Avcorp announces 2019 Third Quarter Financial Results

VANCOUVER, Nov. 14, 2019

2019 Highlights

Key financial results include:

• Third quarter 2019 revenue was $37,437,000 compared to $44,862,000 in the same quarter in 2018. The third quarter revenue was lower by $6,091,000, in comparison to the same quarter in 2018; after the benefit of amortization of the unfavourable contract liability is removed.
  
  
• Third quarter 2019 operating loss was higher by $335,000, in comparison to the same quarter in 2018; after the benefit of amortization of unfavourable contracts liability, onerous contracts provisions, net contract modification and the net claims impact have been removed. This was mainly due to the lower deliveries caused by Boeing 737 MAX grounding, labour disruption and new program start-up costs at the Delta facility offset by the consolidation of costs and improved operating effectiveness.
  
  
• On September 25, 2019 the Company reached a new labour agreement with the International Association of Machinists and Aerospace Workers (Lodge 250) (the "Union") at its Delta, British Columbia facility. The six year labour agreement was ratified by the Union and will expire on March 31, 2025 bringing the company long term stability.
  
  
• Third quarter 2019 cash flows used in operating activities, before changes in non-cash working capital, increased by $276,000, relative to the same quarter in 2018.
• During the second quarter of 2019, the Company received all required approvals from Boeing for the 737 MAX spoiler program; subsequently, on July 5, 2019 the Company successfully shipped the first shipset. Production ramp up to support full contractual requirements is underway.
  
  
• On January 25, 2019, the Company entered into a net claim settlement agreement with HITCO Carbon Composites, Inc., SGL Carbon, LLC, and SGL Carbon SE (the "SGL parties") and a customer, which provided the Company a settlement in satisfaction of existing and potential claims, causes of action, disputes and other business matters related to the acquisition from the SGL parties. The net claim settlement resulted in a gain of $19,744,000.
  
  
• The Company is in discussions with a Canadian Chartered bank to extend the existing revolving loan facility which matures on June 30, 2020.
  
  
• In Comtek's continuing effort to reduce airline operator's key metric of turnaround time for repaired aircraft components, while still providing premium quality, Comtek has embarked on deploying a forward base of operations located in the United Kingdom. EASA certification has now been granted and the team is actively engaged on its' first repair orders, providing much needed support for the growing Q400 fleet in Europe.

Review of 2019 Third Quarter Financial Results

For the quarter ended September 30, 2019, the Avcorp Group recorded losses from operations totaling $5,164,000 from $37,437,000 revenue, as compared to $41,782,000 operating income from $44,862,000 revenue for the previous years' quarter. It should be noted that 2019 operating loss benefited by $408,000 income from amortization of onerous contracts provision (September 30, 2018: $3,330,000 amortization of unfavourable contract liability and onerous contract liability). The third quarter ended 2018 also benefited from the net contract modification for an unfavourable contract in the amount of $41,470,000 and a net claim settlement of $2,219,000. The current operating loss was higher by $335,000, in comparison to the same quarter in 2018 after these benefits have been removed.

During the quarter ended September 30, 2019, cash utilization from operating activities, excluding the impact of changes in non‑cash working capital, were $3,766,000 of cash as compared with utilization of $3,490,000 of cash during the quarter ended September 30, 2018.

As at September 30, 2019, the Company had $9,668,000 cash on hand (December 31, 2018: $2,051,000) and had utilized $81,026,000 of its operating line of credit (December 31, 2018: $85,840,000). The Company has a working capital deficit of $73,760,000 as at September 30, 2019 which has decreased from the December 31, 2018 $71,503,000 deficit. Working capital surplus/deficit is defined as the difference between current assets and current liabilities. The Company's accounts receivable, contract assets, and inventories net of accounts payable, amount to a $13,417,000 surplus as at September 30, 2019 (December 31, 2018: $22,000,000 surplus). The Company's accumulated deficit as at September 30, 2019 is $131,348,000 (December 31, 2018: $132,878,000).