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BARK Reports First Quarter Fiscal Year 2022 Results

NEW YORK–(BUSINESS WIRE)–
The Original BARK Company (NYSE:BARK) (“BARK” or the “Company”), a leading global omnichannel brand for dogs and their parents, today announced financial results for the fiscal quarter ended June 30, 2021.

Highlights

• Quarterly subscription shipments increased 52.4% to 3.6 million, year-over-year.
• Delivered fiscal first quarter 2022 revenue of $117.6 million, a 57.2% increase year-over-year.
• Maintained robust gross margin of 59.3%.
• Add-to-Box revenue contributed $7.0 million of quarterly revenue, up 173.5%, versus fiscal Q1 2021.
• BARK reaffirms fiscal year 2022 guidance, including $516 million of total revenue.
• Continued to invest in BARK Eats, machine learning technology, and fulfillment infrastructure.

“We are extremely pleased with our strong start to fiscal year 2022. During the quarter, we increased subscription shipments 52% year-over-year, continued to optimize our add-to-box feature across our suite of products, and partnered with iconic brands such as Warner Bros. and The NBA,” said Manish Joneja, Chief Executive Officer of BARK. “We continue to believe our unique value proposition—from our world-class Happy and Creative teams to our machine learning capabilities—will have a halo effect on our newer, less discretionary categories such as health and food.”

Fiscal First Quarter 2022 Details:

Revenue

Total revenue increased 57.2% to $117.6 million in the first quarter of fiscal year 2022 as compared to $74.8 million in the first quarter of fiscal year 2021.

• Direct to Consumer (“DTC”) revenue increased 57.0% to $105.4 million in the first quarter of fiscal year 2022 as compared to the same quarter of fiscal year 2021. The growth in DTC revenue was driven by an increase in Subscription Shipments, Average Order Value (“AOV”), and Add-to-Box revenue.
• Commerce revenue increased 58.7% to $12.2 million in the first quarter of fiscal year 2022 as compared to the first quarter of fiscal year 2021. This growth was driven by increases in both the number of retailers we partnered with including Lowes, as well as volume increases amongst existing retailer partners, which include Target, Petco, PetSmart, and Costco, among others.

Gross Profit

Gross profit was $69.8 million in the first quarter of fiscal year 2022 up from $46.9 million in the first quarter of fiscal year 2021. Gross margin was 59.3% in the first quarter of fiscal year 2022 compared to 62.7% in the first quarter of fiscal year 2021. The decrease in gross margin in the first quarter of fiscal year 2022 was primarily due to higher inbound freight costs as a result of worldwide shipping congestion and is inline with our December guidance.

Operating Expenses

General and administrative expenses increased 116.9% to $69.5 million in the first quarter of fiscal year 2022 from $32.0 million in the first quarter of fiscal year 2021. The increase was due primarily to the growth of active subscriptions, resulting in a 52.4% increase in subscription shipments. Furthermore, we incurred $5.2 million of non-recurring transaction costs. In addition, the company is investing in its new business lines by increasing the staff dedicated to BARK Eats and BARK Bright. Finally, domestic shipping rates have increased on a year-over-year basis.

Advertising and marketing expenses increased 48.4% to $17.2 million in the first quarter of fiscal year 2022 from $11.6 million in the first quarter of fiscal year 2021. This increase was primarily due to the year-over-year increase in Customer Acquisition Costs (CAC) as media rates return to pre-COVID levels in comparison with the reduced media rates in the first quarter of fiscal year 2021, stemming from the onset of the COVID-19 pandemic. CAC was $48.36 in the most recent fiscal quarter, compared to $30.83 in the same period last year. On a sequential basis, CAC decreased 6.0% compared to the fourth quarter of fiscal year 2021. Our Lifetime Value to CAC was a healthy 5.0x in the first quarter of fiscal year 2022.

Adjusted EBITDA

Adjusted EBITDA was $(7.6) million, with Adjusted EBITDA margin of -6.5%, in the first quarter of fiscal year 2022, as compared to Adjusted EBITDA of $5.0 million and Adjusted EBITDA margin of 6.7%, in the first quarter of fiscal year 2021. Fiscal year 2022 is deliberately an investment year for BARK; the company is strategically investing in several key areas such as its highly-personalized kibble business, BARK Eats, as well as self-managed fulfillment assets. Last year, with disciplined marketing spend and lower investment in new businesses, BARK was net income positive, which BARK believes demonstrates the strength of the business model and the company’s ability to profitably scale the business.

Balance Sheet Highlights

The Company’s cash and cash equivalents balance as of June 30, 2021 was $321.0 million compared with $38.3 million as of March 31, 2021. As of June 30, 2021, the Company had total debt outstanding of $71.6 million compared with $115.7 million as of March 31, 2021.

Second Quarter and Fiscal Year 2022 Outlook

Based on information available as of August 9, 2021, BARK is issuing guidance for the fiscal second quarter 2022 and reaffirming guidance for fiscal full year 2022 as follows:

• For fiscal second quarter 2022, the Company expects total revenue of $122 million.
• For fiscal full year 2022, the Company reaffirms its forecast included in the investor presentation furnished as an exhibit to Northern Star’s Current Report on Form 8-K filed December 17, 2020, which included total revenue of $516 million. This forecast can also be found on the Company’s investor relations website.

Conference Call Information

A conference call to discuss first quarter fiscal year 2022 results will be held today, August 9, 2021, at 4:30 p.m. ET. During the conference call, the Company may make comments concerning business and financial developments, trends and other business or financial matters. The Company’s comments, as well as other matters discussed during the conference call, may contain or constitute information that has not been previously disclosed.

Those who wish to participate in the call may do so by dialing (866) 465-0807 or (639) 716-2121 for international callers, conference ID 6197976. The conference call will also be available to interested parties through a live webcast at https://investors.bark.co/. A recording will be available for 12 months after the date of the event. Recordings may be accessed at https://investors.bark.co/.

About BARK

BARK is the world’s most dog-centric company, devoted to making dogs happy with the best products, services and content. BARK’s dog-obsessed team applies its unique, data-driven understanding of what makes each dog special to design playstyle-specific toys, wildly satisfying treats and wellness supplements, and dog-first experiences that foster the health and happiness of dogs everywhere. Founded in 2012, BARK loyally serves dogs nationwide with monthly subscription services, BarkBox and Super Chewer; a curated e-commerce experience on BARKShop.com; custom collections via its retail partner network, including Target and Amazon; wellness products that meet your dogs’ needs with BARK Bright; and a personalized meal delivery service for dogs BARK Eats. At BARK, we want to be the people our dogs think we are and promise to be their voice until every dog reaches its full tail-wagging potential. Sniff around at bark.co for more information.

Cautionary Statement Regarding Forward Looking Statements

Certain statements included in this press release are not historical facts but are forward-looking statements for purposes of the safe harbor provisions under the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements generally are accompanied by words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “should,” “would,” “plan,” “predict,” “potential,” “seem,” “seek,” “future,” “outlook,” and similar expressions that predict or indicate future events or trends or that are not statements of historical matters, but the absence of these words does not mean that a statement is not forward-looking. These forward-looking statements include, but are not limited to, statements regarding estimates and forecasts of other financial and performance metrics and projections of market opportunity.

These statements are based on various assumptions, whether or not identified in this press release, and on the current expectations of BARK’s management and are not predictions of actual performance. These forward-looking statements are provided for illustrative purposes only and are not intended to serve as, and must not be relied on by any investor as, a guarantee, an assurance, a prediction or a definitive statement of fact or probability. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. Many actual events and circumstances are beyond the control of BARK. Some important factors that could cause actual results to differ materially from those in any forward-looking statements could include changes in domestic and foreign business, market, financial, political and legal conditions. These forward-looking statements are subject to a number of risks and uncertainties; the inability of the parties to successfully or timely consummate the merger, including the risk that any required regulatory approvals are not obtained, are delayed or are subject to unanticipated conditions that could adversely affect the combined company or the expected benefits of the merger is not obtained; failure to realize the anticipated benefits of the merger; risks relating to the uncertainty of the projected financial information with respect to BARK; the risk that spending on pets may not increase at projected rates; that BARK subscriptions may not increase their spending with BARK; BARK’s ability to continue to convert social media followers and contacts into customers; BARK’s ability to successfully expand its product lines and channel distribution; competition; the uncertain effects of the COVID-19 pandemic; and those factors discussed in documents of BARK filed, or to be filed, with SEC. If any of these risks materialize or our assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements. There may be additional risks that BARK presently does not know or that BARK currently believes is immaterial that could also cause actual results to differ from those contained in the forward-looking statements.

In addition, forward-looking statements reflect BARK’s expectations, plans or forecasts of future events and views as of the date of this press release. BARK anticipates that subsequent events and developments will cause BARK’s assessments to change. However, while BARK may elect to update these forward-looking statements at some point in the future, BARK specifically disclaims any obligation to do so. These forward-looking statements should not be relied upon as representing BARK’s assessments as of any date subsequent to the date of this press release. Accordingly, undue reliance should not be placed upon the forward-looking statements.

Any financial projections in this communication are forward-looking statements that are based on assumptions that are inherently subject to significant uncertainties and contingencies, many of which are beyond BARK’s control. While all projections are necessarily speculative, BARK believes that the preparation of prospective financial information involves increasingly higher levels of uncertainty the further out the projection extends from the date of preparation. The assumptions and estimates underlying the projected results are inherently uncertain and are subject to a wide variety of significant business, economic and competitive risks and uncertainties that could cause actual results to differ materially from those contained in the projections.

THE ORIGINAL BARK COMPANY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In thousands)
		Three Months Ended
		June 30,				June 30,
		2021				2020
REVENUE		$	117,606			$	74,808
COST OF REVENUE		47,815				27,888
Gross profit		$	69,791			$	46,920
OPERATING EXPENSES:
General and administrative		$	69,471			$	32,036
Advertising and marketing		17,177				11,575
Total operating expenses		$	86,648			$	43,611
LOSS FROM OPERATIONS		$	(16,859	)		$	3,309
INTEREST EXPENSE		$	(1,561	)		$	(1,514	)
OTHER INCOME—NET		$	(6,385	)		$	221
NET INCOME (LOSS) BEFORE INCOME TAXES		$	(24,804	)		$	2,016
PROVISION FOR INCOME TAXES						$	—
NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)		$	(24,804	)		$	2,016

GROSS PROFIT BY SEGMENT
(Unaudited)
(In thousands)
		Three Months Ended
		June 30,				June 30,
		2021				2020
Direct to Consumer:
Revenue		$	105,376			$	67,099
Costs of revenue		40,819				$	24,116
Gross profit		$	64,557			$	42,983
Commerce:
Revenue		$	12,230			$	7,709
Costs of revenue		6,996				$	3,772
Gross profit		$	5,234			$	3,937
Consolidated:
Revenue		$	117,606			$	74,808
Costs of revenue		47,815				$	27,888
Gross profit		$	69,791			$	46,920

Key Performance Indicators
		Three Months Ended June 30,
		2021			2020
Subscription Shipments (in thousands)		3,608			2,368
Average Monthly Subscription Shipment Churn		7.4	%		6.2	%
Active Subscriptions (in thousands)		1,952			1,382
New Subscriptions (in thousands)		280			303
CAC		48.36			30.83
LTV:CAC		5.0	x		9.5	x
Average Order Value		29.21			28.34

Subscription Shipments

We define Subscription Shipments as the total number of subscription product shipments shipped in a given period. Subscription Shipments does not include gift subscriptions or one-time subscription shipments.

Average Monthly Subscription Shipment Churn

Average Monthly Subscription Shipment Churn is calculated as the average number of subscription shipments that have been cancelled in the last three months, divided by the average monthly active subscription shipments in the last three months. The number of cancellations used to calculate Average Monthly Subscription Shipment Churn is net of the number of subscriptions reactivated during the last three months.

Active Subscriptions

Our ability to expand the number of Active Subscriptions is an indicator of our market penetration and growth. We define Active Subscriptions as the total number of unique product subscriptions with at least one shipment during the last 12 months. Active Subscriptions does not include gift subscriptions or one-time subscription purchases.

New Subscriptions

We define New Subscriptions as the number of unique subscriptions with their first shipment occurring in a period.

Customer Acquisition Cost

Customer Acquisition Cost (“CAC”) is a measure of the cost to acquire New Subscriptions in our Direct to Consumer business segment. This unit economic metric indicates how effective we are at acquiring each New Subscription. CAC is a monthly measure defined as media spend in our Direct to Consumer business segment in the period indicated, divided by total New Subscriptions in such period. Direct to Consumer media spend is primarily comprised of internet and social media advertising fees.

Lifetime Value

Lifetime Value (“LV”) is the dollar value of each subscription as measured by the cumulative Direct to Consumer Gross Profit for the average life of the subscription.

Average Order Value

Average Order Value (“AOV”) is Direct to Consumer revenue for the period divided by Subscription Shipments for the same period.

Non-GAAP Financial Measures

We report our financial results in accordance with GAAP. However, management believes that Adjusted Net Income (Loss), Adjusted Net Income (Loss) Margin, Adjusted Net Income (Loss) on Common Shares, Adjusted EBITDA and Adjusted EBITDA Margin, all non-GAAP financial measures (together the “Non-GAAP Measures”), provide investors with additional useful information in evaluating our performance.

We calculate Adjusted Net Income as net income (loss), adjusted to exclude: (1) stock-based compensation expense, (2) change in fair value of warrants and derivatives, (3) sales and use tax expense, (4) one-time transaction costs associated with the financing and merger and (5) loss on extinguishment of debt.

We calculate Adjusted Net Income Margin by dividing Adjusted Net Income for the period by Revenue for the period.

We calculate Adjusted Net Income (Loss) on Common Shares by dividing Adjusted Net Income for the period by weighted average common shares used to compute net loss per share attributable to common stockholders for the period.

We calculate Adjusted EBITDA as net income (loss), adjusted to exclude: (1) interest expense, (2) depreciation and amortization, (3) stock-based compensation expense, (4) change in fair value of warrants and derivatives, (5) sales and use tax expense,(6) one-time transaction costs associated with the financing and merger and (7) loss on extinguishment of debt.

We calculate Adjusted EBITDA Margin by dividing Adjusted EBITDA for the period by Revenue for the period.

The Non-GAAP Measures are financial measures that are not required by, or presented in accordance with GAAP. We believe that the Non-GAAP Measures, when taken together with our financial results presented in accordance with GAAP, provides meaningful supplemental information regarding our operating performance and facilitates internal comparisons of our historical operating performance on a more consistent basis by excluding certain items that may not be indicative of our business, results of operations or outlook. In particular, we believe that the use of the Non-GAAP Measures are helpful to our investors as they are measures used by management in assessing the health of our business, determining incentive compensation and evaluating our operating performance, as well as for internal planning and forecasting purposes.

The Non-GAAP Measures are presented for supplemental informational purposes only, have limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Some of the limitations of the Non-GAAP Measures include that (1) the measures do not properly reflect capital commitments to be paid in the future, (2) although depreciation and amortization are non-cash charges, the underlying assets may need to be replaced and Adjusted EBITDA and Adjusted EBITDA Margin do not reflect these capital expenditures, (3) Adjusted EBITDA and Adjusted EBITDA Margin do not consider the impact of stock-based compensation expense, which is an ongoing expense for our company and (4) Adjusted EBITDA and Adjusted EBITDA Margin do not reflect other non-operating expenses, including interest expense. In addition, our use of the Non-GAAP Measures may not be comparable to similarly titled measures of other companies because they may not calculate the Non-GAAP Measures in the same manner, limiting its usefulness as a comparative measure. Because of these limitations, when evaluating our performance, you should consider the Non-GAAP Measures alongside other financial measures, including our net income (loss) and other results stated in accordance with GAAP.

The following table presents a reconciliation of Adjusted Net Income (Loss) to net loss, the most directly comparable financial measure stated in accordance with GAAP, and the calculation of net loss margin, Adjusted Net Income (Loss) Margin and Adjusted Net Income (Loss) on Common Shares for the periods presented:

Adjusted Net Income (Loss)
		Three Months Ended June 30,
		2021				2020
		(in thousands)
Net income (loss)		$	(24,805	)		$	2,016
Stock-based compensation expense		3,098				388
Change in fair value of warrants and derivatives		3,899				(34		)
Sales and use tax expense (1)		—				597
Transaction costs (2)		5,198				—
Loss on extinguishment of debt		2,598				—
Adjusted net income (loss)		$	(10,012	)		$	2,967
Net loss margin		(21.09		)%		2.69		%
Adjusted net income (loss) margin		(8.51		)%		3.97		%
Adjusted net income (loss) per common share
Basic		$	(0.09	)		$	0.57
Diluted		$	(0.09	)		$	0.14
Weighted average common shares used to compute net loss per share attributable to common stockholders
Basic		108,762,540				5,206,474
Diluted		108,762,540				9,586,378

The following table presents a reconciliation of Adjusted EBITDA to net loss, the most directly comparable financial measure stated in accordance with GAAP, and the calculation of net loss margin and Adjusted EBITDA margin for the periods presented:

Adjusted EBITDA
		Three Months Ended June 30,
		2021				2020
		(in thousands)
Net income (loss)		$	(24,805	)		$	2,016
Interest expense		1,561				1,514
Depreciation and amortization expense		844				509
Stock-based compensation expense		3,098				388
Change in fair value of warrants and derivatives		3,899				(34		)
Sales and use tax expense (1)		—				597
Transaction costs (2)		5,198				—
Loss on extinguishment of debt		2,598				—
Adjusted EBITDA		$	(7,607	)		$	4,990
Net loss margin		(21.09		)%		2.69		%
Adjusted EBITDA margin		(6.47		)%		6.67		%

(1) Sales and use tax expense relates to recording a liability for sales and use tax we did not collect from our customers. Historically, we had collected state or local sales, use, or other similar taxes in certain jurisdictions in which we only had physical presence. On June 21, 2018, the U.S. Supreme Court decided, in South Dakota v. Wayfair, Inc. that state and local jurisdictions may, at least in certain circumstances, enforce a sales and use tax collection obligation on remote vendors that have no physical presence in such jurisdiction. A number of states have positioned themselves to require sales and use tax collection by remote vendors and/or by online marketplaces. The details and effective dates of these collection requirements vary from state to state and accordingly, we recorded a liability in those periods in which we created economic nexus based on each state’s requirements. Accordingly, we now collect, remit, and report sales tax in all states that impose a sales tax.

(2) Transactions costs represent non-recurring consulting and advisory costs with respect to the merger agreement entered into with Northern Star Acquisition Corp. on December 16, 2020.

THE ORIGINAL BARK COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
		June 30,				March 31,
		2021				2021
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	321,000			$	38,278
Accounts receivable—net		8,127				8,927
Prepaid expenses and other current assets		5,359				7,409
Inventory		102,305				77,454
Total current assets		436,791				132,068
PROPERTY AND EQUIPMENT—NET		18,999				13,465
INTANGIBLE ASSETS—NET		2,445				2,070
OTHER NONCURRENT ASSETS		4,421				3,260
TOTAL ASSETS		$	462,656			$	150,863
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Accounts payable		33,194				50,501
Accrued and other current liabilities		77,562				44,605
Deferred revenue		30,654				27,177
Short-term debt		—				—
Total current liabilities		141,410				122,283
LONG-TERM DEBT		71,583				115,729
OTHER LONG-TERM LIABILITIES		7,818				11,834
Total liabilities		220,811				249,846
COMMITMENTS AND CONTINGENCIES
REDEEMABLE CONVERTIBLE PREFERRED STOCK:
Convertible preferred stock (Series Seed, A, B, C, and C-1) $0.0001 par value with aggregate liquidation preference of $0 and $62,800 at June 30, 2021 and March 31, 2021 respectively; 0 and 8,010,560 shares authorized/7,752,515 shares issued and outstanding at June 30, 2021 and March 31, 2021 respectively		—				59,987
Total redeemable convertible preferred stock		—				59,987
STOCKHOLDERS’ DEFICIT:
Common stock, par value $0.0001 per share—500,000,000 shares authorized; 166,704,484 shares issued and outstanding as of June 30, 2021 and 17,000,000 shares authorized; 5,498,588 shares issued and outstanding as of March 31, 2021		1				—
Treasury stock, at cost		—				(4,764		)
Additional paid-in capital		446,602				25,748
Accumulated deficit		(204,757		)		(179,954		)
Total stockholders’ deficit		241,846				(158,970		)
TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT		$	462,656			$	150,863

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
		Three Months Ended
		June 30,				June 30,
		2021				2020
Net cash used in operating activities		$	(61,888	)		$	1,474
Net cash used in investing activities		$	(8,305	)		$	(210	)
Net cash provided by financing activities		$	353,723			$	6,337
Net increase (decrease) in cash, cash equivalents and restricted cash		$	283,530			$	7,601
Cash, cash equivalents and restricted cash — beginning of period		$	39,731			$	9,676
Cash, cash equivalents and restricted cash — end of period		$	323,261			$	17,278
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents		$	321,000			$	17,278
Restricted cash – Prepaid expenses and other current assets		$	2,278			$	—
Total cash, cash equivalents and restricted cash		$	323,278			$	17,278

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20210809005726/en/

Investors:

Michael Mougias

[email protected]

Media:

Garland Harwood

[email protected]

KEYWORDS: United States North America New York

INDUSTRY KEYWORDS: Pets Consumer

MEDIA:

Posted on August 9, 2021 6:49 pm

Chegg Reports Second Quarter 2021 Financial Results and Raises Full Year Guidance

Chegg Reports Second Quarter 2021 Financial Results and Raises Full Year Guidance

Total Revenue Increased 30% Year-Over-Year

SANTA CLARA, Calif.–(BUSINESS WIRE)–
Chegg, Inc. (NYSE:CHGG), today reported financial results for the three months ended June 30, 2021.

“It is clear, wherever students are learning, whether online, in the classroom, or in a hybrid model, the value of Chegg is unquestionable,” said Dan Rosensweig, CEO & President of Chegg, Inc., “Chegg had a great Q2 with total revenue growth of 30%, driven by 38% growth in Chegg Services revenue with Chegg Services subscribers growing to 4.9 million in the quarter. Our international growth also continues to be strong, and we are confident we will exceed our initial expectation of over one million international subscribers for the year.”

Q2 2021 Highlights:

• Total Net Revenues of $198.5 million, an increase of 30% year-over-year
• Chegg Services Revenues grew 38% year-over-year to $173.5 million, or 87% of total net revenues, compared to 82% in Q2 2020
• Net Income was $32.8 million
• Non-GAAP Net Income was $71.7 million
• Adjusted EBITDA was $84.4 million
• 4.9 million: number of Chegg Services subscribers, an increase of 31% year-over-year
• 367 million: total Chegg Study content views

Total net revenues include revenues from Chegg Services and Required Materials. Chegg Services primarily includes Chegg Study, Chegg Writing, Chegg Math Solver, Chegg Study Pack, Mathway, and Thinkful. Required Materials includes print textbooks and eTextbooks.

For more information about non-GAAP net income and adjusted EBITDA, and a reconciliation of non-GAAP net income to net income (loss), and adjusted EBITDA to net income (loss), see the sections of this press release titled “Use of Non-GAAP Measures,” “Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA,” and “Reconciliation of GAAP to Non-GAAP Financial Measures.”

Business Outlook:

Third Quarter 2021

• Total Net Revenues in the range of $170 million to $175 million
• Chegg Services Revenues in the range of $142 million to $147 million
• Gross Margin between 60% and 61%
• Adjusted EBITDA in the range of $43 million to $45 million

Full Year 2021

• Total Net Revenues in the range of $805 million to $815 million
• Chegg Services Revenues in the range of $690 million to $700 million
• Gross Margin between 68% and 69%
• Adjusted EBITDA in the range of $295 million to $300 million

For more information about the use of forward-looking non-GAAP measures, a reconciliation of forward-looking net (loss) income to EBITDA and adjusted EBITDA for the third quarter 2021 and full year 2021, see the below sections of the press release titled “Use of Non-GAAP Measures,” and “Reconciliation of Forward-Looking Net (Loss) Income to EBITDA and Adjusted EBITDA.”

An updated investor presentation and an investor data sheet can be found on Chegg’s Investor Relations website http://investor.chegg.com.

Prepared Remarks – Dan Rosensweig, CEO Chegg, Inc.

Thank you Tracey, and welcome everyone to Chegg’s Q2 2021 earnings call. We had strong growth the entire school year – particularly in this quarter – reaffirming that students value Chegg as core to their education journey. It is clear wherever they are learning whether online, on campus, or in a hybrid model, the value of Chegg to students is unquestionable. We had a great quarter with total revenue growth of 30%, led by 38% growth of Chegg Services and adjusted EBITDA growth of 52%. Our international growth is strong, and we are confident that we will exceed our initial expectation of over one million international subscribers for the year. As our opportunities continue to expand we have remained focused on our efforts to reduce account sharing as students have returned to campus, which allows us to reinvest in even more new content, the student experience, and solving the big growing problems students are facing around the world. Our financial and user results reflect our success, which allows us to – once again – raise both our revenue and adjusted EBITDA guidance for the remainder of 2021.

Over the last decade we have focused on putting the student first and we believe we set the standard in how to support the modern learner. Chegg now serves over 30 million students monthly and if we want to build and maintain a long-term relationship with students, we must listen to the issues that are important to them. They care that we operate sustainably, that we invest in our employees, and that we contribute to our communities. We accept this responsibility. We have redoubled our efforts to build out programs that support our environment, employees, communities, and contribute positively to the learning ecosystem. Recent examples include the launch of Honor Shield and Uversity, which help protect academic integrity and build an entirely new educator economy, that will also increase access to high quality learning content. These new initiatives, and our continued focus on supporting learners wherever they are in their journey, are reflections of our company values, our dedication to our mission, and are clearly contributing to the success of our business.

Chegg is continuously improving learning outcomes for students, and we continue to add the right content and services that they need at the time they need it most. This fall we will be dramatically increasing discovery of content through greater personalization, advancing from a focus on aligning content to textbooks to allowing students to search and discover our content and services by their courses. We believe by adding new content and improving the discovery of content on our platform, we will positively impact student outcomes and increase the length of our relationship with our students. Our TAM is huge, and we are scaling very quickly to serve our growing global student base. To give you a sense of our size, we now have over 66 million step-by-step solutions in Chegg Study to help students master their subjects and, in the second quarter alone, we added 7 million new solutions that were asked and answered by our subject matter experts. And more than 37% of them were asked by international subscribers. Those questions were viewed over 360 million times and, within our writing product, over 1 million citations were created daily. In Mathway almost ten million math questions were asked every single day in Q2. The size, scale, and quality of what we offer is second to none. Most importantly, we survey our students and 92% of them say that using Chegg helps them learn their course material, which is why 94% of them also report that using Chegg helps them get better grades. We also believe that this kind of support directly impacts student’s mental health, as 89% of students reported that Chegg Study helps them get their work done with less stress and 77% said that Chegg Study builds their confidence before an exam. These outcomes reflect the real and tangible impact we have, which we are incredibly proud of and why we believe Chegg is such a beloved student brand.

As we continue to support students in their academic pursuits, we will also continue to focus on helping them move from learning to earning. We know students are seeking alternative pathways to gain the in-demand skills employers are looking for, so that they can compete in the global economy. That is why we will continue to make investments not just in academic content but also in professional skills-based content.

As the education landscape rapidly evolves, institutions are making the difficult transition to online or hybrid environments. New challenges have emerged, including the need to increase access to high quality online content, protect the integrity of that content, and the need to create opportunities for the greatest educators and professors to share, and get compensated for their content. I want to highlight two of the initiatives we already mentioned in these areas: Honor Shield and Uversity. Earlier this year we launched Honor Shield, to block students’ ability to access Chegg content during specified exam periods, which supports institutions efforts around academic integrity. As more institutions move online, our goal is to increase access to even more high-quality content by working with schools and faculty around the world. We are very excited about the enthusiasm of leading educators from top universities to have the ability to work with Chegg to create and add content like practice exams, course study guides, lecture notes, lab guides, case studies, and quizzes, through Chegg, and to get compensated for their great content. While it is still early, I am pleased to say that faculty who have joined the Uversity educator community have already earned $700,000 and are helping us build an even richer and more valuable learning library for students.

In addition to serving students, faculty, and institutions, we know it’s important to make a positive impact beyond our core business, which is why we are aligning Chegg’s business activities and major themes of our philanthropic and community efforts with the U.N.’s Sustainable Development Goals, including a heightened focus on quality education, good health and well-being, and moving to a world with zero hunger. To that end, we focused our financial contributions to organizations focused on food insecurity and we have invested in programs that support the physical and mental health of our employees, we have donated to non-profits supporting students in the U.S. and internationally, and one effort that we are particularly proud of, that aligns with our belief to substantially reduce student debt, are our programs like Equity for Education, which we launched in 2019. That program is designed to help pay off all of our employee’s student debt and, combined with our existing reimbursement program, we have contributed nearly one million dollars towards paying off our employee’s loans and I couldn’t be prouder.

Of course, none of this would be possible without our incredible employees who are dedicated and focused on our mission: to improve student outcomes. Their tremendous work has resulted in continued recognition for our teams, and in this past quarter we were proud to win Comparably awards for Women employees, diversity, our leadership team, as well as being named one of the Fortune’s best places to work for millennials. We had a phenomenal school year, a great quarter, and we believe the opportunities ahead for us are only getting bigger. We are excited to take on our increased role and responsibility in our industry and, with that I will turn it over to Andy. Andy…

Prepared Remarks – Andy Brown, CFO Chegg, Inc.

Thanks Dan and good afternoon everyone.

We are extremely happy with our performance in the second quarter. The team continues to operate at a high level despite ongoing uncertainties related to the pandemic, delivering beyond the high-end of our expectations for both revenue and profitability. The underlying metrics remain strong, and as such, we are substantially raising both revenue and adjusted EBITDA guidance for the remainder of the year.

Looking at Q2 results, total revenue grew 30% during the quarter to $198 million driven by 38% growth in Chegg Services revenue to $174 million, with Chegg Services subscribers growing to 4.9 million in the quarter. To put this in perspective, both revenue and subscribers have more than doubled in the past two years as we have benefited from our investments in content, product, technology and global penetration. Our laser-like focus in “putting students first”, has led to a brand that is second-to-none with students, because we offer a trusted platform that delivers positive learner outcomes with services that are online, on demand, that can be accessed anywhere, any place, anytime.

This focus has resulted in continued growth and significant leverage, as once again adjusted EBITDA exceeded our guidance and increased 52% year-over-year to $84 million, almost three times what we achieved just two years ago. Our margin leverage is impressive given the fact that we continue to invest in new products and features, expand into new markets and increase the resilience and scalability of our products and infrastructure, which we believe will allow us to maintain a high top line growth rate and continue to increase margins for the foreseeable future. Our business model inherently supports operating leverage as we scale – the majority of our subscribers are acquired through unpaid channels, our content is created once and then used many times by learners across the globe, and much of our learning content we offer is relevant globally. We believe the combination of our scale, high growth, high margin and continued leverage is rare, not only among ed-tech, but also the broader technology landscape.

Also during Q2, we initiated a transition to a new print textbook logistics partner which we believe will improve our Required Materials cost structure once completed next year.

Looking at the balance sheet, we ended the quarter with cash and investments of approximately $2.5 billion. During the quarter, we redeemed the remaining 2023 convertible notes for approximately $91 million, which reduces our total debt and any potential future dilution as our share price increases.

Moving to the second half of the year, with the efforts we made to increase engagement and reduce account sharing as students have gone back to campus, we feel even more confident to raise our revenue and adjusted EBITDA guidance for the remainder of the year.

For full year 2021 we now expect:

• Total revenue to be between $805 and $815 million, with Chegg Services revenue between $690 and $700 million,
• Gross margin between 68% and 69%,
• And adjusted EBITDA between $295 and $300 million, reflecting an expected margin of more than 450 basis points higher than 2020, demonstrating the natural leverage in our model as we continue to scale.

Looking specifically at Q3 we now expect:

• Total revenue to be between $170 and $175 million, with Chegg Services revenue between $142 and $147 million,
• Gross margin between 60% and 61%,
• And adjusted EBITDA between $43 and $45 million.

In closing, Q2 was an excellent quarter, we delivered above the high end of our expectations, giving us confidence to substantially increase guidance for the remainder of 2021 as we enter the new academic year. We continue to believe that our impressive growth and margin model reflects the importance of Chegg’s services to learners around the world.

With that, I’ll turn the call over to the operator for your questions.

Conference Call and Webcast Information

To access the call, please dial 1-877-407-4018, or outside the U.S. +1-201-689-8471, five minutes prior to 1:30 p.m. Pacific Daylight Time (or 4:30 p.m. Eastern Daylight Time). A live webcast of the call will also be available at http://investor.chegg.com under the Events & Presentations menu. An audio replay will be available beginning at 4:30 p.m. Pacific Daylight Time (or 7:30 p.m. Eastern Daylight Time) on August 9, 2021, until 8:59 p.m. Pacific Standard Time (or 11:59 p.m. Eastern Daylight Time) on August 16, 2021, by calling 1-844-512-2921, or outside the U.S. +1-412-317-6671, with Conference ID 13721450. An audio archive of the call will also be available at http://investor.chegg.com.

Use of Investor Relations Website for Regulation FD Purposes

Chegg also uses its media center website, http://www.chegg.com/press, as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD. Accordingly, investors should monitor http://www.chegg.com/press, in addition to following press releases, Securities and Exchange Commission filings and public conference calls and webcasts.

About Chegg

Millions of people Learn with Chegg. We strive to improve educational outcomes by putting the student first. We support students on their journey from high school to college and into their career with tools designed to help them learn their course materials, succeed in their classes, save money on required materials, and learn the most in-demand skills. Our services are available online, anytime and anywhere. Chegg is a publicly held company based in Santa Clara, California and trades on the NYSE under the symbol CHGG. For more information, visit www.chegg.com.

Use of Non-GAAP Measures

To supplement Chegg’s financial results presented in accordance with generally accepted accounting principles in the United States (GAAP), this press release and the accompanying tables and the related earnings conference call contain non-GAAP financial measures, including adjusted EBITDA, non-GAAP operating expenses, non-GAAP income from operations, non-GAAP net income, non-GAAP weighted average shares, non-GAAP net income per share, and free cash flow. For reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the section of the accompanying tables titled, “Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA,” “Reconciliation of GAAP to Non-GAAP Financial Measures,” “Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow,” and “Reconciliation of Forward-Looking Net (Loss) Income to EBITDA and Adjusted EBITDA.”

The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and may be different from non-GAAP financial measures used by other companies. Chegg defines (1) adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, or EBITDA, adjusted for print textbook depreciation expense and to exclude share-based compensation expense, other income (expense), net, acquisition-related compensation costs and transitional logistic charges; (2) non-GAAP operating expenses as operating expenses excluding share-based compensation expense, amortization of intangible assets, and acquisition-related compensation costs; (3) non-GAAP income from operations as income from operations excluding share-based compensation expense, amortization of intangible assets, acquisition-related compensation costs and transitional logistic charges; (4) non-GAAP net income as net income (loss) excluding share-based compensation expense, amortization of intangible assets, acquisition-related compensation costs, amortization of debt discount and issuance costs, the loss on early extinguishment of debt, the net loss on change in fair value of derivative instruments, the gain on sale of strategic equity investment and transitional logistic charges; (5) non-GAAP weighted average shares outstanding as weighted average shares outstanding adjusted for the effect of outstanding stock options, RSUs, PSUs, and shares related to our convertible senior notes, to the extent such shares are not already included in our weighted average shares outstanding; (6) non-GAAP net income per share is defined as non-GAAP net income divided by non-GAAP weighted average shares outstanding; and (7) free cash flow as net cash provided by operating activities adjusted for purchases of property and equipment, purchases of textbooks and proceeds from disposition of textbooks. To the extent additional significant non-recurring items arise in the future, Chegg may consider whether to exclude such items in calculating the non-GAAP financial measures it uses.

Chegg believes that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding Chegg’s performance by excluding items that may not be indicative of Chegg’s core business, operating results or future outlook. Chegg management uses these non-GAAP financial measures in assessing Chegg’s operating results, as well as when planning, forecasting and analyzing future periods and believes that such measures enhance investors’ overall understanding of our current financial performance. These non-GAAP financial measures also facilitate comparisons of Chegg’s performance to prior periods.

As presented in the “Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA,” “Reconciliation of GAAP to Non-GAAP Financial Measures,” “Reconciliation of Forward-Looking Net (Loss) Income to EBITDA and Adjusted EBITDA,” and “Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow” tables below, each of the non-GAAP financial measures excludes one or more of the following items:

Share-based compensation expense.

Share-based compensation expense is a non-cash expense that varies in amount from period to period and is dependent on market forces that are often beyond Chegg’s control. As a result, management excludes this item from Chegg’s internal operating forecasts and models. Management believes that non-GAAP measures adjusted for share-based compensation expense provide investors with a basis to measure Chegg’s core performance against the performance of other companies without the variability created by share-based compensation as a result of the variety of equity awards used by other companies and the varying methodologies and assumptions used.

Amortization of intangible assets.

Chegg amortizes intangible assets that it acquires in conjunction with acquisitions, which results in non‑cash expenses that may not otherwise have been incurred. Chegg believes excluding the expense associated with intangible assets from non-GAAP measures allows for a more accurate assessment of its ongoing operations and provides investors with a better comparison of period-over-period operating results.

Acquisition-related compensation costs.

Acquisition-related compensation costs include compensation expense resulting from the employment retention of certain key employees established in accordance with the terms of the acquisitions. In most cases, these acquisition-related compensation costs are not factored into management’s evaluation of potential acquisitions or Chegg’s performance after completion of acquisitions, because they are not related to Chegg’s core operating performance. In addition, the frequency and amount of such charges can vary significantly based on the size and timing of acquisitions and the maturities of the businesses being acquired. Excluding acquisition-related compensation costs from non-GAAP measures provides investors with a basis to compare Chegg’s results against those of other companies without the variability caused by purchase accounting.

Amortization of debt discount and issuance costs.

Beginning January 1, 2021, as a result of our adoption of Accounting Standards Update (ASU) 2020-06 (ASU 2020-06), we account for our convertible senior notes entirely as a liability and no longer record interest expense related to the amortization of the debt discount. We continue to recognize the effective interest expense on our convertible senior notes and amortize the debt issuance costs over the term of the convertible senior notes. We adopted ASU 2020-06 under the modified retrospective method applied to convertible senior notes outstanding as of January 1, 2021 and have not changed previously disclosed amounts or provided additional disclosures for comparative periods. Prior to our adoption of ASU 2020-06, we were required to separately account for the liability (debt) and equity (conversion option) components of our convertible senior notes and recognize the effective interest expense on our convertible senior notes and amortize the debt discount and issuance costs over the term of the notes.

The difference between the effective interest expense and the contractual interest expense are excluded from management’s assessment of our operating performance because management believes that these non-cash expenses are not indicative of ongoing operating performance. Chegg believes that the exclusion of the non-cash interest expense provides investors with a better comparison of period-over-period operating results.

Loss on early extinguishment of debt.

Beginning January 1, 2021, as a result of our adoption of ASU 2020-06 and accounting for our convertible senior notes entirely as a liability, we are required to compare the total consideration of extinguished convertible senior notes to the respective carrying amounts to record a loss. Prior to our adoption of ASU 2020-06, we were required to separately account for the liability (debt) and equity (conversion option) components of our convertible senior notes which required us to estimate the fair value of extinguished or converted convertible senior notes and compare to the respective carrying amount to record a loss.

The loss on early extinguishment of debt is not considered a core-operating activity and we believe its exclusion provides investors with a better comparison of period-over-period operating results.

Loss on change in fair value of derivative instruments, net.

Our convertible senior notes embedded conversion options and related capped call instruments meet certain conditions for exclusion as derivative instruments and instead meet conditions to be classified in equity. The embedded conversion features and capped call transactions are not remeasured as long as they continue to meet the conditions for equity classification, otherwise they are classified as derivative instruments and recorded at fair value with changes in fair value recorded in other (expense) income, net. The loss on change in fair value of derivative instruments is not considered a core-operating activity and we believe its exclusion provides investors with a better comparison of period-over-period operating results.

Gain on sale of strategic equity investment.

The gain on sale of strategic equity investment represents a one-time event to record a gain on our strategic equity investment in a foreign entity that was acquired. The gain on sale of strategic equity investment is a one-time event and we believe its exclusion provides investors with a better comparison of period-over-period operating results.

Transitional logistics charges.

The transitional logistics charges represent incremental expenses incurred as we transition our print textbooks to a new third party logistics provider. Chegg believes that it is appropriate to exclude them from non-GAAP financial measures because it is the result of an event that is not considered a core-operating activity and we believe its exclusion provides investors with a better comparison of period-over-period operating results.

Effect of shares for stock plan activity.

The effect of shares for stock plan activity represents the dilutive impact of outstanding stock options, RSUs, and PSUs calculated under the treasury stock method.

Effect of shares related to convertible senior notes.

Beginning January 1, 2021, as a result of our adoption of ASU 2020-06, the effect of shares related to convertible senior notes represents the dilutive impact of outstanding convertible senior notes calculated under the if-converted method which assumes all outstanding convertible senior notes are converted at the beginning of the period resulting in a higher share count when calculating the dilutive impact. Prior to our adoption of ASU 2020-06, the effect of shares related to convertible senior notes represents the dilutive impact of outstanding convertible senior notes calculated under the treasury stock method.

The effect of shares related to convertible senior notes represents the dilutive impact of our convertible senior notes, to the extent such shares are not already included in our weighted average shares outstanding as they were antidilutive on a GAAP basis.

Free cash flow.

Free cash flow represents net cash provided by operating activities adjusted for purchases of property and equipment and purchases of textbooks and including proceeds from the disposition of textbooks. Chegg considers free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after the purchases of property and equipment and textbooks, which can then be used to, among other things, invest in Chegg’s business and make strategic acquisitions. A limitation of the utility of free cash flow as a measure of financial performance is that it does not represent the total increase or decrease in Chegg’s cash balance for the period.

Forward-Looking Statements

This press release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, which include, without limitation statements regarding the impact of the ongoing coronavirus (COVID-19) pandemic on Chegg’s financial condition and results of operations, Chegg’s continued momentum and 2021 guidance; and those included in the investor presentation referenced above, those included in the “Prepared Remarks” sections above, and all statements about Chegg’s outlook under “Business Outlook.” The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “project,” “endeavor,” “will,” “should,” “future,” “transition,” “outlook” and similar expressions, as they relate to Chegg, are intended to identify forward-looking statements. These statements are not guarantees of future performance, and are based on management’s expectations as of the date of this press release and assumptions that are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to differ materially from any future results, performance or achievements. Important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements include the following: the effects of the COVID-19 pandemic on Chegg’s business and the economy generally; Chegg’s ability to attract new students, which have an inherently high rate of turnover primarily due to graduation; changes in search engine methodologies that modify Chegg’s search result page rankings, resulting in decreased student engagement on Chegg’s website; competition in aspects of Chegg’s business, and Chegg expects such competition to increase; Chegg’s ability to maintain its services and systems without interruption, including as a result of technical issues or cybersecurity threats; third-party payment processing risks; adoption of government regulation of education unfavorable to Chegg; the rate of adoption of Chegg’s offerings; mobile app stores and mobile operating systems making Chegg’s apps and mobile website available to students and to grow Chegg’s user base and increase their engagement; Chegg’s ability to expand internationally; colleges and governments restricting online access or access to Chegg’s website; Chegg’s ability to strategically take advantage of new opportunities; competitive developments, including pricing pressures and other services targeting students; Chegg’s ability to build and expand its services offerings; Chegg’s ability to develop new products and services on a cost-effective basis and to integrate acquired businesses and assets; the impact of seasonality on the business; Chegg’s brand and reputation; the outcome of any current litigation and investigations; the ability of our logistics partner to manage the fulfillment processes; Chegg’s ability to effectively control operating costs; changes in Chegg’s addressable market; regulatory changes, in particular concerning privacy and marketing; any significant disruptions related to cybersecurity or cyber-attacks; changes in the education market, including as a result of COVID-19; and general economic, political and industry conditions. All information provided in this release and in the conference call is as of the date hereof and Chegg undertakes no duty to update this information except as required by law. These and other important risk factors are described more fully in documents filed with the Securities and Exchange Commission, including Chegg’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission on February 22, 2021, and could cause actual results to vary from expectations.

CHEGG, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except for number of shares and par value)
(unaudited)
		June 30, 2021				December 31, 2020
Assets
Current assets
Cash and cash equivalents		$	840,056			$	479,853
Short-term investments		1,221,666				665,567
Accounts receivable, net of allowance of $147 and $153 at June 30, 2021 and December 31, 2020, respectively		10,091				12,913
Prepaid expenses		18,811				12,776
Other current assets		25,643				11,846
Total current assets		2,116,267				1,182,955
Long-term investments		484,853				523,628
Textbook library, net		17,682				34,149
Property and equipment, net		149,627				125,807
Goodwill		290,725				285,214
Intangible assets, net		46,620				51,249
Right of use assets		21,100				24,226
Other assets		24,073				24,030
Total assets		$	3,150,947			$	2,251,258
Liabilities and stockholders’ equity
Current liabilities
Accounts payable		$	6,211			$	8,547
Deferred revenue		34,682				32,620
Accrued liabilities		72,644				68,565
Total current liabilities		113,537				109,732
Long-term liabilities
Convertible senior notes, net		1,675,340				1,506,922
Long-term operating lease liabilities		15,811				19,264
Other long-term liabilities		8,377				5,705
Total long-term liabilities		1,699,528				1,531,891
Total liabilities		1,813,065				1,641,623
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value per share, 10,000,000 shares authorized, no shares issued and outstanding		—				—
Common stock, $0.001 par value per share: 400,000,000 shares authorized; 144,621,425 and 129,343,524 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively		145				129
Additional paid-in capital		1,706,855				1,030,577
Accumulated other comprehensive (loss) income		(970)				1,530
Accumulated deficit		(368,148)				(422,601)
Total stockholders’ equity		1,337,882				609,635
Total liabilities and stockholders’ equity		$	3,150,947			$	2,251,258

CHEGG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
		Three Months Ended June 30,								Six Months Ended June 30,
		2021				2020				2021				2020
Net revenues		$	198,478			$	153,009			$	396,856			$	284,599
Cost of revenues(1)		60,708				43,524				132,092				85,914
Gross profit		137,770				109,485				264,764				198,685
Operating expenses:
Research and development(1)		41,595				40,374				87,726				79,915
Sales and marketing(1)		21,686				15,758				47,900				35,996
General and administrative(1)		39,719				31,292				77,589				57,437
Total operating expenses		103,000				87,424				213,215				173,348
Income from operations		34,770				22,061				51,549				25,337
Interest expense, net and other income (expense), net:
Interest expense, net		(1,701)				(13,425)				(3,630)				(26,852)
Other income (expense), net		1,920				3,240				(75,288)				8,200
Total interest expense, net and other income (expense), net		219				(10,185)				(78,918)				(18,652)
Income (loss) before provision for income taxes		34,989				11,876				(27,369)				6,685
Provision for income taxes		2,225				1,287				5,046				1,809
Net income (loss)		$	32,764			$	10,589			$	(32,415)			$	4,876
Net income (loss) per share
Basic		$	0.23			$	0.09			$	(0.23)			$	0.04
Diluted		$	0.20			$	0.08			$	(0.23)			$	0.04
Weighted average shares used to compute net income (loss) per share
Basic		143,112				123,842				138,756				123,135
Diluted		168,282				133,851				138,756				132,674
(1) Includes share-based compensation expense as follows:
Cost of revenues		$	419			$	213			781				382
Research and development		9,100				7,620				17,059				14,611
Sales and marketing		3,655				2,436				6,574				4,622
General and administrative		15,371				9,277				27,231				18,265
Total share-based compensation expense		$	28,545			$	19,546			$	51,645			$	37,880

CHEGG, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
		Six Months Ended June 30,
		2021				2020
Operating activities
Net (loss) income		$	(32,415)			$	4,876
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Print textbook depreciation expense		6,581				7,062
Other depreciation and amortization expense		30,187				19,834
Share-based compensation expense		51,645				37,880
Amortization of debt discount and issuance costs		3,097				25,892
Loss on early extinguishment of debt		78,152				—
Loss on change in fair value of derivative instruments, net		7,148				—
Loss from write-off of property and equipment		1,042				851
Gain on sale of strategic equity investment		(5,338)				—
Loss (gain) on textbook library, net		4,230				(1,371)
Operating lease expense, net of accretion		3,064				2,185
Other non-cash items		298				(427)
Change in assets and liabilities, net of effect of acquisition of business:
Accounts receivable		3,462				3,961
Prepaid expenses and other current assets		(14,715)				(1,812)
Other assets		7,220				(712)
Accounts payable		(3,139)				(574)
Deferred revenue		2,062				8,117
Accrued liabilities		4,197				17,389
Other liabilities		(2,277)				(946)
Net cash provided by operating activities		144,501				122,205
Investing activities
Purchases of property and equipment		(46,595)				(43,111)
Purchases of textbooks		(5,018)				(38,668)
Proceeds from disposition of textbooks		6,709				3,415
Purchases of investments		(984,606)				(277,033)
Maturities of investments		455,536				271,711
Purchase of strategic equity investment		—				(2,000)
Proceeds from sale of strategic equity investment		7,081				—
Acquisition of businesses, net of cash acquired		(7,891)				(92,796)
Net cash used in investing activities		(574,784)				(178,482)
Financing activities
Proceeds from common stock issued under stock plans, net		5,267				8,039
Payment of taxes related to the net share settlement of equity awards		(74,642)				(54,104)
Proceeds from equity offering, net of offering costs		1,091,466				—
Repayment of convertible senior notes		(300,751)				—
Proceeds from exercise of convertible senior notes capped call		69,004				—
Net cash provided by (used in) financing activities		790,344				(46,065)
Net increase (decrease) in cash, cash equivalents and restricted cash		360,061				(102,342)
Cash, cash equivalents and restricted cash, beginning of period		481,715				389,432
Cash, cash equivalents and restricted cash, end of period		$	841,776			$	287,090

		Six Months Ended June 30,
		2021				2020
Supplemental cash flow data:
Cash paid during the period for:
Interest		$	615			$	931
Income taxes, net of refunds		$	4,268			$	1,247
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		$	4,030			$	3,350
Right of use assets obtained in exchange for lease obligations:
Operating leases		$	—			$	1,713
Non-cash investing and financing activities:
Accrued purchases of long-lived assets		$	2,341			$	754
Accrued escrow related to acquisition		$	—			$	7,451
Issuance of common stock related to repayment of convertible senior notes		$	235,521			$	—
		June 30,
		2021				2020
Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents		$		840,056		$		285,064
Restricted cash included in other current assets		—				308
Restricted cash included in other assets		1,720				1,718
Total cash, cash equivalents and restricted cash		$		841,776		$		287,090

CHEGG, INC.
RECONCILIATION OF NET INCOME (LOSS) TO EBITDA AND ADJUSTED EBITDA
(in thousands)
(unaudited)
		Three Months Ended June 30,								Six Months Ended June 30,
		2021				2020				2021				2020
Net income (loss)		$	32,764			$	10,589			$	(32,415)			$	4,876
Interest expense, net		1,701				13,425				3,630				26,852
Provision for income taxes		2,225				1,287				5,046				1,809
Print textbook depreciation expense		2,821				3,535				6,581				7,062
Other depreciation and amortization expense		15,341				10,591				30,187				19,834
EBITDA		54,852				39,427				13,029				60,433
Print textbook depreciation expense		(2,821)				(3,535)				(6,581)				(7,062)
Share-based compensation expense		28,545				19,546				51,645				37,880
Other income (expense), net		(1,920)				(3,240)				75,288				(8,200)
Acquisition-related compensation costs		1,457				3,276				3,878				4,216
Transitional logistics charges		4,246				—				4,246				—
Adjusted EBITDA		$	84,359			$	55,474			$	141,505			$	87,267

CHEGG, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(in thousands, except percentages and per share amounts)
(unaudited)
		Three Months Ended June 30,								Six Months Ended June 30,
		2021				2020				2021				2020
Operating expenses		$	103,000			$	87,424			$	213,215			$	173,348
Share-based compensation expense		(28,126)				(19,333)				(50,864)				(37,498)
Amortization of intangible assets		(1,005)				(3,000)				(3,340)				(5,467)
Acquisition-related compensation costs		(1,457)				(3,276)				(3,878)				(4,216)
Non-GAAP operating expenses		$	72,412			$	61,815			$	155,133			$	126,167
Income from operations		$	34,770			$	22,061			$	51,549			$	25,337
Share-based compensation expense		28,545				19,546				51,645				37,880
Amortization of intangible assets		3,178				3,000				7,627				5,467
Acquisition-related compensation costs		1,457				3,276				3,878				4,216
Transitional logistics charges		4,246				—				4,246				—
Non-GAAP income from operations		$	72,196			$	47,883			$	118,945			$	72,900
Net income (loss)		$	32,764			$	10,589			$	(32,415)			$	4,876
Share-based compensation expense		28,545				19,546				51,645				37,880
Amortization of intangible assets		3,178				3,000				7,627				5,467
Acquisition-related compensation costs		1,457				3,276				3,878				4,216
Amortization of debt discount and issuance costs		1,471				12,946				3,097				25,892
Loss on early extinguishment of debt		—				—				78,152				—
Loss on change in fair value of derivative instruments, net		—				—				7,148				—
Gain on sale of strategic equity investment		—				—				(5,338)				—
Transitional logistics charges		4,246				—				4,246				—
Non-GAAP net income		$	71,661			$	49,357			$	118,040			$	78,331
Weighted average shares used to compute net income (loss) per share, diluted		168,282				133,851				138,756				132,674
Effect of shares for stock plan activity		—				—				2,994				—
Effect of shares related to convertible senior notes		—				—				25,901				—
Non-GAAP weighted average shares used to compute non-GAAP net income per share, diluted		168,282				133,851				167,651				132,674
Net income (loss) per share, diluted		$	0.20			$	0.08			$	(0.23)			$	0.04
Adjustments		0.23				0.29				0.93				0.55
Non-GAAP net income per share, diluted		$	0.43			$	0.37			$	0.70			$	0.59

CHEGG, INC.
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW
(in thousands)
(unaudited)
		Six Months Ended June 30,
		2021				2020
Net cash provided by operating activities		$	144,501			$	122,205
Purchases of property and equipment		(46,595)				(43,111)
Purchases of textbooks		(5,018)				(38,668)
Proceeds from disposition of textbooks		6,709				3,415
Free cash flow		$	99,597			$	43,841

CHEGG, INC.
RECONCILIATION OF FORWARD-LOOKING NET (LOSS) INCOME TO EBITDA AND ADJUSTED EBITDA
(in thousands)
(unaudited)
		Three Months Ending September 30, 2021				Year Ending December 31, 2021
Net (loss) income		$	(9,700)			$	19,000
Interest expense, net		1,600				6,900
Provision for income taxes		1,900				8,900
Textbook library depreciation expense		4,000				14,400
Other depreciation and amortization expense		15,800				62,200
EBITDA		13,600				111,400
Textbook library depreciation expense		(4,000)				(14,400)
Share-based compensation expense		30,000				112,000
Other income (expense), net		(700)				74,000
Acquisition-related compensation costs		1,300				6,400
Transitional logistic charges		3,800				8,100
Adjusted EBITDA*		$	44,000			$	297,500

* Adjusted EBITDA guidance for the three months ending September 30, 2021 and year ending December 31, 2021 represent the midpoint of the ranges of $43 million to $45 million and $295 million to $300 million, respectively.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210809005700/en/

Media Contact: [email protected]

Investor Contact: Tracey Ford, [email protected]

KEYWORDS: United States North America California

INDUSTRY KEYWORDS: Education Technology Software Other Education Internet University Training

MEDIA:

Posted on August 9, 2021 6:49 pm

AECOM reports third quarter fiscal year 2021 results

AECOM reports third quarter fiscal year 2021 results

LOS ANGELES–(BUSINESS WIRE)–
AECOM (NYSE:ACM), the world’s trusted infrastructure consulting firm, today reported third quarter fiscal year 2021 results.

		Third Quarter Fiscal 2021								Year-to-Date Fiscal 2021
(from Continuing Operations; $ in millions, except EPS)		As Reported		Adjusted1 (Non-GAAP)		As Reported YoY % Change		Adjusted YoY % Change		As Reported		Adjusted1 (Non-GAAP)		As Reported YoY % Change		Adjusted YoY % Change
Revenue		$3,408		—		7%		—		$9,987		—		3%		—
Net Service Revenue (NSR)2		—		$1,524		—		1%		—		$4,569		—		(1%)
Operating Income		$160		$179		35%		14%		$459		$510		45%		11%
Segment Operating Margin3 (NSR)		—		14.1%		—		+90 bps		—		13.4%		—		+130 bps
Net Income		$28		$108		(69%)		23%		$200		$304		17%		21%
EPS (Fully Diluted)		$0.19		$0.73		(66%)		33%		$1.32		$2.01		25%		29%
EBITDA4		—		$214		—		15%		—		$605		—		12%
Operating Cash Flow		$320		—		72%		—		$387		—		NM		—
Free Cash Flow5		—		$295		—		8%		—		$284		—		NM
Backlog		$39,687		—		(4%)		—

Third Quarter and Year-to-Date Fiscal 2021 Highlights

• As compared to the prior year, third quarter revenue increased by 7% to $3.4 billion, operating income increased by 35% to $160 million, the operating margin increased by 100 basis points to 4.7%, net income decreased by 69% to $28 million and diluted earnings per share decreased by 66% to $0.19. Net income included $122 million of pre-tax costs related to the completed tender and final redemption of all of the Company’s senior notes due 2024.
• Net service revenue² (NSR) of $1.5 billion in the third quarter increased by 1% and included a second consecutive quarter of accelerating growth in the Company’s design business to 3%; Construction Management NSR declined as expected, however Construction Management backlog increased sequentially.
• The segment adjusted¹ operating margin³ on NSR² increased by 90 basis points to 14.1% in the third quarter and set a new quarterly high, reflecting operating efficiencies, strong execution and growth of higher-margin projects, as well as increased investments in growth and innovation.
• Adjusted¹ EBITDA⁴ in the third quarter increased by 15% to $214 million and adjusted diluted earnings per share increased by 33% to a new quarterly record of $0.73; both metrics were ahead of the Company’s expectations.
• Total wins of $3.7 billion resulted in a 1.1 book-to-burn ratio⁶; backlog in the Company’s design business increased by 8% over the prior year, including 7% contracted backlog growth, and total backlog of $39.7 billion continues to provide long-term visibility.

Fiscal 2021 Financial Guidance

• AECOM is increasing its adjusted¹ EBITDA⁴ guidance to between $810 million and $830 million and increasing its diluted adjusted¹ EPS guidance for the third consecutive quarter to between $2.75 and $2.85, which would reflect 10% and 30% growth from fiscal 2020 at the mid-point of the respective ranges.

– This guidance incorporates the Company’s year-to-date adjusted EBITDA outperformance, as well as the benefits of already completed share repurchases and lower interest expense from the recently executed debt refinancing actions.

– Other assumptions incorporated into guidance include:

• An average fully diluted share count for the full year of approximately 150 million, which only reflects repurchases completed to date.
• AECOM Capital earnings of between $5 million to $10 million.

• The Company continues to expect free cash flow⁵ of between $425 million and $625 million, which is consistent with the highly cash generative nature of its Professional Services business, strong year-to-date performance, and confidence in fourth quarter cash flow.

Cash Flow, Balance Sheet and Capital Allocation Update

• Third quarter operating cash flow was $320 million and free cash flow⁵ was $295 million; fiscal year-to-date operating cash flow was $387 million and free cash flow was $284 million.

– This performance represents the highest cash flow in the past four years for the respective periods, reflecting a focus on delivering more consistent cash flow phasing to enhance shareholder value and returns on capital.

• The Company completed a tender and redemption of all senior notes due 2024, further strengthening its balance sheet with lower cost debt and extending the maturity profile with no material maturities until 2026.
• Since the beginning of September 2020, the Company has executed $930 million of stock repurchases representing approximately 19 million shares, or approximately 12% of shares outstanding as compared to the beginning of the repurchase program.
• The Company currently has $525 million of capacity remaining under its $1 billion stock repurchase authorization and remains committed to executing its capital allocation policy, which includes returning to investors substantially all available cash flow, which is after investments are made in the business, and maintaining leverage⁷ below 3.0x.

“With our strong results, we have extended our track record of delivering on our financial and strategic commitments, and we are well positioned to deliver even greater growth in fiscal 2022 and beyond as a result of our Think and Act Globally strategy and strengthening trends across many of our markets,” said Troy Rudd, AECOM’s chief executive officer. “Our third quarter results were highlighted by accelerating NSR growth in our design business, a new quarterly high for margins, double-digit adjusted earnings growth and strong cash flow. As we look ahead, the pandemic continues to have varied impacts around the world. However, we are investing in the highest and most profitable growth markets and geographies that are positively inflecting, including increasing demand for ESG-related services. To reflect these strengths and our growing pipeline of opportunities, we increased our guidance for this year and our optimism has never been greater in achieving our longer-term targets, including achieving 15% segment adjusted operating margins and doubling adjusted EPS from fiscal 2020 to 2024.”

“The benefits of our Think and Act Globally strategy are apparent in our results as the organization coalesces around a set of strategic priorities that is translating to growth,” said Lara Poloni, AECOM’s president. “ESG initiatives are increasingly a core driver for our clients as they advance multi-decade sustainability initiatives. With our Sustainable Legacies strategy, we are leading alongside our clients with a commitment to advance our own industry-leading net zero and diversity commitments, including incorporating carbon reduction and ESG strategies into all our major projects through our ScopeX™ initiative.”

“Our year-to-date performance has exceeded expectations and sets the foundation for continued success,” said Gaurav Kapoor, AECOM’s chief financial officer. “We set out to improve our cash flow phasing and I am proud to see the organization respond with the best quarterly and year to date free cash flow performance in the last four years, which has allowed us to execute substantial value accretive share repurchases.”

Business Segments

Americas

Revenue in the third quarter was $2.6 billion, a 6% increase from the prior year, and net service revenue² of $890 million decreased by 4%, which included growth in the America’s design business offset by an expected decline in the Construction Management business.

Operating income increased by 2% over the prior year to $164 million and on an adjusted basis¹ operating income increased by 2% to $168 million. The adjusted operating margin on an NSR² basis of 18.9% reflected a 100 basis point increase over the prior year and marks a record quarterly high. This performance was driven by operating efficiencies and growth of higher-margin projects across the business that have enabled both margin expansion and increased investments in growth and innovation.

International

Revenue in the third quarter was $789 million, a 10% increase from the prior year. Net service revenue² of $633 million increased by 7%.

Operating income increased by 41% over the prior year to $45 million. On an adjusted basis¹, operating income increased by 38% to $46 million. The adjusted operating margin on an NSR² basis increased by 160 basis points over the prior year to 7.3%, which reflects a more than 500 basis point improvement since the beginning of fiscal 2019 when the Company began executing actions to deliver efficiencies including reducing its overhead structure, simplifying operations, leveraging best cost design and shared service centers, and exiting lower-returning markets and countries.

Discontinued Operations

In October 2020, the Company closed on the sale of its Power construction business and closed on the sale of the Civil construction business in January 2021. Results for discontinued operations included an approximately $16 million loss. The remaining businesses held for sale delivered underlying profitability.

Balance Sheet

As of June 30, 2021, AECOM had $1.05 billion of total cash and cash equivalents, $2.2 billion of total debt, $1.2 billion of net debt (total debt less cash and cash equivalents) and $1.14 billion in unused capacity under its revolving credit facility. Gross leverage⁷ was 2.5x and is consistent with the Company’s long-term objective of maintaining gross⁷ leverage below 3.0x.

Tax Rate

The effective tax rate was (112.6%) in the third quarter. On an adjusted basis, the effective tax rate was 28.5%. The adjusted tax rate was derived by re-computing the annual effective tax rate on earnings from adjusted net income.⁸ The adjusted tax expense differs from the GAAP tax expense based on the taxability or deductibility and tax rate applied to each of the adjustments.

Reiterated Long-Term Financial Targets

AECOM also reiterated its long-term financial targets, which include its target to more than double both adjusted¹ EPS to at least $4.30 and free cash flow⁵ to at least $680 million from fiscal 2020 to fiscal 2024, as well as its target to achieve a 15%+ segment³ adjusted¹ operating margin and 15%+ return on invested capital (ROIC)⁹ by fiscal 2024.

Conference Call

AECOM is hosting a conference call tomorrow August 10^th at noon Eastern Time, during which management will make a brief presentation focusing on the Company’s results, strategy and operating trends. Interested parties can listen to the conference call and view accompanying slides via webcast at https://investors.aecom.com. The webcast will be available for replay following the call.

¹ Excludes the impact of non-operating items, such as non-core operating losses and transaction-related expenses, restructuring costs and other items. See Regulation G Information for a reconciliation of non-GAAP measures to the comparable GAAP measures.

² Revenue, less pass-through revenue.

³ Reflects segment operating performance, excluding AECOM Capital and G&A.

⁴ Net income before interest expense, tax expense, depreciation and amortization.

⁵ Free cash flow is defined as cash flow from operations less capital expenditures, net of proceeds from equipment disposals. Free cash flow in the prior year period includes the receipt of a favorable $122 million net working capital purchase price adjustment collected in May 2020 in connection with the sale of the Management Services (MS) business, which represents the recovery of an operating cash flow shortfall of the MS business prior to its sale.

⁶ Book-to-burn ratio is defined as the dollar amount of wins divided by revenue recognized during the period, including revenue related to work performed in unconsolidated joint ventures.

⁷ Gross leverage is comprised of EBITDA as defined in the Company’s credit agreement dated October 17, 2014, as amended, and total debt on the Company’s financial statements.

⁸ Inclusive of non-controlling interest deduction and adjusted for financing charges in interest expense, the amortization of intangible assets and is based on continuing operations.

⁹ Return on invested capital, or ROIC, is calculated as the sum of adjusted net income as presented in the Company’s Regulation G Information and interest expense, net of interest income, divided by average quarterly invested capital as defined as the sum of AECOM shareholder’s equity and total debt, less cash and cash equivalents.

About AECOM

AECOM (NYSE: ACM) is the world’s trusted infrastructure consulting firm, delivering professional services throughout the project lifecycle – from planning, design and engineering to program and construction management. On projects spanning transportation, buildings, water, new energy and the environment, our public- and private-sector clients trust us to solve their most complex challenges. Our teams are driven by a common purpose to deliver a better world through our unrivaled technical expertise and innovation, a culture of equity, diversity and inclusion, and a commitment to environmental, social and governance priorities. AECOM is a Fortune 500 firm and its Professional Services business had revenue of $13.2 billion in fiscal year 2020. See how we are delivering sustainable legacies for generations to come at aecom.com and @AECOM.

Forward-Looking Statements

All statements in this communication other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including any statements of the plans, strategies and objectives for future operations, profitability, strategic value creation, coronavirus impacts, risk profile and investment strategies, and any statements regarding future economic conditions or performance, and the expected financial and operational results of AECOM. Although we believe that the expectations reflected in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Important factors that could cause our actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in our forward-looking statements include, but are not limited to, the following: our business is cyclical and vulnerable to economic downturns and client spending reductions; impacts caused by the coronavirus and the related economic instability and market volatility, including the reaction of governments to the coronavirus, including any prolonged period of travel, commercial or other similar restrictions, the delay in commencement, or temporary or permanent halting of construction, infrastructure or other projects, requirements that we remove our employees or personnel from the field for their protection, and delays or reductions in planned initiatives by our governmental or commercial clients or potential clients; losses under fixed-price contracts; limited control over operations run through our joint venture entities; liability for misconduct by our employees or consultants; failure to comply with laws or regulations applicable to our business; maintaining adequate surety and financial capacity; high leverage and potential inability to service our debt and guarantees; exposure to Brexit; exposure to political and economic risks in different countries; currency exchange rate fluctuations; retaining and recruiting key technical and management personnel; legal claims; inadequate insurance coverage; environmental law compliance and adequate nuclear indemnification; unexpected adjustments and cancellations related to our backlog; partners and third parties who may fail to satisfy their legal obligations; AECOM Capital real estate development projects; managing pension cost; cybersecurity issues, IT outages and data privacy; risks associated with the benefits and costs of the Management Services transaction, including the risk that the expected benefits of the Management Services transaction or any contingent purchase price will not be realized within the expected time frame, in full or at all; as well as other additional risks and factors that could cause actual results to differ materially from our forward-looking statements set forth in our reports filed with the Securities and Exchange Commission. Any forward-looking statements are made as of the date hereof. We do not intend, and undertake no obligation, to update any forward-looking statement.

Non-GAAP Financial Information

This press release contains financial information calculated other than in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company believes that non-GAAP financial measures such as adjusted EPS, adjusted EBITDA, adjusted net/operating income, adjusted tax rate, net service revenue and free cash flow provide a meaningful perspective on its business results as the Company utilizes this information to evaluate and manage the business. We use adjusted EBITDA, adjusted EPS, adjusted net/operating income and adjusted tax rate to exclude the impact of non-operating items, such as amortization expense, taxes and non-core operating losses to aid investors in better understanding our core performance results. We use free cash flow to represent the cash generated after capital expenditures to maintain our business. We present net service revenue to exclude subcontractor costs from revenue to provide investors with a better understanding of our operational performance. We present segment adjusted operating margin to reflect segment operating performance of our Americas and International segments, excluding AECOM Capital.

Our non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for financial information determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies. A reconciliation of these non-GAAP measures is found in the Regulation G Information tables at the back of this release. The Company is unable to reconcile its non-GAAP long-term financial targets due to uncertainties in these non-operating items as well as other adjustments to net income.

AECOM Consolidated Statements of Income (unaudited – in thousands, except per share data)
		Three Months Ended											Nine Months Ended
		June 30, 2020				June 30, 2021				% Change			June 30, 2020				June 30, 2021				% Change
Revenue		$	3,189,679			$	3,408,357			6.9	%		$	9,671,026			$	9,987,085			3.3	%
Cost of revenue			3,004,600				3,206,823			6.7	%			9,151,334				9,405,922			2.8	%
Gross profit			185,079				201,534			8.9	%			519,692				581,163			11.8	%
Equity in earnings of joint ventures			8,573				8,270			(3.5	)%			32,006				23,628			(26.2	)%
General and administrative expenses			(54,482	)			(36,340	)		(33.3	)%			(139,133	)			(110,707	)		(20.4	)%
Restructuring costs			(20,300	)			(12,971	)		(36.1	)%			(96,438	)			(34,755	)		(64.0	)%
Income from operations			118,870				160,493			35.0	%			316,127				459,329			45.3	%
Other income			3,119				4,482			43.7	%			9,557				11,812			23.6	%
Interest expense			(34,925	)			(149,038	)		326.7	%			(112,413	)			(212,489	)		89.0	%
Income before income tax (benefit) expense			87,064				15,937			(81.7	)%			213,271				258,652			21.3	%
Income tax (benefit) expense			(7,184	)			(17,938	)		149.7	%			30,326				42,811			41.2	%
Income from continuing operations			94,248				33,875			(64.1	)%			182,945				215,841			18.0	%
Loss from discontinued operations			(126	)			(15,502	)		12203.2	%			(112,695	)			(119,168		)	5.7	%
Net income			94,122				18,373			(80.5	)%			70,250				96,673			37.6	%
Net income attributable to noncontrolling interests from continuing operations			(3,138	)			(5,901	)		88.0	%			(12,428	)			(16,160	)		30.0	%
Net income attributable to noncontrolling interests from discontinued operations			(1,645	)			(941	)		(42.8	)%			(14,005	)			(3,495	)		(75.0	)%
Net income attributable to noncontrolling interests			(4,783	)			(6,842	)		43.0	%			(26,433	)			(19,655	)		(25.6	)%
Net income attributable to AECOM from continuing operations			91,110				27,974			(69.3	)%			170,517				199,681			17.1	%
Net loss attributable to AECOM from discontinued operations			(1,771	)			(16,443	)		828.5	%			(126,700	)			(122,663	)		(3.2	)%
Net income attributable to AECOM		$	89,339			$	11,531			(87.1	)%		$	43,817			$	77,018			75.8	%
Net income (loss) attributable to AECOM per share:
Basic
Continuing operations		$	0.57			$	0.19			(66.7	)%		$	1.07			$	1.35			26.2	%
Discontinued operations			(0.01	)			(0.11	)		1000.0	%			(0.79	)			(0.83	)		5.1	%
Basic earnings per share		$	0.56			$	0.08			(85.7	)%		$	0.28			$	0.52			85.7	%
Diluted
Continuing operations		$	0.56			$	0.19			(66.1	)%		$	1.06			$	1.32			24.5	%
Discontinued operations			(0.01	)			(0.11	)		1000.0	%			(0.79	)			(0.81	)		2.5	%
Diluted earnings per share		$	0.55			$	0.08			(85.5	)%		$	0.27			$	0.51			88.9	%
Weighted average shares outstanding:
Basic			160,119				146,109			(8.7	)%			158,667				148,434			(6.4	)%
Diluted			161,835				148,859			(8.0	)%			161,070				150,707			(6.4	)%

AECOM Balance Sheet Information (unaudited – in thousands)
		September 30, 2020			June 30, 2021
Balance Sheet Information:
Total cash and cash equivalents		$	1,708,332		$	1,049,030
Accounts receivable and contract assets – net			4,532,255			4,167,663
Working capital			1,439,912			568,462
Total debt, excluding unamortized debt issuance costs			2,085,017			2,233,872
Total assets			12,998,951			11,963,091
Total AECOM stockholders’ equity			3,292,558			2,708,037

AECOM Reportable Segments (unaudited – in thousands)
		Americas				International				AECOM Capital				Corporate				Total
Three Months Ended June 30, 2021
Revenue		$	2,618,393			$	789,338			$	626			$	–			$	3,408,357
Cost of revenue			2,457,818				749,005				–				–				3,206,823
Gross profit			160,575				40,333				626				–				201,534
Equity in earnings of joint ventures			3,239				5,137				(106	)			–				8,270
General and administrative expenses			–				–				(2,409	)			(33,931	)			(36,340	)
Restructuring costs			–				–				–				(12,971	)			(12,971	)
Income (loss) from operations		$	163,814			$	45,470			$	(1,889	)		$	(46,902	)		$	160,493
Gross profit as a % of revenue			6.1	%			5.1	%			–				–				5.9	%
Three Months Ended June 30, 2020
Revenue		$	2,471,537			$	717,947			$	195			$	–			$	3,189,679
Cost of revenue			2,316,286				688,314				–				–				3,004,600
Gross profit			155,251				29,633				195				–				185,079
Equity in earnings of joint ventures			5,553				2,688				332				–				8,573
General and administrative expenses			–				–				(1,094	)			(53,388	)			(54,482	)
Restructuring costs			–				–				–				(20,300	)			(20,300	)
Income (loss) from operations		$	160,804			$	32,321			$	(567	)		$	(73,688	)		$	118,870
Gross profit as a % of revenue			6.3	%			4.1	%			–				–				5.8	%
Nine Months Ended June 30, 2021
Revenue		$	7,644,054			$	2,341,391			$	1,640			$	–			$	9,987,085
Cost of revenue			7,186,772				2,219,150				–				–				9,405,922
Gross profit			457,282				122,241				1,640				–				581,163
Equity in earnings of joint ventures			7,624				11,148				4,856				–				23,628
General and administrative expenses			–				–				(5,770	)			(104,937	)			(110,707	)
Restructuring costs			–				–				–				(34,755	)			(34,755	)
Income from operations		$	464,906			$	133,389			$	726			$	(139,692	)		$	459,329
Gross profit as a % of revenue			6.0	%			5.2	%			–				–				5.8	%
Contracted backlog		$	15,072,850			$	4,011,633			$	–			$	–			$	19,084,483
Awarded backlog			19,291,834				995,155				–				–				20,286,989
Unconsolidated JV backlog			315,116				–				–				–				315,116
Total backlog		$	34,679,800			$	5,006,788			$	–			$	–			$	39,686,588
Nine Months Ended June 30, 2020
Revenue		$	7,399,213			$	2,270,577			$	1,236			$	–			$	9,671,026
Cost of revenue			6,968,897				2,182,437				–				–				9,151,334
Gross profit			430,316				88,140				1,236				–				519,692
Equity in earnings of joint ventures			17,323				8,672				6,011				–				32,006
General and administrative expenses			–				–				(5,272	)			(133,861	)			(139,133	)
Restructuring costs			–				–				–				(96,438	)			(96,438	)
Income from operations		$	447,639			$	96,812			$	1,975			$	(230,299	)		$	316,127
Gross profit as a % of revenue			5.8	%			3.9	%			–				–				5.4	%
Contracted backlog		$	16,067,997			$	3,477,266			$	–			$	–			$	19,545,263
Awarded backlog			20,184,074				1,061,140				–				–				21,245,214
Unconsolidated JV backlog			664,286				–				–				–				664,286
Total backlog		$	36,916,357			$	4,538,406			$	–			$	–			$	41,454,763

AECOM Regulation G Information (in millions)
Reconciliation of Revenue to Net Service Revenue (NSR)
		Three Months Ended									Nine Months Ended
		Jun 30, 2020			Mar 31, 2021			Jun 30, 2021			Jun 30, 2020			Jun 30, 2021
Americas
Revenue		$	2,471.6		$	2,468.3		$	2,618.5		$	7,399.2		$	7,644.1
Less: Pass-through revenue			1,548.6			1,544.7			1,728.0			4,637.4			4,967.0
Net service revenue		$	923.0		$	923.6		$	890.5		$	2,761.8		$	2,677.1
International
Revenue		$	717.9		$	796.5		$	789.3		$	2,270.6		$	2,341.4
Less: Pass-through revenue			128.4			151.8			156.4			421.2			450.8
Net service revenue		$	589.5		$	644.7		$	632.9		$	1,849.4		$	1,890.6
Segment Performance (excludes ACAP)
Revenue		$	3,189.5		$	3,264.8		$	3,407.8		$	9,669.8		$	9,985.5
Less: Pass-through revenue			1,677.0			1,696.5			1,884.4			5,058.6			5,417.8
Net service revenue		$	1,512.5		$	1,568.3		$	1,523.4		$	4,611.2		$	4,567.7
Consolidated
Revenue		$	3,189.7		$	3,265.5		$	3,408.4		$	9,671.0		$	9,987.1
Less: Pass-through revenue			1,677.0			1,696.5			1,884.4			5,058.6			5,417.8
Net service revenue		$	1,512.7		$	1,569.0		$	1,524.0		$	4,612.4		$	4,569.3

Reconciliation of Total Debt to Net Debt
		Balances at:
		Jun 30, 2020			Mar 31, 2021			Jun 30, 2021
Short-term debt		$	10.4		$	4.7		$	2.9
Current portion of long-term debt			14.3			42.2			52.4
Long-term debt, gross			2,071.6			2,079.7			2,178.6
Total debt excluding unamortized debt issuance costs			2,096.3			2,126.6			2,233.9
Less: Total cash and cash equivalents			1,331.3			934.9			1,049.0
Net debt		$	765.0		$	1,191.7		$	1,184.9

Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow
		Three Months Ended													Nine Months Ended
		Jun 30, 2020				Mar 31, 2021				Jun 30, 2021					Jun 30, 2020				Jun 30, 2021
Net cash provided by (used in) operating activities		$	186.3			$	59.2			$	320.3				$	(319.7	)		$	386.6
Capital expenditures, net			(36.3	)			(55.9	)			(25.1	)				(80.8	)			(102.3	)
Working capital adjustment from sale of Management Services business			122.0				–				–					122.0				–
Free cash flow		$	272.0			$	3.3			$	295.2				$	(278.5	)		$	284.3

AECOM Regulation G Information (in millions, except per share data)
		Three Months Ended												Nine Months Ended
		Jun 30, 2020				Mar 31, 2021				Jun 30, 2021				Jun 30, 2020				Jun 30, 2021
Reconciliation of Income from Operations to Adjusted Income from Operations
Income from operations		$	118.8			$	157.6			$	160.5			$	316.1			$	459.3
Non-core operating losses & transaction related expenses			–				–				–				5.6				–
Accelerated depreciation of project management tool			11.3				–				–				22.6				–
Restructuring costs			20.3				8.8				13.0				96.4				34.8
Amortization of intangible assets			5.9				5.4				5.2				18.2				15.9
Adjusted income from operations		$	156.3			$	171.8			$	178.7			$	458.9			$	510.0
Reconciliation of Income from Continuing Operations Before Taxes to Adjusted Income from Continuing Operations Before Taxes
Income from continuing operations before tax expense		$	87.0			$	128.3			$	16.0			$	213.2			$	258.7
Non-core operating losses & transaction related expenses			–				–				–				5.6				–
Accelerated depreciation of project management tool			11.3				–				–				22.6				–
Restructuring costs			20.3				8.8				13.0				96.4				34.8
Amortization of intangible assets			5.9				5.4				5.2				18.2				15.9
Prepayment premium on debt			–				–				117.5				–				117.5
Financing charges in interest expense			1.3				2.6				5.7				4.2				10.1
Adjusted income from continuing operations before tax expense		$	125.8			$	145.1			$	157.4			$	360.2			$	437.0
Reconciliation of Income Taxes for Continuing Operations to Adjusted Income Taxes for Continuing Operations
Income tax (benefit) expense for continuing operations		$	(7.2	)		$	35.1			$	(17.8	)		$	30.3			$	42.9
Tax effect of the above adjustments*			9.9				4.6				34.5				36.5				44.6
Valuation allowances and other tax only items			31.7				0.1				26.5				30.2				29.3
Adjusted income tax expense for continuing operations		$	34.4			$	39.8			$	43.2			$	97.0			$	116.8
____________________
* Adjusts income taxes during the period to exclude the impact on our effective tax rate of the pre-tax adjustments shown above.
Reconciliation of Net Income Attributable to Noncontrolling Interests from Continuing Operations to Adjusted Net Income Attributable to Noncontrolling Interests from Continuing Operations
Net income attributable to noncontrolling interests from continuing operations		$	(3.1	)		$	(4.9	)		$	(5.9	)		$	(12.4	)		$	(16.2	)
Amortization of intangible assets included in NCI, net of tax			(0.1	)			(0.2	)			(0.1	)			(0.3	)			(0.4	)
Adjusted net income attributable to noncontrolling interests from continuing operations		$	(3.2	)		$	(5.1	)		$	(6.0	)		$	(12.7	)		$	(16.6	)
Reconciliation of Net Income Attributable to AECOM from Continuing Operations to Adjusted Net Income Attributable to AECOM from Continuing Operations
Net income attributable to AECOM from continuing operations		$	91.1			$	88.3			$	27.9			$	170.5			$	199.6
Non-core operating losses & transaction related expenses			–				–				–				5.6				–
Accelerated depreciation of project management tool			11.3				–				–				22.6				–
Restructuring costs			20.3				8.8				13.0				96.4				34.8
Amortization of intangible assets			5.9				5.4				5.2				18.2				15.9
Prepayment premium on debt			–				–				117.5				–				117.5
Financing charges in interest expense			1.3				2.6				5.7				4.2				10.1
Tax effect of the above adjustments*			(9.8	)			(4.6	)			(34.5	)			(36.5	)			(44.6	)
Valuation allowances and other tax only items			(31.7	)			(0.1	)			(26.5	)			(30.2	)			(29.3	)
Amortization of intangible assets included in NCI, net of tax			(0.1	)			(0.2	)			(0.1	)			(0.3	)			(0.4	)
Adjusted net income attributable to AECOM from continuing operations		$	88.3			$	100.2			$	108.2			$	250.5			$	303.6
___________________
* Adjusts the income tax expense (benefit) during the period to exclude the impact on our effective tax rate of the pre-tax adjustments shown above

AECOM Regulation G Information (in millions, except per share data)
		Three Months Ended												Nine Months Ended
		Jun 30, 2020				Mar 31, 2021				Jun 30, 2021				Jun 30, 2020				Jun 30, 2021
Reconciliation of Net Income Attributable to AECOM from Continuing Operations per Diluted Share to Adjusted Net Income Attributable to AECOM from Continuing Operations per Diluted Share
Net income attributable to AECOM from continuing operations – per diluted share		$	0.56			$	0.59			$	0.19			$	1.06			$	1.32
Per diluted share adjustments:
Non-core operating losses & transaction related expenses			–				–				–				0.03				–
Accelerated depreciation of project management tool			0.07				–				–				0.14				–
Restructuring costs			0.13				0.06				0.09				0.60				0.23
Amortization of intangible assets			0.04				0.04				0.03				0.11				0.11
Prepayment premium on debt			–				–				0.79				–				0.78
Financing charges in interest expense			0.01				0.02				0.04				0.03				0.07
Tax effect of the above adjustments*			(0.06	)			(0.04	)			(0.23	)			(0.22	)			(0.31	)
Valuation allowances and other tax only items			(0.20	)			–				(0.18	)			(0.19	)			(0.19	)
Adjusted net income attributable to AECOM from continuing operations per diluted share		$	0.55			$	0.67			$	0.73			$	1.56			$	2.01
Weighted average shares outstanding – basic			160.1				147.8				146.1				158.7				148.4
Weighted average shares outstanding – diluted			161.8				149.5				148.9				161.1				150.7
_____________________
* Adjusts the income tax expense (benefit) during the period to exclude the impact on our effective tax rate of the pre-tax adjustments shown above.
Reconciliation of Net Income Attributable to AECOM from Continuing Operations to EBITDA to Adjusted EBITDA and to Adjusted Income from Operations
Net income attributable to AECOM		$	91.1			$	88.3			$	27.9			$	170.5			$	199.6
Income tax (benefit) expense			(7.2	)			35.1				(17.8	)			30.3				42.9
Depreciation and amortization1			51.3				41.1				49.5				141.1				130.0
Interest income2			(2.6	)			(1.2	)			(2.2	)			(9.6	)			(4.7	)
Interest expense			34.9				32.8				149.0				112.3				212.5
Amortized bank fees included in interest expense			(1.3	)			(2.6	)			(5.8	)			(4.6	)			(10.2	)
EBITDA		$	166.2			$	193.5			$	200.6			$	440.0			$	570.1
Non-core operating losses & transaction related expenses			–				–				–				5.6				–
Restructuring costs			20.3				8.8				13.0				96.5				34.8
Adjusted EBITDA		$	186.5			$	202.3			$	213.6			$	542.1			$	604.9
Other income			(3.2	)			(3.4	)			(4.5	)			(9.6	)			(11.8	)
Depreciation1			(32.8	)			(33.3	)			(38.6	)			(95.9	)			(104.3	)
Interest income2			2.6				1.2				2.2				9.6				4.7
Noncontrolling interests in income of consolidated subsidiaries, net of tax			3.1				4.8				5.9				12.4				16.1
Amortization of intangible assets included in NCI, net of tax			0.1				0.2				0.1				0.3				0.4
Adjusted income from operations		$	156.3			$	171.8			$	178.7			$	458.9			$	510.0
_____________________
1 Excludes depreciation from discontinued operations, non-core operating losses, and accelerated depreciation of project management tool; 2 Included in other income

AECOM Regulation G Information (in millions, except per share data)
		Three Months Ended									Nine Months Ended
		Jun 30, 2020			Mar 31, 2021			Jun 30, 2021			Jun 30, 2020				Jun 30, 2021
Reconciliation of Segment Income from Operations to Adjusted Income from Operations
Americas Segment:
Income from operations		$	160.8		$	154.7		$	163.8		$	447.6			$	464.9
Amortization of intangible assets			4.5			4.4			4.3			14.0				13.0
Adjusted income from operations		$	165.3		$	159.1		$	168.1		$	461.6			$	477.9
International Segment:
Income from operations		$	32.3		$	45.8		$	45.5		$	96.8			$	133.4
Non-core operating losses & transaction related expenses			–			–			–			(0.1	)			–
Amortization of intangible assets			1.4			1.0			0.9			4.2				2.9
Adjusted income from operations		$	33.7		$	46.8		$	46.4		$	100.9			$	136.3
Segment Performance (excludes ACAP):
Income from operations		$	193.1		$	200.5		$	209.3		$	544.4			$	598.3
Non-core operating losses & transaction related expenses			–			–			–			(0.1	)			–
Amortization of intangible assets			5.9			5.4			5.2			18.2				15.9
Adjusted income from operations		$	199.0		$	205.9		$	214.5		$	562.5			$	614.2

FY2021 GAAP EPS Guidance based on Adjusted EPS Guidance
(all figures approximate)		Fiscal Year End 2021
GAAP EPS Guidance		$2.00 to $2.05
Adjusted EPS excludes:
Amortization of intangible assets		$0.13
Amortization of deferred financing fees		$0.08
Prepayment premium on redemption of unsecured notes		$0.79
Restructuring		$0.27 to $0.33
Tax effect of the above items		($0.35) to ($0.37)
UK tax valuation benefit		($0.17)
Adjusted EPS Guidance		$2.75 to $2.85
* Calculated based on the mid-point of AECOM’s fiscal year 2021 EPS guidance Note: Variances in tables are due to rounding.

FY2021 GAAP Net Income Attributable to AECOM from Continuing Operations Guidance based on Adjusted EBITDA Guidance
(in millions, all figures approximate)		Fiscal Year End 2021
GAAP net income attributable to AECOM from continuing operations guidance*		$300 to $308
Adjusted net income attributable to AECOM from continuing operations excludes:
Amortization of intangible assets		$20
Amortization of deferred financing fees		$12
Prepayment premium on redemption of unsecured notes		$118
Restructuring		$40 to $50
Tax effect of the above items		($52) to ($55)
UK tax valuation benefit		($26)
Adjusted net income attributable to AECOM from continuing operations		$412 to $427
Adjusted EBITDA excludes:
Adjusted interest expense, net		$100
Depreciation		$140
Income tax expense		$157 to $163
Adjusted EBITDA Guidance		$810 to $830
* Calculated based on the mid-point of AECOM’s fiscal year 2021 EPS guidance Note: Variances in tables are due to rounding.

AECOM Regulation G Information
FY2021 GAAP Interest Expense Guidance based on Adjusted Interest Expense Guidance
(in millions, all figures approximate)		Fiscal Year End 2021
GAAP Interest Expense Guidance		$236
Financing charges in interest expense		($12)
Prepayment premium on redemption of unsecured notes		($118)
Interest income		($6)
Adjusted Interest Expense Guidance		$100

FY2021 GAAP Income Tax Guidance based on Adjusted Income Tax Guidance
(in millions, all figures approximate)		Fiscal Year End 2021
GAAP Income tax expense guidance		$79 to $82
Tax effect of adjusting items		$52 to $55
UK tax valuation allowance benefit		$26
Adjusted income tax expense guidance		$157 to $163
Note: Variances in tables are due to rounding.

FY2021 GAAP Operating Cash Flow Guidance based on Free Cash Flow Guidance
(in millions, all figures approximate)		Fiscal Year End 2021
Operating cash flow guidance		$535 to $735
Capital expenditures, net of proceeds from equipment disposals		($110)
Free cash flow guidance		$425 to $625

 

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Posted on August 9, 2021 6:49 pm

Synalloy Reports Strong Second Quarter 2021 Results

Synalloy Reports Strong Second Quarter 2021 Results

– Sequential and Year-Over-Year Growth in Net Sales, Gross Profit, Net Income and Adjusted EBITDA –

RICHMOND, Va.–(BUSINESS WIRE)–
Synalloy Corporation (Nasdaq: SYNL) (“Synalloy” or the “Company”), an industrials company focused on the production and distribution of piping, tubing and specialty chemicals, is reporting its results for the second quarter ended June 30, 2021.

Second Quarter 2021 Summary

(in millions, expect per share and margin)	Q2 2021	Q1 2021	Q2 2020
Net Sales	$83.1	$69.8	$66.1
Gross Profit	$14.1	$8.7	$4.4
Gross Profit Margin	17.0%	12.5%	6.6%
Net Income (Loss)	$2.9	$1.1	$(7.0)
Diluted Earnings (Loss) per share	$0.31	$0.12	$(0.77)
Adjusted EBITDA	$9.8	$4.9	$1.9
Adjusted EBITDA Margin	11.7%	7.0%	2.9%

Management Commentary

“Our second quarter results reflect continued progress on our operational initiatives across the business while establishing a permanent foundation to drive profitable growth,” said Chris Hutter, interim president and CEO of Synalloy. “We achieved net sales growth across both of our segments and continue to see improvements in customer demand for our products.

“The strength experienced in the second quarter is largely attributable to our metals segment, which generated year-over-year and sequential gains across all key financial metrics. This quarter, the segment benefited from favorable trends in commodities pricing, mill throughput and rebounding customer demand. The improvement is also directly attributable to the efforts of our metals segment team members as they work tirelessly to deliver results to our stakeholders. Profitability at our chemicals segment proved to be a challenge during the quarter, as we faced operational hurdles due to labor constraints and product shipment delays related to trucking shortages. Despite these challenges, we are encouraged by the demand from our customers going into the back half of the year and we are continuing to invest in our new leadership team as we take measures to better realize the embedded value in the segment going forward.

“Overall, I am proud of the work our team has put in during the first half of the year and I am grateful for all that we have accomplished together since I joined as interim CEO over nine months ago. Most importantly, we’ve continued to build out our leadership team with proven industry executives and are beginning to benefit from streamlined processes while deepening our customer relationships by delivering best-in-class products, services and solutions. I am confident that we are laying the foundation for sustained shareholder value creation.”

Second Quarter 2021 Financial Results

Net sales increased 26% to $83.1 million compared to $66.1 million in the second quarter of 2020. This increase was attributable to strong volumes and positive trends in commodity prices in the metals segment, as a result of re-opening-driven demand increases and a rising surcharge market.

Gross profit increased significantly to $14.1 million, or 17.0% of net sales, compared to $4.4 million, or 6.6% of net sales, in the second quarter of 2020. The increase in both gross profit and gross margin was driven by the increased pricing that benefited net sales during the quarter, along with operational efficiencies that came with higher volumes.

Net income increased to $2.9 million, or $0.31 diluted earnings per share, compared to a net loss of $(7.0) million, or $(0.77) diluted loss per share, in the second quarter of 2020. Excluding impacts from 2020 activities associated with exiting the Palmer business, net income in the second quarter of 2021 increased $1.9 million over the prior year period.

Adjusted EBITDA increased significantly to $9.8 million compared to $1.9 million in the second quarter of 2020. Adjusted EBITDA margin also improved 880 basis points to 11.7% compared to 2.9% in the prior year period.

Segment Results

Metals – Net sales in the second quarter of 2021 increased 31% to $68.1 million compared to $52.0 million in the second quarter of 2020. Net income in the second quarter increased materially to $6.5 million compared to a net loss of $7.3 million in the prior year period. Adjusted EBITDA in the second quarter increased significantly to $10.1 million compared to $0.5 million in the prior year period. As a percentage of segment net sales, adjusted EBITDA margin improved to 14.8% compared to 0.9% in the second quarter of 2020.

Specialty Chemicals – Net sales in the second quarter of 2021 increased 6% to $15.0 million compared to $14.1 million in the second quarter of 2020. Net loss in the second quarter was $(0.4) million compared to net income of $2.0 million in the prior year period. Adjusted EBITDA in the second quarter was $0.8 million compared to $2.5 million in the prior year period. Adjusted EBITDA margin was 5.2% compared to 17.4% in the second quarter of 2020.

Liquidity

As of June 30, 2021, total debt under the Company’s revolving credit facility was $59.5 million, compared to $61.4 million at December 31, 2020. As of the end of the second quarter of 2021, the Company had $45.5 million of remaining available borrowing capacity under its revolving credit facility, compared to $11.0 million at December 31, 2020.

Conference Call

Synalloy will conduct a conference call today at 5:00 p.m. Eastern time to discuss its results for the second quarter ended June 30, 2021.

Synalloy management will host the conference call, followed by a question-and-answer period.

Date: Monday, August 9, 2021

Time: 5:00 p.m. Eastern time

Toll-free dial-in number: 1-877-303-6648

International dial-in number: 1-970-315-0443

Conference ID: 3593976

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Gateway Investor Relations at 1-949-574-3860.

The conference call will be broadcast live and available for replay here and via the investor relations section of the company’s website at www.synalloy.com.

About Synalloy Corporation

Synalloy Corporation (Nasdaq: SYNL) is a company that engages in a number of diverse business activities including the production of stainless steel and galvanized pipe and tube, the master distribution of seamless carbon pipe and tube, and the production of specialty chemicals. For more information about Synalloy Corporation, please visit its web site at www.synalloy.com.

Forward-Looking Statements

This earnings release includes and incorporates by reference “forward-looking statements” within the meaning of the federal securities laws. All statements that are not historical facts are forward-looking statements. The words “estimate,” “project,” “intend,” “expect,” “believe,” “should,” “anticipate,” “hope,” “optimistic,” “plan,” “outlook,” “should,” “could,” “may” and similar expressions identify forward-looking statements. The forward-looking statements are subject to certain risks and uncertainties, including without limitation those identified below, which could cause actual results to differ materially from historical results or those anticipated. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect opinions only as of the date hereof. The following factors could cause actual results to differ materially from historical results or those anticipated: adverse economic conditions, including risks relating to the impact and spread of and the government’s response to COVID-19; inability to weather an economic downturn; a prolonged decrease in nickel and oil prices; the impact of competitive products and pricing; product demand and acceptance risks; raw material and other increased costs; raw materials availability; financial stability of our customers; customer delays or difficulties in the production of products; loss of consumer or investor confidence; employee relations; ability to maintain workforce by hiring trained employees; labor efficiencies; risks associated with mergers, acquisitions, dispositions and other expansion activities; environmental issues; negative or unexpected results from tax law changes; inability to comply with covenants and ratios required by our debt financing arrangements; and other risks detailed in the Form 10-K for the fiscal year ended December 31, 2020 filed with the Securities and Exchange Commission (“SEC”) on March 9, 2021, particularly under the heading of “Risk Factors” and from time-to-time in Synalloy Corporation’s Securities and Exchange Commission filings. Synalloy Corporation assumes no obligation to update any forward-looking information included in this release.

Non-GAAP Financial Information

Financial statement information included in this earnings release includes non-GAAP (Generally Accepted Accounting Principles) measures and should be read along with the accompanying tables which provide a reconciliation of non-GAAP measures to GAAP measures.

Adjusted EBITDA is a non-GAAP measure and excludes asset impairments, interest expense (including change in fair value of interest rate swap), income taxes, depreciation, amortization, stock-based compensation, non-cash lease expense, acquisition costs and other, proxy contest costs and recoveries, earn-out adjustments, loss on extinguishment of debt, loss (gain) on investments in equity securities and other investments, retention expense and restructuring & severance costs from net income.

Management believes that these non-GAAP measures provides additional useful information to allow readers to compare the financial results between periods. Non-GAAP measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider the Company’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. Non-GAAP measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company’s results or financial condition as reported under GAAP.

SYNALLOY CORPORATION
Condensed Consolidated Balance Sheets
(in thousands)
	(Unaudited)
	June 30, 2021				December 31, 2020
Assets
Cash	$	761			$	236
Accounts receivable, net of allowance for credit losses of $134 and $496, respectively	41,081				28,183
Inventories, net	90,195				85,080
Prepaid expenses and other current assets	10,358				13,384
Total current assets	142,395				126,883
Property, plant and equipment, net	31,777				35,096
Right-of-use assets, operating leases, net	31,092				31,769
Goodwill	1,355				1,355
Intangible assets, net	10,066				11,426
Deferred charges, net	352				455
Total assets	$	217,037			$	206,984
Liabilities and Shareholders’ Equity
Accounts payable	$	25,307			$	19,732
Accounts payable – related parties	632				—
Accrued expenses and other current liabilities	8,547				6,123
Current portion of long-term debt	1,750				875
Current portion of earn-out liability	3,047				3,434
Current portion operating lease liabilities	927				867
Current portion of finance lease liabilities	45				19
Total current liabilities	40,255				31,050
Long-term debt	57,750				60,495
Long-term portion of earn-out liability	—				287
Long-term portion of operating lease liabilities	32,281				32,771
Long-term portion of finance lease liabilities	53				37
Deferred income taxes	1,881				1,957
Other long-term liabilities	86				92
Shareholders’ equity	84,731				80,295
Total liabilities and shareholders’ equity	$	217,037			$	206,984

Note: The condensed consolidated balance sheet at December 31, 2020 has been derived from the audited consolidated financial statements at that date.

SYNALLOY CORPORATION
Condensed Consolidated Statement of Operations – Comparative Analysis (Unaudited)
(in thousands, except per share data)
	Three Months Ended June 30,								Six Months Ended June 30,
	2021				2020				2021				2020
Net sales
Metals Segment	$	68,097			$	52,018			$	123,311			$	112,681
Specialty Chemicals Segment	14,990				14,118				29,554				28,152
	$	83,087			$	66,136			$	152,865			$	140,833
Operating income (loss)
Metals Segment	$	7,504			$	(9,155	)		$	10,081			$	(8,221	)
Specialty Chemicals Segment	(414		)		1,980				642				2,447
Unallocated expense (income)
Corporate	1,360				1,586				3,127				3,607
Acquisition costs and other	—				6				—				135
Proxy contest costs and recoveries	632				2,734				168				2,909
Earn-out adjustments	1,044				(827		)		1,270				(823		)
Operating income (loss)	4,054				(10,674		)		6,158				(11,602		)
Interest expense	353				532				739				1,251
Loss on extinguishment of debt	—				—				223				—
Change in fair value of interest rate swap	—				(4		)		(2		)		81
Other, net	—				(2,129		)		162				(1,303		)
Income (loss) before income taxes	3,701				(9,073		)		5,036				(11,631		)
Income tax provision (benefit)	815				(2,116		)		1,056				(3,496		)
Net income (loss)	$	2,886			$	(6,957	)		$	3,980			$	(8,135	)
Net income (loss) per common share
Basic	$	0.31			$	(0.77	)		$	0.43			$	(0.90	)
Diluted	$	0.31			$	(0.77	)		$	0.43			$	(0.90	)
Average shares outstanding
Basic	9,233				9,058				9,212				9,066
Diluted	9,331				9,058				9,315				9,066
Other data:
Adjusted EBITDA (1)	$	9,763			$	1,947			$	14,639			$	4,587

(1) The term Adjusted EBITDA is a non-GAAP financial measure that the Company believes is useful to investors in evaluating its results to determine the value of a company. An item is included in the measure if its periodic value is inconsistent and sufficiently material that not identifying the item would render period comparability less meaningful to the reader or if including the item provides a clearer representation of normalized periodic earnings. The Company includes in Adjusted EBITDA two categories of items: 1) Base EBITDA components, including: interest expense (including change in fair value of interest rate swap), income taxes, depreciation and amortization, and 2) Material transaction costs including: asset impairment, acquisition costs and other fees, loss on extinguishment of debt, proxy contest costs and recoveries, earn-out adjustments, realized and unrealized (gains) and losses on investments in equity securities and other investments, stock-based compensation, non-cash lease expense, retention costs and restructuring & severance costs from net income. For a reconciliation of this non-GAAP measure to the most comparable GAAP equivalent, refer to the Reconciliation of Net Income (Loss) to Adjusted EBITDA.

SYNALLOY CORPORATION
Consolidated Statement of Cash Flows (Unaudited)
(in thousands)
	Six Months Ended June 30,
(in thousands)	2021				2020
Operating activities
Net income (loss)	$	3,980			$	(8,135	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation expense	3,591				3,866
Amortization expense	1,360				1,619
Amortization of debt issuance costs	46				80
Asset impairments	233				6,079
Loss on extinguishment of debt	223				—
Unrealized gain on equity securities	—				(208		)
Deferred income taxes	(76		)		(458		)
Proceeds from business interruption insurance	—				1,040
Gain on sale of equity securities	—				(31		)
Earn-out adjustments	1,270				(823		)
Payments of earn-out liabilities in excess of acquisition date fair value	—				(292		)
(Reduction of) provision for losses on accounts receivable	(362		)		316
Provision for losses on inventories	368				553
(Gain) loss on disposal of property, plant and equipment	(81		)		238
Non-cash lease expense	249				256
Non-cash lease termination loss	—				24
Change in fair value of interest rate swap	(2		)		81
Stock-based compensation expense	456				766
Changes in operating assets and liabilities:
Accounts receivable	(12,536		)		(1,917		)
Inventories	(5,482		)		(1,411		)
Other assets and liabilities	(570		)		(2,225		)
Accounts payable	5,575				3,694
Accounts payable – related parties	632				—
Accrued expenses	1,370				(203		)
Accrued income taxes	4,751				(3,082		)
Net cash provided by (used in) operating activities	4,995				(173		)
Investing activities
Purchases of property, plant and equipment	(563		)		(1,969		)
Proceeds from disposal of property, plant and equipment	138				100
Proceeds from sale of equity securities	—				2,667
Net cash (used in) provided by investing activities	(425		)		798
Financing activities
Borrowings from long-term debt	38,398				5,080
Payments on long-term debt	(40,269		)		(2,000		)
Principal payments on finance lease obligations	(19		)		(93		)
Payments for finance lease terminations	—				(204		)
Payments on earn-out liabilities	(1,944		)		(1,987		)
Payments for termination of interest rate swap	(46		)		—
Repurchase of common stock	—				(635		)
Payments for deferred financing costs	(165		)		—
Net cash (used in) provided by financing activities	(4,045		)		161
Increase in cash and cash equivalents	525				786
Cash and cash equivalents, beginning of period	236				626
Cash and cash equivalents, end of period	$	761			$	1,412

SYNALLOY CORPORATION
Non-GAAP Financial Measures Reconciliation
Reconciliation of Net Income (Loss) to Adjusted EBITDA (Unaudited)
($ in thousands)
	Three Months Ended June 30,								Six Months Ended June 30,
	2021				2020				2021				2020
Consolidated
Net income (loss)	$	2,886			$	(6,957	)		$	3,980			$	(8,135	)
Adjustments:
Interest expense	353				532				739				1,251
Change in fair value of interest rate swap	—				(4		)		(2		)		81
Income taxes	815				(2,116		)		1,056				(3,496		)
Depreciation	1,774				1,989				3,591				3,947
Amortization	680				810				1,360				1,619
EBITDA	6,508				(5,746		)		10,724				(4,733		)
Acquisition costs and other	—				6				—				138
Proxy contest costs and recoveries (1)	632				2,734				168				2,909
Loss on extinguishment of debt	—				—				223				—
Earn-out adjustments	1,044				(827		)		1,270				(823		)
Loss (gain) on investment in equity securities and other investments	—				(1,092		)		363				(240		)
Asset impairments	233				6,079				233				6,079
Stock-based compensation	269				430				456				766
Non-cash lease expense	124				128				249				256
Retention expense	476				235				476				235
Restructuring and severance costs	477				—				477				—
Adjusted EBITDA	$	9,763			$	1,947			$	14,639			$	4,587
% sales	11.7		%		2.9		%		9.6		%		3.3		%
Metals Segment
Net income (loss)	$	6,463			$	(7,308	)		$	9,002			$	(6,381	)
Adjustments:
Interest expense	—				7				—				11
Depreciation expense	1,350				1,559				2,742				3,070
Amortization expense	680				810				1,360				1,619
EBITDA	8,493				(4,932		)		13,104				(1,681		)
Acquisition costs and other	—				—				—				3
Earn-out adjustments	1,044				(827		)		1,270				(823		)
Asset impairments	—				6,079				—				6,079
Stock-based compensation	46				130				83				171
Retention expense	476				—				476				—
Restructuring and severance costs	50				—				50				—
Metals Segment Adjusted EBITDA	$	10,109			$	450			$	14,983			$	3,749
% segment sales	14.8		%		0.9		%		12.2		%		3.3		%
Specialty Chemicals Segment
Net income (loss)	$	(414	)		$	1,980			$	641			$	2,460
Adjustments:
Interest expense	—				1				—				9
Depreciation expense	390				389				776				792
EBITDA	(24		)		2,370				1,417				3,261
Asset impairments	233				—				233				—
Stock-based compensation	136				80				167				118
Restructuring and severance costs	427				—				427				—
Specialty Chemicals Segment Adjusted EBITDA	$	772			$	2,450			$	2,244			$	3,379
% segment sales	5.2		%		17.4		%		7.6		%		12.0		%

(1) Proxy contest costs and recoveries for the three months ended June 30, 2021 are reimbursements of documented, out-of-pocket costs to Privet and UPG. Proxy contest costs and recoveries for the six months ended June 30, 2021 are reimbursements of documented, out-of-pocket costs to Privet and UPG partially offset by insurance recoveries for costs related to the 2020 shareholder activism.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20210809005659/en/

Company

Sally Cunningham

Senior Vice President & Chief Financial Officer

1-804-822-3260

Investor Relations

Cody Slach or Cody Cree

Gateway Investor Relations

1-949-574-3860

[email protected]

KEYWORDS: United States North America Virginia

INDUSTRY KEYWORDS: Manufacturing Other Manufacturing Steel Engineering Chemicals/Plastics

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