CSS CSS Industries Inc

Company reaffirms outlook for fiscal 2020 adjusted EBITDA and free cash flow; Company revises net sales and net income guidance

Second Quarter Summary

• Net sales of $96.0 million decreased 15.0% compared to the prior fiscal year second quarter and was substantially consistent with our previous guidance.
• Net income of $3.5 million improved by $8.4 million compared to the prior fiscal year second quarter, primarily driven by a 27.9% reduction in selling, general and administrative (“SG&A”) expenses and lower inventory step-up amortization.
• Second quarter results included $0.7 million of restructuring expenses compared to $2.1 million for prior fiscal year second quarter associated with the Company’s previously announced restructuring plans.
• EBITDA improved to $7.8 million compared to ($2.2) million for the prior fiscal year second quarter.
• Adjusted EBITDA improved to $9.1 million compared to $7.9 million for the prior fiscal year second quarter.
• Net cash used for operating activities improved $19.4 million compared to the prior fiscal year second quarter, driven by lower overall spending.

CSS Industries, Inc. (NYSE: CSS), a leading consumer products company serving the craft, gift and seasonal markets, today announced results for the quarter ended September 30, 2019, representing the second quarter of the Company’s fiscal 2020.

Net sales in the second quarter of fiscal 2020 were $96.0 million, compared to $112.9 million for the prior fiscal year second quarter, impacted by lower craft, gift and seasonal sales. The lower craft sales were due to lower replenishment orders of ribbon, needle arts and kids’ crafts, and the timing of a button program reset. The lower gift sales were primarily due to $4.3 million of lower replenishment orders within the Company’s specialty gift business, and the lower seasonal sales were primarily due to lower sales of Christmas cards and bags, and the previously announced exit of the Company’s sports-licensed back-to-school product line, partially offset by higher sales of Christmas ribbons and bows.

Gross profit was $24.7 million for both the current fiscal year second quarter and prior fiscal year second quarter, and gross margin was 25.8% in the current fiscal year second quarter, compared to 21.9% in the prior fiscal year second quarter. The increase in gross margin was due to substantially lower inventory step-up amortization in the current fiscal year second quarter and a non-recurring write-down of inventory and royalty guarantees in the prior fiscal year second quarter related to the restructuring of the Company's specialty gift product line, substantially offset by lower sales volume and mix of sales. Adjusted gross profit was $25.3 million for the current fiscal year second quarter, compared to $30.9 million for the prior fiscal year second quarter. Adjusted gross margin was 26.4% in the current fiscal year second quarter, compared to 27.3% in the prior fiscal year second quarter. The decrease in adjusted gross margin was primarily driven by lower volume as well as mix of sales.

SG&A expenses were $20.4 million for the current fiscal year second quarter, compared to $28.3 million for the prior fiscal year second quarter. The decrease was primarily attributable to lower headcount costs, including salaries, medical benefits and travel expenses, as a result of the Company’s previously announced restructuring plans. In addition, the Company also realized a benefit related to the remeasurement adjustment of the Fitlosophy® contingent earn-out consideration, as well as lower spending for consulting costs when compared to the prior fiscal year second quarter.

Restructuring expenses were $0.7 million for the current fiscal year second quarter, primarily attributable to severance expenses resulting from resource alignment related to the Company’s previously announced restructuring plan. The Company had restructuring expenses of $2.1 million for the prior fiscal year second quarter attributable to the consolidation of operation in the United Kingdom and Australia pursuant to the Company's previously announced restructuring plan.

Operating income in the current fiscal year second quarter was $3.5 million, compared to an operating loss in the prior fiscal year second quarter of $5.8 million. Adjusted operating income was $5.9 million for the current fiscal year second quarter and $4.5 million for the prior fiscal year second quarter. Net income was $3.5 million for the current fiscal year second quarter, compared to a net loss of $4.9 million for the prior fiscal year second quarter. Adjusted net income was $5.2 million for the current fiscal year second quarter, compared to $2.9 million for the prior fiscal year second quarter. Diluted net income per share was $0.39 for the current fiscal year second quarter compared to diluted net loss per share of $0.54 for the prior fiscal year second quarter. Adjusted diluted net income per share was $0.59 for the current fiscal year second quarter compared to adjusted diluted net income per share of $0.32 for the prior fiscal year second quarter. Adjusted EBITDA was $9.1 million for the current fiscal year second quarter, compared to $7.9 million for the prior fiscal year second quarter.

Strategic Initiatives Update

The Company’s near-term strategy is to return to profitability by focusing on its previously announced restructuring and cost savings initiatives. After completion of such initiatives, the Company will continue to focus on profitable sales growth through five strategic pillars: defend the base, identify adjacent product categories with a focus on brands, build an omni-channel business model, improve ROIC and build a collaborative “One CSS” culture. Second quarter highlights related to these objectives included:

Debt & Liquidity

• The Company remains focused on managing debt and liquidity throughout fiscal 2020 and beyond. At September 30, 2019, our total net debt position was $45.3 million compared to $9.4 million at March 31, 2019 and $46.4 million at September 30, 2018. The increase in net debt compared to March 31, 2019 was substantially consistent with our prior projections and primarily relates to the working capital cycle of our seasonal business.
• Despite operating at a net loss, free cash flow in the first six months of the current fiscal year improved $17.4 million compared to the first six months of the prior fiscal year, driven by the cost savings initiatives.

Cost Savings Initiatives

• During the current fiscal year second quarter, the Company implemented a resource alignment restructuring plan that is expected to drive an expense reduction of approximately $6 million on an annualized basis.
• Location consolidation initiatives executed during the current fiscal year second quarter included ceasing use of one of the Company’s New York City offices, as well as shifting distribution of craft ribbon and buttons from the Company’s Florence, Alabama facility to the Company’s more technologically advanced and efficient Shorewood, Illinois facility.
• The Company continues to look for additional areas for spending reductions. Additionally, the Company continues to review underperforming product lines, specifically focusing on profit improvement initiatives to drive performance improvement within our gift business in fiscal 2020.

“Our second quarter results were slightly below our prior expectations,” commented Christopher J. Munyan, President and Chief Executive Officer. “Although we did experience lower sales, the second quarter results reflected the impact of our previously announced cost savings initiatives. As indicated in the reduction of SG&A, our efforts to focus on the cost savings plans we have implemented have been successful thus far. We will continue to focus on these cost savings plans, and to work on additional business improvement plans during the remainder of fiscal 2020.”

The following is a summary of net sales by product category (dollars in thousands):

 

 

Three Months Ended September 30,

 

2019

 

2018

 

Change

Craft

$

35,001

 

$

42,472

 

(17.6

)%

Gift

 

23,630

 

 

30,614

 

(22.8

)%

Seasonal

 

37,343

 

 

39,815

 

(6.2

)%

 

$

95,974

 

$

112,901

 

(15.0

)%

 

Craft

The craft product category consists of products used for craft activities including sewing patterns, ribbons, trims, buttons, needle arts and kids’ crafts. These products are sold to mass market and specialty retailers on a replenishment basis.

Craft net sales decreased by 17.6% in the current fiscal year second quarter compared to the prior fiscal year second quarter, driven by lower ribbon, button, needle arts and kids’ crafts. These declines were driven by lower replenishment orders of ribbon, needle arts and kids’ crafts, further increased by lower button sales due to the timing of a button program reset from the prior fiscal year second quarter.

Gift

The gift product category consists of products which are designed to celebrate certain life events or special occasions, with a focus on packaging items, such as ribbons, bows, bags and wrap, as well as stationery, baby gift items and party and entertaining products. Products in this category are generally ordered on a replenishment basis throughout the year.

Gift net sales decreased 22.8% in the current fiscal year second quarter compared to the prior fiscal year second quarter. The decline was primarily due to lower replenishment orders of social stationery products within our specialty gift business, as well as declines in packaging and wholesale products and everyday trim-a-package products. Additionally, the decline was impacted by a placement of a new program within the drug channel in the prior fiscal year second quarter.

Seasonal

The seasonal product category consists of products sold to mass-market retailers for holidays and seasonal events, including Christmas, Valentine’s Day and Easter. Sales and production forecasts for these products are known well in advance of shipment. The seasonal nature of this business has historically resulted in lower sales levels in the first and fourth quarters of the Company’s fiscal year, and higher sales levels in the second and third quarters.

Seasonal net sales decreased 6.2% in the current fiscal year second quarter compared to the prior fiscal year second quarter. The decline was primarily due to lower sales of Christmas cards and bags, and the previously announced exit of the Company’s sports-licensed back-to-school product line, partially offset by higher sales of Christmas ribbons and bows.

Balance Sheet and Cash Flow

The Company ended the quarter with $5.2 million of cash and cash equivalents, compared to $15.1 million at the end of the prior fiscal year second quarter. The lower balance was primarily due to funding of working capital needs for our overall business. Inventory decreased to $105.0 million at the end of the current fiscal year second quarter from $116.4 million at the end of the prior fiscal year second quarter, partially related to lower fair value step-up adjustments of inventories relating to previously acquired inventory. Excluding the effect of the lower step-up inventory, inventory levels were $9.4 million lower at the end of the current fiscal year second quarter than at the end of the prior fiscal year second quarter, driven by our inventory management improvements. Accounts receivable decreased $20.1 million from $101.8 million at the end of the prior fiscal year second quarter to $81.7 million at September 30, 2019, primarily attributable to the decrease in net sales. Accounts payable decreased to $36.7 million as of September 30, 2019, compared to $37.7 million at the end of the prior fiscal year second quarter. The Company ended the quarter with operating lease right-of-use assets and operating lease liabilities of $46.9 million and $46.2 million, respectively, which were recognized commencing in fiscal 2020 as a result of the adoption of a new lease accounting standard.

Cash used for operating activities was $28.4 million for the six months ended September 30, 2019, compared to $45.8 million for the first six months of the prior fiscal year. The decrease was primarily due to lower build-up of accounts receivable attributable to lower sales volume. Cash used for investing activities was $5.8 million for the first six months of the current fiscal year, compared to $11.6 million for the first six months of the prior fiscal year. Capital expenditures were $6.0 million for the first six months of the current fiscal year, compared to $5.9 million for the first six month of the prior fiscal year. Cash provided by financing activities was $22.2 million for the first six months of the current fiscal year compared to $14.0 million for the first six months of the prior fiscal year. Free cash flow was a use of $13.5 million for the current fiscal year second quarter, compared to a use of $33.1 million for the prior fiscal year second quarter, and $34.3 million for the first six months in the current fiscal year, compared to $51.7 for the first six months in the prior fiscal year.

Outlook

“Our improvement in EBITDA and adjusted EBITDA, even with lower sales volume, is the direct result of the Company’s commitment to driving cost out of our business,” commented Mr. Munyan. “Planning for expected declines in revenue, we expect to offset the declines by cost savings initiatives already implemented, as well as additional cost saving measures. Our overall message remains the same - we aggressively work to maximize cost cuts, drive working capital improvements, aggressively pay down debt and drive improved profitability and free cash flow.”

The Company is adjusting its previous outlook for fiscal 2020 full year net sales and net income. Net sales are expected to be in the range of $346 million to $352 million, primarily driven by retail customers reducing orders as a result of the impact of U.S. tariffs imposed on certain goods imported from China. Net loss is expected to be in the range of $2 million to $4 million compared to a net loss of $53.5 million for fiscal 2019.

Adjusted EBITDA is still expected to be in the range of $21 million to $23 million, compared to $15.0 million for fiscal 2019. The expected growth in adjusted EBITDA is primarily driven by the realization of cost savings initiatives, partially offset by lower sales volumes.

Free cash flow, defined as net cash provided by operating activities minus purchases of property, plant and equipment, for fiscal 2020 is expected to be in the range of $14 million to $16 million, compared to fiscal 2019 free cash flow of ($9.6) million. The anticipated improvement is driven by cost savings initiatives, improvements in working capital primarily as a result of inventory reductions, and reduced capital expenditures.

The Company will hold a conference call for investors on November 15, 2019 at 8:30 a.m. ET. The call can be accessed in the following ways:

• By telephone: For both "listen-only" participants and those participants who wish to take part in the question-and-answer portion of the call, the dial-in number in the United States is (844) 458-8735, and for international callers, the dial-in number is (647) 253-8639. The conference ID for all callers is 4616318.

• By webcast: http://www.cssindustries.com/investor-relations. The webcast will be archived for those unable to participate live.

About CSS Industries, Inc.

CSS is a creative consumer products company, focused on the craft, gift and seasonal categories. For these design-driven categories, we engage in the creative development, manufacture, procurement, distribution and sale of our products with an omni-channel approach focused primarily on mass market retailers. Our core products within the craft category include sewing patterns, ribbons, trims, buttons, needle arts and kids’ crafts. For the gift category, our core products are designed to celebrate certain life events or special occasions, with a focus on packaging items, such as ribbons, bows, bags and wrap, as well as stationery, baby gift items, and party and entertaining products. For the seasonal category, we focus on holiday gift packaging items including ribbons, bows, bags, tags and gift card holders, in addition to specific holiday-themed decorations and activities, including Easter egg dyes and Valentine’s Day classroom exchange cards. In keeping with our corporate mission, all of our products are designed to help make life memorable.

Forward-looking Statements

Any statements contained in this report that do not describe historical facts, including estimates, the Company’s outlook for fiscal 2020 net sales, net income and adjusted EBITDA, other statements regarding matters that are to occur in the future, as well as statements regarding future operations, are neither promises nor guarantees and may constitute “forward-looking statements” as that term is defined in the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. Any such forward-looking statements contained herein are based on current assumptions, estimates and expectations, but are subject to a number of known and unknown risks and significant business, economic and competitive uncertainties that may cause actual results to differ materially from expectations. Numerous factors could cause actual future results to differ materially from current expectations expressed or implied by such forward-looking statements, including the risks and other risk factors detailed in various publicly available documents filed by CSS from time to time with the Securities and Exchange Commission (SEC), which are available at www.sec.gov, including but not limited to, such information appearing under the caption “Risk Factors” in CSS’ Annual Report on Form 10-K filed with the SEC on May 31, 2019. Any forward-looking statements should be considered in light of those risk factors. CSS cautions readers not to rely on any such forward-looking statements, which speak only as of the date they are made. CSS disclaims any intent or obligation to publicly update or revise any such forward-looking statements to reflect any change in Company expectations or future events, conditions or circumstances on which any such forward-looking statements may be based, or that may affect the likelihood that actual results may differ from those set forth in such forward-looking statements.

CSS’ consolidated results of operations for the three- and six months ended September 30, 2019 and 2018, condensed consolidated balance sheets as of September 30, 2019, March 31, 2019 and September 30, 2018, and condensed consolidated statements of cash flows for the six months ended September 30, 2019 and 2018 follow:

 

CSS INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Unaudited

(in thousands, except per share data)

 

 

Three Months Ended

September 30,

 

Six Months Ended

September 30,

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

Net sales

$

95,974

 

$

112,901

 

$

153,511

 

$

177,028

 

Cost of sales

 

71,255

 

 

88,220

 

 

116,686

 

 

140,700

 

Gross profit

 

24,719

 

 

24,681

 

 

36,825

 

 

36,328

 

Selling, general and administrative expenses

 

20,439

 

 

28,348

 

 

43,486

 

 

57,277

 

Restructuring expenses

 

741

 

 

2,127

 

 

2,795

 

 

2,127

 

Impairment of goodwill

—

—

—

 

1,390

 

Operating income (loss)

 

3,539

 

 

(5,794

)

 

(9,456

)

 

(24,466

)

Interest expense (income), net

 

721

 

 

434

 

 

1,649

 

 

696

 

Other expense (income), net

 

(989

)

 

(166

)

 

(1,076

)

 

(283

)

Income (loss) before income taxes

 

3,807

 

 

(6,062

)

 

(10,029

)

 

(24,879

)

Income tax expense (benefit)

 

325

 

 

(1,152

)

 

737

 

 

(1,493

)

Net income (loss)

$

3,482

 

$

(4,910

)

$

(10,766

)

$

(23,386

)

 

 

 

 

 

Net income (loss) per common share:

 

 

 

 

Basic

$

0.39

 

$

(0.54

)

$

(1.22

)

$

(2.57

)

Diluted

$

0.39

 

$

(0.54

)

$

(1.22

)

$

(2.57

)

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

Basic

 

8,875

 

 

9,057

 

 

8,857

 

 

9,088

 

Diluted

 

8,892

 

 

9,057

 

 

8,857

 

 

9,088

 

   

CSS INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

(in thousands)

 

 

September 30, 2019

March 31, 2019

 

September 30, 2018

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

5,155

$

17,100

$

15,112

Accounts receivable, net

 

81,658

 

53,835

 

101,762

Inventories

 

105,009

 

96,231

 

116,350

Asset held for sale

 

131

 

131

 

2,391

Prepaid expenses and other current assets

 

10,351

 

12,568

 

13,660

Total current assets

 

202,304

 

179,865

 

249,275

Property, plant and equipment, net

 

50,482

 

50,920

 

49,657

Operating lease right-of-use assets

 

46,948

—

—

Deferred income taxes

—

—

 

12,486

Intangible assets, net

 

35,821

 

40,285

 

56,494

Other assets

 

14,949

 

14,525

 

10,487

Total assets

$

350,504

$

285,595

$

378,399

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

Current liabilities:

 

 

 

Short-term borrowings

$

50,381

$

26,139

$

21,185

Current portion of long-term debt

 

39

 

316

 

231

Accounts payable

 

36,652

 

27,916

 

37,696

Accrued payroll and other compensation

 

6,485

 

6,962

 

11,164

Accrued customer programs

 

11,870

 

12,101

 

16,171

Accrued income taxes

 

349

—

—

Accrued other expenses

 

13,190

 

14,468

 

16,050

Current portion of operating lease liabilities

 

7,304

—

—

Total current liabilities

 

126,270

 

87,902

 

102,497

Long-term debt, net of current portion

 

7

 

13

 

40,111

Deferred income taxes

 

618

 

619

 

1,218

Operating lease liabilities

 

38,878

—

—

Other long-term obligations

 

5,863

 

7,130

 

10,964

Stockholders' equity

 

178,868

 

189,931

 

223,609

Total liabilities and stockholders' equity

$

350,504

$

285,595

$

378,399

 

 

 

CSS INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

(in thousands)

 

 

 

Six Months Ended September 30,

 

2019

2018

Cash flows from operating activities:

 

 

Net income (loss)

$

(10,766

)

$

(23,386

)

Adjustments to reconcile net income (loss) to net cash used for operating activities:

 

 

Depreciation and amortization

6,481

 

6,721

 

Amortization of operating lease right-of-use assets

4,603

 

—

 

Amortization of inventory step-up

284

 

8,889

 

Amortization of financing transaction costs

252

 

20

 

Accretion of asset retirement obligation

64

 

62

 

Accretion of contingent earn-out consideration

26

 

—

 

Change in valuation of contingent earn-out consideration

(1,392

)

—

 

Write-off of deferred financing costs

344

 

—

 

Impairment of plant, property and equipment

—

 

1,570

 

Impairment of goodwill

—

 

1,390

 

Provision for accounts receivable allowances

1,318

 

1,867

 

Deferred tax (benefit) provision

(10

)

(2,414

)

Share-based compensation expense

264

 

1,057

 

Loss (gain) on sale or disposal of assets

—

 

4

 

Changes in assets and liabilities, net of effects of purchase of a business

(29,822

)

(41,601

)

Net cash used for operating activities

(28,354

)

(45,821

)

Cash flows from investing activities:

 

 

Final payment of purchase price for a business previously acquired

—

 

(2,500

)

Purchase of a business

—

 

(2,500

)

Purchase of property, plant and equipment

(5,985

)

(5,891

)

Purchase of company owned life insurance policy

—

 

(750

)

Proceeds from sale of fixed assets

140

 

—

 

Net cash used for investing activities

(5,845

)

(11,641

)

Cash flows from financing activities:

 

 

Borrowings on credit facility

104,292

 

21,185

 

Payments on credit facility

(80,050

)

—

 

Payments on long-term debt

(283

)

(114

)

Dividends paid

—

 

(3,633

)

Purchase of treasury stock

—

 

(3,393

)

Payment of financing transaction costs

(1,699

)

(33

)

Tax effect on stock awards

(42

)

—

 

Net cash provided by financing activities

22,218

 

14,012

 

Effect of exchange rate changes on cash

36

 

2

 

Net decrease in cash and cash equivalents

(11,945

)

(43,448

)

Cash and cash equivalents at beginning of period

17,100

 

58,560

 

Cash and cash equivalents at end of period

$

5,155

 

$

15,112

 

 

CSS Industries, Inc. Reconciliation of Certain Non-GAAP Measures (Unaudited) (in thousands, except per share amounts)

In addition to the results reported in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) in this release, the Company has provided certain non-GAAP financial information, specifically adjusted diluted income (loss) per share, adjusted EBITDA, adjusted gross profit, adjusted gross margin %, adjusted operating income (loss), adjusted operating income (loss) % and adjusted net income (loss). These measures are non-GAAP metrics that exclude various items that are detailed in the accompanying financial tables reconciling U.S. GAAP results to non-GAAP results that are included in this release. We also present free cash flow, which we define as net cash provided by operating activities minus purchases of property, plant and equipment as shown in the consolidated statement of cash flows. Management believes that the presentation of these non-GAAP financial measures provides useful information to investors because the information may allow investors to better evaluate ongoing business performance and certain components of the Company’s results. In addition, the Company believes that the presentation of these financial measures enhances an investor’s ability to make period to period comparisons of the Company’s operating results. The presentation of our non-GAAP measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP. The Company has reconciled the non-GAAP information included in this release to the nearest U.S. GAAP measures, as required under the rules of the Securities and Exchange Commission regarding the use of non-GAAP financial measures.

The following provides a listing of approved adjustments related to non-GAAP measures, as defined by the CSS Board of Directors:

• Acquisition inventory step-up amortization
• Adjustments related to contingent payments associated with an acquisition or disposition
• Asset write-downs or write-ups
• Costs and expenses related to Board-approved actions
• Gain or loss associated with an acquisition or divestiture of a business or assets
• Material restructuring costs, plant or facility closures or consolidations including headcount reductions
• Post-closing acquisition and disposition costs and expenses (within 2 years of transaction), such as systems integration projects, consulting, accounting, severance or stay bonuses, lease amendments or terminations and other transaction related non-recurring costs
• Third party acquisition and disposition transaction costs and expenses, such as investment banker, legal, accounting and due diligence fees and expenses
• Unusual or extraordinary legal expenses

 

 

Three Months Ended

September 30,

 

Six Months Ended

September 30,

 

2019

 

2018

 

2019

 

2018

Diluted income (loss) per share

$

0.39

 

 

$

(0.54

)

 

$

(1.22

)

 

$

(2.57

)

Inventory step-up amortization

—

 

 

0.42

 

 

0.03

 

 

0.98

 

Inventory and licensing write-down related to product line exit

(0.01

)

 

0.20

 

 

(0.02

)

 

0.20

 

Goodwill impairment

—

 

 

—

 

 

—

 

 

0.15

 

Restructuring expenses

0.08

 

 

0.23

 

 

0.32

 

 

0.23

 

Acquisition costs, integration and other

0.19

 

 

0.28

 

 

0.28

 

 

0.52

 

Tax impact on adjustments (1)

(0.06

)

 

(0.27

)

 

(0.14

)

 

(0.50

)

Adjusted diluted income (loss) per share

$

0.59

 

 

$

0.32

 

 

$

(0.75

)

 

$

(0.99

)

   

CSS Industries, Inc.

Reconciliation of Certain Non-GAAP Measures

(Unaudited)

(in thousands)

 

 

Three Months Ended September 30,

 

Six Months Ended September 30,

 

2019

 

2018

 

2019

 

2018

Net income (loss)

$

3,482

 

 

$

(4,910

)

 

$

(10,766

)

 

$

(23,386

)

Interest expense (income), net

721

 

 

434

 

 

1,649

 

 

696

 

Other expense (income), net

(989

)

 

(166

)

 

(1,076

)

 

(283

)

Income tax expense (benefit)

325

 

 

(1,152

)

 

737

 

 

(1,493

)

Depreciation and amortization

3,266

 

 

3,424

 

 

6,481

 

 

6,721

 

Inventory step-up amortization

—

 

 

3,845

 

 

284

 

 

8,889

 

Inventory and licensing write-down related to product line exit

(67

)

 

1,772

 

 

(214

)

 

1,772

 

Goodwill impairment

—

 

 

—

 

 

—

 

 

1,390

 

Restructuring expenses

741

 

 

2,127

 

 

2,795

 

 

2,127

 

Acquisition costs, integration and other

1,646

 

 

2,522

 

 

2,457

 

 

4,733

 

Adjusted EBITDA

$

9,125

 

 

$

7,896

 

 

$

2,347

 

 

$

1,166

 

 

 

 

 

 

 

 

 

Gross profit

$

24,719

 

 

$

24,681

 

 

$

36,825

 

 

$

36,328

 

Gross margin %

25.8

%

 

21.9

%

 

24.0

%

 

20.5

%

Inventory step-up amortization

—

 

 

3,845

 

 

284

 

 

8,889

 

Inventory and licensing write-down related to product line exit

(67

)

 

1,772

 

 

(214

)

 

1,772

 

Acquisition costs, integration and other

648

 

 

556

 

 

879

 

 

986

 

Adjusted gross profit

$

25,300

 

 

$

30,854

 

 

$

37,774

 

 

$

47,975

 

Adjusted gross margin %

26.4

%

 

27.3

%

 

24.6

%

 

27.1

%

 

 

 

 

 

 

 

 

Operating income (loss)

$

3,539

 

 

$

(5,794

)

 

$

(9,456

)

 

$

(24,466

)

Operating income (loss) %

3.7

%

 

(5.1

)%

 

(6.2

)%

 

(13.8

)%

Inventory step-up amortization

—

 

 

3,845

 

 

284

 

 

8,889

 

Inventory and licensing write-down related to product line exit

(67

)

 

1,772

 

 

(214

)

 

1,772

 

Goodwill impairment

—

 

 

—

 

 

—

 

 

1,390

 

Restructuring expenses

741

 

 

2,127

 

 

2,795

 

 

2,127

 

Acquisition costs, integration and other

1,646

 

 

2,522

 

 

2,457

 

 

4,733

 

Adjusted operating income (loss)

$

5,859

 

 

$

4,472

 

 

$

(4,134

)

 

$

(5,555

)

Adjusted operating income (loss) %

6.1

%

 

4.0

%

 

(2.7

)%

 

(3.1

)%

 

 

 

 

 

 

 

 

Net income (loss)

$

3,482

 

 

$

(4,910

)

 

$

(10,766

)

 

$

(23,386

)

Inventory step-up amortization

—

 

 

3,845

 

 

284

 

 

8,889

 

Inventory and licensing write-down related to product line exit

(67

)

 

1,772

 

 

(214

)

 

1,772

 

Goodwill impairment

—

 

 

—

 

 

—

 

 

1,390

 

Restructuring expenses

741

 

 

2,127

 

 

2,795

 

 

2,127

 

Acquisition costs, integration and other

1,646

 

 

2,522

 

 

2,457

 

 

4,733

 

Tax impact on adjustments (1)

(557

)

 

(2,463

)

 

(1,277

)

 

(4,539

)

Adjusted net income (loss)

$

5,245

 

 

$

2,893

 

 

$

(6,721

)

 

$

(9,014

)

(1) Tax impact determined using combined federal and state statutory rates of 24% for the three- and six months ended September 30, 2019 and September 30, 2018.

CSS Industries, Inc.

Reconciliation of Certain Non-GAAP Measures

(Unaudited)

(in thousands)

The following table sets forth a reconciliation of free cash flow, a non-GAAP financial measure, to net cash used for operating activities, which we believe to be the most directly comparable GAAP financial measure.

 

Three Months Ended September 30,

 

Six Months Ended September 30,

 

2019

 

2018

 

2019

 

2018

Net cash provided by (used for) operating activities

$

(11,019

)

 

$

(30,417

)

 

$

(28,354

)

 

$

(45,821

)

Purchase of property, plant and equipment

(2,521

)

 

(2,732

)

 

(5,985

)

 

(5,891

)

Free cash flow

$

(13,540

)

 

$

(33,149

)

 

$

(34,339

)

 

$

(51,712

)

   

CSS Industries, Inc.

Adjusted EBITDA Guidance

Non-GAAP Measures

(Unaudited)

(in millions)

 

 

FY 2020

Net income (loss)

($4.0) - ($2.0

)

Income tax expense (benefit)

(1.2

)

Interest expense (income), net

2.6

 

Other expense (income), net

(1.5

)

Depreciation and amortization

13.2

 

Inventory step-up amortization

0.3

 

Restructuring expense

4.2

 

Acquisition costs, integration and other

7.4

 

Adjusted EBITDA

$21.0 - $23.0

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20191114005848/en/

CHRISTOPHER J. MUNYAN - PRESIDENT AND CHIEF EXECUTIVE OFFICER 610-729-3740 Chris.Munyan@cssindustries.com