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Sparton Corporation Reports Fiscal 2017 Fourth Quarter Results

SCHAUMBURG, Ill.--(BUSINESS WIRE)--Sep. 14, 2017-- Sparton Corporation (NYSE: SPA) today announced results for the fourth quarter of fiscal year 2017 ended July 2, 2017.

Fourth Quarter Financial Results and Highlights

Joseph J. Hartnett, Interim President & CEO, commented, “We are pleased to report our organic growth produced over $23 million in new programs wins for the quarter. A clear indication of the progress we are making in building a business model that supports profitable revenue growth through business development. Additionally, while a significant amount of time and effort was directed toward arriving at a merger agreement with Ultra Electronics Holdings plc on July 7, 2017, we were able to focus on delivering improved operating performance for the quarter while exceeding fourth quarter guidance on revenue and gross margins."

Joseph G. McCormack, Senior Vice President and CFO, commented, “We are pleased that the continued improvement in operating performance across both segments allowed us to significantly pay down our debt during the fourth quarter of fiscal 2017 and reduce our debt leverage below 3.0x EBITDA at year-end.”

Consolidated:

• Net sales of $104.4 million

• Gross profit margin of 20.9%, an increase of 320 bps from prior quarter

• SG&A expenses of $14.9 million or 14.3% of sales; adjusted SG&A of $13.8 million, 13.2% of sales

• Earnings per share of $0.17, adjusted earnings per share of $0.38

• Adjusted EBITDA of $9.7 million, a 9.3% adjusted EBITDA margin

• Credit Facility of $74.5 million, a reduction of $22.7 million (23.4%) from the prior fiscal year-end

• Debt leverage as calculated per Credit Facility of 2.98x compared to 3.45x at the end of the previous quarter

MDS Segment:

• Gross sales of $67.0 million

• Gross profit margin of 13.6%, an increase of 260 bps from the prior quarter

• Operating income of $1.6 million

• Adjusted EBITDA of $6.4 million, a 9.6% adjusted EBITDA margin

• New program wins in Q4 have expected revenue of $23.2 million when fully ramped up into production

• Trailing four quarter new program win revenue of $62.4 million, which continues to support our future organic growth

ECP Segment:

• Gross sales of $40.3 million

• Gross profit margin of 31.5%, an increase of 390 bps from the prior quarter

• Operating income of $7.8 million

• Adjusted EBITDA of $9.9 million, a 24.5% adjusted EBITDA margin

         

SELECTED FINANCIAL DATA

 
For the Quarters Ended For the Fiscal Years
Q4 FY17     Q3 FY17     Q4 FY16 2017     2016
(Dollars in thousands, except per share data)
Consolidated:
Net sales $ 104,386 $ 95,410 $ 106,967 $ 397,562 $ 419,362
Gross profit 21,801 16,915 21,422 71,899 80,148
Selling and administrative expenses 14,913 12,862 13,460 54,110 55,151
Impairment of goodwill 64,174 64,174
Operating income 4,538 1,530 (59,417 ) 7,621 (51,789 )
Adjusted operating income (non-GAAP) 7,638 4,264 8,143 19,323 25,920
Earnings per share 0.17 0.04 (4.30 ) 0.13 (3.91 )
Adjusted Earnings per share (non-GAAP) 0.38 0.22 0.50 0.91 1.51
EBITDA (non-GAAP) 7,978 5,135 (55,594 ) 22,074 (36,021 )
Adjusted EBITDA (non-GAAP) 9,727 5,318 10,019 26,741 33,542
Adjusted EBITDA margin (non-GAAP) 9.3 % 5.6 % 9.4 % 6.7 % 8.0 %
Free cash flow (non-GAAP) $ 13,895 $ (1,424 ) $ 25,953 $ 24,572 $ 42,034
 
MDS Segment:
Gross sales $ 67,046 $ 61,084 $ 72,346 $ 260,514 $ 282,076
Intercompany sales (2,887 ) (2,654 ) (3,627 ) (10,074 ) (17,028 )
Net sales 64,159 58,430 68,719 250,440 265,048
Gross profit 9,100 6,690 9,732 31,441 34,788
Selling and administrative expenses 3,446 3,207 3,155 13,545 14,621
Allocation of corporate expenses 2,456 2,477 2,281 9,578 9,192
Impairment of goodwill 64,174 64,174
Operating Income (loss) 1,557 (722 ) (61,861 ) 1,307 (61,813 )
Adjusted Segment EBITDA (non-GAAP) $ 6,428 $ 4,343 7,541 $ 21,337 $ 24,372
 
ECP Segment:
Gross sales $ 40,264 $ 37,053 $ 38,262 $ 147,259 $ 154,559
Intercompany sales (37 ) (73 ) (14 ) (137 ) (245 )
Net sales 40,227 36,980 38,248 147,122 154,314
Gross profit 12,701 10,225 11,690 40,458 45,360
Selling and administrative expenses 2,709 2,922 3,104 10,805 11,150
Allocation of corporate expenses 1,470 1,238 1,168 4,903 4,332
Operating Income 7,813 5,270 6,196 21,593 25,880
Adjusted Segment EBITDA (non-GAAP) $ 9,859 $ 7,072 8,012 $ 28,805 $ 32,825
 

Liquidity and Capital Resources

As of July 2, 2017, the Company had $46 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.

                 

CONSOLIDATING FINANCIAL INFORMATION - Q4 FISCAL YEAR 2017

(Dollars in thousands, except per share data)

 
Corporate MDS ECP Total
Net Sales $ $ 64,159 $ 40,227 $ 104,386
Cost of goods sold   55,059   27,526   82,585  
Gross profit 9,100 12,701 $ 21,801
Operating expenses:
Selling and administrative 8,758 3,446 2,709 14,913
Selling and administrative - Corp allocations (3,926 ) 2,456 1,470
Internal research and development 361 361
Amortization of intangible assets   1,641   348   1,989  
Total operating expenses 4,832   7,543   4,888   17,263  
Income (loss) from operations (4,832 ) 1,557 7,813 4,538
Interest expense, net (1,113 ) 3 (1,110 )
Other income (expense) (3 ) 16 18 31
Income taxes (1,692 ) (80 )   (1,772 )
Net income (loss) $ (7,640 ) $ 1,496   $ 7,831   $ 1,687  
Income per share of common stock:
Basic $ 0.17
Diluted 0.17
Weighted average shares of common stock outstanding:
Basic 9,834,723
Diluted 9,834,723
 
                 

CONSOLIDATING FINANCIAL INFORMATION - Q4 FISCAL YEAR 2016

(Dollars in thousands, except per share data)

 
Corporate MDS ECP Total
Net Sales $ $ 68,719 $ 38,248 $ 106,967
Cost of goods sold   58,987   26,558   85,545  
Gross profit 9,732 11,690 $ 21,422
Operating expenses:
Selling and administrative 7,201 3,155 3,104 13,460
Selling and administrative - Corp allocations (3,449 ) 2,281 1,168
Internal research and development 832 832
Amortization of intangible assets 1,879 390 2,269
Restructuring charges 104 104
Impairment of goodwill   64,174     64,174  
Total operating expenses 3,752   71,593   5,494   80,839  
Income (loss) from operations (3,752 ) (61,861 ) 6,196 (59,417 )
Interest expense, net (1,064 ) (3 ) (1,067 )
Other income (expense) (2 ) (64 ) 32 (34 )
Income taxes 18,498   (61 )   18,437  
Net income (loss) $ 13,680   $ (61,989 ) $ 6,228   $ (42,081 )
Income per share of common stock:
Basic $ (4.30 )
Diluted (4.30 )
Weighted average shares of common stock outstanding:
Basic 9,791,212
Diluted 9,791,212
 
     

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

 
For the Fiscal Years
2017     2016
($ in thousands)
Cash Flows from Operating Activities:
Operating activities, net of working capital changes $ 18,293 $ 22,084
Net changes in working capital 13,175   26,048  
Cash Flows from Operating Activities 31,468 48,132
Cash Flows from Investing Activities:
Business acquisitions 178
Capital expenditures (6,896 ) (6,098 )
Other investing activities 22   1,078  
Cash Flows from Investing Activities (6,874 ) (4,842 )
Cash Flows from Financing Activities:
Net change in credit facility (22,706 ) (57,294 )
Other financing activities (1,032 ) (778 )
Cash Flows from Financing Activities (23,738 ) (58,072 )
Change in Cash and Cash Equivalents 856 (14,782 )
 
Cash and Cash Equivalents - Beginning 132   14,914  
Cash and Cash Equivalents - Ending $ 988   $ 132  
 
         

CONDENSED CONSOLIDATED BALANCE SHEETS

 
July 2,
2017
July 3,
2016
($ in thousands)
Assets
Cash and cash equivalents $ 988 $ 132
Accounts receivable, net 45,347 46,759
Inventories 60,248 77,871
Prepaid and other current assets 3,851 5,844
Property, plant and equipment, net 34,455 33,320
Goodwill 12,663 12,663
Other intangible assets, net 28,445 36,933
Other assets 31,146   32,476
Total assets $ 217,143   $ 245,998
Liabilities and Shareholders’ Equity
Accounts payable $ 27,672 $ 38,290
Accrued expenses 26,580 24,149
Credit facility 74,500 97,206
Capital lease obligations, long term 167 332
Environmental 5,468 6,117
Pension 888 1,276
Shareholders’ Equity 81,868   78,628
Total Liabilities and Shareholders’ Equity $ 217,143   $ 245,998
 

RECONCILIATION OF NON-GAAP MEASURES

                 

EBITDA Reconciliation (Non-GAAP) - Q4 Fiscal Year 2017

(Dollars in thousands)

 
Corporate MDS ECP Total
Net income (loss) $ (7,640 ) $ 1,496 $ 7,831 $ 1,687
Interest expense, net 1,113 (3 ) 1,110
Income taxes 1,692 80 1,772
Amortization of intangible assets 1,641 348 1,989
Depreciation 452 758 210 1,420
Selling and administrative - Corp allocations (3,926 ) 2,456   1,470    
EBITDA, excluding corporate allocation (8,309 ) 6,428 9,859 7,978
Adjustments for nonrecurring operating expenses:
Stock-based compensation 638 638
Costs related to potential sale of Company 1,111       1,111  
Adjusted EBITDA, before corporate allocation $ (6,560 ) $ 6,428   $ 9,859   $ 9,727  
 
Adjusted EBITDA, after corporate allocation $ (2,634 ) $ 3,972 $ 8,389 $ 9,727
 
Adjusted EBITDA margin 9.3 %
 
                 

EBITDA Reconciliation (Non-GAAP) - Q4 Fiscal Year 2016

(Dollars in thousands)

 
Corporate MDS ECP Total
Net income (loss) $ 13,680 $ (61,989 ) $ 6,228 $ (42,081 )
Interest expense, net 1,056 3 1,059
Income taxes (18,498 ) 61 (18,437 )
Amortization of intangible assets 1,879 390 2,269
Depreciation included in SG&A above 402 968 226 1,596
Selling and administrative - Corp allocations (3,449 ) 2,281   1,168    
EBITDA, excluding corporate allocation (6,809 ) (56,797 ) 8,012 (55,594 )
Adjustments for nonrecurring operating expenses:
Impairment of goodwill 64,174 64,174
Legal related expense
Stock-based compensation 321 321
Costs related to potential sale of company 671 671
Restructuring charges 164 164
Other non-recurring costs 283 283
Reversal of accrued contingent consideration        
Adjusted EBITDA, before corporate allocation $ (5,534 ) $ 7,541   $ 8,012   $ 10,019  
 
Adjusted EBITDA, after corporate allocation $ (2,085 ) $ 5,260 $ 6,844 $ 10,019
 
Adjusted EBITDA margin 9.4 %
 
         

Adjusted EPS (Non-GAAP)

 
For the Quarters Ended For the Fiscal Years
Q4 FY17     Q3 FY17     Q4 FY16 2017     2016
(Dollars in thousands, except per share data)
Earnings per share - diluted, as reported $ 0.17 $ 0.04 $ (4.30 ) $ 0.13 $ (3.91 )
Nonrecurring items 0.08 0.04 4.65 0.22 4.78
Amortization of intangible assets 0.13   0.14   0.15   0.56   0.64  
Adjusted earnings per share $ 0.38   $ 0.22   $ 0.50   $ 0.91   $ 1.51  
 
Adjustments, net of tax:
Impairment of goodwill $ $ $ 44,766 $ $ 44,766
Costs related to potential sale of Company $ 722 $ 413 $ 436 $ 2,017 $ 716
Restructuring costs 107 1,714
Reversal of accrued contingent consideration (1,530 )
Other nonrecurring adjustments     184   65   1,128  
Total nonrecurring 722 413 45,493 2,082 46,794
Amortization of intangible assets 1,293   1,364   1,474   5,524   6,234  
Total adjustments $ 2,015   $ 1,777   $ 46,967   $ 7,606   $ 53,028  
 
     

Adjusted SG&A and Operating Income (Non-GAAP)

 
For the Quarters Ended
Q4 FY17     Q3 FY17     Q4 FY16
SG&A    

Operating
Income

SG&A    

Operating
Income

SG&A    

Operating
Income

(Dollars in thousands)
As reported $ 14,913 $ 4,538 $ 12,862 $ 1,530 $ 13,460 $ (59,417 )
Percentage of sales 14.3 % 4.3 % 13.5 % 1.6 % 12.6 % (55.5 )%
Adjustments:
Amortization of intangible assets 1,989 2,099 2,268
Impairment of goodwill 64,174
Costs related to potential sale of Company 1,111 1,111 635 635 671 671
Restructuring costs 60 164
Reversal of accrued contingent consideration
Other nonrecurring adjustments           283   283  
Total adjustments 1,111   3,100   635   2,734   1,014   67,560  
As adjusted $ 13,802   $ 7,638   $ 12,227   $ 4,264   $ 12,446   $ 8,143  
 
Adjusted percentage of sales 13.2 % 7.3 % 12.8 % 4.5 % 11.6 % 7.6 %
      For the Fiscal Years
2017       2016
SG&A    

Operating
Income

SG&A    

Operating
Income

(Dollars in thousands)
As reported $ 54,111 $ 7,621 $ 55,151 $ (51,789 )
Percentage of sales 13.6 % 1.9 % 13.2 % (12.3 )%
Adjustments:
Amortization of intangible assets 8,498 9,592
Impairment of goodwill 64,174
Costs related to potential sale of Company 3,104 3,104 1,101 1,101
Restructuring costs 431 2,637
Reversal of accrued contingent consideration (1,530 )
Other nonrecurring adjustments 100   100   1,535   1,735  
Total adjustments 3,204   11,702   3,067   77,709  
As adjusted $ 50,907   $ 19,323   $ 52,084   $ 25,920  
 
Adjusted percentage of sales 12.8 % 4.9 % 12.4 % 6.2 %

Source: Sparton Corporation

Sparton Corporation
Joe McCormack, 847-762-5800
ir@sparton.com





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