American Woodmark Corporation Announces Second Quarter Results

American Woodmark Corporation (NASDAQ: AMWD) (the "Company") today announced results for its second quarter of fiscal 2022 which ended October 31, 2021.

Net sales for the second quarter of fiscal 2022 increased $4.6 million, or 1.0%, to $453.2 million compared with the same quarter of the prior fiscal year. The Company experienced growth in the new construction sales channel during the second quarter of fiscal 2022 versus the prior year period as market demand continued at a strong pace. Net sales for the first six months of the current fiscal year increased 6.8% to $895.7 million from the comparable period of the prior fiscal year.

Net income was $2.0 million ($0.12 per diluted share) for the second quarter of fiscal 2022 compared with $23.1 million ($1.36 per diluted share) in the same quarter of the prior fiscal year. Net income for the second quarter of fiscal 2022 decreased $21.1 million due to the continued expansion of inflationary pressures outpacing our pricing actions taken across all our channels. Prior pricing actions have begun to partially offset the macro level inflationary impacts. Given the inherent lag in the realization of these pricing actions which in some cases can take up to six months or more, the current quarter inflation impacts could not be fully offset. Net income for the first six months of the current fiscal year was $5.0 million ($0.30 per diluted share) compared with $39.2 million ($2.30 per diluted share) for the same period of the prior fiscal year. Net income margin was 0.4% for the second quarter of fiscal 2022 compared to 5.2% for the same period in the prior fiscal year and 0.6% for the first six months of the current fiscal year compared with 4.7% for the same period of the prior fiscal year. Adjusted EPS per diluted share was $0.62 for the second quarter of fiscal 2022 compared with $2.02 in the same quarter of the prior fiscal year and $1.32 for the first six months of the current fiscal year compared with $3.65 for the same period of the prior fiscal year.

Adjusted EBITDA for the second quarter of fiscal 2022 decreased $35.3 million, or 53.4%, to $30.8 million, or 6.8% of net sales, compared to $66.1 million, or 14.7% of net sales, for the same quarter of the prior fiscal year. Adjusted EBITDA for the first six months of fiscal 2022 decreased $59.6 million, or 48.7%, to $62.9 million, or 7.0% of net sales, compared to $122.5 million, or 14.6% of net sales, for the same period of the prior fiscal year.

"Sales growth remained strong in our new construction channel with remodel sales slowing due to the timing of winter promotional product shipments and prior year restocking efforts. Our current quarter adjusted EBITDA margins of 6.8% were below expectations as sales were suppressed due to ongoing labor and supply chain challenges, primarily particle board. Our current quarter results include approximately $14 million of pricing impact that we realized in the second quarter of fiscal 2022. We have also completed an additional set of pricing actions due to ongoing inflationary pressures. Assuming our current sales level, we expect the impact of confirmed pricing actions to increase in the fourth fiscal quarter of 2022 by an additional $36 million versus the second quarter's realized pricing actions, to over $50 million per quarter," said Scott Culbreth, President and CEO. "Supply chain, labor, and logistics challenges remain, as well as increased costs associated with those challenges, but we expect retention efforts to continue improving our staffing levels which will result in incremental production capacity to reduce our backlog. We remain excited about the long-term potential for the business and expect Adjusted EBITDA margins to improve as price realization better matches inflationary impacts and we improve productivity and increase production levels."

Cash used by operating activities for the first six months was $(10.2) million and free cash flow totaled $(37.3) million. Cash flows were negatively impacted by lower net income, higher inventory levels, timing of accounts payable, and lower accrued compensation expenses. As of October 31, 2021, the Company had $8.0 million of cash on hand with no term loan debt maturities until July 2023 plus access to $233.0 million of additional availability under its revolving facility. The Company paid down a net of $19.7 million of its debt and repurchased shares valued at $25.0 million during the first six months of the current fiscal year.

Effective May 1, 2021, the Company changed its accounting method for inventory costing for inventories which previously utilized a last-in, first-out ("LIFO") basis to a first-in, first-out ("FIFO") basis. All prior periods presented have been retrospectively adjusted to apply the effects of the change.

About Us

American Woodmark celebrates the creativity in all of us. With over 10,000 employees and more than a dozen brands, we’re one of the nation’s largest cabinet manufacturers. From inspiration to installation, we help people find their unique style and turn their home into a space for self-expression. By partnering with major home centers, builders, and independent dealers and distributors, we spark the imagination of homeowners and designers and bring their vision to life. Across our service and distribution centers, our corporate office, and manufacturing facilities, you’ll always find the same commitment to customer satisfaction, integrity, teamwork, and excellence. Visit americanwoodmark.com to learn more and start building something distinctly your own.

Use of Non-GAAP Financial Measures

We have presented certain financial measures in this press release which have not been prepared in accordance with U.S. generally accepted accounting principles (GAAP). Definitions of our non-GAAP financial measures and a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP are provided below following the financial highlights under the heading "Non-GAAP Financial Measures."

Safe harbor statement under the Private Securities Litigation Reform Act of 1995: All forward-looking statements made by the Company involve material risks and uncertainties and are subject to change based on factors that may be beyond the Company's control. Accordingly, the Company's future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Such factors include, but are not limited to, those described in the Company's filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K. The Company does not undertake to publicly update or revise its forward looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.

(AMWD-ER)

AMERICAN WOODMARK CORPORATION

Unaudited Financial Highlights

(in thousands, except share data)

Operating Results

Three Months Ended

Six Months Ended

October 31,

October 31,

2021

2020

2021

2020

Net sales

$

453,163

$

448,583

$

895,744

$

838,670

Cost of sales & distribution

401,469

357,911

790,607

668,431

Gross profit

51,694

90,672

105,137

170,239

Sales & marketing expense

21,568

21,608

44,555

41,506

General & administrative expense

24,596

30,229

48,283

60,212

Restructuring charges, net

(3

)

2,791

310

6,251

Operating income

5,533

36,044

11,989

62,270

Interest expense, net

2,360

5,981

4,533

12,011

Other (income) expense, net

863

(981

)

936

(2,669

)

Income tax expense

280

7,922

1,509

13,747

Net income

$

2,030

$

23,122

$

5,011

$

39,181

Earnings Per Share:

Weighted average shares outstanding - diluted

16,605,911

17,047,296

16,662,791

17,036,652

Net income per diluted share

$

0.12

$

1.36

$

0.30

$

2.30

Condensed Consolidated Balance Sheet

(Unaudited)

October 31,

April 30,

2021

2021

Cash & cash equivalents

$

8,007

$

91,071

Customer receivables

149,191

146,866

Inventories

190,998

158,167

Income taxes receivable

5,109

Other current assets

18,403

13,861

Total current assets

371,708

409,965

Property, plant and equipment, net

208,696

204,002

Operating lease assets, net

118,283

123,118

Customer relationship intangibles, net

98,944

121,778

Goodwill

767,612

767,612

Other assets

30,496

27,924

Total assets

$

1,595,739

$

1,654,399

Current portion - long-term debt

$

2,160

$

8,322

Short-term operating lease liabilities

21,538

19,994

Accounts payable & accrued expenses

171,436

192,131

Total current liabilities

195,134

220,447

Long-term debt

501,434

513,450

Deferred income taxes

40,641

42,891

Long-term operating lease liabilities

104,433

109,628

Other liabilities

10,958

11,745

Total liabilities

852,600

898,161

Stockholders' equity

743,139

756,238

Total liabilities & stockholders' equity

$

1,595,739

$

1,654,399

Condensed Consolidated Statements of Cash Flows

(Unaudited)

Six Months Ended

October 31,

2021

2020

Net cash (used) provided by operating activities

$

(10,176

)

$

76,568

Net cash used by investing activities

(27,098

)

(18,930

)

Net cash used by financing activities

(45,790

)

(42,137

)

Net (decrease) increase in cash and cash equivalents

(83,064

)

15,501

Cash and cash equivalents, beginning of period

91,071

97,059

Cash and cash equivalents, end of period

$

8,007

$

112,560

Non-GAAP Financial Measures

We have reported our financial results in accordance with generally accepted accounting principles (GAAP). In addition, we have discussed our financial results using the non-GAAP measures described below.

Management believes all of these non-GAAP financial measures provide an additional means of analyzing the current period's results against the corresponding prior period's results. However, these non-GAAP financial measures should be viewed in addition to, and not as a substitute for, the Company's reported results prepared in accordance with GAAP. Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP.

EBITDA, Adjusted EBITDA and Adjusted EBITDA margin

We use EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin in evaluating the performance of our business, and we use each in the preparation of our annual operating budgets and as indicators of business performance and profitability. We believe EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin allow us to readily view operating trends, perform analytical comparisons and identify strategies to improve operating performance.

We define Adjusted EBITDA as net income adjusted to exclude (1) income tax expense, (2) interest expense, net, (3) depreciation and amortization expense, (4) amortization of customer relationship intangibles and trademarks, (5) expenses related to the acquisition of RSI Home Products, Inc. ("RSI acquisition") and the subsequent restructuring charges that the Company incurred related to the acquisition, (6) non-recurring restructuring charges, (7) stock-based compensation expense, (8) gain/loss on asset disposals, (9) change in fair value of foreign exchange forward contracts, and (10) net gain/loss on debt forgiveness and modification. We believe Adjusted EBITDA, when presented in conjunction with comparable GAAP measures, is useful for investors because management uses Adjusted EBITDA in evaluating the performance of our business.

We define Adjusted EBITDA margin as Adjusted EBITDA as a percentage of net sales.

Adjusted EPS per diluted share

We use Adjusted EPS per diluted share in evaluating the performance of our business and profitability. Management believes that this measure provides useful information to investors by offering additional ways of viewing the Company's results by providing an indication of performance and profitability excluding the impact of unusual and/or non-cash items. We define Adjusted EPS per diluted share as diluted earnings per share excluding the per share impact of (1) expenses related to the RSI acquisition and the subsequent restructuring charges that the Company incurred related to the RSI acquisition, (2) non-recurring restructuring charges, (3) the amortization of customer relationship intangibles and trademarks, (4) net loss on debt forgiveness and modification, and (5) the tax benefit of RSI acquisition expenses and subsequent restructuring charges, the net gain on debt forgiveness and modification and the amortization of customer relationship intangibles and trademarks. The amortization of intangible assets is driven by the RSI acquisition and will recur in future periods. Management has determined that excluding amortization of intangible assets from our definition of Adjusted EPS per diluted share will better help it evaluate the performance of our business and profitability and we have also received similar feedback from some of our investors.

Free cash flow

To better understand trends in our business, we believe that it is helpful to subtract amounts for capital expenditures consisting of cash payments for property, plant and equipment and cash payments for investments in displays from cash flows from continuing operations which is how we define free cash flow. Management believes this measure gives investors an additional perspective on cash flow from operating activities in excess of amounts required for reinvestment. It also provides a measure of our ability to repay our debt obligations.

Net leverage

Net leverage is a performance measure that we believe provides investors a more complete understanding of our leverage position and borrowing capacity after factoring in cash and cash equivalents that eventually could be used to repay outstanding debt.

We define net leverage as net debt (total debt less cash and cash equivalents) divided by the trailing 12 months Adjusted EBITDA.

A reconciliation of these non-GAAP financial measures and the most directly comparable measures calculated and presented in accordance with GAAP are set forth on the following tables:

Reconciliation of EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin

Three Months Ended

Six Months Ended

October 31,

October 31,

(in thousands)

2021

2020

2021

2020

Net income (GAAP)

$

2,030

$

23,122

$

5,011

$

39,181

Add back:

Income tax expense

280

7,922

1,509

13,747

Interest expense, net

2,360

5,981

4,533

12,011

Depreciation and amortization expense

12,921

13,019

25,946

25,978

Amortization of customer relationship intangibles and trademarks

11,417

12,250

22,834

24,500

EBITDA (Non-GAAP)

$

29,008

$

62,294

$

59,833

$

115,417

Add back:

Acquisition and restructuring related expenses (1)

20

61

40

121

Non-recurring restructuring charges, net (2)

(3

)

2,791

310

6,251

Change in fair value of foreign exchange forward contracts (3)

520

(566

)

170

(1,821

)

Stock-based compensation expense

1,216

1,266

2,393

2,227

Loss on asset disposal

36

286

151

332

Adjusted EBITDA (Non-GAAP)

$

30,797

$

66,132

$

62,897

$

122,527

Net Sales

$

453,163

$

448,583

$

895,744

$

838,670

Net income margin (GAAP)

0.4

%

5.2

%

0.6

%

4.7

%

Adjusted EBITDA margin (Non-GAAP)

6.8

%

14.7

%

7.0

%

14.6

%

(1) Acquisition and restructuring related expenses are comprised of expenses related to the RSI acquisition and the subsequent restructuring charges that the Company incurred related to the acquisition.
(2) Non-recurring restructuring charges are comprised of expenses incurred related to the permanent layoffs due to COVID-19 and the closure of the manufacturing plant in Humboldt, Tennessee. The three- and six-months ended October 31, 2020 includes accelerated depreciation expense of $0.2 million and $1.3 million, respectively, related to Humboldt.
(3) In the normal course of business the Company is subject to risk from adverse fluctuations in foreign exchange rates. The Company manages these risks through the use of foreign exchange forward contracts. The changes in the fair value of the forward contracts are recorded in other (income) expense, net in the operating results.

Reconciliation of Net Income to Adjusted Net Income

Three Months Ended

Six Months Ended

October 31,

October 31,

(in thousands, except share data)

2021

2020

2021

2020

Net income (GAAP)

$

2,030

$

23,122

$

5,011

$

39,181

Add back:

Acquisition and restructuring related expenses

20

61

40

121

Non-recurring restructuring charges, net

(3

)

2,791

310

6,251

Amortization of customer relationship intangibles and trademarks

11,417

12,250

22,834

24,500

Tax benefit of add backs

(3,100

)

(3,850

)

(6,167

)

(7,903

)

Adjusted net income (Non-GAAP)

$

10,364

$

34,374

$

22,028

$

62,150

Weighted average diluted shares

16,605,911

17,047,296

16,662,791

17,036,652

EPS per diluted share (GAAP)

$

0.12

$

1.36

$

0.30

$

2.30

Adjusted EPS per diluted share (Non-GAAP)

$

0.62

$

2.02

$

1.32

$

3.65

Free Cash Flow

Six Months Ended

October 31,

2021

2020

Cash (used) provided by operating activities

$

(10,176

)

$

76,568

Less: Capital expenditures (1)

27,103

19,124

Free cash flow

$

(37,279

)

$

57,444

(1) Capital expenditures consist of cash payments for property, plant and equipment and cash payments for investments in displays.

Net Leverage

Twelve Months
Ended

October 31,

(in thousands)

2021

Net income (GAAP)

$

25,033

Add back:

Income tax expense

6,584

Interest expense, net

15,650

Depreciation and amortization expense

51,068

Amortization of customer relationship intangibles and trademarks

46,223

EBITDA (Non-GAAP)

$

144,558

Add back:

Acquisition and restructuring related expenses (1)

93

Non-recurring restructuring charges, net (2)

(92

)

Change in fair value of foreign exchange forward contracts (3)

888

Stock-based compensation expense

4,764

Loss on asset disposal

203

Net loss on debt forgiveness and modification

13,792

Adjusted EBITDA (Non-GAAP)

$

164,206

As of

October 31,

2021

Current maturities of long-term debt

$

2,160

Long-term debt, less current maturities

501,434

Total debt

503,594

Less: cash and cash equivalents

(8,007

)

Net debt

$

495,587

Net leverage (4)

3.02

(1) Acquisition and restructuring related expenses are comprised of expenses related to the RSI acquisition and the subsequent restructuring charges that the Company incurred related to the acquisition.
(2) Non-recurring restructuring charges are comprised of expenses incurred related to the permanent layoffs due to COVID-19 and the closure of the manufacturing plant in Humboldt, Tennessee.
(3) In the normal course of business the Company is subject to risk from adverse fluctuations in foreign exchange rates. The Company manages these risks through the use of foreign exchange forward contracts. The changes in the fair value of the forward contracts are recorded in other (income) expense, net in the operating results.
(4) Net debt divided by Adjusted EBITDA for the twelve months ended October 31, 2021.

Contacts:

Kevin Dunnigan
Treasury Director
540-665-9100

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