WINNIPEG, Manitoba, Nov. 29, 2019 (GLOBE NEWSWIRE) — Empire Industries Ltd. (TSX-V: EIL, OTC:ERILF) (“Empire”, “EIL”, “us”, “our”, “we” or the “Company”) today reported its unaudited consolidated financial results for the third quarter ended September 30, 2019. The unaudited consolidated financial statements and MD&A have been filed on SEDAR and can be viewed at sedar.com or at empind.com.
“We continue to generate positive EBITDA results, with $2.1 million in 3Q19, even though our revenues of $27 million in the quarter were lower than we had expected at the beginning of the year,” said Guy Nelson, Executive Chairman and Chief Executive Officer of Empire. “A large part of our efforts are focused on final commissioning activities for a record number of rides concurrently; three of the most complex ride systems ever designed in the industry and three of our very popular and patented, flying theaters. This represents the culmination of all the hard work and investment that the Company has made in developing and delivering the most advanced ride system technologies, including six Brass Ring awards bestowed by IAAPA to the Company over the past five years. Moreover, our co venture initiatives are proceeding positively and we continue to focus on that recurring revenue model going forward as we believe it is a key element of the company’s future growth alongside our current media-based ride manufacturing group.” Third Quarter HighlightsAdjusted EBITDA increased to $2.1 million from $1.7 million in 3Q18. Adjusted EBITDA increased to $6.0 million for the nine months ending September 30, 2019 versus $3.6 million in the same period in the prior year.Revenues in 3Q19 were $27.0 million and $95.5 million for the nine months ending September 30, 2019. They were lower than the prior year of $116.5 million largely because working capital constraints restricted revenue generating capacity in the ride manufacturing business and because a client in China is not proceeding as quickly as initially planned on two major contracts.Contract Backlog as of September 30, 2019 remained at a strong level of $230 million, compared to $252 million at December 31, 2018.The Company executed its first co-venture transaction July 2, 2019 when it announced an option to purchase 50% of a co-venture partnership called Smoky Mountain Flyers LLC, in The Island of Pigeon Forge Tennessee. The opening of this attraction is still scheduled for the first half of 2021 and work is progressing well.Accounts receivable at September 30, 2019 had grown to $65.5 million, up $20.3 million from December 31, 2018, reflecting the significant increase in manufacturing activity and build up of working capital.Net loss from continued operations was $2.5 million compared to net income from continuing operations of 0.9 million in 3Q18, largely due to increased finance costs in the third quarter.Summary of Third Quarter 2019 Consolidated Financial Results1Adjusted earnings (loss) before interest, tax, depreciation and amortization (Adjusted EBITDA) is not defined by IFRS. The definition of Adjusted EBITDA does not take into account the Company’s share of profit of an associate investment, gains and losses on the disposal of assets, fair value changes in foreign currency forward contracts and non-cash components of stock-based compensation. While not IFRS measures, Adjusted EBITDA is used by management, creditors, analysts, investors and other financial stakeholders to assess the Company’s performance and management from a financial and operational perspective.Update on Co-venturesThe co-venture business model would position Empire’s now wholly-owned subsidiary, Dynamic Entertainment Group Ltd., with the right to co-own attractions in high traffic tourist areas, thereby generating steady, recurring revenue and profit over a long term concession period. The co-venture project to be located at The Island theme park in Pigeon Forge, Tennessee (the “Smoky Mountain Flyers Co-venture”), is proceeding on design and construction of the facility, the flying theater equipment and the creation of the movie with a planned opening in the first half of 2021. In addition, Dynamic Attractions Ltd., a wholly owned subsidiary of Empire, has a contract to supply a 39 seat Dynamic Flying Theater attraction to the co-venture. DEGL holds an option to purchase 50% of the Smoky Mountain Flyers Co-venture. For additional details about the Smoky Mountain Flyers Co-venture please see the Company’s July 2, 2019 news release on SEDAR at sedar.com or the Company’s website at empind.com.Discussions are also proceeding with several other co-venture opportunities and strategic partners interested in financing these co-venture opportunities.Empire Re-acquires 100% ownership of Dynamic Entertainment Group Ltd.With reference to the prior news release dated November 14, 2019, Empire is pleased to announce that it has re-acquired 100% ownership of its subsidiary, Dynamic Entertainment Group Ltd. (“DEGL”). Empire purchased the outstanding 26.5% stake in DEGL from Jolly Admire for $3.81 million by the issuance of 381,000 convertible preferred shares of Empire (each a “Preferred Share” and together the “Preferred Shares”) at a price of $10.00 per share (the “Transaction”). Each Preferred Share will accrue dividends at 8% per annum and is convertible into common shares in the capital of Empire at $0.45 per share for thirty-six months from the date of issuance and thereafter at $0.75 per share before sixty months from the date of issue. The preferred shares may be redeemed by the Company in certain circumstances, and may be retracted by the holder any time after thirty-six months. The Transaction is a “related party transaction” within the meaning of TSX Venture Exchange Policy 5.9 and Multilateral Instrument 61-101 (“MI 61-101”) because a director of Empire, Mr. James Chui, is also an executive officer of Jolly Admire. The Company is relying on an exemption from the formal valuation and minority approval provisions of MI 61-101 in reliance on sections 5.5(a) and 5.7(a) on the basis that the aggregate fair market value of the Transaction, insofar as the interested party is involved, does not exceed 25% of the market capitalization of the Company A material change report was not filed at least 21 days before the closing date of the Acquisition. The Company considers this to be reasonable and necessary in the circumstances to allow the Company to close the Transaction as soon as possible for sound business reasons, including improving the Company’s ability to control the future business of DEGL. The board of directors of Empire created a special committee of the board to review the Transaction. The special committee determined that the value of the DEGL shares being re-acquired exceed the value of the convertible preferred shares being issued as payment. The valuation included the assessment of many factors, including the value of DEGL’s option to purchase 50% of the Smoky Mountain Flyers Co-venture, the ability to eliminate DEGL’s exclusive right to buy Empire’s patented flying theatre for co-venture locations and the ability to eliminate DEGL’s right to buy Empire’s flying theater at the Empire’s loaded cost of production with no profit.The capitalization of DEGL by the Company and Jolly Admire was limited to the first tranche on the DEGL private placement announced on December 21, 2017. The second tranche of the DEGL private placement, and the investments contemplated in Dynamic Technology Shanghai Company and Dynamic Technology Hong Kong Company by DEGL (described and referenced in the Company’s December 21, 2017 new release) were not completed by DEGL or Jolly Admire, as applicable. As a result, all of the rights and obligations of the parties in connection with the DEGL private placement have terminated expire upon closing the Transaction. The Company has been pursuing alternative financial arrangements to facilitate the build-out of the co-venture division and expects to provide a positive update regarding the same in the coming months.Discontinued Operations of Empire Iron WorksThe Company has been steadily reducing its investment in and operations of structural steel fabrication since the recession of 2009. The Company decided to discontinue its last structural steel fabrication operation, Empire Iron Works in Edmonton, in 3Q19 because the Company concluded that the outlook for providing structural steel fabrication services in Western Canada is permanently impaired and there is an excess of capacity and a significant reduction in demand for these types of services. This decision resulted in closing costs and operating losses as reported, but the Company expects that up to $2 million of the working capital and fixed assets supporting this discontinued business will be collected and sold and then redeployed to support the ride manufacturing business.Waiver of Defaults under Senior Credit FacilitiesEmpire’s senior credit facility with its primary lender includes various financial covenants and ratios, as well as obligations with respect to the scheduled payment of interest and certain fees, etc. As of September 30, 2019, Empire was not in compliance with such covenants and obligations, specifically the scheduled interest payments, which constitute an event of default under its primary credit facility. Empire advises that its primary senior lenders concurrently issued a notice and waiver of default under the credit agreement with its subsidiary, Dynamic Attractions Ltd., in respect of the interest payments that were due on September 30, 2019, October 31, 2019, and November 30, 2019. The waiver provides the Company with a grace period until December 7, 2019 by which to make the overdue interest payments and related fees and pay a waiver fee. Pursuant to the terms of the primary credit facility, until all such overdue payments are made an additional 2% of interest accrues on the outstanding balance of the credit facility. In addition to the foregoing, the parties have amended the credit agreement to address the late payments. In addition, Empire was not in compliance with its interest payment obligations under its loan agreement with Export Development Canada (“EDC”) in respect of the interest payments that were due on July 16, 2019 and October 16, 2019, which constitute an event of default under the loan agreement. Empire advises that EDC concurrently issued a notice and waiver of default under the loan agreement. The waiver provides the Company with a grace period until December 7, 2019 by which to make the overdue interest payments and pay a waiver fee.The waivers and amendments to the primary credit facilities were granted after the end of the Company’s third quarter but prior to the release of its unaudited financial statements for the quarter ended September 30, 2019. As a result of the foregoing, Empire continues to operate normally under its primary credit facilities and remains in a good working relationship with its senior lenders.Conference Call Information
Empire’s management team will be holding an investor/analyst conference call to discuss the second quarter 2019 results and the outlook for the company. The call-in details are as follows:Callers should dial in 5 – 10 minutes prior to the scheduled start time and ask to join the Empire Industries Third Quarter 2019 Results Conference Call. This call will be available for replay on our website (http://empind.com/document_type/presentations/)About Empire Industries Ltd.
Empire focuses on designing, supplying, and installing iconic media-based attractions and ride systems for the global theme park industry. Empire also uses these same turn-key integration services for special projects such as large optical telescopes and enclosures. Empire also has commenced an initiative to leverage its world class flying theater and attraction development capability on a co-venture ownership basis. Empire’s common shares are listed on the TSX Venture Exchange under the symbol EIL. Empire’s common shares are listed on the TSX Venture Exchange under the symbol EIL.For more information about the Company, visit empind.com or contact:Reader Advisory
This news release contains forward-looking statements, within the meaning of applicable securities legislation, concerning Empire’s business and affairs. In certain cases, forward-looking statements can be identified by the use of words such as ‘‘plans’’, ‘‘expects’’ or ‘‘does not expect’’, ‘‘budget’’, “booked”, ‘‘scheduled’’, “positions”, ‘‘estimates’’, “forecasts’’, ‘‘intends’’, ‘‘anticipates’’, “believes” or variations of such words and phrases or state that certain actions, events or results ‘‘may’’, “may be”, ‘‘could’’, “should”, ‘‘would’’, ‘‘might’’ or ‘‘will’’, ‘‘occur’’ or ‘‘be achieved’’. Such statements include statements with respect to: (i) payment by the Company of the default payments due to the senior lenders; (ii) the development of the co-ventures positioning the Company for a stream of long term, recurring revenue and profit; (iii) the expectation that up to $2 million of the working capital and fixed assets supporting this discontinued business may be collected and sold and then redeployed to support the ride manufacturing business; and (iv) that the Company’s senior lenders will continue to support the Company notwithstanding the defaults and waivers under its credit facilities. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Although Empire believes these statements to be reasonable, no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this news release should not be unduly relied upon. Actual results could differ materially from those anticipated in these forward-looking statements as a result of prevailing economic conditions, and other factors, many of which are beyond the control of Empire. The forward-looking statements contained in this news release represent Empire’s expectations as of the date hereof, and are subject to change after such date. Empire disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as may be required by applicable securities regulations.Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
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