“Our highest priority remains the health and safety of our associates and our customers as we continue to support the operations and re-opening of living spaces, job-sites and work places,” stated
Gross profit decreased
Operating income decreased
Net income decreased
Net income per diluted share increased
Adjusted EBITDA decreased
Adjusted net income decreased
As of
Business Unit Performance
Facilities Maintenance
Net sales decreased
Construction & Industrial
Net sales decreased
Second-Quarter Monthly Sales Performance
Net sales for May, June and July of fiscal 2020 were
Preliminary August Sales Results
Preliminary Net sales in
Construction & Industrial Sale Transaction
On
2020 Outlook
The company will not be providing a third quarter 2020 or fiscal full year 2020 outlook in light of the ongoing coronavirus disease (“COVID-19”) outbreak. A further discussion relating to the ongoing impact of COVID-19 will take place on our fiscal 2020 second-quarter conference call.
Fiscal 2020 Second-Quarter Conference Call
As previously announced,
Non-GAAP Financial Measures
About
Forward-Looking Statements and Preliminary Results
This press release includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are based on management's beliefs and assumptions and information currently available to management and are subject to known and unknown risks and uncertainties, many of which may be beyond our control. We caution you that the forward-looking information presented in this press release is not a guarantee of future results, and that actual results may differ materially from those made in or suggested by the forward-looking information contained in this press release. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "plan," "seek," "comfortable with," "will," "expect," "intend," "estimate," "anticipate," "believe" or "continue" or the negative thereof or variations thereon or similar terminology. A number of important factors could cause actual events to differ materially from those contained in or implied by the forward-looking statements, including, without limitation, our ability to obtain the required regulatory approvals for the sale of Construction & Industrial business, our ability to satisfy the other closing conditions related to the sale transaction, our ability consummate the sale transaction on the anticipated timing, if at all the impact of the coronavirus disease 2019 outbreak (“COVID-19”) on the maintenance, repair and operations and specialty construction sectors, in general, and the financial position and operating results of our company, in particular, which cannot be predicted and could change rapidly and those "Risk factors" in our annual report on Form 10-K, for the fiscal year ended
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Amounts in millions, except share and per share data, Unaudited
Three Months Ended | Six Months Ended | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
$ | 1,552 | $ | 1,624 | $ | 2,947 | $ | 3,117 | ||||||||
Cost of sales | 956 | 991 | 1,801 | 1,899 | |||||||||||
Gross Profit | 596 | 633 | 1,146 | 1,218 | |||||||||||
Operating expenses: | |||||||||||||||
Selling, general and administrative | 366 | 396 | 762 | 788 | |||||||||||
Depreciation and amortization | 28 | 26 | 55 | 51 | |||||||||||
Restructuring and separation | 4 | — | 10 | (2 | ) | ||||||||||
Total operating expenses | 398 | 422 | 827 | 837 | |||||||||||
Operating Income | 198 | 211 | 319 | 381 | |||||||||||
Interest expense | 24 | 28 | 49 | 56 | |||||||||||
Income Before Provision for Income Taxes | 174 | 183 | 270 | 325 | |||||||||||
Provision for income taxes | 43 | 48 | 67 | 83 | |||||||||||
Net Income | $ | 131 | $ | 135 | $ | 203 | $ | 242 | |||||||
Other comprehensive income (loss): | |||||||||||||||
Foreign currency translation adjustment | (1 | ) | — | — | — | ||||||||||
Unrealized gain (loss) on cash flow hedge, net of tax of | 2 | (16 | ) | (14 | ) | (21 | ) | ||||||||
Total Comprehensive Income | $ | 132 | $ | 119 | $ | 189 | $ | 221 | |||||||
Weighted Average Common Shares Outstanding (thousands) | |||||||||||||||
Basic | 160,925 | 169,546 | 160,877 | 169,773 | |||||||||||
Diluted | 161,282 | 170,057 | 161,220 | 170,386 | |||||||||||
Earnings Per Share: | |||||||||||||||
Basic earnings per share | $ | 0.81 | $ | 0.80 | $ | 1.26 | $ | 1.43 | |||||||
Diluted earnings per share | $ | 0.81 | $ | 0.79 | $ | 1.26 | $ | 1.42 | |||||||
CONSOLIDATED BALANCE SHEETS
Amounts in millions, except per share data, Unaudited
2020 | 2020 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 71 | $ | 34 | |||
Receivables, less allowance for credit losses of | 795 | 754 | |||||
Inventories | 796 | 771 | |||||
Other current assets | 84 | 104 | |||||
Total current assets | 1,746 | 1,663 | |||||
Property and equipment, net | 375 | 391 | |||||
Operating lease right-of-use assets | 459 | 480 | |||||
1,991 | 1,991 | ||||||
Intangible assets, net | 163 | 175 | |||||
Deferred tax asset | 2 | 2 | |||||
Other assets | 15 | 13 | |||||
Total assets | $ | 4,751 | $ | 4,715 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 493 | $ | 414 | |||
Accrued compensation and benefits | 55 | 71 | |||||
Current installments of long-term debt | 11 | 11 | |||||
Current lease liabilities | 123 | 110 | |||||
Other current liabilities | 238 | 208 | |||||
Total current liabilities | 920 | 814 | |||||
Long-term debt, excluding current installments | 1,772 | 2,035 | |||||
Deferred tax liabilities | 36 | 33 | |||||
Long-term lease liabilities | 352 | 383 | |||||
Other liabilities | 121 | 98 | |||||
Total liabilities | 3,201 | 3,363 | |||||
Stockholders’ equity: | |||||||
Common stock, par value | 2 | 2 | |||||
Paid-in capital | 4,110 | 4,097 | |||||
Accumulated deficit | (919 | ) | (1,122 | ) | |||
Accumulated other comprehensive loss | (66 | ) | (52 | ) | |||
(1,577 | ) | (1,573 | ) | ||||
Total stockholders’ equity | 1,550 | 1,352 | |||||
Total liabilities and stockholders’ equity | $ | 4,751 | $ | 4,715 | |||
CONSOLIDATED STATEMENTS OF CASH FLOWS
Amounts in millions, Unaudited
Six Months Ended | |||||||
2020 | 2019 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net income | $ | 203 | $ | 242 | |||
Reconciliation of net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 59 | 54 | |||||
Provision for credit losses | 10 | 5 | |||||
Non-cash interest expense | 3 | 3 | |||||
Stock‑based compensation expense | 12 | 12 | |||||
Deferred income taxes | — | 75 | |||||
Other | 1 | 1 | |||||
Changes in assets and liabilities, net of the effects of acquisitions & dispositions: | |||||||
(Increase) decrease in receivables | (51 | ) | (133 | ) | |||
(Increase) decrease in inventories | (25 | ) | (56 | ) | |||
(Increase) decrease in other current assets | 7 | (2 | ) | ||||
Increase (decrease) in accounts payable and accrued liabilities | 104 | 85 | |||||
Increase (decrease) in other long-term liabilities | 16 | — | |||||
Net cash provided by operating activities | 339 | 286 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Capital expenditures | (33 | ) | (54 | ) | |||
Proceeds from sales of property and equipment | — | 2 | |||||
Payments for businesses acquired, net of cash acquired | — | 3 | |||||
Net cash provided by (used in) investing activities | (33 | ) | (49 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Purchase of treasury shares | (3 | ) | (78 | ) | |||
Repayments of long-term debt | (5 | ) | (5 | ) | |||
Repayments of financing liabilities | — | (88 | ) | ||||
Borrowings on long-term revolver debt | 409 | 578 | |||||
Repayments on long-term revolver debt | (669 | ) | (642 | ) | |||
Proceeds from issuance of common stock under employee benefit plans | 3 | 7 | |||||
Tax withholdings on stock-based awards | (4 | ) | (5 | ) | |||
Other financing activities | — | (1 | ) | ||||
Net cash provided by (used in) financing activities | (269 | ) | (234 | ) | |||
Effect of exchange rates on cash and cash equivalents | — | — | |||||
Increase (decrease) in cash and cash equivalents | $ | 37 | $ | 3 | |||
Cash and cash equivalents at beginning of period | 34 | 38 | |||||
Cash and cash equivalents at end of period | $ | 71 | $ | 41 | |||
SEGMENT REPORTING
Amounts in millions, Unaudited
Facilities Maintenance | Construction & Industrial | Eliminations | Total Operations | ||||||||||||
Three Months Ended | |||||||||||||||
Net sales | $ | 761 | $ | 793 | $ | (2 | ) | $ | 1,552 | ||||||
Adjusted EBITDA | 132 | 106 | — | 238 | |||||||||||
Depreciation(1) & Software Amortization | 12 | 12 | — | 24 | |||||||||||
Other Intangible Amortization | 3 | 3 | — | 6 | |||||||||||
Three Months Ended | |||||||||||||||
Net sales | $ | 830 | $ | 795 | $ | (1 | ) | $ | 1,624 | ||||||
Adjusted EBITDA | 149 | 95 | — | 244 | |||||||||||
Depreciation(1) & Software Amortization | 11 | 10 | — | 21 | |||||||||||
Other Intangible Amortization | 2 | 4 | — | 6 | |||||||||||
Six Months Ended | |||||||||||||||
Net sales | $ | 1,443 | $ | 1,506 | $ | (2 | ) | $ | 2,947 | ||||||
Adjusted EBITDA | 230 | 171 | — | 401 | |||||||||||
Depreciation(1) & Software Amortization | 25 | 22 | — | 47 | |||||||||||
Other Intangible Amortization | 5 | 7 | — | 12 | |||||||||||
Six Months Ended | |||||||||||||||
Net sales | $ | 1,602 | $ | 1,516 | $ | (1 | ) | $ | 3,117 | ||||||
Adjusted EBITDA | 283 | 164 | — | 447 | |||||||||||
Depreciation(1) & Software Amortization | 21 | 21 | — | 42 | |||||||||||
Other Intangible Amortization | 4 | 8 | — | 12 | |||||||||||
(1) Depreciation includes amounts recorded within Cost of sales in the Consolidated Statements of Operations.
Reconciliation of Non-GAAP Measures
Adjusted EBITDA and Adjusted net income are not recognized terms under GAAP and do not purport to be alternatives to Net income as a measure of operating performance. We present Adjusted EBITDA and Adjusted net income because each is a primary measure used by management to evaluate operating performance. In addition, we present Adjusted net income to measure our overall profitability as we believe it is an important measure of our performance. We believe the presentation of Adjusted EBITDA and Adjusted net income enhances investors' overall understanding of the financial performance of our business.
Adjusted EBITDA is based on "Consolidated EBITDA," a measure which is defined in our senior credit facilities and used in calculating financial ratios in several material debt covenants. Adjusted EBITDA is defined as Net income less Income from discontinued operations, net of tax, plus (i) Interest expense and Interest income, net, (ii) Provision for income taxes, (iii) Depreciation and amortization and further adjusted to exclude loss on extinguishment of debt, non-cash items and certain other adjustments to Consolidated Net Income permitted in calculating Consolidated EBITDA under our senior credit facilities.
Adjusted net income is defined as Net income less Income from discontinued operations, net of tax, further adjusted for loss on extinguishment of debt, certain non-cash, non-recurring or unusual items, net of tax.
We compensate for the limitations of using non-GAAP financial measures by using them to supplement GAAP results to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. Because not all companies use identical calculations, our presentation of Adjusted EBITDA and Adjusted net income may not be comparable to other similarly titled measures of other companies.
Adjusted EBITDA and Adjusted net income have limitations as analytical tools and should not be considered in isolation or as substitutes for analyzing our results as reported under GAAP. Some of these limitations are:
- Adjusted EBITDA and Adjusted net income do not reflect changes in, or cash requirements for, our working capital needs;
- Adjusted EBITDA does not reflect our interest expense, or the requirements necessary to service interest or principal payments on our debt;
- Adjusted EBITDA does not reflect our income tax expenses or the cash requirements to pay our taxes;
- Adjusted EBITDA and Adjusted net income do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; and
- although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.
Adjusted EBITDA
The following table presents a reconciliation of Net income, the most directly comparable financial measure under GAAP, to Adjusted EBITDA for the periods presented (amounts in millions):
Three Months Ended | Six Months Ended | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Net income | $ | 131 | $ | 135 | $ | 203 | $ | 242 | |||||||
Interest expense, net | 24 | 28 | 49 | 56 | |||||||||||
Provision for income taxes | 43 | 48 | 67 | 83 | |||||||||||
Depreciation and amortization (1) | 30 | 27 | 59 | 54 | |||||||||||
Restructuring and separation charges (2) | 4 | — | 10 | (2 | ) | ||||||||||
Stock-based compensation | 5 | 5 | 12 | 12 | |||||||||||
Acquisition and integration costs (3) | — | — | — | 1 | |||||||||||
Other | 1 | 1 | 1 | 1 | |||||||||||
Adjusted EBITDA | $ | 238 | $ | 244 | $ | 401 | $ | 447 |
(1) Depreciation and amortization includes amounts recorded within Cost of sales in the Consolidated Statements of Operations
(2) Represents the costs related to separation activities and personnel changes, primarily severance and other employee-related costs, and costs related to deferring certain projects during the separation preparations. For the six months ended
(3) Represents the costs incurred in the acquisition and integration of business acquisitions, including
Adjusted Net Income
The following table presents a reconciliation of Net income, the most directly comparable financial measure under
Three Months Ended | Six Months Ended | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Net income | $ | 131 | $ | 135 | $ | 203 | $ | 242 | |||||||
Plus: Restructuring and separation charges (1) | 4 | — | 10 | (2 | ) | ||||||||||
Plus: Acquisition and integration costs (2) | — | — | — | 1 | |||||||||||
Plus: Tax benefit for adjustments (3) | (1 | ) | — | (2 | ) | — | |||||||||
Adjusted Net Income | $ | 134 | $ | 135 | $ | 211 | $ | 241 | |||||||
Diluted weighted average common shares outstanding | 161,282 | 170,057 | 161,220 | 170,386 | |||||||||||
Adjusted net income per share – diluted | $ | 0.83 | $ | 0.79 | $ | 1.31 | $ | 1.41 |
(1) Represents the costs related to separation activities and personnel changes, primarily severance and other employee-related costs, and costs related to deferring certain projects during the separation preparations. For the six months ended
(2) Represents the costs incurred in the acquisition and integration of business acquisitions, including
(3) Adjustments to Net income have been tax effected at the Company’s combined annual federal and state tax rates of 25.8% for the three and six months ended
Investor and Media Contact:
HD Supply Investor Relations
770-852-9100
InvestorRelations@hdsupply.com
Charlotte.McLaughlin@hdsupply.com
Source:
2020 GlobeNewswire, Inc., source