Exhibit 99.1
| News Release | | Zep Inc. |
| | 1310 Seaboard Industrial Blvd., NW Atlanta, GA 30318 www.zepinc.com |
Zep Inc. Reports Record Fiscal Fourth Quarter & Full Year 2014 Net Sales
Reported Fiscal Fourth Quarter Highlights:
· Net sales grew 2.5% to $186.8 million from $182.2 million
· EBITDA grew 34% to $15.8 million from $11.8 million
· Diluted earnings per share increased 41% to $0.17 from $0.12
· Generated $18.1 million of free cash flow, net debt reduced by $16.0 million
Adjusted Fiscal Fourth Quarter Highlights:
· EBITDA increased 2.0% to $18.5 million
· Diluted earnings per share was $0.26 compared to $0.31
Marietta Update
· Steady improvement in product availability
(ATLANTA — November 12, 2014) — Zep Inc. (NYSE: ZEP), a leading consumable chemical packaged goods company that manufactures a wide variety of high-performance maintenance and cleaning chemicals, today reported financial results for the three-month and twelve-month periods ended August 31, 2014.
“This quarter we continued the organic sales growth trends achieved earlier in the year while also recovering from the fire,” said John K. Morgan, Chairman, President and Chief Executive Officer of Zep Inc. “We grew sales approximately 3%, excluding the effects of the fire, and reduced net debt by $16.0 million,” continued Mr. Morgan.
In the fourth fiscal quarter of 2014, net sales grew 2.5% to $186.8 million driven primarily by growth in transportation-related end-markets, partially offset by fire-related lost sales. Fourth quarter EBITDA increased $4.0 million to $15.8 million primarily due to the $5.2 million restructuring charge last year. Fourth quarter adjusted EBITDA increased 2.0% to $18.5 million compared to the prior year, while adjusted EBITDA margin declined 10 basis points to 9.9%. Fourth quarter earnings per diluted share grew 41% to $0.17 primarily due to the restructuring charge in the prior year period while adjusted earnings per diluted share were $0.26 compared to $0.31 in the prior year period. During the fourth fiscal quarter, the company generated $18.1 million of free cash flow and was able to reduce net debt by $16.0 million to $192.6 million and to reduce its leverage ratio to 3.06x.
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| | Reported Results | | Adjusted Results | |
| | Three Months Ended August 31, | | Three Months Ended August 31, | |
| | 2014 | | 2013 | | 2014 | | 2013 | |
Net sales (millions) | | $ | 186.8 | | $ | 182.2 | | $ | 187.3 | | $ | 182.2 | |
Gross profit margin | | 46.4 | % | 46.8 | % | 48.1 | % | 46.8 | % |
EBITDA (millions) | | $ | 15.8 | | $ | 11.8 | | $ | 18.5 | | $ | 18.1 | |
Free cash flow (millions) | | $ | 18.1 | | $ | 28.5 | | $ | 18.1 | | $ | 28.5 | |
Diluted earnings per share | | $ | 0.17 | | $ | 0.12 | | $ | 0.26 | | $ | 0.31 | |
Diluted cash earnings per share | | $ | 0.26 | | $ | 0.21 | | $ | 0.35 | | $ | 0.40 | |
Net sales in fiscal 2014 increased 1.0% to $696.5 million driven by one additional quarter of sales from Zep Vehicle Care compared to the prior fiscal year, partially offset by fire-related lost sales and organic declines at the beginning of the year. Fiscal 2014 EBITDA was $48.0 million compared to $52.0 million in the prior fiscal year. Adjusted EBITDA in fiscal 2014 was $63.1 million, or 9.1% of sales, compared to $59.6 million, or 8.6% of sales in the prior fiscal year. Adjusted diluted cash earnings per share in fiscal 2014 was unchanged at $1.17.
“Fiscal 2014 was filled with both opportunities and challenges and I’m proud of the way our associates have risen to the occasion and created numerous prospects for growth,” said Mr. Morgan. “Continuing the sales momentum by making investments to drive organic growth will be our primary focus in fiscal 2015. I’m confident that these investments together with diligent fire-recovery efforts will allow us to continue reducing debt during the year,” Mr. Morgan concluded.
A more detailed discussion of the Company’s long-term objectives and financial goals may be found in Forms 10-K and 10-Q filed with the Securities and Exchange Commission (“SEC”) and are available via the Company’s website at www.zepinc.com.
Conference Call
The Company will host a conference call to discuss fourth quarter and full year 2014 operating results on Wednesday, November 12, 2014 at 8:30 a.m. EDT. The call and accompanying presentation will be webcast and may be accessed through the Company’s website at www.zepinc.com or by dialing in at 412-317-0797. A replay of the call will be posted to the website within two hours of completion of the conference call.
About Zep Inc.
Zep Inc., with fiscal year 2014 net sales of approximately $700 million, is a leading consumable chemical packaged goods company selling a wide variety of high-performance chemicals that help professionals and prosumers clean, maintain and protect their assets. We are focused on the attractive industry dynamics of the transportation market and the industrial maintenance and repair operation (“MRO”) market, which together now comprise approximately 64% of our revenue with the balance derived from sales into the facilities maintenance vertical. We market these products and services under well recognized and established brand names, such as Zep®, Zep Commercial®, Zep Professional®, Zep Automotive®, Enforcer®, Misty®, TimeMist®, TimeWick™, Country Vet®, Original Bike Spirits®, Blue Coral®, Black Magic®, Rain-X®, FC Forward Chemicals®, Rexodan®, Mykal™, and a number of private label brands. Founded in 1937, some of Zep Inc.’s brands have been in existence since 1896. Zep Inc. is headquartered in Atlanta, Georgia. Visit our website at www.zepinc.com.
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Forward Looking Statements and use of Non-GAAP Information
This release contains, and other written or oral statements made by or on behalf of Zep Inc. may include, forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, we or our executive officers on our behalf, may from time to time make forward-looking statements in reports and other documents that are filed with the SEC or in connection with oral statements made to the press, potential investors or others. Specifically, forward-looking statements may include, but are not limited to, statements relating to our future economic performance, business prospects, revenue, income, and financial condition; and statements preceded by, followed by, or that include the words “expects,” “believes,” “intends,” “will,” “anticipates,” and similar terms that relate to future events, performance, or our results. Examples of forward-looking statements in this press release include, but are not limited to, statements about our ability to reduce debt in fiscal 2015 while making investments to drive organic sales growth and continue our fire recovery efforts.
Our forward-looking statements are subject to certain risks and uncertainties that could cause actual results, expectations, or outcomes to differ materially from our historical experience as well as management’s present expectations or projections. These risks and uncertainties include, but are not limited to:
· the impact of the fire that occurred at our aerosol manufacturing facility on May 23, 2014 on our financial results,
· operations and prospects;
· economic conditions in general;
· the cost or availability of raw materials;
· competition;
· our ability to realize anticipated benefits from strategic planning and restructuring initiatives and the timing of the benefits of such actions;
· market demand;
· our ability to maintain our customer relationships; and
· litigation and other contingent liabilities, such as environmental matters.
A variety of other risks and uncertainties could cause our actual results to differ materially from the anticipated results or other expectations expressed in our forward-looking statements. A number of those risks are discussed in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended August 31, 2014. Management believes these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. Further, forward-looking statements speak only as of the date they are made, and management undertakes no obligation to update publicly any of them in light of new information or future events.
The unaudited consolidated financial statements presented in accordance with accounting principles generally accepted in the United States (“GAAP”) are supplemented by a table that reconciles EBITDA, adjusted EBITDA, adjusted earnings per diluted share, adjusted cash earnings per diluted share, free cash flow, adjusted net sales and adjusted gross profit margin, which are non-GAAP financial information that are referenced in this press release, to the nearest GAAP measure. This non-GAAP financial information is provided to enhance the user’s overall understanding of our financial performance. Specifically, management believes that EBITDA, adjusted EBITDA, adjusted earnings per diluted share, adjusted cash earnings per diluted share, free cash flow, adjusted net sales and adjusted gross profit margin may provide additional information with respect to our performance or ability to meet our future debt service obligations, capital expenditures and working capital requirements. This non-GAAP financial information should be considered in addition to, and not as a substitute for, or superior to, results prepared in accordance with GAAP. Moreover, this non-GAAP information may not be comparable to EBITDA, adjusted EBITDA, adjusted earnings per diluted share adjusted cash earnings per diluted share, free cash flow, adjusted net sales or adjusted gross profit margin reported by other companies because the items that affect net earnings that we exclude when calculating these measures may differ from the items taken into consideration by other companies.
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Zep Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per-share data)
| | August 31, 2014 | | August 31, 2013 | |
ASSETS | | | | | |
Cash and cash equivalents | | $ | 14,303 | | $ | 2,402 | |
Accounts receivable, less reserve for doubtful accounts | | 108,010 | | 104,476 | |
Inventories, net | | 75,950 | | 68,633 | |
Insurance receivable | | 13,106 | | — | |
Deferred income taxes | | 10,452 | | 8,002 | |
Prepaids and other current assets | | 6,254 | | 13,051 | |
Total Current assets | | 228,075 | | 196,564 | |
| | | | | |
Property, plant and equipment, net of accumulated depreciation | | 75,361 | | 82,328 | |
Goodwill | | 121,005 | | 121,102 | |
Identifiable intangible assets, net | | 121,643 | | 129,929 | |
Other long-term assets | | 10,127 | | 17,835 | |
Total Assets | | $ | 556,211 | | $ | 547,758 | |
| | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | |
Current maturities of long-term debt | | $ | 20,006 | | $ | 25,000 | |
Accounts payable | | 65,874 | | 56,366 | |
Accrued compensation | | 19,720 | | 25,226 | |
Other accrued liabilities | | 39,329 | | 41,167 | |
Total Current liabilities | | 144,929 | | 147,759 | |
| | | | | |
Long-term debt, less current maturities | | 186,880 | | 184,908 | |
Deferred income taxes | | 13,931 | | 12,782 | |
Other long-term liabilities | | 17,092 | | 18,340 | |
Total Liabilities | | 362,832 | | 363,789 | |
| | | | | |
Commitments and Contingencies | | | | | |
Stockholders’ equity: | | | | | |
Preferred stock, $0.01 par value; 50,000,000 shares authorized; none issued and outstanding | | — | | — | |
Common stock, $0.01 par value; 500,000,000 shares authorized; 22,396,229 issued and outstanding at August 31, 2014, and 22,065,059 issued and outstanding at August 31, 2013 | | 224 | | 221 | |
Paid-in capital | | 108,432 | | 102,573 | |
Retained earnings | | 72,918 | | 69,023 | |
Accumulated other comprehensive income | | 11,805 | | 12,152 | |
Total Stockholders’ equity | | 193,379 | | 183,969 | |
Total Liabilities and Stockholders’ equity | | $ | 556,211 | | $ | 547,758 | |
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Zep Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
| | Three Months Ended | | Years Ended | |
| | August 31, | | August 31, | |
| | 2014 | | 2013 | | 2014 | | 2013 | |
| | | | | | | | | |
Net sales | | $ | 186,822 | | $ | 182,176 | | $ | 696,489 | | $ | 689,576 | |
Cost of products sold | | 100,213 | | 96,929 | | 369,697 | | 365,034 | |
Gross profit | | 86,609 | | 85,247 | | 326,792 | | 324,542 | |
| | | | | | | | | |
Selling, distribution and administrative expenses | | 77,003 | | 72,643 | | 293,361 | | 283,075 | |
Acquisition and integration costs | | — | | 581 | | 1,091 | | 3,519 | |
Fire related charges (recovery), net | | (1,067 | ) | — | | — | | — | |
Restructuring charges, net | | (585 | ) | 5,159 | | (456 | ) | 5,159 | |
Operating profit | | 11,258 | | 6,864 | | 32,796 | | 32,789 | |
| | | | | | | | | |
Other expense (income): | | | | | | | | | |
Interest expense, net | | 3,612 | | 2,475 | | 11,819 | | 8,958 | |
Provision for loan loss | | (401 | ) | — | | 5,269 | | — | |
Other expense, net | | 1,409 | | 553 | | 1,610 | | 744 | |
Total other expense | | 4,620 | | 3,028 | | 18,698 | | 9,702 | |
Income before income taxes | | 6,638 | | 3,836 | | 14,098 | | 23,087 | |
Income tax provision | | 2,804 | | 1,171 | | 5,698 | | 7,895 | |
Net income | | $ | 3,834 | | $ | 2,665 | | $ | 8,400 | | $ | 15,192 | |
| | | | | | | | | |
Earnings per share: | | | | | | | | | |
Basic earnings per share | | $ | 0.17 | | $ | 0.12 | | $ | 0.38 | | $ | 0.69 | |
Diluted earnings per share | | $ | 0.17 | | $ | 0.12 | | $ | 0.37 | | $ | 0.68 | |
| | | | | | | | | |
Shares used for computation: | | | | | | | | | |
Basic | | 22,387 | | 22,054 | | 22,307 | | 21,969 | |
Diluted | | 22,940 | | 22,531 | | 22,906 | | 22,435 | |
| | | | | | | | | | | | | |
Dividend declared per share | | $ | 0.05 | | $ | 0.04 | | $ | 0.20 | | $ | 0.16 | |
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Zep Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | Years Ended August 31, | |
| | 2014 | | 2013 | |
Operating activities | | | | | |
Net income | | $ | 8,400 | | $ | 15,192 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | | 22,122 | | 19,931 | |
Provision for loan loss | | 5,269 | | — | |
Loss on assets held for sale and disposal of fixed assets | | 359 | | 433 | |
Non-cash impact of write-offs related to fire | | 5,161 | | — | |
Excess tax benefits from share-based payments | | (306 | ) | 124 | |
Deferred income taxes | | 1,618 | | 3,011 | |
Insurance proceeds for fire related business interruption and property damage | | 3,772 | | — | |
Bargain purchase gains from business combinations | | — | | — | |
Other non-cash charges | | 3,319 | | 4,010 | |
Changes in assets and liabilities: | | | | | |
Accounts receivable | | (3,823 | ) | (4,355 | ) |
Inventories | | (9,502 | ) | 2,885 | |
Insurance receivable, prepaid expenses and other current assets | | (6,876 | ) | (2,493 | ) |
Accounts payable | | 9,589 | | 2,782 | |
Accrued compensation and other current liabilities | | (8,433 | ) | 11,066 | |
Other long-term liabilities | | (1,035 | ) | (2,765 | ) |
Other assets | | (7,363 | ) | 195 | |
Net cash provided by operating activities | | 22,271 | | 50,016 | |
| | | | | |
Investing activities | | | | | |
Purchases of property, plant, and equipment | | (9,597 | ) | (12,068 | ) |
Insurance proceeds for assets damaged in fire | | 1,228 | | — | |
Acquisitions, net of cash acquired | | — | | (116,692 | ) |
Loan to innovation partner | | — | | — | |
Proceeds from sale of innovation partner loan | | 4,350 | | — | |
Principal payments from innovation partner loan | | 300 | | — | |
Proceeds from sale of property, plant, and equipment | | 1,325 | | 21 | |
Net cash used for investing activities | | (2,394 | ) | (128,739 | ) |
| | | | | |
Financing activities | | | | | |
Proceeds from revolving credit facilities | | 762,195 | | 409,808 | |
Repayment of borrowings from revolving credit facilities | | (799,787 | ) | (339,150 | ) |
Proceeds from issuance of debt | | 75,000 | | — | |
Principal repayment — Term Loan | | (40,313 | ) | — | |
Proceeds (payments) from secured borrowings | | (672 | ) | 9,304 | |
Debt issuance costs | | (2,444 | ) | — | |
Stock issuances | | 2,234 | | 1,207 | |
Excess tax benefits from share-based payments | | 306 | | (124 | ) |
Dividend payments | | (4,505 | ) | (3,536 | ) |
Net cash provided by (used for) financing activities | | (7,986 | ) | 77,509 | |
| | | | | |
Effect of exchange rate changes on cash | | 10 | | 103 | |
Net change in Cash and cash equivalents | | 11,901 | | (1,111 | ) |
Cash and cash equivalents — beginning of period | | 2,402 | | 3,513 | |
Cash and cash equivalents — end of period | | $ | 14,303 | | $ | 2,402 | |
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Zep Inc.
RECONCILIATION OF NON-GAAP MEASURES
(Unaudited; In thousands)
| | Three Months Ended | | Years Ended | |
| | August 31, | | August 31, | |
| | 2014 | | 2013 | | 2014 | | 2013 | |
| | | | | | | | | | | | | |
Net income | | $ | 3,834 | | $ | 2,665 | | $ | 8,400 | | $ | 15,192 | |
Interest expense, net | | 3,612 | | 2,475 | | 11,819 | | 8,958 | |
Income tax provision | | 2,804 | | 1,171 | | 5,698 | | 7,895 | |
Depreciation and amortization | | 5,543 | | 5,456 | | 22,122 | | 19,931 | |
EBITDA | | $ | 15,793 | | $ | 11,767 | | $ | 48,039 | | $ | 51,976 | |
| | | | | | | | | |
California legal matter | | 1,633 | | 629 | | 6,031 | | 1,629 | |
Provision for loan loss | | (401 | ) | — | | 5,269 | | — | |
Margin on lost sales — fire related | | 2,442 | | — | | 2,442 | | — | |
Fire related charges, net | | (1,067 | ) | — | | — | | — | |
Acquisition and integration costs | | — | | 581 | | 1,091 | | 3,519 | |
Strategic consulting project | | 677 | | — | | 677 | | — | |
Restructuring charges, net | | (585 | ) | 5,159 | | (456 | ) | 5,159 | |
Legal settlement | | — | | — | | — | | (1,400 | ) |
Contingent consideration adjustment | | — | | — | | — | | (1,285 | ) |
Adjusted EBITDA | | $ | 18,492 | | $ | 18,136 | | $ | 63,093 | | $ | 59,598 | |
| | | | | | | | | |
Adjusted EBITDA margin | | 9.9 | % | 10.0 | % | 9.1 | % | 8.6 | % |
| | Three Months Ended | | Years Ended | |
| | August 31, | | August 31, | |
| | 2014 | | 2013 | | 2014 | | 2013 | |
| | | | | | | | | |
Net income | | $ | 3,834 | | $ | 2,665 | | $ | 8,400 | | $ | 15,192 | |
California legal matter | | 1,726 | | 629 | | 7,172 | | 1,629 | |
Provision for loan loss | | (401 | ) | — | | 5,269 | | — | |
Margin on lost sales — fire related | | 2,442 | | — | | 2,442 | | — | |
Fire related charges, net | | (1,067 | ) | — | | — | | — | |
Acquisition and integration costs | | — | | 581 | | 1,091 | | 3,519 | |
Strategic consulting project | | 677 | | — | | 677 | | — | |
Debt issuance costs | | 618 | | — | | 618 | | — | |
Restructuring charges, net | | (585 | ) | 5,159 | | (456 | ) | 5,159 | |
Legal settlement | | — | | — | | — | | (1,400 | ) |
Contingent consideration adjustment | | — | | — | | — | | (1,285 | ) |
Net tax effect of above items | | (1,239 | ) | (1,942 | ) | (6,592 | ) | (2,607 | ) |
Adjusted net income | | $ | 6,005 | | $ | 7,092 | | $ | 18,621 | | $ | 20,207 | |
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| | Three Months Ended | | Years Ended | |
| | August 31, | | August 31, | |
| | 2014 | | 2013 | | 2014 | | 2013 | |
| | | | | | | | | | | | | |
Diluted earnings per share | | $ | 0.17 | | $ | 0.12 | | $ | 0.37 | | $ | 0.68 | |
California legal matter, net of tax | | 0.04 | | 0.02 | | 0.18 | | 0.05 | |
Provision for loan loss, net of tax | | (0.01 | ) | — | | 0.14 | | — | |
Margin on lost sales — fire related, net of tax | | 0.06 | | — | | 0.06 | | — | |
Fire related charges, net of tax | | (0.02 | ) | — | | 0.01 | | — | |
Acquisition and integration costs, net of tax | | — | | 0.02 | | 0.03 | | 0.10 | |
Strategic consulting project, net of tax | | 0.02 | | — | | 0.02 | | — | |
Debt issuance costs, net of tax | | 0.01 | | — | | 0.01 | | — | |
Restructuring charges, net of tax | | (0.01 | ) | 0.15 | | (0.01 | ) | 0.15 | |
Legal settlement, net of tax | | — | | — | | — | | (0.04 | ) |
Contingent consideration adjustment, net of tax | | — | | — | | — | | (0.04 | ) |
Adjusted diluted earnings per share | | $ | 0.26 | | $ | 0.31 | | $ | 0.81 | | $ | 0.90 | |
Amortization | | 0.09 | | 0.09 | | 0.36 | | 0.27 | |
Adjusted diluted cash earnings per share | | $ | 0.35 | | $ | 0.40 | | $ | 1.17 | | $ | 1.17 | |
| | | | Nine Months | | Three Months | |
| | Year Ended | | Ended | | Ended | |
| | August 31, 2014 | | May 31, 2014 | | August 31, 2014 | |
Reported (GAAP) net cash provided by (used for) operating activities | | $ | 22,271 | | $ | 7,498 | | $ | 14,773 | |
Purchases of property, plant and equipment | | (9,597 | ) | (7,384 | ) | (2,213 | ) |
Insurance proceeds for assets damaged in fire | | 1,228 | | — | | 1,228 | |
Proceeds from sale of innovation partner loan | | 4,350 | | — | | 4,350 | |
Principal payments from innovation partner loan | | 300 | | 300 | | — | |
Proceeds from sale of property, plant and equipment | | 1,325 | | 1,325 | | — | |
Free cash flow | | $ | 19,877 | | $ | 1,739 | | $ | 18,138 | |
| | | | Nine Months | | Three Months | |
| | Year Ended | | Ended | | Ended | |
| | August 31, 2013 | | May 31, 2013 | | August 31, 2013 | |
Reported (GAAP) net cash provided by (used for) operating activities | | $ | 50,016 | | $ | 18,014 | | $ | 32,002 | |
Purchases of property, plant and equipment | | (12,068 | ) | (8,534 | ) | (3,534 | ) |
Proceeds from sale of property, plant and equipment | | 21 | | 22 | | (1 | ) |
Free cash flow | | $ | 37,969 | | $ | 9,502 | | $ | 28,467 | |
| | Three Months Ended | | | |
| | August 31, | | | |
| | 2014 | | 2013 | | Growth Rate | |
Net sales | | $ | 186.8 | | $ | 182.2 | | 2.5 | % |
Sales of raw materials | | (7.0 | ) | — | | | |
Fire-related lost sales | | 7.5 | | — | | | |
Adjusted net sales | | $ | 187.3 | | $ | 182.2 | | 2.8 | % |
| | | | | | | |
Gross profit margin | | 46.4 | % | 46.8 | % | | |
Impact of fire-related lost sales | | 1.7 | % | — | | | |
Adjusted gross profit margin | | 48.1 | % | 46.8 | % | | |
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Investor Contact:
Don De Laria
VP, Investor Relations & Communications
404-350-6266
don.delaria@zep.com
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