Press Release

CIRCOR Reports First-Quarter 2017 Financial Results

April 28, 2017 at 8:00 AM EDT

BURLINGTON, Mass.--(BUSINESS WIRE)--Apr. 28, 2017-- CIRCOR International, Inc. (NYSE: CIR), a leading provider of flow control solutions and other highly engineered products for markets including oil & gas, aerospace, power, process and industrial solutions, today announced financial results for the first quarter ended April 2, 2017.

First-Quarter 2017 Highlights

  • Revenue of $145 million, GAAP EPS of $0.29 and Adjusted EPS of $0.32
  • Energy orders of $104 million, up 45%; 25% organically
  • Advanced Flow Solutions orders of $80 million, up 26% organically
  • Operating Cash Flow of $16 million and Free Cash Flow of $13 million

“CIRCOR delivered solid first-quarter results with revenue of $145 million and adjusted earnings per share of $0.32,” said Scott Buckhout, President and Chief Executive Officer. “Orders in our Energy segment were up 45% due to strong demand in our Distributed Valves business and our recent acquisition of Critical Flow Solutions. In our Advanced Flow Solutions segment, we reported a 26% organic increase in orders primarily due to strength in our aerospace and defense businesses. We expect this increase in order activity to translate into strong revenue growth and margin expansion as we progress through the year.”

“During the first quarter, we generated $16 million in cash from operations, and more than $13 million in free cash flow,” added Buckhout. “Our strong cash flow performance is a direct result of our continuous improvement actions focused on improving working capital performance.”

“We remain optimistic about the market outlook across the majority of our end markets. Going forward, we will continue to focus on creating long-term value for shareholders by investing in growth, expanding margins, generating strong free cash flow, and being disciplined with capital deployment,” concluded Buckhout.

Second-Quarter 2017 Guidance
The Company will provide its guidance for the second quarter of 2017 during the conference call later today.

Selected Consolidated Results (unaudited)

       
($ millions except EPS)     Q1 2017 Q1 2016 Change
Revenue $ 145.2 $ 150.8     (4)%
GAAP Operating Income $ 7.4 $ 5.5 34%
Adjusted Operating Income1 $ 9.1 $ 11.3 (19)%
GAAP Operating Margin 5.1% 3.6% 150 bps
Adjusted Operating Margin1 6.3% 7.5% (120) bps
GAAP Earnings Per Share (Diluted) $ 0.29 $ 0.23 26%
Adjusted Earnings Per Share (Diluted)1 $ 0.32 $ 0.52 (38)%
Operating Cash Flow $ 16.2 $ 7.7 112%
Free Cash Flow2 $ 13.4 $ 3.7 260%
Orders $ 184.1 $ 136.8 35%
             

Segment Results

($ millions)       Q1 2017 Q1 2016   Change
Energy  
Revenue $ 80.1 $ 83.4 (4)%
Segment Operating Income $ 6.9 $ 9.3 (26)%
Segment Operating Margin 8.6% 11.1% (250) bps
Orders $ 103.9 $ 71.4 45%
 
Advanced Flow Solutions
Revenue $ 65.1 $ 67.4 (3)%
Segment Operating Income $ 7.7 $ 8.5 (9)%
Segment Operating Margin 11.8% 12.5% (70) bps
Orders $ 80.2 $ 65.4 23%

1. Consolidated and Segment Results for Q1 2017 exclude non-cash acquisition-related intangible amortization, special and restructuring charges totaling $1.7 million ($0.6 million, net of tax). These charges include (i) $2.6 million charge for non-cash acquisition-related intangible amortization expense, (ii) $1.5 million charge related to other restructuring activities, primarily the exit of manufacturing operations in China and France restructuring actions; and (iii) $2.3 million net special gain primarily related to updating fair value estimates related to the purchase of Critical Flow Solutions, partially offset by Brazil losses incurred subsequent to our Q1 2016 closure of manufacturing operations. Consolidated and Segment Results for Q1 2016 exclude special and restructuring charges totaling $5.8 million ($4.8 million, net of tax). These charges include (i) $2.8 million charge related to the closure of the Brazil manufacturing operations; (ii) $1.9 million charge for non-cash acquisition-related intangible amortization expense; (iii) fixed asset write-down of $1.4 million for the closure of the California machining facility; and (iv) other items for a net gain of $0.3 million.

2. Free Cash Flow is a non-GAAP financial measure and is calculated by subtracting GAAP capital expenditures, net of proceeds from asset sales, from GAAP Operating Cash Flow.

Conference Call Information
CIRCOR International will hold a conference call to review its financial results today, April 28, 2017, at 9:00 a.m. ET. To listen to the conference call and view the accompanying presentation slides, visit “Webcasts & Presentations” in the “Investors” portion of the CIRCOR website. The call also can be accessed by dialing (877) 407-5790 or (201) 689-8328. The webcast will be archived for one year on the Company’s website.

Use of Non-GAAP Financial Measures
Adjusted operating income, Adjusted operating margin, Adjusted net income, Adjusted earnings per share (diluted), EBITDA, Adjusted EBITDA, net debt and free cash flow are non-GAAP financial measures. These non-GAAP financial measures are used by management in our financial and operating decision making because we believe they better reflect our ongoing business and allow for meaningful period-to-period comparisons. We believe these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating the Company’s current operating performance and future prospects in the same manner as management does, if they so choose. These non-GAAP financial measures also allow investors and others to compare the Company’s current financial results with the Company’s past financial results in a consistent manner. For example:

  • We exclude costs and tax effects associated with restructuring activities, such as reducing overhead and consolidating facilities. We believe that the costs related to these restructuring activities are not indicative of our normal operating costs.
  • We exclude certain acquisition-related costs, including significant transaction costs and amortization of inventory step-ups and the related tax effects. We exclude these costs because we do not believe they are indicative of our normal operating costs.
  • We exclude the expense and tax effects associated with the non-cash amortization of acquisition-related intangible assets because a significant portion of the purchase price for acquisitions may be allocated to intangible assets that have lives of 5 to 20 years. Exclusion of the non-cash amortization expense allows comparisons of operating results that are consistent over time for both our newly acquired and long-held businesses and with both acquisitive and non-acquisitive peer companies.
  • We also exclude certain gains/losses and related tax effects, which are either isolated or cannot be expected to occur again with any predictability, and that we believe are not indicative of our normal operating gains and losses. For example, we exclude gains/losses from items such as the sale of a business, significant litigation-related matters and lump-sum pension plan settlements.

CIRCOR’s management uses these non-GAAP measures, in addition to GAAP financial measures, as the basis for measuring the Company’s operating performance and comparing such performance to that of prior periods and to the performance of our competitors. We use such measures when publicly providing our business outlook, assessing future earnings potential, evaluating potential acquisitions and dispositions and in our financial and operating decision-making process, including for compensation purposes.

Investors should recognize that these non-GAAP measures might not be comparable to similarly titled measures of other companies. These measures should be considered in addition and not as a substitute for or superior to, any measure of performance, cash flow or liquidity prepared in accordance with accounting principles generally accepted in the United States. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in this news release.

Safe Harbor Statement
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Reliance should not be placed on forward-looking statements because they involve unknown risks, uncertainties and other factors, which are, in some cases, beyond the control of CIRCOR. Any statements in this press release that are not statements of historical fact are forward-looking statements, including, but not limited to, those relating to CIRCOR’s future performance, including the realization of cost reductions from restructuring activities. Actual events, performance or results could differ materially from the anticipated events, performance or results expressed or implied by such forward-looking statements. BEFORE MAKING ANY INVESTMENT DECISIONS REGARDING OUR COMPANY, WE STRONGLY ADVISE YOU TO READ THE SECTION ENTITLED "RISK FACTORS" IN OUR MOST RECENT ANNUAL REPORT ON FORM 10-K AND SUBSEQUENT REPORTS ON FORMS 10-Q, WHICH CAN BE ACCESSED UNDER THE "INVESTORS" LINK OF OUR WEBSITE AT WWW.CIRCOR.COM. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

About CIRCOR International, Inc.
CIRCOR International, Inc. designs, manufactures and markets flow control solutions and other highly engineered products and sub-systems for markets including oil & gas, aerospace, power, process and industrial solutions. CIRCOR has a diversified product portfolio with recognized, market-leading brands that fulfill its customers’ unique application needs. The Company’s strategy is to grow organically and through complementary acquisitions; simplify CIRCOR’s operations; achieve world class operational excellence; and attract and retain top industry talent. For more information, visit the Company’s investor relations website at http://investors.circor.com.

 

CIRCOR INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

UNAUDITED

      Three Months Ended

April 2, 2017

      April 3, 2016
Net revenues $ 145,208 $ 150,798
Cost of revenues 98,575   105,565  
GROSS PROFIT 46,633 45,233
Selling, general and administrative expenses 40,089 37,799
Special and restructuring (recoveries) charges, net (810 ) 1,939  
OPERATING INCOME 7,354   5,495  
Other expense (income):
Interest expense, net 1,669 631
Other expense (income), net 225   (528 )
TOTAL OTHER EXPENSE, NET 1,894   103  
INCOME BEFORE INCOME TAXES 5,460 5,392
Provision for income taxes 687   1,520  
NET INCOME $ 4,773   $ 3,872  
Earnings per common share:
Basic $ 0.29 $ 0.24
Diluted $ 0.29 $ 0.23
Weighted average number of common shares outstanding:
Basic 16,458 16,381
Diluted 16,691 16,481
Dividends declared per common share $ 0.0375 $ 0.0375
 
CIRCOR INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

UNAUDITED

      Three Months Ended
April 2, 2017         April 3, 2016
OPERATING ACTIVITIES
Net income $ 4,773 $ 3,872
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 3,798 3,263
Amortization 3,092 2,529
Bad debt recovery (54 ) (848 )
Loss on write down of inventory 548 2,525
Compensation expense of share-based plans 738 1,538
Tax effect of share-based plan compensation 92
Change in fair value of contingent consideration (2,500 )
(Gain) Loss on sale or write down of property, plant and equipment (110 ) 1,503
Changes in operating assets and liabilities, net of effects of acquisition:
Trade accounts receivable 14,018 11,089
Inventories 2,030 8,486
Prepaid expenses and other assets (4,297 ) (4,287 )
Accounts payable, accrued expenses and other liabilities (5,841 ) (22,108 )
Net cash provided by operating activities 16,195   7,654  
INVESTING ACTIVITIES
Purchases of property, plant and equipment (3,001 ) (4,021 )
Proceeds from the sale of property, plant and equipment 190 87
Business acquisition working capital adjustment 1,467    
Net cash used in investing activities (1,344 ) (3,934 )
FINANCING ACTIVITIES
Proceeds from long-term debt 34,900 35,139
Payments of long-term debt (43,100 ) (27,871 )
Dividends paid (624 ) (625 )
Proceeds from the exercise of stock options 295 111
Tax effect of share-based plan compensation   (92 )
Net cash (used in) provided by financing activities (8,529 ) 6,662  
Effect of exchange rate changes on cash and cash equivalents 1,055   1,657  
INCREASE IN CASH AND CASH EQUIVALENTS 7,377 12,039
Cash and cash equivalents at beginning of period 58,279   54,541  
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 65,656   $ 66,580  
 
CIRCOR INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

UNAUDITED

      April 2, 2017       December 31, 2016
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 65,656 $ 58,279
Trade accounts receivable, less allowance for doubtful accounts of $4,748 and $5,056, respectively 120,344 133,046
Inventories 147,915 149,584
Prepaid expenses and other current assets 33,543   29,557  
Total Current Assets 367,458   370,466  
PROPERTY, PLANT AND EQUIPMENT, NET 99,271 99,713
OTHER ASSETS:
Goodwill 206,795 206,659
Intangibles, net 133,339 135,778
Other assets 8,090   8,140  
TOTAL ASSETS $ 814,953   $ 820,756  
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 51,398 $ 46,767
Accrued expenses and other current liabilities 54,679 50,707
Accrued compensation and benefits 16,457   20,249  
Total Current Liabilities 122,534   117,723  
LONG-TERM DEBT 243,000 251,200
DEFERRED INCOME TAXES 12,454 13,657
OTHER NON-CURRENT LIABILITIES 21,428 33,766
SHAREHOLDERS’ EQUITY:
Common stock 179 178
Additional paid-in capital 291,586 289,423
Retained earnings 269,109 265,543
Common treasury stock, at cost (74,472 ) (74,472 )
Accumulated other comprehensive loss, net of tax (70,865 ) (76,262 )
Total Shareholders’ Equity 415,537   404,410  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 814,953   $ 820,756  
 
CIRCOR INTERNATIONAL, INC.

SUMMARY OF ORDERS AND BACKLOG

(in millions)

UNAUDITED

      Three Months Ended

April 2,
2017

     

April 3,
2016

ORDERS (1)
Energy $ 103.9 $ 71.4
Advanced Flow Solutions 80.2   65.4
Total orders $ 184.1   $ 136.8
 
BACKLOG (2)

April 2,
2017

April 3,
2016

Energy $ 146.2 $ 122.7
Advanced Flow Solutions 135.6   137.3
Total backlog $ 281.8   $ 260.0
 

Note 1: Orders do not include the foreign exchange impact due to the re-measurement of customer order backlog amounts denominated in foreign currencies.
Note 2: Backlog includes unshipped customer orders, including backlog associated with acquisitions.

 
CIRCOR INTERNATIONAL, INC.

SEGMENT INFORMATION

(in thousands, except percentages)

UNAUDITED

                                     
2016     2017
1ST QTR     2ND QTR     3RD QTR     4TH QTR     TOTAL     1ST QTR
NET REVENUES                
Energy $ 83,409 $ 80,736 $ 68,901 $ 89,000 $ 322,046 $ 80,135
Advanced Flow Solutions 67,389       65,656       65,932       69,236       268,213       65,073  
Total $ 150,798       $ 146,392       $ 134,833       $ 158,236       $ 590,259       $ 145,208  
 
SEGMENT OPERATING INCOME
Energy $ 9,296 $ 9,293 $ 6,755 $ 9,276 $ 34,619 $ 6,864
Advanced Flow Solutions 8,452 8,064 8,008 8,939 33,463 7,711
Corporate expenses (6,488 )     (5,431 )     (6,522 )     (7,231 )     (25,672 )     (5,479 )
Adjusted Operating Income $ 11,260       $ 11,926       $ 8,240       $ 10,984       $ 42,410       $ 9,096  
 
SEGMENT OPERATING MARGIN %
Energy 11.1 % 11.5 % 9.8 % 10.4 % 10.7 % 8.6 %
Advanced Flow Solutions 12.5 %     12.3 %     12.1 %     12.9 %     12.5 %     11.8 %
Adjusted Operating Margin 7.5 %     8.1 %     6.1 %     6.9 %     7.2 %     6.3 %
 
CIRCOR INTERNATIONAL, INC.

RECONCILIATION OF KEY PERFORMANCE MEASURES TO COMMONLY USED GENERALLY ACCEPTED ACCOUNTING PRINCIPLE TERMS

(in thousands, except percentages)

UNAUDITED

 
  2016     2017
1ST QTR     2ND QTR     3RD QTR     4TH QTR     TOTAL     1ST QTR
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 7,654     $ 10,100     $ 21,196     $ 20,449     $ 59,399 $ 16,195
LESS:
Capital expenditures, net of sale proceeds 3,934       1,926       3,730       3,402       12,992       2,811  
FREE CASH FLOW $ 3,720       $ 8,174       $ 17,466       $ 17,047       $ 46,407       $ 13,384  
TOTAL DEBT $ 97,800 $ 97,600 $ 92,400 $ 251,200 $ 251,200 $ 243,000
LESS:
Cash & cash equivalents 66,580       72,970       84,929       58,279       58,279       65,656  
NET DEBT $ 31,220       $ 24,630       $ 7,471       $ 192,921       $ 192,921       $ 177,344  
TOTAL SHAREHOLDERS' EQUITY $ 414,107 $ 411,367 $ 416,598 $ 404,410 $ 404,410 $ 415,537
 
TOTAL DEBT AS % OF EQUITY 24 % 24 % 22 % 62 % 62 % 58 %
NET DEBT AS % OF EQUITY 8 % 6 % 2 % 48 % 48 % 43 %
 
CIRCOR INTERNATIONAL, INC.

RECONCILIATION OF KEY PERFORMANCE MEASURES TO COMMONLY USED GENERALLY ACCEPTED ACCOUNTING PRINCIPLE TERMS

(in thousands, except per share data)

UNAUDITED

 
  2016     2017
1ST QTR     2ND QTR     3RD QTR     4TH QTR     TOTAL     1ST QTR
NET INCOME (LOSS) $ 3,872     $ 3,813     $ 4,418     $ (2,002 )     $ 10,101 $ 4,773
LESS:
Restructuring related inventory charges 1,958 75 813 2,846
Amortization of inventory step-up 1,366 1,366
Impairment charges 208 208
Restructuring charges, net 1,163 3,259 2,252 2,301 8,975 1,458
Acquisition amortization 1,868 1,911 1,888 4,234 9,901 2,552
Special charges (recoveries), net 776 1,334 379 5,707 8,196 (2,268 )
Income tax impact (954 )     (1,611 )     (1,519 )     (4,487 )     (8,571 )     (1,137 )
ADJUSTED NET INCOME $ 8,683       $ 8,781       $ 7,626       $ 7,932       $ 33,022       $ 5,378  
 
EARNINGS (LOSS) PER COMMON SHARE (Diluted) $ 0.23 $ 0.23 $ 0.27 $ (0.12 ) $ 0.61 $ 0.29
LESS:
Restructuring related inventory charges 0.12 0.05 0.17
Amortization of inventory step-up 0.08 0.08
Impairment charges 0.01 0.01
Restructuring charges, net 0.07 0.20 0.14 0.14 0.54 0.09
Acquisition amortization 0.11 0.12 0.11 0.26 0.60 0.15
Special charges (recoveries), net 0.05 0.08 0.02 0.35 0.50 (0.14 )
Income tax impact (0.06 )     (0.10 )     (0.09 )     (0.27 )     (0.52 )     (0.07 )
ADJUSTED EARNINGS PER SHARE (Diluted) $ 0.52       $ 0.53       $ 0.46       $ 0.48       $ 1.99       $ 0.32  
 
CIRCOR INTERNATIONAL, INC.

RECONCILIATION OF KEY PERFORMANCE MEASURES TO COMMONLY USED GENERALLY ACCEPTED ACCOUNTING PRINCIPLE TERMS

(in thousands)

UNAUDITED

 
  2016     2017
1ST QTR     2ND QTR     3RD QTR     4TH QTR     TOTAL     1ST QTR
NET INCOME (LOSS) $ 3,872     $ 3,813     $ 4,418     $ (2,002 )     $ 10,101 $ 4,773
LESS:
Interest expense, net (631 ) (605 ) (605 ) (1,468 ) (3,310 ) (1,669 )
Depreciation (3,263 ) (3,213 ) (3,138 ) (3,690 ) (13,304 ) (3,798 )
Amortization (2,529 ) (2,569 ) (2,488 ) (4,730 ) (12,316 ) (3,092 )
(Provision for) benefit from income taxes (1,520 )     (1,478 )     1,673       1,746       421       (687 )
EBITDA $ 11,815 $ 11,678 $ 8,976 $ 6,140 $ 38,610 $ 14,019
LESS:
Restructuring related inventory charges (1,958 ) (75 ) (813 ) (2,846 )
Amortization of inventory step-up (1,366 ) (1,366 )
Impairment charges (208 ) (208 )
Restructuring charges, net (1,163 ) (3,259 ) (2,252 ) (2,301 ) (8,975 ) (1,458 )
Special (charges) recoveries, net (776 )     (1,334 )     (379 )     (5,707 )     (8,196 )     2,268  
ADJUSTED EBITDA $ 15,712       $ 16,346       $ 11,815       $ 16,327       $ 60,201       $ 13,209  
                       
CIRCOR INTERNATIONAL, INC.

RECONCILIATION OF KEY PERFORMANCE MEASURES TO COMMONLY USED GENERALLY ACCEPTED ACCOUNTING PRINCIPLE TERMS

(in thousands, except percentages)

UNAUDITED

 
2016 2017
1ST QTR     2ND QTR     3RD QTR     4TH QTR     TOTAL     1ST QTR
GAAP OPERATING INCOME (LOSS) $ 5,495 $ 5,347 $ 3,513 $ (3,437 ) $ 10,918 $ 7,354
LESS:
Restructuring related inventory charges 1,958 75 813 2,846
Amortization of inventory step-up 1,366 1,366
Impairment charges 208 208
Restructuring charges, net 1,163 3,259 2,252 2,301 8,975 1,458
Acquisition amortization 1,868 1,911 1,888 4,234 9,901 2,552
Special charges (recoveries), net 776       1,334       379       5,707       8,196       (2,268 )
ADJUSTED OPERATING INCOME $ 11,260       $ 11,926       $ 8,240       $ 10,984       $ 42,410       $ 9,096  
 
GAAP OPERATING MARGIN 3.6 % 3.7 % 2.6 % (2.2 )% 1.8 % 5.1 %
LESS:
Restructuring related inventory charges 1.3 % 0.1 % % 0.5 % 0.5 % %
Amortization of inventory step-up % % % 0.9 % 0.2 % %
Impairment charges % % 0.2 % % % %
Restructuring charges, net 0.8 % 2.2 % 1.7 % 1.5 % 1.5 % 1.0 %
Acquisition amortization 1.2 % 1.3 % 1.4 % 2.7 % 1.7 % 1.8 %
Special charges (recoveries), net 0.5 %     0.9 %     0.3 %     3.6 %     1.4 %     (1.6 )%
ADJUSTED OPERATING MARGIN 7.5 %     8.1 %     6.1 %     6.9 %     7.2 %     6.3 %

Source: CIRCOR International, Inc.

CIRCOR International
Rajeev Bhalla, 781-270-1200
Executive Vice President & Chief Financial Officer