Avcorp announces 2022 Second Quarter Financial Results

VANCOUVER, BC, Aug. 11, 2022 /PRNewswire/ - Avcorp Industries Inc. (TSX: AVP) (the "Company", "Avcorp" or the "Avcorp Group") today announced its financial results for the quarter ended June 30, 2022. All amounts are in Canadian currency unless otherwise stated.

2022 Second Quarter Highlights

• Second quarter 2022 revenue was $29,257,000 compared to $24,385,000 in 2021. 2022 revenue increased by $4,872,000 in comparison to 2021, mainly attributed to the continued growth in the F35 program and recovery of Boeing customer revenues in the Delta Facility.
  
  
• Second quarter 2022 net loss was $5,569,000 compared to net loss of $1,212,000 in 2021. The net income in 2021 was supported by the government loan forgiven of $2,195,000 and Canada Emergency Wage Subsidies ("CEWS") of $1,548,000 recognized as other income and a modification gain on bank indebtedness of $1,155,000.
  
  
• Second quarter 2022 cash outflows from operating activities were $1,316,000 compared to inflows of $704,000 in 2021. The second quarter of 2021 cash flows from operating activities were supported by the receipt of CEWS of $2,078,000 and the receipt of Canada Emergency Rent Subsidies ("CERS") of $305,000.
  
  
• On April 1, 2022, the Company signed a contract with BLR Aerospace to produce King Air 200 Wingtips and shipped the first delivery on June 20, 2022.
  
  
• On April 12, 2022, the Company signed a contract extension to 2027 with Boeing to provide the detail parts, bench top assemblies and metal bonded assemblies for the Boeing 737 and 777 aircrafts.
  
  
• On May 4, 2022, the Company entered into a definitive arrangement agreement (the "Original Agreement") with Latécoère S.A. ("Latécoère") pursuant to which Latécoère agreed to acquire all of the issued and outstanding common shares of Avcorp (each, an "Avcorp Share") for cash consideration of $0.11 per Avcorp Share, by way of a court-approved plan of arrangement under the Canada Business Corporations Act (the "Arrangement"). Pursuant to the Arrangement, the options (the "Avcorp Options") exercisable to acquire Avcorp Shares outstanding immediately prior to the effective time of the Arrangement will automatically vest and be cancelled in exchange for a cash payment from the Company equal to the amount (if any) by which $0.11 exceeds the exercise price of such Avcorp Option. Together with the repayment or assumption of Avcorp's net debt and other lease liabilities, the Arrangement implies a total transaction value of approximately $139 million for the Company.
  
  
• On June 24, 2022, Latécoère assigned, transferred and conveyed to Albatross Bidco Inc., a wholly-owned subsidiary of Latécoère, (the "Purchaser") its rights, title and interest in and to, and all benefits of Latécoère under, the Arrangement Agreement, and delegated to the Purchaser all of its obligations and liabilities under the Original Agreement (the "Assignment and Delegation"). In accordance with the Original Agreement, under the Assignment and Delegation, Latécoère remains jointly and severally liable with the Purchaser under the Original Agreement. On the same date, Avcorp and the Purchaser entered into an amending agreement to the Original Agreement (the Original Agreement as amended, the "Arrangement Agreement") to reflect the Assignment and Delegation.
  
  
• On June 30, 2022, Avcorp held its annual general and special meeting (the "Meeting") of holders of commons shares ("Shareholders") and options ("Optionholders", and together with the Shareholders, the "Securityholders"). At the Meeting, the Securityholders overwhelmingly voted in favour of the special resolution (the "Arrangement Resolution") to approve the Arrangement with the Purchaser

Highlights Subsequent to Quarter-End

• On July 1, 2022, the Company received approval for forgiveness on the second wave Small Business Administration Paycheck Protection Program Loan full loan amount of USD $2,000,000 and all related interests.
  
  
• On July 5, 2022, Avcorp obtained a final order of the British Columbia Supreme Court approving the Arrangement.
  
  
• On July 14, 2022, the Company accepted an offer for an interest-free repayable financial contribution up to $4,862,000 from the Government of Canada under the Aerospace Regional Recovery Initiative administered by the Pacific Economic Development of Canada. Avcorp will receive a reimbursement of costs for projects that adopt digital technologies to create efficiencies and enhance productivity. The financial contribution will be repaid over 60 monthly payments starting March 31, 2025 for funding received.

Review of 2022 Second Quarter Financial Results

For the quarter ended June 30, 2022, the Avcorp Group recorded loss from operations of $3,786,000 (June 30, 2021: $1,978,000). Operating loss in the second quarter of 2022 increased in comparison to 2021 by $1,808,000 mainly due to higher administrative and general expenses as a result of transaction related costs and an impairment of assets write-off of $583,000 incurred during the current quarter. The lower loss in 2021 was also supported by the government loan forgiven of $2,195,000 and CEWS of $1,548,000 recognized as other income in the second quarter of 2021. The higher loss in current quarter was partially offset by the higher gross profit of $2,843,000 compared to a gross loss of $706,000 in 2021.

Cash flows from operating activities, before consideration of changes in non-cash working capital, utilized $2,072,000 during the quarter ended June 30, 2022 as compared to utilizing $780,000 cash during the quarter ended June 30, 2021.

The Company ended the quarter with bank operating line utilization of $77,537,000 (USD $60,171,000) offset by $2,013,000 cash compared to utilization of $75,335,000 (USD $59,421,000) with $4,060,000 cash on hand as of December 31, 2021. The bank indebtedness balance of the modification gain and related adjustments as a result of executing the amending agreement in 2021 was $615,000 as at June 30, 2022 (December 31, 2021, gain of $923,000).

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 65 years of experience, over 500 skilled employees and 560,000 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

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(unaudited, expressed in thousands of Canadian dollars)

		June 30, 2022	December 31, 2021
ASSETS
Current assets
Cash		$2,013	$4,060
Accounts receivable		16,455	18,116
Contract assets		11,091	13,319
Inventories		13,355	12,809
Prepayments and other assets		1,248	2,091
		44,612	50,395
Non-current assets
Prepayments and other assets		2,914	2,868
Development costs		10,921	10,597
Contract assets		18,079	18,079
Property, plant, and equipment		19,472	20,698
Total assets		95,548	102,637
LIABILITIES AND DEFICIENCY
Current liabilities
Bank indebtedness		76,922	-
Accounts payable and accrued liabilities		22,854	19,792
Term debt		17,782	3,041
Contract liability		14,702	18,625
Onerous contract provision		565	1,324
		132,825	42,782
Non-current liabilities
Bank indebtedness		-	74,412
Term debt		11,120	26,156
Contract liability		5,091	4,843
Accounts payable and accrued liabilities		2,011	2,011
Onerous contract provision		316	540
		151,363	150,744
(Deficiency) Equity
Capital stock		86,456	86,456
Contributed surplus		6,742	6,742
Accumulated other comprehensive income		7,204	8,145
Accumulated deficit		(156,217)	(149,450)
		(55,815)	(48,107)
Total liabilities and deficiency		95,548	102,637

 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME
(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
		2022	2021	2022	2021
Revenues		$29,257	$24,385	$57,115	$48,318
Cost of sales		26,414	25,091	50,535	49,425
Gross profit (loss)		2,843	(706)	6,580	(1,107)
Administrative and general expenses		5,925	4,957	9,825	10,392
Office equipment depreciation		121	182	234	369
Accommodation agreement settlement		-	-	-	(21,391)
Impairment loss		583	-	583	-
Other income		-	(3,867)	-	(6,772)
Operating (loss) income		(3,786)	(1,978)	(4,062)	16,295
Finance costs – net		1,222	(420)	2,286	836
Foreign exchange loss (gain)		561	(346)	419	(777)
Net loss on sale of equipment		-	-	-	58
(Loss) income before income tax		(5,569)	(1,212)	(6,767)	16,178
Income tax expense		-	-	-	-
(Loss) income for the period		(5,569)	(1,212)	(6,767)	16,178
Other comprehensive (loss) gain		(1,759)	643	(941)	1,200
Total comprehensive (loss) income for the period		(7,328)	(569)	(7,708)	17,378
(Loss) income per share:
Basic (loss) income per common share		(0.02)	(0.00)	(0.02)	0.04
Diluted (loss) income per common share		(0.02)	(0.00)	(0.02)	0.04
Basic weighted average number of shares outstanding (000's)		370,931	368,118	370,931	368,118
Diluted weighted average number of shares outstanding (000's)		370,931	368,118	370,931	370,499

 

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		2022	2021	2022	2021
Cash flows (used in) from operating activities
Net (loss) income for the period		$(5,569)	$(1,212)	$(6,767)	$16,178
Adjustment for items not affecting cash:
Interest expense		1,222	(420)	2,286	836
Depreciation		1,057	1,749	2,078	3,587
Development cost amortization		381	398	713	563
Intangible assets amortization		-	22	-	45
Provision for onerous contracts		(497)	187	(983)	22
Provision for doubtful accounts		(1)	2	-	2
Provision for obsolete inventory		108	220	407	130
Accommodation agreement settlement		-	-	-	(21,391)
Stock based compensation		-	3	-	1,382
Loss on disposal of equipment		-	-	-	58
Impairment loss		583	-	583	-
Lease modification loss		-	-	-	345
Unrealized foreign exchange		644	(352)	356	(687)
Government grant income		-	(1,377)	-	(3,512)
Cash flows used in operating activities before changes in non-cash working capital		(2,072)	(780)	(1,327)	(2,442)
Changes in non-cash working capital
Accounts receivable		226	(577)	6,981	3,713
Contract assets		(1,134)	2,597	2,243	3,472
Inventories		(151)	(116)	(829)	(2,677)
Prepayments and other assets		476	1,048	956	2,672
Accounts payable and accrued liabilities		3,479	(2,006)	2,999	(1,003)
Contract liability		(2,140)	538	(9,167)	(1,381)
Net cash (used in) from operating activities		(1,316)	704	1,856	2,354
Cash flows (used in) from investing activities
Proceeds from sale of equipment		-	-	-	645
Purchase of equipment		(329)	(478)	(727)	(706)
Payments relating to development costs and tooling		(772)	(752)	(1,038)	(2,081)
Net cash used in investing activities		(1,101)	(1,230)	(1,765)	(2,142)
Cash flows (used in) from financing activities
Proceeds from bank indebtedness		949	-	949	-
Repayment of bank indebtedness		-	(1,515)	-	(2,106)
Payment of interest		(713)	(598)	(1,293)	(1,226)
Proceeds from term debt		-	-	-	2,494
Repayment of term debt		(752)	(1,203)	(1,794)	(1,942)
Net cash used in financing activities		(516)	(3,316)	(2,138)	(2,780)
Net decrease in cash		(2,933)	(3,842)	(2,047)	(2,568)
Net foreign exchange difference		-	7	-	(6)
Cash - Beginning of the period		4,946	8,305	4,060	7,044
Cash - End of the period		2,013	4,470	2,013	4,470

 

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIENCY
(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, 2020	368,118,620	86,219	5,478	(148,919)	8,082	(49,140)
Stock-based compensation expense	-	-	1,382	-	-	1,382
Unrealized currency gain on translation for the period	-	-	-	-	1,200	1,200
Net income for the period	-	-	-	16,178	-	16,178
Balance at June 30, 2021	368,118,620	86,219	6,860	(132,741)	9,282	(30,380)
Balance at December 31, 2021	370,931,120	86,456	6,742	(149,450)	8,145	(48,107)
Unrealized currency loss on translation for the period	-	-	-	-	(941)	(941)
Net loss for the period	-	-	-	(6,767)	-	(6,767)
Balance at June 30, 2022	370,931,120	86,456	6,742	(156,217)	7,204	(55,815)

 

Forward-Looking Statements Disclaimer

This press release includes forward-looking statements, which may involve, but are not limited to: statements with respect to our business objectives, prospects, and  guidance in respect of various financial and industry metrics, including, goals, strategies, capabilities, market position,  competitive strengths,  prospects, plans, expectations, anticipations, estimates and intentions; business and economic, industry trends; customer demand for products; order backlog mix; the  regulatory environment and legal proceedings; strength of our balance sheet, creditworthiness, capital resources, anticipated financial requirements, productivity enhancements, operational efficiencies, cost reduction and the intended benefits and timing thereof; availability of government assistance programs, compliance with debt covenants; and the impact of the COVID-19 pandemic on the foregoing; expectations regarding gradual market and economic recovery in the aftermath of the COVID-19 pandemic.

Forward-looking statements can generally be identified by the use of forward-looking terminology such as "may", "will", "shall", "can", "expect", "estimate", "intend", "anticipate", "plan", "forecast", "foresee", "believe", "continue", "maintain" or "align", the negative of these terms, variations of them or similar terminology.

Forward-looking statements are presented for the purpose of assisting investors and others in understanding certain key elements of our current objectives, strategic priorities, expectations, outlook, and plans, and to obtain an understanding of our business and anticipated operating environment. Readers are cautioned that such information may not be appropriate for other purposes.

Forward-looking statements require management and the Board to make assumptions and are subject to and unknown risks and uncertainties, which may cause our actual results in future periods to differ materially from forecast results set forth in forward-looking statements and in this press release. While management and the Board consider these assumptions to be reasonable and appropriate based on information currently available, there is risk that they may not be accurate. The assumptions underlying the forward-looking statements made in this press release in relation to the five-year forecast include the following material assumptions: the award and fulfilment of customer contracts that the Company does not currently have in its backlog, the continuation of existing customer programs and anticipated labour costs associated with our operations for the periods covered in the forecast. Additional information, including with respect to other assumptions and risk factors underlying the forward-looking statements made in this press release, refer to the risk factors in both our MD&A, Annual Report and our Annual Information Form for the fiscal year ended December 31, 2021, and our MD&A and unaudited condensed interim financial statements for the quarter ended June 30, 2022. Given the impact of the changing circumstances surrounding the COVID-19 pandemic, there is inherently more uncertainty associated with the Corporation's assumptions as compared to prior years.

Certain factors that could cause actual results to differ materially from those anticipated in the forward-looking statements include, but are not limited to, risks associated with overall global and domestic economic conditions, risks associated with our business environment (such as risks associated with the financial condition of our customers; increased competition from international and domestic suppliers; force majeure events), operational risks such as the award of new business; order backlog; the execution of customer orders; cash flows and capital expenditures based on cyclicality;  productivity enhancements, operational efficiencies, cost reduction initiatives; product  warranty; regulatory and legal proceedings; environmental, health and safety risks; dependence on certain customers, contracts and suppliers; supply chain risks; human resources; reliance on information systems; reliance on and protection of intellectual property rights; adequacy of insurance coverage), financing risks (such as risks related to liquidity and access to capital markets; substantial debt and interest payment requirements; debt covenants), market risks (such as foreign currency fluctuations; changing interest rates; increases in commodity prices; and inflation rate fluctuations). For more details, see the Risks outlined in our MD&A. The foregoing factors may be exacerbated by the ongoing COVID-19 outbreak and may have a significantly more severe impact on the Corporation's business, results of operations and financial condition than in the absence of such outbreak. As a result of the current COVID-19 pandemic, additional factors that could cause actual results to differ materially from those anticipated in the forward-looking statements include, but are not limited to: risks related to the impact and effects of the COVID-19 pandemic on economic conditions and financial markets and the resulting impact on our business, operations, capital resources, liquidity, financial condition, margins, prospects and results; uncertainty regarding the magnitude and length of economic disruption as a result of the COVID-19 outbreak and the resulting effects on the demand for our products and services; emergency measures and restrictions imposed by public health authorities or governments, fiscal and monetary policy responses by governments and financial institutions; disruptions to global supply chain, customers, workforce, counterparties and third-party service providers; further disruptions to operations, orders and deliveries; technology, privacy, cyber security and reputational risks; and other unforeseen adverse events.

The forward-looking statements present certain non-IFRS financial measures to assist readers in understanding the Company's forecasted performance. Non-IFRS financial measures are measures that either exclude or include amounts that are not excluded or included in the most directly comparable measures calculated and presented in accordance with Generally Accepted Accounting Principles ("GAAP").

The foregoing list of factors that may affect future results and performance is not exhaustive and undue reliance should not be placed on forward-looking statements. The forward-looking statements set forth herein reflect management's expectations as at the date of this press release and are subject to change after such date. Unless otherwise required by applicable securities laws, we expressly disclaim any intention, and assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this press release are expressly qualified by this cautionary statement.

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SOURCE Avcorp Industries Inc.

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