Encompass Reports Financial Results for Third Quarter of 2001; Company Announces Amended Credit Agreement
HOUSTON--(BUSINESS WIRE)--Nov. 12, 2001--Encompass Services Corporation (NYSE:ESR) today announced financial results for the three- and nine-month periods ended Sept. 30, 2001.
For the three months ended Sept. 30, on revenues of $939.5 million, Encompass reported the following, before special items:
-- EBITDA of $46.6 million
-- Pre-tax income from continuing operations of $7.3 million
-- A loss from continuing operations of $3.9 million, or ($.14)
per diluted share
-- Cash EPS from continuing operations of ($.01)
For the nine months ended Sept. 30, on revenues of $3.0 billion, Encompass reported the following, before special items:
-- EBITDA of $179.6 million
-- Pre-tax income from continuing operations of $61.7 million
-- Earnings from continuing operations of $25.2 million, or $.15
per diluted share
-- Cash EPS from continuing operations of $.56
Through the first nine months of 2001, Encompass generated free cash flow of $104 million and reduced total debt by approximately $84 million.
The earnings, EBITDA and EPS figures above exclude approximately $25 million of special items primarily related to costs incurred at a couple of locations where operational and integration activities proved to be abnormally challenging. Including these costs, for the three months ended Sept. 30, Encompass reported EBITDA of $21.6 million; a loss from continuing operations of $18.5 million, or ($.37) per diluted share; and cash EPS from continuing operations of ($.23). For the nine months ended Sept. 30, Encompass reported EBITDA of $154.6 million; income from continuing operations of $10.6 million, or a loss of ($.07) per diluted share; and cash EPS from continuing operations of $.34.
As previously reported, the company discontinued its Encompass Global Technologies (EGT) group during the third quarter of 2001. Operating losses during the third quarter and estimated losses on the disposition of EGT totaled $27.5 million, net of tax, or $.43 per common share.
"External and internal circumstances during the quarter combined to produce financial results that fell far below what we had originally expected and what we find acceptable," said Joe Ivey, Encompass president and chief executive officer. "Despite our financial performance, we're encouraged by our cash generation and debt repayment results, as well as the strong foundation we have secured through our operational integration."
Nationwide, spending on private, non-residential construction declined for the sixth consecutive month in September, and the company continued to experience contract delays and cancellations through the third quarter. Gross margin was negatively impacted by pricing pressure caused by increased competition in some markets, and a business mix that featured a significantly reduced component of higher-margin technology and telecommunications work.
"External circumstances were only partly to blame for our margin erosion," said Ivey. "The distractions from day-to-day business caused by our integration, as well as prior accelerated revenue growth of more than 20 percent in 2000, stretched our project management and process disciplines, leading to a greater than normal number of underperforming projects moving toward closure during the quarter."
Encompass Amends Credit Agreement
Encompass announced that it recently amended its senior credit facility. The amended terms provide for a revolving credit facility of $300 million, increasing to $350 million once certain total and senior debt leverage ratios are achieved, and term loans of approximately $400 million, as well as significantly increased flexibility with respect to financial covenants through 2003. Encompass had borrowed $558 million under these facilities as of Nov. 8, 2001, leaving $133 million available for future borrowings.
"We believe this amended facility, and ongoing operations, provide us with sufficient financial flexibility and liquidity to execute our business plan," said Ivey. "We remain committed to reducing debt, improving our balance sheet and prudently managing working capital. Our year-to-date results demonstrate that our diligence in these areas is paying off."
Operational Integration Nears Completion
The company's regional/branch office structure provides a more integrated focus on local and regional markets and customers, optimal management span of control both operationally and financially, and more efficient cross-selling and bundling of services.
"Our operational integration has been successful, though it has been more costly than we originally expected," said Ivey. "Since the first of the year, we have reduced the number of systems operating in the field by approximately half. Going forward, this should allow us to manage our business and share best practices more effectively."
Encompass Responds to Weak Economic Environment
Encompass is taking the following steps to significantly improve profitability in light of the current economic environment:
-- Earlier this year, the company reduced its budgeted 2001
selling, general and administrative (SG&A) expenses by
approximately $50 million, and continues to aggressively
reduce overhead expenses.
-- Encompass continues to size its business based on the expected
level of activity, taking advantage of the large degree of
variability in its cost structure. Virtually all of its cost
of services, as well as a large portion of SG&A expenses, are
variable.
-- The company continues to consolidate agreements to earn volume
discounts and gain efficiencies in materials handling and
labor costs.
Backlog and Outlook
The company's backlog, excluding that of the discontinued Global Technologies group, was $1.72 billion at Sept. 30, a 5 percent increase from $1.64 billion at June 30. The Sept. 30 backlog had minimal technology, telecommunications, travel, lodging and tourism components.
"We anticipate that the national economy will languish through at least mid-2002, and we will continue to manage our business appropriately," said Ivey. "Despite the current economic environment, we are optimistic about the future. The size and mix of our backlog is encouraging, and our revenue mix is shifting toward more retrofit, maintenance and service of existing facilities.
"We believe that the most difficult, distracting and costly components of our integration are now behind us, and that we are well-positioned to emerge from the current economic cycle in a strong financial and operational position."
Conference Call and Webcast Information
The company will host a conference call and Webcast to discuss the results on Tuesday, Nov. 13, at 10 a.m. Eastern Time. The Webcast will include a presentation by members of senior management.
To participate in the call, dial 1-800-218-6110 five to ten minutes before the call begins and ask for the Encompass Services conference. To view the presentation during the call, visit the company's Web site at www.encompserv.com at least 10 minutes prior to the call to pre-register, test connections and download any necessary complimentary software.
Participants who do not wish to ask questions during the call are encouraged to listen to the audio and view the presentation via the Webcast.
A replay will be available approximately two hours after the live broadcast ends and will be accessible until Tuesday, Nov. 20. To access the replay, dial 1-800-405-2236 and use passcode number 409479.
The call and presentation also will be archived on the company's Web site. |
