FXI reports EBITDA dip, inks sale leaseback and eyes tuck-in acquisitions

FXI Holdings (aka Foamex Innovations) reported an increase in revenue in 2Q18, though EBITDA dipped slightly amid higher costs, said two sources familiar with the matter. Meanwhile the company also boosted liquidity with a sale leaseback deal, and aims to deploy proceeds toward tuck-in acquisitions, they said.

FXI sold six US properties and one in Mexico for a total of USD 109.5m, the sources said. Management said on the earnings call yesterday that they would pursue tuck-ins aimed at offsetting weakness in the auto and medical technology markets, the sources said.

Pro forma the sale leaseback, FXI’s total gross leverage and net leverage came to 5.5x and 3.8x, respectively, based on LTM EBITDA of USD 98.7m and USD 543m of total debt. Following the potential acquisitions, management aims to keep gross total leverage around 5x, according to the sources.

FXI’s USD 525m 7.875% senior secured notes due 2024 traded as low as 96.25 to yield 8.67% last week after the earnings report, from prints at 98 in early August, according to MarketAxess. The notes recovered slightly to last trade at 96.75 on Monday (27 August).

The foam provider booked USD 230m in net sales at 2Q, up 6% year-over-year, primarily related to market price increases due to rising input costs and higher net sales in FXI’s direct-to-consumer mattress sales channel – partially offset by lower net sales to the company’s traditional home furnishings customers, sources said. The USD 230m in net sales came in slightly higher than market estimates of USD 225m, the sources added.

Adjusted EBITDA for the quarter decreased by 6% to USD 27m, but came in higher than market estimates of USD 25m, primarily related to higher manufacturing costs in the home furnishings business unit, excluding the DTC mattress channel, incurred in connection with the launch of new products, sources said.

Investors expect the company to generate USD 30m of free cash flow in fiscal year 2018, with USD 100m of expected EBITDA, USD 21m of capex and USD 43m of interest.

Of note, sales in the transportation segment steadied for the quarter, increasing 0.4% YoY, after several years of trending downward, one of the sources pointed out. The segment typically contributes just under half of the company’s revenue, and has declined to USD 200m in 1H18 from USD 205m in 1H17 and USD 207m in 1H16.

Management said that automaker destocking, amid softer auto sales, has contributed to lower volumes in FXI’s transportation segment, a source added. Though US automobile sales showed year-over-year volume growth from 2015 to 2016 – reaching historic levels of over 17m units sold annually – 2017 marked the beginning of a pullback from the peak, according to the seasonally adjusted, annualized rate of sales (SAAR) as calculated by IHS Markit.

And looking ahead, 2018 so far is slightly softer with the SAAR estimate as of July falling to 16.73m, the weakest reading since a reported 16.58m in August 2017 due to Hurricane Harvey.

FXI’s ability to generate revenue growth in its transportation unit is largely dependent on an overall uptick in auto sales, one of the sources said. More recently, its growth has come from the bedding side. “The company got a boost in demand from online mattress companies, which showed revenue growth, some of which was driven by cost increases,” he added.

The company’s home furnishings segment revenue for the first half of 2018 totaled USD 214.7m (47% of total 1H18 revenue), up 16% YoY from USD 185.2m (42% of total 1H17 revenue), according to sources.

FXI’s liquidity totaled around USD 257m at quarter end, including USD 168m in cash and USD 89m of revolver availability, sources said.

The company tapped the market in October 2017 for the 2024 notes to fund its acquisition by One Rock Capital, according to Debtwire data.

A representative for FXI said the company does not comment publicly on financial matters.

2018 Debtwire

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