CUI Global Reports Third Quarter 2019 Financial Results

News provided by

CUI Global, Inc.

Nov 12, 2019, 16:05 ET

TUALATIN, Ore., Nov. 12, 2019 /PRNewswire/ -- CUI Global, Inc. (NASDAQ: CUI), (the "Company") today reported unaudited financial results for the three and nine months ended September 30, 2019.

Note: In accordance with ASC 360-10 Impairment and Disposal of Long-Lived Assets and ASC 205-20 Discontinued Operations, as a result of CUI Global's divestiture of its Electromechanical components business on September 30, 2019, and the classification of the majority of the remaining assets and liabilities that comprise the Power and Electromechanical segment, as held for sale within 12 months the Company has reclassified its Power and Electromechanical segment as discontinued operations for the three and nine-month periods ended September 30, 2019 and September 30, 2018. As a result, the review of the third quarter results presented here focuses on the Company's continuing operations, which consists of its Energy segment. On November 8, 2019, the Company entered into an asset purchase agreement to sell the majority of its Power business for $32.0 million.

Third Quarter 2019 Unaudited Financial Performance Summary: (comparisons to prior year period)

  • Total revenues were $6.1 million compared to $5.2 million;
  • Gross profit was $1.4 million compared to $1.3 million;
  • Gross margin was 23.4% compared to 25.6%;
  • Operating loss was $3.7 million compared to an operating loss of $3.3 million.

Nine Months 2019 Unaudited Financial Performance Summary: (comparisons to prior year period)

  • Total revenues were $17.8 million compared to $12.9 million;
  • Gross profit was $4.3 million compared to $3.0 million;
  • Gross margin was 24.3% compared to 23.6%;
  • Operating loss was $11.1 million compared to an operating loss of $13.3 million.

Balance Sheet and Backlog Summary:

  • Cash and cash equivalents were $1.7 million at September 30, 2019.
  • Debt as of September 30, 2019 was $0.9 million including $0.7 million on a line of credit that is classified as liability held for sale.
  • Energy segment backlog was $10.8 million at September 30, 2019 as compared to $15.7 million at December 31, 2018.

Financial Accounting Standard Board Accounting Standard Update 2016-02

Effective January 1, 2019, the Company adopted Financial Accounting Standard Board Accounting Standard Update 2016-02, Leases (Topic 842), which requires lessee recognition of lease assets and lease liabilities on the balance sheet, at the beginning of fiscal 2019.  As a result of the new lease standard, at September 30, 2019, $5.6 million was included with non-current assets, $0.8 million with current liabilities and $5.0 million with non-current liabilities, on the condensed consolidated balance sheets.

"Our third quarter results reflect continued strength in our engineering and integration services in North America that offset lower revenue from our U.K. operations due to the continued headwinds associated with Brexit," said William Clough, executive chairman of CUI Global. "We also took steps to unlock the value of our Power and Electromechanical segment in support of CUI Global's strategy to become a diversified energy infrastructure services company. We completed the sale of our Electromechanical components business during the quarter and yesterday announced the sale of the majority of our remaining Power business to Bel Fuse for $32 million. With these transactions, we move forward with a recast balance sheet and the financial resources to support the company's Energy-centric growth strategy with Jim O'Neil as CEO."

Jim O'Neil, vice chairman and CEO of CUI Global, stated, "Secular trends in the oil and natural gas, electric power and telecommunications industries have created a sustained market opportunity that is ripe for a market entrant with a differentiated value proposition and disciplined acquisition strategy. With the divestiture of the majority Power and Electromechanical segment, we turn our full attention to executing on our strategy to diversify our Energy business into the infrastructure services market and build a recurring revenue and earnings stream through acquisitions and organic growth. With CUI Global as the foundation of a diversified platform for growth, we believe we have the right strategy and the financial means to establish the company as an industry leader and support a sustainable growth trajectory."

Conference Call

Management will host a conference call today, November 12, 2019 at 5:00 PM ET to discuss these results as well as recent corporate developments. After management's opening remarks, there will be a question and answer period. To access the call, please dial (888) 734-0328 and provide conference ID 3962226. For international callers, please dial (678) 894-3054. The live webcast of the conference call and accompanying slide presentation can be accessed through the 'Events & Presentations' page of the CUI Global Investor Relations website (www.cuiglobal.com).

For those unable to attend the live call, a telephonic replay will be available until November 28, 2019. To access the replay of the call dial (855) 859-2056 or (404) 537-3406 and provide conference ID 3962226. An archived copy of the webcast and slide presentation will also be available on the 'Events & Presentations' page of the CUI Global Investor Relations website.

About CUI Global, Inc.

Delivering Innovative Technologies for an Interconnected World . . . . .

CUI Global, Inc. is a publicly traded company dedicated to maximizing shareholder value through the acquisition and development of innovative companies to create a diversified energy services platform. CUI Global's Energy business, Orbital Gas Systems is a leader in innovative gas solutions with more than 30 years of experience in design, installation and the commissioning of industrial gas sampling, measurement and delivery systems providing solutions to the energy, power and processing markets.  Orbital Gas Systems manufactures and delivers a broad range of technologies including environmental monitoring, gas metering, process control, telemetry, gas sampling and BioMethane. As a publicly traded company, shareholders can participate in the opportunities, revenues, and profits generated by the products, technologies, and market channels of CUI Global and its subsidiaries. But most important, a commitment to conduct business with a high level of integrity, respect, and philanthropic dedication allows the organization to make a difference in the lives of their customers, employees, investors and global community.

For more information please visit: http://www.cuiglobal.com

Important Cautions Regarding Forward Looking Statements

This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are subject to risks and uncertainties that could cause actual results to vary materially from those projected in the forward-looking statements. The Company may experience significant fluctuations in future operating results due to a number of economic, competitive, and other factors, including, among other things, our reliance on third-party manufacturers and suppliers, government agency budgetary and political constraints, new or increased competition, changes in market demand, and the performance or reliability of our products. These factors and others could cause operating results to vary significantly from those in prior periods, and those projected in forward-looking statements. Additional information with respect to these and other factors, which could materially affect the Company and its operations, are included in certain forms the Company has filed with the Securities and Exchange Commission.

CUI Global Investor Relations Counsel:
LHA Investor Relations
Sanjay M. Hurry
T: 212-838-3777
cuiglobal@lhai.com

CUI Global, Inc.

Condensed Consolidated Balance Sheets






September 30,


December 31,

(in thousands, except share and per share amounts)

2019


2018


(unaudited)



Assets:




Current Assets:




Cash and cash equivalents

$

1,728



$

3,979


Trade accounts receivable, net of allowance of $25




and $17, respectively

4,589



5,034


Inventories

1,580



1,622


Contract assets

2,567



1,744


Note receivable, current portion

—



318


Prepaid expenses and other current assets

1,462



1,512


Assets held for sale - current

30,486



21,272


Total current assets

42,412



35,481






Property and equipment, less accumulated depreciation of




1,284 and $1,182, respectively

4,211



4,536


Investment in VPS - equity method

5,198



—


Right of use assets - Operating leases

5,615



—


Other intangible assets, less accumulated amortization of $9,462




and $8,889, respectively

4,271



5,314


Restricted cash

—



523


Note receivable - related party

3,183



—


Convertible note receivable

—



655


Deposits and other assets

69



508


Assets held for sale - noncurrent

—



23,150


Total assets

$

64,959



$

70,167






Liabilities and Stockholders' Equity:




Current Liabilities:




Accounts payable

$

3,096



$

1,520


Short-term overdraft facility

—



1,344


Notes payable - current

269



—


Operating lease obligations - current portion

754



—


Accrued expenses

2,599



1,893


Contract liabilities

2,222



1,956


Deferred gain on leaseback, current portion

—



289


Liabilities held for sale - current

10,059



11,584


Total current liabilities

18,999



18,586






Operating lease obligations, less current portion

4,977



—


Deferred tax liabilities

1,584



1,914


Deferred gain on leaseback, less current portion

—



2,599


Liabilities held for sale - noncurrent

—



5,327


Other long-term liabilities

166



203


Total liabilities

25,726



28,629






Commitments and contingencies








Stockholders' Equity:




Preferred stock, par value $0.001; 10,000,000 shares authorized;




no shares issued at September 30, 2019 or December 31, 2018

—



—


Common stock, par value $0.001; 325,000,000 shares




authorized; 28,680,260 shares issued and outstanding at




September 30, 2019 and 28,552,886 shares issued and




outstanding at December 31, 2018

29



29


Additional paid-in capital

170,049



169,898


Accumulated deficit

(126,685)



(123,993)


Accumulated other comprehensive loss

(4,160)



(4,396)


Total stockholders' equity

39,233



41,538


Total liabilities and stockholders' equity

$

64,959



$

70,167



CUI Global, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)





(In thousands, except per share amounts)

For the three months ended September 30,


 For the nine months ended September 30,


2019


2018


2019


2018









Total revenues

$

6,073



$

5,155



$

17,793



$

12,908










Cost of revenues

4,652



3,834



13,464



9,860










Gross profit

1,421



1,321



4,329



3,048










Operating expenses:








Selling, general and administrative

4,793



4,222



14,092



13,773


Depreciation and amortization

359



382



1,136



1,145


Research and development

20



47



123



116


Provision (credit) for bad debt

(18)



4



110



5


Impairment of goodwill

—



—



—



1,263


Other operating income

(11)



—



(13)



—










Total operating expenses

5,143



4,655



15,448



16,302










Continuing loss from operations

(3,722)



(3,334)



(11,119)



(13,254)










Loss from equity method investment in VPS

(354)



—



(710)



—


Fair value gain on equity method investment
purchase

—



—



629



—


Other income (expense)

(463)



(43)



(575)



(79)


Interest expense

(4)



(60)



(35)



(164)










Loss from continuing operations before taxes

(4,543)



(3,437)



(11,810)



(13,497)










Income tax benefit

(1,310)



(396)



(1,598)



(1,042)










loss from continuing operations

(3,233)



(3,041)



(10,212)



(12,455)










Discontinued operations








Income from operations of discontinued
electromechanical components business (including
gain on disposal of $3,631)

3,944



1,760



5,598



3,656


Income tax expense

1,023



253



966



762


Income from discontinued operations

2,921



1,507



4,632



2,894










Net loss

$

(312)



$

(1,534)



$

(5,580)



$

(9,561)










Basic and diluted weighted average








common shares outstanding

28,691,206



28,527,234



28,636,918



28,507,286










Loss from continuing operations per common share
- basic and diluted

$

(0.11)



$

(0.11)



$

(0.35)



$

(0.44)










Earnings from discontinued operations - basic and
diluted

0.10



0.06



0.16



0.10










Earnings per common share - basic and diluted

$

(0.01)



$

(0.05)



$

(0.19)



$

(0.34)


CUI Global, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)



(in thousands)

For the nine months ended September 30,


2019


2018

CASH FLOWS FROM OPERATING ACTIVITIES:




Net loss

$

(5,580)



$

(9,561)


Adjustments to reconcile net loss to net cash used in




operating activities:




Depreciation

645



816


Amortization of intangibles

1,326



1,429


Stock issued and stock to be issued for compensation, royalties and services

155



188


Unrealized gain on derivative liability

—



(164)


Non-cash loss on equity method investment in VPS

710



—


Non-cash fair value gain on equity method investment purchase

(629)



—


Gain on sale of electromechanical components business

(3,631)



—


Provision for (credit to) bad debt expense

90



(10)


Deferred income taxes

(644)



(352)


Inventory reserve

135



274


Non-cash unrealized foreign currency gains

614



135


Impairment of goodwill

—



1,263


(Gain) loss on disposal of assets

(13)



3






(Increase) decrease in operating assets:




Trade accounts receivable

1,196



(1,439)


Inventories

(31)



(3,727)


Contract assets

(891)



160


Prepaid expenses and other current assets

362



(285)


Right of use assets - Operating leases

743



—


Deposits and other assets

(248)



13


Increase (decrease) in operating liabilities:




Accounts payable

2,406



520


Operating lease liabilities

(687)



—


Accrued expenses

(122)



684


Refund liabilities

(367)



953


Contract liabilities

246



(853)


NET CASH USED IN OPERATING ACTIVITIES

(4,215)



(9,953)






CASH FLOWS FROM INVESTING ACTIVITIES:




Purchases of property and equipment

(278)



(644)


Proceeds from sale of property and equipment

14



—


Cash paid for other intangible assets

(269)



(348)


Cash paid for convertible notes receivable

—



(500)


Cash paid for equity-method Investment

(1,615)



—


Proceeds from Notes receivable

313



—


Proceeds from sale of restricted investment

400



—


Proceeds from components division sale

4,696



—


NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

3,261



(1,492)






CASH FLOWS FROM FINANCING ACTIVITIES:




Proceeds from overdraft facility

6,842



13,895


Payments on overdraft facility

(8,208)



(12,570)


Proceeds from line of credit

20,889



6,696


Payments on line of credit

(21,188)



(6,039)


Payments on financing lease obligations

(3)



(2)


Payments on mortgage note payable

—



(71)


Payments on notes payable

(88)



—


Payments on contingent consideration

—



(45)


NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES

(1,756)



1,864






Effect of exchange rate changes on cash

(64)



148


Net decrease in cash, cash equivalents and restricted cash

(2,774)



(9,433)


Cash, cash equivalents and restricted cash at beginning of period

4,502



12,646


CASH AND CASH EQUIVALENTS AT END OF PERIOD

$

1,728



$

3,213


Reconciliation of Non-GAAP Financial Measures

EBITDA, Adjusted EBITDA and Adjusted Net Income (loss) are non-GAAP financial measures and are reconciled in the table below. These non-GAAP financial measures do not represent funds available for management's discretionary use and is not intended to represent cash flow from operations. EBITDA, Adjusted EBITDA and Adjusted Net Income (loss) should not be construed as a substitute for net loss or as a better measure of liquidity than cash flow from operating activities, which is determined in accordance with United States generally accepted accounting principles ("GAAP"). EBITDA, Adjusted EBITDA and Adjusted Net Income (loss) exclude components that are significant in understanding and assessing the Company's results of operations and cash flows. In addition, EBITDA, Adjusted EBITDA and Adjusted Net Income (loss) are not terms defined by GAAP and as a result our measure of EBITDA, Adjusted EBITDA and Adjusted Net Income (loss) might not be comparable to similarly titled measures used by other companies. However, EBITDA, Adjusted EBITDA and Adjusted Net Income (loss) are used by management to evaluate, assess and benchmark the company's operational results and the Company believes EBITDA, Adjusted EBITDA, and Adjusted Net Income (loss) are relevant and useful information which are often reported and widely used by analysts, investors and other interested parties in the Company's industry. Accordingly, the Company is disclosing this information to permit a more comprehensive analysis of its operating performance, to provide an additional measure of performance and liquidity and to provide additional information with respect to the Company's ability to meet future debt service, capital expenditure and working capital requirements. Adjusted Net Income (loss) eliminates the amortization expenses associated with intangible assets acquired with Orbital Gas Systems Limited and CUI-Canada, as well as non-cash expenses associated with stock and stock options for compensation, royalties and services during the period, impairment of goodwill, the non-cash gains and loss on the Company's equity-method investment and the non-cash gain on the sale of a discontinued operation.

(in thousands)









For the Three Months Ended


For the nine months ended


September 30,


September 30,


2019


2018


2019


2018

EBITDA *:








Net loss

$

(312)



$

(1,534)



$

(5,580)



$

(9,561)


Plus:  Interest expense

105



132



309



370


Plus: Income tax expense (benefit)

(287)



(143)



(632)



(280)


Plus:  Depreciation and amortization

602



742



1,971



2,245


EBITDA

108



(803)



(3,932)



(7,226)


















Adjusted EBITDA *:








Gain on disposal of discontinued operation

(3,631)



—



(3,631)



—


Plus: Provision (credit) for bad debt

(48)



24



90



(10)


Plus: Impairment of goodwill

—



—



—



1,263


Plus:  Unrealized gain on derivative

—



(38)



—



(164)


Plus:  Stock and options issued and stock to be issued for
compensation, royalties and services

44



42



155



188


Fair value gain on equity method investment purchase

—



—



(629)



—


Plus: Non-cash loss on equity-method investment

354



—



710



—


Adjusted EBITDA

$

(3,173)



$

(775)



$

(7,237)



$

(5,949)










Adjusted net loss *:








Net loss

$

(312)



$

(1,534)



$

(5,580)



$

(9,561)


Gain on disposal of discontinued operation

(3,631)



—



(3,631)



—


Plus: Impairment of goodwill

—



—



—



1,263


Plus:  Amortization expense of Orbital and CUI -
    Canada acquisition intangibles

286



300



883



936


Plus:  Stock and options issued and stock to be issued for
compensation, royalties and services

44



42



155



188


Fair value gain on equity method investment purchase

—



—



(629)



—


Plus: Non-cash loss on equity-method investment

354



—



710



—


Adjusted net loss

$

(3,259)



$

(1,192)



$

(8,092)



$

(7,174)










* Includes the combined totals from continuing and discontinued operations.

SOURCE CUI Global, Inc.