TIKK Tel Instrument Electronics Corp (QB)

Tel-Instrument Electronics Corp. (“Tel”, “Tel-Instrument” or the “Company”) (NYSE MKT:TIK), a leading designer and manufacturer of avionics test and measurement solutions, today reported its financial results for the third quarter ended December 31, 2016.

Highlights for Third Quarter of Fiscal Year 2017

• Revenues decreased 29% to $4.24 million from $5.97 million in the third quarter of fiscal year 2016.
• Gross margin percentage improved to 38.6% versus 34.1% for the comparable quarter in the previous year.
• Legal expenses for the quarter increased to $287k versus $150k for the same quarter last year.
• Operating income decreased to $154k as compared to $725k in the third quarter of fiscal year 2016.
• Pre-tax income was $178k for the third quarter this year versus $454k last year.
• Net income was $142k, or $0.04 per basic share versus $227k, or $0.07 in the third quarter of 2016.
• $1.6 million reduction in liabilities since March 31, 2016.
• Stockholders’ equity increased to $5.5 million as compared to $4.7 million at March 31, 2016.
• Significantly increased quote activity for many of the Mode 5 international markets.

Total sales for the three months ended December 31, 2016 decreased $1,734,346 (29.0%) to $4,236,519, as compared to $5,970,865 for the three months ended December 31, 2015. The decrease in sales is mostly attributed to the decrease in shipment of the U.S. Army TS-4530A KITS, CRAFT and ITATS units associated with the U.S. Navy programs, which contracts have now been completed. This decrease is partially offset by the shipment of the TS-4530A SETS and CRAFT units sold to U.S. Special Forces and to other customers as well as an increase in sales for our legacy products. Commercial sales increased $152,965 (49.0%) to $465,135 for the three months ended December 31, 2016 as compared to $312,170 for the three months ended December 31, 2015. This increase is attributed to the increased sales of the TR-220 and our recently introduced TR-36.

Gross margin as a percentage of sales increased to 38.6% for the three months ended December 31, 2016 as compared to 34.1% for the same quarter last year. This improvement is mainly due to the completion of the ITATS program which was bid on very tight margins and higher prices for the CRAFT units. Gross margin dollars decreased $400,506 (19.7%) to $1,634,251 for the three months ended December 31, 2016 as compared to $2,034,757 for the same period in the prior year primarily as a result of the lower sales.

Selling, general and administrative expenses increased $97,447 (12.7%) to $865,370 for the three months ended December 31, 2016, as compared to $767,923 for the three months ended December 31, 2015. This increase was caused by much higher litigation expenses associated with the Aeroflex Wichita, Inc. (“Aeroflex”) litigation, offset by lower salaries, accrued profit sharing, and commission expense.

Engineering, research and development expenses increased $73,505 (13.6%) to $615,007 for the three months ended December 31, 2016, as compared to $541,502 for the three months ended December 31, 2015. This reflects increased investment in the new hand-held avionics and radio test set currently under development.

Mr. Jeffrey O’Hara, President and CEO of Tel, stated, “We were pleased to report an eighth consecutive quarter of profitability despite spending $287k on Aeroflex litigation expenses. These costs included hiring a technical expert witness firm which confirmed that no Aeroflex technology was used in our TS-4530A product. We believe that we have a very strong case and are looking to put this costly litigation behind us this later this spring. The current trial date is set for March 13, 2017, and the trial is expected to last several weeks. The Kansas court is currently evaluating our motion to dismiss based on the merits, and we expect to receive a written response later this month. We are also awaiting a written response from the Kansas court relative to our earlier motion to dismiss based on standing arguments.

Third quarter revenues were down to $4.24 million due in part to lower than anticipated orders for the quarter. With the completion of the ITATS orders and the TS-4530A KITS, we are seeing our gross margin percentage increase, although not yet to our 50% historical gross margin level. The good news is that we are seeing increased quote activity for the international Mode 5 market as well as for our commercial products. We continue to emphasize the importance of capturing the majority share of the large IFF international market, which we believe could generate substantial bookings and revenues starting in the 2017 calendar year timeframe. Our business development team met with several key international customers in January 2017, relating to possible Mode 5 orders that could be issued starting this summer. The new T-47M5 Mode 5 IFF test set will be a cost effective upgrade option for our large installed base of Mode 4 IFF test sets and we have seen substantial interest in this test set from a number of countries. All allied countries have a drop dead date of January 1, 2020 for Mode 5 capability; as a result, we believe that this international Mode 5 business to remain strong for at least the next three years. With our wide range of DOD certified Mode 5 test sets, we think we are well positioned to secure the lion’s share of this business.

We believe the real long-term growth potential for the Company will be in our new line of modular hand-held test sets. This development provides us with an opportunity to target the extremely large commercial and military radio test set market which is many times the size of our traditional avionics test market. We are actively working to line up partners to enter this growth market and we believe that our new hardware platform provides unmatched capabilities in a market leading form factor. Prototypes of this new test set were demonstrated at the January 18, 2017 Annual Meeting and we are hoping to ship our first commercial product from this new family of test sets starting this summer. The Company is also evaluating upcoming U.S. Navy requirements, and expects at least one large competitive solicitation will be issued in the next 12 months for a product in our technical area of expertise. We are also working closely with our other military customers on new potential market opportunities that will be needed to maintain our sales and profitability growth.

We continue to be excited and optimistic about our near and long-term prospects,” Mr. O’Hara concluded.

The Company encourages investors to read its full results of operations as contained in our Quarterly Report on Form 10-Q filed on February 14, 2017, at www.sec.gov.

Conference Call

The Company will host a conference call and webcast today, Tuesday, February 14, 2017 at 9:00 a.m. Eastern Time to discuss the Company’s fiscal third quarter 2017 results.

To access the live webcast, log onto Tel-Instrument’s website at:

https://www.telinstrument.com/learn-about-telinstrument/investor-relations.html.

To participate in the call by phone, dial (877) 407-8035 approximately five minutes prior to the scheduled start time. International callers please dial (201) 689-8035.

A replay of the teleconference will be available until March 14, 2017 and may be accessed by dialing (877) 481-4010. International callers may dial (919) 882-2331. Callers should use conference ID: 10242.

About Tel-Instrument Electronics Corp.

Tel-Instrument is a leading designer and manufacturer of avionics test and measurement solutions for the global commercial air transport, general aviation, and government/military aerospace and defense markets. Tel-Instrument provides instruments to test, measure, calibrate, and repair a wide range of airborne navigation and communication equipment. For further information please visit our website at www.telinstrument.com.

This press release includes statements that are not historical in nature and may be characterized as “forward-looking statements,” including those related to future financial and operating results, benefits, and synergies of the combined companies, statements concerning the Company’s outlook, pricing trends, and forces within the industry, the completion dates of capital projects, expected sales growth, cost reduction strategies, and their results, long-term goals of the Company and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. All predictions as to future results contain a measure of uncertainty and, accordingly, actual results could differ materially. Among the factors which could cause a difference are: changes in the general economy; changes in demand for the Company’s products or in the cost and availability of its raw materials; the actions of its competitors; the success of our customers; technological change; changes in employee relations; government regulations; litigation, including its inherent uncertainty; difficulties in plant operations and materials; transportation, environmental matters; and other unforeseen circumstances. A number of these factors are discussed in the Company’s previous filings with the U.S. Securities and Exchange Commission. The Company disclaims any intention or obligation to update any forward-looking statements as a result of developments occurring after the date of this press release. The safe harbor for forward-looking statements contained in the Securities Litigation Reform Act of 1995 (the “Act”) protects companies from liability for their forward-looking statements if they comply with the requirements of the Act.

 

TEL-INSTRUMENT ELECTRONICS CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   

December 31,2016

   

March 31,2016

(unaudited) ASSETS   Current assets: Cash and cash equivalents $ 1,162,154 $ 972,633 Accounts receivable, net 1,057,931 1,454,361 Inventories, net 4,473,887 4,679,032 Prepaid expenses and other current assets 156,135 128,071 Deferred income tax asset   578,507   578,507 Total current assets 7,428,614 7,812,604   Equipment and leasehold improvements, net 135,379 193,518 Deferred income tax asset – non-current 1,747,617 2,065,126 Other long-term assets   33,509   36,871 Total assets   9,345,119   10,108,119   LIABILITIES & STOCKHOLDERS’ EQUITY   Current liabilities: Current portion of long-term debt 396,225 418,255 Capital lease obligations – current portion 6,121 10,232 Accounts payable and accrued liabilities 2,102,141 2,401,500 Federal and state taxes payable - 53,623 Deferred revenues – current portion 253,031 48,766 Accrued payroll, vacation pay and payroll taxes   612,517   836,589 Total current liabilities 3,370,035 3,768,965   Subordinated notes payable - related parties - 25,000 Capital lease obligations – long-term 15,381 20,524 Long-term debt 3,696 304,560 Deferred revenues – long-term 307,230 172,703 Warrant liability – long-term 128,000 1,136,203 Other long-term liabilities   -   7,800 Total liabilities   3,824,342   5,435,755   Commitments   Stockholders’ equity: Common stock, 4,000,000 shares authorized, par value $0.10 per share,

3,255,887 shares issued and outstanding, respectively

325,586 325,586 Additional paid-in capital 8,099,191 8,074,655 Accumulated deficit   (2,904,000 )   (3,727,877 ) Total stockholders’ equity   5,520,777   4,672,364 Total liabilities and stockholders’ equity $ 9,345,119 $ 10,108,119    

TEL-INSTRUMENT ELECTRONICS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

    Three Months Ended     Nine Months Ended

December 31,2016

 

December 31,2015

December 31,2016

 

December 31,2015

  Net sales $ 4,236,519 $ 5,970,865

$

14,654,917 $ 18,635,174 Cost of sales   2,602,268   3,936,108   9,318,425   12,541,656   Gross margin 1,634,251 2,034,757 5,336,492 6,093,518   Operating expenses: Selling, general and administrative 865,370 767,923 2,652,252 2,517,487 Engineering, research and development   615,007   541,502   1,783,655   1,477,290 Total operating expenses   1,480,377   1,309,425   4,435,907   3,994,777   Income from operations 153,874 725,332 900,585 2,098,741   Other income (expense): Amortization of deferred financing costs (1,359 ) (1,357 ) (4,072 ) (4,072 ) Change in fair value of common stock warrants 37,000 (246,751 ) 288,203 (697,579 ) Interest expense   (11,620 )   (23,687 )   (46,953 )   (79,156 ) Total other income (expense)   24,021   (271,795 )   237,178   (780,807 )   Income before income taxes 177,895 453,537 1,137,763 1,317,934   Income tax expense   36,382   226,951   313,886   612,816   Net income $ 141,513 $ 226,586 $ 823,877 $ 705,118   Basic income (loss) per common share $ 0.04 $ 0.07 $ 0.25 $ 0.22 Diluted income per common share $ 0.03 $ 0.07 $ 0.23 $ 0.22   Weighted average shares outstanding: Basic 3,255,887 3,256,887 3,255,887 3,256,887 Diluted 3,265,135 3,261,690 3,266,532 3,261,955    

TEL-INSTRUMENT ELECTRONICS CORP.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION

(Unaudited)

 

    Three Months     Three Months Ended Ended December 31, December 31,

2016

2015

  Net income $ 141,513 $

226,586

  Income tax provision 36,382 226,951   Depreciation and amortization 23,819 40,027 Amortization of deferred financing costs 1,359 1,357 Change on fair value of common stock warrants (37,000 ) 246,751 Interest, net 11,620 23,685 Non-cash stock-based compensation   8,178     8,503   Non-GAAP Adjusted EBITDA

 

$

 

185,871

  $ 773,862  

The term EBITDA consists of net income plus interest, taxes, depreciation and amortization, deferred financing charges, change in fair value of warrants, and non-cash stock-based compensation. EBITDA is not a measure of financial performance under generally accepted accounting principles, and should not be considered in isolation from, or as a substitute for net income or cash flow measures prepared in accordance with generally accepted accounting principles, or as a measure of profitability or liquidity. Additionally, EBITDA may not be comparable to other similarly titled measures of other companies. The Company has included EBITDA as a supplemental disclosure because its management believes that EBITDA provides useful information regarding our ability to service debt, and to fund capital expenditures, and provides investors a helpful measure for analyzing its operating performance. The table above sets forth a reconciliation of EBITDA to net income, which is the most directly comparable measure of financial performance, calculated under generally accepted accounting principles.

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Tel-Instrument Electronics Corp.Joseph P. Macaluso, 201-933-1600orInstitutional Marketing Services (IMS)John Nesbett / Jennifer Belodeau203-972-9200jnesbett@institutionalms.com