Press Release

Printer Friendly Version View printer-friendly version
<< Back
Sparton Corporation Reports Fiscal 2018 Second Quarter Results

SCHAUMBURG, Ill.--(BUSINESS WIRE)--Feb. 6, 2018-- Sparton Corporation (NYSE:SPA) today announced results for the second quarter of fiscal year 2018 ended December 31, 2017.

Second Quarter Financial Results and Highlights

Joseph J. Hartnett, Interim President & CEO, commented, “The operational improvements we have made over the past two years continues to drive our performance through some very challenging times. Thanks to the collective effort of the entire organization, we were able to achieve significant improvements over our first quarter’s results in many important areas including sales, margins, cash flows, new program wins and borrowings under our credit facility."

Joseph G. McCormack, Senior Vice President & CFO, commented, “During the second quarter of fiscal year 2018, the Company recorded additional income tax expense of $10.8 million as a result of the newly enacted Tax Cuts and Jobs Act of 2017 which was principally related to a write-down of the Company’s net deferred tax assets as a result of the reduction in the statutory income tax rate.”

Consolidated:

• Net sales of $97.8 million

• Gross profit margin of 20.9%

• SG&A expenses of $14.1 million or 14.4% of sales; adjusted SG&A of $12.7 million, 13.0% of sales

• Loss per share of $(0.92), adjusted earnings per share of $0.45

• Adjusted EBITDA of $8.7 million, an 8.9% adjusted EBITDA margin

MDS Segment:

• Gross sales of $58.4 million

• Gross profit margin of 12.6%

• Operating loss of $0.2 million

• Adjusted EBITDA of $4.2 million, a 7.1% adjusted EBITDA margin

• New program wins in Q2 have expected revenue of $20.0 million when fully ramped up into production

• Trailing four quarter new program win revenue of $67.4 million, which continues to support our future organic growth

ECP Segment:

• Gross sales of $42.5 million

• Gross profit margin of 31.7%

• Operating income of $8.9 million

• Adjusted EBITDA of $10.5 million, a 24.6% adjusted EBITDA margin

       

SELECTED FINANCIAL DATA

 
For the Quarters Ended For the First Two Quarters
Q2 FY18   Q1 FY18   Q2 FY17 2018   2017
(Dollars in thousands, except per share data)
Consolidated:
Net sales $ 97,819 $ 82,763 $ 97,399 $ 180,582 $ 197,766
Gross profit 20,429 14,588 15,898 35,017 33,183
Selling and administrative expenses 14,074 15,205 12,953 29,279 26,336
Operating income 3,793 (3,112 ) 221 681 1,553
Adjusted operating income (non-GAAP) 7,053 1,162 3,107 8,215 7,421
Earnings per share (0.92 ) (0.29 ) (0.09 ) (1.21 ) (0.08 )
Adjusted Earnings per share (non-GAAP) 0.45 0.10 0.44 0.31
EBITDA (non-GAAP) 7,153 337 3,890 7,490 8,961
Adjusted EBITDA (non-GAAP) 8,741 2,899 5,553 11,640 11,696
Adjusted EBITDA margin (non-GAAP) 8.9 % 3.5 % 5.7 % 6.4 % 5.9 %
Free cash flow (non-GAAP) $ 19,725 $ (23,684 ) $ 10,008 $ (3,959 ) $ 12,101
 
MDS Segment:
Gross sales $ 58,353 $ 55,308 $ 67,382 $ 113,661 $ 132,384
Intercompany sales (2,970 ) (2,937 ) (2,333 ) (5,907 ) (4,533 )
Net sales 55,383 52,371 65,049 107,754 127,851
Gross profit 6,960 5,993 8,357 12,953 15,651
Selling and administrative expenses 3,513 3,454 3,384 6,967 6,892
Allocation of corporate expenses 2,101 2,446 2,177 4,547 4,645
Operating Income (loss) (208 ) (1,485 ) 986 (1,693 ) 472
Adjusted Segment EBITDA (non-GAAP) $ 4,159 $ 3,250 5,875 $ 7,409 $ 10,566
 
ECP Segment:
Gross sales $ 42,468 $ 30,399 $ 32,350 $ 72,867 $ 69,942
Intercompany sales (32 ) (7 )   (39 ) (27 )
Net sales 42,436 30,392 32,350 72,828 69,915
Gross profit 13,469 8,595 7,541 22,064 17,532
Selling and administrative expenses 2,533 2,589 2,550 5,122 5,174
Allocation of corporate expenses 1,037 991 995 2,028 2,195
Operating Income 8,891 4,098 3,082 12,989 8,511
Adjusted Segment EBITDA (non-GAAP) $ 10,458 $ 5,678 4,646 16,136 $ 11,874
 

Liquidity and Capital Resources

As of December 31, 2017, the Company had $42 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 - Q2 FISCAL YEAR 2018
(Dollars in thousands, except per share data)
 
Corporate MDS ECP Total
Net Sales $ $ 55,383 $ 42,436 $ 97,819
Cost of goods sold   48,423   28,967   77,390  
Gross profit 6,960 13,469 $ 20,429
Operating expenses:
Selling and administrative 8,028 3,513 2,533 14,074
Selling and administrative - Corp allocations (3,138 ) 2,101 1,037
Internal research and development 669 669
Amortization of intangible assets   1,554   339   1,893  
Total operating expenses 4,890   7,168   4,578   16,636  
Income (loss) from operations (4,890 ) (208 ) 8,891 3,793
Interest expense, net (1,507 ) (1,507 )
Other income (expense) (1 ) 19 (5 ) 13
Income taxes (11,296 ) (37 )   (11,333 )
Net income (loss) $ (17,694 ) $ (226 ) $ 8,886   $ (9,034 )
Income per share of common stock:
Basic $ (0.92 )
Diluted (0.92 )
Weighted average shares of common stock outstanding:
Basic 9,834,723
Diluted 9,834,723
 
           
CONSOLIDATING FINANCIAL INFORMATION - Q2 FISCAL YEAR 2017
(Dollars in thousands, except per share data)
 
Corporate MDS ECP Total
Net Sales $ $ 65,049 $ 32,350 $ 97,399
Cost of goods sold   56,692   24,809   81,501  
Gross profit 8,357 7,541 $ 15,898
Operating expenses:
Selling and administrative 7,019 3,384 2,550 12,953
Selling and administrative - Corp allocations (3,172 ) 2,177 995
Internal research and development 533 533
Amortization of intangible assets   1,810   381   2,191  
Total operating expenses 3,847   7,371   4,459   15,677  
Income (loss) from operations (3,847 ) 986 3,082 221
Interest expense, net (1,071 ) 4 (1,067 )
Other income (expense) (7 ) 12 (16 ) (11 )
Income taxes (45 ) (5 )   (50 )
Net income (loss) $ (4,970 ) $ 997   $ 3,066   $ (907 )
Income per share of common stock:
Basic $ (0.09 )
Diluted (0.09 )
Weighted average shares of common stock outstanding:
Basic 9,802,664
Diluted 9,802,664
 
     

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

 
For the First Two Quarters
2018   2017
($ in thousands)
Cash Flows from Operating Activities:
Operating activities, net of working capital changes $ 5,891 $ 8,158
Net changes in working capital (6,765 ) 6,513  
Cash Flows from Operating Activities (874 ) 14,671
Cash Flows from Investing Activities:
Capital expenditures (3,099 ) (2,570 )
Other investing activities 14    
Cash Flows from Investing Activities (3,085 ) (2,570 )
Cash Flows from Financing Activities:
Net change in credit facility 4,400 (11,500 )
Other financing activities (325 ) (144 )
Cash Flows from Financing Activities 4,075   (11,644 )
Change in Cash and Cash Equivalents 116 457
 
Cash and Cash Equivalents - Beginning 988   132  
Cash and Cash Equivalents - Ending $ 1,104   $ 589  
 
       

CONDENSED CONSOLIDATED BALANCE SHEETS

 
December 31,
2017
July 2,
2017
($ in thousands)
Assets
Cash and cash equivalents $ 1,104 $ 988
Accounts receivable, net 54,466 45,347
Inventories 62,767 60,248
Prepaid and other current assets 4,177 3,851
Property, plant and equipment, net 34,484 34,455
Goodwill 12,663 12,663
Other intangible assets, net 24,629 28,445
Other assets 19,948   31,146
Total assets $ 214,238   $ 217,143
Liabilities and Shareholders’ Equity
Accounts payable $ 38,210 $ 27,672
Accrued expenses 20,807 26,580
Credit facility 78,900 74,500
Capital lease obligations, long term 32 167
Environmental 5,208 5,468
Pension 820 888
Shareholders’ Equity 70,261   81,868
Total Liabilities and Shareholders’ Equity $ 214,238   $ 217,143
 
           
RECONCILIATION OF NON-GAAP MEASURES
 

EBITDA Reconciliation (Non-GAAP) - Q2 Fiscal Year 2018

(Dollars in thousands)
 
Corporate MDS ECP Total
Net income (loss) $ (17,694 ) $ (226 ) $ 8,886 $ (9,034 )
Interest expense, net 1,507 1,507
Income taxes 11,296 37 11,333
Amortization of intangible assets 1,554 339 1,893
Depreciation 565 693 196 1,454
Selling and administrative - Corp allocations (3,138 ) 2,101   1,037    
EBITDA, excluding corporate allocation (7,464 ) 4,159 10,458 7,153
Adjustments for nonrecurring operating expenses:

Stock-based compensation

221 221
Costs related to potential sale of Company 1,367       1,367  
Adjusted EBITDA, before corporate allocation $ (5,876 ) $ 4,159   $ 10,458   $ 8,741  
 
Adjusted EBITDA, after corporate allocation $ (2,738 ) $ 2,058 $ 9,421 $ 8,741
 
Adjusted EBITDA margin 8.9 %
 
           

EBITDA Reconciliation (Non-GAAP) - Q2 Fiscal Year 2017

(Dollars in thousands)
 
Corporate MDS ECP Total
Net income (loss) $ (4,970 ) $ 997 $ 3,066 $ (907 )
Interest expense, net 1,071 (4 ) 1,067
Income taxes 45 5 50
Amortization of intangible assets 1,810 381 2,191
Depreciation included in SG&A above 446 839 204 1,489
Selling and administrative - Corp allocations (3,172 ) 2,177   995    
EBITDA, excluding corporate allocation (6,580 ) 5,824 4,646 3,890
Adjustments for nonrecurring operating expenses:
Stock-based compensation 968 968
Costs related to potential sale of company 644   51     695  
Adjusted EBITDA, before corporate allocation $ (4,968 ) $ 5,875   $ 4,646   $ 5,553  
 
Adjusted EBITDA, after corporate allocation $ (1,796 ) $ 3,698 $ 3,651 $ 5,553
 
Adjusted EBITDA margin 5.7 %
 
       

Adjusted EPS (Non-GAAP)

 
For the Quarters Ended For the First Two Quarters
Q2 FY18   Q1 FY18   Q2 FY17 2018   2017
(Dollars in thousands, except per share data)
Earnings per share - diluted, as reported $ (0.92 ) $ (0.29 ) $ (0.09 ) $ (1.21 ) $ (0.08 )
Nonrecurring items 0.12 0.16 0.05 0.27 0.10
Amortization of intangible assets 0.15 0.13 0.14 0.28 0.29
Deferred tax asset adjustment 1.10       1.10    
Adjusted earnings per share $ 0.45   $   $ 0.10   $ 0.44   $ 0.31  
 
Adjustments, net of tax:
Costs related to potential sale of Company $ 1,149 $ 1,528 $ 452 $ 2,677 $ 883
Other nonrecurring adjustments         65  
Total nonrecurring, net of tax 1,149 1,528 452 2,677 948
Amortization of intangible assets, net of tax 1,498 1,250 1,424 2,748 2,866
Adjustments for Tax Act 10,807       10,807    
Total adjustments $ 13,454   $ 2,778   $ 1,876   $ 16,232   $ 3,814  
 
     

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

 
For the Quarters Ended
Q2 FY18   Q1 FY18   Q2 FY17
SG&A  

Operating
Income

SG&A  

Operating
Income

SG&A  

Operating
Income

(Dollars in thousands)
As reported $ 14,074 $ 3,793 $ 15,205 $ (3,112 ) $ 12,953 $ 221
Percentage of sales 14.4 % 3.9 % 18.4 % (3.8 )% 13.3 % 0.2 %
Adjustments:
Amortization of intangible assets 1,893 1,923 2,191
Costs related to potential sale of Company 1,367 1,367 2,351 2,351 695 695
Other nonrecurring adjustments              
Total adjustments 1,367   3,260   2,351   4,274   695   2,886  
As adjusted $ 12,707   $ 7,053   $ 12,854   $ 1,162   $ 12,258   $ 3,107  
 
Adjusted percentage of sales 13.0 % 7.2 % 15.5 % 1.4 % 12.6 % 3.2 %
 
     
For the First Two Quarters
2018   2017
SG&A  

Operating
Income

SG&A  

Operating
Income

(Dollars in thousands)
As reported $ 29,279 $ 681 $ 26,336 $ 1,553
Percentage of sales 16.2 % 0.4 % 13.3 % 0.8 %
Adjustments:
Amortization of intangible assets 3,816 4,410
Costs related to potential sale of Company 3,718 3,718 1,358 1,358
Other nonrecurring adjustments     100   100  
Total adjustments 3,718   7,534   1,458   5,868  
As adjusted $ 25,561   $ 8,215   $ 24,878   $ 7,421  
 
Adjusted percentage of sales 14.2 % 4.5 % 12.6 % 3.8 %

Source: Sparton Corporation

Media:
Sparton Corporation
Joe McCormack, (847) 762-5800
ir@sparton.com





Replication or redistribution of EDGAR Online, Inc. content is expressly prohibited without the prior written consent of EDGAR Online, Inc. EDGAR Online, Inc. shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.