Barnes Reports Third Quarter 2024 Financial Results

Strong Aerospace Aftermarket Drives Top-line Growth

Comparisons are year-over-year unless noted otherwise

Third Quarter 2024:

• Sales of $388 million, up 7%; Organic Sales up 4%
• Operating Margin of 10.8%; Adjusted Operating Margin of 12.3%, up 150 bps
• Adjusted EBITDA Margin of 19.8%, up 140 bps
• GAAP EPS of -$0.04; Adjusted EPS of $0.09, down 52%

Barnes Group Inc. (NYSE:B), a global provider of highly engineered products, differentiated industrial technologies, and innovative solutions, today reported financial results for the third quarter of 2024.

"In the third quarter, despite ongoing production delays from aircraft manufacturers, our Aerospace OEM business generated extraordinarily strong orders in anticipation of a future industry re-ramp. Meanwhile, our Aerospace aftermarket business continues to deliver robust performance on strong top-line growth. With the MB Aerospace integration and synergies progressing ahead of plan, we are delivering on our strategy to scale Aerospace and transform Barnes," said Thomas J. Hook, President and Chief Executive Officer of Barnes. "Over the last eighteen months, we have taken numerous actions to unlock the underlying value of Barnes by growing Aerospace, simplifying Industrial, investing in our businesses, and streamlining costs. Collectively, these actions have helped to position us for long-term profitable growth and led to outside interest in Barnes. As such, we are excited about our pending acquisition by Apollo Funds."

Barnes to be Acquired by Apollo Funds

As announced on October 7, 2024, Barnes has entered into a definitive agreement to be acquired by funds managed by affiliates of Apollo Global Management, Inc. (NYSE:APO) ("Apollo") (the "Apollo Funds") in an all-cash transaction that values Barnes at an enterprise value of approximately $3.6 billion. Under the terms of the agreement, Barnes shareholders will receive $47.50 per share in cash. The transaction is subject to customary closing conditions, including approval by Barnes shareholders and receipt of required regulatory approvals. The transaction is expected to close in the first quarter of 2025.

Third Quarter 2024 Highlights

Sales of $388 million were up 7% versus the same quarter a year ago, with organic growth of 4%. The net beneficial impact of acquisition and divestiture related sales was approximately 3%, while foreign exchange increased sales by approximately 1%.

Adjusted operating income of $47.9 million increased 23% and adjusted operating margin of 12.3% increased 150 bps. Adjusted operating income excludes restructuring and transformation-related charges of $3.8 million, additional costs related to the sale of Associated Spring and Hänggi of $1.7 million, and MB Aerospace short-term purchase accounting adjustments of $0.6 million. Adjusted EBITDA was $76.9 million, up 16% from a year ago and adjusted EBITDA margin was 19.8%, up 140 bps.

Interest expense was $19.6 million, down 14% from $22.8 million a year ago due to last year's one-time bridge financing fees of $9.5 million that were included in interest expense, offset in part by higher average borrowings from the purchase of MB Aerospace and a higher average interest rate given the recapitalization of the Company's debt structure.

The Company's effective tax rate for the third quarter of 2024 was 110% driven by a $7.4 million tax provision related to the Income Inclusion Rule under Pillar Two which significantly reduces the benefit of tax holidays especially in Malaysia, a Canadian discrete tax item of $3.0 million, and the non-deductibility of transaction costs associated with the Company's pending sale to Apollo Funds impacting tax by $1.6 million.

Net loss was $2.1 million, or -$0.04 per share, compared to a net loss of $21.7 million, or -$0.43 per share in the prior year. On an adjusted basis, net income per share of $0.09 was down 53% from $0.19. Adjusted net income per share excludes $0.06 of restructuring and transformation-related charges, a $0.03 adjustment to the loss on sale of Associated Spring and Hänggi, $0.03 of income tax effects on non-deductible merger costs, and $0.01 of MB Aerospace short-term purchase accounting adjustments.

Year-to-date cash provided by operating activities was $49.8 million versus $71.0 million a year ago. The decrease from the prior year was primarily due to an increase in working capital and divestiture related income tax payments. Capital expenditures of $41.8 million year-to-date increased $4.4 million over the prior year, driven by investments related to the Company's restructuring program and investments for growth. Year-to-date free cash flow, adjusted for the tax payments related to the divestiture, was $20.4 million.

Segment Performance

Aerospace

Third quarter sales in the Aerospace segment were $232 million, up 49%. Organic sales increased 9%, and acquisition related sales added 39%. Aerospace original equipment manufacturing ("OEM") sales increased 38%, while aftermarket sales increased 67%. On an organic basis, OEM sales decreased 1% and aftermarket sales increased 27%. Segment operating profit was $35.3 million versus $3.6 million a year ago. Adjusted operating profit of $36.3 million was up 55%, while adjusted operating margin increased 70 bps to 15.7%. Adjusted operating profit excludes restructuring and transformation related charges of $0.4 million and MB Aerospace short-term purchase accounting adjustments of $0.6 million. Adjusted operating profit benefited from the contribution of higher organic sales volumes, inclusive of pricing, the contribution of MB Aerospace sales, and positive productivity, partially offset by the amortization of long-term acquired intangibles. Aerospace adjusted EBITDA was $55.9 million, up 52%, and adjusted EBITDA margin was 24.1%, up 60 bps from a year ago.

Aerospace OEM backlog ended the third quarter at $1.80 billion, up 19% sequentially from June 2024 on a strong book-to-bill of 2.9 times.

Industrial

Third quarter sales in the Industrial segment were $156 million, down 24% primarily due to the sale of the Associated Spring and Hänggi businesses. On an organic basis, sales were up 1% from a year ago. Operating profit was $6.5 million versus $6.4 million in the prior year. Adjusted operating profit was $11.6 million, down 26%, and adjusted operating margin was 7.4%, down 20 bps. The lower adjusted operating profit reflects divested profits from the sale of the Associated Spring and Hänggi businesses and lower productivity, partially offset by positive pricing. Adjusted operating profit excludes restructuring and transformation-related charges of $3.4 million and additional costs related to the sale of Associated Spring and Hänggi of $1.7 million. Adjusted EBITDA was $21.6 million, down 25% from a year ago, and adjusted EBITDA margin was 13.9%, down 20 bps.

Leverage

Barnes' "Net Debt to EBITDA" ratio, as defined in our credit agreements, was 3.35 times on September 30, 2024, down from 3.48 times on June 30, 2024.

Canceled Third Quarter 2024 Earnings Call and Suspension of Guidance

Given the pending acquisition of Barnes by Apollo Funds, the Company will not be conducting a third quarter 2024 conference call and webcast. In addition, Barnes is suspending its financial guidance for the full year 2024.

Non-GAAP Financial Measures

The financial statements included within this press release are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP" or "U.S. GAAP"). The Company provides additional information with respect to certain non-GAAP financial measures, which include organic sales growth, adjusted operating profit, adjusted operating margin, adjusted EBITDA, adjusted EBITDA margin, adjusted EPS and Free Cash Flow. While these financial measures do not constitute U.S. GAAP measures, nor are they a substitute for U.S. GAAP measures, we believe they provide useful information to investors in understanding the ongoing operating performance of the Company. Investors should consider non-GAAP measures in addition to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with U.S. GAAP. Tables reconciling non-GAAP to GAAP financial measures, including forward looking outlook information, are presented at the end of this press release. The Company believes that these non-GAAP measures provide useful information to investors:

• Organic sales growth represents the total reported sales increase within the Company's ongoing businesses less the impact of foreign currency translation and acquisitions/divestitures completed in the preceding twelve months. Management believes that organic sales growth provides an indication of baseline revenue performance and growth.

• Adjusted operating profit, adjusted operating margin and adjusted EPS provide an indication of our baseline profit performance. Management believes that these metrics are useful to investors as they exclude items that do not reflect our ongoing results.

• Adjusted EBITDA and Adjusted EBITDA margin provide adjusted earnings before interest, income tax, depreciation and amortization. Through acquisitions, the Company has incurred significant amortization expense (acquired intangible assets) and additional interest expense from debt-funded acquisitions. Management believes these financial metrics are useful to investors as they exclude the impact of these items.

• Free Cash Flow is defined by the Company as net cash provided by operating activities less capital expenditures. The Company believes that the free cash flow metric represents a measure of cash generated by business operations that can be used to invest in future growth, pay dividends, repurchase stock and reduce debt. This metric can also be used to evaluate the Company's ability to generate cash flow from business operations and the impact that this cash flow has on the Company's liquidity.

About Barnes

Barnes Group Inc. (NYSE:B) leverages world-class manufacturing capabilities and market-leading engineering to develop advanced processes, automation solutions, and applied technologies for industries ranging from aerospace and medical & personal care to mobility and packaging. With a celebrated legacy of pioneering excellence, Barnes delivers exceptional value to customers through advanced manufacturing capabilities and cutting-edge industrial technologies. Barnes Aerospace specializes in the production and servicing of intricate fabricated and precision-machined components for both commercial and military turbine engines, nacelles, and airframes. Barnes Industrial excels in advancing the processing, control, and sustainability of engineered plastics and delivering innovative, custom-tailored solutions for industrial automation and metal forming applications. Established in 1857 and headquartered in Bristol, Connecticut, USA, the Company has manufacturing and support operations around the globe. For more information, visit please visit www.onebarnes.com.

Forward-Looking Statements

Certain statements in this press release are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended and the Private Securities Litigation Reform Act of 1995. Forward-looking statements often address our expected future operating and financial performance and financial condition, and often contain words such as "anticipate," "believe," "expect," "plan," "estimate," "project," "continue," "will," "should," "may," and similar terms. These forward-looking statements do not constitute guarantees of future performance and are subject to a variety of risks and uncertainties that may cause actual results to differ materially from those expressed in the forward-looking statements. These risks and uncertainties include, among others: the occurrence of any event, change or other circumstances that could give rise to the termination of the Agreement and Plan of Merger (the "Merger Agreement") pursuant to which the Company has agreed to be acquired by funds managed by affiliates of Apollo Global Management, Inc. (the "Merger") or extend the anticipated timetable for completion of the Merger; the failure to obtain approval of the proposed Merger from the Company's shareholders or certain required regulatory approvals or the failure to satisfy any of the other closing conditions to the completion of the Merger within the expected timeframes or at all; risks related to disruption of management's attention from the Company's ongoing business operations due to the Merger; the risk of any unexpected costs or expenses resulting from the Merger; the risk of any litigation relating to the Merger; the effect of the announcement of the Merger on the ability of the Company to retain and hire key personnel and maintain relationships with its customers, suppliers and others with whom it does business, or on its operating results and business generally; the Company's ability to manage economic, business and geopolitical conditions, including rising interest rates, global price inflation and shortages impacting the availability of materials; the duration and severity of unforeseen events such as an epidemic or a pandemic, including their impacts across our business on demand, supply chains, operations and liquidity; failure to successfully negotiate collective bargaining agreements or potential strikes, work stoppages or other similar events; changes in market demand for our products and services; rapid technological and market change; the ability to protect and avoid infringing upon intellectual property rights; challenges associated with the introduction or development of new products or transfer of work; higher risks in global operations and markets; the impact of intense competition; the physical and operational risks from natural disasters, severe weather events, and climate change which may limit accessibility to sufficient water resources, outbreaks of contagious diseases and other adverse public health developments; acts of war, terrorism and other international conflicts; the failure to achieve anticipated cost savings and benefits associated with workforce reductions and restructuring actions; currency fluctuations and foreign currency exposure; impacts from goodwill impairment and related charges; our dependence upon revenues and earnings from a small number of significant customers; a major loss of customers; inability to realize expected sales or profits from existing backlog due to a range of factors, including changes in customer sourcing decisions, material changes, production schedules and volumes of specific programs; the impact of government budget and funding decisions; our ability to successfully integrate and achieve anticipated synergies associated with recently announced and future acquisitions, including the acquisition of MB Aerospace; government-imposed sanctions, tariffs, trade agreements and trade policies; changes or uncertainties in laws, regulations, rates, policies or interpretations that impact the Company's business operations or tax status, including those that address climate change, environmental, health and safety matters, and the materials processed by our products or their end markets; fluctuations in the pricing or availability of raw materials, freight, transportation, energy, utilities and other items required by our operations; labor shortages or other business interruptions at transportation centers, shipping ports, our suppliers' facilities or our facilities; disruptions in information technology systems, including as a result of cybersecurity attacks or data security breaches; the ability to hire and retain senior management and qualified personnel; the continuing impact of prior acquisitions and divestitures, and any ongoing and future strategic actions, and our ability to achieve the financial and operational targets set in connection with any such actions; the ability to achieve social and environmental performance goals; the outcome of pending and future litigation and governmental proceedings; the impact of actual, potential or alleged defects or failures of our products or third-party products within which our products are integrated, including product liabilities, product recall costs and uninsured claims; future repurchases of common stock; future levels of indebtedness; the impact of shareholder activism; and other risks and uncertainties described in documents filed with or furnished to the Securities and Exchange Commission ("SEC") by the Company, including, among others, those in the Management's Discussion and Analysis of Financial Condition and Results of Operations and Risk Factors sections of the Company's filings. The Company assumes no obligation to update its forward-looking statements.

Category: Earnings