CHASE CORPORATION The following discussion provides an analysis of the Company's financial
condition and results of operations for the first quarter of fiscal 2023. It
should be read in conjunction with the Condensed Consolidated Financial
Statements. Notes thereto are included in Item 1 of Part I of this Quarterly
Report on Form 10-Q and with the Company's Annual Report on Form 10-K filed for
the fiscal year ended
Overview
General
The Company's revenue grew in the first fiscal quarter ended
Despite the Company's sales growth compared to the first quarter of the prior
fiscal year, the Company had a less favorable gross margin percentage in the
current quarter. The decrease in the gross margin percentage is primarily due to
purchase accounting expense related to our NuCera business which includes
inventory step-up adjustment expensed in the first quarter. Additionally, the
Company's gross margin was negatively impacted by unfavorable sales mix in our
Corrosion Protection and Waterproofing segment caused by decreased sales volume
due to lower demand and customer inventory reduction initiatives compared to the
prior comparable fiscal quarter. In addition, increased operating expenses for
the current quarter are related to purchase accounting adjustments, including
incremental depreciation and amortization (including backlog fully amortized
during the quarter) and a lease impairment associated with the
The Company continues to be negatively impacted by both increased input costs caused by continued global raw material inflationary pressures, increased logistic costs and a more competitive labor market. The Company continues to work with its customers and suppliers in an effort to counteract margin compression and has benefited from sales price increases within the Adhesives, Sealants and Additives and Industrial Tapes segments over the comparable prior year quarter.
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Revenue by Segment
Segment Product Lines Manufacturing Focus and Products
Adhesives, Electronic and Protective coatings, including moisture
Sealants and Industrial Coatings protective coatings and cleaning
Additives Functional Additives chemistries, and customized sealant and
adhesive systems for electronics;
polyurethane dispersions, polymeric
microspheres and superabsorbent
polymers; highly differentiated
specialty waxes and polymers.
Industrial Cable Materials Protective tape and coating products and
Tapes Specialty Products services, including insulating and
Pulling and Detection conducting materials for wire and cable
Electronic Materials manufacturers; laminated durable papers,
packaging and industrial laminate
products and custom manufacturing
services; pulling and detection tapes
used in the installation, measurement
and location of fiber optic cables and
water and natural gas lines; cover tapes
essential to delivering semiconductor
components via tape-and-reel packaging.
Corrosion Coating and Lining Protective coatings and tape products,
Protection Systems including coating and lining systems for
and Pipeline Coatings use in liquid storage and containment
Waterproofing Building Envelope applications; protective coatings for
Bridge and Highway pipeline and general construction
applications; adhesives and sealants
used in architectural and building
envelope waterproofing applications;
high-performance polymeric asphalt
additives and expansion and control
joint systems for use in the
transportation and architectural
markets.
Revenue for our Adhesives, Sealants and Additives segment grew in the first quarter, predominately due to year-to-date inorganic growth from our NuCera business acquired on the first day of fiscal 2023. The remaining revenue increase for the segment was due to sales price increases realized over the comparable prior year period and increased demand for both our world-wide focused electronic and industrial coatings product line and our North American-focused functional additives product line.
Revenue for our Industrial Tapes segment increased in the current quarter over
the comparable prior year period due to sales price increases realized over the
past year and increased demand for our North American-focused cable materials,
specialty products and pulling and detection product lines. Tempering this
overall increase in revenue was a reduction in sales volume from our
Revenue decreased for our Corrosion Protection and Waterproofing segment in the
first quarter due to a reduction in sales volume for our building envelope,
coating and lining systems and pipeline coatings product lines over the
comparable prior period. The decrease in revenue for our building envelope and
coating and lining systems product lines is predominately due to a decrease in
customer sales volume as a result of to customer inventory reduction initiatives
compared to the prior comparable period. Additionally, the decrease in revenue
for our pipeline coatings product line is due to project delays in the
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Balance Sheet and Cash Flow
Subsequent to the end of the first fiscal quarter of 2023,
The Company had a
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Results of Operations
Revenue and Income before Income Taxes by Segment were as follows (dollars in
thousands):
% of % of
Three Months Ended Total Three Months Ended Total
November 30, 2022 Revenue November 30, 2021 Revenue
Revenue
Adhesives, Sealants and
Additives $ 55,553 54 % $ 31,049 41 %
Industrial Tapes 39,077 38 % 32,761 44 %
Corrosion Protection and
Waterproofing 8,263 8 % 11,200 15 %
Total $ 102,893 $ 75,010
% of % of
Three Months Ended Segment Three Months Ended Segment
November 30, 2022 Revenue November 30, 2021 Revenue
Income before income taxes
Adhesives, Sealants and
Additives $ 4,124 (a) 7 % $ 7,597 (c) 24 %
Industrial Tapes 11,947 31 % 9,290 28 %
Corrosion Protection and
Waterproofing 2,551 31 % 4,446 40 %
Total for reportable
segments 18,622 18 % 21,333 28 %
Corporate and Common Costs (10,022) (b) (8,216) (d)
Total $ 8,600 8 % $ 13,117 17 %
Note: Some percentage of total revenue amounts may not sum to 100% due to rounding.
Includes
contingent consideration associated with the
ABchimie,
(a)
Woburn, MA facility relocation,$2,200 of purchase accounting inventory adjustment related to the Company's NuCera business, and$2,820 of backlog amortization fully amortized related to the Company's NuCera business
(b) Includes
Includes
(c) contingent consideration associated with the
ABchimie
(d) Includes
to the new corporate headquarters in Westwood, MA
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Total Revenue
Total revenue increased
Revenue in the Company's Adhesives, Sealants and Additives segment increased
Revenue in the Company's Industrial Tapes segment increased
Revenue in the Company's Corrosion Protection and Waterproofing segment
decreased
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Cost of Products and Services Sold
Cost of products and services sold increased
The following table summarizes the cost of products and services sold as a
percentage of revenue for each of
Three Months Ended November 30,
Cost of products and services sold 2022 2021
Adhesives, Sealants and Additives 65 % 61 %
Industrial Tapes 66 68
Corrosion Protection and Waterproofing 61 55
Total Company 65 % 63 %
Cost of products and services sold in the Adhesives, Sealants and Additives
segment was
As a percentage of revenue, cost of products and services increased for both the
Adhesives, Sealants and Additives and Corrosion Protection and Waterproofing
segments as compared to the prior year first quarter. As a percentage of
revenue, cost of products and services decreased for the Industrial Tapes
segment as compared to first quarter of the prior fiscal year. The decrease in
the relative gross margin for the Adhesives, Sealants and Additives and
Corrosion Protection and Waterproofing segments was due in each case to
continued global raw material inflationary pressures, increased logistics costs
and a more competitive labor market. The decrease in relative gross margin for
the Adhesives, Sealants and Additives segment was also impacted by purchase
accounting inventory step-up expense related to our NuCera business and a lease
impairment associated with the
With the composition of the Company's finished goods and the markets it serves, the costs of certain commodities (including petroleum-based solvents, films, yarns, polymers and nonwovens, aluminum and copper foils, specialty papers, and various resins, adhesives and inks) directly and indirectly affect both the purchase price of the raw materials and the market demand for its product offerings. In an effort to preserve margins, the Company diligently monitors raw materials and commodities pricing across all its product lines.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased
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Research and Product Development Costs
Research and product development costs increased
Operations Optimization Costs ERP System Upgrade
During the first quarter of fiscal 2023, the Company began the process of
upgrading our current Oracle Legacy ERP System to the Oracle Fusion Cloud
Platform. This upgrade will position us with a more advanced system to support
business expansion, access to upgrades in functionality and a more modern system
for operations, all within the Oracle Ecosystem. Additionally, the upgrade will
be a multi-year, phased-in approach designed to mitigate any disruptions to our
business. The Company recognized
Relocation of Adhesives Systems Manufacturing to
During the third quarter of fiscal 2021 Chase announced to the employees at its
Loss on Impairment of right-of-use Lease Asset
The Company recognized a
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Loss on Contingent Consideration
As a component of the
Interest Expense
Interest expense increased to
Other Income (Expense)
Other income (expense) was an expense of (
Income Taxes
For the three-month periods ended
For fiscal 2023 and 2022, the Company is utilizing the 21% Federal tax rate
enacted by the Tax Cuts and Jobs Act (the "Tax Act") passed in
Net Income
Net income decreased
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Liquidity and Sources of Capital
The Company's overall cash and cash equivalents balance decreased by
Of the above-noted balances,
Cash flow provided by operations was
The ratio of current assets to current liabilities was 4.1 as of
Cash flow used in investing activities of
Cash flows used in financing activities of
On
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The Credit Agreement has a five-year term with interest payments due at the end
of the applicable LIBOR period (but in no event less frequently than the
three-month anniversary of the commencement of such LIBOR period) and principal
payment due at the expiration of the agreement,
The outstanding balance on the Credit Facility is guaranteed by all of Chase's
direct and indirect domestic subsidiaries, which collectively had a carrying
value of approximately
The Company has several ongoing capital projects, including upgrading the Company's ERP system, as well as its facility rationalization and consolidation initiative, which are important to its long-term strategic goals. Machinery and equipment may be added as needed to increase capacity or enhance operating efficiencies in the Company's production facilities.
We may acquire companies or other assets in future periods which are complementary to our business. The Company believes that its existing resources, including cash on hand and the Credit Agreement, together with cash generated from operations and additional bank borrowings, will be sufficient to fund its cash flow requirements through at least the next twelve months. However, there can be no assurance that additional financing, if needed, will be available on favorable terms, if at all.
To the extent that interest rates increase in future periods, we will assess the impact of these higher interest rates on the financial and cash flow projections of our potential acquisitions.
We have no material off-balance sheet arrangements.
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Contractual Obligations
Please refer to Item 7 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's Annual Report on Form 10-K
for the fiscal year ended
Recent Accounting Standards
Please see Note 2 - "Recent Accounting Standards" to the Condensed Consolidated Financial Statements for a discussion of the effects of recently issued and recently adopted accounting pronouncements.
Critical Accounting Policies
Our financial statements are prepared in accordance with
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