SMIT Schmitt Industries Inc

Schmitt Industries, Inc. (NASDAQ: SMIT) today announced its financial results for the fiscal year ended May 31, 2019.

For the year ended May 31, 2019, the Company reported consolidated revenue of $13,810,161, compared to $13,888,063 and $12,397,643 for 2018 and 2017, respectively. The decline in year-over-year revenue was primarily due to the Measurement segment decline in revenue of $131,791.

Our Balancer segment revenue in Fiscal 2019 increased to $9,080,719, compared to $9,026,830 and $7,082,474 for 2018 and 2017, respectfully. The continued growth in 2019 is due to growth in Asian markets while the 2018 growth is a reflection of expansion into the European markets. While there is a concern tariffs could impact our sales into the Asia market, we have only seen a marginal impact to date.

Our Measurement segment revenue in Fiscal 2019 decreased to $4,729,442, compared to $4,861,233 and $5,315,169 for 2018 and 2017, respectively. The decrease in revenue is a reflection of two discontinued products lines, which the Company initiated in 2017, and a reduction in Acuity sales due to the loss of key sales staff at the end of Fiscal 2018. The Company is taking steps to address the sales staffing levels and to move Acuity from a products-based business to a solutions-based business.

Within the Measurement segment, Xact products and services in the “Internet of Things” industry continues to grow with monitoring revenue increasing 16.2% to $1,367,329 in Fiscal 2019, compared to $1,176,323 and $1,022,208 for 2018 and 2017, respectively. The Company is currently exploring strategic investments and partnerships in the Xact line to further expand this growth.

Gross margin decreased to 36.1% for Fiscal 2019 from 43.7% in Fiscal 2018. This decrease is due, in part, to the inventory adjustments of $(407,558) and $(189,990) recorded during the third and fourth quarters of Fiscal 2019. These inventory adjustments were the outcome of new management’s requirement to complete an in-depth review of the inventory across the Company’s three product lines, with standards of the review focused on more current turnover.  The adjustments are direct charges to cost of sales and resulted in a reduction of gross margin from 40.5%, before adjustment, to 36.1% for Fiscal 2019.

Operating expenses for Fiscal 2019 increased to $5,992,759, compared to $5,909,942 and $5,874,491 for 2018 and 2017, respectively. These results include non-recurring reorganization, legal and other professional expenses of $752,481 incurred during Fiscal 2019 that were not incurred during the prior year. Excluding non-recurring costs, operating expenses reduced significantly from Fiscal 2018 to Fiscal 2019.

Adjusted EBITDA, which excludes the non-recurring reorganization, legal and other professional expenses and the inventory reserve adjustment, was $469,985 for Fiscal 2019 as compared to Adjusted EBITDA of $443,194 for Fiscal 2018.

Net loss was $(1,106,991), or $(0.27) per fully diluted share, for Fiscal 2019 as compared to net income of $210,639, or $0.06 per fully diluted share, for 2018. Excluding non-recurring reorganization costs and inventory adjustments, non-GAAP EPS for Fiscal 2019 was $0.06 per fully diluted share compared to $0.06 per fully diluted share for 2018.

The Company finished the year with $1,411,732 of cash, compared to $1,168,930 for third quarter ended February 28, 2019.

Michael Zapata, Executive Chairman and President, commented, “Fiscal 2019 was as a transitional year for Schmitt.  We have used the past six months to re-evaluate our policies and procedures, including the inventory carried. Although the fourth quarter inventory adjustment was larger than we expected, we believe it was the right decision and a necessary step to streamline and focus our operations.”

“Despite the re-organization costs and adjustments, I believe our cash position has hit an inflection point as the Company has shifted its focus to profitability. Moving forward, we are focused on investing in high return on investment projects in our world-class business lines to maximize profit and grow shareholder value.”

“Strategically, the Board continues to evaluate options to monetize our real estate and maximize shareholder value. We look forward to our annual meeting this Fall to discuss further,” Zapata added.

Summary data for the three months ended May 31, 2019 and 2018:
		Three Months Ended May 31,
		2019				2018					Change ($)			Change (%)
Total revenues, net		$	3,784,049			$	3,794,677			$	(10,628	)		-0.3	%
	Balancer segment		2,579,271				2,587,776				(8,505	)		-0.3	%
	Measurement segment		1,204,778				1,206,901				(2,123	)		-0.2	%
Gross margin			33.7	%			42.6	%
Operating expenses		$	1,423,975			$	1,377,430				46,545			3.4	%
Net income (loss)		$	(164,713	)		$	225,936				(390,649	)
Net income (loss) per fully   diluted share		$	(0.04	)		$	0.06
Summary data for the fiscal year ended May 31, 2019 and 2018:
		Fiscal Years Ended May 31,
		2019				2018					Change ($)			Change (%)
Total revenues, net		$	13,810,161			$	13,888,063			$	(77,902	)		-0.6	%
	Balancer segment		9,080,719				9,026,830				53,889			0.6	%
	Measurement segment		4,729,442				4,861,233				(131,791	)		-2.7	%
Gross margin			36.1	%			43.7	%
Operating expenses		$	5,992,759			$	5,909,942				82,817			1.4	%
Net income (loss)		$	(1,106,991	)		$	210,639				(1,317,630	)
Net income (loss) per fully   diluted share		$	(0.27	)		$	0.06

 Reconciliation of Adjusted Net Income and Non-GAAP EPS:

		Three MonthsEnded May 31, 2019				Fiscal Year Ended May 31, 2019
Net loss		$	(164,713	)		$	(1,106,991	)
	Inventory reserve adjustment		189,990				597,548
	Non-recurring reorganization, legal and other professional expenses		115,034				752,481
Adjusted net income (non-GAAP)		$	140,311			$	243,038
Non-GAAP earnings per fully diluted share		$	0.03			$	0.06
Reconciliation of EBITDA to Adjusted EBITDA:
		Fiscal Year Ended May 31, 2019				Fiscal Year Ended May 31,2018
Net loss		$	(1,106,991	)		$	210,639
Provision for income taxes			26,439				25,915
Depreciation and amortization			188,348				205,239
Interest expense			12,160				1,401
EBITDA			(880,044	)			443,194
	Inventory reserve adjustment		597,548				-
	Non-recurring reorganization, legal and other professional expenses		752,481				-
Adjusted EBITDA (non-GAAP)		$	469,985			$	443,194

About Schmitt Industries

Schmitt Industries, Inc. (“Schmitt” or the “Company”), founded in 1987, designs, manufactures and sells high precision test and measurement products, solutions and services through our SBS®, Acuity® and Xact® product lines, which are reported in two business segments. In the Balancer segment, our SBS product line provides computer-controlled vibration detection, balancing and process control systems for the worldwide machine tool industry. In the Measurement segment, our Acuity line provides laser and white light sensor distance measurement and dimensional sizing products, and our Xact line provides ultrasonic-based remote tank monitoring products and related monitoring revenues for markets in the Internet of Things environment.

FORWARD-LOOKING STATEMENTS

This document may contain forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict.  Actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors. A complete discussion of the risks and uncertainties that may affect Schmitt’s business, including the business of its subsidiary, is included in “Risk Factors” in the Company’s most recent Annual Report on Form 10-K as filed by the Company with the Securities and Exchange Commission.

For further information regarding risks and uncertainties associated with the Company’s business, please refer to Schmitt’s SEC filings, including, but not limited to, its Forms 10-K, 10-Q and 8-K.

The forward-looking statements in this release speak only as of the date on which they were made, and the Company does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this release, or for changes to this document made by wire services or internet service providers.

For more information contact:

Michael R. Zapata, Executive Chairman and President or Ann M. Ferguson, CFO and Treasurer(503) 227-7908 or visit our web site at www.schmitt-ind.com

 

SCHMITT INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
		May 31, 2019				May 31, 2018
	ASSETS
	Current assets
	Cash and cash equivalents	$	1,411,732			$	2,053,181
	Restricted cash		55,703				58,352
	Accounts receivable, net		1,996,240				2,047,032
	Inventories		5,019,044				5,710,888
	Prepaid expenses		150,975				148,924
			8,633,694				10,018,377
	Property and equipment, net		839,374				770,915
	Other assets
	Intangible assets, net		392,185				496,768
	TOTAL ASSETS	$	9,865,253			$	11,286,060
	LIABILITIES & STOCKHOLDERS’ EQUITY
	Current liabilities
	Accounts payable	$	496,362			$	1,024,256
	Accrued commissions		200,116				194,797
	Accrued payroll liabilities		239,476				188,568
	Other accrued liabilities		390,551				358,790
	Income taxes payable		491				3,993
	Current portion of long-term liabilities		20,828				0
	Total current liabilities		1,347,824				1,770,404
	Long-term liabilities		28,543				0
	Stockholders’ equity
	Common stock, no par value, 20,000,000 shares authorized,
	4,032,878 shares issued and outstanding at May 31, 2019 and
	3,994,545 shares issued and outstanding at May 31, 2018		13,157,394				13,085,652
	Accumulated other comprehensive loss		(527,828	)			(536,307	)
	Accumulated deficit		(4,140,680	)			(3,033,689	)
	Total stockholders’ equity		8,488,886				9,515,656
	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	9,865,253			$	11,286,060

 

SCHMITT INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND FISCAL YEARS ENDED MAY 31, 2019 AND 2018
(UNAUDITED)
				Three Months Ended May 31,								Fiscal Years Ended May 31,
				2019				2018				2019				2018
	Revenues, net			$	3,784,049			$	3,794,677			$	13,810,161			$	13,888,063
	Cost of sales				2,510,079				2,177,377				8,820,903				7,822,749
			Gross profit		1,273,970				1,617,300				4,989,258				6,065,314
	Operating expenses:
		General, administration and sales			1,411,628				1,303,120				5,863,719				5,582,625
		Research and development			12,347				74,310				129,040				327,317
			Total operating expenses		1,423,975				1,377,430				5,992,759				5,909,942
	Operating loss				(150,005	)			239,870				(1,003,501	)			155,372
		Other income (expense), net			(7,583	)			(7,254	)			(77,051	)			81,182
	Income (loss) before income taxes				(157,588	)			232,616				(1,080,552	)			236,554
		Provision for income taxes			7,125				6,680				26,439				25,915
	Net income (loss)			$	(164,713	)		$	225,936			$	(1,106,991	)		$	210,639
		Net income (loss) per common share, basic		$	(0.04	)		$	0.06			$	(0.28	)		$	0.06
		Weighted average number of common shares, basic			4,032,878				3,994,545				4,005,795				3,422,724
		Net income (loss) per common share, diluted		$	(0.04	)		$	0.06			$	(0.27	)		$	0.06
		Weighted average number of common shares, diluted			4,067,222				4,041,797				4,049,546				3,460,339