EX-99.1 2 ex991sif06302018pressrelea.htm EXHIBIT 99.1 EARNINGS RELEASE Q3 2018 Exhibit


SIFCO Industries, Inc. (“SIFCO”) Announces
Third Quarter Fiscal 2018 Financial Results

Cleveland - SIFCO Industries, Inc. (NYSE American: SIF) today announced financial results for its third quarter of fiscal 2018, which ended June 30, 2018.
Third Quarter 2018 Highlights
•
Backlog as of June 30, 2018 was $94.4 million. Our delivery requirements for the balance of the fiscal year total $39.7 million.
•
Results for the Third Quarter
◦
Net sales in the third quarter of fiscal 2018 decreased 4.9% to $28.7 million, compared with $30.2 million in the third quarter of fiscal 2017.
◦
Net loss for the third quarter of fiscal 2018 was $1.5 million, or ($0.28) per diluted share, compared with a loss of $6.2 million or ($1.13) per diluted share, in the third quarter of fiscal 2017.
◦
EBITDA was $0.8 million in the third quarter of fiscal 2018 compared with a loss of $2.6 million in the third quarter of fiscal 2017, showing continued sequential quarter-over-quarter improvement in pre-tax results after one-time non-GAAP measures are considered. See "Use of Non-GAAP Financial Measures" section and "Supplemental Data" section within release for important information regarding EBITDA, Adjusted EBITDA and other adjustments presented in this release.
◦
Adjusted EBITDA in the third quarter of fiscal 2018 was $1.7 million compared with Adjusted EBITDA of $2.0 million in the third quarter of fiscal 2017.
•
Results for the Year to Date
◦
Net sales in the first nine months of fiscal 2018 decreased 13.1% to $80.7 million, compared with $92.9 million in fiscal 2017.
◦
Net loss for the first nine months of fiscal 2018 was $4.5 million, or ($0.81) per diluted share, compared with net loss of $10.5 million, or ($1.91) per diluted share, in the first nine months of fiscal 2017.
◦
EBITDA was $2.8 million in the first nine months of fiscal 2018 compared with a loss of $0.5 million in the first nine months of fiscal 2017.
•
Adjusted EBITDA in the first nine months of fiscal 2018 was $2.1 million with Adjusted EBITDA of $6.4 million in the first nine months of fiscal 2017.
•
Subsequent to quarter-end, the Company finalized a new credit agreement with a new lender, which is comprised of a senior secured revolving credit facility with a maximum borrowing amount of $30.0 million. Amounts borrowed will be used to repay the amounts outstanding under the Company's existing credit agreement at June 30, 2018, for working capital purposes, for general corporate purposes and to pay fees and expenses associated with this transaction.
•
Also following the quarter-end, the Company auctioned off assets previously identified for sale (including machinery and equipment) at its closed location in Alliance, Ohio.

CEO Peter W. Knapper stated, "We continue to show progress in our business fundamentals and are very pleased to announce a new credit agreement with J.P. Morgan Chase.  This agreement embodies advantageous terms and reduced costs for SIFCO and we look forward to a long and mutually beneficial relationship with our new lender.  I want to commend Tom Kubera for leading this project and congratulate him on his recently announced appointment to Chief Financial Officer of the Company.





Our backlog remains very strong overall, even with a continuing very soft market in Energy.  Our borrowings went up slightly in the quarter as we have added inventory to support the growing requirements we currently have in backlog.  Our focus remains on serving our customers, providing a safe work environment for all of our associates, and creating stakeholder value."

Use of Non-GAAP Financial Measures
The Company uses certain non-GAAP measures in this release. EBITDA, Adjusted EBITDA and the presentation of measures adjusted for certain items that we do not consider part of ongoing operations are non-GAAP financial measures and are intended to serve as supplements to results provided in accordance with accounting principles generally accepted in the United States. Items excluded in the presentation of the non-GAAP financials are discussed in the "Supplemental Data" of this filing. SIFCO Industries, Inc. believes that such information provides an additional measurement and consistent historical comparison of the Company’s performance. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available under "Non-GAAP Financial Measures" in this news release.

Forward-Looking Language
Certain statements contained in this press release are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements relating to financial results and plans for future business development activities (including backlog), and are thus prospective. Such forward-looking statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, economic conditions, competition and other uncertainties detailed from time to time in the Company's Securities and Exchange Commission filings.

The Company's Form 10-K for the year ended September 30, 2017 can be accessed through its website: www.sifco.com, or on the Securities and Exchange Commission's website: www.sec.gov.

SIFCO Industries, Inc. is engaged in the production of forgings and machined components primarily for the aerospace and energy markets. The processes and services include forging, heat-treating, coating, and machining

















sifcoa07.jpg
Third Quarter Ended June 30
(Amounts in thousands, except per share data)

 
Three Months Ended 
 June 30,
 
Nine Months Ended 
 June 30,
 
2018
 
2017
 
2018
 
2017
Net sales
$
28,681

 
$
30,167

 
$
80,726

 
$
92,942

Cost of goods sold
25,402

 
26,599

 
72,889

 
81,546

Gross profit
3,279

 
3,568

 
7,837

 
11,396

Selling, general and administrative expenses
3,864

 
3,918

 
11,796

 
13,617

Amortization of intangible assets
427

 
579

 
1,286

 
1,744

Loss (gain) on disposal or impairment of operating assets
357

 
4,369

 
(1,071
)
 
4,363

Operating loss
(1,369
)
 
(5,298
)
 
(4,174
)
 
(8,328
)
Interest income
—

 
(12
)
 
(29
)
 
(42
)
Interest expense
417

 
464

 
1,304

 
1,682

Foreign currency exchange (gain) loss, net
(32
)
 
(6
)
 
(112
)
 
11

Other income, net
(4
)
 
(110
)
 
(400
)
 
(324
)
Loss before income tax (benefit) expense
(1,750
)
 
(5,634
)
 
(4,937
)
 
(9,655
)
Income tax (benefit) expense
(218
)
 
568

 
(456
)
 
812

Net loss
$
(1,532
)
 
$
(6,202
)
 
$
(4,481
)
 
$
(10,467
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss per share
 
 
 
 
 
 
 
Basic
$
(0.28
)
 
$
(1.13
)
 
$
(0.81
)
 
$
(1.91
)
Diluted
$
(0.28
)
 
$
(1.13
)
 
$
(0.81
)
 
$
(1.91
)
 
 
 
 
 
 
 
 
Weighted-average number of common shares (basic)
5,535

 
5,499

 
5,524

 
5,480

Weighted-average number of common shares (diluted)
5,535

 
5,499

 
5,524

 
5,480

















sifcoa07.jpg
Quarter Ended
(Amounts in thousands, except per share data)

 
June 30, 
 2018
 
September 30, 
 2017
 
(unaudited)
 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
1,675

 
$
1,399

Receivables, net of allowance for doubtful accounts of $473 and $330, respectively
25,114

 
25,894

Inventories, net
21,032

 
20,381

Refundable income taxes
99

 
292

Prepaid expenses and other current assets
1,942

 
1,644

Assets held for sale
670

 
2,524

Total current assets
50,532

 
52,134

Property, plant and equipment, net
36,285

 
39,508

Intangible assets, net
5,512

 
6,814

Goodwill
12,079

 
12,170

Other assets
170

 
261

Total assets
$
104,578

 
$
110,887

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Current maturities of long-term debt
$
6,071

 
$
7,560

Revolver
19,492

 
18,557

Accounts payable
14,390

 
12,817

Accrued liabilities
5,854

 
6,791

Total current liabilities
45,807

 
45,725

Long-term debt, net of current maturities
4,267

 
5,151

Deferred income taxes
2,246

 
3,266

Pension liability
5,802

 
6,184

Other long-term liabilities
94

 
430

Shareholders’ equity:
 
 
 
Serial preferred shares, no par value, authorized 1,000 shares
—

 
—

Common shares, par value $1 per share, authorized 10,000 shares; issued and outstanding shares –5,691 at June 30, 2018 and 5,596 at September 30, 2017
5,691

 
5,596

Additional paid-in capital
9,850

 
9,519

Retained earnings
39,786

 
44,267

Accumulated other comprehensive loss
(8,965
)
 
(9,251
)
Total shareholders’ equity
46,362

 
50,131

Total liabilities and shareholders’ equity
$
104,578

 
$
110,887








Non-GAAP Financial Measures
Presented below is certain financial information based on the Company's EBITDA and Adjusted EBITDA. References to “EBITDA” mean earnings (losses) from continuing operations before interest, taxes, depreciation and amortization, and references to “Adjusted EBITDA” mean EBITDA plus, as applicable for each relevant period, certain adjustments as set forth in the reconciliations of net income to EBITDA and Adjusted EBITDA.

Neither EBITDA nor Adjusted EBITDA is a measurement of financial performance under generally accepted accounting principles in the United States of America (“GAAP”). The Company presents EBITDA and Adjusted EBITDA because management believes that they are useful indicators for evaluating operating performance and liquidity, including the Company’s ability to incur and service debt and it uses EBITDA to evaluate prospective acquisitions. Although the Company uses EBITDA and Adjusted EBITDA for the reasons noted above, the use of these non-GAAP financial measures as analytical tools has limitations. Therefore, reviewers of the Company’s financial information should not consider them in isolation, or as a substitute for analysis of the Company's results of operations as reported in accordance with GAAP. Some of these limitations include:
•
Neither EBITDA nor Adjusted EBITDA reflects the interest expense, or the cash requirements necessary to service interest payments on indebtedness;
•
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and neither EBITDA nor Adjusted EBITDA reflects any cash requirements for such replacements;
•
The omission of the substantial amortization expense associated with the Company’s intangible assets further limits the usefulness of EBITDA and Adjusted EBITDA; and
•
Neither EBITDA nor Adjusted EBITDA includes the payment of taxes, which is a necessary element of operations.
Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as measures of discretionary cash available to the Company to invest in the growth of its businesses. Management compensates for these limitations by not viewing EBITDA or Adjusted EBITDA in isolation and, specifically, by using other GAAP measures, such as net income (loss), net sales, and operating income (loss), to measure operating performance. Neither EBITDA nor Adjusted EBITDA is a measurement of financial performance under GAAP, and neither should be considered as an alternative to net loss or cash flow from operations determined in accordance with GAAP. The Company’s calculation of EBITDA and Adjusted EBITDA may not be comparable to the calculation of similarly titled measures reported by other companies.

The following table sets forth a reconciliation of net income to EBITDA and Adjusted EBITDA:
Dollars in thousands
Three Months Ended
 
Nine Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
Net loss
$
(1,532
)
 
$
(6,202
)
 
$
(4,481
)
 
$
(10,467
)
Adjustments:
 
 
 
 
 
 
 
Depreciation and amortization expense
2,160

 
2,587

 
6,479

 
7,526

Interest expense, net
417

 
452

 
1,275

 
1,640

Income tax (benefit) expense
(218
)
 
568

 
(456
)
 
812

EBITDA
827

 
(2,595
)
 
2,817

 
(489
)
Adjustments:
 
 
 
 
 
 
 
Foreign currency exchange (gain) loss, net (1)
(32
)
 
(6
)
 
(112
)
 
11

Other income, net (2)
(4
)
 
(110
)
 
(400
)
 
(324
)
Loss (gain) on disposal or impairment of operating assets (3)
357

 
4,369

 
(1,071
)
 
4,363

Equity compensation (4)
186

 
139

 
428

 
484

LIFO impact (5)
184

 
(21
)
 
299

 
204

Orange expansion (6)
—

 
288

 
—

 
2,171

Executive relocation costs (7)
145

 
—

 
145

 
—

Adjusted EBITDA
$
1,663

 
$
2,064

 
$
2,106

 
$
6,420

(1)
Represents the gain or loss from changes in the exchange rates between the functional currency and the foreign currency in which the transaction is denominated.




(2)
Represents miscellaneous non-operating income or expense, which primarily consisted of rental income from the Company's Irish subsidiary (through first quarter 2018 when the building was sold). Included in the nine months ended June 30, 2018 was grant income that was realized that relates to the Company's Irish subsidiary.
(3)
Represents the difference between the proceeds from the sale of operating equipment and the carrying values shown on the Company’s books or asset impairment on long-lived assets.
(4)
Represents the equity-based compensation expense recognized by the Company under its 2016 Long-Term Incentive Plan due to granting of awards, awards not vesting and/or forfeitures.
(5)
Represents the change in the reserve for inventories for which cost is determined using the last-in, first-out (“LIFO”) method.
(6)
Represents costs related to expansion of one of the plant locations that are required to be expensed as incurred.
(7)
Represents costs related to Executive relocation costs.

Supplemental Data

Significant items impacting quarter-over-quarter comparability for fiscal 2018 are presented below.

(Amounts in thousands)
 
Three Months Ended 
December 31,
 
 
Three Months Ended   March 31,
 
 
Three Months Ended 
 June 30,
 
 
2017
One-time (1)
2017 Adjusted
% of Sales
 
2018
One-time (2)
2018 Adjusted
% of Sales
 
2018
One-time (3)
2018 Adjusted
% of Sales
Net sales
$
24,251

$
—

$
24,251

100.0
 %
 
$
27,794

$
—

$
27,794

100.0
 %
 
$
28,681

$
—

$
28,681

112.9
 %
Cost of goods sold
22,222

—

22,222

91.6
 %
 
25,265

(607
)
24,658

88.7
 %
 
25,402

—

25,402

88.6
 %
Gross profit
2,029

—

2,029

8.4
 %
 
2,529

607

3,136

11.3
 %
 
3,279

—

3,279

11.4
 %
Selling, general and administrative expenses
4,072

—

4,072

 
 
3,861

(170
)
3,691

 
 
3,864

(145
)
3,719

 
Amortization of intangible assets
425

—

425

 
 
433

—

433

 
 
427

—

427

 
Loss (gain) on disposal or impairment of operating assets
(1,400
)
1,520

120

 
 
(29
)
25

(4
)
 
 
357

(357
)
—

 
Operating loss
(1,068
)
(1,520
)
(2,588
)
(10.7
)%
 
(1,736
)
752

(984
)
(3.5
)%
 
(1,369
)
502

(867
)
(3.0
)%
Interest income
(9
)
—

(9
)
 
 
(14
)
—

(14
)
 
 
10

—

10

 
Interest expense
444

—

444

 
 
436

—

436

 
 
407

—

407

 
Foreign currency exchange (gain) loss, net
(36
)
—

(36
)
 
 
(43
)
—

(43
)
 
 
(32
)
—

(32
)
 
Other income, net
(316
)
—

(316
)
 
 
(80
)
—

(80
)
 
 
(4
)
—

(4
)
 
Loss before income tax (benefit) expense
$
(1,151
)
$
(1,520
)
$
(2,671
)
(11.0
)%
 
$
(2,035
)
$
752

$
(1,283
)
(4.6
)%
 
$
(1,750
)
$
502

$
(1,248
)
(4.4
)%

1.
In December 2017, the Company sold its building in Ireland, which approximated $1.5 million in gains included in the first quarter 2018, which impacted comparability of our reported results.
2.
At March 31, 2018, non-cash adjustments for the write-down of $0.6 million inventory remaining at the now-closed Alliance, Ohio facility and full reserve of $0.2 million of a note receivable from a former customer.
3.
Represents executive relocation cost and a non-cash adjustment for loss on disposal of assets for the Alliance, Ohio facility due to the remeasurement of the assets held for sale at June 30, 2018.
 
 
 
 
 
Contacts
SIFCO Industries, Inc.
Thomas R. Kubera, 216-881-8600
www.sifco.com