LMI Aerospace, Inc. Announces Second Quarter 2014 Results

ST. LOUIS, Aug. 7, 2014 (GLOBE NEWSWIRE) — LMI Aerospace, Inc. (Nasdaq:LMIA), a leading provider of design engineering services and supplier of structural assemblies, kits and components to the aerospace and defense markets, today announced its financial results for the second quarter ended June 30, 2014.

Second Quarter 2014 Highlights

Net sales of $105.9 million for the second quarter of 2014, compared to net sales of $95.8 million for the first quarter of 2014 and $105.5 million for the second quarter of 2013

Completed cost reduction initiatives projected to generate over $10.0 million in future recurring annual savings

Generated $4.9 million of operating cash flow in the second quarter of 2014

Adjusted EBITDA of $12.1 million for the quarter, improved from $10.2 million in the first quarter of 2014

Successfully closed on a new debt structure, providing significant financial flexibility

Won new work statements on the Boeing 787 and 737 MAX platforms
Second Quarter Results

For the second quarter 2014, net sales were $105.9 million, compared to $105.5 million in the second quarter of 2013. A net loss of $7.4 million, or $0.58 per diluted share, was realized in the second quarter of 2014, compared to net income of $4.7 million, or $0.37 per diluted share, in the second quarter of 2013. Second quarter 2014 results included a $9.1 million charge related to debt refinancing, $1.1 million for restructuring, $0.5 million in environmental expenses and $0.2 million in integration expenses. Pre-tax income for the second quarter of 2014, excluding non-recurring, unusual items was $1.8 million, compared to $0.3 million in the first quarter of 2014 and $3.8 million in the second quarter of 2013. The second quarter of 2014 also included a discrete income tax benefit of $2.5 million. Diluted earnings per share, excluding the impact of non-recurring, unusual items, was $0.13 in the second quarter of 2014.

“We are extremely pleased with what has been accomplished in my first few months at LMI. We have signed four long-term contracts with our customers and we have won new work on the Boeing 787 and 737 MAX platforms,” said Dan Korte, Chief Executive Officer of LMI Aerospace, Inc. "We have also received orders for fourteen 767 wing modification kits over current demand levels, which should generate $2.5 million of revenue later in 2014.

“In addition, we refinanced our credit facility with the issuance of $250 million in high-yield notes and modified our revolving credit agreement which now provides for a credit facility of up to $90 million. Our new debt structure provides us the financial flexibility that we believe will permit us to achieve our long-range strategic goals. We have taken actions that we believe will result in over $10.0 million in recurring annual costs savings. We are continuing to identify and implement additional cost savings initiatives. Further, the Company is on track to complete our refined strategy and operations plan later this year. The Company has also hired Joseph DeMartino as our new Chief Operating Officer, directing the Aerostructures segment. Overall, we could not be more pleased with the energy, ideas and execution demonstrated in our organization as we move forward to grow LMI,” Korte said.

Aerostructures Segment

Aerostructures revenue increased 4.4 percent from $84.8 million in the second quarter of 2013 to $88.5 million in the second quarter of 2014, driven primarily by growth in our sales in both corporate and regional and large commercial aircraft, partially offset by a decrease in sales in our military programs.

Net sales of large commercial aircraft products increased 3.9 percent during the second quarter of 2014. Growth in the Boeing 737 and 787 platforms contributed increases of $3.0 million and $2.0 million over the prior year quarter. These increases were partially offset by decreases in the sale of Boeing 767 wing modification products and Boeing 747 platform of $1.6 million and $2.4 million, respectively. Our largest sector growth was the $4.5 million for corporate and regional aircraft, which was primarily due to increased tooling revenue related to a development program of $2.0 million in addition to a $2.0 million increase in revenues on the Gulfstream G650 aircraft. Net sales of military products declined $1.5 million due to lower demand on the Black Hawk program.

The segment generated gross profit of $15.9 million, or 18.0 percent of net sales, in the second quarter of 2014 versus $19.1 million, or 22.5 percent of net sales, in the second quarter of 2013. Increased tooling revenue at low margins contributed to the decline in gross profit margin. Additionally, unfavorable product sales mix and lower production levels adversely impacted gross profit in the quarter.

Selling, general and administrative expenses were $12.7 million in the second quarter of 2014 versus $3.4 million in the second quarter of 2013. The difference in selling, general and administrative expenses year over year was primarily related to a favorable one-time write off of a contingent consideration liability of $8.0 million in the second quarter of 2013. The second quarter of 2014 included restructuring charges of $1.1 million and environmental expenses of $0.5 million. Excluding these unusual costs, selling, general and administrative expenses would have declined $0.2 million in the second quarter of 2014 versus the prior-year period.

Engineering Services Segment

Engineering Services revenue decreased 17.2 percent from $21.5 million in the second quarter of 2013 to $17.8 million in the second quarter of 2014, driven primarily by reductions in sales in our military and other programs.

Net sales for large commercial aircraft declined $0.4 million from the prior year quarter, as a result of a decline of $1.5 million in revenues on the Nacelle program, partially offset by increases in maintenance, repair, and overhaul revenue of $0.8 million. Net sales of services related to corporate and regional aircraft increased 15.9 percent, primarily related to support of the Bombardier L-85 program. Net sales of services for military programs were down $2.5 million versus the prior year quarter due to the maturation of the Boeing Tanker program. Net sales related to design and delivery of tooling on various programs supporting commercial aircraft were down $1.5 million primarily attributable to a reduction in tooling sales to Boeing.

Gross profit for the segment was $3.2 million, or 18.0 percent of net sales, for the second quarter of 2014, compared to $2.6 million, or 12.1 percent of net sales, for the prior year quarter. Although we had lower sales in the second quarter of 2014, our gross profit margin improved from the prior year period due to a $1.2 million negative cumulative catch-up adjustment on long-term contracts that we recorded in the second quarter of 2013.

Selling, general and administrative expenses for the segment decreased from $6.9 million in the second quarter of 2013 to $2.2 million in the second quarter of 2014. The difference is primarily attributable to a one-time intangible asset impairment write-off of $4.2 million recognized in the second quarter of 2013. Cost reduction activities have contributed to the remaining $0.5 million decrease in selling, general, and administrative expense.

Non-Segment

Interest expense increased $9.6 million in the second quarter of 2014 compared to the second quarter of 2013. The increase in interest expense is primarily due to a $9.1 million write-off of debt financing costs related to the termination of the Company’s long-term credit agreement and the modification of the Company’s revolving credit agreement during the quarter ended June 30, 2014.

The Company recognized an income tax benefit for the three months ended June 30, 2014, of $1.8 million, largely related to an income tax carry back.

The Company generated cash flow from operations of $4.9 million in the second quarter of 2014 and funded capital expenditures of $2.9 million, resulting in positive free cash flow of $2.0 million.

Backlog at June 30, 2014, was $408.9 million compared to $421.0 million at June 30, 2013, due to timing of customer orders.

Financial Outlook for 2014

As previously announced, the Company is conducting a thorough review of its strategy and operations, and as a result, will not be providing guidance at this time.