Layne Christensen Reports Fiscal 2017 Third Quarter Results

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Layne Christensen Company

Dec 08, 2016, 05:05 ET

THE WOODLANDS, Texas, Dec. 8, 2016 /PRNewswire/ -- Layne Christensen Company (NASDAQ: LAYN) ("Layne" or the "Company") today announced financial and operating results for the fiscal 2017 third quarter (Q3 FY 2017) ended October 31, 2016.

Q3 FY2017 Financial Highlights

  • Reported net loss from continuing operations for Q3 FY 2017 was ($5.0) million, or ($0.26) per share, compared to ($9.0) million, or ($0.45) per share, for Q3 FY 2016. Included in Q3 FY17 results were $1.7 million in restructuring costs, or $(0.09) per share, primarily related to Water Resources. Q3 FY 2016 results included $2.2 million in restructuring costs, or $(0.11) per share, primarily related to Mineral Services' exit from its Africa business.
  • Adjusted EBITDA (a non-GAAP financial measure as defined below) increased to $6.8 million in Q3 FY 2017 compared to $6.7 million in Q3 FY 2016.
  • Consolidated revenues declined 11% to $153.6 million in Q3 FY 2017 from $173.2 million in Q3 FY 2016, due to reduced Water Resources' drilling activity in the western U.S., Heavy Civil's continuing shift towards more selective opportunities and lower Mineral Services' revenues reflecting the exit from operations in Africa and Australia.
  • Unallocated corporate expenses reflected in Adjusted EBITDA continued to decline, benefiting from Layne's overall cost reduction efforts, and were $4.5 million in Q3 FY 2017 compared to $6.0 million in Q3 FY 2016.
  • As of October 31, 2016, cash and cash equivalents were $72.7 million, and total debt was $161.5 million. Total liquidity, which includes availability under Layne's credit facility and total cash and cash equivalents, was $145.0 million at October 31, 2016, compared to $125.5 million at July 31, 2016.
  • Total backlog was $244.1 million at October 31, 2016 compared to $286.6 million at July 31, 2016 and $386.4 million at October 31, 2015. The decrease in backlog was largely related to a decline in Heavy Civil as a result of the continuing strategic shift towards more selective opportunities, as well as a decrease in Water Resources due to reduced drilling activity in the western U.S.

CEO Commentary

Michael J. Caliel, President and Chief Executive Officer of Layne, commented, "Our third quarter results were similar to our fiscal second quarter, as they reflected a number of positive accomplishments in three of our four operating divisions, partially offset by anticipated headwinds in our Water Resources division.  Water Resources' margins were again impacted by a combination of reduced activity in California, as well as execution and work site condition issues on five large water drilling projects that each produced losses during the quarter.  Inliner delivered another quarter of strong performance driven by record margins, as we continue to benefit from additional crews and favorable product mix.  Heavy Civil continues to improve as the problem jobs from a few years ago are all virtually complete and the division produced year-over-year improved results, largely due to enhanced risk project management processes and improved project execution. Minerals Services delivered positive EBITDA and generated improved results led by a pick-up in activity in Brazil, Mexico and the western U.S.

"We are clearly disappointed in the performance of our Water Resources division and we expect it will take a few quarters to complete our on-going business improvement efforts. To that end, we are focused on improving profitability by strengthening our sales force, reducing our cost structure and improving utilization and job execution as we implement the business performance improvement initiatives we launched earlier this year within Water Resources.   Our water-related business is an excellent platform and while we are strategically on the right path, there is clearly more work to be done.  We believe we are taking the right strategic and operational steps in order to deliver improved consolidated financial performance and we remain committed to returning Layne to profitability in fiscal year 2018." 

LAYNE CHRISTENSEN COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED FINANCIAL DATA



Three Months

Nine Months


Ended October 31,

Ended October 31,


(unaudited)

(unaudited)

(in thousands, except per share data)

2016

2015

2016

2015

Revenues

$    153,567

$    173,179

$    472,355

$    523,767

Cost of revenues (exclusive of depreciation, amortization, and impairment charges shown below)

(125,945)

(142,941)

(386,668)

(437,421)

Selling, general and administrative expenses (exclusive of depreciation, amortization, and impairment charges shown below)

(22,046)

(25,372)

(72,520)

(83,447)

Depreciation and amortization 

(6,865)

(7,940)

(20,247)

(24,929)

Impairment charges

—

—

—

(4,598)

Restructuring costs

(1,725)

(2,177)

(3,185)

(6,728)

Equity in earnings (losses) of affiliates

189

(540)

1,916

(2,133)

Gain on extinguishment of debt

—

—

—

4,236

Interest expense

(4,206)

(5,199)

(12,661)

(13,346)

Other income, net

3,340

744

3,678

2,037

Loss from continuing operations before income taxes

(3,691)

(10,246)

(17,332)

(42,562)

Income tax (expense) benefit 

(1,352)

1,252

(1,824)

3,484

Net loss from continuing operations

(5,043)

(8,994)

(19,156)

(39,078)

Net income from discontinued operations

—

5,552

—

10,924

Net loss

$       (5,043)

$       (3,442)

$     (19,156)

$     (28,154)

Earnings (loss) per share information:







Loss per share from continuing operations - basic and diluted

$         (0.26)

$         (0.45)

$         (0.97)

$         (1.98)

Earnings per share from discontinued operations - basic and diluted

—

0.28

—

0.55

Loss per share - basic and diluted

$         (0.26)

$         (0.17)

$         (0.97)

$         (1.43)

Weighted average shares outstanding - basic and dilutive

19,791

19,752

19,785

19,711


As of


October 31,

January 31,

(in thousands)

2016

2016


(unaudited)

(unaudited)

Balance Sheet Data



  Cash and cash equivalents

$       72,711

$      65,569

  Working capital

132,602

131,280

  Adjusted Working Capital (excluding cash and cash equivalents)

59,891

65,711

  Total assets

473,491

488,657

  Total debt

161,484

159,074

  Total Layne Christensen Company equity

114,551

128,658

  Common shares issued and outstanding

19,805

19,789

Summary of Operating Segment Data

The following table summarizes financial information for the Company's operating segments. A discussion of the results for Q3 FY 2017 for each segment compared to the prior year period follows the table.

Three Months

Nine Months


Ended October 31,

Ended October 31,

(in thousands)

2016

2015

2016

2015

Revenues







Water Resources

$      49,939

$      63,007

$    168,360

$    181,758

Inliner

50,517

51,529

151,027

141,339

Heavy Civil

32,993

36,212

107,500

129,841

Mineral Services

20,188

22,879

45,761

72,384

Intersegment Eliminations

(70)

(448)

(293)

(1,555)

Total revenues

$    153,567

$    173,179

$    472,355

$    523,767

Adjusted EBITDA







Water Resources

$          (798)

$        6,918

$        5,064

$      20,286

Inliner

9,628

7,135

24,979

19,387

Heavy Civil

(227)

(1,054)

322

(3,231)

Mineral Services

2,701

(308)

6,815

3,733

Unallocated corporate expenses

(4,495)

(5,961)

(18,250)

(23,326)

Total Adjusted EBITDA

$        6,809

$        6,730

$      18,930

$      16,849

Water Resources

Three Months

Nine Months


Ended October 31,

Ended October 31,

(in thousands)

2016

2015

2016

2015

Revenues

$      49,939

$      63,007

$    168,360

$    181,758

Adjusted EBITDA

(798)

6,918

5,064

20,286

Adjusted EBITDA as a percentage of revenues

(1.6%)

11.0%

3.0%

11.2%

Revenues for Water Resources decreased during the three months ended October 31, 2016 primarily due to reduced activity in agricultural drilling projects in the western U.S.

The decrease in Adjusted EBITDA for the three months ended October 31, 2016 was primarily due to lower drilling activity as well as execution and work site issues associated with certain drilling projects.  Five large drilling projects, which are all currently complete or near completion, contributed almost $5.0 million of job losses during the quarter.

Backlog was $59.9 million at October 31, 2016 compared to $72.6 million at July 31, 2016 and $113.4 million at October 31, 2015, reflecting reduced drilling opportunities in the western U.S.

Inliner

Three Months

Nine Months


Ended October 31,

Ended October 31,

(in thousands)

2016

2015

2016

2015

Revenues

$      50,517

$      51,529

$    151,027

$    141,339

Adjusted EBITDA

9,628

7,135

24,979

19,387

Adjusted EBITDA as a percentage of revenues

19.1%

13.8%

16.5%

13.7%

Revenues for Inliner decreased slightly during the three months ended October 31, 2016, primarily due to lower levels of subcontracted work as compared to the prior year.

The increase in Adjusted EBITDA represents improved results across most operating regions as compared to the same prior year period.  The increase in Adjusted EBITDA as a percentage of revenues was primarily attributable to a higher mix of self-performed work in the current quarter as compared to the same period in the prior year, and increased crew efficiency.

Backlog was $112.4 million at October 31, 2016 compared to $121.5 million at July 31, 2016 and $122.5 million at October 31, 2015.

Heavy Civil

Three Months

Nine Months


Ended October 31,

Ended October 31,

(in thousands)

2016

2015

2016

2015

Revenues

$      32,993

$      36,212

$    107,500

$    129,841

Adjusted EBITDA

(227)

(1,054)

322

(3,231)

Adjusted EBITDA as a percentage of revenues

(0.7%)

(2.9%)

0.3%

(2.5%)

Revenues for Heavy Civil decreased primarily as a result of the reduced activity associated with our continuing strategic shift towards more selective opportunities, including negotiated and alternative delivery contracts, and less emphasis on traditional fixed-price contracts. 

Adjusted EBITDA improved as compared to the prior year primarily due to improved project execution, the continued completion of certain legacy troubled fixed-price contracts, as well as lower selling, general and administrative expenses as Heavy Civil continues to focus on effectively managing its cost structure.

Backlog was $71.8 million at October 31, 2016 compared to $92.5 million at July 31, 2016 and $150.5 million at October 31, 2015.

Mineral Services

Three Months

Nine Months


Ended October 31,

Ended October 31,

(in thousands)

2016

2015

2016

2015

Revenues

$      20,188

$      22,879

$      45,761

$      72,384

Adjusted EBITDA

2,701

(308)

6,815

3,733

Adjusted EBITDA as a percentage of revenues

13.4%

(1.3%)

14.9%

5.2%

Equity in earnings (losses) of affiliates

189

(540)

1,916

(2,133)

Revenues for Mineral Services declined primarily due to our exit from our operations in Africa and Australia during FY2016, which contributed to approximately $3.7 million in revenue decline for the three months ended October 31, 2016, compared to the prior year period. Offsetting these declines were increased revenues in Mexico and Brazil.

Adjusted EBITDA increased by $3.0 million for the three months ended October 31, 2016 due primarily to increased activity and margins in Mexico and Brazil.

Equity in earnings (losses) of affiliates improved during the three months ended October 31, 2016, due to improved profitability in our Latin American affiliates. 

Unallocated Corporate Expenses

Unallocated corporate expenses reflected in Adjusted EBITDA were $4.5 million for the three months ended October 31, 2016, compared to $6.0 million for the same period last year.  The improvement was primarily due to reductions in legal and professional fees, as well as reductions in compensation expense.

Use of Non-GAAP Financial Information

We use Adjusted EBITDA to assess performance which is not defined in generally accepted accounting principles (GAAP). Our measure of Adjusted EBITDA, which may not be comparable to other companies' measure of Adjusted EBITDA, represents income or loss from continuing operations before interest, taxes, depreciation and amortization, non-cash share-based compensation, equity in earnings or losses from affiliates, certain non-recurring items such as impairment charges, restructuring costs, gain on extinguishment of debt, and certain other gains or losses, plus dividends received from affiliates. We believe that the presentation of Adjusted EBITDA included in this report helps us understand and evaluate our operating performance and trends and provides useful information to both management and investors. In addition, we use Adjusted EBITDA as a factor in incentive compensation decisions and our credit facility agreement uses measures similar to Adjusted EBITDA to measure compliance with certain covenants. Adjusted EBITDA should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results.

The following table reconciles Adjusted EBITDA to income (loss) from continuing operations before income taxes, which we consider to be the most directly comparable GAAP financial measure to Adjusted EBITDA.













Three Months Ended October 31, 2016

Water 


Heavy 

Mineral 

Unallocated
Corporate 

Other Items/

(in thousands)

Resources

Inliner

Civil

Services

Expenses

Eliminations

Total

Revenues

$    49,939

$   50,517

$   32,993

$  20,188

$             —

$             (70)

$ 153,567















Income (loss) from continuing operations before income taxes

$    (4,439)

$     8,109

$      (580)

$    2,670

$       (5,245)

$        (4,206)

$   (3,691)

Interest expense 

—

—

—

—

—

4,206

4,206

Depreciation expense and amortization

2,970

1,500

348

1,753

294

—

6,865

Non-cash equity-based compensation

(84)

43

38

57

603

—

657

Equity in earnings of affiliates

—

—

—

(189)

—

—

(189)

Restructuring costs

1,705

—

14

6

—

—

1,725

Other income, net

(950)

(24)

(47)

(2,172)

(147)

—

(3,340)

Dividends received from affiliates 

—

—

—

576

—

—

576

Adjusted EBITDA

$       (798)

$     9,628

$      (227)

$    2,701

$       (4,495)

$              —

$     6,809






























Three Months Ended October 31, 2015

Water 


Heavy 

Mineral 

Unallocated
Corporate 

Other Items/

(in thousands)

Resources

Inliner

Civil

Services

Expenses

Eliminations

Total

Revenues

$    63,007

$   51,529

$   36,212

$  22,879

$             —

$           (448)

$ 173,179















Income (loss) from continuing operations before income taxes

$      3,800

$     6,011

$   (1,742)

$   (6,445)

$       (6,671)

$        (5,199)

$ (10,246)

Interest expense 

—

—

—

—

—

5,199

5,199

Depreciation expense and amortization

3,379

1,170

691

2,242

458

—

7,940

Non-cash equity-based compensation

98

33

37

55

564

—

787

Equity in losses of affiliates

—

—

—

540

—

—

540

Restructuring costs

(13)

(3)

13

2,191

(11)

—

2,177

Other (income) expense, net

(346)

(76)

(53)

32

(301)

—

(744)

Dividends received from affiliates 

—

—

—

1,077

—

—

1,077

Adjusted EBITDA

$      6,918

$     7,135

$   (1,054)

$      (308)

$       (5,961)

$              —

$     6,730






























Nine Months Ended October 31, 2016

Water 


Heavy 

Mineral 

Unallocated
Corporate 

Other Items/

(in thousands)

Resources

Inliner

Civil

Services

Expenses

Eliminations

Total

Revenues

$  168,360

$ 151,027

$ 107,500

$  45,761

$             —

$           (293)

$ 472,355















Income (loss) from continuing operations before income taxes

$    (6,377)

$   20,562

$   (1,259)

$    3,957

$     (21,554)

$      (12,661)

$ (17,332)

Interest expense 

—

—

—

—

—

12,661

12,661

Depreciation expense and amortization

9,138

4,016

1,245

4,773

1,075

—

20,247

Non-cash equity-based compensation

225

337

112

151

1,924

—

2,749

Equity in earnings of affiliates

—

—

—

(1,916)

—

—

(1,916)

Restructuring costs

2,308

72

409

243

153

—

3,185

Other (income) expense, net

(230)

(8)

(185)

(3,407)

152

—

(3,678)

Dividends received from affiliates 

—

—

—

3,014

—

—

3,014

Adjusted EBITDA

$      5,064

$   24,979

$        322

$    6,815

$     (18,250)

$              —

$   18,930






























Nine Months Ended October 31, 2015

Water 


Heavy 

Mineral 

Unallocated
Corporate 

Other Items/

(in thousands)

Resources

Inliner

Civil

Services

Expenses

Eliminations

Total

Revenues

$  181,758

$ 141,339

$ 129,841

$  72,384

$             —

$        (1,555)

$ 523,767















Income (loss) from continuing operations before income taxes

$      5,729

$   15,675

$   (4,943)

$ (23,419)

$     (26,494)

$        (9,110)

$ (42,562)

Interest expense 

—

—

—

—

—

13,346

13,346

Depreciation expense and amortization

10,140

3,198

2,041

8,131

1,419

—

24,929

Non-cash equity-based compensation

327

618

220

223

1,712

—

3,100

Equity in earnings of affiliates

—

—

—

2,133

—

—

2,133

Impairment charges

4,598

—

—

—

—

—

4,598

Restructuring costs

5

14

44

13,887

341

—

14,291

Gain on extinguishment of debt

—

—

—

—

—

(4,236)

(4,236)

Other income, net

(513)

(118)

(593)

(509)

(304)

—

(2,037)

Dividends received from affiliates 

—

—

—

3,287

—

—

3,287

Adjusted EBITDA

$    20,286

$   19,387

$   (3,231)

$    3,733

$     (23,326)

$              —

$   16,849

Conference Call

Layne Christensen will conduct a conference call at 9:00 AM ET / 8:00 AM CT Friday, December 9, 2016, to discuss these results and related matters. Interested parties may participate in the call by dialing 1-877-407-0672 (Domestic) or 1-412-902-0003 (International). The conference call will also be broadcast live via the Investor Relations section of Layne's website at www.layne.com. To listen to the live call, please go to the website at least 15 minutes early to register, download and install any necessary audio software. If you are unable to listen live, the conference call will be archived on the website for approximately 90 days. A telephonic replay of the conference call will be available through December 16, 2016 and may be accessed by calling 1-877-660-6853 (Domestic) or 1-201-612-7415 (International) and using passcode 13649478#.

Forward-Looking Statements

This press release may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934. Such statements may include, but are not limited to, statements of plans and objectives, statements of future economic performance and statements of assumptions underlying such statements, and statements of management's intentions, hopes, beliefs, expectations or predictions of the future. Forward-looking statements can often be identified by the use of forward-looking terminology, such as "should," "intend," "continue," "believe," "may," "hope," "anticipate," "goal," "forecast," "plan," "estimate" and similar words or phrases. Such statements are based on current expectations and are subject to certain risks, uncertainties and assumptions, including but not limited to:  prevailing prices for various commodities, unanticipated slowdowns in the Company's major markets, the availability of credit, the risks and uncertainties normally incident to the construction industry, the impact of competition, the effectiveness of operational changes expected to increase efficiency and productivity, worldwide economic and political conditions and foreign currency fluctuations that may affect worldwide results of operations. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially and adversely from those anticipated, estimated or projected. These forward-looking statements are made as of the date of this filing, and the Company assumes no obligation to update such forward-looking statements or to update the reasons why actual results could differ materially from those anticipated in such forward-looking statements.

About Layne

Layne is a global solutions provider to the world of essential natural resources—water, mineral and energy. We offer innovative, sustainable products and services with an enduring commitment to safety, excellence and integrity.

Contacts

J. Michael Anderson
Chief Financial Officer
281-475-2694
[email protected]

Dennard Lascar Associates
Jack Lascar
713-529-6600
[email protected]

[LAYN-F]

SOURCE Layne Christensen Company

Related Links

http://www.layne.com

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