ARC Group Worldwide Announces Fourth Quarter and Full Year Fiscal 2018 Earnings Release

Date : 10/01/2018 @ 5:00PM
Source : GlobeNewswire Inc.
Stock : Arc Grp. Worldwide, Inc. (ARCW)
Quote : 0.326  -0.044 (-11.89%) @ 4:13PM

ARC Group Worldwide Announces Fourth Quarter and Full Year Fiscal 2018 Earnings Release

Arc Grp. Worldwide, Inc. (NASDAQ:ARCW)
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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 fourth quarter and fiscal year ending June 30, 2018.

Highlights for the fourth quarter fiscal year 2018 compared to the fourth quarter fiscal year 2017:

  • Sales of $22.7 million, an increase of 2.4%;
  • Gross profit of $1.9 million, an increase of 186.6%;
  • EBITDA from Continuing Operations of $1.4 million, an increase of 117.1%

Highlights for the fourth quarter fiscal year 2018, compared to the third quarter fiscal year 2018:

  • Sales of $22.7 million, an increase of 5.7%;
  • Gross profit of $1.9 million, an increase of 68.4%;
  • EBITDA from Continuing Operations of $1.4 million, an increase of 335.7%;

Highlights for the fiscal year 2018:

  • Executed a cost savings program that amounted to $9.8 million;
  • Successful rights offering generated $10.0 million of gross proceeds;
  • Inventory reduction program that improved liquidity by $2.1 million;

Quarterly Financial Summary

Fiscal fourth quarter 2018 Revenue from Continuing Operations was $22.7 million, compared to $22.1 million in fourth quarter 2017.  The increase in revenue was primarily driven by higher metal injection molding (“MIM”) and plastics sales, and the combination of higher sales with higher order volumes in the aerospace, medical and firearms and defense markets. 

Fiscal fourth quarter 2018 Gross Profit from Continuing Operations was $1.9 million, compared to a gross deficit of $(2.2) million in fiscal fourth quarter 2017.  This increase was primarily the result of ongoing cost reduction initiatives.  Further, there were charges in 2017 related to inventory of $1.9 million for write-off of tools, inventory and associated parts. 

EBITDA from Continuing Operations was $1.4 million in the fiscal fourth quarter 2018 compared to $(8.1) million in the fiscal fourth quarter 2017.  Similar to Gross Profit, EBITDA was positively impacted by the increased revenues and lower costs.  Additionally, the Company recognized a goodwill impairment of $3.3 million in the prior year

Fiscal fourth quarter 2018 revenue from Continuing Operations was $22.7 million, compared to $21.5 million in the prior sequential period.  The increase in revenue was primarily driven by higher MIM and plastics sales.  Additionally, we have increased our sales staff and have created an improved market approach that is expected to continue to drive sales orders in the aerospace, medical, firearms and defense markets. 

Gross Profit from Continuing Operations was $1.9 million in the fiscal fourth quarter, compared to $1.1 million in the previous sequential quarter.  This improvement was achieved despite expenses of $1.3 million incurred due to planned, ongoing inventory reductions, primarily in our Colorado MIM entity.

EBITDA from Continuing Operations was $1.4 million in the fiscal fourth quarter compared to $0.3 million in the prior sequential quarter.  EBITDA was positively impacted by the increased revenues and lower costs.  These gains were partially offset by the aforementioned inventory reduction efforts of $1.3 million, which added additional expense in the third fiscal quarter.

Fiscal fourth quarter Cash Flow used in Operations was $(0.2) compared to $1.3 million provided by operations in the prior sequential quarter  The decrease in Cash Flow from Operations was primarily from reduction of accrued expenses and other liabilities of $0.7 million and accounts payable of $0.4 million as part of payments made from the proceeds of the rights offering. 

Annual Financial Summary

Fiscal year 2018 revenue from Continuing Operations was $82.4 million, compared to $99.1 million in the prior year.  The decrease is primarily the result of lower overall demand in the defense industry during the first two quarters of fiscal 2018.  We have seen a material improvement in defense orders in the last two quarters of 2018. 

Gross Profit from Continuing Operations was $4.0 million in the fiscal year 2018, compared to $9.8 million in the prior year.  The aforementioned revenue decline and the expenses of $3.3 million incurred due to a planned and recently completed one time inventory reduction program and associated under-absorbed fixed costs, primarily in our Colorado MIM entity were the primary causes for the decrease.

EBITDA from Continuing Operations was $0.9 million in the fiscal year 2018 compared to $(2.9) million in the prior fiscal year.  The decline in Gross Profit was more than offset by cost savings program that was undertaken in the first half of fiscal year 2018 and an impairment charge in the fourth quarter of fiscal year of 2017.

Fiscal year 2018 Cash Flow used in Operations was a cash outflow of $(0.6) compared to a cash inflow in 2017 of $2.9 million, provided by operations in the prior fiscal year.  The decrease is primarily related to a decrease in accrued expenses and other liabilities of $2.4 million as part of payments made from the proceeds of the rights offering and improved collection efforts on receivables, reducing past due receivables by $1.5 million. 

The Company has completed the cost reduction and cost savings efforts as of June 30, 2018.  Additionally, we believe that the increased customer orders noted in fourth quarter of 2018 will continue.  Based on these factors, we believe the sustainable increase in margins and EBITDA will continue into the first quarter of 2019.

ARC’s CEO, Alan Quasha, commented, “The Company has made great strides this last fiscal year, specifically in the second half.  We had a rough start, which was largely due to still dealing with issues of the prior year in inventory and a hit to the defense industry sales in quarters one and two.  The team implemented an effective cost reduction program that reduced expenses by roughly $9.8 million for the year.  This last year we also repositioned our sales efforts in both the PCG and Stampings groups to further diversify our customer base.  Furthermore, there was success in our rights offering that raised $10 million for the Company.  The toughest decision we faced this year, and one that was concluded on our July 17, 2018 board meeting, is that we plan to sell the 3DMT division.  While we think this is a fantastic business, the Company has decided to focus all efforts and resources on our core operations and continue improving our cash flows and operations of our PCG and Stamping divisions.  On July 25, we engaged a firm to assist us in this sale.  For reference, we have included in the appendix an unaudited pro forma of our fourth quarter and fiscal year 2018 results without the 3DMT division.  We still have a ways to go, but there is strong momentum and we believe the results of quarter four speak to our continued focus on operating improvement that will be seen throughout fiscal 2019.” 

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: 2018 2017 
Net Loss $ (2,190) $ (10,296) 
Interest Expense, Net  816   1,006  
Income Taxes  172   (1,450) 
Depreciation and Amortization  2,593   2,498  
Adjustment to Exclude Loss (Gain) from Discontinued Operations     121  
EBITDA from Continuing Operations $ 1,391  $ (8,121) 
EBITDA Margin from Continuing Operations   6.1   (36.7)
Corporate Expenses  396   2,215  
Facility EBITDA from Continuing Operations $ 1,787  $ (5,906) 
Facility EBITDA Margin from Continuing Operations   7.9   (26.7)
        
Net Loss $ (2,190) $ (10,296) 
Adjustment to Exclude Loss from Discontinued Operations, Net of Tax     121  
Inventory Write-Offs  1,070   4,982  
Goodwill Impairments     3,303  
Non-Recurring Losses     435  
Reorganization/Transaction Expenses     1,003  
Adjusted Earnings $ (1,120) $ (452) 
Adjusted Earnings Per Share $ (0.05) $ (0.02) 
Weighted Average Common Shares Outstanding  23,308,516   18,171,626  
          

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, which excludes Corporate Expenses.  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 WorldwideARC 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 StatementsThis 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, including 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, 2018, as well as other documents ARC files from time to time with the Securities and Exchange Commission.

CONTACT:

Investor Relations

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 For the years ended
  June 30,  June 30,  June 30,  June 30,
  2018 2017 2018 2017
Sales $22,673  $22,147  $82,438  $99,069 
Cost of sales  20,811   24,298   78,416   89,247 
Gross profit  1,862   (2,151)  4,022   9,822 
Selling, general and administrative  3,335   4,942   13,634   19,263 
Goodwill impairment charges     3,303      3,303 
Income from operations  (1,473)  (10,396)  (9,612)  (12,744)
Other (expense) income, net  (816)  (223)  298   670 
Interest expense, net  271   (1,006)  (3,625)  (4,008)
Loss on extinguishment of debt           (723)
(Loss) income before income taxes  (2,018)  (11,625)  (12,939)  (16,805)
Income tax benefit (expense)  (172)  1,450   35   2,631 
Net loss from continuing operations  (2,190)  (10,175)  (12,904)  (14,174)
Gain on sale of subsidiary and income from discontinued operations, net of tax     (121)  (276)  4,001 
Net income (loss) $(2,190) $(10,296) $(13,180) $(10,173)
Net income attributable to non-controlling interest            
Continuing operations           (22)
Discontinued operations           (4)
Net income attributable to non-controlling interest           (26)
Net loss attributable to ARC Group Worldwide, Inc.  (2,190)  (10,296)  (13,180)  (10,147)
             
Net loss per common share, basic and diluted:            
Continuing operations $(0.09) $(0.56) $(0.65) $(0.78)
Discontinued operations $  $(0.01) $(0.01) $0.22 
Attributable to ARC Group Worldwide, Inc. $(0.09) $(0.57) $(0.66) $(0.56)
             
Weighted average common shares outstanding:            
Basic and diluted  23,308,516   18,171,626   19,936,074   18,142,719 
                 

 
ARC Group Worldwide, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
       
  As of June 30,
  2018 2017
ASSETS      
Current assets:      
Cash $365  $593 
Accounts receivable, net  11,251   10,488 
Inventories, net  12,327   14,369 
Prepaid expenses and other current assets  2,955   3,152 
Current assets of discontinued operations     1,452 
Total current assets  26,898   30,054 
Property and equipment, net  39,980   41,349 
Goodwill  6,412   6,412 
Intangible assets, net  16,270   19,624 
Other  373   291 
Long-term assets of discontinued operations     1,893 
Total assets $89,933  $99,623 
       
LIABILITIES AND STOCKHOLDERS' EQUITY      
Current liabilities:      
Accounts payable $11,704  $8,681 
Accrued expenses and other current liabilities  2,090   3,273 
Deferred revenue  825   1,165 
Bank borrowings, current portion of long-term debt  1,721   1,701 
Capital lease obligations, current portion  1,429   1,470 
Accrued escrow obligations, current portion  943   1,212 
Current liabilities of discontinued operations     283 
Total current liabilities  18,712   17,785 
Long-term debt, net of current portion  37,013   42,822 
Capital lease obligations, net of current portion  1,079   1,888 
Accrued escrow obligations, net of current portion     1,184 
Other long-term liabilities  965   1,017 
Long-term liabilities of discontinued operations     260 
Total liabilities  57,769   64,956 
       
Commitments and contingencies (Note 12)      
       
Stockholders' 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; 23,324,316 shares issued and 23,315,915 shares issued and outstanding at June 30, 2018, and 18,180,027 shares issued and 18,171,626 shares issued and outstanding at June 30, 2017  12   10 
Treasury stock, at cost; 8,401 shares at June 30, 2018 and June 30, 2017  (94)  (94)
Additional paid-in capital  41,829   31,109 
Retained earnings (accumulated deficit)  (9,627)  3,569 
Accumulated other comprehensive income  44   73 
Total stockholders'equity  32,164   34,667 
Total liabilities and stockholders' equity $89,933  $99,623 
         

 
ARC Group Worldwide, Inc.
Consolidated Statements of Cash Flows
(in thousands)
       
  For the Years ended June 30,
  2018 2017
Cash flows from operating activities:      
Net loss $(13,180) $(10,173)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:      
Depreciation and amortization  10,223   9,930 
Share-based compensation expense  714   752 
Loss on disposal of assets     293 
Loss on sale of asset  178    
Loss (gain) on sale of subsidiaries  109   (5,485)
Goodwill impairment charges     3,303 
Bad debt expense and other  (6)  173 
Deferred income taxes     (407)
Changes in working capital:      
Accounts receivable  (631)  2,597 
Inventory  1,876   1,120 
Prepaid expenses and other assets  177   480 
Accounts payable  2,768   1,068 
Accrued expenses and other current liabilities  (2,445)  (509)
Deferred revenue  (339)  (292)
Net cash (used in) provided by operating activities  (556)  2,850 
       
Cash flows from investing activities:      
Purchases of property and equipment  (5,144)  (6,641)
Proceeds from sale of subsidiary  3,000   10,538 
Net cash (used in) provided by investing activities  (2,144)  3,897 
       
Cash flows from financing activities:      
Proceeds from debt issuance  94,053   118,124 
Repayments of long-term debt and capital lease obligations  (101,659)  (127,468)
Proceeds from rights offering, net  9,785    
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 and exercise of stock options  208   98 
Net cash provided by (used in) financing activities  2,387   (9,934)
Effect of exchange rates on cash  85   160 
Net decrease in cash  (228)  (3,027)
Cash, beginning of period  593   3,620 
Cash, end of period $365  $593 
Supplemental disclosures of cash flow information:      
Cash paid for interest $1,948  $3,303 
Cash paid for income taxes, net of refunds $137  $(849)
         

 
ARC Group Worldwide, Inc.
Consolidated Segment Information
(in thousands)
             
  Three months ended Fiscal Years Ended June 30,
  June 30,  June 30,  2018 2017
  2018 2017      
Sales:            
Precision Components Group $16,993  $16,316  $60,643  $75,053 
Stamping Group  5,466   5,073   19,376   21,061 
3DMT Group  214   758   2,419   2,528 
Wireless Group           427 
Consolidated sales $22,673  $22,147  $82,438  $99,069 
             
Operating costs:            
Precision Components Group $17,223  $21,117  $64,592  $80,133 
Stamping Group  5,040   5,654   19,698   21,766 
3DMT Group  1,166   3,910   4,353   3,963 
Wireless Group     9      554 
Consolidated operating costs $23,429  $30,690  $88,643  $106,416 
             
Segment operating income (loss):            
Precision Components Group $(230) $(4,801) $(3,949) $(5,080)
Stamping Group  426   (581)  (322)  (705)
3DMT Group  (952)  (3,152)  (1,934)  (1,435)
Wireless Group     (9)     (127)
Corporate  (717)  (1,853)  (3,407)  (5,397)
Total segment operating loss $(1,473) $(10,396) $(9,612) $(12,744)
             
Interest expense, net  (816)  (1,006)  (3,625)  (4,008)
Loss on extinguishment of debt           (723)
Other income (loss), net  271   (223)  298   670 
Non-operating expense  (545)  (1,229)  (3,327)  (4,061)
Consolidated loss before income taxes and non-controlling interest $(2,018) $(11,625) $(12,939) $(16,805)
                 

 
ARC Group Worldwide, Inc.
Pro Forma Consolidated Segment Information Excluding 3DMT
(in thousands)
             
  Three months ended Fiscal Years Ended June 30,
  June 30,  June 30,  2018 2017
  2018 2017      
Sales:            
Precision Components Group $16,993  $16,316  $60,643  $75,053 
Stamping Group  5,466   5,073   19,376   21,061 
Consolidated sales $22,459  $21,389  $80,019  $96,114 
             
Operating costs:            
Precision Components Group $17,297  $21,184  $64,912  $80,410 
Stamping Group  5,040   5,654   19,698   21,766 
Consolidated operating costs $22,337  $26,838  $84,610  $102,176 
             
Segment operating income (loss):            
Precision Components Group $(304) $(4,868) $(4,269) $(5,357)
Stamping Group  426   (581)  (322)  (705)
Corporate  (717)  (1,853)  (3,407)  (5,397)
Total segment operating loss $(595) $(7,302) $(7,998) $(11,459)
             
Interest expense, net  (816)  (1,006)  (3,625)  (4,008)
Loss on extinguishment of debt           (723)
Other income (loss), net  271   (223)  298   670 
Non-operating expense  (545)  (1,229)  (3,327)  (4,061)
Consolidated loss before income taxes and non-controlling interest $(1,140) $(8,531) $(11,325) $(15,520)
                 

 

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