Orchids Paper Products Company (NYSE American: TIS), a national supplier of high-quality consumer tissue products, today reported results for the quarter and year ended December 31, 2017. The following table provides selected financial results for fourth quarter 2017 compared to fourth quarter 2016 and third quarter 2017, and the full year 2017 compared to the full year 2016.
Jeff Schoen, President and Chief Executive Officer, stated, “In the fourth quarter of 2017, Orchids successfully completed its five-year capital expansion plan with the full commercialization and start-up of the new Barnwell facility. The completion of Barnwell expands our geographical footprint with access to the east coast and increases our exposure to the ultra-premium tissue market, which currently is experiencing tight capacity in a growing product segment. As volume at Barnwell ramps, we expect sales growth to continue to accelerate and margins to expand, driven by operating leverage. As a result of completing of our capital expansion plan, we expect to see a significant decrease in capital expenditures in 2018. The goal in 2018 is to “harvest” the capital investments we have made over the past four years to maximize cash flow, reduce debt, and improve earnings.”
“The fourth quarter of 2017 was the first quarter since 2014 that we generated positive free cash-flow (cash flow from operations less capital expenditures), driven by strong operating cash flow, up approximately 60% over the prior quarter, and lower capital expenditures, which declined over 40% from the third quarter. We expect to see continued improvement in free cash-flow, throughout 2018 as the ramp in orders from our new customers improve earnings and as capital expenditures continue to decline. For 2018, we expect capital expenditures to decrease to approximately $5 million. In addition to positive free cash-flow, our adjusted EBITDA in the fourth quarter increased 42% sequentially to $5.6 million.”
“Our lenders continue to support us as our Barnwell facility ramps, providing us covenant waivers for the fourth quarter of 2017 as well as the first quarter of 2018. They have also increased the advance rates under our line of credit to provide financial flexibility for working capital needs as we ramp our new orders”
Fourth Quarter 2017 Relative to Third Quarter 2017
Net sales of $43.5 million in the fourth quarter decreased $1.7 million, or 3.7%, from the third quarter driven by seasonality factors. Converted product sales declined $1.5 million; a decline of $1.9 million due to volume, offset by higher average-selling prices having a positive impact of $0.4 million. Parent roll sales decreased $0.2 million, as the effect of lower sales volume outpaced an increase in the average selling price compared to third quarter 2017. Average selling prices were, to a degree, positively impacted in the fourth quarter by the inclusion of Orchids’ new ultra-premium products manufactured at Barnwell.
Cost of goods sold, net of depreciation, in the fourth quarter declined by $2.5 million to 84.6% of net sales, down from 87.0% in the third quarter, representing our second consecutive decline as a percentage of sales. Total cost of sales increased to 94.2% of revenue in the fourth quarter, up from 93.9% in the third quarter. Total depreciation increased to 9.6% of net sales in the fourth quarter from 6.9% of net sales in the third quarter as a result of the addition of the Barnwell facility.
Selling, general and administrative expenses declined $0.3 million, or 8.2%, to $2.8 million in the fourth quarter, reflecting decreases in charitable contributions, legal and professional fees and tax penalties, net of an increase in administrative and sales personnel costs compared to the third quarter of 2017.
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