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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