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| 8-K - 8-K - SPARTON CORP | q1fy2018earningsrelease-8k.htm |
Media Contact: | Joe McCormack | |||
Sparton Corporation | ||||
Email: ir@sparton.com | ||||
Office: (847) 762-5800 | ||||
FOR IMMEDIATE RELEASE
Sparton Corporation Reports Fiscal 2018 First Quarter Results
SCHAUMBURG, IL. - November 9, 2017 - Sparton Corporation (NYSE: SPA) today announced results for the first quarter of fiscal year 2018 ended October 1, 2017.
First Quarter Financial Results and Highlights
Joseph J. Hartnett, Interim President & CEO, commented, “As a result of our recent growth in new program wins, we experienced some interruptions in production and increased inventory levels which is typical with new program introductions. We believe that the backlog from these programs has us positioned for growth in the upcoming quarters and beyond.”
Joseph G. McCormack, Senior Vice President & CFO, commented, “We experienced net cash outflows and increasing debt in the quarter. This was principally the result of the timing of a payment from the U.S. Navy, significant transaction-related costs as a result of the signing of the merger agreement during the quarter, increasing inventories as a result of the new product introductions, as well as typical year-end compensation related payments. The underlying fundamentals of the business remain unchanged and we expect to return to positive free cash flows and reducing our debt levels in the second quarter.”
Consolidated:
• Net sales of $82.8 million
• Gross profit margin of 17.6%
• SG&A expenses of $15.2 million or 18.4% of sales; adjusted SG&A of $12.9 million, 15.5% of sales
• Loss per share of $0.29, adjusted earnings per share of $0.00
• Adjusted EBITDA of $2.9 million, a 3.5% adjusted EBITDA margin
MDS Segment:
• Gross sales of $55.3 million
• Gross profit margin of 10.8%
• Operating loss of $1.5 million
• Adjusted EBITDA of $3.3 million, a 1.5% adjusted EBITDA margin
• New program wins in Q4 have expected revenue of $11.7 million when fully ramped up into production
• Trailing four quarter new program win revenue of $61.9 million, which continues to support our future organic growth
ECP Segment:
• Gross sales of $30.4 million
• Gross profit margin of 28.3%
• Operating income of $4.1 million
• Adjusted EBITDA of $5.7 million, a 15.4% adjusted EBITDA margin
SELECTED FINANCIAL DATA
For the Quarters Ended | |||||||||||
Q1 FY18 | Q4 FY17 | Q1 FY17 | |||||||||
(Dollars in thousands, except per share data) | |||||||||||
Consolidated: | |||||||||||
Net sales | $ | 82,763 | $ | 104,386 | $ | 100,367 | |||||
Gross profit | 14,588 | 21,801 | 17,285 | ||||||||
Selling and administrative expenses | 15,205 | 14,913 | 13,383 | ||||||||
Operating income | (3,112 | ) | 4,538 | 1,332 | |||||||
Adjusted operating income (non-GAAP) | 1,162 | 7,638 | 4,314 | ||||||||
Earnings per share | (0.29 | ) | 0.17 | 0.01 | |||||||
Adjusted Earnings per share (non-GAAP) | — | 0.38 | 0.20 | ||||||||
EBITDA (non-GAAP) | 337 | 7,978 | 5,071 | ||||||||
Adjusted EBITDA (non-GAAP) | 2,899 | 9,727 | 6,143 | ||||||||
Adjusted EBITDA margin (non-GAAP) | 3.5 | % | 9.3 | % | 6.1 | % | |||||
Free cash flow (non-GAAP) | $ | (23,684 | ) | $ | 13,895 | $ | 2,093 | ||||
MDS Segment: | |||||||||||
Gross sales | $ | 55,308 | $ | 67,046 | $ | 65,002 | |||||
Intercompany sales | (2,937 | ) | (2,887 | ) | (2,200 | ) | |||||
Net sales | 52,371 | 64,159 | 62,802 | ||||||||
Gross profit | 5,993 | 9,100 | 7,294 | ||||||||
Selling and administrative expenses | 3,454 | 3,446 | 3,508 | ||||||||
Allocation of corporate expenses | 2,446 | 2,456 | 2,468 | ||||||||
Operating Income (loss) | (1,485 | ) | 1,557 | (514 | ) | ||||||
Adjusted Segment EBITDA (non-GAAP) | $ | 3,250 | $ | 6,428 | 4,691 | ||||||
ECP Segment: | |||||||||||
Gross sales | $ | 30,399 | $ | 40,264 | $ | 37,592 | |||||
Intercompany sales | (7 | ) | (37 | ) | (27 | ) | |||||
Net sales | 30,392 | 40,227 | 37,565 | ||||||||
Gross profit | 8,595 | 12,701 | 9,991 | ||||||||
Selling and administrative expenses | 2,589 | 2,709 | 2,624 | ||||||||
Allocation of corporate expenses | 991 | 1,470 | 1,200 | ||||||||
Operating Income | 4,098 | 7,813 | 5,429 | ||||||||
Adjusted Segment EBITDA (non-GAAP) | $ | 5,678 | $ | 9,859 | 7,228 | ||||||
Liquidity and Capital Resources
As of October 1, 2017, the Company had $22 million available under its $125 million credit facility.
Non-GAAP Financial Measures
In addition to reporting financial results in accordance with U.S. generally accepted accounting principles (“GAAP”), Sparton Corporation has provided certain non-GAAP financial measures as additional information for its operating results. These measures have not been prepared in accordance with GAAP and may be different from measures used by other companies. Whenever we use non-GAAP financial measures, we designate these measures, which exclude the effects of certain expenses and income, as “adjusted” and provide a reconciliation of non-GAAP financial measures to the most closely applicable GAAP financial measure. The non-GAAP financial measures eliminate or add certain items of expense and income from total operating expense and income taxes. Management believes that this presentation is helpful to investors in evaluating the current operational and financial performance of our business and facilitates comparisons to historical results of operations. Management discloses this information along with a reconciliation of the comparable GAAP amounts to provide access to the detail and nature of adjustments made to GAAP financial results. While some of these excluded items have been periodically reported in our statements of operations, their occurrence in future periods depends on future business and economic factors, among other evaluation criteria, and the occurrence of such events and factors may frequently be beyond the control of management.
When we calculate adjusted earnings per share, adjusted EBITDA and other adjustments to the statements of income, we exclude certain expenses and income because we believe that they are not related directly to the underlying performance of our fundamental business operations. We exclude these measures when reviewing financial results and for business planning. Although these events are reflected in our GAAP financial statements, these transactions may limit the comparability of our fundamental operations with prior and future periods. We believe EBITDA and adjusted EBITDA are commonly used by financial analysts and others in the industries in which the Company operates and, thus, provides useful information to investors. The Company does not intend, nor should the reader consider, EBITDA or adjusted EBITDA to be an alternative to operating income, net income, net cash provided by operating activities or any other items calculated in accordance with GAAP. The Company's definition of adjusted EBITDA may not be comparable with other companies. Accordingly, the measurement has limitations depending on its use.
About Sparton Corporation
Sparton Corporation (NYSE:SPA), now in its 118th year, is a provider of complex and sophisticated electromechanical devices with capabilities that include concept development, industrial design, design and manufacturing engineering, production, distribution, field service and refurbishment. The primary markets served are Medical & Biotechnology, Military & Aerospace and Industrial & Commercial. Headquartered in Schaumburg, IL, Sparton currently has thirteen manufacturing locations and engineering design centers worldwide. Sparton's Web site may be accessed at www.sparton.com.
Safe Harbor and Fair Disclosure Statement
Safe Harbor statement under the Private Securities Litigation Reform Act of 1995: To the extent any statements made in this release contain information that is not historical, these statements are essentially forward-looking and are subject to risks and uncertainties, including the difficulty of predicting future results, the regulatory environment, fluctuations in operating results and other risks detailed from time to time in Sparton’s filings with the Securities and Exchange Commission (SEC). The matters discussed in this press release may also involve risks and uncertainties concerning Sparton’s services described in Sparton’s filings with the SEC. In particular, see the risk factors described in Sparton’s most recent Form 10-K and Form 10-Q. Sparton assumes no obligation to update the forward-looking information contained in this press release.
1
CONSOLIDATING FINANCIAL INFORMATION - Q1 FISCAL YEAR 2018
(Dollars in thousands, except per share data)
Corporate | MDS | ECP | Total | ||||||||||||
Net Sales | $ | — | $ | 52,371 | $ | 30,392 | $ | 82,763 | |||||||
Cost of goods sold | — | 46,378 | 21,797 | 68,175 | |||||||||||
Gross profit | — | 5,993 | 8,595 | $ | 14,588 | ||||||||||
Operating expenses: | |||||||||||||||
Selling and administrative | 9,162 | 3,454 | 2,589 | 15,205 | |||||||||||
Selling and administrative - Corp allocations | (3,437 | ) | 2,446 | 991 | — | ||||||||||
Internal research and development | — | — | 572 | 572 | |||||||||||
Amortization of intangible assets | — | 1,578 | 345 | 1,923 | |||||||||||
Total operating expenses | 5,725 | 7,478 | 4,497 | 17,700 | |||||||||||
Income (loss) from operations | (5,725 | ) | (1,485 | ) | 4,098 | (3,112 | ) | ||||||||
Interest expense, net | (1,266 | ) | — | — | (1,266 | ) | |||||||||
Other income (expense) | — | (38 | ) | 28 | (10 | ) | |||||||||
Income taxes | 1,536 | — | — | 1,536 | |||||||||||
Net income (loss) | $ | (5,455 | ) | $ | (1,523 | ) | $ | 4,126 | $ | (2,852 | ) | ||||
Income per share of common stock: | |||||||||||||||
Basic | $ | (0.29 | ) | ||||||||||||
Diluted | (0.29 | ) | |||||||||||||
Weighted average shares of common stock outstanding: | |||||||||||||||
Basic | 9,834,723 | ||||||||||||||
Diluted | 9,834,723 | ||||||||||||||
CONSOLIDATING FINANCIAL INFORMATION - Q1 FISCAL YEAR 2017
(Dollars in thousands, except per share data)
Corporate | MDS | ECP | Total | ||||||||||||
Net Sales | $ | — | $ | 62,802 | $ | 37,565 | $ | 100,367 | |||||||
Cost of goods sold | — | 55,508 | 27,574 | 83,082 | |||||||||||
Gross profit | — | 7,294 | 9,991 | $ | 17,285 | ||||||||||
Operating expenses: | |||||||||||||||
Selling and administrative | 7,251 | 3,508 | 2,624 | 13,383 | |||||||||||
Selling and administrative - Corp allocations | (3,668 | ) | 2,468 | 1,200 | — | ||||||||||
Internal research and development | — | — | 351 | 351 | |||||||||||
Amortization of intangible assets | — | 1,832 | 387 | 2,219 | |||||||||||
Total operating expenses | 3,583 | 7,808 | 4,562 | 15,953 | |||||||||||
Income (loss) from operations | (3,583 | ) | (514 | ) | 5,429 | 1,332 | |||||||||
Interest expense, net | (1,186 | ) | 1 | — | (1,185 | ) | |||||||||
Other income (expense) | (1 | ) | 29 | (8 | ) | 20 | |||||||||
Income taxes | (63 | ) | — | 4 | (59 | ) | |||||||||
Net income (loss) | $ | (4,833 | ) | $ | (484 | ) | $ | 5,425 | $ | 108 | |||||
Income per share of common stock: | |||||||||||||||
Basic | $ | 0.01 | |||||||||||||
Diluted | 0.01 | ||||||||||||||
Weighted average shares of common stock outstanding: | |||||||||||||||
Basic | 9,792,818 | ||||||||||||||
Diluted | 9,792,818 | ||||||||||||||
2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
For the Fiscal Years | |||||||
2018 | 2017 | ||||||
($ in thousands) | |||||||
Cash Flows from Operating Activities: | |||||||
Operating activities, net of working capital changes | $ | 1,049 | $ | 4,279 | |||
Net changes in working capital | (24,278 | ) | (1,067 | ) | |||
Cash Flows from Operating Activities | (23,229 | ) | 3,212 | ||||
Cash Flows from Investing Activities: | |||||||
Capital expenditures | (455 | ) | (1,119 | ) | |||
Cash Flows from Investing Activities | (455 | ) | (1,119 | ) | |||
Cash Flows from Financing Activities: | |||||||
Net change in credit facility | 23,100 | (1,431 | ) | ||||
Other financing activities | (85 | ) | (76 | ) | |||
Cash Flows from Financing Activities | 23,015 | (1,507 | ) | ||||
Change in Cash and Cash Equivalents | (669 | ) | 586 | ||||
Cash and Cash Equivalents - Beginning | 988 | 132 | |||||
Cash and Cash Equivalents - Ending | $ | 319 | $ | 718 | |||
CONDENSED CONSOLIDATED BALANCE SHEETS
October 1, 2017 | July 2, 2017 | ||||||
($ in thousands) | |||||||
Assets | |||||||
Cash and cash equivalents | $ | 319 | $ | 988 | |||
Accounts receivable, net | 53,933 | 45,347 | |||||
Inventories | 68,646 | 60,248 | |||||
Prepaid and other current assets | 4,443 | 3,851 | |||||
Property, plant and equipment, net | 33,374 | 34,455 | |||||
Goodwill | 12,663 | 12,663 | |||||
Other intangible assets, net | 26,522 | 28,445 | |||||
Other assets | 30,544 | 31,146 | |||||
Total assets | $ | 230,444 | $ | 217,143 | |||
Liabilities and Shareholders’ Equity | |||||||
Accounts payable | $ | 30,278 | $ | 27,672 | |||
Accrued expenses | 17,030 | 26,580 | |||||
Credit facility | 97,600 | 74,500 | |||||
Capital lease obligations, long term | 100 | 167 | |||||
Environmental | 5,322 | 5,468 | |||||
Pension | 851 | 888 | |||||
Shareholders’ Equity | 79,263 | 81,868 | |||||
Total Liabilities and Shareholders’ Equity | $ | 230,444 | $ | 217,143 | |||
3
RECONCILIATION OF NON-GAAP MEASURES
EBITDA Reconciliation (Non-GAAP) - Q1 Fiscal Year 2018
(Dollars in thousands)
Corporate | MDS | ECP | Total | ||||||||||||
Net income (loss) | $ | (5,455 | ) | $ | (1,523 | ) | $ | 4,126 | $ | (2,852 | ) | ||||
Interest expense, net | 1,266 | — | — | 1,266 | |||||||||||
Income taxes | (1,536 | ) | — | — | (1,536 | ) | |||||||||
Amortization of intangible assets | — | 1,578 | 345 | 1,923 | |||||||||||
Depreciation | 571 | 749 | 216 | 1,536 | |||||||||||
Selling and administrative - Corp allocations | (3,437 | ) | 2,446 | 991 | — | ||||||||||
EBITDA, excluding corporate allocation | (8,591 | ) | 3,250 | 5,678 | 337 | ||||||||||
Adjustments for nonrecurring operating expenses: | |||||||||||||||
Stock-based compensation | 211 | — | — | 211 | |||||||||||
Costs related to potential sale of Company | 2,351 | — | — | 2,351 | |||||||||||
Adjusted EBITDA, before corporate allocation | $ | (6,029 | ) | $ | 3,250 | $ | 5,678 | $ | 2,899 | ||||||
Adjusted EBITDA, after corporate allocation | $ | (2,592 | ) | $ | 804 | $ | 4,687 | $ | 2,899 | ||||||
Adjusted EBITDA margin | 3.5 | % | |||||||||||||
EBITDA Reconciliation (Non-GAAP) - Q1 Fiscal Year 2017
(Dollars in thousands)
Corporate | MDS | ECP | Total | ||||||||||||
Net income (loss) | $ | (4,833 | ) | $ | (484 | ) | $ | 5,425 | $ | 108 | |||||
Interest expense, net | 1,186 | (1 | ) | — | 1,185 | ||||||||||
Income taxes | 63 | — | (4 | ) | 59 | ||||||||||
Amortization of intangible assets | — | 1,832 | 387 | 2,219 | |||||||||||
Depreciation included in SG&A above | 438 | 842 | 220 | 1,500 | |||||||||||
Selling and administrative - Corp allocations | (3,668 | ) | 2,468 | 1,200 | — | ||||||||||
EBITDA, excluding corporate allocation | (6,814 | ) | 4,657 | 7,228 | 5,071 | ||||||||||
Adjustments for nonrecurring operating expenses: | |||||||||||||||
Stock-based compensation | 309 | — | — | 309 | |||||||||||
Costs related to potential sale of company | 629 | 34 | — | 663 | |||||||||||
Other non-recurring costs | 100 | — | — | 100 | |||||||||||
Adjusted EBITDA, before corporate allocation | $ | (5,776 | ) | $ | 4,691 | $ | 7,228 | $ | 6,143 | ||||||
Adjusted EBITDA, after corporate allocation | $ | (2,108 | ) | $ | 2,223 | $ | 6,028 | $ | 6,143 | ||||||
Adjusted EBITDA margin | 6.1 | % | |||||||||||||
4
Adjusted EPS (Non-GAAP)
For the Quarters Ended | |||||||||||
Q1 FY18 | Q4 FY17 | Q1 FY17 | |||||||||
(Dollars in thousands, except per share data) | |||||||||||
Earnings per share - diluted, as reported | $ | (0.29 | ) | $ | 0.17 | $ | 0.01 | ||||
Nonrecurring items | 0.16 | 0.08 | 0.05 | ||||||||
Amortization of intangible assets | 0.13 | 0.13 | 0.14 | ||||||||
Adjusted earnings per share | $ | — | $ | 0.38 | $ | 0.20 | |||||
Adjustments, net of tax: | |||||||||||
Costs related to potential sale of Company | $ | 1,528 | $ | 722 | $ | 431 | |||||
Total nonrecurring | 1,528 | 722 | 496 | ||||||||
Amortization of intangible assets | 1,250 | 1,293 | 1,442 | ||||||||
Total adjustments | $ | 2,778 | $ | 2,015 | $ | 1,938 | |||||
5
Adjusted SG&A and Operating Income (Non-GAAP)
For the First Quarters Ended | |||||||||||||||||||||||
Q1 FY18 | Q4 FY17 | Q1 FY17 | |||||||||||||||||||||
SG&A | Operating Income | SG&A | Operating Income | SG&A | Operating Income | ||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||
As reported | $ | 15,205 | $ | (3,112 | ) | $ | 14,913 | $ | 4,538 | $ | 13,383 | $ | 1,332 | ||||||||||
Percentage of sales | 18.4 | % | (3.8 | )% | 14.3 | % | 4.3 | % | 13.3 | % | 1.3 | % | |||||||||||
Adjustments: | |||||||||||||||||||||||
Amortization of intangible assets | — | 1,923 | — | 1,989 | — | 2,219 | |||||||||||||||||
Costs related to potential sale of Company | 2,351 | 2,351 | 1,111 | 1,111 | 663 | 663 | |||||||||||||||||
Other nonrecurring adjustments | — | — | — | — | 100 | 100 | |||||||||||||||||
Total adjustments | 2,351 | 4,274 | 1,111 | 3,100 | 763 | 2,982 | |||||||||||||||||
As adjusted | $ | 12,854 | $ | 1,162 | $ | 13,802 | $ | 7,638 | $ | 12,620 | $ | 4,314 | |||||||||||
Adjusted percentage of sales | 15.5 | % | 1.4 | % | 13.2 | % | 7.3 | % | 12.6 | % | 4.3 | % | |||||||||||
6