Completes Sale of Two North American Facilities and Related Equipment
Declares Special Dividend of $1.00 Per Share
BOCA RATON, Fla., Jan. 10, 2018 (GLOBE NEWSWIRE) -- Q.E.P. CO., INC. (OTC:QEPC.PK) (the “Company”) today reported its consolidated results of operations for the first nine months and third quarter of its fiscal year ending February 28, 2018, the sale of two North American facilities and the declaration of a special dividend.
Results of Operation:
The Company reported net sales of $246.9 million for the nine months ended November 30, 2017, an increase of $8.6 million or 3.6% from the $238.2 million reported in the same period of fiscal 2017. As a percentage of net sales, gross margin was 28.3% in the first nine months of fiscal 2018 compared to 28.2% in the first nine months of fiscal 2017.
The Company reported net sales of $80.7 million for the quarter ended November 30, 2017, an increase of $2.8 million or 3.6% from the $78.0 million reported in the same period of fiscal 2017. As a percentage of net sales, gross margin was 27.9% in the third quarter of fiscal 2018 compared to 28.2% in the third quarter of fiscal 2017.
Lewis Gould, Chairman of the Board of Directors, commented on Q.E.P.’s nine month results, “QEP experienced sales growth compared to the prior year’s third fiscal quarter, maintaining this growth through gross profit. Operationally, the increase to sales came at a cost that was reflected in higher shipping and selling costs in both our European and Australian segments. Our general and administrative costs reflect one-time costs, that when normalized are in line with our expectations for the current quarter. We continue to see unprecedented sales growth in our Australian business with the rollout of new product offerings and the successful integration of our current year acquisitions in North America. For the first nine months of fiscal 2018, we still continue to see difficult top line comparisons due to shifting product demand in North America, foreign currency in Europe and our discontinued carpet installation business in Australia.”
Mr. Gould continued, “QEP has been very active over the past few months. In December we sold two of our domestic operating facilities and related equipment as we began a process of improving efficiency in our business. Over the next few months we will continue to streamline our operations and prepare for growth and expansion. These transactions generated $5.5 million of cash, net of related debt. Our Board of Directors has elected to return some of this cash to our shareholders in the form of a special dividend with the remainder of the proceeds being used for general operating purposes. We are encouraged by the recent tax law changes in the United States believing that as a full tax payer we will benefit from these changes. As a company, we will take this opportunity to make strategic investments in our existing workforce, operating infrastructure and acquisitions to continue to grow our company.”
Net sales growth for the first nine months and third quarter of fiscal 2018 as compared to the same periods in the prior fiscal year reflect the impact of businesses acquired during the first nine months of the current fiscal year and net growth across a range of product categories, predominately in the Australian segment. Foreign currency rate changes in our European operations had a negative effect on the nine month period and positive effect on the third quarter compared to the prior fiscal year.
The Company’s gross margin as a percentage of net sales increased for first nine months of fiscal 2018 to 28.3% compared to the prior fiscal year nine month period of 28.2% but decreased minimally in the third quarter of fiscal 2018 to 27.9% compared to the prior fiscal year third quarter of 28.2%. The Company benefited from changes in the product mix during the first nine months of the current fiscal year. The negative impact of foreign currency rates in our European operations compared to first nine months of the prior fiscal year partially offset these gains.
Operating expenses for the first nine months and third quarter of fiscal 2018 were $61.0 million and $21.8 million, respectively, or 24.7% and 27.0% of net sales in those periods, compared to $56.1 million and $18.6 million, respectively, or 23.6% and 23.9% of net sales in the comparable fiscal 2017 periods. The increase was due to a non-cash asset impairment charge related to equipment in North America that was held for sale during the third quarter and was sold in the fourth quarter of fiscal 2018, operating expenses related to certain one-time corporate development costs, the incremental expenses assumed with the businesses acquired during the current fiscal year and additional operating costs incurred to support international sales growth.
Non-operating income for the nine months of fiscal 2017 represents a gain on the sale of certain non-core assets of the Company.
The increase in interest expense during the third quarter of fiscal 2018 was due to an increase in interest rates and utilization of our credit facilities to support sales growth in Australia. The decrease in interest expense during fiscal 2018 as compared to fiscal 2017 is due to repayment of outstanding debt which more than offset increases to interest rates and to our lines of credit to support working capital needs.
The provision for income taxes as a percentage of income before taxes for the first nine months and third quarter of fiscal 2018 and fiscal 2017 was 37.5% in each period. The effective tax rate in both fiscal years reflects the relative contribution of the Company’s earnings sourced from its international operations.
Net income for the first nine months and third quarter of fiscal 2018 was $5.0 million and $0.3 million, respectively, or $1.57 and $0.10, respectively, per diluted share. For the comparable periods of fiscal 2017, net income was $6.5 million and $2.0 million, respectively, or $2.03 and $0.62, respectively, per diluted share.
Adjusting for the non-cash asset impairment charge and corporate development related expenses of $2.3 million ($1.4 million net of tax) adjusted net income for the third quarter of fiscal 2018 was $1.7 million, or $0.54 per diluted share, compared to adjusted net income of $2.0 million, or $0.62 per share, in the third quarter of the prior fiscal year. These adjustments resulted in adjusted EBITDA of $14.1 million and $4.0 million for the nine months and third quarter of fiscal 2018, respectively, compared to adjusted EBITDA of $14.0 million and $4.4 million for the nine months and third quarter of fiscal 2017, respectively. The non-recurring charges, totaling $2.3 million before the effect of taxes, were comprised of a $1.4 million asset impairment charge and $0.9 million in corporate development related expenses.
Adjusted net income for the first nine months of fiscal 2018 was $6.5 million, or $2.04 per diluted share, compared to net income of $6.5 million, or $2.03 per diluted share, in the first nine months of fiscal 2017.
| For the Three Months Ended November 30, | For the Nine Months Ended November 30, | ||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||
| Net income | $ | 322 | $ | 1,989 | $ | 5,015 | $ | 6,517 | |||||
| Impairment & corporate development adjustments, net of tax | |||||||||||||
| net of tax | 1,415 | - | 1,489 | - | |||||||||
| Adjusted net income (1) | 1,737 | 1,989 | 6,505 | 6,517 | |||||||||
| Add: | Interest expense, net | 251 | 240 | 747 | 812 | ||||||||
| Provision for income taxes | 1,042 | 1,192 | 3,903 | 3,910 | |||||||||
| Depreciation and amortization | 964 | 980 | 2,916 | 2,973 | |||||||||
| Non-operating income | - | - | - | (184 | ) | ||||||||
| Adjusted EBITDA (1) | $ | 3,994 | $ | 4,401 | $ | 14,071 | $ | 14,028 | |||||
| Net income per share: | |||||||||||||
| Basic | $ | 0.10 | $ | 0.62 | $ | 1.57 | $ | 2.03 | |||||
| Diluted | $ | 0.10 | $ | 0.62 | $ | 1.57 | $ | 2.03 | |||||
| Adjusted net income per share: (1) | |||||||||||||
| Basic | $ | 0.54 | $ | 0.62 | $ | 2.04 | $ | 2.03 | |||||
| Diluted | $ | 0.54 | $ | 0.62 | $ | 2.04 | $ | 2.03 | |||||
| (1) Adjusted results represent non-GAAP measures and exclude charges or credits not indicative of our core operations and the tax effect of these items, which may include but are not limited to asset impairments, corporate development expenses, acquisition integration and acquisition costs. | |||||||||||||
Cash provided by operations during the first nine months of fiscal 2018 was $7.0 million as compared to $7.2 million in the first nine months of fiscal 2017, reflecting an increase in cash from operations offset by higher net investment in working capital in the current period compared to the same period in the prior year. During the first nine months of fiscal 2018, the Company acquired businesses for $3.9 million and also made capital expenditures of approximately $3.2 million, including $1.5 million related to one of those acquisitions. In the first nine months of the current fiscal year, these investments as well as additional capital expenditures, treasury stock purchases and debt reductions were funded through cash on-hand and cash from operations. In the prior year our capital expenditures, investments and treasury stock purchases were funded from cash from operations with any additional funds used to reduce debt and increase cash on-hand.
Working capital at the end of the Company’s fiscal 2018 third quarter was $48.1 million compared to $45.0 million at the end of the 2017 fiscal year. During the first nine months of fiscal 2018, certain of the Company’s property and equipment totaling $1.5 million was reclassified into working capital as assets held for sale because they were not being actively utilized in the business and were sold in a transaction that closed in December 2017. Aggregate debt, net of available cash balances at the end of the Company’s fiscal 2018 third quarter was $11.5 million or 14.3% of equity, an increase of $1.1 million compared to $10.4 million or 13.9% of equity at the end of the 2017 fiscal year, reflecting our use of cash to make strategic investments in the business.
Sale of Assets:
In December 2017, QEP sold two properties and related production equipment in North America for an aggregate sales price of $15.4 million dollars. The operating activities performed in these locations have either been outsourced or are in the process of relocating to other facilities. The Company will lease a portion of these sold facilities for a short period of time to facilitate an orderly transition of business operations. In connection with these sale transactions, the Company repaid approximately $6.5 million of related debt and incurred approximately $0.3 million of transaction costs. During the third quarter of fiscal 2018 the Company recorded an impairment charge for certain assets related to these transactions of approximately $1.4 million dollars. The combined gain on these transactions net of the asset impairment is approximately $5.3 million before tax.
Dividend Declared:
On December 28, 2017, the Board of Directors of the Company declared a special dividend of $1.00 per share or approximately $3.2 million. The dividend will be payable on February 14, 2018 to shareholders of record as of the close of business on January 17, 2018.
Mr. Gould commented, “The recent sale of certain real estate holdings provided the Company a one-time infusion of a significant amount of cash, even after the retirement of related mortgage debt. As a result, the Board of Directors made a decision to return capital to its shareholders through the payment of a special dividend. After payment of the special dividend, the Company will continue to have sufficient working capital to continue to make investments in the business as well as meet its operating needs in the coming year.”
The Company will be hosting a conference call to discuss these results and to answer your questions at 10:00 a.m. Eastern Time on Tuesday, January 16, 2018. If you would like to join the conference call, dial 1-888-394-8218 toll free from the US or 1-323-794-2149 internationally approximately 10 minutes prior to the start time and ask for the Q.E.P. Co., Inc. Third Quarter Conference Call / Conference ID 3320772. A replay of the conference call will be available until midnight January 23, 2018 by calling 1-844-512-2921 toll free from the US and entering pin number 3320772; internationally, please call 1-412-317-6671 using the same pin number.
Q.E.P. Co., Inc., founded in 1979, is a world class, worldwide provider of innovative, quality and value-driven flooring and industrial solutions. As a leading manufacturer, marketer and distributor, QEP delivers a comprehensive line of hardwood and laminate flooring, flooring installation tools, adhesives and flooring related products targeted for the professional installer as well as the do-it-yourselfer. In addition, the Company provides industrial tools with cutting edge technology to the industrial trades. Under brand names including QEP®, ROBERTS®, Capitol®, Harris®Wood, Fausfloor®, Vitrex®, Homelux®, TileRite®, PRCI®, Nupla®, HISCO®, Plasplugs®, Ludell®, Porta-Nails®, Tomecanic®, Bénètiere®, Elastiment®, X-TREME Board™ and AppleCreek™, the Company sells its products to home improvement retail centers, specialty distribution outlets, municipalities and industrial solution providers in 50 states and throughout the world.
This press release contains forward-looking statements, including statements regarding economic conditions, sales growth, tax law change impacts, profit improvements, product development and marketing, operating expenses, cost savings, acquisition integration, strategic plans, working capital, cash flow, debt and currency exchange rates. These statements are not guarantees of future performance and actual results could differ materially from our current expectations. Certain prior period amounts have been reclassified to conform with current presentation.
-Financial Information Follows-
| Q.E.P. CO., INC. AND SUBSIDIARIES | |||||||||||||||
| CONSOLIDATED STATEMENTS OF EARNINGS | |||||||||||||||
| (In thousands except per share data) | |||||||||||||||
| (Unaudited) | |||||||||||||||
| For the Three Months Ended November 30, | For the Nine Months Ended November 30, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Net sales | $ | 80,728 | $ | 77,960 | $ | 246,857 | $ | 238,218 | |||||||
| Cost of goods sold | 58,181 | 55,943 | 177,108 | 171,060 | |||||||||||
| Gross profit | 22,547 | 22,017 | 69,749 | 67,158 | |||||||||||
| Operating expenses: | |||||||||||||||
| Shipping | 6,863 | 6,801 | 21,211 | 20,483 | |||||||||||
| General and administrative | 7,973 | 6,379 | 21,474 | 19,283 | |||||||||||
| Selling and marketing | 5,717 | 5,529 | 17,332 | 16,741 | |||||||||||
| Impairment loss on long-lived assets | 1,389 | - | 1,389 | - | |||||||||||
| Other income, net | (161 | ) | (113 | ) | (429 | ) | (404 | ) | |||||||
| Total operating expenses | 21,781 | 18,596 | 60,977 | 56,103 | |||||||||||
| Operating income | 766 | 3,421 | 8,772 | 11,055 | |||||||||||
| Non-operating income | - | - | - | 184 | |||||||||||
| Interest expense, net | (251 | ) | (240 | ) | (747 | ) | (812 | ) | |||||||
| Income before provision for income taxes | 515 | 3,181 | 8,025 | 10,427 | |||||||||||
| Provision for income taxes | 193 | 1,192 | 3,010 | 3,910 | |||||||||||
| Net income | $ | 322 | $ | 1,989 | $ | 5,015 | $ | 6,517 | |||||||
| Net income per share: | |||||||||||||||
| Basic | $ | 0.10 | $ | 0.62 | $ | 1.57 | $ | 2.03 | |||||||
| Diluted | $ | 0.10 | $ | 0.62 | $ | 1.57 | $ | 2.03 | |||||||
| Weighted average number of common | |||||||||||||||
| shares outstanding: | |||||||||||||||
| Basic | 3,191 | 3,198 | 3,193 | 3,199 | |||||||||||
| Diluted | 3,195 | 3,207 | 3,196 | 3,214 | |||||||||||
| Q.E.P. CO., INC. AND SUBSIDIARIES | ||||||||||||||
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||||||
| (In thousands) | ||||||||||||||
| (Unaudited) | ||||||||||||||
| For the Three Months Ended November 30, | For the Nine Months Ended November 30, | |||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||
| Net income | $ | 322 | $ | 1,989 | $ | 5,015 | $ | 6,517 | ||||||
| Unrealized currency translation adjustments | (135 | ) | (490 | ) | 706 | (347 | ) | |||||||
| Comprehensive income | $ | 187 | $ | 1,499 | $ | 5,721 | $ | 6,170 | ||||||
| Q.E.P. CO., INC. AND SUBSIDIARIES | |||||||
| CONSOLIDATED BALANCE SHEETS | |||||||
| (In thousands except per share values) | |||||||
| November 30, 2017 (Unaudited) | February 28, 2017 (Audited) | ||||||
| ASSETS | |||||||
| Cash | $ | 17,101 | $ | 19,152 | |||
| Accounts receivable, less allowance for doubtful accounts of $411 | |||||||
| and $274 as of November 30, 2017 and February 28, 2017, respectively | 43,479 | 38,493 | |||||
| Inventories | 45,845 | 40,826 | |||||
| Prepaid expenses and other current assets | 3,886 | 2,858 | |||||
| Assets held for sale | 125 | - | |||||
| Current assets | 110,436 | 101,329 | |||||
| Property and equipment, net | 19,174 | 19,072 | |||||
| Deferred income taxes, net | 5,700 | 5,726 | |||||
| Intangibles, net | 11,531 | 10,997 | |||||
| Goodwill | 3,246 | 2,745 | |||||
| Other assets | 380 | 372 | |||||
| Total Assets | $ | 150,467 | $ | 140,241 | |||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
| Trade accounts payable | $ | 21,705 | $ | 18,106 | |||
| Accrued liabilities | 19,572 | 17,819 | |||||
| Income taxes payable (prepaid) | (751 | ) | (845 | ) | |||
| Lines of credit | 19,343 | 18,683 | |||||
| Current maturities of notes payable | 2,510 | 2,573 | |||||
| Current liabilities | 62,379 | 56,336 | |||||
| Notes payable | 6,740 | 8,284 | |||||
| Deferred income taxes | 294 | 294 | |||||
| Other long term liabilities | 687 | 555 | |||||
| Total Liabilities | 70,100 | 65,469 | |||||
| Preferred stock, 2,500 shares authorized, $1.00 par value; 0 and 18 | |||||||
| shares outstanding at November 30, 2017 and February 28, 2017, | |||||||
| respectively | - | 18 | |||||
| Common stock, 20,000 shares authorized, $.001 par value; | |||||||
| 3,821 shares issued, and 3,183 and 3,189 shares outstanding at | |||||||
| November 30, 2017 and February 28, 2017 | 4 | 4 | |||||
| Additional paid-in capital | 10,840 | 10,796 | |||||
| Retained earnings | 80,322 | 75,308 | |||||
| Treasury stock, 638 and 632 shares held at cost at November 30, 2017 | |||||||
| and February 28, 2017 | (7,557 | ) | (7,406 | ) | |||
| Accumulated other comprehensive income | (3,242 | ) | (3,948 | ) | |||
| Shareholders' Equity | 80,367 | 74,772 | |||||
| Total Liabilities and Shareholders' Equity | $ | 150,467 | $ | 140,241 | |||
| Q.E.P. CO., INC. AND SUBSIDIARIES | |||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||
| (In thousands) | |||||||
| (Unaudited) | |||||||
| For the Nine Months Ended November 30, | |||||||
| 2017 | 2016 | ||||||
| Operating activities: | |||||||
| Net income | $ | 5,015 | $ | 6,517 | |||
| Adjustments to reconcile net income to net cash | |||||||
| provided by operating activities: | |||||||
| Impairment loss on long term assets | 1,389 | - | |||||
| Depreciation and amortization | 2,916 | 2,973 | |||||
| Gain from sale of business | - | (184 | ) | ||||
| Other non-cash adjustments | 133 | 31 | |||||
| Changes in assets and liabilities, net of acquisition: | |||||||
| Accounts receivable | (4,057 | ) | (2,352 | ) | |||
| Inventories | (1,559 | ) | 391 | ||||
| Prepaid expenses and other assets | (810 | ) | (1,012 | ) | |||
| Trade accounts payable and accrued liabilities | 4,004 | 809 | |||||
| Net cash provided by operating activities | 7,031 | 7,173 | |||||
| Investing activities: | |||||||
| Acquisitions | (3,899 | ) | (1,702 | ) | |||
| Capital expenditures | (3,188 | ) | (1,349 | ) | |||
| Proceeds from sale of businesses | 97 | 1,000 | |||||
| Proceeds from insurance settlements | 252 | - | |||||
| Proceeds from sale of property | 147 | 61 | |||||
| Net cash used in investing activities | (6,591 | ) | (1,990 | ) | |||
| Financing activities: | |||||||
| Net repayment under lines of credit | (812 | ) | (1,599 | ) | |||
| Net repayment of notes payable | (1,622 | ) | (1,562 | ) | |||
| Purchase of treasury stock | (90 | ) | (269 | ) | |||
| Redemption of preferred stock | (17 | ) | - | ||||
| Dividends | (1 | ) | (8 | ) | |||
| Net cash used in financing activities | (2,542 | ) | (3,438 | ) | |||
| Effect of exchange rate changes on cash | 51 | (270 | ) | ||||
| Net increase (decrease) in cash | (2,051 | ) | 1,475 | ||||
| Cash at beginning of period | 19,152 | 15,923 | |||||
| Cash at end of period | $ | 17,101 | $ | 17,398 | |||
CONTACT:
Q.E.P. Co., Inc.
Mark S. Walter
Senior Vice President Finance and
Chief Financial Officer
561-994-5550