Mr. Duncan Heinz reports

IBC ADVANCED ALLOYS REPORTS FISCAL Q1 2018 FINANCIAL RESULTS

IBC Advanced Alloys Corp. has released its financial results for the quarter ended Sept. 30, 2017, which is the company's first fiscal quarter of 2018.

Sales increased 36 per cent in the quarter as compared with the quarter ended Sept. 30, 2016, with engineering materials division sales expanding by 142 per cent. Both operating divisions swung to positive gross margins from negative gross margins in the year-ago period. The company narrowed its per-share loss in the quarter on both a sequential and year-on-year basis, and is working to achieve profitability in the quarter ending on March 31, 2018.

"We made good progress in this past quarter, in spite of some challenges, and we continue to advance toward our goals of becoming profitable and continued market penetration," said Major Gen. Duncan Heinz (USMC, retired), president, chief executive officer and director of IBC. "Engineered materials division sales grew sharply in the quarter, and that division is now very close to profitability. Our copper alloys division also is trending in the right direction now that they are largely past a temporary loss of personnel on the factory floor in our Franklin, Ind., plant that unexpectedly impacted them last quarter.

"Corporate costs have decreased significantly, and we achieved a significant swing to positive gross margins across both operating divisions," the general noted. "I think it is reasonable to expect profitability in the fiscal third quarter, given that there are likely some product delivery timing issues that we could encounter in December that might delay recognition until Q3. That said, I very much like IBC's trajectory, and I expect we will be able to show additional progress toward profitability in fiscal Q2.

"The challenges we faced in the first month of fiscal Q1 were the result of a combination of significant real-life personnel issues in one key manufacturing area in the copper alloys division," the general said. "As a result, we failed to deliver on orders in July, which pushed deliveries beyond due dates. As a result, orders for Q2 flattened somewhat because of our temporary inability to meet delivery commitments. However, I am very pleased to report that customers have remained loyal, and we are now seeing orders on the rise, including orders from both existing and new customers that are driven in part by our expanded production capabilities with the solution annealing furnace and quench tank that we installed earlier this year.

"Our EMC division is really starting to hit its stride now, and we are continuing to improve rate, throughput and performance with our upgraded beryllium-aluminum alloy furnace and with the advanced support infrastructure we have deployed along with it," he said. "In addition to delivering our innovative precision-cast Beralcast products to current customers, we continue to work toward commercialization of additional Beralcast products for other defence and non-defence applications.

"Our team's work to develop scandium-contained alloys is also progressing," Gen. Heinz concluded. "While our business strategy in this effort must remain confidential at this point, we will make announcements as appropriate. What I can say with confidence is that the markets are there for the innovative alloys we intend to develop. We have a solid plan to penetrate our target markets with these products."

The company's fiscal Q1 2018 financial statements, and management's discussion and analysis are available for review on SEDAR. Below are some highlights of the results.

Fiscal Q1 2018 highlights (all financial amounts in U.S. dollars)

Consolidated results

Sales revenue for the quarter totalled $4.3-million, a 32-per-cent increase over sales of $3.6-million for the quarter ended on Sept. 30, 2016, and a 2.7-per-cent increase over the preceding quarter.

The company narrowed its loss in the quarter to $602,000 or two cents per basic and diluted share. This compares with a loss of $1.6-million, or five cents per share, in the comparable year-ago period, and a loss of $2.2-million, or seven cents per share, in the preceding quarter.

Gross profits and gross margin swung to positive territory as compared with the quarter ended Sept. 30, 2016. Gross profit totalled $396,000, compared with a gross loss of $479,000 in the year-ago period. Gross margin rose to 9 per cent, compared with a gross margin of negative 15 per cent in the comparable year-ago period, a gross margin of 6 per cent in the preceding quarter and a 0-per-cent gross margin for fiscal 2016.

Corporate expenses decreased 55 per cent to $198,000 from expenses of $440,000 in the quarter ended Sept. 30, 2016, largely due to savings achieved by closing the company's Vancouver office in fiscal 2017. Corporate expenses were higher on a sequential basis, however, as the company recovered professional fees expense at its fiscal year-end.

As of Sept. 30, 2017, the company reported a working capital deficiency of $867,000, including cash of $463,000. This compares with a working capital deficiency of $1.5-million at June 30, 2017. The company noted that it expects to seek additional funds in the short term to finance working capital and growth initiatives, and is examining a range of options, including debt financing, possible asset sales and other alternatives.

Copper alloy segment results

Copper alloy sales increased 7 per cent in the quarter to $2.9-million, compared with sales of $2.7-million in the quarter ended Sept. 30, 2016. Sales declined 8 per cent from $3.1-million in the preceding quarter, due largely to labour shortages in the company's Franklin forging facility early in the quarter. This was partially offset by increased sales through the company's Royersford, Pa., foundry, particularly to customers supplying the material. Management believes that customers delayed orders during this time, and order bookings are expected to improve.

Other financial results for the quarter, on a year-on-year basis, included these:

• Average selling prices increased 10 per cent in the quarter, partially offsetting a decline in overall sales volume. Sales to metal service centre customers decreased slightly, while most other market sectors improved, particularly original equipment manufacturers.
• Operating losses were cut by 46 per cent to a loss of $269,000 from a loss of $498,000.
• Cost of sales declined 3.6 per cent to $2.6-million from $2.7-million.
• Order bookings increased 15 per cent to $3.1-million from $2.7-million. Order backlog in the quarter decreased 20 per cent to $2.9-million from $3.6-million in the preceding quarter.
• Gross margin for copper alloys swung to a positive 8 per cent from a negative 2 per cent.

Looking forward, the company expects its copper alloy division sales to increase as it begins shipping all awarded forged and machined copper alloy products to a Fortune 100 electronics manufacturer. IBC has been shipping two qualified parts to this customer, and has produced samples of the remaining four parts that have been ordered and are currently undergoing first article inspection.

Engineered materials (EMC) segment results

EMC division sales rose sharply in the quarter, up 142 per cent to $1.5-million, compared with $598,000 in the year-ago period. Sales also increased sequentially, up 34 per cent from $1.1-million in the quarter ended June 30, 2017. Sales volumes of both commercial castings, and aerospace and defence castings increased significantly. Gross profit increased $593,000, from a loss of $418,000 in the year-ago period to a profit of $175,000, due to the volume increases. Operating losses decreased $591,000, from a loss of $659,000 in the year-ago period to a loss of $68,000, due to improved gross profit.

While the company completed structural upgrades and subsystems to its new beryllium-aluminum alloy furnace in May, 2017, it temporarily halted production as the existing furnace components were removed and the new components installed. While production was halted, it continued to ship commercial castings from stock. Sales volumes of commercial castings increased slightly, while sales volumes of aerospace and defence castings increased 267 per cent. Gross profit improved $319,000 as production resumed. Operating losses decreased by 84 per cent to a loss of $68,000, from a loss in the preceding quarter of $430,000. Gross margin improved sequentially to a positive 12 per cent from a negative 13 per cent.

Following installation and commissioning in May, 2017, of a new vacuum induction melting (VIM) furnace in the division's Wilmington, Mass., production facility, the company also installed advanced automation and real-time process monitoring systems, thereby facilitating a significant step change in capability. With improved cycle time, the daily melt capacity in the EMC division has increased by 25 per cent. Combined with additional shifts, reduced maintenance downtime and expected yield improvements, this capital improvement has positioned EMC to significantly increase output to meet increased customer demand.

The company reported that it is continuing to make deliveries to Lockheed Martin of azimuth gimbal housings for the F-35 Lightning II jet fighter under the low rate of production (LRIP) lot 11. This the third contract awarded to the company by Lockheed Martin for the precision-cast beryllium-aluminum alloy (Beralcast) part that is integrated into the F-35. The first contract, awarded in September, 2014, was for LRIP lots 7 and 8, and the second contract awarded in August, 2015, was for LRIP lots 9 and 10.

In addition to the company's previously announced contracts with Lockheed Martin and Raytheon, it currently is pursuing other sales opportunities with several defence and aerospace companies.

About IBC Advanced Alloys Corp.

IBC is a leading beryllium and copper advanced alloys company serving a variety of industries, such as defence, aerospace, automotive, telecommunications, precision manufacturing and others.

We seek Safe Harbor.