ARC Group Worldwide Reports Third Quarter Fiscal Year 2016 Results

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DELAND, FL –(Marketwired – May 04, 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 third quarter fiscal year 2016 (March 27, 2016) results.

Highlights for the quarter ended March 27, 2016, compared sequentially to the quarter ended December 27, 2015:

  • Sales of $26.5 million, an increase of 5.9%;
  • Gross profit of $5.7 million, an increase of 23.6%; and
  • Adjusted EBITDA of $3.4 million, an increase of 18.3%.


Third Quarter Results

Third fiscal quarter 2016 revenue was $26.5 million, a 5.9% increase sequentially, compared to the second fiscal quarter of 2016. The increase was largely driven by continued momentum from our new sales efforts. Gross profit was $5.7 million, an increase of 23.6% sequentially. The increase in gross profit reflects the underlying operating leverage in ARC’s business, as the Company scales revenue and continues to improve efficiencies in its manufacturing process. Simarily, gross margin increased to 21.6%, from 18.5% in the prior sequential period.

Adjusted EBITDA for the third fiscal quarter was $3.4 million, an 18.3% increase sequentially, compared to the second fiscal quarter of 2016. Adjusted EBITDA Margin increased to 12.8%, from 11.5% in the prior sequential quarter, reflecting greater operational efficiencies. Adjusted EPS was a loss of $0.01 for the current period, an improvement from a loss of $0.03 in the prior sequential period.

Jason Young, CEO, commented, “Macro headwinds remain, but we are encouraged by our second sequentially positive quarter in terms of sales, gross profit, Adjusted EBITDA, and related margins. While still in its early stages, our new sales leadership and customer-centric approach is building momentum. Relatedly, improving speed to market is paramount to our customers and therefore, to our strategy. We continue to believe that along with lean manufacturing, improved tooling speed, and automation, there are a number of ways we can continue to accelerate speed to market from prototype to production. Lastly, we have a strong pipeline in metal 3D printing and plan to continue to invest in growing our capabilities at 3DMT.”

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 reflect its fundamental business performance and are not 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):

                                 
                   
    March 27,     December 27,       September 27,     June 30,     March 29,  
For the three months ended:   2016     2015       2015     2015     2015  
Net (Loss) Income   $ (337 )   $ (594 )     $ (441 )   $ (666 )   $ 434  
  Interest Expense, Net     1,107       1,126         1,141       1,248       1,466  
  Income Taxes     (8 )     (132 )       (426 )     1,158       (39 )
  Depreciation and Amortization     2,415       2,388         2,362       2,402       2,395  
EBITDA   $ 3,177     $ 2,788       $ 2,636     $ 4,142     $ 4,256  
EBITDA Margin     12.0 %     11.1 %       10.8 %     14.4 %     15.3 %
  Share-Based Compensation Expense     138       —         —       —       —  
  Reorganization/Transaction Expenses     90       90         9       —       —  
Adjusted EBITDA   $ 3,405     $ 2,878       $ 2,645     $ 4,142     $ 4,256  
Adjusted EBITDA Margin     12.8 %     11.5 %       10.8 %     14.4 %     15.3 %
                                           
Net (Loss) Income   $ (337 )   $ (594 )     $ (441 )   $ (666 )   $ 434  
  Share-Based Compensation Expense     138       —         —       —       —  
  Reorganization/Transaction Expenses     90       90         9       —       —  
Adjusted Earnings   $ (109 )   $ (504 )     $ (432 )   $ (666 )   $ 434  
Adjusted Earnings Per Share   $ (0.01 )   $ (0.03 )     $ (0.02 )   $ (0.04 )   $ 0.02  
Weighted Average Common Shares Outstanding     18,123,883       18,123,883         18,123,883       17,752,915       14,673,205  
                                           

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. 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 transaction expenses are primarily professional fees related to the refinancing of debt.

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

About ARC Group Worldwide, Inc.

ARC Group Worldwide 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, hermetic seals, 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, 2015, as well as other documents ARC files from time to time with the Securities and Exchange Commission.

 
ARC Group Worldwide, Inc.
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except for share and per share amounts)
                                 
    For the three months ended     For the nine months ended  
    March 27,     March 29,     March 27,     March 29,  
    2016     2015     2016     2015  
Sales   $ 26,501     $ 27,864     $ 76,018     $ 83,668  
Cost of sales     20,789       21,582       61,201       64,016  
Gross profit     5,712       6,282       14,817       19,652  
  Selling, general and administrative     4,927       4,549       13,452       14,967  
  Merger expense     —       —       —       187  
Income from operations     785       1,733       1,365       4,498  
  Other (expense) income, net     (23 )     128       71       117  
  Interest expense, net     (1,107 )     (1,466 )     (3,374 )     (3,600 )
(Loss) income before income taxes     (345 )     395       (1,938 )     1,015  
  Income tax benefit (expense)     8       39       566       (351 )
Net (loss) income     (337 )     434       (1,372 )     664  
Net income attributable to non-controlling interest     (24 )     (51 )     (88 )     (165 )
Net (loss) income attributable to ARC Group Worldwide, Inc.   $ (361 )   $ 383     $ (1,460 )   $ 499  
Net (loss) income per common share:                                
   Basic and diluted   $ (0.02 )   $ 0.02     $ (0.08 )   $ 0.03  
                                 
Weighted average common shares outstanding:                                
  Basic and diluted     18,123,883       14,673,205       18,123,883       14,673,205  
 
ARC Group Worldwide, Inc.
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except for share and per share amounts)
             
             
    March 27, 2016     June 30, 2015  

ASSETS
 		               
Current assets:                
  Cash   $ 2,917     $ 4,821  
  Accounts receivable, net     15,338       15,385  
  Inventories, net     15,829       16,386  
  Deferred income tax assets     741       672  
  Prepaid expenses and other current assets     5,064       2,330  
Total current assets     39,889       39,594  
Property and equipment, net     41,034       43,813  
Goodwill     14,801       14,801  
Intangible assets, net     23,910       26,441  
Other     1,068       1,374  
Total assets   $ 120,702     $ 126,023  
                 

LIABILITIES AND STOCKHOLDERS’ EQUITY
 		               
Current liabilities:                
  Accounts payable   $ 8,222     $ 7,338  
  Accrued expenses     2,109       3,026  
  Deferred revenue     717       991  
  Bank borrowings, current portion of long-term debt     4,500       5,995  
  Capital lease obligations, current portion     834       857  
  Accrued escrow obligations, current portion     3,083       4,291  
Total current liabilities     19,465       22,498  
Long-term debt, net of current portion     50,234       51,971  
Deferred income tax liabilities     2,460       2,029  
Capital lease obligations, net of current portion     2,157       2,784  
Accrued escrow obligations, net of current portion     966       —  
Other long-term liabilities     73       —  
Total liabilities     75,355       79,282  
                 
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; 18,803,910 shares issued and 18,795,509 shares issued and outstanding at March 27, 2016, and 18,538,522 shares issued and 18,530,121 shares issued and outstanding at June 30, 2015     10       5  
  Treasury stock, at cost; 8,401 shares at March 27, 2016 and June 30, 2015     (94 )     (94 )
  Additional paid-in capital     29,764       29,751  
  Retained earnings     14,470       15,931  
  Accumulated other comprehensive income (loss)     5       (58 )
  Total ARC Group Worldwide, Inc. stockholders’ equity     44,155       45,535  
  Non-controlling interests     1,192       1,206  
  Total equity     45,347       46,741  
Total liabilities and equity   $ 120,702     $ 126,023  
 
ARC Group Worldwide, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
             
    For the nine months ended  
    March 27, 2016     March 29, 2015  
Cash flows from operating activities:                
Net (loss) income   $ (1,372 )   $ 664  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:                
  Depreciation and amortization     7,165       7,061  
  Share-based compensation expense     138       —  
  Bad debt expense and other     92       (6 )
  Deferred income taxes     362       313  
Changes in working capital:                
  Accounts receivable     18       (670 )
  Inventory     557       (1,446 )
  Prepaid expenses and other assets     (2,428 )     (490 )
  Accounts payable     834       (1,835 )
  Accrued expenses     (1,259 )     (1,901 )
  Deferred revenue     (274 )     (188 )
Net cash provided by operating activities     3,833       1,502  
                 
Cash flows from investing activities:                
  Purchases of property and equipment     (1,918 )     (4,236 )
Net cash used in investing activities     (1,918 )     (4,236 )
                 
Cash flows from financing activities:                
  Proceeds from debt issuance     1,000       24,500  
  Repayments of long-term debt and capital lease obligations     (4,882 )     (26,714 )
  Stock issuance costs     —       (256 )
Net cash used in financing activities     (3,882 )     (2,470 )
  Effect of exchange rates on cash     63       (137 )
Net decrease in cash     (1,904 )     (5,341 )
Cash, beginning of period     4,821       9,384  
Cash, end of period   $ 2,917     $ 4,043  
Supplemental disclosures of cash flow information:                
  Cash paid for interest   $ 2,550     $ 2,470  
  Cash paid for income taxes   $ 597     $ 1,075  

Drew M. Kelley
PHONE: (303) 467-5236
Email: [email protected]