ABC Technologies Holdings Inc. Reports Fiscal Q4 and Fiscal Year 2022 Results

TORONTO–(BUSINESS WIRE)–ABC Technologies Holdings Inc. (TSX: ABCT) (“ABC Technologies”, “ABC”, or the “Company”), a leading manufacturer and supplier of custom, highly engineered, technical plastics and lightweighting innovations to the North American light vehicle industry, today announced results for the three months and fiscal year ended June 30, 2022 (“Q4 Fiscal 2022” and “Fiscal 2022”, respectively) and has declared a quarterly cash dividend of C$0.0375 per share. All amounts are shown in United States Dollars (“$”), unless otherwise noted.

Please click HERE for ABC’s Q4 Fiscal 2022 and Fiscal Year 2022 Management’s Discussion and Analysis (“MD&A”) or refer to the Company’s Audited Consolidated Financial Statements and MD&A for the year ended June 30, 2022 available on the Company’s profile at www.SEDAR.com and on the Company website.

Q4 Fiscal 2022 Highlights

• Q4 Fiscal 2022 revenue increased by 36.9% to $319.2 million from $233.2 million for the three months ended June 30, 2021 (“Q4 Fiscal 2021”).
• Q4 Fiscal 2022 net loss of $13.6 million, compared to a net loss of $11.7 million in Q4 Fiscal 2021¹.
• Q4 Fiscal 2022 Adjusted EBITDA^2,3 of $15.2 million, compared with $26.9 million in Q4 Fiscal 2021, with the decrease primarily driven by a higher operating loss in the quarter.
• Q4 Fiscal 2022 Adjusted Free Cash Flow^1,4 of $0.6 million, up from negative $17.1 million in the prior year.
• Dividend of C$0.0375 per share declared.
• On June 28, 2022, ABC entered into an agreement to acquire the Washer Systems product line of Continental Automotive GmbH for approximately €20.5 million ($21.5 million), which is expected to close in Q2 Fiscal 2023. The acquired portfolio consists of water reservoirs, pump systems, hoses, connectors, different types of nozzles as well as cleaning systems for headlight, cameras, and sensors.
• Subsequent to period end, on August 16, 2022, the Board of Directors appointed Terry Campbell as Chief Executive Officer and member of ABC’s Board, replacing Todd Sheppelman.
• Subsequent to period end, on August 31, 2022, the Company closed part of its previously announced sale and leaseback transaction of the Karl Etzel GmbH and SAM-GmbH real estate as well as the land and buildings acquired from a party related to the owner of Karl Etzel GmbH (collectively, “Etzel”). The Company received gross proceeds of €37.2 million ($42.4 million). The remaining portion of the transaction is expected to close by the end of the second quarter of fiscal 2023.

Fiscal Year 2022 Highlights

• Fiscal 2022 revenue at $971.9 million, remained flat to the $970.9 million revenue for the fiscal year ended June 30, 2021 (“Fiscal 2021”). Excluding $71.2 million of sales contribution from acquisitions, revenue was down 7.0% to prior year. ABC revenue, excluding the impact of acquisitions, decreased by 7.0%, but still outperformed industry production decline of 8.9% during the same period, according to IHS Markit⁵.
• Lost production due to original equipment manufacturer (“OEM”) plant closures, primarily driven by semiconductor shortages, resulted in a significant decrease in ABC revenue, excluding the impact of acquisitions, compared to the prior year where production had somewhat normalized after the initial COVID-19 lockdowns that occurred between March to May 2020.
• Fiscal Year 2022 Adjusted EBITDA^1,2 of $45.7 million was down compared to $133.4 million the prior year, primarily as a result of operating losses which were driven by lower revenue as a result of semiconductor shortages, which affected OEM production. These production interruptions were exacerbated by higher input costs, and inefficient operations caused by short notification of OEM plant closures.
• Fiscal Year 2022 Adjusted Free Cash Flow^1,3 usage was $46.2 million. This result is largely attributable to a negative $59.5 million Adjusted Free Cash Flow result in the first quarter of Fiscal 2022, which was clawed back to some degree over the rest of the year with three consecutive quarters of positive Adjusted Free Cash Flow.
• Record $2.2 billion of life of production revenue⁶ during Fiscal 2022 portends strong future growth for ABC.
• On November 10, 2021, the Company announced the closing of the sale of a minority share in the Company by ABC Group Canada LP, an affiliate of funds managed by Cerberus Capital Management, L.P., to funds affiliated with Oaktree Capital Management, L.P. for C$9.00 per share (the “Oaktree Transaction”).
• On February 24, 2022, the Company’s credit facility was increased to $550.0 million from $450.0 million and the maturity was extended to February 2027 for all facilities except the revolving B facility of $50.0 million, which is available until February 2023.
• On March 1, 2022, the Company acquired Ohio-based dlhBowles, Inc. (“dlhBowles”), a recognized leader for camera and sensor cleaning systems, windshield washer systems, sunroof drains, powertrain, and chassis solutions. The acquisition significantly bolstered ABC’s reach in the washer systems market and strengthened its existing product portfolio.
• On March 4, 2022, ABC acquired German-based Etzel, which is a leading tier-1 and tier-2 supplier to the German luxury automotive market and expands ABC’s expertise in injection molding plastics for automotive interiors and exteriors.
• Total consideration paid for the dlhBowles and Etzel acquisitions was $258.1 million and $75 million (€66.8 million, which includes the fair value of the purchase option at €5.9 million or $6.6 million), respectively. To fund the acquisitions, the Company completed a private placement and rights offering raising aggregate gross proceeds of $289.3 million in Q3 Fiscal 2022.

ABC Technologies’ newly appointed President and Chief Executive Officer, Terry Campbell, commented: “I’m excited to be joining ABC at a pivotal time in its journey. With a macro environment that is still volatile due to the ongoing supply chain and semiconductor availability issues affecting our OEM customers, two recent acquisitions and an active M&A pipeline as well as a core business that is competing and winning in the market, but faces the same challenges as many of our peers, I see an amazing amount of opportunity in front of everyone at ABC. We have some work ahead of us to further adapt to this new normal in the production environment and return ABC’s financial results to target levels, but these are challenges I’ve seen many times before and successfully led organizations through in the past. We’ve got a strong and capable team here at ABC and I have no doubt we can return to, and even exceed, the results seen prior to the onset of the semiconductor crisis.”

Q4 Fiscal 2022 Results of Operations

Sales were $319.2 million in Q4 Fiscal 2022 compared with $233.2 million in Q4 Fiscal 2021, an increase of $86.1 million or 36.9%. Of this increase, $52.3 million is attributable to acquisitions accounting for 59.4% of the overall increase. According to IHS Markit reports, industry production in North America increased by 11.7% in Q4 Fiscal 2022 compared to Q4 Fiscal 2021. The Company enjoyed better than industry growth as a result of improved sales to a number of significant customers due to its product mix relative to the industry.

Cost of sales was $291.5 million in Q4 Fiscal 2022 compared with $200.7 million in Q4 Fiscal 2021, an increase of $90.8 million or 45.3%, of which $47.2 million or 52.0% is attributable to acquisitions. As a percentage of sales, cost of sales was 91.3% in Q4 Fiscal 2022 compared with 86.1% in Q4 Fiscal 2021. Gross margin in Q4 Fiscal 2022 was lower than the comparable prior year quarter resulting from higher labor and freight costs, and increased raw material costs, primarily resin, glass, rubber, paint and steel.

Selling, general and administrative expenses were $44.1 million in Q4 Fiscal 2022 compared with $36.3 million in Q4 Fiscal 2021, an increase of $7.8 million or 21.4%. As a percentage of sales, selling, general and administrative expenses were 13.8% in Q4 Fiscal 2022 compared with 15.6% in Q4 Fiscal 2021.

Significant differences quarter over quarter include:

• higher business transformation related costs in Q4 Fiscal 2022 of $7.4 million
• higher wages, benefits and professional fees in Q4 Fiscal 2022 of $2.9 million
• higher depreciation and amortization expense in Q4 Fiscal 2022 of $3.4 million
• foreign exchange loss of $0.5 million in Q4 Fiscal 2022 as compared to a gain of $2.1 million in Q4 Fiscal 2021 largely offset by;
• costs related to the Company’s Initial Public Offering (the “IPO”) and Apollo transaction were incurred in Q4 Fiscal 2021 of $7.9 million and $3.6 million respectively, not recurring in Q4 Fiscal 2022

Net loss was $13.6 million in Q4 Fiscal 2022 compared with $11.7 million in Q4 Fiscal 2021, an increase of $1.9 million or 15.8%. Primary contributors to the change between periods are a $4.8 million decrease in gross profit in Q4 Fiscal 2022 due to higher costs, $7.8 million due to higher selling general and administration costs, an $8.2 million impairment charge, $1.7 million from improved joint venture performance and a $18.5 million swing to income tax recovery from expense.

Adjusted EBITDA was $15.2 million in Q4 Fiscal 2022 compared with $26.9 million in Q4 Fiscal 2021, a decrease of $11.7 million or 43.4%, primarily resulting from a higher operating loss due to the reasons described above.

Adjusted Free Cash Flow¹ was $17.7 million higher for Q4 Fiscal 2022 compared with Q4 Fiscal 2021 primarily due to higher net cash flows from operating activities of $30.1 million offset by higher purchases of property plant and equipment and additions to intangible assets of $1.9 million and $2.7 million respectively and lower one-time advisory, bonus and other costs of $8.1 million.

Fiscal 2022 Results of Operations

Sales were $971.9 million for Fiscal Year 2022 compared with $970.9 million for Fiscal 2021, an increase of $1.0 million or 0.1%. Excluding $71.2 million in sales attributable to acquisitions in the year, sales were 7.0% lower than the prior year. According to IHS Markit reports, industry production in North America decreased by 8.9% in Fiscal 2022 compared to Fiscal 2021. Lost production due to OEM plant closures driven by semiconductor shortages resulted in a significant decrease in revenue compared to the prior year where production had approached near normal production levels after the initial COVID-19 lockdowns that had occurred in the period from March 2020 to May 2020.

Cost of sales was $889.4 million for Fiscal 2022 compared with $811.3 million for Fiscal 2021, an increase of $78.0 million or 9.6%. As a percentage of sales, cost of sales was 91.5% for Fiscal 2022 compared with 83.6% for Fiscal 2021. Gross margin in Fiscal 2022 is lower resulting from higher labor and freight costs, increased raw material costs, primarily resin, glass, rubber, paint and steel, and from inefficiencies due to frequent plant closures by OEMs. Fiscal 2021 enjoyed the benefit of $10.2 million in Canada Emergency Wage Subsidy (“CEWS”) payments reducing wage expense in the period, which was also partially offset by the increased costs around managing COVID-19 effects in the same period, versus Fiscal 2022 where the Company was ineligible to receive CEWS.

Selling, general and administrative expenses were $131.0 million for Fiscal 2022 compared with $132.1 million for Fiscal 2021. As a percentage of sales, selling, general and administrative expenses were 13.5% for Fiscal 2022 compared with 13.6% for Fiscal 2021.

Significant differences year over year include:

• lower transactional, recruitment and other bonuses in 2022 of $12.3 million
• Costs related to the IPO and Apollo transaction were incurred in Fiscal 2021 of $8.3 million and $3.6 million respectively, not recurring in Fiscal 2022

largely offset by;

• higher depreciation and amortization expense in Fiscal 2022 of $6.5
• higher acquisition related costs in Fiscal 2022 of $5.1 million
• higher business transformation related costs in Fiscal 2022 of $5.8 million
• higher directors’ and officers’ insurance expense and professional fees in Fiscal 2022 of $4.3 million

Net loss was $64.5 million for Fiscal 2022 compared with $11.7 million for Fiscal 2021, an increase of $52.9 million. Primary contributors to the change between years is a $77.0 million reduction in gross margin in Fiscal 2022 due to the combination of lower revenue as a result of lower OEM production largely caused by semiconductor shortages, higher raw material costs primarily attributable to increased resin, glass, rubber, paint, and steel costs as well as higher labor and freight costs, and inefficient plant operations caused by short notification by OEMs of their own plant closures, $8.2 million for the impairment of non-financial assets, and $5.2 million due to lower income from joint ventures, largely offset by a favorable $1.2 million reduction in selling, general and administration expenses, $14.8 million due to lower interest expense and $22.9 million lower tax expense.

Adjusted EBITDA was $45.7 million for Fiscal 2022 compared with $133.4 million for Fiscal 2021, a decrease of $87.7 million or 65.8%, primarily as a result of higher operating loss due to the reasons described above.

Adjusted Free Cash Flow was $125.5 million lower for Fiscal 2022 compared with Fiscal 2021 primarily due to lower net cash flows from operating activities of $88.5 million, higher purchases of property plant and equipment and additions to intangible assets of $7.9 million and $5.4 million respectively, lower dividends received from joint ventures of $5.2 million, lower one-time advisory, bonus and other costs of $8.0 million. Fiscal 2021 results were positively impacted by working capital normalization following the first wave of COVID-19.

Market Dynamics

The Company’s financial results during the last half of Fiscal 2021 and Fiscal 2022 have been significantly impacted by disruptions and shortages in the supply of critical components and materials globally, particularly semiconductors, which were indirect outcomes of the COVID-19 pandemic. When the COVID-19 pandemic caused a significant drop in vehicle sales in spring 2020, OEMs cut their orders of all parts and materials, including the semiconductors needed for functions ranging from touchscreen displays to collision-avoidance systems. In the fall of 2020, when demand for passenger vehicles rebounded, OEMs were not able to secure adequate supply of semiconductors as chip manufacturers were already committed to supplying other customers in consumer electronics. The global semiconductor shortage resulted in temporary shutdowns or slowdowns of the production lines at the majority of our OEM customers beginning in February and March 2021, which impacted the production levels in our plants that supply those customers. In Fiscal 2022, primarily Q1 and Q2, COVID-19 had a more direct effect on operations. Outbreaks in major semiconductor manufacturing countries, such as Malaysia, resulted in the temporary shutdown of the manufacturing sector in the countries. As a result, the lost production exacerbated the shortage of semiconductors, leading to increased shutdowns by nearly all OEMs. These shutdowns, frequently with very short notice, resulted in inefficiencies at the Company’s production facilities. In Q3 and Q4 Fiscal 2022, supply chain disruptions to OEM customers abated to some extent, but not completely. Supply chain disruptions and economic conditions, which include the conflict between Russia and Ukraine and increasing global inflationary rates and increasing interest rates, have resulted, among other things, price increases and higher costs in respect of, but not limited to, labor, freight, utilities, resin, glass, rubber, paint and steel.

Dividend

The Board of Directors today has declared a Q4 Fiscal 2022 quarterly cash dividend of C$0.0375 per share, payable on or about October 31, 2022 to shareholders of record on September 30, 2022.

Conference Call Information

ABC will host a conference call today, September 2, 2022 at 8:30am ET to discuss the results. Participants may listen to the call via audio streaming at www.abctechnologies.com/investors.

The dial-in number to participate in the call is:

Toll Free: 1-855-327-6837

Toll/International: 1-631-891-4304

A telephonic replay will be available approximately two hours after the call. The replay will be available until 11:59pm ET on Friday, September 16^th, 2022.

Replay Information:

Toll Free: 1-844-512-2921

Toll/International: 1-412-317-6671

Replay Pin Number: 10020056

A webcast replay will be available approximately one hour after the conclusion of the call at www.abctechnologies.com/investors under the Events & Presentations section.

Non-IFRS Measures and Key Indicators

This press release uses certain non-IFRS financial measures and ratios. Management uses these non-IFRS financial measures for purposes of comparison to prior periods, to prepare annual operating budgets, and for the development of future projections and earnings growth prospects. This information is also used by management to measure the profitability of ongoing operations and in analyzing our financial condition, business performance and trends. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and therefore may not be comparable to similarly titled measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of our results of operations from management’s perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of our financial information reported under IFRS. We use non-IFRS financial measures including EBITDA, Adjusted EBITDA, and Adjusted Free Cash Flow to provide supplemental measures of our operating performance and thus highlight trends in our core business that may not otherwise be apparent when using IFRS financial measures. We believe that the presentation of these financial measures enhances an investor’s understanding of our financial performance as these measures are widely used by investors, securities analysts and other interested parties.

“EBITDA” means net earnings (loss) before interest expense, income tax expense (recovery), depreciation of property, plant and equipment, depreciation of right-of-use assets, and amortization of intangible assets.

“Adjusted EBITDA” means EBITDA plus: loss on disposal and write-down of assets, unrealized loss (gain) on derivative financial instruments, transactional, recruitment, and other bonuses, acquisitions related cost, initial public offering related costs, business transformation and related costs (which may include severance and restructuring expenses), impairment of non-financial assets, Apollo transaction cost less: our share of income of joint ventures, plus the Company’s proportionate share of the EBITDA generated by our joint ventures, bargain purchase gain on the acquisition, and share-based compensation expense. We also present Adjusted EBITDA excluding the impact of IFRS 16 by charging the lease payments applicable to those periods to expense as was the case prior to IFRS 16 – Leases (“IFRS 16”).

“Adjusted Free Cash Flow” means Net Cash Flows from Operating Activities less: purchases of property, plant and equipment, additions to intangible assets, lease payments, net impact of hedge monetization, plus: proceeds from disposal of property, plant, and equipment, cash dividends received from joint ventures, and one-time advisory, bonus and other costs.

Additional information about the Company, including the Company’s Management Discussion and Analysis of Operating Results and Financial Position for the three months and fiscal year ended June 30, 2022 and the Company’s consolidated financial statements for the fiscal year ended June 30, 2022 can be found at www.sedar.com.

Fiscal 2022 Financial Results

(Expressed in thousands of United States dollars, unless otherwise specified)

Contacts

Investor Contact:
Nathan Barton

Investor Relations

investors@abctech.com

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