UCI International, Inc. Q1 2015 Results | May 13, 2015 - - PowerPoint PPT Presentation

UCI International, Inc.

Q1 2015 Results | May 13, 2015 Confidential

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Disclaimer

This presentation may contain “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. You should not place undue reliance on these forward- looking statements. Although forward-looking statements reflect management’s good faith beliefs, reliance should not be placed on forward- looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements speak only as of the date the statements are made. UCI International, Inc. (“UCI” or the “Company”) undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to: our comments relating to growth of, or changes in, the light and heavy-duty vehicle aftermarket; maintaining existing sales levels with our current customers while attracting new ones; operating in international markets and expanding into adjacent markets while strengthening our market share in our existing markets; initiating effective cost cutting initiatives; and financial projections. The Company derives many of its forward-looking statements from its operating budgets and forecasts, which are based upon many detailed

• assumptions. While the Company believes that its assumptions are reasonable, you are cautioned that it is very difficult to predict the impact
• f known factors, and it is impossible for the Company to anticipate all factors that could affect its actual results. Important factors that could

cause actual results to differ materially from expectations are disclosed under the “Risk Factors” section in our Annual Report on Form 20-F. All written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements as well as other cautionary statements that are made from time to time in the Company’s public

• communications. You should evaluate all forward-looking statements made in this presentation in the context of these risks and

uncertainties. Some financial information in this presentation has been rounded and, as a result, the figures shown as totals in this presentation may vary slightly from the exact arithmetic aggregation of the figures that precede them.

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Disclaimer

Explanatory Note on Non-GAAP Financial Measures In this presentation, we utilize certain non-GAAP financial measures, including EBITDA, Adjusted EBITDA and Covenant Adjusted EBITDA, that in each case are not recognized under U.S. GAAP or IFRS. These measures are presented as we believe that they and similar measures are widely used in the markets in which we operate as a means of evaluating a company’s operating performance and financing structure. They may not be comparable to other similarly titled measures of other companies and are not measurements under U.S. GAAP, IFRS or other generally accepted accounting principles, nor should they be considered as substitutes for the information contained in the financial statements included in this presentation. EBITDA, a measure used by our management to measure operating performance, is defined as profit (loss) from continuing operations plus income tax, net financial expenses, depreciation of property, plant and equipment and amortization of intangible assets. EBITDA is not a measure of our financial condition, liquidity or profitability and should not be considered as a substitute for profit (loss) for the year, operating profit or any other performance measures derived in accordance with U.S. GAAP or as a substitute for cash flow from operating activities as a measure of our liquidity in accordance with U.S. GAAP. Adjusted EBITDA is calculated as EBITDA adjusted for particular items relevant to explaining operating performance. These adjustments include significant items of an unusual nature that cannot be attributed to ordinary business operations, including items such as integration, restructuring, defense against class action litigation and business optimization costs. Covenant Adjusted EBITDA is defined as Adjusted EBITDA as adjusted to provide the full- period effect for businesses acquired after the beginning of a period and the full-period effect to implemented cost saving programs. Adjusted EBITDA is not a presentation made in accordance with U.S. GAAP, is not a measure of financial condition, liquidity or profitability and should not be considered as an alternative to profit (loss) for the period determined in accordance with U.S. GAAP or operating cash flows determined in accordance with U.S. GAAP. The determination of Adjusted EBITDA and Covenant Adjusted EBITDA contains a number of estimates and assumptions that may prove to be incorrect and differ materially from actual results. Additionally, EBITDA, Adjusted EBITDA and Covenant Adjusted EBITDA are not intended to be measures of free cash flow for management’s discretionary use, as they do not take into account certain items such as interest and principal payments on our indebtedness, depreciation and amortization expense, working capital needs, tax payments and capital expenditures. We believe that the inclusion of EBITDA, Adjusted EBITDA and Covenant Adjusted EBITDA in this presentation is appropriate to provide additional information to investors about our operating performance to provide measures of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. Because not all companies calculate EBITDA, Adjusted EBITDA and Covenant Adjusted EBITDA identically, the presentation of these non-GAAP financial measures may not be comparable to other similarly titled measures in other companies. See a reconciliation of these non- GAAP financial measures to net income (loss) in the Appendix.

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Presenters Overview

Bruce Zorich Chief Executive Officer Ricardo Alvergue Chief Financial Officer

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• 1st quarter results were in line with our previously estimated range

̶

Revenue of $246 million vs. estimated range of $240 – 252 million

̶

Adjusted EBITDA of $9.1 million vs. estimated range of $7 – 11 million

• Amendment to credit agreement approved

̶

Asset sale covenant amended to permit asset sales

̶

Senior secured leverage ratio must not exceed 0.75 to 1.00 after any asset sale

̶

Net cash proceeds from any asset sale must be used to prepay term loans and may not be reinvested in the company

• Agreement to sell Wells Vehicle Electronics signed on May 8, 2015

̶

Sale price of $257 million, subject to certain adjustments; net proceeds will be used in accordance with amendment to credit agreement

̶

Expected to close early in Q3 2015, subject to regulatory approval and other customary closing conditions

Update

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• Macroeconomic conditions improved during the quarter

̶

Unemployment rate declined slightly to 5.5% during the quarter (from 5.6% in December 2014)

̶

Consumer confidence increased to 101.3 during the quarter (vs. 92.6 in December 2014)

̶

Retail gas prices decreased 33.4% on average from Q1 2014

̶

Miles driven increased 3.6% in Q1 2015 vs. Q1 2014

̶

Heavy duty market – diesel prices decreased during the quarter and were 27.6% below vs. last year; and most other indices remained neutral or showed slight improvements during the quarter

• Industry specific conditions continued to have a negative impact on our businesses

̶

Vehicle and product improvements driving oil change intervals to about 6,000 miles (up about 10% from 2011)

̶

Improvement in OE parts quality and longevity in recent years, leading to lower aftermarket sales for fuel pumps

̶

Increased market participation by low-cost-country suppliers

̶

Consumer purchases shifting from Do-It-Yourself (DIY) to Do-It-For-Me (DIFM) outlets

• Revenue decreased $6 million for the quarter ($246 million in Q1 2015 vs. $252 million in Q1 2014), and

Adjusted EBITDA decreased $14 million ($9.1 million in Q1 2015 vs. $23.1 million in Q1 2014)

̶

Lower sales due to declines in vehicle electronic sales, partially offset by higher sales in our filtration product line

̶

Adjusted EBITDA decreased primarily due to higher costs and operating inefficiencies in our filtration product line and lower volumes and unfavorable mix in our vehicle electronics product line

Q1 2015 Highlights

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Q1 2015 revenue decreased by 2.4% to $246 million, driven

primarily by

–

Decreased vehicle electronic sales of $9 million, primarily due to lower net sales in the retail and traditional channels related to both lower volumes due to timing of new product rollouts and the loss of a customer

–

Declines in vehicle electronics were partially offset by

• Filtration product line sales increase of $2.4 million, primarily

due to higher retail and traditional channel volume due to new customer wins, partially offset by lower volume in the OE and heavy duty channels, and lower private label pricing

• Increased cooling systems sales of $0.5 million, mainly due

to increased OE sales as a result of programs implemented

• ver the last 2 years

LTM revenue was flat at $1.0 billion for Q1 2015

Revenue

Q1 2014 vs. Q1 2015

($ in millions)

LTM Q1 2014 vs. LTM Q1 2015

($ in millions)

$1,002 $1,004 LTM Q1 2014 LTM Q1 2015 $252 $246 Q1 2014 Q1 2015 + 0.2%

• 2.4%

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Adjusted EBITDA declined to $9.1 million in Q1 2015 (EBITDA

margin rate decreased to 3.7%); results primarily driven by:

–

Higher operating costs of $6.0 million, including variable manufacturing and distribution costs and lower fixed cost absorption, mainly due to inefficiencies in our filtration product line

–

Unfavorable product mix of $5.1 million, mainly in our filtration and vehicle electronics product lines

–

Lower customer pricing across all product lines of $4.5 million

–

Decreased volume of $4.1 million, primarily related to declines in

• ur vehicle electronics

–

Unfavorable medical expenses of $1.4 million, primarily in our filtration, vehicle electronics and fuel delivery product lines

–

Unfavorable foreign currency impact of $1.4 million

–

Partially offset by:

• Improved material cost of $4.3 million driven by our cost savings

initiatives

• Favorable product warranty expense of $3.1 million, primarily in our fuel

delivery products line (including $1.9 million of reserve releases due to contractual changes with customers)

• Lower overall SG&A expenses of $0.8 million due to lower employee

headcount and reduced marketing spend Adjusted EBITDA declined by 13.0% to $97.7 million for LTM Q1

2015

Adjusted EBITDA

Q1 2014 vs. Q1 2015

($ in millions)

LTM Q1 2014 vs. LTM Q1 2015

($ in millions) 13.8% 11.3% 12.0% 12.3% 11.2% 10.8% 11.5% 11.8% 10.7% 12.7% 11.0%

$23.1 $9.1 Q1 2014 Q1 2015

3.7% 9.2%

$112.3 $97.7 LTM Q1 2014 LTM Q1 2015

11.2% 9.7%

• 60.6%
• 13.0%

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Capital Expenditures

For Q1 2015, capital expenditures decreased by $5 million,

mainly due to a reduction in restructuring and OEM business

• investment. Capital expenditures in Q1 2014 included:

–

Investments related to restructuring and manufacturing footprint

• ptimization in our fuel delivery and filtration product lines ($3

million)

–

Investments for new OEM business ($1 million)

For LTM Q1 2015, capital expenditures decreased by $6

million and included:

–

Investments related to restructuring and manufacturing footprint

• ptimization in our fuel delivery and filtration product lines ($8

million LTM Q1 2014 vs. $7 million LTM Q1 2015)

–

Investments for new OEM business ($8 million LTM Q1 2014

• vs. $1 million in LTM Q1 2015)

–

LTM Q1 2014 included $4 million for a new building facility in

• ur vehicle electronics line

Q1 2014 vs. Q1 2015

($ in millions)

LTM Q1 2014 vs. LTM Q1 2015

($ in millions)

$7 $6 $3 $1 $11 Q1 2014 Q1 2015 $24 $22 $4 $8 $7 $8 $1 $44 $30 LTM Q1 2014 LTM Q1 2015 Restructuring OEM Business Building Facility Base CapEx

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Pro Forma – Vehicle Electronics Sale

LTM Revenue

($ in millions)

LTM Covenant Adjusted EBITDA

($ in millions)

$790 $794 $1,002 $1,004 LTM Q1 2014 LTM Q1 2015 $114.0 $89.1 $162.6 $131.7 LTM Q1 2014 LTM Q1 2015 Wells Pro Forma without Wells

Pro Forma Capitalization March 31,

• Cum. Net

March 31,

• Cum. Net

$ millions 2015 EBITDA (x) 2015 EBITDA (x) Cash and cash equivalents $ 33.6 $ 33.6 Revolver 30.0 30.0 Term Loan 287.3 30.3 Total Senior Debt $ 317.3 2.2x $ 60.3 0.3x Senior Notes 400.0 400.0 Other Debt (2) 0.4 0.1 Total Debt $ 717.7 5.2x $ 460.4 4.8x LTM Covenant Adjusted EBITDA $ 131.7 $ 89.1 Pro Forma Actual

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Appendix

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Cost Savings and Synergies Update

$ millions Current Implemented Savings Achieved Implemented Annualized Savings to be Achieved Cost Savings and Synergies Procurement savings $30.1 $10.8 $19.3 In-sourcing 12.8 9.3 3.5 Operations improvements 17.9 6.7 11.2 Total $60.8 $26.8 $34.0 Active Projects at March 31, 2015

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Capitalization Summary

Net Multiple March 31,

• f LTM Covenant

$ millions 2015 Adjusted EBITDA (4) Cash and cash equivalents $ 33.6 Revolver (1) 30.0 Term Loan 287.3 Total Senior Debt $ 317.3 2.2x Senior Notes 400.0 Other Debt (2) 0.4 Total Debt $ 717.7 5.2x LTM Covenant Adjusted EBITDA (3) $ 131.7

(1) $75 million revolving credit facility with $30 million borrowings at March 31, 2015. In addition, $6.5 million of the revolving

credit facility capacity was utilized to support outstanding letters of credit at March 31, 2015.

(2) Other Debt consists of capital lease obligations and an economic development loan related to the vehicle electronics product

line.

(3) LTM Covenant Adjusted EBITDA includes the impact of cost savings programs implemented but not yet achieved in LTM

results.

(4) Multiples are calculated using net debt amounts (debt less cash and cash equivalents).

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Covenant Adjusted EBITDA

LTM Covenant Adjusted EBITDA $ millions Q1 2015 Net loss ($36.0) Income tax (benefit) expense (25.6) Net interest expense 40.6 Depreciation and amortization expense 56.3 EBITDA 35.3 Trademark impairment loss 38.0 Restructuring costs, net 13.1 New business changeover and sales commitment costs 4.1 Strategic review costs 3.5 Business optimization costs 2.6 Costs related to implementation of cost sharing and manufacturing arrangements with FRAM Group 0.5 Patent litigation costs 0.3 Unrealized loss on derivatives 0.2 Environmental accrual adjustment 0.1 Costs of defending class action litigation and other litigation 0.1 Gain on forgiveness of debt (0.1) Adjusted EBITDA $97.7 Annualization of cost savings programs 34.0 Covenant Adjusted EBITDA $131.7

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