Hammond Power Solutions Reports Strong First Quarter

GUELPH, Ontario — Hammond Power Solutions Inc. announced its financial results for the first quarter of 2016.

(Dollar amounts are in thousands unless otherwise specified)

FIRST QUARTER RESULTS

Sales for the quarter-ended April 2, 2016 were $68,722, an increase of $5,585 or 8.8% from Quarter 1, 2015 sales of $63,137. U.S. sales decreased by $433 or 1.1%, finishing at $38,690 for Quarter 1, 2016 compared to $39,123 in Quarter 1, 2015. The decrease in U.S. sales was expected given the abnormally stronger Quarter 4, 2015 sales demand impacted by the new Department of Energy (“DOE”) regulations that became effective January 1, 2016. Canadian sales were $17,925 for the quarter, an increase of $1,247 or 7.5% from Quarter 1, 2015 sales of $16,678. International sales for Quarter 1, 2016 finished at $12,107 versus $7,336 in Quarter 1, 2015 a significant increase of $4,771 or 65.0%.

The Company increased bookings 5.7% over Quarter 1, 2015 due to stronger bookings in both the distributor and direct channels in North America. Booking rates in the distributor channel increased 9.4% over Quarter 1, 2015. On a direct channel basis, bookings were higher than Quarter 1, 2015 by 2.5%. Backlog increased 7.2% over Quarter 4, 2015. This change was due primarily to order mix and an increased level of energy efficient transformer orders for the U.S. distributor market.

Gross margin rates for Quarter 1, 2016 were 24.3% compared to Quarter 1, 2015 margin rates of 22.2%; an improvement of 2.1% of sales. The change in margin rates can be attributed to product and customer mix, pricing gains, and lift in manufacturing throughput due to the increased sales levels.

Bill Hammond commented, “I am pleased to report that our Quarter 1, 2016 performance exceeded our expectations in these challenging economic times. The Company attained increases in both sales and margins compared to the same quarter a year ago.”

Total selling and distribution expenses were $7,637 in Quarter 1, 2016 or 11.1% of sales versus $6,746 in Quarter 1, 2015 or 10.7% of sales, an increase of $891 or 13.2%. The Company held it general and administrative spending rates in the quarter as compared to Quarter 1, 2015.

General and administrative expenses for Quarter 1, 2016 totaled $6,411 or 9.3% of sales, an increase of $589 from Quarter 1, 2015 expenses of $5,822 or 9.2% of sales.

Quarter 1, 2016 earnings from operations were $2,677, an increase of $1,231 or 85.1% from $1,446 for the same quarter last year. The improvement in the quarter is a result of higher sales and increased gross margin dollar contribution.

Interest expense for Quarter 1, 2016 finished at $201, an increase of $85 or 73.3% compared to the Quarter 1, 2015 expense of $116 as a result of higher operating debt levels due to the joint venture investment, operational capital expenditures and working capital.

The foreign exchange loss in Quarter 1, 2016 was $321. This loss relates primarily to the transactional exchange pertaining to the Company’s U.S. dollar trade accounts payable in Canada compared to a foreign exchange gain of $290 in Quarter 1, 2015.

The joint venture, Corefficient S. de R.L. de C.V., designs, manufactures and sells energy efficient electrical cores, a major component used in dry type and liquid filled transformers. These electrical cores comply with new U.S. energy efficiency standards that came into effect January 1, 2016. The Quarter 1, 2016 share of loss of investment in joint venture was $528, primarily as a result of start-up costs and lower manufacturing capacity utilization.

Net earnings for Quarter 1, 2016 increased by $103 or 13.2% and finished at $884 compared to net earnings of $781 in Quarter 1, 2015. This growth in the quarter earnings is a result of higher sales, increased gross margin, partially offset by foreign exchange losses and startup losses on the investment in the joint venture. Excluding the share of loss of investment in joint venture, net earnings would have been $1,412, an increase of $631 or 80.8% from the Quarter 1, 2015 earnings.

Basic earnings per share was $ 0.07 for Quarter 1, 2016, excluding the share of loss of investment in joint venture,the adjusted basic earnings per share would have been $0.12 as compared to $0.07 EPS in Quarter 1,2015.

Net cash used in operating activities for Quarter 1, 2016 was $3,380 versus cash provided by operating activities of $421 in Quarter 1, 2015, a decrease of $3,801. During the quarter, non- cash working capital used cash of $3,731 compared to $2,880 for the same quarter last year.

The Company’s overall operating debt balance net of cash was $17,579 in Quarter 1, 2016 compared to $14,419 in Quarter 1, 2015, an increase in debt position of $3,160 primarily reflecting joint venture funding.

The Company continued with its regular quarterly dividend program, paying six cents ($0.06) per Class A Subordinate Voting Share of HPS and six cents ($0.06) per Class B Common Share of HPS on March 25, 2016.

Hammond concluded, “We remain cautious and mindful of the continuing uncertainty that is currently holding back growth rates in certain parts of the world. However, we believe Hammond Power Solutions is well placed to deliver profitable growth over time given our diversified geographic, market, and product positions combined with our well-developed engineering and manufacturing capabilities.”

FINANCIAL RESULTS