#Nonwovens / Technical Textiles
Lydall announces first quarter 2021 results; strong demand across the business drives healthy margin expansion
• Net sales of $227.1 million, up 13.3% compared to prior year on strong demand across all three segments; up 10.8% organically
• Gross margin and adjusted gross margin of 21.4%, up 220 bps
• Net income of $5.1 million or $0.28 per diluted share compared to loss per share of ($3.25) in Q1-2020; Adjusted earnings per diluted share of $0.35 compared to adjusted earnings per diluted share of $0.20
• EBITDA of $22.7 million or 10.0% of sales; Adjusted EBITDA up 22.0% to $24.4 million, or 10.7% of sales
• Total debt net of cash of $172.3 million, compared to $200.3 million at March 31, 2020; net debt leverage ratio of 2.4x
“I’m thrilled to report that Lydall delivered another very strong quarter led by sales growth and sequential margin expansion in every business segment. We continue to execute on our strategic roadmap and leverage our strong product portfolio to deliver measurable results as we help our customers win,” said Sara A. Greenstein, President and Chief Executive Officer.
PM specialty filtration sales grew 32.7% or $8.5 million, and sales of sealing and advanced solutions products were up 14.4%. “Incremental fine fiber meltblown capacity at Rochester and St. Rivalain, France remains on schedule for full production rates in early third quarter, which we expect to contribute to strong growth and further margin expansion for PM."
Elevated automotive demand continued globally, with parts sales in the Thermal Acoustical Solutions (“TAS”) segment growing 11.9% compared to last year, and 4.3% compared to the fourth quarter of 2020. “The TAS business eliminated COVID-related high cost temporary labor in our North American operations and continues to deliver sequential margin improvements.”
Lydall’s Technical Nonwovens (“TNW”) segment saw sales growth of 7.4%, led by strong growth in Canada and China. Favorable mix and productivity drove EBITDA margin expansion both year over year and sequentially.
Q1 2021 Consolidated Results
Net sales of $227.1 million increased by $26.6 million, or 13.3% compared to the first quarter of 2020. Consolidated sales were up 10.8% organically, led by 19.9% growth in PM on strong specialty filtration and sealing volumes, healthy growth of 8.1% in TAS on robust automotive demand, and growth of 1.8% in the TNW segment.
Operating income of $12.1 million improved by $67.7 million dollars from the first quarter 2020 operating loss of $55.6 million dollars, which included impairment charges of $61.1 million.
Consolidated adjusted EBITDA of $24.4 million was up $4.4 million or 22.0% from the first quarter of 2020. Adjusted EBITDA margin of 10.7% expanded 70 basis points from prior year and 230 basis points from fourth quarter 2020. This was led by strong margin gains in PM which delivered adjusted EBITDA margin of 26.5%, up sharply from prior year driven by favorable mix of specialty filtration products and higher volume of sealing sales. Continued operational improvements in North America were the primary driver of sequential EBITDA margin expansion of 290 basis points in TAS, while TNW volume and mix led to sequential EBITDA margin expansion of 170 basis points.
Randall B. Gonzales, Chief Financial Officer, commented, “PM continues to perform in line with our expectations fueled by strong, profitable growth of specialty filtration volumes, and effectively leveraging fixed costs as sealing and specialty insulation volumes accelerate. Lydall’s focus on reshaping our portfolio to meet our customer’s diverse needs, combined with a commitment to operational excellence, are key components to delivering healthy margin expansion and strong cash flows.”
Liquidity
Net cash provided by operations in the first quarter was $0.2 million driven by higher net income, offset by higher working capital which increased primarily due to higher sales. At March 31, 2021, the Company’s total debt was $261.0 million, or $172.3 million net of $88.7 million of cash, including $9.5 million of debt repayment in the first quarter. Net debt decreased by $28.1 million and net debt leverage ratio of 2.4x improved 0.1 turns compared to the same period in 2020.
Strong financial performance enabled Lydall to take advantage of favorable credit markets and to execute a new credit facility in April, extending the maturity to 2026, and modifying pricing which the Company expects will result in approximately $4 million of interest expense savings in 2021. The Company also announced a $30 million share repurchase program. Mr. Gonzales commented, “Lydall’s execution has proven that we have the right strategy to deliver profitable growth and sustainable cash flow, enabling us to not only invest in high return organic projects, but also manage our debt and return capital to shareholders.”
Outlook
Ms. Greenstein commented, “Our strategy is delivering results. As we focus on the Grow and Differentiate phase, we see continued robust demand in 2021 across all of the key end markets that leverage Lydall’s diverse product portfolio. In addition, our strong innovation pipeline addresses the megatrends driving the post-pandemic global economic rebound. Specialty filtration solutions that address enhanced indoor air quality requirements will accelerate with the completion of Lydall’s innovation focused Filtration Center of Excellence. Stricter industrial emission regulations will drive continued demand for higher performance outdoor air quality solutions. Demand for high performance sealing solutions across a myriad of end use applications and ultra-low temperature insulation for cryogenic applications remain robust. Recent announcements related to domestic infrastructure investment are expected to benefit our geosynthetics business, while accelerated EV adoption leverages Lydall’s deep OEM customer partnerships and engineering expertise in vehicle light-weighting, thermal management, and acoustical abatement products.
“Our focus on One Lydall initiatives and bias for quick, decisive, and data driven actions have enabled Lydall to deliver strong first quarter results even in light of the pandemic and significant global supply chain disruptions.” Ms. Greenstein concluded, “We are confident that these hard-won gains on operational excellence, cost flexibility, cash discipline, and relentless customer focus will continue going forward, positioning Lydall to deliver superior results in 2021.”
