ARC Group Worldwide Reports Fiscal Year First Quarter 2018 Results


DELAND, Fla., Nov. 13, 2017 (GLOBE NEWSWIRE) -- 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) 467-5236
Email: 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)