Schmitt Industries, Inc. (NASDAQ: SMIT) (the “Company” or “Schmitt”) today announced its operating results for the third quarter of Fiscal 2020.                                     

Highlights of the three and nine months ended February 29, 2020:

  • Company revenue decreased 2.3% and 8.6% for the three and nine months ended February 29, 2020, respectively, as compared to the three and nine months ended February 28, 2019. The decrease is primarily due to a 14.4% decrease in Acuity product revenue for the three months ended February 29, 2019, and to a 34.9% decrease in Xact product revenue and a 14.9% decrease in Acuity product revenue for the nine months ended February 29, 2020. Xact’s monitoring revenue continued to grow, increasing 11.5% and 13.5% to $391,678 and $1,140,494, respectively, for the three months and nine months ended February 29, 2020. 
  • Gross margin increased to 55.1% and 45.6% for the three and nine months ended February 29, 2020, respectively.  The increase was primarily due to an inventory reserve adjustment in Q3 FY19, better pricing from vendors and improved pricing in the Xact business line for the three months ended February 29, 2020, and primarily due to a favorable product mix shift for the nine months ended February 29, 2020. 
  • Operating expenses increased 24.5% and 15.7% for the three and nine months ended February 29, 2020, respectively. The increase was primarily due to stock-based compensation recognized as a result of vesting of market-based RSUs for the three and nine months ended February 29, 2020.
  • Adjusted EBITDA was $1,612 and $(101,011) for the three and nine months ended February 29, 2020, respectively, as compared to $(30,764) and $(348,437) for the three and nine months ended February 28, 2019, respectively.
  • Net loss from continuing operations per fully diluted share was $(0.06) and $(0.29) for the three and nine months ended February 29, 2020. Excluding expenses not expected to be incurred in future periods, including unrecoverable inventory costs, non-GAAP EPS was $(0.02) and $(0.11) for the three and nine months ended February 28, 2020, respectively.

Michael Zapata, Schmitt’s CEO and Chairman, commented, “This past quarter is indicative of the team’s focus on transitioning into Schmitt 2.0. Given the recent global developments, we are fortunate to have successfully consummated the SBS transaction last fall, which gives us a strong balance sheet and cash to be opportunistic in a difficult environment.”

“In the face of many unknowns and the unprecedented circumstances of COVID-19 pandemic we are dealing with, I believe we are also positioned well with a management team that has experience operating and making decisions in uncertain environments. As we continue forward in these uncertain times, I want to thank our team as they remain focused on long-term goals with an ability to remain flexible and adaptive. This will pass and I’m confident we will be stronger once we emerge from this environment.”

COVID-19 Update

Schmitt has implemented COVID-19 response and business continuity plans to protect its employees and their families, to safeguard continuity of Schmitt operations, and to ensure full support to its customers and partners. For the time being, the Company has implemented new safety guidelines that maximize interpersonal space to protect employees working on location, while all other employees who can telecommute work remotely.

The Company is highly focused on retaining its workforce and leadership during these extraordinary times and will continue to evaluate the business environment and outlook to ensure preservation of enterprise value under a wide range of circumstances.

De-listing and Deregistration Update

Schmitt continues to evaluate a shareholder value opportunity in regard to the previously announced intent to delist. There can be no assurance that the Company will enter into an agreement relating to the transaction or as to the timing or the terms of such opportunity thereof or what impact of such opportunity would be on the trading of the Company’s common stock. To the extent that the Company elects to proceed with delisting, it will provide shareholders and NASDAQ ten days notice of any intent to file a Form 25.

Share Repurchases

On December 3, 2019, the Company announced that its Board of Directors authorized a share repurchase plan to buy up to $2 million of its Common Stock. Since the announcement, the Company has repurchased approximately 10% of its shares through both a private transaction for 365,490 shares at $3.25 per share and 46,932 shares at an average price of $3.10 per share, which was done in accordance with a 10b5-1 plan. At this time, the plan has been suspended pending the evaluation of the shareholder value opportunity discussed above. Due to the private transaction remaining outside of the $2m repurchase plan, $1.85 million remains available on the repurchase plan once resumed.

Summary data for the three months ended February 29 and 28, 2020 and 2019:

                     
  Three Months Ended February 29 and 28,          
  2020     2019       Change ($)   Change (%)
Total net revenue $ 1,094,967     $ 1,120,545     $ (25,578 )   (2.3 %)
                     
Gross margin   55.1 %     37.1 %          
                     
Operating expenses $ 1,035,322     $ 831,602     $ 203,720     24.5 %
                     
Net loss from continuing operations $ (240,277 )   $ (423,963 )   $ 183,686     (43.3 %)
                     
Net loss per fully diluted share from continuing operations $ (0.06 )   $ (0.11 )   $ 0.04     (41.2 %)
                     

Summary data for the nine months ended February 29 and 28, 2020 and 2019:

  Nine Months Ended February 29 and 28,              
  2020     2019       Change ($)     Change (%)  
Total net revenue $ 3,222,846     $ 3,524,666     $ (301,820 )   (8.6 %)
                             
Gross margin   45.6 %     39.0 %              
                             
Operating expenses $ 2,818,187     $ 2,435,661     $ 382,526     15.7 %
                             
Net loss from continuing operations $ (1,138,481 )   $ (1,058,660 )   $ (79,821 )   7.5 %
                             
Net loss per fully diluted share from continuing operations $ (0.29 )   $ (0.26 )   $ (0.02 )   7.6 %
                             

Reconciliation of Adjusted EBITDA:

             
    Three Months EndedFebruary 29, 2020   Nine Months EndedFebruary 29, 2020
                 
                 
Loss before income taxes from continuing operations $ (244,483 )   $ (1,150,516 )
Depreciation and amortization   37,803       121,080  
EBITDA from continuing operations $ (206,680 )   $ (1,029,436 )
Adjusted for:          
  Stock-based compensation   134,122       326,724  
  Non-recurring expenses   93,249       601,929  
  Software write-down & recoveries   (19,079 )     57,942  
  Non-recurring loss from discontinued product line   -       (134,269 )
  Unrecoverable inventory costs   -       76,099  
             
Adjusted EBITDA from continuing operations $ 1,612     $ (101,011 )
             
    Three Months EndedFebruary 28, 2019   Nine Months EndedFebruary 28, 2019
                 
                 
Loss before income taxes from continuing operations $ (421,774 )   $ (1,052,244 )
Depreciation and amortization   42,118       131,097  
EBITDA from continuing operations $ (379,656 )   $ (921,147 )
Adjusted for:          
  Stock-based compensation   (3,309 )     5,679  
  Inventory reserve adjustment   116,131       116,131  
  Non-recurring expenses   236,070       450,900  
             
Adjusted EBITDA from continuing operations $ (30,764 )   $ (348,437 )
             

Reconciliation of Adjusted Net Income and Non-GAAP EPS:

    Three Months EndedFebruary 29, 2020   Nine Months EndedFebruary 29, 2020
                 
                 
Net loss from continuing operations $ (240,277 )   $ (1,138,481 )
Adjusted for:          
  Stock-based compensation   134,122       326,724  
  Non-recurring expenses   93,249       601,929  
  Software write-down & recoveries   (19,079 )     57,942  
  Non-recurring loss from discontinued product line   -       (134,269 )
  Unrecoverable inventory costs   -       76,099  
  Tax effect of adjustments*   (52,073 )     (232,106 )
             
Adjusted net loss from continuing operations (non-GAAP) $ (84,058 )   $ (442,162 )
             
Non-GAAP (loss) per fully diluted share $ (0.02 )   $ (0.11 )
             

*Assumes a marginal effective tax rate of 25%

About Schmitt Industries

Schmitt Industries, Inc., founded in 1987, designs, manufactures and sells high precision test and measurement products, solutions and services through its Acuity® and Xact® product lines. Acuity provides laser and white light sensor distance measurement and dimensional sizing products, and our Xact line provides ultrasonic-based remote tank monitoring products and related monitoring revenues for markets in the Internet of Things environment.

FORWARD-LOOKING STATEMENTS

This document may contain forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors. A complete discussion of the risks and uncertainties that may affect Schmitt’s business, including the business of its subsidiary, is included in “Risk Factors” in the Company’s most recent Annual Report on Form 10-K and its Quarterly Report on Form 10-Q as filed by the Company with the Securities and Exchange Commission.

For further information regarding risks and uncertainties associated with the Company’s business, please refer to Schmitt’s SEC filings, including, but not limited to, its Forms 10-K, 10-Q and 8-K.

The forward-looking statements in this release speak only as of the date on which they were made, and the Company does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this release, or for changes to this document made by wire services or internet service providers.

   
For more information contact: Michael R. Zapata, President and CEOJamie Schmidt, CFO and Treasurer(503) 227-7908 or visit our web site at www.schmitt-ind.com
   

SCHMITT INDUSTRIES, INC.CONSOLIDATED BALANCE SHEETS(UNAUDITED)

             
      February 29, 2020   May 31, 2019
    ASSETS
Current assets          
  Cash and cash equivalents $ 10,544,255   $ 1,467,435  
  Restricted cash   420,000     -  
  Accounts receivable, net   645,691     631,126  
  Inventories   1,057,084     1,241,132  
  Prepaid expenses   91,376     101,617  
  Current assets held for sale   -     5,192,384  
Total current assets   12,758,406     8,633,694  
               
Property and equipment, net   659,263     753,407  
               
Other assets          
  Intangible assets, net   313,748     392,185  
  Noncurrent assets held for sale   -     85,967  
    TOTAL ASSETS $ 13,731,417   $ 9,865,253  
               
               
    LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities          
  Accounts payable $ 277,825   $ 102,566  
  Accrued commissions   54,317     71,663  
  Accrued payroll liabilities   51,981     112,351  
  Customer deposits and prepayments   104,578     78,376  
  Other accrued liabilities   620,687     128,353  
  Income taxes payable   62,788     491  
  Current portion of long-term liabilities   -     20,828  
  Current liabilities held for sale   -     849,149  
Total current liabilities   1,172,176     1,363,777  
               
  Long-term liabilities   -     28,543  
               
Total liabilities   1,172,176     1,392,320  
               
Stockholders’ equity          
  Common stock, no par value, 20,000,000 shares authorized,          
    3,783,485 shares issued and outstanding at February 29, 2020 and 4,032,878 shares issued and outstanding at May 31, 2019          
      12,247,264     13,245,439  
  Accumulated other comprehensive loss   -     (527,827 )
  Retained earnings (accumulated deficit)   311,977     (4,244,679 )
Total stockholders’ equity   12,559,241     8,472,933  
    TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 13,731,417   $ 9,865,253  
               

SCHMITT INDUSTRIES, INC.CONSOLIDATED STATEMENTS OF OPERATIONSFOR THE THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 29 AND 28, 2020 AND 2019(UNAUDITED)

                                   
      Three Months EndedFebruary 29 and 28,         Nine Months EndedFebruary 29 and 28,      
      2020     2019     2020     2019  
                                   
Net revenue $ 1,094,967     $ 1,120,545     $ 3,222,846     $ 3,524,666  
Cost of revenue   491,346       705,259       1,752,116       2,148,567  
    Gross profit   603,621       415,286       1,470,730       1,376,099  
                                   
Operating expenses:                              
  General, administration and sales   1,011,414       826,105       2,785,816       2,382,756  
  Research and development   23,908       5,497       32,371       52,905  
    Total operating expenses   1,035,322       831,602       2,818,187       2,435,661  
                                   
Operating (loss)   (431,701 )     (416,316 )     (1,347,457 )     (1,059,562 )
                                   
  Other income, net   187,218       (5,458 )     196,941       7,318  
                                   
(Loss) before income taxes   (244,483 )     (421,774 )     (1,150,516 )     (1,052,244 )
                                   
  Provision for income taxes   (4,206 )     2,189       (12,035 )     6,416  
                                   
Net (loss) from continuing operations   (240,277 )   $ (423,963 )   $ (1,138,481 )   $ (1,058,660 )
Income from discontinued operations, including gain on sale, net of tax   109,107       (51,226 )     5,695,137       116,382  
Net income (loss) $ (131,170 )   $ (475,189 )   $ 4,556,656     $ (942,278 )
                                   
  Net (loss) per common share from continuing operations:                              
    Basic $ (0.06 )   $ (0.11 )   $ (0.29 )   $ (0.26 )
    Weighted average number of                              
      common shares, basic   3,858,287       4,000,990       3,992,664       3,996,670  
                                   
    Diluted $ (0.06 )   $ (0.11 )   $ (0.29 )   $ (0.26 )
    Weighted average number of                              
      common shares, diluted   3,858,287       4,000,990       3,992,664       3,996,670  
                                   
  Net income per common share from discontinued operations:                              
    Basic $ 0.03     $ (0.01 )   $ 1.43     $ 0.03  
    Weighted average number of                              
      common shares, basic   3,858,287       4,000,990       3,992,664       3,996,670  
                                   
    Diluted $ 0.03     $ (0.01 )   $ 1.43     $ 0.03  
    Weighted average number of                              
      common shares, diluted   3,858,287       4,000,990       3,992,664       3,996,670  
                                   
  Net income (loss) per common share:                              
    Basic $ (0.03)     $ (0.12 )   $ 1.14     $ (0.24 )
    Weighted average number of                              
      common shares, basic   3,858,287       4,000,990       3,992,664       3,996,670  
                                   
    Diluted $ (0.03 )   $ (0.12 )   $ 1.14     $ (0.24 )
    Weighted average number of                              
      common shares, diluted   3,858,287       4,000,990       3,992,664       3,996,670  
                                   
                                   
Comprehensive income (loss)                              
  Net income (loss) $ (131,170 )   $ (475,189 )   $ 4,556,656     $ (942,278 )
  Foreign currency translation adjustment   -       (47,256 )     527,827       26,481  
                                   
  Total comprehensive income (loss) $ (131,170 )   $ (522,445 )   $ 5,084,483     $ (915,797 )
                                   
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