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Avcorp announces 2020 First Quarter Financial Results

VANCOUVER, May 15, 2020 /PRNewswire/ - Avcorp Industries Inc. (TSX: AVP) (the "Company", "Avcorp" or the "Avcorp Group") today announced its financial results for the quarter ended March 31, 2020. All amounts are in Canadian currency unless otherwise stated.

2020 Highlights

Key financial results include:

  • First quarter 2020 revenue was $40,205,000 compared to $42,225,000 in 2019. 2020 revenue decreased by $2,020,000 as a result of lower deliveries caused by lower customer requirements, the novel Coronavirus ("COVID-19"), and 737 MAX grounding.

  • First quarter 2020 operating loss was $4,700,000 compared to operating income of $15,057,000 in 2019. Operating loss improved by $380,000 in comparison to 2019, after the benefit of the amortization of onerous contract provisions and a net claim settlement have been removed. This was mainly due to improvement in operational performance and consolidation of costs.

  • First quarter 2020 foreign exchange loss was $2,858,000 (March 31, 2019: $430,000 gain). The Canadian dollar significantly weakened against the US dollar resulting in a loss predominately from the translation of the Company's US dollar denominated Bank indebtedness and Term debt.

  • 2020 cash flows used in operating activities before changes in non-cash working capital was $2,540,000 (March 31, 2019: cash inflow of $12,998,000). 2020 cash flows used in operating activities worsened by $1,107,000 relative to 2019, after the positive net cash settlement in 2019 of $14,431,000 (USD$10,810,000).

  • On March 2, 2020, the Company entered into an amendment to the standby credit facility ("2019 Panta Loan") with Panta Canada B.V. ("Panta") securing and drawing an additional $2,686,000 (USD$2,000,000).


Highlights Subsequent to Quarter-End

  • On April 27, 2020, the Company entered into an amendment to its existing operating credit facility with a Canadian Chartered Bank whereby the maximum availability under the Loan agreement cannot exceed USD $68,000,000 less USD $1,000,000 until June 30, 2020 and thereafter less USD $2,300,000 providing additional liquidity.

  • The Company has taken actions to manage short term liquidity, on April 28, 2020, the Company received a loan in the amount of USD $4,123,100 to support Avcorp Composite Fabrication Inc ("ACF") through the Paycheck Protection Program from the U.S. Small Business Administration. The loan has a term of 2 years. The loan bears interest at a fixed rate of 1% per annum with the first six months of interest deferred and will be forgiven if at least 75% of the loan proceeds are used by ACF to cover payroll costs including benefits. ACF expects to meet the requirements of loan forgiveness.


Review of 2020 First Quarter Results           

For the quarter ended March 31, 2020, the Avcorp Group recorded losses from operations totaling $4,700,000 from $40,205,000 revenue, as compared to income from operations totaling $15,057,000 from $42,225,000 revenue from the same quarter in the previous year. It should be noted that 2020 operating loss benefited by $124,000 income from amortization of onerous contracts provision (March 31, 2019: $517,000 amortization of onerous contract liability). In addition, 2019 benefitted from a net settlement gain of $19,744,000. Continued consolidation of operating costs have resulted in reduced current year operating losses of $380,000 in comparison to the first quarter of 2019 after these benefits have been removed.

During the quarter ended March 31, 2020, cash flows from operating activities, excluding the impact of changes in non-cash working capital, utilized $2,540,000 of cash as compared with $12,998,000 of cash provided during the quarter ended March 31, 2019. The company received a net cash settlement of $14,431,000 (USD$10,810,000) from the agreement with Hitco Carbon Composites Inc., SGL Carbon, SGL, and SGL Carbon SE (the "SGL Parties") and a customer in the first quarter of 2019. Cash flows from operating activities excluding the impact of changes in non-cash working capital and the net claim settlement decreased by $1,107,000 in 2020 compared to 2019.

As at March 31, 2020, the Company had $3,199,000 cash on hand (December 31, 2019: $4,316,000) and had utilized $93,186,000 of its operating line of credit (December 31, 2019: $84,661,000). During the first quarter of 2020, there was a significant weakening of the Canadian dollar against the US dollar resulting in the Company's US dollar denominated operating line of credit to increase; the Company had drawn an additional $653,000 in 2020. The Company has a working capital deficit of $77,983,000 as at March 31, 2020 which was higher than the $71,561,000 deficit as at December 31, 2019. Working capital surplus/deficit is defined as the difference between current assets and current liabilities. However, the Company's accounts receivable, contract assets, and inventories net of accounts payable, amount to a $21,989,000 surplus as at March 31, 2020 (December 31, 2019: $18,542,000 surplus). The Company's accumulated deficit as at March 31, 2020 is $152,608,000 (December 31, 2019: $142,194,000).

About Avcorp

The Avcorp Group designs and builds major airframe structures for some of the world's leading aircraft companies, including BAE Systems, Boeing, Bombardier, Lockheed Martin and Subaru Corporation. The Avcorp Group has more than 60 years of experience, over 700 skilled employees and 636,000 square feet of facilities. Avcorp Structures & Integration located in Delta British Columbia, Canada is dedicated to metallic and composite aerostructures assembly and integration; Avcorp Engineered Composites located in Burlington Ontario, Canada is dedicated to design and manufacture of composite aerostructures, and Avcorp Composite Fabrication located in Gardena California, USA has advanced composite aerostructures fabrication capabilities for composite aerostructures. The Avcorp Group offers integrated composite and metallic aircraft structures to aircraft manufacturers, a distinct advantage in the pursuit of contracts for new aircraft designs, which require lower-cost, light‑weight, strong, reliable structures. Comtek Advanced Structures Ltd., at our Burlington, Ontario, Canada location also provides aircraft operators with aircraft structural component repair services for commercial aircraft.

Avcorp Composite Fabrication Inc. is wholly owned by Avcorp US Holdings Inc. Both companies are incorporated in the State of Delaware, USA, and are wholly owned subsidiaries of Avcorp Industries Inc.

Comtek Advanced Structures Ltd., incorporated in the Province of Ontario, Canada, is a wholly owned subsidiary of Avcorp Industries Inc.

Avcorp Industries Inc. is a federally incorporated reporting company in Canada and traded on the Toronto Stock Exchange (TSX:AVP).

AMANDEEP KALER
CHIEF EXECUTIVE OFFICER
AVCORP GROUP

Forward-Looking Statements

This release should be read in conjunction with the Company's audited financial statements contained in the Company's Annual Report, and with the quarterly financial statements and accompanying notes filed with Sedar (www.sedar.com).

Certain statements in this release and other oral and written statements made by the Company from time to time are forward-looking statements, including those that discuss strategies, goals, outlook or other non‑historical matters; or projected revenues, income, returns or other financial measures. These forward‑looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those contained in the statements, including the following:  (a) changes in worldwide economic and political conditions that impact interest and foreign exchange rates; (b) the occurrence of work stoppages and strikes at key facilities of the Corporation or the Corporation's customers or suppliers; (c) government funding and program approvals affecting products being developed or sold under government programs; (d) cost and delivery performance under various program and development contracts; (e) the adequacy of cost estimates for various customer care programs including servicing warranties; (f) the ability to control costs and successful implementation of various cost reduction programs; (g) the timing of certifications of new aircraft products; (h) the occurrence of downturns in customer markets to which the Corporation products are sold or supplied or where the Corporation offers financing; (i) changes in aircraft delivery schedules or cancellation of orders; (j) the Corporation's ability to offset, through cost reductions, raw material price increases and pricing pressure brought by original equipment manufacturer customers; (k) the availability and cost of insurance; (l) the Corporation's ability to maintain portfolio credit quality; (m) the Corporation's access to debt financing at competitive rates; (n) uncertainty in estimating contingent liabilities and establishing reserves tailored to address such contingencies; and (o) integration of newly acquired operations and associated expenses may adversely affect profitability.

 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(unaudited, expressed in thousands of Canadian dollars)



March 31, 2020

December 31, 2019

ASSETS



Current assets



Cash

$3,199

$4,316

Accounts receivable

24,382

17,625

Contract assets

25,263

26,162

Inventories

13,117

12,933

Prepayments and other assets

2,234

2,136


68,195

63,172

Non-current assets



Prepayments and other assets

2,981

2,738

Development costs

15,217

14,075

Property, plant and equipment

47,265

46,328

Intangibles

1,679

1,827

Total assets

135,337

128,140




LIABILITIES AND EQUITY



Current liabilities



Bank indebtedness

93,860

85,470

Accounts payable and accrued liabilities

40,773

38,178

Current portion of term debt

2,878

2,768

Customer advance

6,587

6,030

Contract liability

1,938

2,036

Onerous contract provision

142

251


146,178

134,733

Non-current liabilities



Guarantee fee

6,602

5,277

Term debt

35,358

26,848

Contract liability

5,063

4,757


193,201

171,615

(Deficiency) Equity



Capital stock

86,219

86,219

Contributed surplus

5,455

5,446

Accumulated other comprehensive income

3,070

7,054

Accumulated deficit

(152,608)

(142,194)


(57,864)

(43,475)

Total liabilities and deficiency

135,337

128,140

 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

(unaudited, expressed in thousands of Canadian dollars, except number of shares and per share amounts)





FOR THE QUARTER ENDED MARCH 31

2020

2019

Revenues

$40,205

$42,225

Cost of sales 

40,303

41,572

Gross profit

(98)

653

Administrative and general expenses

4,407

5,151

Office equipment depreciation

195

189

Net gain on claims

-

(19,744)

Operating (loss) income

(4,700)

15,057

Finance costs – net 

2,769

1,878

Foreign exchange loss (gain)

2,858

(430)

Net loss on sale of equipment

87

-

(Loss) income before income tax

(10,414)

13,609

Income tax expense

-

-

(Loss) income for the period

(10,414)

13,609

Other comprehensive (loss) gain

(3,984)

755

Total comprehensive (loss) income for the period

(14,398)

14,364

(Loss) income per share:



Basic (loss) income per common share 

(0.03)

0.04

Diluted (loss) income per common share

(0.03)

0.04

Basic weighted average number of shares outstanding (000's)

368,118

368,118

Diluted weighted average number of shares outstanding (000's)

368,118

369,001

 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, expressed in thousands of Canadian dollars)




FOR THE QUARTER ENDED MARCH 31

2020

2019

Cash flows from (used in) operating activities



Net (loss) income for the year

$(10,414)

$13,609

Adjustment for items not affecting cash:



Interest expense

2,766

1,875

Depreciation

2,068

1,904

Development cost amortization

311

305

Intangible assets amortization

300

297

Non-cash financing cost accretion


3

3

Provision for onerous contracts

(124)

(517)

Provision for doubtful accounts

(127)

(536)

Provision for obsolete inventory

(252)

(240)

Stock based compensation

9

21

Net claim settlement

-

(3,309)

Loss on disposal of equipment

87

-

Unrealized foreign exchange

2,968

(414)

Loss on loan modification amortization

(135)

-

Cash flows (used in) from operating activities before changes in non-cash
 working capital

(2,540)

12,998

Changes in non-cash working capital



Accounts receivable

(6,512)

3,269

Contract assets

1,376

491

Inventories

541

1,481

Prepayments and other assets

117

(190)

Accounts payable and accrued liabilities

1,524

(895)

Contract liability

156

(1,882)

Net cash (used in) from operating activities

(5,338)

15,272




Cash flows used in investing activities



Purchase of equipment

(221)

(182)

Payments relating to development costs and tooling

(1,450)

(707)

Net cash used in investing activities

(1,671)

(889)




Cash flows from (used in) financing activities



Proceeds from bank indebtedness

653

5,864

Repayment of bank indebtedness

-

(17,912)

Payment of interest

(1,147)

(1,248)

Proceeds from term debt

6,924

-

Repayment of term debt

(612)

(603)

Net cash from (used in) financing activities

5,818

(13,899)

Net (decrease) increase in cash

(1,191)

484

Net foreign exchange difference

74

(130)

Cash - Beginning of the period

4,316

2,051

Cash - End of the period

3,199

2,405





 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(unaudited, expressed in thousands of Canadian dollars, except number of shares)



Capital Stock






Number of
Shares

Amount

Contributed
Surplus

Accumulated
Deficit

Accumulated
Other
Comprehensive
Income

Total
Deficiency

Balance at December 31, 2018

368,118,620

86,219

5,370

(132,878)

5,145

(36,144)

Stock-based compensation
expense

-

-

21

-

-

21

Unrealized currency loss on
translation for the period

-

-

-

-

755

755

Net income for the period

-

-

-

13,609

-

13,609

Balance at March 31, 2019

368,118,620

86,219

5,391

(119,269)

5,900

(21,759)

Balance at December 31, 2019

368,118,620

86,219

5,446

(142,194)

7,054

(43,475)

Stock-based compensation
expense

-

-

9

-

-

9

Unrealized currency gain on
translation for the period

-

-

-

-

(3,984)

(3,984)

Net loss for the period

-

-

-

(10,414)

-

(10,414)

Balance at March 31, 2020

368,118,620

86,219

5,455

(152,608)

3,070

(57,864)


The accompanying notes are an integral part of these condensed interim financial statements.

 

Cision

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SOURCE Avcorp Industries Inc.