EXHIBIT 99.1
Steinway Q1 Revenue Up 7%
WALTHAM, MA — May 3, 2012 — Steinway Musical Instruments, Inc. (NYSE: LVB) today reported earnings for the three months ended March 31, 2012.
First Quarter Results Compared to Prior Year Period
· Sales of $78.0 million, up $5.0 million, or 7%
· Gross margin decreased to 29.7% from 30.7%
· Income from operations of $2.2 million
· Adjusted EBITDA of $4.1 million
· Earnings per share of $0.05, up $0.01
Non-GAAP Adjustments are detailed in the attached financial tables.
Balance Sheet Highlights
· Cash of $43.7 million
· Borrowing availability of over $100 million
· Inventory reduced $14.8 million, or 10%, from March 2011
Commenting on the quarter, CEO Michael Sweeney said, “We are pleased with our overall results for the first quarter. Our top line increased 7% and net income rose 17%. Our piano division results were satisfactory, with total revenues on par with last year. Piano sales varied by region. Shipments in Europe were strong while sales in the Americas remained at prior year levels. Revenues were up in China but soft demand in Japan led to an overall revenue decline in our Asia-Pacific business.”
“Our band division exceeded our expectations for the first quarter, delivering significant revenue growth and gross margin improvement on a sequential basis,” said Sweeney. “Gross margins improved 380 basis points over the fourth quarter of 2011 as production returned to more normal levels at our Eastlake, Ohio brass instrument plant.”
Operating expenses for the first quarter increased $2.3 million over the prior year period. The increase included $0.7 million in legal and consulting fees associated with the Company’s pursuit of strategic alternatives. An additional $0.6 million in sales and marketing costs associated with new company-operated piano retail stores also contributed to the increase.
Vacancies at the Company’s Steinway Hall building in New York City continue to adversely impact earnings in 2012, generating a loss of $0.06 per diluted share for the quarter, comparable to the first quarter of 2011.
As a result of the Company’s partial bond redemption in May of 2011, total debt net of cash at the end of the first quarter was lower by $20.1 million, or 42%, than in March 2011. Net interest expense decreased $1.5 million, or 64%, for the quarter.
Piano Operations
For the first quarter, sales in Europe increased $1.3 million, or 10% over the prior year period, despite a $0.6 million negative impact of currency translation. European shipments of Steinway grand pianos increased 28% while shipments of Boston and Essex pianos increased 14%.
Sales in the Asia-Pacific region decreased $0.8 million, or 7%, as compared to the first quarter of 2011. Unit shipments of Steinway grand pianos in these markets decreased 15% while shipments of Boston and Essex pianos decreased 9%.
Sales in the Americas increased $0.1 million from the prior year period as unit shipments of Steinway grand pianos declined 6% and shipments of Boston and Essex pianos decreased 12%.
Piano gross margins decreased slightly from the prior year period. In the Americas, higher retail sales mitigated the negative impact of fewer sales of high margin concert grand and Limited Edition pianos during the quarter.
Band Operations
Revenues for the first quarter improved $4.5 million, or 15%, over the prior year period on increased unit shipments in all major product categories. Sales to the Asia-Pacific region increased more than 50% as compared to the first quarter of 2011.
At the Company’s Eastlake brass facility, production doubled that of the fourth quarter and exceeded the prior year period. As a result of better product availability, shipments of higher priced background brass instruments increased, reducing the backlog created during the strike in 2011. Gross margins for the quarter decreased from the prior year period primarily as a result of increases in material and overhead costs.
Outlook
Discussing management’s outlook for its band segment, Mr. Sweeney said, “We are seeing some good order flow, with orders up 7% at the end of April. Production levels have improved significantly at our Eastlake facility and we expect to catch up on our order backlog by the third quarter. For the year, we expect a healthy top line increase and continued gross margin improvement.”
Looking at the piano business, Mr. Sweeney said, “Business in the Americas was lackluster in the first quarter but retail foot traffic was stable. We are seeing strong demand for our pianos in Europe and China, which we expect to continue throughout 2012. We are optimistic that overall piano revenues and gross margins for 2012 will exceed the prior year.”
Segment Information
Piano Segment
First Quarter Results Compared to Prior Year Period
· Sales of $44.1 million, up 1%
· Steinway grand piano units on par with prior year
· Boston and Essex piano unit decrease of 5%
· Gross margin decreased to 34.4% from 34.9%
Band Segment
First Quarter Results Compared to Prior Year Period
· Sales of $33.8 million, up 15%
· Brass and woodwind units up 2%
· Gross margin decreased to 23.5% from 24.4%
Conference Call
Management will be discussing the Company’s first quarter results as well as its outlook for the remainder of 2012 on a conference call today beginning at 5:00 p.m. ET. A live webcast and an archive of the call will be available to all interested parties on the Company’s website, www.steinwaymusical.com.
About Steinway Musical Instruments
Steinway Musical Instruments, Inc., through its Steinway and Conn-Selmer divisions, is a global leader in the design, manufacture, marketing and distribution of high quality musical instruments. These products include Bach Stradivarius trumpets, Selmer Paris saxophones, C.G. Conn French horns, Leblanc clarinets, King trombones, Ludwig snare drums and Steinway & Sons pianos. Through its online music retailer, ArkivMusic, the Company also produces and distributes classical music recordings. For more information about Steinway Musical Instruments, Inc. please visit the Company’s website at www.steinwaymusical.com.
Non-GAAP Financial Measures Used by Steinway Musical Instruments
The Company uses the non-GAAP measurement Adjusted EBITDA, which it defines as earnings before net interest expense, income taxes, depreciation and amortization, adjusted to exclude non-recurring, infrequent, or unusual items. Adjustments are detailed in the attached financial tables. The Company uses Adjusted EBITDA because it is useful to management and investors as a measure of the Company’s core operating performance in that it eliminates the impact of items that are unrelated to how well the Company is completing its manufacturing and operating responsibilities. In addition, the Company uses Adjusted EBITDA as the basis for determining
bonuses for its managers. The Company also believes Adjusted EBITDA is helpful in determining the Company’s ability to meet future debt service, capital expenditures and working capital requirements as it factors out non-cash expenses such as depreciation, amortization, and impairment charges.
There are limitations in the use of Adjusted EBITDA because the Company’s actual results do include the impact of the noted Adjustments. Accordingly, Adjusted EBITDA should be used as a supplement to the comparable GAAP measures and should not be construed as a substitute for income from operations or net income, or a better indicator of liquidity than cash flows from operating activities, which are determined in accordance with GAAP.
The Company also uses the non-GAAP measurement “total debt net of cash,” which it defines as short-term debt plus long-term debt less cash. The Company believes this non-GAAP measure is useful as a measure of the Company’s ability to repay all debt. Many investors use this measure in making investment decisions as it gives them an idea of a company’s financial health and its level of leverage compared to liquid assets.
“Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995
This release contains “forward-looking statements” which represent the Company’s present expectations or beliefs concerning future events. The Company cautions that such statements are necessarily based on certain assumptions which are subject to risks and uncertainties which could cause actual results to differ materially from those indicated in this release. These risk factors include the following: changes in general economic conditions; reductions in school budgets; increased competition; ability of dealers to obtain financing; exchange rate fluctuations; variations in the mix of products sold; market acceptance of new products; ability of suppliers to meet demand; concentration of credit risk; ability to maximize return on NY real estate; and fluctuations in effective tax rates resulting from shifts in sources of income. Further information on these risk factors is included in the Company’s filings with the Securities and Exchange Commission.
Contact: | Julie A. Theriault |
Telephone: | 781-894-9770 |
Email: | ir@steinwaymusical.com |
STEINWAY MUSICAL INSTRUMENTS, INC.
Condensed Consolidated Statements of Operations
(In Thousands, Except Per Share Data)
(Unaudited)
|
| Three Months Ended |
| ||||
|
| 3/31/2012 |
| 3/31/2011 |
| ||
Net sales |
| $ | 77,953 |
| $ | 72,931 |
|
Cost of sales |
| 54,806 |
| 50,534 |
| ||
Gross profit |
| 23,147 |
| 22,397 |
| ||
|
| 29.7% |
| 30.7% |
| ||
|
|
|
|
|
| ||
Operating expenses: |
|
|
|
|
| ||
Sales and marketing |
| 11,985 |
| 10,181 |
| ||
General and administrative |
| 8,961 |
| 8,383 |
| ||
Other |
| 38 |
| 161 |
| ||
Total operating expenses |
| 20,984 |
| 18,725 |
| ||
|
|
|
|
|
| ||
Income from operations |
| 2,163 |
| 3,672 |
| ||
|
|
|
|
|
| ||
Other (income) expense, net |
| 354 |
| 488 |
| ||
Interest expense, net |
| 850 |
| 2,356 |
| ||
|
|
|
|
|
| ||
Income before income taxes |
| 959 |
| 828 |
| ||
|
|
|
|
|
| ||
Income tax provision |
| 369 |
| 323 |
| ||
|
|
|
|
|
| ||
Net income |
| $ | 590 |
| $ | 505 |
|
|
|
|
|
|
| ||
Earnings per share - basic |
| $ | 0.05 |
| $ | 0.04 |
|
Earnings per share - diluted |
| $ | 0.05 |
| $ | 0.04 |
|
Weighted average common shares - basic |
| 12,368 |
| 12,088 |
| ||
Weighted average common shares - diluted |
| 12,506 |
| 12,190 |
|
Condensed Consolidated Balance Sheets
(In Thousands)
(Unaudited)
|
| 3/31/2012 |
| 3/31/2011 |
| 12/31/2011 |
| |||
Cash |
| $ | 43,668 |
| $ | 107,069 |
| $ | 49,888 |
|
Receivables, net |
| 42,491 |
| 41,693 |
| 42,322 |
| |||
Inventories, net |
| 138,169 |
| 152,930 |
| 132,401 |
| |||
Other current assets |
| 26,080 |
| 23,561 |
| 24,010 |
| |||
Total current assets |
| 250,408 |
| 325,253 |
| 248,621 |
| |||
|
|
|
|
|
|
|
| |||
Property, plant and equipment, net |
| 88,455 |
| 87,207 |
| 86,997 |
| |||
Other assets |
| 73,151 |
| 71,827 |
| 73,756 |
| |||
Total assets |
| $ | 412,014 |
| $ | 484,287 |
| $ | 409,374 |
|
|
|
|
|
|
|
|
| |||
Debt |
| $ | 604 |
| $ | 87,169 |
| $ | 650 |
|
Other current liabilities |
| 47,696 |
| 44,545 |
| 49,325 |
| |||
Total current liabilities |
| 48,300 |
| 131,714 |
| 49,975 |
| |||
|
|
|
|
|
|
|
| |||
Long-term debt |
| 70,383 |
| 67,319 |
| 67,367 |
| |||
Other liabilities |
| 58,993 |
| 52,356 |
| 59,439 |
| |||
Stockholders’ equity |
| 234,338 |
| 232,898 |
| 232,593 |
| |||
Total liabilities and stockholders’ equity |
| $ | 412,014 |
| $ | 484,287 |
| $ | 409,374 |
|
STEINWAY MUSICAL INSTRUMENTS, INC.
Reconciliation of GAAP Earnings to Adjusted Earnings
(In Thousands, Except Per Share Data)
(Unaudited)
|
| Three Months Ended 3/31/12 |
| |||||||
|
| GAAP |
| Adjustments |
| Adjusted |
| |||
Band sales |
| $ | 33,810 |
| $ | — |
| $ | 33,810 |
|
Piano sales |
| 44,143 |
| — |
| 44,143 |
| |||
Total sales |
| 77,953 |
| — |
| 77,953 |
| |||
|
|
|
|
|
|
|
| |||
Band gross profit |
| 7,956 |
| — |
| 7,956 |
| |||
Piano gross profit |
| 15,191 |
| — |
| 15,191 |
| |||
Total gross profit |
| 23,147 |
| — |
| 23,147 |
| |||
|
|
|
|
|
|
|
| |||
Band GM % |
| 23.5% |
|
|
| 23.5% |
| |||
Piano GM % |
| 34.4% |
|
|
| 34.4% |
| |||
Total GM % |
| 29.7% |
|
|
| 29.7% |
| |||
|
|
|
|
|
|
|
| |||
Operating expenses |
| 20,984 |
| — |
| 20,984 |
| |||
|
|
|
|
|
|
|
| |||
Income from operations |
| 2,163 |
| — |
| 2,163 |
| |||
|
|
|
|
|
|
|
| |||
Other (income) expense, net |
| 354 |
| — |
| 354 |
| |||
Interest expense, net |
| 850 |
| — |
| 850 |
| |||
|
|
|
|
|
|
|
| |||
Income before income taxes |
| 959 |
| — |
| 959 |
| |||
|
|
|
|
|
|
|
| |||
Income tax provision |
| 369 |
| — |
| 369 |
| |||
|
|
|
|
|
|
|
| |||
Net income |
| $ | 590 |
| $ | — |
| $ | 590 |
|
|
|
|
|
|
|
|
| |||
Earnings per share - basic |
| $ | 0.05 |
|
|
| $ | 0.05 |
| |
Earnings per share - diluted |
| $ | 0.05 |
|
|
| $ | 0.05 |
| |
Weighted average common shares - basic |
| 12,368 |
|
|
| 12,368 |
| |||
Weighted average common shares - diluted |
| 12,506 |
|
|
| 12,506 |
|
|
| Three Months Ended 3/31/11 |
| |||||||
|
| GAAP |
| Adjustments |
| Adjusted |
| |||
Band sales |
| $ | 29,342 |
| $ | — |
| $ | 29,342 |
|
Piano sales |
| 43,589 |
| — |
| 43,589 |
| |||
Total sales |
| 72,931 |
| — |
| 72,931 |
| |||
|
|
|
|
|
|
|
| |||
Band gross profit |
| 7,168 |
| 417 | (1) | 7,585 |
| |||
Piano gross profit |
| 15,229 |
| — |
| 15,229 |
| |||
Total gross profit |
| 22,397 |
| 417 |
| 22,814 |
| |||
|
|
|
|
|
|
|
| |||
Band GM% |
| 24.4% |
|
|
| 25.9% |
| |||
Piano GM% |
| 34.9% |
|
|
| 34.9% |
| |||
Total GM% |
| 30.7% |
|
|
| 31.3% |
| |||
|
|
|
|
|
|
|
| |||
Operating expenses |
| 18,725 |
| — |
| 18,725 |
| |||
|
|
|
|
|
|
|
| |||
Income from operations |
| 3,672 |
| 417 |
| 4,089 |
| |||
|
|
|
|
|
|
|
| |||
Other (income) expense, net |
| 488 |
| — |
| 488 |
| |||
Interest expense, net |
| 2,356 |
| — |
| 2,356 |
| |||
|
|
|
|
|
|
|
| |||
Income before income taxes |
| 828 |
| 417 |
| 1,245 |
| |||
|
|
|
|
|
|
|
| |||
Income tax provision |
| 323 |
| 160 | (2) | 483 |
| |||
|
|
|
|
|
|
|
| |||
Net income |
| $ | 505 |
| $ | 257 |
| $ | 762 |
|
|
|
|
|
|
|
|
| |||
Earnings per share - basic |
| $ | 0.04 |
|
|
| $ | 0.06 |
| |
Earnings per share - diluted |
| $ | 0.04 |
|
|
| $ | 0.06 |
| |
Weighted average common shares - basic |
| 12,088 |
|
|
| 12,088 |
| |||
Weighted average common shares - diluted |
| 12,190 |
|
|
| 12,190 |
|
Notes to Reconciliation of GAAP Earnings to Adjusted Earnings
(1) Reflects employee severance costs associated with a plant closure.
(2) Reflects the tax effect of Adjustments.
STEINWAY MUSICAL INSTRUMENTS, INC.
(In Thousands)
(Unaudited)
Reconciliation from Cash Flows from Operating Activities to Adjusted EBITDA
|
| Three Months Ended |
| ||||
|
| 3/31/2012 |
| 3/31/2011 |
| ||
Cash flows from operating activities |
| $ | (7,720 | ) | $ | (10,329 | ) |
Changes in operating assets and liabilities |
| 11,099 |
| 13,248 |
| ||
Stock-based compensation expense |
| (111 | ) | (406 | ) | ||
Income tax provision, net of deferreds |
| 445 |
| 438 |
| ||
Net interest expense |
| 850 |
| 2,356 |
| ||
(Provision for) recovery of doubtful accounts |
| (688 | ) | 257 |
| ||
Other |
| 197 |
| (182 | ) | ||
Non-recurring, infrequent or unusual cash charges |
| — |
| 417 |
| ||
Adjusted EBITDA |
| $ | 4,072 |
| $ | 5,799 |
|
Reconciliation from Net Income to Adjusted EBITDA
|
| Three Months Ended |
| ||||
|
| 3/31/2012 |
| 3/31/2011 |
| ||
Net income |
| $ | 590 |
| $ | 505 |
|
Income tax provision |
| 369 |
| 323 |
| ||
Net interest expense |
| 850 |
| 2,356 |
| ||
Depreciation |
| 2,001 |
| 1,888 |
| ||
Amortization |
| 262 |
| 310 |
| ||
Non-recurring, infrequent or unusual items |
| — |
| 417 |
| ||
Adjusted EBITDA |
| $ | 4,072 |
| $ | 5,799 |
|