ARC Group Worldwide, Inc. (“ARC” and the “Company”) (NASDAQ:ARCW),
a leading global provider of advanced manufacturing and metal 3D
printing solutions, today announced the initial results of its
recently implemented strategic operational review and reported its
fourth quarter and fiscal year 2017 (June 30, 2017) results.
Operational, Financial, and Strategic
Improvement Plan
Following the Company’s recent announcement detailing leadership
and operational changes, and an initiative to refocus its efforts
to build upon its core capabilities of metal injection molding
(“MIM”) and metal 3D printing, ARC today provided initial results
of its operational, financial, and strategic improvement review,
notably:
- Companywide Cost Reduction and Profitability
Improvement Initiatives: A multifaceted
operational review was conducted at all ARC business units.
As a result, headcount reductions and other cost-reducing measures
were implemented to materially reduce the Company’s fixed cost
structure. These anticipated cost savings, both one time and
recurring, are estimated to have eliminated or otherwise prohibited
going forward approximately $6.0 million in annualized costs.
Separately, the Company also elected to exit products and projects
that were deemed either low margin or currently unprofitable.
Finally, ARC also revised, and placed greater executive oversight
over, the Company’s tooling pricing strategy. While the vast
majority of these cost reduction and operational improvement
initiatives have been implemented, the Company continues to
evaluate further measures on an ongoing basis.
- Strategic Review of
Operations: The Company initiated a
strategic review of all operating and other assets in connection
with a refocus towards ARC’s core capabilities. In response
to this review, operations at the Company’s unprofitable Mexico
operation were ceased during July. Separately, the Company
determined its flange division to be non-strategic to core
operations. Subsequently, the Company divested the assets of
its flange subsidiary for $3.0 million on September 15, 2017.
The Company continues to evaluate additional non-strategic
divestitures.
- Liquidity Improvement & Debt Reduction
Programs: A multi-pronged effort to improve
cash flow generation and reduce the Company’s capital intensivity
through specific, addressable actions was implemented. As a
result, the Company revised its accounts payable and receivable
policies, as well as other guidelines designed to ensure greater
efficiency in inventory at all facilities. Overall, these
policy changes, along with the impact of improved operations and
strategic initiatives, are designed to assist in the material
deleveraging of the Company towards its normalized targeted rate of
2x debt to trailing annual EBITDA.
Intangible Asset Impairment and Other Non-cash
Charges
In connection with the aforementioned strategic and operational
review, the Company determined certain write-offs and impairment
charges were warranted. These charges were the primary
drivers of decreases in gross profit and Facility EBITDA during the
Company’s fiscal fourth quarter.
First, in connection with the decision to exit products and
projects that were deemed low margin or currently unprofitable, the
Company incurred non-cash charges of $3.1 million related to higher
inventory reserves for excess, obsolete, or scrap inventory.
Similarly, the Company wrote off tools, inventory, and associated
parts totaling $1.9 million. The increase in reserves and
write-offs was primarily due to a strategic decision related to
tooling pricing, returned parts that could not be profitably
re-worked and sold, and increased reserves for slow moving
inventory. Finally, the Company also concluded that goodwill
was impaired at its ATC and Kecy subsidiaries, recording a non-cash
impairment charge of $3.3 million to eliminate the carrying value
of goodwill for these entities.
Quarterly Financial
Summary
Fiscal fourth quarter 2017 revenue from continuing operations
was $22.1 million, compared to $25.3 for the fiscal fourth quarter
of 2016. The decrease in sales was primarily driven by lower
MIM and plastics sales, most notably in the firearm and defense
sectors.
Gross profit (loss) from continuing operations for the fiscal
fourth quarter of 2017, including approximately $5.0 million in
non-cash inventory and fixed asset charges, was $(2.2) million,
compared to $4.6 million for the prior year period.
Facility EBITDA from continuing operations for the fiscal fourth
quarter was $(5.9) million, compared to the prior year period of
$3.6 million. Net loss from continuing operations for the
fiscal fourth quarter of 2017 was $(10.2) million, compared to
$(1.1) million for the prior year period. Both facility
EBITDA and net loss from continuing operations in the recently
completed quarter include approximately $5.0 million in non-cash
inventory and fixed asset charges and $3.3 million in goodwill
impairment charges.
Adjusted earnings (loss) per share for the fiscal fourth quarter
was $(0.02), compared to a loss of $(0.05) in the prior year
period.
ARC’s interim CEO and CFO, Drew M. Kelley, commented, “While we
are obviously disappointed by recent results, we believe ARC has
recently taken corrective action and made great strides toward
moving the Company forward to a more profitable and exciting
future. Overall, our primary objectives are clear: improve
operational efficiency, drive cash flow and increased profitability
at all business units, and deleverage the Company through specific,
well-defined operational, financial, and strategic measures.
We have commenced, and largely completed, an intensive,
all-encompassing business review. Our implemented changes
were material and widespread in scope and scale, but necessary to
ensure the Company’s continued success.”
Mr. Kelley continued, “At the same time, these initiatives do
not jeopardize the Company’s ability to grow in its core MIM and 3D
markets. Rather, we are better positioned, both internally
and externally, to drive customer satisfaction, bottom-line
results, and shareholder value. In particular, the ARC new
product development team has completely restructured and we
re-vamped our development process. Both are now better
positioned to effectively launch a multitude of new products.
In fact, in connection with these changes, ARC recently received
customer approvals on 166 new customer products, with many parts
already shipping. Included in these launches are several
holistic solutions for our customers in the medical and defense
sectors. These complete solutions use a multitude of our
complementary technologies, including metal 3D printing, MIM, and
plastic injection molding to garner a larger share of the
previously untapped business opportunities.”
“Finally, our metal 3D printing business continues to grow
rapidly. With the addition of four new machines, ARC now
operates 15 metal printers. Further, we recently opened our
new 30,000 sq. ft. dedicated 3D facility, which provides us with
the ability to add up to 40 machines, including designated areas
for defense, controlled environments for medical implants, and
in-house heat treatment and machining. As a result, we expect
fiscal year 2018 3D revenues to continue to grow at our recent
pace, implying a doubling of 3D revenue in fiscal year 2018.”
GAAP to Non-GAAP
Reconciliation
The Company has provided non-GAAP financial information to
provide additional, meaningful comparisons of current results to
prior periods’ results by excluding items that the Company does not
believe are representative or indicative of its results of
operations. Non-GAAP financial measures are not in accordance
with, or an alternative for, generally accepted accounting
principles in the United States. The Company’s non-GAAP
financial measures are not meant to be considered in isolation or
as a substitute for comparable GAAP financial measures, and should
be read only in conjunction with the Company’s consolidated
financial statements prepared in accordance with GAAP.
Specifically, EBITDA from Continuing Operations, EBITDA Margin from
Continuing Operations, Facility EBITDA from Continuing Operations,
Facility EBITDA Margin from Continuing Operations, Adjusted
Earnings, and Adjusted Earnings Per Share are non-GAAP financial
measures. EBITDA Margin from Continuing Operations and
Facility EBITDA Margin from Continuing Operations are calculated by
dividing EBITDA from Continuing Operations and Facility EBITDA from
Continuing Operations, respectively, by sales.
The reconciliation to GAAP is as follows (dollars in
thousands):
|
|
|
June 30, |
|
June 30, |
|
For the three months ended: |
|
|
2017 |
|
2016 |
|
Net
Loss |
|
$ |
(10,296 |
) |
|
$ |
(834 |
) |
|
Interest
Expense, Net |
|
|
1,006 |
|
|
|
1,076 |
|
|
Income
Taxes |
|
|
(1,450 |
) |
|
|
519 |
|
|
Depreciation and Amortization |
|
|
2,498 |
|
|
|
2,341 |
|
|
Adjustment to Exclude Loss (Income) from Discontinued
Operations |
|
|
121 |
|
|
|
(251 |
) |
|
EBITDA
from Continuing Operations |
|
$ |
(8,121 |
) |
|
$ |
2,851 |
|
|
EBITDA
Margin from Continuing Operations |
|
|
(36.7 |
) |
% |
|
11.3 |
|
% |
Corporate
Expenses |
|
|
2,215 |
|
|
|
743 |
|
|
Facility EBITDA from Continuing
Operations |
|
$ |
(5,906 |
) |
|
$ |
3,594 |
|
|
Facility EBITDA Margin from Continuing
Operations |
|
|
(26.7 |
) |
% |
|
14.2 |
|
% |
|
|
|
|
|
|
|
|
Net Loss |
|
$ |
(10,296 |
) |
|
$ |
(834 |
) |
|
Adjustment to Exclude Loss (Income) from Discontinued Operations,
Net of Tax |
|
|
121 |
|
|
|
(251 |
) |
|
Inventory
Write-Offs |
|
|
4,982 |
|
|
|
— |
|
|
Goodwill
Impairments |
|
|
3,303 |
|
|
|
— |
|
|
Non-Recurring Losses |
|
|
435 |
|
|
|
— |
|
|
Reorganization/Transaction Expenses |
|
|
1,003 |
|
|
|
134 |
|
|
Adjusted Earnings |
|
$ |
(452 |
) |
|
$ |
(951 |
) |
|
Adjusted Earnings Per Share |
|
$ |
(0.02 |
) |
|
$ |
(0.05 |
) |
|
Weighted Average Common
Shares Outstanding |
|
|
18,171,626 |
|
|
|
18,123,883 |
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA from Continuing Operations excludes interest expense, net
and income taxes as these items are associated with our
capitalization and tax structures. EBITDA from Continuing
Operations also excludes depreciation and amortization expense as
these non-cash expenses reflect the impact of prior capital
expenditure decisions, which may not be indicative of future
capital expenditure requirements. EBITDA from Continuing
Operations excludes the (income) or loss associated with
discontinued operations.
Facility EBITDA from Continuing Operations consists of EBITDA
from our operating segments. We believe this is a meaningful
measurement of the operating performance of our manufacturing
facilities. Corporate expenses primarily consist of costs not
allocated to our manufacturing facilities, such as compensation
related costs for employees assigned to corporate, board of
directors fees and expenses, professional fees, insurance costs,
and marketing costs.
Adjusted Earnings removes the impact of
reorganization/transaction related expenses, other gains/expenses
including inventory adjustments and impairments as allowed by the
Company’s bank debt covenants, and the impact of discontinued
operations. Reorganization expenses are primarily labor and
labor related costs associated with the termination of employees.
Transaction expenses are primarily professional fees related
to the refinancing of debt and the sale of non-core assets.
About ARC Group
Worldwide, Inc.
ARC Group Worldwide, Inc. is a global advanced manufacturing and
metal 3D printing service provider focused on accelerating speed to
market for its customers. ARC provides a holistic set of
precision manufacturing solutions, from design and prototyping
through full run production. These solutions include metal
injection molding, metal 3D printing, metal stamping, plastic
injection molding, clean room injection molding,
thixomolding, and rapid and conformal tooling. Further,
ARC utilizes technology to improve automation in manufacturing
through robotics, software and process automation, and lean
manufacturing to improve efficiency.
Forward Looking Statements
This press release may contain “forward-looking” statements as
defined in the Private Securities Litigation Reform Act of 1995,
which are based on ARC’s current expectations, estimates, and
projections about future events. These include, but are not
limited to, statements, if any, regarding business plans, pro-forma
statements and financial projections, ARC’s ability to expand its
services and realize growth. These statements are not
historical facts or guarantees of future performance, events, or
results. Such statements involve potential risks and
uncertainties, and the general effects of financial, economic, and
regulatory conditions affecting our industries. Accordingly,
actual results may differ materially. ARC does not have any
obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events,
or otherwise. For further information on risks and
uncertainties that could affect ARC’s business, financial
condition, and results of operations, readers are encouraged to
review Item 1A. – Risk Factors and all other disclosures
appearing in ARC’s Form 10-K for the fiscal year ended June 30,
2017, as well as other documents ARC files from time to time with
the Securities and Exchange Commission.
PHONE: (303)
467-5236Email:
InvestorRelations@arcw.com
ARC Group
Worldwide, Inc.Consolidated Statements of
Operations(in thousands, except for share and per
share amounts) |
|
|
|
|
|
|
|
|
For the three months ended
June 30, |
|
For the year ended
June 30, |
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
Sales |
|
$ |
22,147 |
|
|
$ |
25,336 |
|
|
$ |
99,069 |
|
|
$ |
94,124 |
|
|
Cost of sales |
|
|
24,298 |
|
|
|
20,754 |
|
|
|
89,247 |
|
|
|
77,261 |
|
|
Gross profit |
|
|
(2,151 |
) |
|
|
4,582 |
|
|
|
9,822 |
|
|
|
16,863 |
|
|
Selling,
general and administrative |
|
|
4,942 |
|
|
|
4,172 |
|
|
|
19,263 |
|
|
|
16,401 |
|
|
Goodwill
impairment charges |
|
|
3,303 |
|
|
|
— |
|
|
|
3,303 |
|
|
|
— |
|
|
(Loss) income from
operations |
|
|
(10,396 |
) |
|
|
410 |
|
|
|
(12,744 |
) |
|
|
462 |
|
|
Other
income (expense), net |
|
|
(223 |
) |
|
|
100 |
|
|
|
670 |
|
|
|
171 |
|
|
Interest
expense, net |
|
|
(1,006 |
) |
|
|
(1,076 |
) |
|
|
(4,008 |
) |
|
|
(4,449 |
) |
|
Loss on
extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
(723 |
) |
|
|
— |
|
|
Loss before income
taxes |
|
|
(11,625 |
) |
|
|
(566 |
) |
|
|
(16,805 |
) |
|
|
(3,816 |
) |
|
Income
tax benefit (expense) |
|
|
1,450 |
|
|
|
(519 |
) |
|
|
2,631 |
|
|
|
491 |
|
|
Net loss from
continuing operations |
|
|
(10,175 |
) |
|
|
(1,085 |
) |
|
|
(14,174 |
) |
|
|
(3,325 |
) |
|
Gain on sale of
subsidiary and income (loss) from discontinued operations, net of
tax |
|
|
(121 |
) |
|
|
251 |
|
|
|
4,001 |
|
|
|
1,119 |
|
|
Net loss |
|
|
(10,296 |
) |
|
|
(834 |
) |
|
|
(10,173 |
) |
|
|
(2,206 |
) |
|
Net income attributable
to non-controlling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
— |
|
|
|
(10 |
) |
|
|
(22 |
) |
|
|
(58 |
) |
|
Discontinued operations |
|
|
— |
|
|
|
(10 |
) |
|
|
(4 |
) |
|
|
(50 |
) |
|
Net income attributable
to non-controlling interest |
|
|
— |
|
|
|
(20 |
) |
|
|
(26 |
) |
|
|
(108 |
) |
|
Net loss attributable
to ARC Group Worldwide, Inc. |
|
$ |
(10,296 |
) |
|
$ |
(854 |
) |
|
$ |
(10,199 |
) |
|
$ |
(2,314 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common
share, basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.56 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.78 |
) |
|
$ |
(0.19 |
) |
|
Discontinued operations |
|
$ |
(0.01 |
) |
|
$ |
0.01 |
|
|
$ |
0.22 |
|
|
$ |
0.06 |
|
|
Attributable to ARC Group Worldwide, Inc. |
|
$ |
(0.57 |
) |
|
$ |
(0.05 |
) |
|
$ |
(0.56 |
) |
|
$ |
(0.13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common
shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted |
|
|
18,171,626 |
|
|
|
18,123,883 |
|
|
|
18,142,719 |
|
|
|
18,123,883 |
|
|
ARC Group
Worldwide, Inc.Consolidated Balance
Sheets(in thousands, except share
data) |
|
|
|
|
|
|
|
|
|
|
As of June 30, |
|
|
|
2017 |
|
2016 |
|
ASSETS |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash |
|
$ |
593 |
|
|
$ |
3,620 |
|
|
Accounts
receivable, net |
|
|
10,488 |
|
|
|
13,677 |
|
|
Inventories, net |
|
|
14,369 |
|
|
|
15,500 |
|
|
Deferred
income tax assets |
|
|
— |
|
|
|
498 |
|
|
Prepaid
expenses and other current assets |
|
|
3,152 |
|
|
|
3,836 |
|
|
Current
assets of discontinued operations |
|
|
1,452 |
|
|
|
3,505 |
|
|
Total current
assets |
|
|
30,054 |
|
|
|
40,636 |
|
|
Property and equipment,
net |
|
|
41,349 |
|
|
|
41,644 |
|
|
Goodwill |
|
|
6,412 |
|
|
|
9,715 |
|
|
Intangible assets,
net |
|
|
19,624 |
|
|
|
23,066 |
|
|
Other |
|
|
291 |
|
|
|
28 |
|
|
Long-term assets of
discontinued operations |
|
|
1,893 |
|
|
|
5,423 |
|
|
Total assets |
|
$ |
99,623 |
|
|
$ |
120,512 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
|
Accounts
payable |
|
$ |
8,681 |
|
|
$ |
8,469 |
|
|
Accrued
expenses and other current liabilities |
|
|
3,273 |
|
|
|
2,458 |
|
|
Deferred
revenue |
|
|
1,165 |
|
|
|
1,457 |
|
|
Bank
borrowings, current portion of long-term debt |
|
|
1,701 |
|
|
|
15,648 |
|
|
Capital
lease obligations, current portion |
|
|
1,470 |
|
|
|
837 |
|
|
Accrued
escrow obligations, current portion |
|
|
1,212 |
|
|
|
2,842 |
|
|
Current
liabilities of discontinued operations |
|
|
283 |
|
|
|
989 |
|
|
Total current
liabilities |
|
|
17,785 |
|
|
|
32,700 |
|
|
Long-term debt, net of
current portion |
|
|
42,822 |
|
|
|
36,769 |
|
|
Deferred income tax
liabilities |
|
|
— |
|
|
|
803 |
|
|
Capital lease
obligations, net of current portion |
|
|
1,888 |
|
|
|
1,930 |
|
|
Accrued escrow
obligations, net of current portion |
|
|
1,184 |
|
|
|
966 |
|
|
Other long-term
liabilities |
|
|
1,017 |
|
|
|
2,115 |
|
|
Long-term liabilities
of discontinued operations |
|
|
260 |
|
|
|
686 |
|
|
Total liabilities |
|
|
64,956 |
|
|
|
75,969 |
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value, 2,000,000 shares authorized, no shares
issued and outstanding |
|
|
— |
|
|
|
— |
|
|
Common
stock, $0.0005 par value, 250,000,000 shares authorized; 18,180,027
shares issued and 18,171,626 shares issued and outstanding at
June 30, 2017, and 18,803,910 shares issued and 18,795,509
shares issued and outstanding at June 30, 2016 |
|
|
10 |
|
|
|
10 |
|
|
Treasury
stock, at cost; 8,401 shares at June 30, 2017 and
June 30, 2016 |
|
|
(94 |
) |
|
|
(94 |
) |
|
Additional paid-in capital |
|
|
31,109 |
|
|
|
29,702 |
|
|
Retained
earnings |
|
|
3,569 |
|
|
|
13,771 |
|
|
Accumulated other comprehensive income (loss) |
|
|
73 |
|
|
|
(6 |
) |
|
Total ARC
Group Worldwide, Inc. stockholders' equity |
|
|
34,667 |
|
|
|
43,383 |
|
|
Non-controlling interest |
|
|
— |
|
|
|
1,160 |
|
|
Total
equity |
|
|
34,667 |
|
|
|
44,543 |
|
|
Total liabilities and
equity |
|
$ |
99,623 |
|
|
$ |
120,512 |
|
|
ARC Group
Worldwide, Inc.Consolidated Statements of
Cash Flows(in thousands) |
|
|
|
|
|
|
For the Year Ended
June 30, |
|
|
|
2017 |
|
2016 |
|
Cash
flows from operating activities: |
|
|
|
|
|
|
|
Net loss |
|
$ |
(10,173 |
) |
|
$ |
(2,206 |
) |
|
Adjustments to
reconcile net loss to net cash provided by operating
activities: |
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
9,930 |
|
|
|
9,529 |
|
|
Share-based compensation expense |
|
|
752 |
|
|
|
177 |
|
|
Loss on
disposal of assets |
|
|
293 |
|
|
|
— |
|
|
Gain on
sale of subsidiaries |
|
|
(5,485 |
) |
|
|
— |
|
|
Goodwill
impairment charges |
|
|
3,303 |
|
|
|
— |
|
|
Bad debt
expense and other |
|
|
173 |
|
|
|
98 |
|
|
Deferred
income taxes |
|
|
(407 |
) |
|
|
565 |
|
|
Changes in working
capital: |
|
|
|
|
|
|
|
Accounts
receivable |
|
|
2,597 |
|
|
|
400 |
|
|
Inventory |
|
|
1,120 |
|
|
|
(1,227 |
) |
|
Prepaid
expenses and other assets |
|
|
480 |
|
|
|
(1,621 |
) |
|
Accounts
payable |
|
|
1,068 |
|
|
|
1,708 |
|
|
Accrued
expenses and other current liabilities |
|
|
(509 |
) |
|
|
(1,423 |
) |
|
Deferred
revenue |
|
|
(292 |
) |
|
|
466 |
|
|
Net cash provided by
operating activities |
|
|
2,850 |
|
|
|
6,466 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities: |
|
|
|
|
|
|
|
Purchases
of property and equipment |
|
|
(6,641 |
) |
|
|
(2,633 |
) |
|
Proceeds
from sale of subsidiary and other assets |
|
|
10,538 |
|
|
|
8 |
|
|
Net cash provided by
(used in) investing activities |
|
|
3,897 |
|
|
|
(2,625 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities: |
|
|
|
|
|
|
|
Proceeds
from debt issuance |
|
|
118,124 |
|
|
|
5,543 |
|
|
Repayments of long-term debt and capital lease obligations |
|
|
(127,468 |
) |
|
|
(10,542 |
) |
|
Payment
of distributions to non-controlling membership interests from the
sale of subsidiary |
|
|
(453 |
) |
|
|
— |
|
|
Purchase
of non-controlling membership interests |
|
|
(235 |
) |
|
|
— |
|
|
Issuance
of common stock under employee stock purchase plan |
|
|
98 |
|
|
|
— |
|
|
Net cash used in
financing activities |
|
|
(9,934 |
) |
|
|
(4,999 |
) |
|
Effect of
exchange rates on cash |
|
|
160 |
|
|
|
(43 |
) |
|
Net decrease in
cash |
|
|
(3,027 |
) |
|
|
(1,201 |
) |
|
Cash, beginning of
year |
|
|
3,620 |
|
|
|
4,821 |
|
|
Cash, end of year |
|
$ |
593 |
|
|
$ |
3,620 |
|
|
Supplemental disclosures of cash flow
information: |
|
|
|
|
|
|
|
Cash paid
for interest |
|
$ |
3,303 |
|
|
$ |
4,058 |
|
|
Cash paid
for income taxes, net of refunds |
|
$ |
(849 |
) |
|
$ |
599 |
|
|
Arc Grp. Worldwide, Inc. (NASDAQ:ARCW)
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