ABC Technologies Holdings Inc. Reports Fiscal Q1 2023 Results – Business Wire
TORONTO–(BUSINESS WIRE)–ABC Technologies Holdings Inc. (TSX: ABCT) (“ABC Technologies”, “ABC”, or the “Company”), a leading manufacturer and supplier of custom, highly engineered, technical plastics and lightweighting innovations to the North American light vehicle industry, today announced results for the three months ended September 30, 2022 (“Q1 Fiscal 2023”) and has declared a quarterly cash dividend of C$0.0375 per share. All amounts are shown in United States Dollars (“$”), unless otherwise noted.
Please click HERE for ABC’s Q1 Fiscal 2023 Management’s Discussion and Analysis (“MD&A”) or refer to the Company’s Interim Condensed Consolidated Financial Statements and MD&A for the three months ended September 30, 2022 available on the Company’s profile at www.SEDAR.com and on the Company website.
Q1 Fiscal 2023 Highlights
ABC Technologies’ President and Chief Executive Officer, Terry Campbell, commented: “We saw meaningful year-over-year improvement in our financial performance this quarter, driven by strong top-line growth supported by acquisition contribution, along with management efforts to improve operating performance and reduce costs. Looking ahead, our team continues to navigate lingering economic headwinds while building a more resilient business. ABC’s leadership is focused on operationalizing our new business model that will help improve efficiency at our plants while reducing complexity both within the organization and for our customers. We are committed to optimizing our cost structure, successfully completing our customer cost recovery negotiations, and converting top-line growth to sustained bottom-line performance. There is a lot of work ahead of us, but our team continues to be excited about tackling these challenges head on.”
Q1 Fiscal 2023 Results of Operations
Sales were $318.9 million in Q1 Fiscal 2023 compared with $163.4 million in Q1 Fiscal 2022, an increase of $155.4 million or 95.1%. Of this increase, $56.9 million is attributable to the dlhBOWLES and Karl Etzel acquisitions completed in the third quarter of the fiscal year 2022 (“Q3 Fiscal 2022”), accounting for 36.6% of the increase. According to IHS Markit reports, industry production in North America increased by 24.2% in Q1 Fiscal 2023 compared to Q1 Fiscal 2022. The Company enjoyed better than industry growth as a result of improved sales to a number of significant customers due to its product mix relative to the industry.
Cost of sales was $288.3 million in Q1 Fiscal 2023 compared with $162.6 million in Q1 Fiscal 2022, an increase of $125.7 million or 77.3%, of which $45.2 million or 36.0% is attributable to the dlhBOWLES and Karl Etzel acquisitions completed in Q3 Fiscal 2022. As a percentage of sales, cost of sales was 90.4% in Q1 Fiscal 2023 compared with 99.5% in Q1 Fiscal 2022. Gross margin in Q1 Fiscal 2023 was higher than the comparable prior year’s quarter resulting from improved efficiencies due to a decrease in semiconductor shortages allowing for increased production volumes. Gross margin continued to be lower than normal as a result of higher labor and freight costs, and increased raw material costs, primarily resin, glass, rubber, paint and steel which the Company attributes to inflationary trends seen throughout both the industry and general economy.
Selling, general and administrative expenses were $45.9 million in Q1 Fiscal 2023 compared with $28.1 million in Q1 Fiscal 2022, an increase of $17.8 million or 63.3%. As a percentage of sales, selling, general and administrative expenses were 14.4% in Q1 Fiscal 2023 compared with 17.2% in Q1 Fiscal 2022.
Significant differences quarter over quarter include:
Net loss was $23.4 million in Q1 Fiscal 2023 compared with $28.2 million in Q1 Fiscal 2022, a decrease of $4.8 million or 16.8%. Primary contributors to the change between periods are a $29.8 million increase in gross profit in Q1 Fiscal 2023 due to the significant increase in sales and the efficiencies resulting from the increase, largely offset by a $17.8 million increase in SG&A expenses as previously noted, increased interest expense of $2.5 million and lower income tax recoveries of $6.6 million.
Adjusted EBITDA was $23.9 million in Q1 Fiscal 2023 compared with $(11.3) million in Q1 Fiscal 2022, an increase of $35.2 million or 311.4% primarily due to higher sales and gross profit in Q1 Fiscal 2023 compared with Q1 Fiscal 2022.
Adjusted Free Cash Flow was $2.4 million in Q1 Fiscal 2023, or $61.9 million higher compared with Q1 Fiscal 2022 primarily due to higher net cash flows from operating activities of $73.0 million which was partly offset by the higher purchases of property plant and equipment of $8.8 million.
Market Dynamics
The Company’s financial results during the last half of the fiscal year of the Company ended June 30, 2021 (“Fiscal 2021”) and fiscal year of the Company ended June 30, 2022 (“Fiscal 2022”) were significantly impacted by disruptions and shortages in the supply of critical components and materials globally, particularly semiconductors, which were indirect outcomes of the COVID-19 pandemic. When the COVID-19 pandemic caused a significant drop in vehicle sales in spring 2020, OEMs cut their orders of all parts and materials, including the semiconductors needed for functions ranging from touchscreen displays to collision-avoidance systems. In the fall of 2020, when demand for passenger vehicles rebounded, OEMs were not able to secure adequate supply of semiconductors as chip manufacturers were already committed to supplying other customers in consumer electronics. The global semiconductor shortage resulted in temporary shut-downs or slowdowns of the production lines at the majority of our OEM customers beginning in February and March 2021, which impacted the production levels in our plants that supply those customers. In Fiscal 2022, primarily in the first and the second fiscal quarters, COVID-19 had a more direct effect on operations. Outbreaks in major semiconductor manufacturing countries, such as Malaysia, resulted in the temporary shutdown of the manufacturing sector in those countries. As a result, the lost production exacerbated the shortage of semiconductors, leading to increased shutdowns by nearly all OEMs. These shutdowns, frequently with very short notice, resulted in inefficiencies at the Company’s production facilities. In the third and the fourth fiscal quarters of Fiscal 2022 and Q1 Fiscal 2023, supply chain disruptions to OEM customers abated to some extent, but not completely. Supply chain disruptions and economic conditions, which also include the conflict between Russia and Ukraine have introduced higher levels of inflation for costs including, but not limited to, labor, freight, utilities, resin, glass, rubber, paint and steel.
We believe these conditions are temporary for many of our costs and will abate over time when supply conditions are successfully resolved. Presently we expect costs to remain elevated from now until the end of calendar year 2023. However, it is notable that increased costs in several areas, including, but not limited to labor, benefits, freight and utilities costs are likely not temporary and will remain part of the cost of the business. The Company is in discussions with its largest customers to adjust its prices for the effects of inflation that were not present when the programs were awarded to the Company. The Company is also refining its quoting practices to more proactively address input and conversion costs in its pricing to customers.
As a result of the global semiconductor shortages and production disruptions, inventories for new vehicles had reached historic lows, but have been bouncing back toward more normal levels. The high consumer demand for vehicles, lower than normal inventory supply and inflationary price increases has pushed prices for both new and used vehicles to record levels. Several OEMs are recording strong earnings as the average price of new models has increased. Due to the scarcity of new vehicles, used vehicle prices experienced new highs, at times exceeding the price of new vehicles, as customers turned to alternatives when new models were not available for purchase. Recently, used prices have diminished somewhat, but continue to be elevated relative to previous years.
Dividend
The Board of Directors today has declared a Q1 Fiscal 2023 quarterly cash dividend of C$0.0375 per share, payable on or about December 30, 2022 to shareholders of record on November 30, 2022.
Conference Call Information
ABC will host a conference call today, November 11, 2022 at 8:30am ET to discuss the results. Participants may listen to the call via audio streaming at www.abctechnologies.com/investors.
The dial-in number to participate in the call is:
Toll Free: 1-855-327-6837
Toll/International: 1-631-891-4304
A telephonic replay will be available approximately two hours after the call. The replay will be available until 11:59pm ET on Friday, November 25th, 2022.
Replay Information:
Toll Free: 1-844-512-2921
Toll/International: 1-412-317-6671
Replay Pin Number: 10020435
A webcast replay will be available approximately one hour after the conclusion of the call at www.abctechnologies.com/investors under the Events & Presentations section.
Non-IFRS Measures and Key Indicators
This Press Release uses certain non-IFRS financial measures and ratios. Management uses these non-IFRS financial measures for purposes of comparison to prior periods, to prepare annual operating budgets, and for the development of future projections and earnings growth prospects. This information is also used by management to measure the profitability of ongoing operations and in analyzing our financial condition, business performance and trends. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similarly titled measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from management’s perspective. Accordingly, they should not be considered in isolation, nor as a substitute, for analysis of our financial information reported under IFRS. We use non-IFRS financial measures including Net Debt, EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted Free Cash Flow to provide supplemental measures of our operating performance and thus highlight trends in our core business that may not otherwise be apparent when using IFRS financial measures. We believe that the presentation of these financial measures enhances an investor’s understanding of our financial performance as these measures are widely used by investors, securities analysts and other interested parties.
“Net Debt” means (i) long-term debt less cash plus (ii) proportionate long-term debt held at joint ventures less proportionate cash held at joint ventures.
“EBITDA” means net earnings (loss) before interest expense, income tax expense (recovery), depreciation of property, plant and equipment, depreciation of right-of-use assets, and amortization of intangible assets.
“Adjusted EBITDA” means EBITDA plus: loss on disposal and write-down of assets, unrealized loss (gain) on derivative financial instruments, transactional, recruitment, and other bonuses, EBITDA from Poland operations which is being shut down, business transformation and related costs (which may include severance and restructuring expenses) and write-down of inventories less: our share of income of joint ventures plus the Company’s proportionate share of the EBITDA generated by our joint ventures, and share-based compensation expense. We also present Adjusted EBITDA excluding the impact of IFRS 16 by charging the lease payments applicable to those periods to expense as was the case prior to IFRS 16 – Leases (“IFRS 16”).
“Adjusted EBITDA Margin” means Adjusted EBITDA divided by sales adjusted to include the proportional share of joint venture sales attributable to ABC.
“Adjusted Free Cash Flow” means Net Cash Flows from Operating Activities less: purchases of property, plant and equipment, additions to intangible assets, lease payments, net impact of hedge monetization, plus: proceeds from disposal of property, plant, and equipment, cash dividends received from joint ventures, and one-time advisory, bonus and other costs.
Additional information about the Company, including the Company’s Management Discussion and Analysis of Operating Results and Financial Position for the three months ended September 30, 2022 and the Company’s Interim Condensed Consolidated Financial Statements for the three months ended September 30, 2022 can be found at www.sedar.com.
Fiscal Q1 2023 Financial Results
(Expressed in thousands of United States dollars, unless otherwise specified)
ABC Technologies Holdings Inc.
Interim Condensed Consolidated Statement of Financial Position
September 30, 2022
June 30, 2022
Assets
(unaudited)
Current assets
Cash
$
46,807
$
25,400
Trade and other receivables
107,758
122,192
Inventories
156,697
152,461
Prepaid expenses and other
32,299
42,094
Total current assets
343,561
342,147
Property, plant and equipment
419,786
425,645
Right-of-use assets
160,530
165,679
Intangible assets
154,849
156,844
Deferred income taxes
9,207
9,445
Investment in joint ventures
45,205
45,556
Derivative financial assets
508
3,996
Goodwill
112,330
112,369
Other long-term assets
15,621
16,392
Total non-current assets
918,036
935,926
Total assets
$
1,261,597
$
1,278,073
Liabilities and equity
Current liabilities
Trade payables
$
157,577
$
147,981
Accrued liabilities and other payables
121,320
98,280
Provisions
19,744
24,132
Current portion of lease liabilities
12,779
13,087
Purchase option
5,883
6,206
Total current liabilities
317,303
289,686
Long-term debt
375,000
400,000
Lease liabilities
171,177
175,940
Deferred income taxes
17,486
33,097
Derivative financial liabilities
6,118
1,453
Other long-term liabilities
37,577
2,137
Total non-current liabilities
607,358
612,627
Total liabilities
924,661
902,313
Equity
Capital stock
292,304
291,960
Other reserves
1,736
3,094
Retained earnings
50,868
77,453
Foreign currency translation reserve and other
(12,326
)
(7,524
)
Cash flow hedge reserve, including cost of hedging
4,354
10,777
Total equity
336,936
375,760
Total liabilities and equity
$
1,261,597
$
1,278,073
ABC Technologies Holdings Inc.
Interim Condensed Consolidated Statement of Comprehensive Income (Loss)
For the three months ended
September 30,
2022
2021
(unaudited)
Sales
$
318,864
$
163,415
Cost of sales
288,254
162,563
Gross profit
30,610
852
Selling, general and administrative
45,923
28,128
Loss (gain) on disposal and write-down of assets
687
(24
)
Loss (gain) on derivative financial instruments
(549
)
461
Share of loss of joint ventures
40
1,574
Operating loss
(15,491
)
(29,287
)
Interest expense, net
9,859
7,366
Loss before income tax
(25,350
)
(36,653
)
Income tax expense (recovery)
Current
11,027
1,103
Deferred
(12,928
)
(9,570
)
Total income tax recovery
(1,901
)
(8,467
)
Net loss
$
(23,449
)
$
(28,186
)
Other comprehensive income (loss)
Items that may be recycled subsequently to net earnings (loss):
Foreign currency translation of foreign operations and other
(4,802
)
(593
)
Cash flow hedges, net of taxes
(5,268
)
(4,474
)
Cash flow hedges recycled to net earnings, net of taxes
(82
)
447
Other comprehensive loss
$
(10,152
)
$
(4,620
)
Total comprehensive loss for the period
$
(33,601
)
$
(32,806
)
Earnings (loss) per share – basic and diluted
$
(0.20
)
$
(0.54
)
ABC Technologies Holdings Inc.
Interim Condensed Consolidated Statement of Cash Flows
For the three months ended
September 30,
(unaudited)
2022
2021
Cash flows from (used in) operating activities
Net loss
$
(23,449
)
$
(28,186
)
Adjustments for:
Depreciation of property, plant and equipment
17,271
11,967
Depreciation of right-of-use assets
4,226
3,626
Amortization of intangible assets
7,744
5,186
Loss (gain) on disposal and write-down of assets
687
(24
)
Unrealized loss (gain) on derivative financial instruments
(549
)
417
Interest expense
9,859
7,366
Share of loss of joint ventures
40
1,574
Income tax recovery
(1,901
)
(8,467
)
Share-based compensation expense (reversal)
(1,026
)
713
Write-down of inventories
2,030
—
Changes in:
Trade and other receivables and prepaid expenses and other
18,544
18,199
Inventories
(5,915
)
(18,909
)
Trade payables, accrued liabilities and other payables, and provisions
14,173
(26,680
)
Cash generated from (used in) operating activities
41,734
(33,218
)
Interest received
120
129
Income taxes paid
(1,020
)
(275
)
Interest paid on leases, net of interest received
(3,459
)
(3,387
)
Interest paid on long-term debt and other
(5,997
)
(4,896
)
Net cash flows from (used in) operating activities
31,378
(41,647
)
Cash flows used in investing activities
Purchases of property, plant and equipment
(19,859
)
(11,015
)
Additions to intangible assets
(5,761
)
(5,375
)
Net cash flows used in investing activities
(25,620
)
(16,390
)
Cash flows from (used in) financing activities
Net drawings (payments) on revolving credit facilities
(25,000
)
56,837
Principal payments of lease liabilities, net of sublease receipts
(3,186
)
(2,597
)
Financing costs
—
(580
)
Proceeds from other financing arrangement
44,469
—
Net cash flows from financing activities
16,283
53,660
Net increase (decrease) in cash
22,041
(4,377
)
Net foreign exchange difference
(634
)
(173
)
Cash, beginning of period
25,400
14,912
Cash, end of period
$
46,807
$
10,362
Reconciliation of Net loss to Adjusted EBITDA
For the three months ended
September 30,
2022
2021
Reconciliation of Net loss to Adjusted EBITDA
Net loss
$
(23,449
)
$
(28,186
)
Adjustments:
Income tax recovery
(1,901
)
(8,467
)
Interest expense
9,859
7,366
Depreciation of property, plant and equipment
17,271
11,967
Depreciation of right-of-use assets
4,226
3,626
Amortization of intangible assets
7,744
5,186
EBITDA
$
13,750
$
(8,508
)
Loss (gain) on disposal and write-down of assets
687
(24
)
Unrealized loss (gain) on derivative financial instruments
(549
)
417
Transactional, recruitment and other bonuses
—
11
EBITDA from Poland operations1
1,389
—
Business transformation related costs2
13,228
1,164
Share of loss of joint ventures
40
1,574
EBITDA from joint ventures3
1,016
(678
)
Write-down of inventories4
2,030
—
Share-based compensation expense
(1,026
)
713
Lease payments, net of sublease receipts
(6,645
)
(5,984
)
Adjusted EBITDA
$
23,920
$
(11,315
)
Reconciliation of net cash flows from (used in) operating activities to Adjusted Free Cash Flow
For the three months ended
September 30,
2022
2021
Reconciliation of net cash flows from (used in) operating activities to Adjusted Free Cash Flow
Net cash flows from (used in) operating activities
$
31,378
$
(41,647
)
Purchases of property, plant and equipment
(19,859
)
(11,015
)
Additions to intangible assets1
(5,761
)
(5,375
)
Principal payments of lease liabilities
(3,186
)
(2,597
)
One-time advisory, bonus and other costs
3,143
1,124
Net impact of hedge monetization
(3,311
)
—
Adjusted Free Cash Flow
$
2,404
$
(59,510
)
Forward-Looking Statements
Some of the information contained in this Press Release may constitute forward-looking information or contain statements expressing such forward-looking information (“forward-looking statements” and collectively with the forward-looking information expressed thereby, “forward-looking information”). We use words such as “may”, “would”, “could”, “should”, “will”, “unlikely”, “expect”, “anticipate”, “believe”, “intend”, “planning”, “forecast”, “outlook”, “projection”, “estimate”, “target” and similar expressions suggesting future outcomes or events to identify forward-looking information.
Forward-looking information contained herein is based on management’s reasonable assumptions and beliefs in light of the information currently available to us and is presented as of the date of this Press Release. Such forward-looking information is intended to provide information about management’s current expectations and plans, and may not be appropriate for other purposes. While we believe we have a reasonable basis for presenting such forward-looking information, any forward-looking statements expressing it are not a guarantee of future performance or outcomes. Whether actual results and developments conform to our expectations and predictions is subject to a number of factors, risks, assumptions and uncertainties, many of which are beyond our control, and the effects of which can be difficult to predict, including, but not limited to:
Forward-looking information in this document includes, but are not limited to, statements relating to: the Company’s plan to shut down its Poland plant, including any future impairment charges, severance costs and other estimated closing costs; any of the Company’s actions made in response to or in connection with the COVID-19 pandemic and other global pandemics and outbreaks of contagious diseases, including with respect to employee health and safety, potential adjustments to our production plans to align with our customers’ production plans, governmental orders and legal requirements; the ability to attract and retain the workforce required to maintain or grow the Company’s operations in the context of the effects of the COVID-19 pandemic and other global pandemics and outbreaks of contagious diseases on the workforce in certain markets in which the Company operates; the timing of program launches, the growth of the Company and pursuit of, and belief in, its strategies and development and implementation of new product and business; continued investments in its business and technologies, the ability to finance future capital expenditures, and ability to fund anticipated working capital needs, debt obligations and other commitments; the Company’s ability to implement its efficiency, optimization and cost saving and recovery strategies; the Company’s ability to implement its efficiency, optimization and cost saving and recovery strategies; the Company’s views on its liquidity and operating cash flow and ability to deal with present or future economic conditions; the potential for fluctuation of operating results; global economic forces, including macroeconomic pressures; and the payment of any dividends as well as other forward-looking statements.
In evaluating forward-looking statements or forward-looking information, we caution readers not to place undue reliance on any forward-looking statement or forward-looking information expressed herein, and readers should specifically consider the various factors that could cause actual events or results to differ materially from those indicated by such forward-looking statements, including the risk factors listed above as well as these and other risks and uncertainties as may be described in greater detail in the Company’s public filings made with the Canadian Securities Administrators and publicly available on the Company’s profile at www.sedar.com, or other factors that may fall outside any list of risks and uncertainties. We do not undertake to update any forward-looking information whether as a result of new information, future events or otherwise, or to update the reasons why actual results could differ from those reflected in the forward-looking statements except as required under applicable securities laws in Canada.
About ABC Technologies
ABC Technologies is a leading manufacturer and supplier of custom, highly engineered, technical plastics and lightweighting innovations to the North American light vehicle industry, serving more than 25 OEM customers globally through a strategically located footprint. ABC Technologies’ integrated service offering includes manufacturing, design, engineering, material compounding, machine tooling and equipment building that are supported by a by a team of skilled professionals (including professional practicing engineers and additional employees with technical diplomas or at least 15 years technical working experience serving in other technical engineering roles), which we believe ultimately contributes to our differentiated product innovation. Our vertically integrated capabilities include our tool-building and material compounding businesses, which we believe allows us to stay on the leading edge of technical plastics and lightweighting product innovation. In addition, our manufacturing footprint provides us with 250-mile coverage for the majority of our OEM customers’ North American light vehicle manufacturing facilities, which we also believe provides us with logistical and competitive advantages. The Company offers three product groups: Interior Systems, Exterior Systems and HVAC, Fluids & Other.
Investor Contact:
Nathan Barton
Investor Relations
investors@abctech.com
Investor Contact:
Nathan Barton
Investor Relations
investors@abctech.com