CRANBURY, N.J.--(BUSINESS WIRE)--Innophos Holdings, Inc. (NASDAQ: IPHS) today announced financial results for its third quarter ended September 30, 2018.

Strategic Highlights

• Remains on path to double digit year-on-year revenue growth in 2018 driven by FHN segment
• Continues price actions to offset input cost increases
• Advances completion of targeted value chain redesign with receipt of long lead-time environmental and operational government permits
• Announces multi-year PPA supply agreement to further diversify sourcing for phosphates portfolio
• Expects adjusted diluted EPS improvement of 10%, or $0.25 to $0.27 per share run rate by the end of 2019 from the value chain and manufacturing optimization program
• Projects $40 million cash generation in Q4 2018 from two transactions
• Implemented SG&A actions to streamline cost structure while continuing focused investments in customer support functions

Q3 Financial Highlights

• Sales of $197 million were up 7% compared with the prior year due to a stabilized base portfolio, contribution from acquisitions and ongoing pricing actions
• FHN segment sales of $115 million grew 17% versus prior year, reflecting 14% growth from acquisitions and 3% FHN legacy growth. Sequentially, sales were lower due to discontinuation of a portion of lower-margin nutrition trading business
• GAAP Net Income of $14 million, or $0.71 per share, was $3 million ahead of Q3 2017. A favorable adjustment due to the reversal of a portion of the preliminary tax reform provisions booked in Q4 2017 was partially offset by isolated operational issues that impacted sales in the phosphates portfolio as well as an unfavorable sales mix in the IS segment. In addition, higher freight, energy, amortization and interest expenses impacted Q3 earnings compared with prior year
• Adjusted EBITDA of $32 million, adjusted EBITDA margin of 16% and adjusted diluted EPS of $0.58 were sequentially in line with Q1 and Q2 of 2018. Compared with prior year, adjusted EBITDA was down 9% and adjusted diluted EPS was down $0.20, or 25% due to a particularly strong quarter for the IS segment in Q3 2017, as well as the impact on sales from isolated operational issues and higher freight expenses in the current period
• Free Cash Flow was down $14 million from the same quarter last year, due to planned capital expenditures and working capital needs to support the value chain repositioning and manufacturing optimization program

Advances Strategic Value Chain Optimization - New PPA Supply Agreement with Emaphos

In late October, the Company entered into a multi-year Purified Phosphoric Acid (“PPA”) supply agreement with Moroccan-based EURO MAROC PHOSPHORE (Emaphos), a joint venture between OCP, Prayon and Chemische Fabrik Budenheim. Under the terms of the new agreement, Innophos will be supplied with PPA, a key raw material in the manufacture of the Company’s phosphate product portfolio. The supply agreement complements the Company’s recently announced PPA supply agreement with Nutrien, supplements Innophos’ internal PPA production, and further diversifies its supply base.

Management Comments

“Our third quarter results were in line with the preliminary expectations recently provided as we delivered topline growth of 7% year over year and adjusted EBITDA at the top end of the estimated range,” said Kim Ann Mink, Ph.D., Chairman, President and Chief Executive Officer. “As recently announced, our third quarter performance and outlook for 2018 reflect our expectations regarding a shift in the timing of the anticipated initial value chain benefits from 2018 to 2019, a portfolio decision regarding selective lower-margin nutrition trading business, and the impact from isolated operational issues on Q3 and Q4 that are not expected to impact 2019.

“As we continue to shift our position over time to a value-adding, higher margin ingredient solutions provider, we remain focused on delivering wins through our SPARC new product development program that strengthen our organic growth prospects. In addition, we continue to selectively evaluate M&A opportunities that meet our disciplined financial and strategic criteria and will strengthen our position as an essential ingredients provider in high growth FHN markets.

“We are confident that we are taking the necessary proactive actions to manage the near-term dynamics while simultaneously executing against key initiatives under our Strategic Pillars,” said Mink. “We remain confident that our strategic programs are positioning Innophos to deliver long-term value for our customers and shareholders, and that we are on track to achieve our Vision 2022 goals.”

Full Year 2018 Outlook

The Company is reiterating the revenue and adjusted EBITDA guidance provided on October 16, 2018.

Revenue is expected to grow 10% to 12% compared with full-year 2017, which equates to a range of $791 million to $806 million. Adjusted EBITDA is expected to grow 3% to 7% compared with full-year 2017, which equates to a range of $123 million to $128 million.

As previously announced, the impact from specific strategic value chain repositioning transition charges is expected to affect 2018 GAAP earnings as these transition costs are incurred ahead of the $20 million negotiated payment from Nutrien accruing to earnings.

Overall market conditions and the competitive landscape are expected to be similar in Q4 compared with prior quarters with Q4 expected to reflect the usual seasonality and thus be the softest sales quarter in the year.

Selling price increases have continued to be effective in offsetting input cost increases and the Company has continued to take further price increase actions.

Excluding the Q3 2018 adjustment to the tax provision, the Company anticipates the effective tax rate to operate in the 29-31% range.

Free cash flow is expected to benefit significantly in Q4 from two key initiatives: the Company’s previously announced intention to complete a sale leaseback transaction and the $20 million Nutrien contractual payment.

The Company continues to diligently work through the multi-faceted value chain repositioning and manufacturing optimization program. By the end of 2019, the program is estimated to deliver adjusted diluted EPS improvement of 10%, which represents an estimated run rate of $0.25 to $0.27 per share.

About the Company

Innophos is a leading international producer of specialty ingredient solutions that deliver far-reaching, versatile benefits for the food, health, nutrition and industrial markets. We leverage our expertise in the science and technology of blending and formulating phosphate, mineral, enzyme and botanical based ingredients to help our customers offer products that are tasty, healthy, nutritious and economical. Headquartered in Cranbury, New Jersey, Innophos has manufacturing operations across the United States, in Canada, Mexico and China. For more information, please visit www.innophos.com. 'IPHS-G'