative costs, the ability of the Company’s advanced purchases of inventory to mitigate supply chain disruptions and the timing of converting these investments to cash through the sales process, benefits to be realized from the Company’s net operating loss carry forwards, the availability and timing of government funding for the Company’s offerings, including the strength of the future funding environment, the short-term delays that may occur as a result of Continuing Resolutions or delays in U.S. Department of Defense (DoD) budget approvals, timing of LRIP and full rate production related to the Company’s unmanned aerial target system offerings, as well as the level of recurring revenues expected to be generated by these programs once they achieve full rate production, market and industry developments, and the current estimated impact of COVID-19 and employee absenteeism, supply chain disruptions, availability of an experienced skilled workforce, inflation and increased costs, and delays in our financial projections, industry, business and operations, including projected growth. Such statements are only predictions, and the Company’s actual results may differ materially from the results expressed or implied by these statements. Investors are cautioned not to place undue reliance on any such forward-looking statements. All such forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update or revise these statements, whether as a result of new information, future events or otherwise. Factors that may cause the Company’s results to differ include, but are not limited to: risks to our business and financial results related to the reductions and other spending constraints imposed on the U.S. Government and our other customers, including as a result of sequestration and extended continuing resolutions, the Federal budget deficit and Federal government shut-downs; risks of adverse regulatory action or litigation; risks associated with debt leverage and cost savings and cash flow improvements expected as a result of the refinancing of our Senior Notes; risks that our cost-cutting initiatives will not provide the anticipated benefits; risks that changes, cutbacks or delays in spending by the DoD may occur, which could cause delays or cancellations of key government contracts; risks of delays to or the cancellation of our projects as a result of protest actions submitted by our competitors; risks that changes may occur in Federal government (or other applicable) procurement laws, regulations, policies and budgets; risks of the availability of government funding for the Company’s products and services due to performance, cost growth, or other factors, changes in government and customer priorities and requirements (including cost-cutting initiatives, the potential deferral of awards, terminations or reduction of expenditures to respond to the priorities of Congress and the Administration, or budgetary cuts resulting from Congressional committee recommendations or automatic sequestration under the Budget Control Act of 2011, as amended); risks that the unmanned aerial systems and unmanned ground sensor markets do not experience significant growth; risks that products we have developed or will develop will become programs of record; risks that we cannot expand our customer base or that our products do not achieve broad acceptance which could impact our ability to achieve our anticipated level of growth; risks of increases in the Federal government initiatives related to in-sourcing; risks related to security breaches, including cyber security attacks and threats or other significant disruptions of our information systems, facilities and infrastructures; risks related to our compliance with applicable contracting and procurement laws, regulations and standards; risks related to the new DoD Cybersecurity Maturity Model Certification; risks relating to the ongoing conflict in Ukraine and the Israeli-Palestinian military conflict; risks to our business in Israel; risks related to contract performance; risks related to failure of our products or services; risks associated with our subcontractors’ or suppliers’ failure to perform their contractual obligations, including the appearance of counterfeit or corrupt parts in our products; changes in the competitive environment (including as a result of bid protests); failure to successfully integrate acquired operations and compete in the marketplace, which could reduce revenues and profit margins; risks that potential future goodwill impairments will adversely affect our operating results; risks that anticipated tax benefits will not be realized in accordance with our expectations; risks that a change in ownership of our stock could cause further limitation to the future utilization of our net operating losses; risks that we may be required to record valuation allowances on our net operating losses which could adversely impact our profitability and financial condition; risks that the current economic environment will adversely impact our business, including with respect to our ability to recruit and retain sufficient numbers of qualified personnel to execute on our programs and contracts, as well as expected contract awards and risks related to increasing interest rates and risks related to the interest rate swap contract to hedge Term SOFR associated with the Company’s Term Loan A; currently unforeseen risks associated with COVID-19 and risks related to natural disasters or severe weather. These and other risk factors are more fully discussed in the Company’s Annual Report on Form 10-K for the period ended December 25, 2022, and in our other filings made with the Securities and Exchange Commission.
Note Regarding Use of Non-GAAP Financial Measures and Other Performance Metrics This news release contains non-GAAP financial measures, including Adjusted EPS (computed using income from continuing operations before income taxes, excluding income (loss) from discontinued operations, excluding income (loss) attributable to non-controlling interest, excluding depreciation, amortization of intangible assets, amortization of capitalized contract and development costs, stock-based compensation expense, acquisition and restructuring related items and other, which includes, but is not limited to, legal related items, non-recoverable rates and costs, and foreign transaction gains and losses, less the estimated impact to income taxes) and Adjusted EBITDA (which includes net income (loss) attributable to noncontrolling interest and excludes, among other things, losses and gains from discontinued operations, acquisition and restructuring related items, stock compensation expense, foreign transaction gains and losses, and the associated margin rates). Additional non-GAAP financial measures include Free Cash Flow from Operations computed as Cash Flow from Operations less Capital Expenditures plus proceeds from sale of assets and Adjusted EBITDA related to our KUS and KGS businesses. Kratos believes this information is useful to investors because it provides a basis for measuring the Company’s available capital resources, the actual and forecasted operating performance of the Company’s business and the Company’s cash flow, excluding non-recurring items and non-cash items that would normally be included in the most directly comparable measures calculated and presented in accordance with GAAP. The Company’s management uses these non-GAAP financial measures, along with the most directly comparable GAAP financial measures, in evaluating the Company’s actual and forecasted operating performance, capital resources and cash flow. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information presented in compliance with GAAP, and investors should carefully evaluate the Company’s financial results calculated in accordance with GAAP and reconciliations to those financial results. In addition, non-GAAP financial measures as reported by the Company may not be comparable to similarly titled amounts reported by other companies. As appropriate, the most directly comparable GAAP financial measures and information reconciling these non-GAAP financial measures to the Company’s financial results prepared in accordance with GAAP are included in this news release.
Another Performance Metric the Company believes is a key performance indicator in our industry is our Book to Bill Ratio as it provides investors with a measure of the amount of bookings or contract awards as compared to the amount of revenues that have been recorded during the period and provides an indicator of how much of the Company’s backlog is being burned or utilized in a certain period. The Book to Bill Ratio is computed as the number of bookings or contract awards in the period divided by the revenues recorded for the same period. The Company believes that the rolling or last twelve months’ Book to Bill Ratio is meaningful since the timing of quarter-to-quarter bookings can vary.
Unaudited Condensed Consolidated Statements of Operations
(in millions, except per share data)
Three Months Ended
Nine Months Ended
October 1,
September 25,
October 1,
September 25,
2023
2022
2023
2022
Service revenues
$
106.5
$
88.6
$
301.8
$
235.3
Product sales
168.1
140.0
461.5
413.7
Total revenues
274.6
228.6
763.3
649.0
Cost of service revenues
79.0
65.1
227.2
171.2
Cost of product sales
122.2
108.6
339.4
313.2
Total costs
201.2
173.7
566.6
484.4
Gross profit – service revenues
27.5
23.5
74.6
64.1
Gross profit – product sales
45.9
31.4
122.1
100.5
Total gross profit
73.4
54.9
196.7
164.6
Selling, general and administrative expenses
47.5
44.2
136.7
126.1
Acquisition and restructuring related items and other
–
0.4
0.9
7.0
Research and development expenses
10.3
9.6
30.4
28.0
Depreciation
1.9
1.3
4.8
3.9
Amortization of intangible assets
1.5
3.0
4.5
6.3
Operating income (loss)
12.2
(3.6
)
19.4
(6.7
)
Interest expense, net
(5.1
)
(4.1
)
(15.5
)
(12.9
)
Loss on extinguishment of debt
–
–
–
(13.0
)
Other expense, net
(0.3
)
(1.1
)
(0.4
)
(1.0
)
Income (loss) from continuing operations before income taxes
6.8
(8.8
)
3.5
(33.6
)
Provision (benefit) for income taxes from continuing operations
3.8
(0.8
)
6.9
(4.6
)
Income (loss) from continuing operations
3.0
(8.0
)
(3.4
)
(29.0
)
Income from discontinued operations, net of income taxes
–
–
0.2
0.7
Net income (loss)
3.0
(8.0
)
(3.2
)
(28.3
)
Less: Net income attributable to noncontrolling interest
4.6
–
–
8.1
0.3
Net loss attributable to Kratos
$
(1.6
)
$
(8.0
)
$
(11.3
)
$
(28.6
)
Basic and diluted loss per common share attributable to Kratos:
Loss from continuing operations
$
(0.01
)
$
(0.06
)
$
(0.09
)
$
(0.23
)
Income from discontinued operations
–
–
–
–
Net loss
(0.01
)
$
(0.06
)
$
(0.09
)
$
(0.23
)
Basic and diluted weighted average common shares outstanding
129.6
127.2
129.3
126.5
Adjusted EBITDA (1)
$
27.7
$
20.0
$
66.3
$
51.5
Unaudited Reconciliation of GAAP to Non-GAAP Measures
Note: (1) Adjusted EBITDA is a non-GAAP measure defined as GAAP net loss attributable to Kratos adjusted for net income attributable to noncontrolling interest, income from discontinued operations, net interest expense, provision (benefit) for income taxes, depreciation and amortization expense of intangible assets, amortization of capitalized contract and development costs, stock-based compensation, acquisition and restructuring related items and other, and foreign transaction loss.
Adjusted EBITDA as calculated by us may be calculated differently than Adjusted EBITDA for other companies. We have provided Adjusted EBITDA because we believe it is a commonly used measure of financial performance in comparable companies and is provided to help investors evaluate companies on a consistent basis, as well as to enhance understanding of our operating results. Adjusted EBITDA should not be construed as either an alternative to net income (loss) or as an indicator of our operating performance or an alternative to cash flows as a measure of liquidity. The adjustments to calculate this non-GAAP financial measure and the basis for such adjustments are outlined below. Please refer to the following table below that reconciles GAAP net loss to Adjusted EBITDA.
The adjustments to calculate this non-GAAP financial measure, and the basis for such adjustments, are outlined below:
Interest income and interest expense, net. The Company receives interest income on investments and incurs interest expense on loans, capital leases and other financing arrangements, including the amortization of issue discounts and deferred financing costs. These amounts may vary from period to period due to changes in cash and debt balances.
Income taxes. The Company’s tax expense can fluctuate materially from period to period due to tax adjustments that may not be directly related to underlying operating performance or to the current period of operations and may not necessarily reflect the impact of utilization of our NOLs.
Depreciation. The Company incurs depreciation expense (recorded in cost of revenues and in operating expenses) related to capital assets purchased, leased or constructed to support the ongoing operations of the business. The assets are recorded at cost or fair value and are depreciated over the estimated useful lives of individual assets.
Amortization of intangible assets. The Company incurs amortization of intangible expense related to acquisitions it has made. These intangible assets are valued at the time of acquisition and are amortized over the estimated useful lives.
Amortization of capitalized contract and development costs. The Company incurs amortization of previously capitalized software development and non-recurring engineering costs related to certain targets in its Unmanned Systems and ballistic missile target businesses as these units are sold.
Stock-based compensation expense. The Company incurs expense related to stock-based compensation included in its GAAP presentation of selling, general and administrative expense. Although stock-based compensation is an expense of the Company and viewed as a form of compensation, these expenses vary in amount from period to period, and are affected by market forces that are difficult to predict and are not within the control of management, such as the market price and volatility of the Company’s shares, risk-free interest rates and the expected term and forfeiture rates of the awards. Management believes that exclusion of these expenses allows comparison of operating results to those of other companies that disclose non-GAAP financial measures that exclude stock-based compensation.
Foreign transaction (gain) loss. The Company incurs transaction gains and losses related to transactions with foreign customers in currencies other than the U.S. dollar. In addition, certain intercompany transactions can give rise to realized and unrealized foreign currency gains and losses.
Acquisition and transaction related items. The Company incurs transaction related costs, such as legal and accounting fees and other expenses, related to acquisitions and divestiture activities. Management believes these items are outside the normal operations of the Company’s business and are not indicative of ongoing operating results.
Restructuring costs. The Company incurs restructuring costs for cost reduction actions which include employee termination costs, facility shut-down related costs and lease commitment costs for unused, excess or exited facilities. Management believes that these costs are not indicative of ongoing operating results as they are either non-recurring and/or not expected when full capacity and volumes are achieved.
Non-recoverable rates and costs. In fiscal 2022, the Company incurred non-recoverable rates and costs as a result of its inability to hire the required direct labor base to execute on its backlog due to a challenging environment in hiring and retaining skilled personnel. In addition, in 2022 the Company incurred non-recoverable rate growth resulting from a smaller than planned direct labor base due to delays in customer program execution and awards.
Legal related items. The Company incurs costs related to pending legal settlements and other legal related matters. Management believes these items are outside the normal operations of the Company’s business and are not indicative of ongoing operating results.
Adjusted EBITDA is a non-GAAP financial measure and should not be considered in isolation or as a substitute for financial information provided in accordance with GAAP. This non-GAAP financial measure may not be computed in the same manner as similarly titled measures used by other companies. The Company expects to continue to incur expenses similar to the Adjusted EBITDA financial adjustments described above, and investors should not infer from the Company’s presentation of this non-GAAP financial measure that these costs are unusual, infrequent, or non-recurring.
Reconciliation of Net Loss attributable to Kratos to Adjusted EBITDA is as follows:
Three Months Ended
Nine Months Ended
October 1,
September 25,
October 1,
September 25,
2023
2022
2023
2022
Net loss attributable to Kratos
$
(1.6
)
$
(8.0
)
$
(11.3
)
$
(28.6
)
Income from discontinued operations, net of income taxes
–
–
(0.2
)
(0.7
)
Interest expense, net
5.1
4.1
15.5
12.9
Loss on extinguishment of debt
–
–
–
13.0
Provision (benefit) for income taxes from continuing operations
3.8
(0.8
)
6.9
(4.6
)
Depreciation (including cost of service revenues and product sales)
6.7
5.9
19.5
16.5
Stock-based compensation
6.4
6.6
19.0
19.9
Foreign transaction loss
0.4
1.4
1.4
1.5
Amortization of intangible assets
1.5
3.0
4.5
6.3
Amortization of capitalized contract and development costs
0.8
0.4
2.0
1.0
Acquisition and restructuring related items and other
–
7.4
0.9
14.0
Plus: Net income attributable to noncontrolling interest
4.6
–
8.1
0.3
Adjusted EBITDA
$
27.7
$
20.0
$
66.3
$
51.5
Reconciliation of acquisition and restructuring related items and other included in Adjusted EBITDA:
Three Months Ended
Nine Months Ended
October 1,
September 25,
October 1,
September 25,
2023
2022
2023
2022
Acquisition and transaction related items
$
–
$
0.2
$
–
$
0.6
Restructuring costs
–
0.8
–
1.1
Non-recoverable rates and costs
–
6.4
–
6.4
Legal related items
–
–
0.9
5.9
$
–
$
7.4
$
0.9
$
14.0
Kratos Defense & Security Solutions, Inc.
Unaudited Segment Data
(in millions)
Three Months Ended
Nine Months Ended
October 1,
September 25,
October 1,
September 25,
2023
2022
2023
2022
Revenues:
Unmanned Systems
$
56.7
$
50.0
$
156.8
$
159.0
Kratos Government Solutions
217.9
178.6
606.5
490.0
Total revenues
$
274.6
$
228.6
$
763.3
$
649.0
Operating income (loss)
Unmanned Systems
$
2.6
$
(0.1
)
$
3.2
$
(4.6
)
Kratos Government Solutions
15.9
3.3
35.2
18.4
Unallocated corporate expense, net
(6.3
)
(6.8
)
(19.0
)
(20.5
)
Total operating income (loss)
$
12.2
$
(3.6
)
$
19.4
$
(6.7
)
Note: Unallocated corporate expense, net includes costs for certain stock-based compensation programs (including stock-based compensation costs for stock options, employee stock purchase plan and restricted stock units), the effects of items not considered part of management’s evaluation of segment operating performance, and acquisition and restructuring related items, corporate costs not allocated to the segments, legal related items, and other miscellaneous corporate activities.
Reconciliation of Segment Operating Income (Loss) to Adjusted EBITDA is as follows:
Three Months Ended
Nine Months Ended
October 1,
September 25,
October 1,
September 25,
2023
2022
2023
2022
Unmanned Systems
Operating income (loss)
$
2.6
$
(0.1
)
$
3.2
$
(4.6
)
Other income (expense)
0.1
(0.1
)
0.1
–
Depreciation
2.1
1.7
5.9
5.0
Amortization of intangible assets
0.1
0.2
0.3
0.7
Amortization of capitalized contract and development costs
0.5
0.4
1.3
1.0
Acquisition and restructuring related items and other
–
–
–
5.9
Adjusted EBITDA
$
5.4
$
2.1
$
10.8
$
8.0
% of revenue
9.5
%
4.2
%
6.9
%
5.0
%
Kratos Government Solutions
Operating income
$
15.9
$
3.3
$
35.2
$
18.4
Other income
0.1
0.4
0.9
0.5
Depreciation
4.6
4.2
13.6
11.5
Amortization of intangible assets
1.4
2.8
4.2
5.6
Amortization of capitalized contract and development costs
0.3
–
0.7
–
Acquisition and restructuring related items and other
–
7.2
0.9
7.5
Adjusted EBITDA
$
22.3
$
17.9
$
55.5
$
43.5
% of revenue
10.2
%
10.0
%
9.2
%
8.9
%
Total Adjusted EBITDA
$
27.7
$
20.0
$
66.3
$
51.5
% of revenue
10.1
%
8.7
%
8.7
%
7.9
%
Kratos Defense & Security Solutions, Inc.
Unaudited Condensed Consolidated Balance Sheets
(in millions)
October 1,
December 25,
2023
2022
Assets
Current assets:
Cash and cash equivalents
$
42.2
$
81.3
Accounts receivable, net
351.9
328.5
Inventoried costs
150.1
125.5
Prepaid expenses
18.3
11.9
Other current assets
41.9
35.4
Total current assets
604.4
582.6
Property, plant and equipment, net
227.3
213.1
Operating lease right-of-use assets
50.6
47.4
Goodwill
558.2
558.2
Intangible assets, net
50.7
55.2
Other assets
99.6
95.0
Total assets
$
1,590.8
$
1,551.5
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$
57.4
$
57.3
Accrued expenses
40.3
33.8
Accrued compensation
55.2
52.2
Accrued interest
1.8
1.5
Billings in excess of costs and earnings on uncompleted contracts
79.4
62.1
Current portion of operating lease liabilities
12.1
10.8
Other current liabilities
15.9
15.6
Other current liabilities of discontinued operations
0.9
0.9
Total current liabilities
263.0
234.2
Long-term debt
234.2
250.2
Operating lease liabilities, net of current portion
43.0
40.8
Other long-term liabilities
76.8
77.4
Other long-term liabilities of discontinued operations
1.1
1.4
Total liabilities
618.1
604.0
Commitments and contingencies
Redeemable noncontrolling interest
19.3
11.2
Stockholders’ equity:
Additional paid-in capital
1,633.5
1,608.4
Accumulated other comprehensive loss
2.5
(0.8
)
Accumulated deficit
(682.6
)
(671.3
)
Total Kratos stockholders’ equity
953.4
936.3
Total liabilities and stockholders’ equity
$
1,590.8
$
1,551.5
Kratos Defense & Security Solutions, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in millions)
Nine Months Ended
October 1,
September 25,
2023
2022
Operating activities:
Net loss
$
(3.2
)
$
(28.3
)
Less: income from discontinued operations
0.2
0.7
Loss from continuing operations
(3.4
)
(29.0
)
Adjustments to reconcile loss from continuing operations to net cash used in operating activities from continuing operations:
Depreciation and amortization
24.0
22.8
Amortization of lease right-of-use assets
8.5
7.8
Deferred income taxes
0.1
0.3
Stock-based compensation
19.0
19.9
Litigation related charges
–
5.5
Amortization of deferred financing costs
0.5
0.6
Loss on extinguishment of debt
–
13.0
Provision for doubtful accounts
1.0
–
Changes in assets and liabilities, net of acquisitions:
Accounts receivable
(23.5
)
17.0
Unbilled receivables
(9.1
)
(18.2
)
Inventoried costs
(23.7
)
(28.0
)
Prepaid expenses and other assets
(15.7
)
(17.4
)
Operating lease liabilities
(8.2
)
(7.7
)
Accounts payable
(0.6
)
1.0
Accrued compensation
3.1
3.0
Accrued expenses
6.4
1.1
Accrued interest
0.3
(1.2
)
Billings in excess of costs and earnings on uncompleted contracts
17.4
(10.6
)
Income tax receivable and payable
1.9
(8.3
)
Other liabilities
(0.2
)
(3.9
)
Net cash used in operating activities from continuing operations
(2.2
)
(32.3
)
Investing activities:
Cash paid for acquisitions, net of cash acquired
–
(132.2
)
Capital expenditures
(33.1
)
(34.8
)
Proceeds from sale of assets
8.3
0.1
Net cash used in investing activities from continuing operations
(24.8
)
(166.9
)
Financing activities:
Proceeds from the issuance of long-term debt
–
200.0
Borrowing under credit facility
54.0
100.0
Redemption of Senior Secured Notes
–
(309.8
)
Repayment under credit facility, term loan and other debt
(67.8
)
(1.2
)
Debt issuance costs
–
(3.2
)
Payment under finance leases
(1.2
)
(1.0
)
Payments of employee taxes withheld from share-based awards
(3.6
)
(12.3
)
Proceeds from shares issued under equity plans
6.5
6.1
Net cash used in financing activities from continuing operations
(12.1
)
(21.4
)
Net cash flows from continuing operations
(39.1
)
(220.6
)
Net operating cash flows of discontinued operations
–
(0.3
)
Effect of exchange rate changes on cash and cash equivalents
–
(3.3
)
Net decrease in cash, cash equivalents and restricted cash
(39.1
)
(224.2
)
Cash, cash equivalents and restricted cash at beginning of period
81.3
349.4
Cash, cash equivalents and restricted cash at end of period
$
42.2
$
125.2
Kratos Defense & Security Solutions, Inc.
Unaudited Non-GAAP Measures
Computation of Adjusted Earnings Per Share
(in millions, except per share data)
Adjusted income from continuing operations and adjusted income from continuing operations per diluted common share (Adjusted EPS) are non-GAAP measures for reporting financial performance and exclude the impact of certain items and, therefore, have not been calculated in accordance with GAAP. Management believes that exclusion of these items assists in providing a more complete understanding of the Company’s underlying continuing operations results and trends and allows for comparability with our peer company index and industry. The Company uses these measures along with the corresponding GAAP financial measures to manage the Company’s business and to evaluate its performance compared to prior periods and the marketplace. The Company defines adjusted income from continuing operations before amortization of intangible assets, depreciation, stock-based compensation, foreign transaction gain/loss, and acquisition and restructuring related items and other. The estimated impact to income taxes includes the impact to the effective tax rate, current tax provision and deferred tax provision, and excludes the impact of discrete items, including transaction related expenses and release of valuation allowance, or benefit related to the add-backs.* Adjusted EPS reflects adjusted income on a per share basis using weighted average diluted shares outstanding.
The following table reconciles the most directly comparable GAAP financial measures to the non-GAAP financial measures.
Three Months Ended
Nine Months Ended
October 1,
September 25,
October 1,
September 25,
2023
2022
2023
2022
Net loss attributable to Kratos
$
(1.6
)
$
(8.0
)
$
(11.3
)
$
(28.6
)
Less: GAAP provision (benefit) for income taxes
3.8
(0.8
)
6.9
(4.6
)
Less: Net income attributable to noncontrolling interest
4.6
–
8.1
0.3
Less: income from discontinued operations, net of income taxes
–
–
(0.2
)
(0.7
)
Income (loss) from continuing operations before taxes
6.8
(8.8
)
3.5
(33.6
)
Add: Amortization of intangible assets
1.5
3.0
4.5
6.3
Add: Amortization of capitalized contract and development costs
0.8
0.4
2.0
1.0
Add: Depreciation
6.7
5.9
19.5
16.5
Add: Stock-based compensation
6.4
6.6
19.0
19.9
Add: Loss on extinguishment of debt
–
–
–
13.0
Add: Foreign transaction loss
0.4
1.4
1.4
1.5
Add: Acquisition and restructuring related items and other
–
7.4
0.9
14.0
Non-GAAP Adjusted income from continuing operations before income taxes
22.6
15.9
50.8
38.6
Income taxes on Non-GAAP measure Adjusted income from continuing operations*
6.9
5.7
15.5
13.9
Non-GAAP Adjusted net income
$
15.7
$
10.2
$
35.3
$
24.7
Diluted earnings per common share
$
(0.01
)
$
(0.06
)
$
(0.09
)
$
(0.23
)
Less: GAAP provision (benefit) for income taxes
0.03
(0.01
)
0.05
(0.03
)
Less: Net income attributable to noncontrolling interest
0.03
–
0.06
–
Less: income from discontinued operations, net of income taxes
–
–
–
–
Add: Amortization of intangible assets
0.01
0.02
0.03
0.05
Add: Amortization of capitalized contract and development costs
0.01
–
0.02
0.01
Add: Depreciation
0.05
0.05
0.15
0.13
Add: Stock-based compensation
0.05
0.05
0.15
0.16
Add: Loss on extinguishment of debt
–
–
–
0.10
Add: Foreign transaction loss
–
0.01
0.01
0.01
Add: Acquisition and restructuring related items and other
–
0.06
0.01
0.11
Income taxes on Non-GAAP measure Adjusted income from continuing operations*
(0.05
)
(0.04
)
(0.12
)
(0.11
)
Adjusted income from continuing operations per diluted common share
$
0.12
$
0.08
$
0.27
$
0.20
Weighted average diluted common shares outstanding
129.6
127.2
129.3
126.5
*The impact to income taxes is calculated by recasting income before income taxes to include the add-backs involved in determining Adjusted income from continuing operations before income taxes and recalculating the income tax provision, including current and deferred income taxes, using the Adjusted income from continuing operations before income taxes. The recalculation also adjusts for any discrete tax expense, including transaction related expenses and the release of valuation allowance, or benefit related to the add-backs.
Kratos Thanatos Tactical UAV in Flight – Conceptual Rendition
The October employment report showed a moderation in U.S. job growth, adding to signs that the blazing labor market may be starting to ease. Nonfarm payrolls increased by 150,000 last month, lower than consensus estimates of 180,000 and a slowdown from September’s revised gain of 289,000 jobs.
The unemployment rate ticked up to 3.9% from 3.8% in September, hitting the highest level since January 2022. Wages also rose less than expected, with average hourly earnings climbing just 0.2% month-over-month and 4.1% year-over-year.
October’s report points to a cooling job market after over a year of robust gains that outpaced labor force growth. The slowdown was largely driven by a decline of 35,000 manufacturing jobs stemming from strike activity at major automakers including GM, Ford, and Chrysler.
The United Auto Workers unions reached tentative agreements with the automakers this week, so some job gains are expected to be recouped in November. But broader moderation in hiring aligns with other indicators of slowing momentum. Job openings declined significantly in September, quits rate dipped, and small business hiring plans softened.
For investors, the cooling labor market supports the case for a less aggressive Fed as the central bank aims to tame inflation without triggering a recession. Markets are now pricing in a 90% chance of no rate hike at the December FOMC meeting, compared to an 80% chance prior to the jobs report.
The Chance of a Soft Landing Improves
The decline in wage growth in particular eases some of the Fed’s inflation worries. Slowing wage pressures reduces the risk of a 1970s-style wage-price spiral. This gives the Fed room to pause rate hikes to assess the delayed impact of prior tightening.
Markets cheered the higher likelihood of no December hike, with stocks surging on Friday. The S&P 500 gained 1.4% in morning trading while the tech-heavy Nasdaq jumped 1.7%. Treasury yields declined, with the 10-year falling to 4.09% from 4.15% on Thursday.
Investors have become increasingly optimistic in recent weeks that the Fed can orchestrate a soft landing, avoiding recession while bringing inflation back toward its 2% target. CPI inflation showed signs of moderating in October, declining more than expected to 7.7%.
But risks remain, especially with services inflation still running hot. The Fed’s terminal rate will likely still need to move higher than current levels around 4.5%. Any renewed acceleration in wage growth could also put a December hike back on the table.
Labor Market Resilience Still Evident
While job gains moderated, some details within October’s report demonstrate continued labor market resilience. The unemployment rate remains near 50-year lows at 3.9%, still below pre-pandemic levels. Labor force participation also remains above pre-COVID levels despite a slight tick down in October.
The household survey showed a gain of 328,000 employed persons last month, providing a counterweight to the slower payrolls figure based on the establishment survey.
Job openings still exceeded available workers by over 4 million in September. And weekly jobless claims remain around historically low levels, totaling 217,000 for the week ended October 29.
With demand for workers still outstripping supply, risks of a sharp pullback in hiring seem limited. But the October report supports the case for a period of slower job gains as supply and demand rebalances.
Moderating job growth gives the Fed important breathing room as it assesses progress toward its 2% inflation goal. For investors, it improves the odds that the Fed can achieve a soft landing, avoiding aggressive hikes even as inflation persists at elevated levels.
Seanergy Maritime Holdings Corp. is the only pure-play Capesize ship-owner publicly listed in the US. Seanergy provides marine dry bulk transportation services through a modern fleet of Capesize vessels. The Company’s operating fleet consists of 17 Capesize vessels with an average age of approximately 12 years and aggregate cargo carrying capacity of approximately 3,011,083 dwt. The Company is incorporated in the Marshall Islands and has executive offices in Glyfada, Greece. The Company’s common shares trade on the Nasdaq Capital Market under the symbol “SHIP” and its Class B warrants under “SHIPZ”.
Michael Heim, Senior Vice President, Equity Research Analyst, Energy & Transportation, Noble Capital Markets, Inc.
Refer to the full report for the price target, fundamental analysis, and rating.
Lower shipping rates will push revenues down modestly. We have lowered our 2023-3Q revenue projections modestly to reflect a drop in shipping rates in the later half of the quarter. After a sharp decline in pricing in 2022, the dry bulk shipping market has shown signs of improving several times only to have pricing slip back down. Such was the case in the third quarter which began the period on a high note only to see pricing fall. Issues in China, the war in Ukraine, and general economic malaise are the causes cited most often for pricing weakness.
Lowering non-contracted shipping rates reduces our revenue projections, earnings projections largely unchanged. We have lowered our assumed shipping rate for non-contracted shipping days in the quarter to $16,500 from $17,000. In response, we have lowered our revenue estimate to $24.4 million from $24.8 million. Lower revenues, combined with an increase in stock-based compensation due to a higher SHIP stock price, were offset by the elimination of losses on the extinguishment of debt. The result is only a modest change to our EPS estimate which now calls for an adjusted EPS loss of $0.15 versus our previous estimate of $0.16 per share. We expect the company to report results on November 14th.
Equity Research is available at no cost to Registered users of Channelchek. Not a Member? Click ‘Join’ to join the Channelchek Community. There is no cost to register, and we never collect credit card information.
This Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).
*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision.
Saga Communications, Inc. is a broadcast company whose business is primarily devoted to acquiring, developing and operating radio stations. Saga currently owns or operates broadcast properties in 27 markets, including 79 FM and 33 AM radio stations. Saga’s strategy is to operate top billing radio stations in mid sized markets, defined as markets ranked (by market revenues) from 20 to 200. Saga’s radio stations employ a myriad of programming formats, including Active Rock, Adult Album Alternative, Adult Contemporary, Country, Classic Country, Classic Hits, Classic Rock, Contemporary Hits Radio, News/Talk, Oldies and Urban Contemporary. In operating its stations, Saga concentrates on the development of strong decentralized local management, which is responsible for the day-to-day operations of the stations in their market area and is compensated based on their financial performance as well as other performance factors that are deemed to effect the long-term ability of the stations to achieve financial objectives. Saga began operations in 1986 and became a publicly traded company in December 1992. The stock trades on NASDAQ under the ticker symbol “SGA”.
Michael Kupinski, Director of Research, Equity Research Analyst, Digital, Media & Technology , Noble Capital Markets, Inc.
Jacob Mutchler, Research Associate, Noble Capital Markets, Inc.
Refer to the full report for the price target, fundamental analysis, and rating.
Solid Q3 results. The company reported Q3 revenue of $29 million, and adj. EBITDA of $5 million, both of which were in-line with our estimates of $28.9 million and $5 million, respectively. Notably, the company’s national advertising revenue was up 1% in the quarter, which is virtually unheard of among its peers. We believe that the company will have among the best Q3 results in the industry.
Best in class. Management indicated that its Digital businesses grew a strong 34% in the quarter, likely to exceed the industry. Notably, the company’s national advertising revenue is up an impressive 6.9% year-to-date. In addition to the company’s industry leading digital revenue growth and resilient national advertising revenues, the company has a pristine balance sheet with no long term debt.
Equity Research is available at no cost to Registered users of Channelchek. Not a Member? Click ‘Join’ to join the Channelchek Community. There is no cost to register, and we never collect credit card information.
This Company Sponsored Research is provided by Noble Capital Markets, Inc., a FINRA and S.E.C. registered broker-dealer (B/D).
*Analyst certification and important disclosures included in the full report. NOTE: investment decisions should not be based upon the content of this research summary. Proper due diligence is required before making any investment decision.
