GSE Reports Third Quarter 2013 Results

HOUSTON, Nov. 15, 2013 /PRNewswire/ -- GSE Holding, Inc. (the "Company" or "GSE") (NYSE: GSE), a leading global provider of highly engineered geosynthetic containment solutions for environmental protection and confinement applications, today reported its financial results for the Company's third quarter of 2013.

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Selected financial results for the third quarter of 2013:

  • Net sales of $118.0 million vs. $121.2 million in 3Q 2012
  • Gross margin of 11.6% vs. 17.4% in 3Q 2012
  • Adjusted EBITDA* of $7.5 million vs. $12.6 million in 3Q 2012
  • GAAP Net Loss of $35.8 million or ($1.77) per diluted share vs. net income of $5.2 million or $0.26 per diluted share in 3Q 2012
  • A non-cash charge of $25.2 million was recorded relative to a goodwill impairment for the North American business as well as a $6.6 million non-cash tax charge to establish a reserve for the valuation of U.S. deferred tax assets

"The third quarter was a substantial improvement from earlier quarters this year, especially in some of our international regions," said Chuck Sorrentino, President and Chief Executive Officer.  "Europe/Africa adjusted EBITDA* in the third quarter was $3.4 million, compared to an adjusted EBITDA* loss of $2.0 million in the first half of 2013.  While margins in the third quarter were under pressure in North America, revenues were flat as we begin to better utilize our capacity by diversifying the customer base, and leveraging our recent SynTec acquisition.  Furthermore, we have reorganized our sales force to better demonstrate the differentiated nature of our value added products to our customers.  The Company has made significant SG&A reductions, the results of which began to reflect in SG&A expense in the third quarter of 2013. We expect the full benefit of such reductions to be realized in 2014.  Also, capacity expansions in our Thailand and Egypt facilities, and the soon to be completed new China facility bode well for our continued share growth in our targeted markets.  We believe GSE is uniquely positioned to take advantage of the trends influencing the global economy, and that our focus on continued innovation and share growth, coupled with productivity improvements and disciplined expense management, will result in an improved second half of 2013 versus the first half of this year."

Mr. Sorrentino added, "I want to thank Mike Kirksey for his service to GSE and we wish him all the best in his new position and I look forward to working closely with Daniel Storey as he transitions into the role of Chief Financial Officer from Chief Accounting Officer."  

The Company continues to work diligently with its investment bank and potential investors to raise junior capital as it committed to its existing bank group.  In addition, the Company is simultaneously working to secure a complete refinancing of the Company's U.S. revolver and term debt ($172 million outstanding as of September 30, 2013).  While the Company was in compliance with the covenants under its existing U.S. loan agreements as of September 30, 2013, it is highly unlikely that it will be in compliance with covenant requirements for future quarters.  As a result, the Company has classified its U.S. revolver and term loan balances as current in its September 30, 2013 balance sheet.


* A non-GAAP measure; see accompanying Non-GAAP Reconciliation Schedule.

Third Quarter Summary

Total net sales for the third quarter were $118.0 million, compared to $121.2 million for the prior year period. Gross profit was $13.7 million in the third quarter of 2013 compared to $21.0 million in the prior year period, resulting in gross margin for the third quarter of 2013 declining to 11.6% from 17.4% in the prior year period.

Selling, general and administrative ("SG&A") expenses for the third quarter of 2013 as reported include non-recurring restructuring charges and professional fees and non-cash stock-based compensation expense.  Excluding these non-recurring expenses and non-cash charges, SG&A expenses for the third quarter of 2013 were $9.9 million compared to $12.6 million in second quarter of 2013 and $11.8 million for the third quarter of 2012.

During the third quarter of 2013, the Company performed an interim assessment of goodwill due to identification of impairment indicators.  Such indicators included continued weak gross margins, under-achievement of previous financial projections as well as a lower stock price.  Based on this assessment, a non-cash impairment charge totaling $25.2 million was recorded related to the Company's North America reporting unit.  In addition, the Company assessed the realizability of its U.S. deferred tax assets and concluded a non-cash valuation allowance of $6.6 million was necessary in the third quarter.

GAAP net loss for the quarter was $35.8 million, or ($1.77) per diluted share, compared to net income of $5.2 million, or $0.27 per diluted share in the prior year period.  Adjusted EBITDA* was $7.5 million compared to $12.6 million in the prior year period.

* A non-GAAP measure; see accompanying Non-GAAP Reconciliation Schedule.

Conference Call

GSE will hold a conference call today, November 15, 2013, at 9:00 a.m. Central Time to discuss the Company's operating results. The conference call can be accessed by dialing 877-616-4476 (domestic) or 402-875-4763 (international). A telephonic replay will be available approximately two hours after the call and can be accessed by dialing 1-855-859-2056, or for international callers, 1-404-537-3406. The passcode for the live call and the replay is 94459387. The telephonic replay will be available until 11:59 p.m. (Eastern Time) on November 19, 2013.

Interested parties may also listen to a simultaneous webcast of the conference call via the Investor Relations section of GSE's website at http://ir.gseworld.com

Use of Non-GAAP Financial Measures (Adjusted EBITDA)

Adjusted EBITDA represents net income (loss) before interest expense, income tax expense, depreciation, goodwill impairment, amortization of intangibles, loss (gain) on foreign currency transactions, restructuring expenses, certain professional fees, stock‑based compensation expense, public offering related costs, loss on extinguishment of debt and management fees.  Adjusted EBITDA is a "non-GAAP financial measures," and is intended as a supplemental measure of the Company's performance that is not required by, or presented in accordance with, GAAP.  Adjusted EBITDA should not be considered as an alternative to net income, income from continuing operations, earnings per share or any other performance measure derived in accordance with GAAP.  The presentation of Adjusted EBITDA should not be construed to imply that future results will be unaffected by unusual or non-recurring items.  Management believes that this measure is meaningful to investors to enhance their understanding of the Company's financial performance. Although Adjusted EBITDA is not necessarily a measure of the Company's ability to fund its cash needs, the Company understands that it is frequently used by securities analysts, investors and other interested parties as a measure of financial performance and to compare the Company's performance with the performance of other companies that report Adjusted EBITDA.  Management's calculation of this measure may not be comparable to similarly titled measures reported by other companies.  A reconciliation of Adjusted EBITDA to net income (loss), the most comparable GAAP measure, appears in the section of this press release titled "Reconciliation of Net Income (Loss) to Adjusted EBITDA".

About GSE Holding, Inc.

GSE is a global manufacturer and marketer of geosynthetic lining solutions, products and services used in the containment and management of solids, liquids, and gases for organizations engaged in waste management, mining, water, wastewater, and aquaculture.

GSE has a long history of manufacturing quality geosynthetic lining systems and developing innovative products. The Company's principal products are polyethylene-based geomembranes, geonets, geocomposites, geosynthetic clay liners, concrete protection liners and vertical barriers. GSE manufactures products primarily to line or cap hazardous and non-hazardous waste landfills; contain materials generated in certain mining processes; and contain water, liquid waste and industrial products in ponds, tanks, reservoirs, sewers, and canals. Headquartered in Houston, Texas, USA, GSE maintains sales offices throughout the world and manufacturing facilities in the United States, Chile, Germany, Thailand and Egypt.

Forward-Looking Statements

This press release contains forward‑looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this press release are forward‑looking statements. Forward‑looking statements give management's current expectations and projections relating to the Company's financial condition, results of operations, plans, objectives, future performance and business. You can identify forward‑looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "anticipate," "estimate," "expect," "project," "plan," "intend," "believe," "may," "will," "should," "can have," "likely" and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.  The forward‑looking statements are based on the Company's beliefs, assumptions and expectations of future performance, taking into account the information currently available to management.  Important factors that could cause actual results to differ materially from statements included in this press release can be found in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2012, Form 10-Q for the quarter ended September 30, 2013 and other documents filed with the SEC.  These documents are available in the Investor Relations section of the Company's website at http://www.gseworld.com.

The Company cannot assure you that it will realize the results or developments it expects or anticipates or, even if substantially realized, that they will result in the consequences or affect the Company or its operations in the way it expects. The forward‑looking statements included in this press release are made only as of the date hereof. Management undertakes no obligation to update or revise any forward‑looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

Contact:
Daniel Storey
Senior Vice President and Chief Financial Officer
281-230-6733
dstorey@gseworld.com

Financial Tables

GSE Holding, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)

(Unaudited)



September 30,
2013


December 31,
2012

ASSETS

Current assets:




    Cash and cash equivalents

$    18,699


$  18,068

    Accounts receivable:




Trade, net of allowance for doubtful accounts of $2,473 and $869, respectively           

89,466


96,987

Other

2,896


3,626

   Inventory, net

79,129


64,398

   Deferred income taxes

1,299


1,111

   Prepaid expenses and other

5,295


6,681

   Income taxes receivable

1,549


1,538

Total current assets

198,333


192,409

Property, plant and equipment, net

75,848


70,172

Goodwill

9,644


58,895

Other assets

12,714


14,622

TOTAL ASSETS 

$296,539


$336,098





LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:




Accounts payable

$ 49,401


$  36,632

Accrued liabilities and other

15,061


23,045

Short-term debt

18,372


985

Current portion of long-term debt

172,452


3,147

Total current liabilities             

255,286


63,809

Other liabilities

1,240


1,211

Deferred income taxes

1,222


1,078

Long-term debt, net of current portion

7,673


167,282

Total liabilities           

265,421


233,380

Commitments and contingencies (Note 15)    




Stockholders' equity:




Common stock, $.01 par value, 150,000,000 shares authorized, 20,360,612 and 19,846,684 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively

204


198

Additional paid-in capital

131,466


130,617

Accumulated deficit

(100,534)


(28,372)

Accumulated other comprehensive income (loss)

(18)


275

Total stockholders' equity

31,118


102,718

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY            

$296,539


$336,098

 

GSE Holding, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(in thousands, except per share amounts)

(Unaudited)



Three Months Ended

September 30,


Nine Months Ended

September 30,


2013


2012


2013


2012









Net sales

$117,976


$121,200


$321,311


$355,285

Cost of products

104,281


100,150


281,150


295,636

Gross profit

13,695


21,050


40,161


59,649

Selling, general and administrative expenses

12,547


11,945


40,008


34,684

Non-recurring initial public offering related costs




9,655

Amortization of intangibles

401


295


1,155


893

Impairment of goodwill

25,244



51,667


Operating income (loss)

(24,497)


8,810


(52,669)


14,417

Other expenses (income):








Interest expense, net of interest income

5,076


3,199


12,525


12,836

Loss on extinguishment of debt




1,555

Other expense (income)

239


(555)


1,221


(138)

Income (loss) from continuing operations before income taxes

(29,812)


6,166


(66,415)


164

Income tax provision

6,010


756


5,747


3,483

Income (loss) from continuing operations

(35,822)


5,410


(72,162)


(3,319)

Loss from discontinued operations, net of tax


(170)



(411)

Net income (loss)

(35,822)


5,240


(72,162)


(3,730)









Other comprehensive income (loss):
















Foreign currency translation adjustment

1,441


689


(293)


(19)









Comprehensive income (loss)

$(34,381)


$5,929


$(72,455)


$(3,749)









Basic net income (loss) per common share:








Continuing operations

$(1.77)


$0.28


$(3.60)


$(0.19)

Discontinued operations


(0.01)



(0.02)


$(1.77)


$0.27


$(3.60)


$(0.21)

Diluted net income (loss) per common share:








Continuing operations

$(1.77)


$0.27


$(3.60)


$(0.19)

Discontinued operations


(0.01)



(0.02)


$(1.77)


$0.26


$(3.60)


$(0.21)

Basic weighted-average common shares outstanding

20,195


19,459


20,056


17,978

Diluted weighted-average common shares outstanding

20,195


20,436


20,056


17,978

 

GSE Holding, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)



Nine Months Ended

September 30,


2013


2012





Cash flows from operating activities:




Net loss

$         (72,162)


$         (3,730)

Loss from discontinued operations


411

Adjustments to reconcile net loss to cash provided by (used in) operating activities:




Impairment of goodwill

51,667


Depreciation and amortization

14,093


13,468

Deferred income tax provision (benefit)

5,001


(1,385)

Loss on extinguishment of debt


1,555

Stock-based compensation

792


4,453

Changes in operating assets and liabilities, net of effect of acquisitions:




     Decrease (increase) in accounts receivable

10,080


(21,266)

     Increase in inventory

(13,340)


(16,133)

     Increase in accounts payable

10,014


2,502

All other items, net

(6,410)


(4,784)

Net cash used in operating activities – continuing operations

(265)


(24,909)

Net cash used in operating activities – discontinued operations


(19)

Net cash used in operating activities

(265)


(24,928)

Cash flows from investing activities:




Purchase of property, plant and equipment

(15,595)


(21,975)

Acquisition of business, net of cash acquired

(9,657)


Net cash used in investing activities

(25,252)


(21,975)

Cash flows from financing activities:




Proceeds from lines of credit

81,096


85,777

Repayments of lines of credit

(58,403)


(83,770)

Proceeds from long-term debt

6,540


25,674

Repayments of long-term debt

(2,350)


(43,471)

Net proceeds from the exercise of stock options

235


888

Payments for debt issuance costs

(1,348)


(1,736)

Net proceeds from initial public offering


65,927

Net cash provided by financing activities – continuing operations

25,770


49,289

Effect of exchange rate changes on cash – continuing operations

378


304

Effect of exchange rate changes on cash – discontinued operations


39

Net increase in cash and cash equivalents

631


2,729

Cash and cash equivalents at beginning of period

18,068


9,076

Cash and cash equivalents at end of period

$           18,699


$         11,805

 

GSE Holding, Inc.

NON-GAAP RECONCILIATION SCHEDULE
Reconciliation of Adjusted EBITDA:

(in thousands)

(unaudited)



Three Months Ended
September 30,


Nine Months Ended

September 30,


2013


2012


2013


2012


(in thousands)

Net (loss) income

$ (35,822)


$  5,240


$(72,162)


$(3,730)

Loss from discontinued operations, net of tax


170



411

Interest expense, net

5,076


3,199


12,525


12,836

Income tax expense

6,010


756


5,747


3,483

Depreciation and amortization expense

4,191


3,618


11,764


10,684

Foreign exchange (gain) loss

192


(571)


951


(513)

Impairment of goodwill

25,244



51,667


Loss on extinguishment of debt




1,555

Restructuring expense

1,133



1,321


93

Non-recurring professional fees

1,126



2,079


597

Stock-based compensation expense

359


112


792


145

Public offering related costs




9,655

Management fees




229

Other

13


45


124


189

Adjusted EBITDA

$7,522


$12,569


$14,808


$35,636

 

SOURCE GSE Holding, Inc.



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