HD Supply Holdings, Inc. Announces 2017 Third-Quarter Results, Raises Full-Year Guidance
"I am proud of the team's performance in the third quarter. We delivered strong overall results including 7.5 percent sales growth, which allowed us to raise our full year guidance. The team is committed to delivering long term profitable growth in excess of market and improved operating leverage,” stated
Gross profit increased
Operating income increased
Net income increased
Adjusted EBITDA increased
Adjusted net income increased
As of
Business Unit Performance
Facilities Maintenance
Net sales increased
Construction & Industrial
Net sales increased
Third-Quarter Monthly Sales Performance
Net sales for August, September and October of fiscal 2017 were
Preliminary November Sales Results
Preliminary Net sales in November were approximately
Fourth-Quarter 2017 Outlook
For the fourth quarter of fiscal 2017, Net sales are anticipated to be in the range of
For the full year fiscal 2017, Net sales are anticipated to be in the range of
Fiscal 2017 Third-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 and Section 21E of the Exchange Act. 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. In addition, 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 those "Risk factors" in our annual report on Form 10-K, for the fiscal year ended
Estimates for Net sales, Adjusted EBITDA and Adjusted net income per diluted share are preliminary estimates and are subject to risks and uncertainties, including, among others, changes in connection with quarter-end adjustments. Any variation between HD Supply’s actual results and the preliminary financial data set forth above may be material.
1 No reconciliation of the forecasted range for Adjusted EBITDA to Net income or Income from Continuing Operations and Adjusted net income per diluted share to Net income per diluted share or Income from Continuing Operations per diluted share for the fourth quarter of fiscal 2017 and the full year fiscal 2017 is included in this press release because we are unable to quantify certain amounts that would be required to be included in the GAAP measure without unreasonable efforts. In addition, the company believes such reconciliations would imply a degree of precision that would be confusing or misleading to investors.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Amounts in millions, except share and per share data, Unaudited
Three Months Ended | Nine Months Ended | |||||||||||||
October 29, 2017 |
October 30, 2016 |
October 29, 2017 |
October 30, 2016 |
|||||||||||
Net Sales | $ | 1,370 | $ | 1,275 | $ | 3,938 | $ | 3,734 | ||||||
Cost of sales | 828 | 763 | 2,373 | 2,240 | ||||||||||
Gross Profit | 542 | 512 | 1,565 | 1,494 | ||||||||||
Operating expenses: | ||||||||||||||
Selling, general and administrative | 336 | 329 | 1,008 | 954 | ||||||||||
Depreciation and amortization | 21 | 21 | 63 | 63 | ||||||||||
Restructuring | 3 | 3 | 3 | 14 | ||||||||||
Total operating expenses | 360 | 353 | 1,074 | 1,031 | ||||||||||
Operating Income | 182 | 159 | 491 | 463 | ||||||||||
Interest expense | 36 | 65 | 134 | 219 | ||||||||||
Interest income | (1 | ) | — | (1 | ) | — | ||||||||
Loss on extinguishment & modification of debt | 78 | 59 | 81 | 174 | ||||||||||
Income from Continuing Operations Before Provision for Income Taxes | 69 | 35 | 277 | 70 | ||||||||||
Provision for income taxes | 23 | 15 | 92 | 30 | ||||||||||
Income from Continuing Operations | 46 | 20 | 185 | 40 | ||||||||||
Income from discontinued operations, net of tax | 406 | 40 | 794 | 104 | ||||||||||
Net Income | $ | 452 | $ | 60 | $ | 979 | $ | 144 | ||||||
Other comprehensive income (loss) — foreign currency translation adjustment | 1 | (1 | ) | (1 | ) | 1 | ||||||||
Total Comprehensive Income | $ | 453 | $ | 59 | $ | 978 | $ | 145 | ||||||
Weighted Average Common Shares Outstanding (thousands) | ||||||||||||||
Basic | 185,651 | 199,593 | 194,704 | 199,217 | ||||||||||
Diluted | 186,652 | 202,007 | 196,258 | 201,786 | ||||||||||
Basic Earnings Per Share(1): | ||||||||||||||
Income from Continuing Operations | $ | 0.25 | $ | 0.10 | $ | 0.95 | $ | 0.20 | ||||||
Income from Discontinued Operations | $ | 2.19 | $ | 0.20 | $ | 4.08 | $ | 0.52 | ||||||
Net Income | $ | 2.43 | $ | 0.30 | $ | 5.03 | $ | 0.72 | ||||||
Diluted Earnings Per Share(1): | ||||||||||||||
Income from Continuing Operations | $ | 0.25 | $ | 0.10 | $ | 0.94 | $ | 0.20 | ||||||
Income from Discontinued Operations | $ | 2.18 | $ | 0.20 | $ | 4.05 | $ | 0.52 | ||||||
Net Income | $ | 2.42 | $ | 0.30 | $ | 4.99 | $ | 0.71 | ||||||
(1) May not foot due to rounding. | ||||||||||||||
CONSOLIDATED BALANCE SHEETS
Amounts in millions, except per share data, Unaudited
October 29, 2017 | January 29, 2017 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 461 | $ | 75 | |||
Receivables, less allowance for doubtful accounts of $11 and $9 | 689 | 559 | |||||
Inventories | 662 | 606 | |||||
Current assets of discontinued operations | — | 575 | |||||
Other current assets | 38 | 32 | |||||
Total current assets | 1,850 | 1,847 | |||||
Property and equipment, net | 298 | 253 | |||||
Goodwill | 1,807 | 1,807 | |||||
Intangible assets, net | 93 | 102 | |||||
Deferred tax asset | 298 | 556 | |||||
Non-current assets of discontinued operations | — | 1,122 | |||||
Other assets | 19 | 20 | |||||
Total assets | $ | 4,365 | $ | 5,707 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 405 | $ | 320 | |||
Accrued compensation and benefits | 84 | 98 | |||||
Current installments of long-term debt | 11 | 14 | |||||
Current liabilities of discontinued operations | — | 259 | |||||
Other current liabilities | 161 | 152 | |||||
Total current liabilities | 661 | 843 | |||||
Long-term debt, excluding current installments | 2,087 | 3,798 | |||||
Non-current liabilities of discontinued operations | — | 20 | |||||
Other liabilities | 123 | 86 | |||||
Total liabilities | 2,871 | 4,747 | |||||
Stockholders’ equity: | |||||||
Common stock, par value $0.01; 1 billion shares authorized; 186.3 million and 201.4 million shares issued and outstanding at October 29, 2017 and January 29, 2017, respectively | 2 | 2 | |||||
Paid-in capital | 4,018 | 3,962 | |||||
Accumulated deficit | (1,956 | ) | (2,969 | ) | |||
Accumulated other comprehensive loss | (16 | ) | (15 | ) | |||
Treasury stock, at cost, 17.4 million and 0.6 million shares at October 29, 2017 and January 29, 2017, respectively | (554 | ) | (20 | ) | |||
Total stockholders’ equity | 1,494 | 960 | |||||
Total liabilities and stockholders’ equity | $ | 4,365 | $ | 5,707 | |||
CONSOLIDATED STATEMENTS OF CASH FLOWS
Amounts in millions, Unaudited
Nine Months Ended | |||||||
October 29, 2017 |
October 31, 2016 |
||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net income | $ | 979 | $ | 144 | |||
Reconciliation of net income to net cash provided by (used in) operating activities: | |||||||
Depreciation and amortization | 73 | 76 | |||||
Provision for uncollectibles | 6 | 5 | |||||
Non-cash interest expense | 11 | 13 | |||||
Payment of discounts upon extinguishment of debt | (6 | ) | — | ||||
Loss on extinguishment & modification of debt | 81 | 174 | |||||
Stock‑based compensation expense | 19 | 15 | |||||
Deferred income taxes | 316 | 93 | |||||
(Gain) loss on sales of businesses, net | (930 | ) | 7 | ||||
Other | — | (2 | ) | ||||
Changes in assets and liabilities, net of the effects of acquisitions & dispositions: | |||||||
(Increase) decrease in receivables | (249 | ) | (236 | ) | |||
(Increase) decrease in inventories | (116 | ) | (119 | ) | |||
(Increase) decrease in other current assets | 1 | — | |||||
(Increase) decrease in other assets | 1 | — | |||||
Increase (decrease) in accounts payable and accrued liabilities | 132 | 134 | |||||
Increase (decrease) in other long-term liabilities | 2 | — | |||||
Net cash provided by (used in) operating activities | 320 | 304 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Capital expenditures | (65 | ) | (59 | ) | |||
Proceeds from sales of property and equipment | 2 | 2 | |||||
Proceeds from sales of businesses, net | 2,450 | 28 | |||||
Net cash provided by (used in) investing activities | 2,387 | (29 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Proceeds from issuance of common stock under employee benefit plans | 37 | 23 | |||||
Purchase of treasury shares | (555 | ) | (24 | ) | |||
Borrowings of long-term debt | 113 | 1,547 | |||||
Repayments of long-term debt | (1,526 | ) | (2,435 | ) | |||
Borrowings on long-term revolver debt | 624 | 510 | |||||
Repayments on long-term revolver debt | (989 | ) | — | ||||
Debt issuance costs | (26 | ) | (19 | ) | |||
Other financing activities | 1 | (1 | ) | ||||
Net cash provided by (used in) financing activities | (2,321 | ) | (399 | ) | |||
Effect of exchange rates on cash and cash equivalents | — | 1 | |||||
Increase (decrease) in cash and cash equivalents | $ | 386 | $ | (123 | ) | ||
Cash and cash equivalents at beginning of period | 75 | 269 | |||||
Cash and cash equivalents at end of period | $ | 461 | $ | 146 | |||
SEGMENT REPORTING
Amounts in millions, Unaudited
Facilities Maintenance |
Construction & Industrial |
Corporate | Total Continuing Operations |
|||||||||
Three Months Ended October 29, 2017 | ||||||||||||
Net sales | $ | 754 | $ | 617 | $ | (1 | ) | $ | 1,370 | |||
Adjusted EBITDA | 153 | 76 | (15 | ) | 214 | |||||||
Depreciation(1) & Software Amortization | 7 | 9 | 3 | 19 | ||||||||
Other Intangible Amortization | 1 | 1 | 1 | 3 | ||||||||
Three Months Ended October 30, 2016 | ||||||||||||
Net sales | $ | 724 | $ | 552 | $ | (1 | ) | $ | 1,275 | |||
Adjusted EBITDA | 140 | 67 | (19 | ) | 188 | |||||||
Depreciation(1) & Software Amortization | 8 | 7 | 4 | 19 | ||||||||
Other Intangible Amortization | 1 | 1 | 1 | 3 | ||||||||
Nine Months Ended October 29, 2017 |
||||||||||||
Net sales | $ | 2,205 | $ | 1,737 | $ | (4 | ) | $ | 3,938 | |||
Adjusted EBITDA | 426 | 200 | (47 | ) | 579 | |||||||
Depreciation1 & Software Amortization | 19 | 27 | 11 | 57 | ||||||||
Other Intangible Amortization | 4 | 1 | 4 | 9 | ||||||||
Nine Months Ended October 30, 2016 | ||||||||||||
Net sales | $ | 2,142 | $ | 1,597 | $ | (5 | ) | $ | 3,734 | |||
Adjusted EBITDA | 425 | 184 | (51 | ) | 558 | |||||||
Depreciation1 & Software Amortization | 23 | 24 | 10 | 57 | ||||||||
Other Intangible Amortization | 4 | 1 | 4 | 9 | ||||||||
(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 and Income from continuing operations, the most directly comparable financial measures under GAAP, to Adjusted EBITDA for the periods presented (amounts in millions):
Three Months Ended | Nine Months Ended | ||||||||||
October 29, 2017 |
October 30, 2016 |
October 29, 2017 |
October 30, 2016 |
||||||||
Net income | $ | 452 | $ | 60 | $ | 979 | $ | 144 | |||
Less income from discontinued operations, net of tax | 406 | 40 | 794 | 104 | |||||||
Income from continuing operations | 46 | 20 | 185 | 40 | |||||||
Interest expense, net | 35 | 65 | 133 | 219 | |||||||
Provision for income taxes | 23 | 15 | 92 | 30 | |||||||
Depreciation and amortization (1) | 22 | 22 | 66 | 66 | |||||||
Loss on extinguishment & modification of debt (2) | 78 | 59 | 81 | 174 | |||||||
Restructuring charges (3) | 3 | 3 | 3 | 14 | |||||||
Stock-based compensation | 7 | 4 | 19 | 15 | |||||||
Adjusted EBITDA | $ | 214 | $ | 188 | $ | 579 | $ | 558 | |||
(1) Depreciation and amortization includes amounts recorded within Cost of sales in the Consolidated Statements of Operations and Comprehensive Income. | |||||||||||
(2) Represents the loss on extinguishment of debt including the write-off of unamortized deferred financing costs, original issue discount, and other assets or liabilities associated with such debt. Also includes the costs of debt modification. | |||||||||||
(3) Represents the costs incurred for strategic alignment of our workforce. These costs include severance, relocation costs and other related costs. | |||||||||||
Adjusted Net Income
The following table presents a reconciliation of Net income and Income from continuing operations, the most directly comparable financial measures under U.S. GAAP, to Adjusted net income for the periods presented (amounts in millions):
Three Months Ended | Nine Months Ended | ||||||||||||||
October 29, 2017 |
October 30, 2016 |
October 29, 2017 |
October 30, 2016 |
||||||||||||
Net income | $ | 452 | $ | 60 | $ | 979 | $ | 144 | |||||||
Less income from discontinued operations, net of tax | 406 | 40 | 794 | 104 | |||||||||||
Income from continuing operations | 46 | 20 | 185 | 40 | |||||||||||
Plus: Provision for income taxes | 23 | 15 | 92 | 30 | |||||||||||
Less: Cash income taxes (1) | (4 | ) | (6 | ) | (14 | ) | (12 | ) | |||||||
Plus: Amortization of acquisition-related intangible assets (other than software) | 3 | 3 | 9 | 9 | |||||||||||
Plus: Loss on extinguishment & modification of debt (2) | 78 | 59 | 81 | 174 | |||||||||||
Plus: Restructuring charges (3) | 3 | 3 | 3 | 14 | |||||||||||
Adjusted Net Income | $ | 149 | $ | 94 | $ | 356 | $ | 255 | |||||||
Diluted weighted average common shares outstanding | 186,652 | 202,007 | 196,258 | 201,786 | |||||||||||
Adjusted net income per share – diluted | $ | 0.80 | $ | 0.47 | $ | 1.81 | $ | 1.26 | |||||||
(1) Cash paid for income taxes for the three and nine months ended October 29, 2017 excludes $13 million in tax payments related to the sale of the Waterworks business unit. | |||||||||||||||
(2) Represents the loss on extinguishment of debt including the write-off of unamortized deferred financing costs, original issue discount, and other assets or liabilities associated with such debt. Also includes the costs of debt modification. | |||||||||||||||
(3) Represents the costs incurred for strategic alignment of our workforce. These costs include severance, relocation costs and other related costs. | |||||||||||||||
No reconciliation of the forecasted range for Adjusted EBITDA to Net income and Adjusted net income per diluted share to Net income per diluted share for the fourth quarter of fiscal 2017 and the full year fiscal 2017 is included in this press release because we are unable to quantify certain amounts that would be required to be included in the GAAP measure without unreasonable efforts. In addition, the company believes such reconciliations would imply a degree of precision that would be confusing or misleading to investors.
Investor Contact:
HD Supply Investor Relations
770-852-9100
InvestorRelations@hdsupply.com
Media Contact:
HD Supply Public Relations
770-852-9057
Quiana.Pinckney@hdsupply.com
Source: HD Supply Holdings, Inc.