Core Molding Technologies(CMT) - 2020 Q1 - Quarterly Report

Part I — Financial Information Item 1. Financial Statements Q1 2020 financials show a return to profitability via a tax benefit, despite a working capital deficit from debt covenant breaches Consolidated Statements of Income (Loss) Q1 2020 vs Q1 2019 Income Statement Highlights | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net sales | $64,023,000 | $72,266,000 | | Gross margin | $10,766,000 | $3,149,000 | | Operating income (loss) | $4,261,000 | $(4,017,000) | | Net income (loss) | $7,961,000 | $(3,845,000) | | Diluted net income (loss) per share | $0.97 | $(0.49) | - The company shifted from an operating loss to an operating profit in Q1 2020 despite an 11.4% decrease in net sales, driven by a substantial $4.9M income tax benefit[7][10] Consolidated Balance Sheets Balance Sheet Summary | Metric | March 31, 2020 (Unaudited) | December 31, 2019 | | :--- | :--- | :--- | | Total current assets | $59,105,000 | $61,225,000 | | Total assets | $174,716,000 | $179,306,000 | | Total current liabilities | $72,455,000 | $83,834,000 | | Total liabilities | $83,994,000 | $94,880,000 | | Total stockholders' equity | $90,722,000 | $84,426,000 | - As of March 31, 2020, the company had a working capital deficit of $13.4M, as $44.2M in long-term debt was reclassified as current due to covenant violations[19][35] Consolidated Statements of Cash Flows Q1 2020 vs Q1 2019 Cash Flow Summary | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,379,000 | $2,885,000 | | Net cash used in investing activities | $(456,000) | $(3,404,000) | | Net cash used in financing activities | $(5,357,000) | $(582,000) | - Cash from operations improved year-over-year, while cash used in investing decreased and cash used in financing increased due to net debt repayments[26] Notes to Consolidated Financial Statements - A "Going Concern" uncertainty exists due to non-compliance with debt covenants, resulting in $44.9M of debt being classified as a current liability[32][35][36] - The company is operating under an Amended Forbearance Agreement extended through May 29, 2020, with refinancing efforts delayed by the COVID-19 pandemic[35][38][89] - The CARES Act provided a significant benefit, resulting in a $6.2M income tax receivable and a $5.6M recognized income tax benefit for the quarter[101][103] Sales to Major Customers (Q1 2020 vs Q1 2019) | Customer | Q1 2020 Sales | Q1 2019 Sales | Change | | :--- | :--- | :--- | :--- | | Navistar | $10,765,000 | $14,292,000 | -24.7% | | Volvo | $9,098,000 | $14,622,000 | -37.8% | | UFP | $8,987,000 | $6,121,000 | +46.8% | | PACCAR | $8,156,000 | $11,985,000 | -31.9% | | BRP | $7,467,000 | $5,638,000 | +32.4% | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the Q1 2020 operational turnaround to manufacturing efficiencies despite lower sales, while highlighting liquidity challenges from debt covenant breaches Results of Operations - Q1 2020 product sales decreased 13% year-over-year, driven by a 34% decline in sales to truck customers[136][137] - Gross margin improved to 17% from 4% in Q1 2019, driven by favorable product mix, manufacturing efficiency, and better pricing[141] - SG&A expenses decreased to $6.5M from $7.2M in the prior year due to lower professional fees[142] - Net income was favorably impacted by $5.6M ($0.69 per share) from a tax benefit related to the CARES Act[138][144] Liquidity and Capital Resources - As of March 31, 2020, the company was not in compliance with its Fixed Charge Coverage and Leverage Ratio covenants[153] - Due to the covenant default, the entire $44.9M debt balance was classified as a current liability, causing a $13.4M working capital deficit[163] - The company is operating under an Amended Forbearance Agreement extended to May 29, 2020, while negotiating a further extension[159][160][161] - At quarter-end, the company had $1.4M in cash and $12.2M available on its revolving line of credit[150] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks include commodity prices, interest rates on variable-rate debt, and foreign currency fluctuations - The company is exposed to market risk from variable interest rates, foreign currency exchange rates, and commodity prices for raw materials[169][170] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2020 - Management concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[175] Part II — Other Information Legal Proceedings The company is not involved in any legal proceedings expected to have a material adverse effect on its financials - The company is not presently involved in any legal proceedings likely to have a material adverse effect on its financial condition or operations[178] Risk Factors A new risk factor was added regarding the significant uncertainty and potential adverse impacts of the COVID-19 pandemic - A new risk factor addresses the highly uncertain adverse impact of the COVID-19 pandemic on the business, operations, and financial condition[179][180] - The pandemic has negatively impacted product demand and could disrupt manufacturing, supply chains, and access to financing[181] Other Items (Items 2, 3, 4, 5, 6) This section confirms no reportable events occurred under several items, including unregistered sales of equity or defaults - The company reported no activity for Unregistered Sales of Equity Securities, Defaults Upon Senior Securities, or Mine Safety Disclosures[182]