SPA
$23.27
Sparton
Earnings Details
4th Quarter June 2017
Thursday, September 14, 2017 4:05:01 PM
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Summary

Sparton (SPA) Recent Earnings

Sparton (SPA) reported 4th Quarter June 2017 earnings of $0.38 per share on revenue of $104.4 million.. Revenue fell 2.4% compared to the same quarter a year ago.

Sparton Corp is engaged in providing design, development, and manufacturing services for electromechanical devices and engineered products. The Company serves the Medical & Biotechnology, Military & Aerospace and Industrial & Commercial markets.

Results
Reported Earnings
$0.38
Earnings Whisper
-
Consensus Estimate
Reported Revenue
$104.4 Mil
Revenue Estimate
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Sparton Corporation Reports Fiscal 2017 Fourth Quarter Results

Sparton Corporation (SPA) today announced results for the fourth quarter of fiscal year 2017 ended July 2, 2017.

Fourth Quarter Financial Results and Highlights

Joseph J. Hartnett, Interim President & CEO, commented, "We are pleased to report our organic growth produced over $23 million in new programs wins for the quarter. A clear indication of the progress we are making in building a business model that supports profitable revenue growth through business development. Additionally, while a significant amount of time and effort was directed toward arriving at a merger agreement with Ultra Electronics Holdings plc on July 7, 2017, we were able to focus on delivering improved operating performance for the quarter while exceeding fourth quarter guidance on revenue and gross margins."

Joseph G. McCormack, Senior Vice President and CFO, commented, "We are pleased that the continued improvement in operating performance across both segments allowed us to significantly pay down our debt during the fourth quarter of fiscal 2017 and reduce our debt leverage below 3.0x EBITDA at year-end."

Consolidated:

? Net sales of $104.4 million

? Gross profit margin of 20.9%, an increase of 320 bps from prior quarter

? SG&A expenses of $14.9 million or 14.3% of sales; adjusted SG&A of $13.8 million, 13.2% of sales

? Earnings per share of $0.17, adjusted earnings per share of $0.38

? Adjusted EBITDA of $9.7 million, a 9.3% adjusted EBITDA margin

? Credit Facility of $74.5 million, a reduction of $22.7 million (23.4%) from the prior fiscal year-end

? Debt leverage as calculated per Credit Facility of 2.98x compared to 3.45x at the end of the previous quarter

MDS Segment:

? Gross sales of $67.0 million

? Gross profit margin of 13.6%, an increase of 260 bps from the prior quarter

? Operating income of $1.6 million

? Adjusted EBITDA of $6.4 million, a 9.6% adjusted EBITDA margin

? New program wins in Q4 have expected revenue of $23.2 million when fully ramped up into production

? Trailing four quarter new program win revenue of $62.4 million, which continues to support our future organic growth

ECP Segment:

? Gross sales of $40.3 million

? Gross profit margin of 31.5%, an increase of 390 bps from the prior quarter

? Operating income of $7.8 million

? Adjusted EBITDA of $9.9 million, a 24.5% adjusted EBITDA margin

SELECTED FINANCIAL DATA
For the Quarters Ended
For the Fiscal Years
Q4 FY17
Q3 FY17
Q4 FY16
2017
2016
(Dollars in thousands, except per share data)
Consolidated:
Net sales
$ 104,386
$
95,410
$ 106,967
$ 397,562
$ 419,362
Gross profit
21,801
16,915
21,422
71,899
80,148
Selling and administrative expenses
14,913
12,862
13,460
54,110
55,151
Impairment of goodwill
--
--
64,174
--
64,174
Operating income
4,538
1,530
(59,417 )
7,621
(51,789 )
Adjusted operating income (non-GAAP)
7,638
4,264
8,143
19,323
25,920
Earnings per share
0.17
0.04
(4.30 )
0.13
(3.91 )
Adjusted Earnings per share (non-GAAP)
0.38
0.22
0.50
0.91
1.51
EBITDA (non-GAAP)
7,978
5,135
(55,594 )
22,074
(36,021 )
Adjusted EBITDA (non-GAAP)
9,727
5,318
10,019
26,741
33,542
Adjusted EBITDA margin (non-GAAP)
9.3
%
5.6
%
9.4
%
6.7
%
8.0
%
Free cash flow (non-GAAP)
$
13,895
$
(1,424 )
$
25,953
$
24,572
$
42,034
MDS Segment:
Gross sales
$
67,046
$
61,084
$
72,346
$ 260,514
$ 282,076
Intercompany sales
(2,887 )
(2,654 )
(3,627 )
(10,074 )
(17,028 )
Net sales
64,159
58,430
68,719
250,440
265,048
Gross profit
9,100
6,690
9,732
31,441
34,788
Selling and administrative expenses
3,446
3,207
3,155
13,545
14,621
Allocation of corporate expenses
2,456
2,477
2,281
9,578
9,192
Impairment of goodwill
--
--
64,174
--
64,174
Operating Income (loss)
1,557
(722 )
(61,861 )
1,307
(61,813 )
Adjusted Segment EBITDA (non-GAAP)
$
6,428
$
4,343
7,541
$
21,337
$
24,372
ECP Segment:
Gross sales
$
40,264
$
37,053
$
38,262
$ 147,259
$ 154,559
Intercompany sales
(37 )
(73 )
(14 )
(137 )
(245 )
Net sales
40,227
36,980
38,248
147,122
154,314
Gross profit
12,701
10,225
11,690
40,458
45,360
Selling and administrative expenses
2,709
2,922
3,104
10,805
11,150
Allocation of corporate expenses
1,470
1,238
1,168
4,903
4,332
Operating Income
7,813
5,270
6,196
21,593
25,880
Adjusted Segment EBITDA (non-GAAP)
$
9,859
$
7,072
8,012
$
28,805
$
32,825

Liquidity and Capital Resources

As of July 2, 2017, the Company had $46 million available under its $125 million credit facility.

Non-GAAP Financial Measures

In addition to reporting financial results in accordance with U.S. generally accepted accounting principles ("GAAP"), Sparton Corporation has provided certain non-GAAP financial measures as additional information for its operating results. These measures have not been prepared in accordance with GAAP and may be different from measures used by other companies. Whenever we use non-GAAP financial measures, we designate these measures, which exclude the effects of certain expenses and income, as "adjusted" and provide a reconciliation of non-GAAP financial measures to the most closely applicable GAAP financial measure. The non-GAAP financial measures eliminate or add certain items of expense and income from total operating expense and income taxes. Management believes that this presentation is helpful to investors in evaluating the current operational and financial performance of our business and facilitates comparisons to historical results of operations. Management discloses this information along with a reconciliation of the comparable GAAP amounts to provide access to the detail and nature of adjustments made to GAAP financial results. While some of these excluded items have been periodically reported in our statements of operations, their occurrence in future periods depends on future business and economic factors, among other evaluation criteria, and the occurrence of such events and factors may frequently be beyond the control of management.

When we calculate adjusted earnings per share, adjusted EBITDA and other adjustments to the statements of income, we exclude certain expenses and income because we believe that they are not related directly to the underlying performance of our fundamental business operations. We exclude these measures when reviewing financial results and for business planning. Although these events are reflected in our GAAP financial statements, these transactions may limit the comparability of our fundamental operations with prior and future periods. We believe EBITDA and adjusted EBITDA are commonly used by financial analysts and others in the industries in which the Company operates and, thus, provides useful information to investors. The Company does not intend, nor should the reader consider, EBITDA or adjusted EBITDA to be an alternative to operating income, net income, net cash provided by operating activities or any other items calculated in accordance with GAAP. The Company’s definition of adjusted EBITDA may not be comparable with other companies. Accordingly, the measurement has limitations depending on its use.

About Sparton Corporation

Sparton Corporation (SPA), now in its 118th year, is a provider of complex and sophisticated electromechanical devices with capabilities that include concept development, industrial design, design and manufacturing engineering, production, distribution, field service and refurbishment. The primary markets served are Medical & Biotechnology, Military & Aerospace and Industrial & Commercial. Headquartered in Schaumburg, IL, Sparton currently has thirteen manufacturing locations and engineering design centers worldwide. Sparton’s Web site may be accessed at www.sparton.com.

Safe Harbor and Fair Disclosure Statement

Safe Harbor statement under the Private Securities Litigation Reform Act of 1995: To the extent any statements made in this release contain information that is not historical, these statements are essentially forward-looking and are subject to risks and uncertainties, including the difficulty of predicting future results, the regulatory environment, fluctuations in operating results and other risks detailed from time to time in Sparton’s filings with the Securities and Exchange Commission (SEC). The matters discussed in this press release may also involve risks and uncertainties concerning Sparton’s services described in Sparton’s filings with the SEC. In particular, see the risk factors described in Sparton’s most recent Form 10-K and Form 10-Q. Sparton assumes no obligation to update the forward-looking information contained in this press release.

CONSOLIDATING FINANCIAL INFORMATION - Q4 FISCAL YEAR 2017
(Dollars in thousands, except per share data)
Corporate
MDS
ECP
Total
Net Sales
$ --
$
64,159
$
40,227
$ 104,386
Cost of goods sold
--
55,059
27,526
82,585
Gross profit
--
9,100
12,701
$
21,801
Operating expenses:
Selling and administrative
8,758
3,446
2,709
14,913
Selling and administrative - Corp allocations
(3,926 )
2,456
1,470
--
Internal research and development
--
--
361
361
Amortization of intangible assets
--
1,641
348
1,989
Total operating expenses
4,832
7,543
4,888
17,263
Income (loss) from operations
(4,832 )
1,557
7,813
4,538
Interest expense, net
(1,113 )
3
--
(1,110 )
Other income (expense)
(3 )
16
18
31
Income taxes
(1,692 )
(80 )
--
(1,772 )
Net income (loss)
$
(7,640 )
$
1,496
$
7,831
$
1,687
Income per share of common stock:
Basic
$
0.17
Diluted
0.17
Weighted average shares of common stock outstanding:
Basic
9,834,723
Diluted
9,834,723
CONSOLIDATING FINANCIAL INFORMATION - Q4 FISCAL YEAR 2016
(Dollars in thousands, except per share data)
Corporate
MDS
ECP
Total
Net Sales
$ --
$
68,719
$
38,248
$ 106,967
Cost of goods sold
--
58,987
26,558
85,545
Gross profit
--
9,732
11,690
$
21,422
Operating expenses:
Selling and administrative
7,201
3,155
3,104
13,460
Selling and administrative - Corp allocations
(3,449 )
2,281
1,168
--
Internal research and development
--
--
832
832
Amortization of intangible assets
--
1,879
390
2,269
Restructuring charges
--
104
--
104
Impairment of goodwill
--
64,174
--
64,174
Total operating expenses
3,752
71,593
5,494
80,839
Income (loss) from operations
(3,752 )
(61,861 )
6,196
(59,417 )
Interest expense, net
(1,064 )
(3 )
--
(1,067 )
Other income (expense)
(2 )
(64 )
32
(34 )
Income taxes
18,498
(61 )
--
18,437
Net income (loss)
$
13,680
$ (61,989 )
$
6,228
$ (42,081 )
Income per share of common stock:
Basic
$
(4.30 )
Diluted
(4.30 )
Weighted average shares of common stock outstanding:
Basic
9,791,212
Diluted
9,791,212
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
For the Fiscal Years
2017
2016
($ in thousands)
Cash Flows from Operating Activities:
Operating activities, net of working capital changes
$
18,293
$ 22,084
Net changes in working capital
13,175
26,048
Cash Flows from Operating Activities
31,468
48,132
Cash Flows from Investing Activities:
Business acquisitions
--
178
Capital expenditures
(6,896 )
(6,098 )
Other investing activities
22
1,078
Cash Flows from Investing Activities
(6,874 )
(4,842 )
Cash Flows from Financing Activities:
Net change in credit facility
(22,706 )
(57,294 )
Other financing activities
(1,032 )
(778 )
Cash Flows from Financing Activities
(23,738 )
(58,072 )
Change in Cash and Cash Equivalents
856
(14,782 )
Cash and Cash Equivalents - Beginning
132
14,914
Cash and Cash Equivalents - Ending
$
988
$
132
CONDENSED CONSOLIDATED BALANCE SHEETS
July 2,
July 3,
2017
2016
($ in thousands)
Assets
Cash and cash equivalents
$
988
$
132
Accounts receivable, net
45,347
46,759
Inventories
60,248
77,871
Prepaid and other current assets
3,851
5,844
Property, plant and equipment, net
34,455
33,320
Goodwill
12,663
12,663
Other intangible assets, net
28,445
36,933
Other assets
31,146
32,476
Total assets
$ 217,143
$
245,998
Liabilities and Shareholders’ Equity
Accounts payable
$
27,672
$
38,290
Accrued expenses
26,580
24,149
Credit facility
74,500
97,206
Capital lease obligations, long term
167
332
Environmental
5,468
6,117
Pension
888
1,276
Shareholders’ Equity
81,868
78,628
Total Liabilities and Shareholders’ Equity
$ 217,143
$
245,998

RECONCILIATION OF NON-GAAP MEASURES

EBITDA Reconciliation (Non-GAAP) - Q4 Fiscal Year 2017
(Dollars in thousands)
Corporate
MDS
ECP
Total
Net income (loss)
$
(7,640 )
$
1,496
$
7,831
$
1,687
Interest expense, net
1,113
(3 )
--
1,110
Income taxes
1,692
80
--
1,772
Amortization of intangible assets
--
1,641
348
1,989
Depreciation
452
758
210
1,420
Selling and administrative - Corp allocations
(3,926 )
2,456
1,470
--
EBITDA, excluding corporate allocation
(8,309 )
6,428
9,859
7,978
Adjustments for nonrecurring operating expenses:
Stock-based compensation
638
--
--
638
Costs related to potential sale of Company
1,111
--
--
1,111
Adjusted EBITDA, before corporate allocation
$
(6,560 )
$
6,428
$
9,859
$
9,727
Adjusted EBITDA, after corporate allocation
$
(2,634 )
$
3,972
$
8,389
$
9,727
Adjusted EBITDA margin
9.3
%
EBITDA Reconciliation (Non-GAAP) - Q4 Fiscal Year 2016
(Dollars in thousands)
Corporate
MDS
ECP
Total
Net income (loss)
$
13,680
$ (61,989 )
$
6,228
$ (42,081 )
Interest expense, net
1,056
3
--
1,059
Income taxes
(18,498 )
61
--
(18,437 )
Amortization of intangible assets
--
1,879
390
2,269
Depreciation included in SG&A above
402
968
226
1,596
Selling and administrative - Corp allocations
(3,449 )
2,281
1,168
--
EBITDA, excluding corporate allocation
(6,809 )
(56,797 )
8,012
(55,594 )
Adjustments for nonrecurring operating expenses:
Impairment of goodwill
--
64,174
--
64,174
Legal related expense
--
--
--
--
Stock-based compensation
321
--
--
321
Costs related to potential sale of company
671
--
--
671
Restructuring charges
--
164
--
164
Other non-recurring costs
283
--
--
283
Reversal of accrued contingent consideration
--
--
--
--
Adjusted EBITDA, before corporate allocation
$
(5,534 )
$
7,541
$
8,012
$
10,019
Adjusted EBITDA, after corporate allocation
$
(2,085 )
$
5,260
$
6,844
$
10,019
Adjusted EBITDA margin
9.4
%
Adjusted EPS (Non-GAAP)
For the Quarters Ended
For the Fiscal Years
Q4 FY17
Q3 FY17
Q4 FY16
2017
2016
(Dollars in thousands, except per share data)
Earnings per share - diluted, as reported
$
0.17
$
0.04
$
(4.30 )
$
0.13
$
(3.91 )
Nonrecurring items
0.08
0.04
4.65
0.22
4.78
Amortization of intangible assets
0.13
0.14
0.15
0.56
0.64
Adjusted earnings per share
$
0.38
$
0.22
$
0.50
$
0.91
$
1.51
Adjustments, net of tax:
Impairment of goodwill
$ --
$ --
$
44,766
$ --
$ 44,766
Costs related to potential sale of Company
$
722
$
413
$
436
$
2,017
$
716
Restructuring costs
--
--
107
--
1,714
Reversal of accrued contingent consideration
--
--
--
--
(1,530 )
Other nonrecurring adjustments
--
--
184
65
1,128
Total nonrecurring
722
413
45,493
2,082
46,794
Amortization of intangible assets
1,293
1,364
1,474
5,524
6,234
Total adjustments
$
2,015
$
1,777
$
46,967
$
7,606
$ 53,028
Adjusted SG&A and Operating Income (Non-GAAP)
For the Quarters Ended
Q4 FY17
Q3 FY17
Q4 FY16
SG&A
Operating
SG&A
Operating
SG&A
Operating
Income
Income
Income
(Dollars in thousands)
As reported
$
14,913
$
4,538
$
12,862
$
1,530
$
13,460
$ (59,417 )
Percentage of sales
14.3 %
4.3 %
13.5 %
1.6 %
12.6 %
(55.5 )%
Adjustments:
Amortization of intangible assets
--
1,989
--
2,099
--
2,268
Impairment of goodwill
--
--
--
--
--
64,174
Costs related to potential sale of Company
1,111
1,111
635
635
671
671
Restructuring costs
--
--
--
--
60
164
Reversal of accrued contingent consideration
--
--
--
--
--
--
Other nonrecurring adjustments
--
--
--
--
283
283
Total adjustments
1,111
3,100
635
2,734
1,014
67,560
As adjusted
$
13,802
$
7,638
$
12,227
$
4,264
$
12,446
$
8,143
Adjusted percentage of sales
13.2 %
7.3 %
12.8 %
4.5 %
11.6 %
7.6 %
For the Fiscal Years
2017
2016
SG&A
Operating
SG&A
Operating
Income
Income
(Dollars in thousands)
As reported
$
54,111
$
7,621
$
55,151
$ (51,789 )
Percentage of sales
13.6 %
1.9 %
13.2 %
(12.3 )%
Adjustments:
Amortization of intangible assets
--
8,498
--
9,592
Impairment of goodwill
--
--
--
64,174
Costs related to potential sale of Company
3,104
3,104
1,101
1,101
Restructuring costs
--
--
431
2,637
Reversal of accrued contingent consideration
--
--
--
(1,530 )
Other nonrecurring adjustments
100
100
1,535
1,735
Total adjustments
3,204
11,702
3,067
77,709
As adjusted
$
50,907
$
19,323
$
52,084
$
25,920
Adjusted percentage of sales
12.8 %
4.9 %
12.4 %
6.2 %

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SOURCE: Sparton Corporation

Sparton Corporation
Joe McCormack, 847-762-5800
ir@sparton.com