Flow International Announces Preliminary Fiscal 2006 First Quarter Results
Company Returns to Profitability, Generates Strong Cash Flow From Operations, Completes Debt Refinancing
KENT, Wash., Sept. 15 -- Flow International Corporation , the world's leading supplier of ultrahigh-pressure waterjet products, today reported preliminary results for its fiscal 2006 first quarter ended July 31, 2005. On a consolidated basis, FLOW reported quarterly sales of $49.7 million and operating income of $2.4 million, or 4.9% of sales, and net income of $708,000 or $0.02 basic and diluted earnings per share, including $344,000 of residual fees and interest expenses associated with the payoff of its subordinated debt, and tax expense of $861,000 as the Company recorded a tax liability for those foreign subsidiaries which reported earnings. By comparison, in the fiscal 2005 first quarter the Company reported consolidated sales of $49.0 million and operating income of $1.6 million, or 3.3% of sales, and a net loss of $2.3 million or $0.15 basic and diluted loss per share. In the quarter, the Company generated $5.8 million of cash flow from operations and completed the refinancing of its remaining senior debt with a new three year credit facility.
"Our return to profitability this quarter represents a major milestone for this company," said Stephen R. Light, FLOW's President and Chief Executive Officer. "At the outset of our restructuring program more than two years ago, we were saddled with a near-suffocating debt burden and faced a severe economic climate for large machine purchases. Through financial and operational discipline and focus on our core waterjet businesses, we've made good progress in restoring the company's financial health, have started to grow the top line again, and have now returned to profitability on another quarter of strong operating cash flow. While we are pleased with our progress to date, we have more to do to realize Flow's full potential."
Preliminary Results
The Company has filed a Form 12b-25 to extend its Form 10-Q filing date. This was necessary as the Company's Independent Registered Public Accounting Firm ("IRPAF") has not completed its review of the consolidated financial statements for the interim period ended July 31, 2005. It is expected that the IRPAF will complete its review procedures within the extended deadline for the filling of the Form 10-Q for the interim period ended July 31, 2005.
The IRPAF has notified the Company that it had become aware of the omission of certain audit procedures in connection with the audit of the April 30, 2005 consolidated financial statements. The IRPAF is presently in the process of completing these additional audit procedures and is not in a position to reissue its opinion on the Company's April 30, 2005 consolidated financial statements until these procedures are completed.
The IRPAF has not informed the Company of any known or suspected errors in the April 30, 2005 consolidated financial statements. The Company believes that the financial statements presented in its previously filed April 30, 2005 Form 10-K remain reliable and that the balance sheet information as of April 30, 2005, derived from the audited consolidated financial statements included in the Annual Report on Form 10-K as of April 30, 2005, and the unaudited financial information as of and for the three months ended July 31, 2005 and 2004, that will be contained in the July 31, 2005 Form 10-Q fairly presents, in all material respects, the financial condition and result of operations of the Company.
In connection with the Company's pending S-1 registration statement, the Company's IRPAF will not be in a position to reissue its opinion on the Company's April 30, 2005 consolidated financial statements until it has completed the additional audit procedures.
Operations Review
FLOW Waterjet: For the fiscal 2006 first quarter, Waterjet operations reported sales of $42.0 million and operating income of $2.8 million, compared to revenues of $38.3 million and operating income of $1.0 million in the fiscal 2005 first quarter. North America Waterjet sales increased $7.0 million from the year-ago quarter, as a result of the Company's increased sales and marketing activity, as well as a 4% price increase on selected systems instituted February 1, 2005. In addition, aerospace sales, which are included in North America sales, increased $1.7 million from the prior-year quarter as a result of work completed on contracts awarded in fiscal 2005.
Within Waterjet during the fiscal 2006 first quarter ended July 31, 2005, compared to the comparable prior-year quarter:
-- Domestic waterjet systems sales increased 44% to $22.9 million on
strong shapecutting sales and the beginning of percentage of
completion revenue recognition on our backlog of large composite
machining centers for the aerospace industry. The increase is
primarily attributable to ongoing demand in the domestic
marketplace, which recognizes the accuracy, speed, and versatility
advantages of the waterjet over conventional cutting technologies.
-- System sales in Europe increased 15% to $7.5 million as the Company
continued to benefit from market-specific pricing, standardized its
system offerings, improved delivery, and from a recovering European
marketplace.
-- Sales in South America improved $300,000 to $900,000 from a
generally improving economic climate and increased sales of
consumables, as more systems are placed into service.
-- Waterjet sales in Asia declined 9% to $5.8 million, primarily as a
result of continuing sluggish demand in Japan.
-- Sales of non-core automation and core robotic waterjet cutting
cells, which are sold primarily into the North American automotive
industry, declined $4.1 million because of a slowdown in the
domestic Tier 1 automotive market, as well as from the previously
announced closing and relocation of the Company's Wixom, Michigan
facility to its Burlington, Ontario facility.
-- Consumables revenues increased $866,000 or 7% to $13.3 million,
mostly from an increase in the number of systems in our installed
base and sales of proprietary productivity enhancing kits, as well
as increased usage of Flowparts.com for spare parts ordering.
Avure Technologies: For the fiscal 2006 first quarter, Avure recorded sales of $7.7 million and an operating loss of $324,000, compared to sales of $10.7 million and operating income of $598,000 million in the year-ago quarter.
Within Avure during the fiscal 2006 first quarter ended July 31, 2005, compared to the comparable prior-year quarter:
-- General Press sales declined 21% to $5.4 million, as both domestic
and international press sales were affected by the timing of revenue
recognition and new contract awards during the quarter.
International Press sales are almost exclusively large contract
sales in excess of $2 million per contract and accordingly revenue
will vary depending on the number and stage of manufacture of these
contracts. The Company continues to benefit from an overall
increase in demand for its presses, even as sales fluctuate due to
the 1-4 year sales and production cycle.
-- Avure's Fresher Under Pressure(R) food technology revenue declined
40% to $2.3 million, attributable to the timing of food system
production and the corresponding revenue recognition.
Subsequent Event
On August 26, 2005, the Company entered into an Asset Purchase Agreement with Barton Mines Company, a 127-year-old family owned business in Lake George, NY that mines and mills garnet for the sand paper and waterjet industries. Flow has sold Barton the exclusive right to sell abrasive to Flow's customers for $2.5 million in cash at closing, future annual payments for the next three years based on achievement of system sales targets and royalty payments for systems sold over the next 10 years.
General Press Divestiture
North American Press, International Press, and the non-core portion of the Food business are not considered core to Flow's business. In January 2005, the Company, with the assistance of Danske Markets, Inc., began to market the businesses to prospective purchasers. The Company has entered into exclusive negotiations with a potential purchaser for the Press and Food businesses. While there can be no guarantee negotiations will reach a successful conclusion, any potential transaction would include a supply agreement under which Flow would sell Food system related water pumps and spare parts to the purchaser for new and existing Food systems.
Conference Call
Flow International will host a conference call Thursday, September 15 at 1:00 p.m. EDT (10:00 a.m. PDT) to discuss the results. A live Webcast of the call may be found in the investor section at www.flowcorp.com.
A Webcast replay of the call will also be available for two weeks. About Flow International
Flow International Corporation is the world's leading developer and manufacturer of ultrahigh-pressure waterjet technology for cutting, cleaning, and food safety applications, providing state-of-the-art ultrahigh-pressure (UHP) technology to industries including automotive, aerospace, job shop, surface preparation, food and more. For more information, visit www.flowcorp.com.
Flow International Corporation
Preliminary Consolidated Statement of Operations
(Unaudited)
Dollars in thousands, except per share data
Three months ended July 31,
2005 2004 % Change
Sales $49,729 $48,982 2%
Cost of sales 29,088 31,087 -6%
Gross margin 20,641 17,895 15%
Operating expenses:
Marketing 8,535 7,309 17%
Research and engineering 2,673 2,604 3%
General and administrative 6,904 5,728 21%
Restructuring 98 -- NM
Financial Consulting -- 623 NM
Operating expenses 18,210 16,264 12%
Operating income 2,431 1,631 49%
Interest expense, net (624) (3,095) 80%
Other expense, net (238) (170) -40%
Income (loss) before taxes 1,569 (1,634) NM
Income tax provision (861) (706) -22%
Net Income (loss) $708 $(2,340) NM
Earnings (loss) per share:
Basic $0.02 $(0.15) NM
Diluted $0.02 $(0.15) NM
Weighted average shares outstanding (000):
Basic 34,299 15,686
Diluted 36,010 15,686
NM = not meaningful
Flow International Corporation
Preliminary Statement of Operations
Operations Breakdown
(Unaudited)
Dollars in thousands, except per share data
Three Months ended July 31, 2005
Flow
Waterjet Avure
Systems Technologies Consolidated
Sales $41,986 $7,743 $49,729
Cost of sales 23,798 5,290 29,088
Gross margin 18,188 2,453 20,641
Operating expenses 15,433 2,777 18,210
Operating income (loss) 2,755 (324) 2,431
Three Months ended July 31, 2004
Flow
Waterjet Avure
Systems Technologies Consolidated
Sales $38,299 $10,683 $48,982
Cost of sales 24,326 6,761 31,087
Gross margin 13,973 3,922 17,895
Operating expenses 12,940 3,324 16,264
Operating income (loss) 1,033 598 1,631
Flow International Corporation
Preliminary Supplemental Data
(Unaudited)
Dollars in thousands
Three months ended July 31,
2005 2004 % Change
Divisional revenue breakdown:
Flow Waterjet Systems:
Systems $28,721 $25,900 11%
Consumable parts and services 13,265 12,399 7%
Total 41,986 38,299 10%
Avure Technologies
Fresher Under Pressure 2,337 3,868 -40%
General Press 5,406 6,815 -21%
Total 7,743 10,683 -28%
$49,729 $48,982 2%
Geographic revenue breakdown:
United States $28,954 $26,979 7%
Rest of Americas 4,181 4,895 -15%
Europe 10,826 10,757 1%
Asia 5,768 6,351 -9%
$49,729 $48,982 2%
Depreciation and amortization expense $1,165 $1,322 -12%
Capital spending $519 $329 58%
Flow International Corporation
Preliminary Condensed Balance Sheet Data
(Unaudited)
Dollars in thousands
July 31, April 30,
2005 2005 % Change
Cash, including restricted cash $17,746 $13,445 32%
Receivables, net 29,963 42,781 -30%
Inventories 26,018 24,218 7%
Total current assets 83,308 90,001 -7%
Total assets 122,317 131,334 -7%
Total debt $17,617 $19,147 -8%
Total liabilities 82,729 90,818 -9%
Total shareholders' equity 37,027 37,732 -2%