ARC Group Worldwide, Inc. (“ARC” or the “Company”) (NASDAQ:ARCW), a
leading global provider of advanced manufacturing and metal 3D
printing solutions, today reported its results for the period
ending October 1, 2017, its fiscal first quarter 2018.
Quarterly Financial
Summary
Fiscal first quarter 2018 revenue from continuing operations was
$19.9 million, compared to $25.7 million for the fiscal first
quarter of 2017. The decrease in sales was primarily driven
by lower MIM and plastics sales, most notably in the firearm and
defense sectors. Lower production volumes impacted the
Company’s operational efficiency during the quarter, as gross
profit from continuing operations was $1.4 million, compared to
$4.7 million for the prior year period.
Selling, general and administrative expenses for the fiscal
first quarter 2018 declined to $3.5 million, down from $4.9 million
in the prior year period. Expense reductions were primarily
attributable to the Company’s recent cost elimination
initiatives.
EBITDA from continuing operations for the fiscal first quarter
2018 was $0.4 million, compared to the prior year period of $1.4
million. Net loss from continuing operations for the fiscal
first quarter 2018 was $3.3 million, compared to net loss from
continuing operations of $0.7 million for the prior year
period.
Fiscal first quarter 2018 net loss was $3.6 million, compared to
net income of $3.6 million for the fiscal first quarter of
2017. Prior year results included the $4.3 million benefit
associated with and from the sale of the Company’s non-core
subsidiaries.
ARC’s interim CEO and CFO, Drew M. Kelley, commented,
“Management remains focused on returning the Company to
profitability, while driving cash flow and rightsizing the balance
sheet. While certain markets we service remain challenged,
the Company is not taking a passive approach towards improving top
and bottom line results. Specifically, the Company recently
implemented a new cost saving program which we estimate will
eliminate approximately $3.3 million in expenses per year.
Notably, these cost reductions are incremental to previously
announced initiatives, which are estimated to eliminate
approximately $6.0 million in annual costs. While we expect
the decline in sales to be temporary, our focus on operational
efficiency and cost reduction will be ongoing. Thus, a
further review of the recent operating results suggests once our
combined cost reduction initiatives take hold, we can expect to
achieve similar profitability and margins despite lower top line
results. Thereafter, with the eventual return of normalized
revenue levels, overall profitability could exceed historic
results.”
Mr. Kelley continued, “At the same time, our metal 3D business
continues to advance, both technically and financially, recording
robust sequential revenue growth and record EBITDA during the
quarter. As a result of this continued improvement, the
Company is evaluating additional investment opportunities to
further accelerate the pace of growth.”
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):
|
|
|
|
|
|
|
|
|
October 1, |
|
October 2, |
For the three months ended: |
|
2017 |
|
2016 |
Net
(Loss) Income |
|
$ |
(3,555 |
) |
|
$ |
3,607 |
|
Interest
Expense, Net |
|
|
1,012 |
|
|
|
1,107 |
|
Income
Taxes |
|
|
172 |
|
|
|
(1,331 |
) |
Depreciation and Amortization |
|
|
2,516 |
|
|
|
2,345 |
|
Adjustment to Exclude Loss (Income) from Discontinued
Operations |
|
|
270 |
|
|
|
(4,318 |
) |
EBITDA
from Continuing Operations |
|
$ |
415 |
|
|
$ |
1,410 |
|
EBITDA
Margin from Continuing Operations |
|
|
2.1 |
% |
|
|
5.5 |
% |
Corporate
Expenses |
|
|
1,086 |
|
|
|
2,140 |
|
Facility EBITDA from Continuing
Operations |
|
$ |
1,501 |
|
|
$ |
3,550 |
|
Facility EBITDA Margin from Continuing
Operations |
|
|
7.5 |
% |
|
|
13.8 |
% |
|
|
|
|
|
|
|
Net
(Loss) Income |
|
$ |
(3,555 |
) |
|
$ |
3,607 |
|
Adjustment to Exclude Loss (Income) from Discontinued Operations,
Net of Tax |
|
|
270 |
|
|
|
(4,318 |
) |
Reorganization/Transaction Expenses |
|
|
329 |
|
|
|
1,088 |
|
Adjusted Earnings |
|
$ |
(2,956 |
) |
|
$ |
377 |
|
Adjusted Earnings Per Share |
|
$ |
(0.16 |
) |
|
$ |
0.02 |
|
Weighted Average Common
Shares Outstanding |
|
|
18,194,091 |
|
|
|
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 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 |
|
|
|
October 1, |
|
October 2, |
|
|
|
2017 |
|
2016 |
|
Sales |
|
$ |
19,950 |
|
|
$ |
25,712 |
|
|
Cost of sales |
|
|
18,528 |
|
|
|
21,034 |
|
|
Gross profit |
|
|
1,422 |
|
|
|
4,678 |
|
|
Selling,
general and administrative |
|
|
3,486 |
|
|
|
4,857 |
|
|
Loss from
operations |
|
|
(2,064 |
) |
|
|
(179 |
) |
|
Other
expense, net |
|
|
(37 |
) |
|
|
(33 |
) |
|
Interest
expense, net |
|
|
(1,012 |
) |
|
|
(1,107 |
) |
|
Loss on
extinguishment of debt |
|
|
— |
|
|
|
(723 |
) |
|
Loss before income
taxes |
|
|
(3,113 |
) |
|
|
(2,042 |
) |
|
Income
tax (expense) benefit |
|
|
(172 |
) |
|
|
1,331 |
|
|
Net loss from
continuing operations |
|
|
(3,285 |
) |
|
|
(711 |
) |
|
(Loss) gain on sale of
subsidiaries and income (loss) from discontinued operations, net of
tax |
|
|
(270 |
) |
|
|
4,318 |
|
|
Net (loss) income |
|
|
(3,555 |
) |
|
|
3,607 |
|
|
Net income attributable
to non-controlling interest |
|
|
|
|
|
|
|
Continuing operations |
|
|
— |
|
|
|
(22 |
) |
|
Discontinued operations |
|
|
— |
|
|
|
(4 |
) |
|
Net income attributable
to non-controlling interest |
|
|
— |
|
|
|
(26 |
) |
|
Net (loss) income
attributable to ARC Group Worldwide, Inc. |
|
$ |
(3,555 |
) |
|
$ |
3,581 |
|
|
|
|
|
|
|
|
|
|
Net (loss) income per
common share, basic and diluted: |
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.18 |
) |
|
$ |
(0.04 |
) |
|
Discontinued operations |
|
$ |
(0.02 |
) |
|
$ |
0.24 |
|
|
Attributable to ARC Group Worldwide, Inc. |
|
$ |
(0.20 |
) |
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
Weighted average common
shares outstanding: |
|
|
|
|
|
|
|
Basic and
diluted |
|
|
18,194,091 |
|
|
|
18,123,883 |
|
|
|
|
ARC Group
Worldwide, Inc.Consolidated Balance
Sheets(in thousands, except share
data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 1,
2017 |
|
June 30,
2017 |
ASSETS |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash |
|
$ |
397 |
|
|
$ |
593 |
|
Accounts
receivable, net |
|
|
12,278 |
|
|
|
10,488 |
|
Inventories, net |
|
|
14,457 |
|
|
|
14,369 |
|
Prepaid
expenses and other current assets |
|
|
2,685 |
|
|
|
3,152 |
|
Current
assets of discontinued operations |
|
|
— |
|
|
|
1,452 |
|
Total current
assets |
|
|
29,817 |
|
|
|
30,054 |
|
Property and equipment,
net |
|
|
40,567 |
|
|
|
41,349 |
|
Goodwill |
|
|
6,412 |
|
|
|
6,412 |
|
Intangible assets,
net |
|
|
18,783 |
|
|
|
19,624 |
|
Other |
|
|
298 |
|
|
|
291 |
|
Long-term assets of
discontinued operations |
|
|
— |
|
|
|
1,893 |
|
Total assets |
|
$ |
95,877 |
|
|
$ |
99,623 |
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
Accounts
payable |
|
$ |
9,735 |
|
|
$ |
8,681 |
|
Accrued
expenses and other current liabilities |
|
|
3,216 |
|
|
|
3,273 |
|
Deferred
revenue |
|
|
1,167 |
|
|
|
1,165 |
|
Bank
borrowings, current portion of long-term debt |
|
|
1,733 |
|
|
|
1,701 |
|
Capital
lease obligations, current portion |
|
|
1,490 |
|
|
|
1,470 |
|
Accrued
escrow obligations, current portion |
|
|
1,212 |
|
|
|
1,212 |
|
Current
liabilities of discontinued operations |
|
|
— |
|
|
|
283 |
|
Total current
liabilities |
|
|
18,553 |
|
|
|
17,785 |
|
Long-term debt, net of
current portion |
|
|
42,309 |
|
|
|
42,822 |
|
Capital lease
obligations, net of current portion |
|
|
1,602 |
|
|
|
1,888 |
|
Accrued escrow
obligations, net of current portion |
|
|
942 |
|
|
|
1,184 |
|
Other long-term
liabilities |
|
|
917 |
|
|
|
1,017 |
|
Long-term liabilities
of discontinued operations |
|
|
— |
|
|
|
260 |
|
Total liabilities |
|
|
64,323 |
|
|
|
64,956 |
|
|
|
|
|
|
|
|
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; 18,240,297
shares issued and 18,231,896 shares issued and outstanding at
October 1, 2017, and 18,180,027 shares issued and 18,171,626
shares issued and outstanding at June 30, 2017 |
|
|
10 |
|
|
|
10 |
|
Treasury
stock, at cost; 8,401 shares at October 1, 2017 and
June 30, 2017 |
|
|
(94 |
) |
|
|
(94 |
) |
Additional paid-in capital |
|
|
31,503 |
|
|
|
31,109 |
|
Retained
earnings |
|
|
— |
|
|
|
3,569 |
|
Accumulated other comprehensive income |
|
|
135 |
|
|
|
73 |
|
Total
equity |
|
|
31,554 |
|
|
|
34,667 |
|
Total liabilities and
equity |
|
$ |
95,877 |
|
|
$ |
99,623 |
|
|
|
ARC Group
Worldwide, Inc.Consolidated
Statements of Cash Flows(in
thousands) |
|
|
|
|
|
|
|
|
|
For the three months
ended |
|
|
October 1,
2017 |
|
October 2,
2016 |
Cash
flows from operating activities: |
|
|
|
|
|
|
Net (loss) income |
|
$ |
(3,555 |
) |
|
$ |
3,607 |
|
Adjustments to
reconcile net (loss) income to net cash (used in) provided by
operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
|
|
2,516 |
|
|
|
2,374 |
|
Share-based compensation expense |
|
|
287 |
|
|
|
312 |
|
Loss
(gain) on sale of subsidiaries |
|
|
109 |
|
|
|
(5,722 |
) |
Bad debt
expense and other |
|
|
83 |
|
|
|
13 |
|
Deferred
income taxes |
|
|
— |
|
|
|
(888 |
) |
Changes in working
capital: |
|
|
|
|
|
|
Accounts
receivable |
|
|
(1,645 |
) |
|
|
(1,379 |
) |
Inventory |
|
|
(253 |
) |
|
|
(2,414 |
) |
Prepaid
expenses and other assets |
|
|
546 |
|
|
|
870 |
|
Accounts
payable |
|
|
820 |
|
|
|
1,990 |
|
Accrued
expenses and other current liabilities |
|
|
(437 |
) |
|
|
1,701 |
|
Deferred
revenue |
|
|
3 |
|
|
|
(37 |
) |
Net cash (used in)
provided by operating activities |
|
|
(1,526 |
) |
|
|
427 |
|
|
|
|
|
|
|
|
Cash
flows from investing activities: |
|
|
|
|
|
|
Purchases
of property and equipment |
|
|
(957 |
) |
|
|
(1,329 |
) |
Proceeds
from sale of subsidiary |
|
|
3,000 |
|
|
|
10,500 |
|
Net cash provided by
investing activities |
|
|
2,043 |
|
|
|
9,171 |
|
|
|
|
|
|
|
|
Cash
flows from financing activities: |
|
|
|
|
|
|
Proceeds
from debt issuance |
|
|
27,073 |
|
|
|
32,112 |
|
Repayments of long-term debt and capital lease obligations |
|
|
(28,073 |
) |
|
|
(41,487 |
) |
Issuance
of common stock under employee stock purchase plan |
|
|
92 |
|
|
|
— |
|
Net cash used in
financing activities |
|
|
(908 |
) |
|
|
(9,375 |
) |
Effect of
exchange rates on cash |
|
|
195 |
|
|
|
18 |
|
Net (decrease) increase
in cash |
|
|
(196 |
) |
|
|
241 |
|
Cash, beginning of
period |
|
|
593 |
|
|
|
3,620 |
|
Cash, end of
period |
|
$ |
397 |
|
|
$ |
3,861 |
|
Supplemental disclosures of cash flow
information: |
|
|
|
|
|
|
Cash paid
for interest |
|
$ |
955 |
|
|
$ |
1,007 |
|
Cash paid
for income taxes, net of refunds |
|
$ |
27 |
|
|
$ |
(927 |
) |
|
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