Acasta Enterprises Reports Second Quarter Results

Thursday, August 10, 2017 7:22 pm EDT
"Acasta continues to execute on the plan we laid out in the first quarter as we move down the path of becoming an integrated asset manager"

TORONTO--(BUSINESS WIRE)--Acasta Enterprises Inc. (TSX: AEF and AEF.WT) ("Acasta" or the "Company"), a long-term investment and private equity asset management firm, today released its second quarter and six-month results for 2017 and provided a corporate update.

Second Quarter Financial Highlights*

  • Net loss was $1.2 million, or $0.01 per share
  • Adjusted net loss** was $3.4 million, or $0.04 per share
  • EBITDA** was $32.4 million
  • Adjusted EBITDA** was $30.3 million

* Until January 3, 2017, Acasta was a special purpose acquisition corporation, only becoming a long-term investment and private equity asset management firm upon the closing of its Qualifying Acquisition. As a result, there are no meaningful comparatives from the previous year. This will continue to be the case for each of the remaining quarters of fiscal 2017.
** The calculation of these non-International Financial Reporting Standards (“IFRS”) financial performance measures as well as their reconciliation to data prepared in accordance with IFRS is outlined under Non-IFRS Financial Performance Measures below.

Second Quarter Corporate Highlights

  • Stellwagen closed its acquisition of ECN Capital’s Commercial Aviation advisory and asset management business and integration is proceeding on plan
  • Acasta closed a new US$150 million credit facility (the “Stelloan Facility”), in part to fund Acasta’s US$100 million seed funding commitment for Stellwagen’s Senior Loan Fund. The first transaction in the fund was closed early in the third quarter
  • The Company continued to build out its private equity team with additional experienced professionals
  • A change in board membership reflected Acasta’s transition from a founder-based company to a long-term value focused investment company

“Acasta continues to execute on the plan we laid out in the first quarter as we move down the path of becoming an integrated asset manager,” said Anthony Melman, CEO of Acasta Enterprises. “We are focused on ensuring that our businesses deliver the results expected of them. The companies in our consumer products segment are embarking upon some key initiatives, leading to improved profitability and growth. Our aviation platform is pursuing its base business plan and is continuing to build its pipeline of transactions. The industry is characterized by long-lead times and the Stellwagen team is confident that over the next 6- 12 months it will see the business rebound to previous levels of activity”.

At the Company’s Annual General Meeting in June, shareholders elected three new directors to the board: Robert Schwartz, Founder and Chairman of Schwartz Heslin Group Inc., a New York-based investment banking, strategic advisory and valuation service provider; Jay Swartz, a partner at Davies Ward Phillips & Vineberg; and Michael Young, Founder and President of Quadrant Capital Partners, a real estate finance and advisory firm.

The Company announced it has withdrawn its estimates of fiscal year 2017 net income for the Aviation reportable segment and revenue, gross profit and Adjusted EBITDA for the Consumer Products reportable segment as well as its consolidated net asset value estimates as disclosed in the Company’s final prospectus for its qualifying acquisition dated December 2, 2016 for the following reasons:

  • Most significantly, in the six months ended June 30, 2017 the Aviation reportable segment’s performance has been materially affected by the delay in obtaining capital to finance two important elements of its business plan: the Stelloan Fund and opportunistic short-term on-balance sheet aircraft trading. This delay was primarily a result of the impact that the unexpectedly high level of redemptions of Class A Restricted Voting Shares in connection with the qualifying acquisition had on the Company’s liquidity. Although the planned capital has now been obtained through the US $150 million Stelloan Facility and the Stelloan Fund has been funded, the Company has determined that due to the long execution times generally required for aircraft trading transactions it is difficult to estimate the dollar volume of transactions that will be completed in the short term.
  • Secondarily, the Consumer Products reportable segment’s results have been affected by the Company’s decision to defer the potential combination of Apollo and JemPak in order to maintain current operational flexibility and therefore the synergies from the potential combination of these businesses will not be fully achieved in 2017.

Operating Results
Acasta's operating companies have been grouped into three segments for reporting purposes: Consumer Products, Aviation and Other.

The Consumer Products segment achieved a Net Income of $3.4 million for the second quarter of 2017. Adjusted Net Income and Adjusted EBITDA were $2.3 million and $13.3 million, respectively.

Net Loss for Stellwagen was $0.4 million for the second quarter of 2017, Adjusted Net Loss was $1.0 million and Adjusted EBITDA was $ $20.6 million.

On a consolidated basis Acasta’s Net Loss for the quarter was $1.2 million or $0.01 per share and the Company reported an Adjusted Net Loss of $3.4 million or $0.04 per share. The Company achieved EBITDA and Adjusted EBITDA of $32.4 and $30.3 million, respectively.

Our MD&A will provide additional details and breaks down the results from each of the reportable segments in our portfolio.

Acasta's second quarter fiscal 2017 financial statements and MD&A are available on the company website at www.acastaenterprises.com/investors or on the SEDAR website at www.sedar.com effective August 11, 2017.

Conference Call
Acasta's senior management will host a conference call on Friday, August 11, 2017 at 9:00 AM (E.D.T.) to discuss the Company's financial and operating results. Please call 416-340-2217 or toll-free (Canada/US) 1-800-806-5484 with passcode 8155967#. To ensure your participation, please join approximately five minutes prior to the scheduled start of the conference call.

Replay archive:

The conference call will be archived on the Company's website at www.acastaenterprises.com and will be available for replay at 905-694-9451 or toll-free 1-800-408-3053 with passcode 7346316#, expiring on February 11, 2018.

Investor Day
Acasta will be hosting an Investor Day on Tuesday, September 19 in Toronto. The event will provide the investment community with an opportunity to hear from Acasta Enterprises on strategy and from representatives of its companies and their operations. The half-day event will begin at 10:00 am and attendance is by invitation only. Materials related to the event will be made available on the Acasta website.

About Acasta Enterprises Inc.
Acasta Enterprises Inc. is a Canadian public company that acquires businesses with exceptional potential for value creation through strategic and transformational initiatives. As a proactive private equity manager, Acasta partners with the senior management teams of its acquired businesses, empowering them to pursue value creating trajectories.

Non-IFRS Financial Performance Measures
Adjusted net income, EBITDA and Adjusted EBITDA are not recognized measures under IFRS and this data may not be comparable to data presented by other companies.

Adjusted net income is calculated by adjusting net income (loss) as recorded in the unaudited condensed consolidated interim statements of income (loss) and comprehensive income (loss) for the exclusion of certain other income and expense items determined in accordance with IFRS. The Company believes that this generally accepted measure allows the evaluation of the results of continuing operations and is useful in making comparisons between periods. Adjusted net income is intended to provide investors with information about the Company's continuing income generating capabilities. Management uses this measure to monitor and plan for the operating performance of the Company in conjunction with other data prepared in accordance with IFRS.

EBITDA is calculated by adjusting net income (loss) as recorded in the unaudited condensed consolidated interim statements of income (loss) and comprehensive income (loss) for finance costs, current and deferred income tax, depreciation and amortization expenses. The Company believes that this generally accepted measure allows the evaluation of the results of continuing operations and is useful in making comparisons between periods. EBITDA is intended to provide investors with information about the Company's continuing income generating capabilities. Management uses this measure to monitor and plan for the operating performance of the Company in conjunction with other data prepared in accordance with IFRS.

Adjusted EBITDA is calculated by adjusting net income (loss) as recorded in the unaudited condensed consolidated interim statements of income (loss) and comprehensive income (loss) for the exclusion of certain other income and expense items determined in accordance with IFRS (the calculation for adjusted net income) and then further adjusting for interest, current and deferred income tax, depreciation and amortization expenses. The Company believes that this generally accepted measure allows the evaluation of the results of continuing operations and is useful in making comparisons between periods. Adjusted EBITDA is intended to provide investors with information about the Company's continuing income generating capabilities. Management uses this measure to monitor and plan for the operating performance of the Company in conjunction with other data prepared in accordance with IFRS.

ACASTA ENTERPRISES INC.
NON-IFRS FINANCIAL PERFORMANCE MEASURES RECONCILIATION
(In thousands of Canadian dollars, except share and per share amounts)

  Three Months Ended June 30, 2017   Three Months
Ended
June 30,
2016
Reportable Segments  
NON-IFRS FINANCIAL PERFORMANCE MEASURES Consumer
Products
  Aviation   Other Acasta
Consolidated
Acasta
Consolidated
Net income (loss) $3,449 $(397) $(4,294) $(1,242) $908
Gain on disposal of property, plant and equipment (1,289) (1,289)
ECN Acquisition transaction costs 628 628
Net (gain) loss on foreign exchange transactions (1,180) 26 (314) (1,468)
Adjusted net income (loss) $2,269 $(1,032) $(4,608) $(3,371) $908
Net income (loss) per share — basic and diluted $(0.01) $0.10
Adjusted net income (loss) per share — basic and diluted $(0.04) $0.10
Weighted average number of Class B shares outstanding 88,435,533 9,349,648
Finance costs $2,182 $6,929 $934 $10,045 $—
Current income tax expense 2,647 847 3,494
Deferred income tax recovery (1,424) (820) (2,244)
Depreciation of property, plant and equipment and amortization of intangible assets 7,660 14,721 22,381
EBITDA $14,514 $21,280 $(3,360) $32,434 $908
Adjusted EBITDA $13,334 $20,645 $(3,674) $30,305 $908

  Six Months Ended June 30, 2017   Six Months
Ended
June 30,
2016
Reportable Segments  
NON-IFRS FINANCIAL PERFORMANCE MEASURES Consumer
Products
  Aviation   Other Acasta
Consolidated
Acasta
Consolidated
Net income (loss) $5,318 $4,074 $(6,436) $2,956 $(7,163)
Gain on redemption of Class A Shares (3,699) (3,699)
Net gain on disposal of property, plant and equipment (206) (206)
Qualifying Acquisition transaction costs 4,627 4,627
ECN Acquisition transaction costs 628 628
Costs to prepare aircraft for sale 706 706
Net (gain) loss on foreign exchange transactions (936) 1 (409) (1,344)
Amortization of inventory fair value increment 1,946 1,946
Other non-recurring costs 359 359
Adjusted net income (loss) $6,687 $5,203 $(5,917) $5,973 $(7,163)
Net income (loss) per share — basic and diluted $0.03 $(0.77)
Adjusted net income (loss) per share — basic and diluted $0.07 $(0.77)
Weighted average number of Class B shares outstanding 87,049,295 9,349,648
Finance costs $3,228 $12,343 $1,126 $16,697 $—
Current income tax expense 5,663 1,865 7,528
Deferred income tax recovery (3,777) (1,557) (5,334)
Depreciation of property, plant and equipment and amortization of intangible assets 15,215 27,257 42,472
EBITDA $25,647 $43,982 $(5,310) $64,319 $(7,163)
Adjusted EBITDA $27,016 $45,111 $(4,791) $67,336 $(7,163)

ACASTA ENTERPRISES INC.
UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
(In thousands of Canadian dollars)

  As at
June 30,
2017
  As at
December 31,
2016
Current assets
Cash and cash equivalents $33,427 $187
Trade and other receivables 43,846 597
Inventories 38,582
Prepaid expenses and deposits 21,965 25
Restricted cash 405,002
Other current assets 368
$138,188 $405,811
Non-current assets
Property, plant and equipment $644,389 $—
Intangible assets 320,907
Goodwill 620,208
Other non-current assets 6,802 710
$1,592,306 $710
Total assets $1,730,494 $406,521
Liabilities
Current liabilities
Accounts payable and accrued liabilities $25,269 $8,779
Current portion of long-term debt 57,015
Class A Restricted Voting Shares subject to redemption 409,342
Income taxes payable 7,091
Other current liabilities 15,558 13,504
$104,933 $431,625
Non-current liabilities
Long-term debt $720,157 $—
Deferred tax liabilities 41,874
Other non-current liabilities 65,426
$827,457 $—
Total liabilities $932,390 $431,625
Shareholders’ equity
Share capital $849,383 $14,995
Warrants 3,939 3,939
Deficit (41,082) (44,038)
Accumulated other comprehensive loss (14,136)
Total shareholders’ equity $798,104 $(25,104)
Total liabilities and shareholders’ equity $1,730,494 $406,521

ACASTA ENTERPRISES INC.
UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS
OF INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
(In thousands of Canadian dollars, except share and per share amounts)

  Three months ended June 30,   Six months ended June 30,
2017   2016 2017   2016
Revenue $90,602 $459 $183,573 $916
Cost of revenue, expenses, and other items
Cost of revenue 43,629 88,343
Selling, general and administrative expense 39,705 356 78,637 834
Finance costs 10,045 16,697
Net unrealized (gain) loss on change in fair value of financial liabilities (805) (236) 7,245
Net gain on foreign exchange transactions (1,468) (1,344)
Other income, net (1,317) (3,674)
Income (loss) before income tax $8 $908 $5,150 $(7,163)
Current income tax expense 3,494 7,528
Deferred income tax recovery (2,244) (5,334)
Net income (loss) $(1,242) $908 $2,956 $(7,163)
Comprehensive (loss) income
Items that may be subsequently reclassified to net income (loss)
Foreign currency translation $(9,116) $— $(11,675) $—
Net movement in cash flow hedges, net of tax (3,491) (2,461)
Other comprehensive loss $(12,607) $— $(14,136) $—
Total comprehensive (loss) income $(13,849) $908 $(11,180) $(7,163)
Net income (loss) per share
Basic $(0.01) $0.10 $0.03 $(0.77)
Diluted $(0.01) $0.10 $0.03 $(0.77)
Other comprehensive loss per share
Basic $(0.14) $— $(0.16) $—
Diluted $(0.14) $— $(0.16) $—
Weighted average number of Class B Shares outstanding
Basic 88,435,533 9,349,648 87,049,295 9,349,648
Diluted 88,435,533 9,349,648 87,049,295 9,349,648

ACASTA ENTERPRISES INC.
UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(In thousands of Canadian dollars)

  Six months
ended
June 30,
2017
  Six months
ended
June 30,
2016
Operating activities
Net income (loss) $2,956 $(7,163)
Adjustments for non-cash items and other adjustments:
Depreciation of property, plant and equipment 12,714
Amortization of intangible assets 29,758
Gain on redemption of Class A Restricted Voting Shares (3,699)
Gain on disposal of property, plant and equipment (206)
Net unrealized (gain) loss on change in fair value of financial liabilities (236) 7,245
Finance costs (income) 16,697 (916)
Current income tax expense 7,528
Deferred income tax recovery (5,334)
Net gain on foreign exchange transactions (1,344)
Amortization of inventory fair value increment 3,355
Changes in non-cash working capital (42,225) 220
Net cash flows provided by (used in) operating activities $19,964 $(614)
Income taxes paid (3,620)
Cash provided by (used in) operating activities $16,344 $(614)
Investing activities
Additions to property, plant and equipment $(305,746) $—
Additions to intangible assets (68,463)
Proceeds on disposal of property, plant and equipment 53,744
Interest received on restricted cash held in escrow 921
Proceeds on maturity of restricted cash held in escrow 1,210,370
Investment in restricted cash and cash equivalents held in escrow (1,211,291)
Proceeds from restricted cash to finance acquisitions 106,240
Acquisition of Apollo (161,545)
Acquisition of JemPak (55,448)
Acquisition of Stellwagen (90,772)
Cash used in investing activities $(521,990) $—
Financing activities
Proceeds from long-term debt and credit facilities $475,630 $—
Repayment of long-term debt (62,724)
Payment of debt issuance costs (20,362)

Proceeds from restricted cash to fund redemption of Class A Restricted Voting Shares
and deferred underwriters’ commission

298,761
Redemption of Class A Restricted Voting Shares (285,680)
Proceeds from private placement of Class B Shares 159,551
Payment of deferred underwriters’ commission (13,081)
Payment of share issuance costs related to private placement (1,136)
Interest paid (14,040)
Cash provided by financing activities $536,919 $—
Net increase (decrease) in cash during the period $31,273 $(614)
Foreign exchange impact on cash held in foreign currencies 1,967
Cash and cash equivalents, beginning of period 187 3,096
Cash and cash equivalents, end of period $33,427 $2,482

Forward-Looking Statements
This news release may include forward-looking statements. All such statements constitute forward looking information within the meaning of securities law and are made pursuant to the “safe harbour” provisions of applicable securities laws. Forward-looking statements may include, but are not limited to, statements about anticipated future events or results including comments with respect to the Company’s objectives and priorities for 2017 and beyond, and strategies or further actions with respect to the Company, its business operations, financial performance and condition. Forward-looking statements are statements that are predictive in nature, depend upon or refer to future events or conditions and are identified by words such as “will”, “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates” or similar expressions concerning matters that are not historical facts. Such statements are based on current expectations of the Company’s management and inherently involve numerous risks and uncertainties, known and unknown, including economic factors. The forward-looking information contained in this news release is presented for the purpose of assisting readers in understanding the Company’s business and strategic priorities and objectives as at the periods indicated and may not be appropriate for other purposes. A number of risks, uncertainties and other factors may cause actual results to differ materially from the forward-looking statements contained in this news release, including, among other factors, those referenced in the section entitled “Risk Factors” in the Company’s annual information form for the year ended December 31, 2016, a copy of which is available on the SEDAR website at www.sedar.com under the Company’s profile. Forward-looking statements contained in this news release are not guarantees of future performance and, while forward-looking statements are based on certain assumptions that the Company considers reasonable, actual events could differ materially from those expressed or implied by forward-looking statements made by the Company. Readers are cautioned to consider these and other factors carefully when making decisions with respect to the Company and not place undue reliance on forward-looking statements. Circumstances affecting the Company may change rapidly. Except as may be expressly required by applicable law, Acasta does not undertake any obligation to update publicly or revise any such forward-looking statements, whether as a result of new information, future events or otherwise.

Contact:

Acasta Enterprises Inc.
Ian Kidson, 647-725-6707
Chief Financial Officer and Chief Operating Officer