Fuel Systems Solutions: 2014 results
NEW YORK - Fuel Systems Solutions, Inc. (Nasdaq:FSYS) reported results for its fourth quarter and year ended December 31, 2014.
Q4 2014 Revenue of $85.4 million compared to $92.6 million for Q4 2013; revenue up 1.7% excluding FX impact
Q4 2014 Gross profit margin 22.8% compared to 19.0% in Q4 2013
Q4 2014 Adjusted EBITDA of $0.0 million compared to a loss of $0.3 million for Q4 2013
Restructuring plan to reduce cost base and increase manufacturing efficiency planned to be substantially complete by year-end 2017 with anticipated annualized benefits of approximately $25.0 million
Share repurchase program has retired 1,087,915 shares of common stock through March 10, 2015
Mariano Costamagna, Fuel Systems Solutions Inc. (Fuel Systems or FSS) CEO, said, "The Company's Board of Directors and management, led by the Strategic Oversight Committee with the support of a major international consulting firm, are initiating a set of restructuring steps to increase operating efficiencies and size our manufacturing footprint to our current revenue base. We expect this program to generate benefits accruing over the next three years, improving our core profitability and creating a leaner, stronger base on which to leverage our market positioning, our technological leadership, and to drive further innovation and enhanced revenue opportunities. While not all of the actions we may take will be easy, we believe we are making the correct decisions for the Company, and will update analysts and investors on the plan on a regular basis. The Strategic Oversight Committee continues to evaluate further actions to enhance value, with the objectives of best capturing our end market opportunities and delivering returns for shareholders."
After a thorough evaluation of its operations, Fuel Systems Solutions has begun a plan of operational restructuring planned to be completed by year-end 2017. The elements of this plan include:
- Cost optimization – reduction of direct material costs through increased global sourcing and purchasing as well as centralized buying practices
- Organizational optimization – additional right-sizing of the Company's workforce
- Manufacturing footprint optimization – consolidation of certain manufacturing facilities, as well as consideration of alternative sales and distribution models in certain local markets
While final determinations of all specific actions have not yet been made, the Company believes it can realize, over three years, benefits totaling approximately $25.0 million less costs of approximately $10.0 million. Based upon the current timing of these initiatives, the Company anticipates a net increase in expenses in 2015, with the majority of benefits to be realized beginning in 2016. After the initial three year period the Company expects to enjoy annualized benefits of approximately $25.0 million.
Fourth Quarter 2014 Financial Results
Total revenue for the fourth quarter of 2014 was $85.4 million compared to $92.6 million for the fourth quarter of 2013. Included above is the impact of foreign exchange on fourth quarter 2014 revenue, which was negative $8.8 million, and without the unfavorable foreign exchange impact, fourth quarter 2014 revenue was up 1.7% compared to the prior year period.
In constant currency, FSS Automotive revenue was positively impacted by the increases in aftermarket and compressor sales, partially offset by lower DOEM and OEM sales volumes as a result of difficult economic conditions and the previously disclosed conclusion of certain programs. FSS Industrial revenue decreased compared to the prior-year period primarily reflecting lower demand for mobile equipment due to increased competition that resulted in the loss of a large customer and a decrease in heavy duty sales in Thailand as well as declines in stationary equipment.
Gross profit for the fourth quarter of 2014 was $19.4 million, or 22.8% of revenue, compared to $17.6 million, or 19.0% of revenue, for the fourth quarter of 2013. The higher gross profit primarily reflects modestly higher sales volumes and lower direct labor as a result of workforce reduction earlier in 2014 in the FSS Automotive operations as well as a shift in the mix of business. FSS Industrial results reflect an increase in gross profit margin percentage as a result of reduced volumes of lower margin business.
Corporate expenses increased $1.3 million compared to the prior year as a result of increases in outside services for consultants in connection with restructuring and other activities. Operating loss for the fourth quarter of 2014 totaled $2.6 million, or 3.1% of revenue, compared to operating loss of $3.2 million, or 3.4% of revenue, for the fourth quarter of 2013.
Adjusted EBITDA for the fourth quarter of 2014 was $0.0 million, compared to a loss of $0.3 million for the fourth quarter of 2013. Adjusted EBITDA is a non-GAAP measure. See "Non-GAAP Measures" below for a discussion of this metric.
The Company's income tax rate is primarily a result of the fluctuation of earnings in various foreign jurisdictions and losses incurred for which no tax benefits have been recorded. In the fourth quarter of 2014, there were certain foreign jurisdictions where tax benefits were not included in the Company's income tax provision compared to certain jurisdictions that previously were benefitted.
Net loss for the fourth quarter of 2014 was $4.0 million, or $0.20 per diluted share, compared to net loss of $3.3 million, or $0.16 per diluted share, for the fourth quarter of 2013.
FSS Automotive Operations
FSS Automotive fourth quarter 2014 revenue was $61.2 million, compared to $64.4 million from the same quarter a year ago. The impact of foreign exchange on FSS Automotive was negative $7.2 million; in constant currency, fourth quarter 2014 FSS Automotive revenue increased 6.2% compared to the prior year period, reflecting increases in the aftermarket and compressors sales as mentioned above offset by decreases in both DOEM and OEM volumes. FSS Automotive fourth quarter 2014 operating loss was $2.0 million compared to operating loss of $2.7 million in the same period a year ago. FSS Automotive fourth quarter 2014 Adjusted EBITDA was $0.5 million, compared to Adjusted EBITDA loss of $0.8 million a year ago.
FSS Industrial Operations
FSS Industrial fourth quarter 2014 revenue was $24.2 million compared to $28.2 million the same quarter a year ago. The impact of foreign exchange on FSS Industrial was negative $1.6 million; in constant currency, fourth quarter 2014 FSS Industrial revenue decreased 8.6% compared to the prior year period, primarily reflecting lower demand for the reasons explained above. FSS Industrial fourth quarter 2014 operating income was $2.5 million, compared to operating income of $1.3 million in the same period a year ago. FSS Industrial fourth quarter 2014 Adjusted EBITDA was $3.1 million, compared to $1.5 million a year ago.
Full Year Ended December 31, 2014 Financial Results
For the full year ended December 31, 2014, total revenue was $339.1 million compared to $399.8 million for 2013. Net loss for 2014 was $53.4 million, or $2.66 per diluted share, including a goodwill and long-lived impairment charge of $43.2 million (net of tax benefit of $1.1 million) or $2.15 per share recorded in second quarter of 2014. This compares to net loss of $0.5 million, or $0.02 per diluted share for 2013. Adjusted EBITDA for 2014 was $4.4 million compared to $16.7 million for 2013.
FSS Automotive revenue for the full year ended December 31, 2014 was $234.7 million compared to $276.5 million for 2013. FSS Automotive operating loss was $49.8 million for 2014, including $40.2 million of the goodwill and long-lived asset impairment charge recorded in second quarter of 2014, compared to operating income of $1.1 million for 2013. FSS Automotive Adjusted EBITDA for 2014 was $2.5 million compared to $11.1 million for 2013.
FSS Industrial revenue for the full year ended December 31, 2014 was $104.4 million compared to $123.4 million for 2013. FSS Industrial operating income was $4.2 million for 2014, including $4.1 million of the goodwill and long-lived asset impairment charge recorded in second quarter of 2014, compared to $9.8 million for 2013. FSS Industrial Adjusted EBITDA for 2014 was $10.6 million compared to $11.3 million for 2013.
Share Repurchase Program Update
During the fourth quarter of 2014, the Company repurchased 336,811 shares of common stock pursuant to the $ 25.0 million share repurchase program approved by the Board of Directors on November 3, 2014. This program is expected to continue for up to one year from its inception. Purchases under the share repurchase program may be made from time to time in open-market transactions, block transactions on or off an exchange, or in privately negotiated transactions. The Company expects shares to continue to be repurchased at prevailing market prices based on market conditions and other factors. Through March 10, 2015, the Company has repurchased 1,087,915 shares of common stock.
The Company expects:
2015 revenue to be in the range of between $300.0 million to $310.0 million, assuming:
A negative impact of approximately $35.0 - $40.0 million from foreign exchange translation reflecting the strengthening of the US dollar
Growth from OEM, aftermarket and new business lines combined with continued maintenance of the Company's Automotive market share amid slower market demand, in part due to lower oil prices, challenging economic conditions and persistent aggressive competition in the global transportation market
Lower demand and continued high competition for mobile Industrial equipment partially offset by modest growth in the APU market
2015 gross margin in a range of 22% to 24%
EBITDA to be between $10.0 million and $15.0 million
No significant change in the effective tax rate for 2015 relative to historical experience
With respect to the restructuring program:
The Company anticipates a net increase in expenses in 2015, as a result of the costs associated with the program. While there will be benefits associated with the cost optimization actions and right-sizing, they will be more than offset by the costs associated with the workforce right-sizing and the related external project management and implementation fees.
About Fuel Systems Solutions
Fuel Systems Solutions (Nasdaq:FSYS) is a leading designer, manufacturer and supplier of proven, cost-effective alternative fuel components and systems for use in transportation and industrial applications. Fuel Systems' components and systems control the pressure and flow of gaseous alternative fuels, such as propane and natural gas, used in internal combustion engines. These components and systems feature the Company's advanced fuel system technologies, which improve efficiency, enhance power output and reduce emissions by electronically sensing and regulating the proper proportion of fuel and air required by the internal combustion engine. In addition to the components and systems, the Company provides engineering and systems integration services to address unique customer requirements for performance, durability and configuration. Additional information is available at www.fuelsystemssolutions.com.