Chronicle Journal: Finance

Avcorp announces 2020 Second Quarter Financial Results

VANCOUVER, BC, Aug. 13, 2020 /PRNewswire/ - Avcorp Industries Inc. (TSX: AVP) (the "Company", "Avcorp" or the "Avcorp Group") today announced its financial results for the quarter ended June 30, 2020. All amounts are in Canadian currency unless otherwise stated.

2020 Highlights

Key financial results include:

  • Second quarter 2020 revenue was $32,246,000 compared to $46,799,000 in 2019. 2020 revenue decreased by $14,553,000 as a result of lower deliveries caused by lower customer requirements due to the novel Coronavirus ("COVID-19") and 737 MAX grounding.
  • Second quarter 2020 net loss was $1,594,000 compared to net loss of $4,568,000 in 2019. Net loss improved in comparison to 2019 after receiving the Canada Emergency Wage Subsidies of $2,404,000.
  • Second quarter 2020 foreign exchange gain was $1,414,000 (June 30, 2019: $329,000 gain). The Canadian dollar strengthened against the US dollar resulting in a gain predominately from the translation of the Company's US dollar denominated Bank indebtedness and Term debt.
  • Second quarter 2020 cash flows from operating activities before changes in non-cash working capital was $1,694,000 (June 30, 2019: cash inflow of $121,000). Second quarter 2020 cash flows used in operating activities worsened by $831,000 relative to 2019, after the cash receipts from Canada Emergency Wage Subsidies of $2,404,000 has been removed.
  • On April 28, 2020, the Company received a loan in the amount of USD $4,123,000 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 and bears interest at a fixed rate of 1% per annum with the first six months of interest deferred. The loan is forgivable if certain requirements are met.
  • On June 30, 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 July 31, 2020 and thereafter less USD $2,300,000 providing additional liquidity.

Highlights Subsequent to Quarter-End

  • BAE Systems awarded the Company a contract for the assembly of the F-35 Carrier Variant Outboard Wing. The total awards are approximately $87 million extending Avcorp's current long-term contract with BAE systems into 2022.
  • In July 2020, the Company received an additional Canada Emergency Wage Subsidy of $1,231,000.
  • On July 31, 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 August 31, 2020 and thereafter less USD $2,300,000 providing additional liquidity.

Review of 2020 Second Quarter Results

For the quarter ended June 30, 2020, the Avcorp Group recorded losses from operations totaling $1,080,000 from $32,246,000 revenue, as compared to losses from operations totaling $2,903,000 from $46,799,000 revenue from the same quarter in the previous year. The second quarter 2020 operating loss increased in comparison to 2019 by $1,608,000 after the removal of the onerous contracts provision of $244,000 (June 30, 2019: $585,000 income), a net loss on settlement of $1,789,000 in 2019 and government grants of $2,471,000 in 2020. The increase in operating loss is contributed to customer delivery scheduling changes due to COVID-19 decreasing revenue in the current quarter.

During the quarter ended June 30, 2020, cash flows from operating activities, excluding the impact of changes in non–cash working capital, provided $1,694,000 of cash as compared to $121,000 during the quarter ended June 30, 2019.  The Company received $2,404,000 of Canada Emergency Wage Subsidies contributing to the positive operating cash flows in the current quarter.

As at June 30, 2020, the Company had $8,814,000 cash on hand (December 31, 2019: $4,316,000) and had utilized $89,514,000 of its operating line of credit (December 31, 2019: $84,661,000).  The Company has a working capital deficit of $84,103,000 as at June 30, 2020, compared with $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 $22,302,000 surplus as at June 30, 2020 (December 31, 2019: $18,542,000 surplus).  The Company's accumulated deficit as at June 30, 2020 is $154,202,000 (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 600 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)


June 30, 2020

December 31, 2019

ASSETS



Current assets



Cash

$8,814

$4,316

Accounts receivable

16,329

17,625

Contract assets

24,165

26,162

Inventories

11,296

12,933

Prepayments and other assets

1,713

2,136


62,317

63,172

Non-current assets



Prepayments and other assets

2,868

2,738

Development costs

16,065

14,075

Property, plant and equipment

44,452

46,328

Intangibles

1,309

1,827

Total assets

127,011

128,140




LIABILITIES AND EQUITY



Current liabilities



Bank indebtedness

90,054

85,470

Accounts payable and accrued liabilities

29,488

38,178

Current portion of term debt

16,879

2,768

Customer advance

6,327

6,030

Contract liability

2,980

2,036

Deferred government grant

401

-

Onerous contract provision

291

251


146,420

134,733

Non-current liabilities



Guarantee fee

7,156

5,277

Term debt

25,240

26,848

Contract liability

5,328

4,757

Deferred government grant

334

-

Onerous contract provision

91

-


184,569

171,615

(Deficiency) Equity



Capital stock

86,219

86,219

Contributed surplus

5,463

5,446

Accumulated other comprehensive income

4,962

7,054

Accumulated deficit

(154,202)

(142,194)


(57,558)

(43,475)

Total liabilities and deficiency

127,011

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 PERIOD ENDED JUNE 30

Three months ended

Six months ended


2020

2019

2020

2019

Revenues

$32,246

$46,799

$72,451

$89,024

Cost of sales 

31,632

42,313

71,935

83,885

Gross profit

614

4,486

516

5,139

Administrative and general expenses

3,965

5,400

8,372

10,551

Office equipment depreciation

200

200

395

389

Net loss (gain) on claims

-

1,789

-

(17,955)

Government grants

(2,471)

-

(2,471)

-

Operating (loss) income

(1,080)

(2,903)

(5,780)

12,154

Finance costs – net 

1,928

1,919

4,697

3,797

Foreign exchange (gain) loss

(1,414)

(329)

1,444

(759)

Net loss on sale of equipment

-

75

87

75

(Loss) income before income tax

(1,594)

(4,568)

(12,008)

9,041

Income tax expense

-

-

-

-

(Loss) income for the period

(1,594)

(4,568)

(12,008)

9,041

Other comprehensive gain (loss)

1,892

640

(2,092)

1,395

Total comprehensive income (loss) for the period

298

(3,928)

(14,100)

10,436

(Loss) income per share:





Basic (loss) income per common share 

(0.00)

(0.01)

(0.03)

0.02

Diluted (loss) income per common share

(0.00)

(0.01)

(0.03)

0.02

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

368,118

368,118

368,118

368,118

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

368,118

368,118

368,118

369,146

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


Three months ended

Six months ended

FOR THE PERIOD ENDED JUNE 30

2020

2019

2020

2019

Cash flows from (used in) operating activities





Net (loss) income for the period

$(1,594)

$(4,568)

$(12,008)

$9,041

Adjustment for items not affecting cash:





Interest expense

1,926

1,916

4,692

3,791

Depreciation

2,206

1,921

4,274

3,825

Development cost amortization

87

599

398

904

Intangible assets amortization

309

298

609

595

Non-cash financing cost accretion


2

3

5

6

Provision for onerous contracts

244

(585)

120

(1,102)

Provision for doubtful accounts

(123)

(19)

(250)

(555)

Provision for obsolete inventory

198

(733)

(54)

(973)

Stock based compensation

7

20

16

41

Net claim

-

1,789

-

(1,520)

Loss on disposal of equipment

-

75

87

75

Unrealized foreign exchange

(1,366)

(595)

1,602

(1,009)

Fair value difference on below market rate term debt

(67)

-

(67)

-

Loss on loan modification amortization

(135)

-

(270)

-

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

1,694

121

(846)

13,119

Changes in non-cash working capital





Accounts receivable

7,996

(3,676)

1,484

(1,330)

Contract assets

846

2,191

2,222

2,682

Inventories

1,361

2,996

1,902

4,477

Prepayments and other assets

581

2,034

698

1,844

Accounts payable and accrued liabilities

(10,684)

(2,902)

(9,160)

(3,797)

Contract liability

1,260

(3,519)

1,416

(4,478)

Net cash from (used in) operating activities

3,054

(2,755)

(2,284)

12,517






Cash flows used in investing activities





Proceeds from sale of equipment

34

-

34

-

Purchase of equipment

(474)

(305)

(695)

(487)

Payments relating to development costs and tooling

(936)

(1,119)

(2,386)

(1,826)

Initial lease payments and other direct costs incurred

(31)

-

(31)

-

Net cash used in investing activities

(1,407)

(1,424)

(3,078)

(2,313)






Cash flows from (used in) financing activities





Proceeds from bank indebtedness

-

4,152

653

10,016

Repayment of bank indebtedness

-

-

-

(17,912)

Payment of interest

(979)

(1,239)

(2,126)

(2,487)

Proceeds from term debt

5,629

516

12,553

516

Repayment of term debt

(640)

(853)

(1,252)

(1,456)

Net cash from (used in) financing activities

4,010

2,576

9,828

(11,323)

Net increase (decrease) in cash

5,657

(1,603)

4,466

(1,119)

Net foreign exchange difference

(42)

114

32

(16)

Cash - Beginning of the period

3,199

2,405

4,316

2,051

Cash - End of the period

8,814

916

8,814

916







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

-

-

41

-

-

41

Unrealized currency loss on
translation for the period

-

-

-

-

1,395

1,395

Net income for the period

-

-

-

9,041

-

9,041

Balance at June 30, 2019

368,118,620

86,219

5,411

(123,837)

6,540

(25,667)

Balance at December 31, 2019

368,118,620

86,219

5,446

(142,194)

7,054

(43,475)

Stock-based compensation
expense

-

-

17

-

-

17

Unrealized currency gain on
translation for the period

-

-

-

-

(2,092)

(2,092)

Net loss for the period

-

-

-

(12,008)

-

(12,008)

Balance at June 30, 2020

368,118,620

86,219

5,463

(154,202)

4,962

(57,558)

 

Cision View original content:http://www.prnewswire.com/news-releases/avcorp-announces-2020-second-quarter-financial-results-301112282.html

SOURCE Avcorp Industries Inc.

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