SOURCE: ARC Group Worldwide, Inc.

ARC Group Worldwide

November 10, 2016 16:00 ET

ARC Group Worldwide, Inc. Reports Fiscal Year First Quarter 2017 Results

DELAND, FL--(Marketwired - November 10, 2016) - ARC Group Worldwide, Inc. ("ARC" and the "Company") (NASDAQ: ARCW), a leading global provider of advanced manufacturing and 3D printing solutions, today reported its results for its fiscal first quarter 2017, for the period ending October 2, 2016.

Highlights for the first quarter fiscal year 2017, compared to the first quarter fiscal year 2016:

  • Sales from continuing operations of $26.8 million, an increase of 13.5% and the Company's fourth consecutive quarter of sequential revenue growth;
  • Gross profit of $5.0 million, an increase of 21.9%; and
  • Adjusted EBITDA of $2.9 million, an increase of 11.4%.

Quarterly Summary

Fiscal first quarter 2017 revenue from continuing operations was $26.8 million, a 13.5% increase compared to the fiscal first quarter of 2016. The increase, the Company's fourth consecutive quarter of sequential organic sales growth, was driven by continued momentum from ARC's new sales efforts.

Gross profit for the period was $5.0 million, an increase of 21.9%, while gross margins were 18.6%, an improvement of 128 basis points compared to the prior year period.

Adjusted EBITDA increased 11.4% during the fiscal first quarter to $2.9 million, compared to $2.6 million in the prior comparable period. Similar to the prior sequential quarter, Adjusted EBITDA growth was muted, the product of increased costs primarily attributable to new product programs in the process of launching.

Net income for the fiscal first quarter increased to $3.6 million compared to a net loss of $0.5 million in the prior year period as a result of a gain on the sale of our non-core subsidiary and income from the discontinued operations, net of tax, of $4.2 million.

Management Commentary

Jason Young, CEO, commented, "Similar to last quarter, we saw increased progress in growing our organic sales, which is primarily a product of our new customer driven culture. We also continue to make headway in growing our market share, as we focus on building strategic relationships with key customers. While margins continue to be muted due to the start-up costs and drag associated with the launch of new programs, we expect margins to improve as these programs move to full production. The biggest opportunity for us now, is to increase capacity in our new product development, so we can more quickly and efficiently launch the new opportunities that have resulted from our customer driven approach. At this point, given the sales pipeline we have built, a key driver of our increased growth will be our ability to accelerate and expand new product launches, a challenge we are committed to solving."

GAAP to Non-GAAP Reconciliation

EBITDA, EBITDA Margin, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Earnings and Adjusted Earnings Per Share are non-GAAP financial measures. EBITDA Margin and Adjusted EBITDA Margin are calculated by dividing EBITDA and Adjusted EBITDA, respectively, by sales. 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.

The reconciliation to GAAP is as follows (dollars in thousands):

   October 2,   September 27,  
For the three months ended:  2016   2015  
Net Income (Loss)  $3,607   $(441 )
 Interest Expense, Net   1,107    1,140  
 Income Taxes   217    (426 )
 Depreciation and Amortization, from Continuing Operations   2,362    2,362  
EBITDA  $7,293   $2,635  
EBITDA Margin   27.2 %  11.2 %
 Share-Based Compensation Expense   312    -  
 Adjustment to Exclude EBITDA from Discontinued Operations   (5,748 )  -  
 Reorganization/Transaction Expenses   1,088    9  
Adjusted EBITDA  $2,945   $2,644  
Adjusted EBITDA Margin   11.0 %  11.2 %
Net Income (Loss)  $3,607   $(441 )
 Share-Based Compensation Expense   312    -  
 Adjustment to Exclude Income from Discontinued Operations, Net of Tax   (4,187 )  -  
 Reorganization/Transaction Expenses   1,088    9  
Adjusted Earnings  $820   $(432 )
Adjusted Earnings Per Share  $0.05   $(0.02 )
Weighted Average Common Shares Outstanding   18,123,883    18,123,883  

EBITDA excludes interest expense, net and income taxes because these items are associated with our capitalization and tax structures. EBITDA also excludes depreciation and amortization expense because these non-cash expenses reflect the impact of prior capital expenditure decisions which may not be indicative of future capital expenditure requirements.

The Company defines Adjusted EBITDA as EBITDA excluding the impact of share-based compensation expense and reorganization/transaction expenses, which is in accordance with the Company's bank debt covenants. Shared-based compensation expense relates to the Company's grant of stock options to employees. Reorganization expenses are primarily labor and labor related costs associated with the termination of employees and inventory write-downs as allowed by the Company's bank debt covenants. Transaction expenses are primarily professional fees related to the refinancing of debt and the sale of non-core assets.

Adjusted Earnings removes the impact of share-based compensation expense and reorganization/transaction related expenses.

About ARC Group Worldwide, Inc.

ARC Group Worldwide, Inc. is a global advanced manufacturing and 3D printing service provider focused on accelerating speed-to-market for its customers. ARC utilizes technology to improve automation in manufacturing through robotics, software, and process automation, as well as lean manufacturing to improve efficiency. ARC provides a holistic set of precision manufacturing solutions, from design and prototyping, through full run production. These solutions include metal injection molding, plastic and metal 3D printing, metal stamping, plastic injection molding, clean room injection molding, rapid tooling, thixomolding, antennas, and flanges and forges.

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, 2016, as well as other documents ARC files from time to time with the Securities and Exchange Commission.

ARC Group Worldwide, Inc. 
Consolidated Statements of Operations 
(in thousands, except for share and per share amounts) 
   For the three months ended  
   October 2, 2016   September 27, 2015  
Sales  $26,826   $23,631  
Cost of sales   21,825    19,528  
Gross profit   5,001    4,103  
 Selling, general and administrative   5,049    4,006  
(Loss) income from operations   (48 )  97  
 Other (expense) income, net   (33 )  3  
 Interest expense, net   (1,107 )  (1,140 )
 Loss on extinguishment of debt   (723 )  -  
Loss before income taxes   (1,911 )  (1,040 )
Income tax benefit   1,331    426  
Net loss from continuing operations   (580 )  (614 )
Gain on sale of subsidiary and net income from discontinued operations, net of tax   4,187    173  
Net income (loss)   3,607    (441 )
Net income attributable to non-controlling interests:           
 Continuing operations   (22 )  (22 )
 Discontinued operations   (4 )  (7 )
Net income attributable to non-controlling interests   (26 )  (29 )
Net income (loss) attributable to ARC Group Worldwide, Inc.  $3,581   $(470 )
Net (loss) income per common share, basic and diluted:           
 Continuing operations  $(0.03 ) $(0.04 )
 Discontinued operations  $0.23   $0.01  
 Attributable to ARC Group Worldwide, Inc.  $0.20   $(0.03 )
Weighted average common shares outstanding:           
 Basic and diluted   18,123,883    18,123,883  
ARC Group Worldwide, Inc. 
Consolidated Balance Sheets 
(in thousands, except share data) 
  October 2, 2016   June 30, 2016  
Current assets:          
 Cash $3,861   $3,620  
 Accounts receivable, net  15,304    14,186  
 Inventories, net  18,761    16,585  
 Deferred income tax assets  -    478  
 Prepaid expenses and other current assets  3,117    3,886  
 Current assets of discontinued operations  -    1,818  
Total current assets  41,043    40,573  
Property and equipment, net  41,561    41,828  
Goodwill  11,427    11,427  
Intangible assets, net  22,222    23,066  
Other  23    28  
Long-term assets of discontinued operations  -    3,527  
Total assets $116,276   $120,449  
Current liabilities:          
 Accounts payable $10,351   $8,602  
 Accrued expenses and other current liabilities  4,562    2,591  
 Deferred revenue  1,420    1,457  
 Bank borrowings, current portion of long-term debt, net of unamortized deferred financing costs  1,693    15,648  
 Capital lease obligations, current portion  841    837  
 Accrued escrow obligations, current portion  3,083    2,842  
 Current liabilities of discontinued operations  -    723  
Total current liabilities  21,950    32,700  
Long-term debt, net of current portion and unamortized deferred financing costs  41,682    36,769  
Deferred income tax liabilities  40    1,407  
Capital lease obligations, net of current portion  1,715    1,930  
Accrued escrow obligations, net of current portion  725    966  
Other long-term liabilities  2,114    2,115  
Long-term liabilities of discontinued operations  -    19  
Total liabilities  68,226    75,906  
Commitments and contingencies          
 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; 18,803,910 shares issued and 18,795,509 shares issued and outstanding at October 2, 2016 and June 30, 2016  10    10  
 Treasury stock, at cost; 8,401 shares at October 2, 2016 and June 30, 2016  (94 )  (94 )
 Additional paid-in capital  30,013    29,702  
 Retained earnings  17,352    13,771  
 Accumulated other comprehensive loss  (24 )  (6 )
 Total ARC Group Worldwide, Inc. stockholders' equity  47,257    43,383  
 Non-controlling interests  793    1,160  
 Total equity  48,050    44,543  
Total liabilities and equity $116,276   $120,449  
ARC Group Worldwide, Inc. 
Consolidated Statements of Cash Flows 
(in thousands) 
   For the three months ended  
   October 2, 2016   September 27, 2015  
Cash flows from operating activities:           
Net income (loss)  $3,607   $(441 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:           
 Depreciation and amortization   2,374    2,362  
 Share-based compensation expense   312    -  
 Gain on sale of discontinued operations   (5,722 )  -  
 Bad debt expense and other   13    5  
 Deferred income taxes   (888 )  150  
Changes in working capital:           
 Accounts receivable   (1,379 )  974  
 Inventory   (2,414 )  (596 )
 Prepaid expenses and other assets   870    (815 )
 Accounts payable   1,990    962  
 Accrued expenses   1,701    (950 )
 Deferred revenue   (37 )  (145 )
Net cash provided by operating activities   427    1,506  
Cash flows from investing activities:           
 Purchases of property and equipment   (1,329 )  (629 )
 Proceeds from sale of subsidiary   10,500    -  
Net cash provided by (used in) investing activities   9,171    (629 )
Cash flows from financing activities:           
 Proceeds from debt issuance   32,112    -  
 Repayments of long-term debt and capital lease obligations   (41,487 )  (1,589 )
Net cash used in financing activities   (9,375 )  (1,589 )
 Effect of exchange rates on cash   18    37  
Net increase (decrease) in cash   241    (675 )
Cash, beginning of period   3,620    4,821  
Cash, end of period  $3,861   $4,146  
Supplemental disclosures of cash flow information:           
 Cash paid for interest  $1,007   $1,050  
 Cash paid for income taxes, net of refunds  $(927 ) $123  

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