U.S. Markets open in 8 hrs 33 mins

Edited Transcript of ARCW earnings conference call or presentation 13-Feb-19 9:30pm GMT

Q2 2019 ARC Group Worldwide Inc Earnings Call

DENVER Mar 1, 2019 (Thomson StreetEvents) -- Edited Transcript of ARC Group Worldwide Inc earnings conference call or presentation Wednesday, February 13, 2019 at 9:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Aaron Willman

ARC Group Worldwide, Inc. - CFO & CAO

* Alan Grant Quasha

ARC Group Worldwide, Inc. - Chairman & CEO

* Jed Rust

ARC Group Worldwide, Inc. - VP of Sales

================================================================================

Conference Call Participants

================================================================================

* Ralph Weil

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, and welcome to Advanced Forming Technology ARC Group Q2 2019 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Aaron Willman. Please go ahead, sir.

--------------------------------------------------------------------------------

Aaron Willman, ARC Group Worldwide, Inc. - CFO & CAO [2]

--------------------------------------------------------------------------------

Hello, everyone. Welcome, and thank you for joining us on the call today. As most of you are aware, this call contains forward-looking statements as defined by the federal securities laws. Forward-looking statements are indicated by words such as expect, anticipate, plan, believe and similar words concerning future events. All future events are inherently uncertain, and actual outcomes may differ materially. We do not guarantee future performance, and past performance does not necessarily indicate future results.

Further, we undertake no obligation to update our forward-looking statements. We encourage you to review the risks that we face and other information about our company in our filings with the SEC, including our annual report on Form 10-K and quarterly report on Form 10-Q, all of which can be found on our website.

Please note that during the call, all financial measurement -- all financial measures presented will be a non-GAAP unless otherwise indicated.

I will now share results of the quarter 2, fiscal 2019.

Highlights for the second quarter of fiscal 2019 as compared to the second quarter of fiscal year 2018 from continuing operations. Sales of $20.9 million, which was an increase of 19.9%. This was primarily driven by increases in MIM and plastic sales that Jed Rust, our VP of Sales, will highlight further. Gross profit of $1.5 million, which was an increase of 602% over prior year. This was both due to higher sales and the cost-saving initiatives performed in fiscal year 2018.

EBITDA of $0.8 million, which was an increase of 168% over the prior year's same quarter. This quarter was negatively impacted due to some onetime extraneous events. These included legal settlements, primarily related to the sale of Tekna Seal, lease cancellations and some other operational issues. Net of these, gross profits would have been $1.8 million and EBITDA would have been $1.45 million.

Highlights for the first 6 months ended December 30, 2018, as compared to the first 6 months ended December 31 of 2017, are as follows: sales of $41.4 million, which was an increase of 13.6%. Again, Jed will cover this here momentarily in his sales presentation. Gross profit of $4.6 million, which was an increase of 414%. This, again, was due to increased sales and the cost-saving initiatives of fiscal year 2018. And finally, EBITDA on the 6 months of $3.3 million, an increase of 508%.

I will now -- sorry, I will now share -- I will now turn it to Alan Quasha, our CEO, to discuss the sale of 3DMT.

--------------------------------------------------------------------------------

Alan Grant Quasha, ARC Group Worldwide, Inc. - Chairman & CEO [3]

--------------------------------------------------------------------------------

Yes. Thanks, Aaron. The sale of 3DMT was a tough decision for the board to make, but we made it and we still expect this transaction to happen in this current third quarter. I do want to make it clear that given the confidential nature of these discussions and agreements, I will not be able to address any specific questions about the transaction other than what we have already communicated.

So now I'll turn it over to Jed Rust, our VP of Sales, to discuss some of our important sales initiatives.

--------------------------------------------------------------------------------

Jed Rust, ARC Group Worldwide, Inc. - VP of Sales [4]

--------------------------------------------------------------------------------

Thank you, Alan. Good afternoon all. I want to just spend a few minutes to go over some of the sales and new product highlights for our fiscal Q2. As Aaron mentioned, our Q2 sales of $20.9 million were up $3.5 million from the same Q2 the year before. And for the first half, we achieved $41.5 million compared to the $36.5 million for the first 6 months last year. This growth was driven across multiple industries, all of which are benefiting from new products we launched over the past years.

Our medical sales were incredibly strong in Q2, with both new tooling revenue as well as new product launches for minimally invasive surgical devices as well as dental components. These new components have supplemented the already strong robot surgery and laparoscopic surgery components that we manufacture.

As noted in our results, we also had extreme growth in our aerospace sector within the MIM business unit. We have not only seen volumes increasing on the products we launched over the past 2 years, but are seeing good progress qualifying several new engine components for a large OEM. The MIM technology continues to give aerospace OEMs cost savings over the already capacity constrained small-casting supply chain.

Lastly, as we look at the defense and firearms sector, we saw a strong demand for several of the new products we launched in both our metals and MIM division as well as our plastics division. One item of note is a plastic subassemble that we historically supported for the consumer sector that was recently adopted by a branch of the military. This led to increased demand as well as some longer-term orders with our OEM customer.

As we look forward toward the future, we continue to be disciplined about our sales approach, to ensure that we both -- we drive both top line growth as well as ensure part platform profitability.

With that, let me turn it over to Alan for some closing comments before we move into questions.

--------------------------------------------------------------------------------

Alan Grant Quasha, ARC Group Worldwide, Inc. - Chairman & CEO [5]

--------------------------------------------------------------------------------

Well, thanks, Jed. I don't have a lot more to say other than, as I mentioned in the press release, I'm pleased with the progress -- meaningful progress that ARC continues to make.

And with that, I'm -- we're happy to take any questions that anybody may have. So we will open it for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) There are no questions in the queue at this time. (Operator Instructions) We have a question from [Paul Rainey].

--------------------------------------------------------------------------------

Unidentified Shareholder, [2]

--------------------------------------------------------------------------------

I'm a private shareholder, and I was concerned about the price of stock and how long it's been under $1 a share. Is the company -- have any concerns about the stock becoming delisted? And if not, what kind of reassurance do you have for its current, really, core shareholders towards this regard? Appreciate.

--------------------------------------------------------------------------------

Alan Grant Quasha, ARC Group Worldwide, Inc. - Chairman & CEO [3]

--------------------------------------------------------------------------------

Yes. Well, obviously, we think the stock should be higher, but a lot of insiders always prevent us from buying. And from my perspective is, Alan Quasha, we think there's obviously a buying opportunity. We're not particularly worried about delisting. We haven't gotten any messages from any -- from exchange. And so it's not something that we particularly worry about.

--------------------------------------------------------------------------------

Operator [4]

--------------------------------------------------------------------------------

(Operator Instructions) The next question comes from Ralph Weil.

--------------------------------------------------------------------------------

Ralph Weil, [5]

--------------------------------------------------------------------------------

Yes, I'm driving in a car, so I don't know if you can hear me well. But I'm very happy to see that your sales are going up and your business prospects are going up in the aerospace area, in the medical area. And I'm just wondering, what is happening in the firearms area? Do you see any possible improvements in fortunes there, which would then come about as you're improving the medical and aerospace and would become reflected in some really better results going forward?

--------------------------------------------------------------------------------

Jed Rust, ARC Group Worldwide, Inc. - VP of Sales [6]

--------------------------------------------------------------------------------

So I'll answer that, this is Jed. As we look at kind of what precipitated and what drove our first half, while I did mention the positive trends we've had on medical and aerospace, I did want to highlight that the defense sector has remained actually fairly strong for the first 6 months. As we look to kind of towards some of the political environment that does have a tendency to weigh on that market segment, we do expect that as we start looking toward calendar year '20, things could continue to be strong there, just based off of the political environment that usually spins up that industry a little bit. But beyond that, the products that we are on continue to remain strong and stable throughout, both the last 6 months and kind of our immediate term that we're in right now.

--------------------------------------------------------------------------------

Operator [7]

--------------------------------------------------------------------------------

We have no further questions in the queue. This concludes today's teleconference. You may now disconnect.

--------------------------------------------------------------------------------

Alan Grant Quasha, ARC Group Worldwide, Inc. - Chairman & CEO [8]

--------------------------------------------------------------------------------

Thank you.

--------------------------------------------------------------------------------

Jed Rust, ARC Group Worldwide, Inc. - VP of Sales [9]

--------------------------------------------------------------------------------

Thank you.

--------------------------------------------------------------------------------

Aaron Willman, ARC Group Worldwide, Inc. - CFO & CAO [10]

--------------------------------------------------------------------------------

Bye.