Fuel Systems Solutions: Q1 results
Fuel Systems Solutions, Inc. (FSYS) reported results for its first quarter ended March 31, 2015.
Q1 2015 Revenue of $63.3 million compared to $81.3 million for Q1 2014; revenue down 10.6% or $8.7 million excluding FX impact
Q1 2015 Gross profit margin 22.9% compared to 21.4% in Q1 2014
Q1 2015 Adjusted EBITDA was $1.9 million compared to $2.2 million for Q1 2014
Share repurchase program has acquired 1,424,814 shares of common stock through May 1, 2015
Extension and expansion of credit facility completed; term extended one year with facility capacity expanded to $30.0 million
Mariano Costamagna, Fuel Systems Solutions, Inc. (Fuel Systems or FSS) CEO, said, "First quarter results reflected continued challenges in both Automotive and Industrial end markets as world economies and oil pricing affected demand and competitive pressures remain high. To better confront these challenges, we are taking the initial steps of our three-year cost reduction and restructuring program implementation and further refined our action plan going forward. Our focus remains on creating efficiencies in terms of cost, organization and manufacturing footprint to better leverage our market positioning and technological leadership. The Board and Strategic Oversight Committee continue to evaluate actions to enhance value and deliver shareholder returns."
First Quarter 2015 Financial Results
Total revenue for the first quarter of 2015 was $63.3 million compared to $81.3 million for the first quarter of 2014. This variance includes the impact of foreign exchange on first quarter 2015 revenue, which was negative $9.3 million.
In constant currency, FSS Automotive revenue was negatively impacted by lower aftermarket, compressor, DOEM and OEM sales volumes as a result of difficult economic conditions in major markets, increased competition and lower oil prices. FSS Industrial revenue decreased compared to the prior-year period primarily reflecting lower demand for mobile and stationary equipment and increased competition and a decrease in heavy duty sales in Thailand that were partially offset by higher sales of auxiliary power units in North America.
Gross profit for the first quarter of 2015 was $14.5 million, or 22.9% of revenue, compared to $17.4 million, or 21.4% of revenue, for the first quarter of 2014. The lower gross profit primarily reflects the decreased volumes mentioned above.
Corporate expenses increased $1.7 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 first quarter of 2015 totaled $4.5 million, or 7.0% of revenue, compared to operating loss of $2.3 million, or 2.8% of revenue, for the first quarter of 2014.
Adjusted EBITDA for the first quarter of 2015 was $1.9 million, compared to $2.2 million for the first quarter of 2014. 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 first quarter of 2015, 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. In addition, in the first quarter of 2015, the Company recorded a valuation allowance of $7.8 million for deferred tax assets that may not be realized in the future. This allowance has been recorded as a result of increased automotive market weakness and the expected impact of restructuring activities, in addition to increased costs for the previously announced management changes.
Net loss for the first quarter of 2015 was $11.9 million, or $0.62 per diluted share including $0.41 per diluted share from the valuation allowance mentioned above, compared to net loss of $2.0 million, or $0.10 per diluted share, for the first quarter of 2014.
FSS Automotive Operations
FSS Automotive first quarter 2015 revenue was $40.5 million, compared to $54.4 million for the same quarter a year ago. The impact of foreign exchange on FSS Automotive was negative $8.1 million; in constant currency, first quarter 2015 FSS Automotive revenue decreased 10.6% compared to the prior year period, reflecting the lower volumes mentioned above. FSS Automotive first quarter 2015 operating loss was $2.9 million compared to operating loss of $2.3 million for the same period a year ago. FSS Automotive first quarter 2015 Adjusted EBITDA was $1.4 million compared to Adjusted EBITDA of $1.6 million a year ago.
FSS Industrial Operations
FSS Industrial first quarter 2015 revenue was $22.8 million compared to $26.9 million for the same quarter a year ago. The impact of foreign exchange on FSS Industrial was negative $1.3 million; in constant currency, first quarter 2015 FSS Industrial revenue decreased 10.8% compared to the prior year period, primarily reflecting lower demand for the reasons explained above. FSS Industrial first quarter 2015 operating income was $2.1 million, compared to operating income of $1.9 million for the same period a year ago. FSS Industrial first quarter 2015 Adjusted EBITDA was $2.2 million compared to $2.3 million for the same period a year ago.
Cost Reduction and Restructuring Program Update
During the first quarter of 2015, the Company began to implement its cost reduction and restructuring program as follows:
Completed initial voluntary severance to reduce the workforce in Italy
Wrote down the carrying value of certain assets no longer required as we move to alternative sales and distribution models
Began laying the groundwork for next steps to be taken, including:
Accelerating direct material reduction initiatives
Consolidating selected manufacturing facilities
Analyzing and implementing alternative sales and distribution models
Reducing production volumes through temporary unemployment to decrease labor cost and working capital needs
Reducing non-labor operating expenses
In connection with the above, the company recorded the abovementioned $2.4 million for restructuring and strategy expenses included in Adjusted EBITDA as follows: $0.7 million for severance; $0.2 million for the write-off of long-lived assets in connection with rationalization of activities; and $1.5 million for professional fees. At this point the Company believes its prior expectations for the restructuring program results are substantially unchanged with the exception of the impact that foreign exchange rates will have on the results.
Share Repurchase Program Update
During the first quarter of 2015, the Company repurchased 1,010,944 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 May 1, 2015, the Company has repurchased 1,424,814 shares of common stock.
Liquidity and Capital Resources
During the first quarter of 2015, the Company used approximately $27.4 million in cash, including $10.9 million for the repurchase of common stock as mentioned above and a $9.9 million change in working capital, primarily accounts payable, inventory and other assets, which is expected to largely moderate later in the year as the effects of restructuring begin to take hold and the Company moves into seasonally higher-volume quarters. In addition, the Company invested $1.8 million in capital equipment, $1.0 million in investments and cash was negatively impacted by foreign exchange of $3.1 million in the first quarter of 2015.
On April 30, 2015, Fuel Systems Solutions, Inc. entered into a Second Amendment to the 2009 Committed Credit Facility Agreement with the New York Branch of Intesa SanPaolo S.p.A., increasing the committed amount under the Credit Facility to $30 million from $20 million and extending the stated maturity date to April 29, 2016 from April 30, 2015. All other provisions of the Credit Facility remain unchanged.
The Company has reduced its 2015 revenue to be in the range of between $290 million to $300 million, reflecting:
An incremental negative impact of approximately $5.0 million from foreign exchange translation reflecting current strengthening of the US dollar
Slower than previously anticipated 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 challenging economic conditions and persistent aggressive competition in the global transportation market, as well as lower oil prices.
Continued lower demand and continued high competition for mobile Industrial equipment partially offset by modest growth in the APU market
2015 gross margin remains unchanged in a range of 22% to 24%
Adjusted EBITDA outlook for 2015 of $10.0 million to $15.0 million, and comprised of:
Approximately a $6.5 million reduction in the outlook for results from operations due to increased automotive market weakness and increased costs related to the previously announced management changes, offset by
The inclusion in the Adjusted EBITDA calculation of costs related to the restructuring program, including activities and already anticipated fees, totaling approximately $7.0 million
Additional tax expense as a result of losses in certain countries that now require the establishment of a $7.8 million valuation reserve on certain deferred tax assets as a result of increased automotive market weakness and the expected impact of restructuring activities, in addition to increased costs for the previously announced management changes as discussed in the previous paragraph.
With respect to the cost reduction and restructuring program, the Company continues to anticipate a net increase in expenses in 2015, as a result of the costs associated with the program. While there will be recurring benefits associated with the cost optimization actions and right-sizing, in 2015 they will be more than offset by the costs associated with the workforce right-sizing and the related external project management and implementation fees.
To provide investors and others with additional information regarding Fuel Systems' results, in addition to the results presented in accordance with generally accepted accounting principles, or GAAP, in this press release, Fuel Systems presents Adjusted EBITDA, which is a non-GAAP measure. A reconciliation of this non-GAAP measure to the closest GAAP financial measure is presented in the financial tables below under the heading "Non-GAAP FINANCIAL MEASURE RECONCILIATION." Adjusted EBITDA is determined by adding the following items to Net Income/(Loss), the closest GAAP financial measure: Depreciation & Amortization; Interest income/expense, net; and Benefit (Provision) for Income Taxes, Restructuring charges, Stock based compensation Consulting fees related to restructuring and strategy and other non-operating expenses. Fuel Systems' management believes this non-GAAP financial measure offers additional insight into the Company's ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in the business, as it excludes certain non-cash items. This non-GAAP financial measure also can provide useful information to investors and others in understanding and evaluating Fuel Systems' operating results and future prospects when comparing financial results across accounting periods and to those of peer companies. Fuel Systems may not define this non-GAAP financial measure in a manner similar to other companies.
About Fuel Systems Solutions
Fuel Systems Solutions, Inc. (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.