ZCL Composites Reports Third Quarter 2015 Financial Results and Increases Dividend

EDMONTON, Nov. 2, 2015 /CNW/ - ZCL Composites Inc. (TSX: ZCL) today announced financial results for the third quarter and nine months ended September 30, 2015.

Q3 2015 compared with Q3 2014

• Record revenue of $59.8 million, up $10.5 million or 21% from $49.4 million;
• Net income of $5.2 million or $0.17 per fully diluted share, down $0.4 million or 6% from $5.6 million or $0.18 per fully diluted share;
• Excluding certain one-time impairment charges, net income was $8.0 million or $0.26 per fully diluted share, up $2.5 million or 44% from $5.6 million or $0.18 per fully diluted share;
• Adjusted EBITDA of $12.6 million (21% of revenue), up $3.8 million or 43% from $8.8 million (18% of revenue);
• Backlog of $50.6 million, up $4.8 million or 10% from $45.8 million; and
• Increased quarterly dividend to $0.05 per share, up 25% from $0.04 declared a year earlier.

First Nine Months 2015 compared with First Nine Months 2014

• Revenue of $138.7 million, up $16.1 million or 13% from $122.6 million;
• Net income of $9.1 million or $0.30 per fully diluted share, down $2.3 million or 20% from $11.4 million or $0.38 per fully diluted share; and
• Excluding certain one-time impairment charges, net income was $11.9 million or $0.39 per fully diluted share, up $0.5 million from $11.4 million.

"ZCL had a very strong third quarter driven by our Underground operating segment," said Ron Bachmeier, President and Chief Executive Officer.  "We achieved quarterly records for revenue, gross profit, and adjusted EBITDA and, if not for certain impairment charges, we also would have achieved quarterly records in net income and earnings per share."

Financial Results

Revenue for the third quarter ended September 30, 2015 was $59.8 million, up $10.5 million or 21% from $49.4 million in the third quarter of 2014.  The Underground operating segment was up $12.8 million or 31%, but this increase was partially offset by a $2.3 million or 30% decrease in the Aboveground operating segment as compared to the third quarter of 2014.

Gross profit for the third quarter ended September 30, 2015 was $13.9 million, up $3.5 million or 33% from $10.5 million a year earlier.  Gross margin increased two percentage points to 23% from 21% in 2014.  The increase in gross profit and gross margin was attributable to the Underground operating segment.  

A $2.7 million impairment charge was recorded against the carrying value of goodwill in the Aboveground operating segment.  In addition, an equipment impairment of $0.2 million was recorded against the carrying value of equipment relating to the decision to permanently close our Montreal manufacturing facility, as discussed below.  The impairment to goodwill and equipment is an accounting adjustment which is a non-cash item and has no on-going impact to the business.

Net income before certain one-time impairment charges was $8.0 million, up $2.5 million or 44% from $5.6 million a year earlier and earnings per share was $0.26, up $0.08 or 44% compared to the same quarter in 2014.  Net income for the third quarter of 2015 was $5.2 million, compared to $5.6 million a year earlier.  Earnings per share for the third quarter of 2015 were $0.17 compared to $0.18 per share a year earlier.

Backlog

As of September 30, 2015, backlog was $50.6 million, up $4.8 million or 10% from $45.8 million a year earlier.  The increase from a year earlier resulted from substantial growth in the Underground segment backlog partially offset by a decrease in Aboveground segment backlog.  In the Underground segment, backlog of $44.6 million was $12.8 million or 40% higher compared to the same quarter last year, and increases were primarily generated in US Underground Products.  At September 30, 2015, the Aboveground segment backlog was down $8.0 million compared to the same quarter a year earlier.  Both US and Canadian markets contributed to the decrease.

Financial Position

At September 30, 2015, ZCL's balance sheet had working capital (current assets less current liabilities) of $71.3 million, up $8.8 million from $62.6 million at December 31, 2014 and up $14.1 million from $57.2 million at September 30, 2014.  Net cash decreased to $21.4 million, down $4.3 million from $25.8 million at December 31, 2014 and increased $8.9 million from $12.5 million at September 30, 2014. 

Dividends and NCIB

As a result in our strong cash flow from operations, the Board has increased the dividend level, declaring a quarterly dividend of $0.05 per share, up 11% compared to the second quarter of 2015. The dividend increase represents a 25% increase over the $0.04 dividend declared at the same time last year.  The dividend will be paid on January 15, 2016, to the shareholders of record as of December 31, 2015. 

During the third quarter of 2015, the Company bought back $2.7 million worth in shares through the use of the Normal Course Issuer Bid (446,600 shares repurchased).

Outlook

Our revenue growth continues to be driven by our Underground segment, and in particular, in the US Downstream Petroleum market.  Our Downstream Petroleum customers in the US continue to spend aggressively, expanding and modernizing their retail networks as they compete for market share.

Water Products group revenues are growing as we are benefiting from the gradual rise in construction spending in the US markets.  We expect this trend to continue for the foreseeable future as economic recovery drives increases in construction activity.

Our Corrosion Products group are facing a challenging time with declines in both the Oils Sands business and our Industrial Corrosion markets.  In response, we have redirected our Western Canadian sales resources to more traditional markets, are permanently closing our Industrial Corrosion plant in Montreal, QC., and are taking this opportunity to consolidate our manufacturing footprint in order to become more efficient. We remain reasonably optimistic about the long-term prospects for our Aboveground operations despite the short term challenges faced by the entire industry.

Summary Financial Results

For the three months ended	2015			2014				2013
(in thousands of dollars,	Sep 30	Jun 30	Mar 31	Dec 31	Sep 30	Jun 30	Mar 31	Dec 31
except per share amounts)	$	$	$	$	$	$	$	$
Revenue	59,842	46,664	32,195	48,195	49,361	41,687	31,592	37,715
Net income	5,205	3,400	509	4,895	5,557	4,492	1,372	1,769
Adjusted EBITDA^1	12,627	6,052	1,800	7,702	8,834	7,382	3,159	3,975
Basic earnings per share	0.17	0.11	0.02	0.16	0.19	0.15	0.05	0.06
Diluted earnings per share	0.17	0.11	0.02	0.16	0.18	0.15	0.05	0.06
Adjusted EBITDA per diluted share^1	0.41	0.20	0.06	0.25	0.29	0.24	0.10	0.13
Dividends declared per share	0.045	0.045	0.045	0.04	0.04	0.035	0.035	0.03
Note 1 Adjusted EBITDA and adjusted EBITDA per diluted share are non-IFRS measures and are defined later in this press release.

MD&A and Financial Statements

The Company's management's discussion and analysis ("MD&A") and unaudited interim condensed consolidated financial statements for the third quarter and nine months ended September 30, 2015 and 2014, are available on Sedar at www.sedar.com and the ZCL website at this link: http://www.zcl.com/investor-relations/financials.html.

Conference Call

ZCL Composites. has scheduled an investor conference call for 9:00 a.m. Mountain Time (11:00 a.m. Eastern Time) on Tuesday, November 3, 2015, to discuss its financial and operating results for the third quarter and nine months ended September 30, 2015.

The conference call will include prepared remarks by ZCL's President and Chief Executive Officer, Ron Bachmeier and by ZCL's Chief Financial Officer, Kathy Demuth.  After the prepared remarks, ZCL will accept questions from analysts and institutional investors. The public is invited to listen to the conference call in real time or by replay.

To access the conference call by telephone, please call [phone] from the greater Toronto area, or dial toll free 888-231-8191 from elsewhere in North America.  An audio webcast may be accessed through the Investor Events tab on the ZCL website at http://www.zcl.com/investor-relations/investor-events.html. Audio replays will be available on the ZCL website shortly after the conclusion of the conference call.

Note on Non-IFRS Measures:

ZCL uses both IFRS and non-IFRS measures to make strategic decisions and to set targets.  Backlog, adjusted EBITDA, and net cash are non-IFRS measures that are used by ZCL and may not be comparable to similar measures used by other companies.

Backlog

Backlog is defined as the total value of orders that management has assessed as having a high certainty of being performed because of the existence of a contract or purchase order specifying the scope, value and timing of an order.

Adjusted EBITDA and adjusted EBITDA per diluted share

Adjusted EBITDA is defined as income from operations before finance expense, income taxes, share-based compensation, depreciation of property, plant and equipment, amortization of deferred development costs and intangible assets, gains or losses on sale of assets, and impairment of assets.  Adjusted EBITDA per diluted share is defined as adjusted EBITDA divided by weighted average diluted shares outstanding.

Net cash

Net cash is defined as cash and cash equivalents less long term debt, current portion of long term debt, finance lease, current portion of finance lease, and bank indebtedness.

About ZCL Composites Inc.

Our vision is to be the leading global provider of environmentally friendly liquid storage, fluid handling and corrosion resistant industrial products that are making a lasting difference. More information about ZCL is available on our website at www.zcl.com.

Advisory Regarding Forward-Looking Statements

This document contains forward-looking statements under the heading "Outlook" and elsewhere concerning future events or the Company's future performance, including the Company's objectives or expectations for revenue and earnings growth, income taxes as a percentage of pre-tax income, business opportunities in the Petroleum Products, Water Products, Corrosion Products markets, efforts to reduce administrative and production costs, manage production levels, anticipated capital expenditure trends, activity in the petroleum and other industries and markets served by the Company and the sufficiency of cash flows and credit facilities available to cover normal operating and capital expenditures. Forward-looking statements are often, but not always, identified by the use of words such as "seek," "anticipate," "plan," "continue," "estimate," "expect," "may," "will," "project," "predict," "potential," "targeting," "intend," "could," "might," "should," "believe" and similar expressions. Actual events or results may differ materially from those reflected in the Company's forward-looking statements due to a number of known and unknown risks, uncertainties and other factors affecting the Company's business and the industries the Company serves generally.

These factors include, but are not limited to, fluctuations in the level of capital expenditures in the Petroleum Products, Water Products, and Corrosion Products markets, drilling activity and oil and natural gas prices, and other factors that affect demand for the Company's products and services, industry competition, the need to effectively integrate acquired businesses, uncertainties as to the Company's ability to implement its business strategy effectively, political and economic conditions, the Company's ability to attract and retain key personnel, raw material and labour costs, fluctuations in the US dollar, euro and Canadian dollar exchange rates, and other risks and uncertainties described under the heading "Risk Factors" in the Company's most recent Annual Information Form, and elsewhere in this document and other documents filed with Canadian provincial securities authorities. These documents are available to the public at www.sedar.com.  Unless otherwise indicated, the consolidated financial statements have been prepared in accordance with International Financial Reporting Standards and the reporting currency is in Canadian dollars.

In addition to the factors noted above, management cautions readers that the current economic environment could have a negative impact on the markets in which the Company operates and on the Company's ability to achieve its financial targets. Factors such as continuing global economic uncertainty, tighter lending standards, volatile capital markets, fluctuating commodity prices, and other factors could negatively impact the demand for the Company's products and the Company's ability to grow or sustain revenues and earnings. Fluctuations in conversion rates of the US dollar to Canadian dollar and euro to Canadian dollar also have the potential to impact the Company's revenues and earnings.

The Company believes that the expectations reflected in the forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this report should not be unduly relied upon.

The forward-looking statements in this report speak only as of the date of this press release. The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by the Company or on the Company's behalf, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws. The forward-looking statements contained in this document are expressly qualified by this cautionary statement.

SOURCE ZCL Composites Inc.

Ron Bachmeier, President & CEO, ZCL Composites Inc., [phone], [email protected]; Kathy Demuth, Chief Financial Officer, ZCL Composites Inc., [phone], [email protected]