The LGL Group, Inc. (NYSE:American: LGL) (the “Company” or
“LGL”) announced its financial results for the three and nine
months ended September 30, 2021.
- Operating revenues declined to $7.5 million from $8.1 million
for the prior year quarter, and declined to $20.9 million for the
nine months ended September 30, 2021 compared to $23.7 million for
the prior year nine months
- Business units of Avionics and Defense continue to gain
traction from Pre-Covid levels while cost push inflationary
pressures remain prevalent throughout the operations
- Backlog improvement of $21.8 million versus $19.8 million at
December 31, 2020 and $21.5 million at September 30, 2020
- Net cash position, including marketable securities, of $66.4
million ($44.4 million of which are IRNT common stock and warrant
holdings)
- Income before income taxes of $40.8 million compared to $0.8
million included $40.3 million as a result of one-time transactions
related to the Company’s SPAC investment
- Net income of $31.8 million compared to last year’s earnings of
$0.6 million
- Diluted net income per share of $5.97 compared to $0.12 per
share for the prior year quarter
- Adjusted EBITDA was $0.7 million compared to $0.9 million for
Q3 2020 and $1.7 million compared to $2.0 million for Q3YTD
2020
Mike Ferrantino, Chief Executive Officer, stated, “Despite the
supply chain and constrained workforce headwinds, we executed well,
hiring several key positions and securing critical inventory to
meet our customer orders. The avionics market is slowly recovering,
and we continue to gain design wins in our key space, defense and
aerospace markets.”
RESULTS FROM OPERATIONS
Revenues from operations were $7.5 million versus $8.1 million
for the third quarter of 2020, 7.1% below prior year. The revenue
decline reflects strong third quarter 2020 defense product
shipments after experiencing production delays in the prior quarter
from the India plant shutdown as well as lower 2021 shipments to
the avionics market. The backlog was $21.8 million versus $19.8
million at the beginning of the year and $21.5 million for third
quarter 2020. Quarterly bookings of $8.0 million increased 13.8%
above the third quarter of 2020. Orders have shown sequential
improvement each quarter throughout the year but continue to remain
below average quarterly pre-COVID-19 levels.
Gross margins were 36.2% compared to 35.5% for the prior year
quarter benefiting from favorable product mix and cost reductions
including the elimination of certain previously required costs to
preserve manufacturing capabilities in response to the COVID-19
impacts on our business.
Excluding the $1.3 million non-cash charitable donation of IRNT
common stock, operating income was $0.6 million compared to
operating income of $0.7 million for the third quarter of 2020. The
impact of lower third quarter revenue somewhat offset by higher
margins also contributed to the operating profit decline.
“For analytical purposes, LGL’s ‘bottom-line’ will be fairly
difficult to interpret this quarter. As a result of the GAAP
requirement that we value stock price changes from our equity
investments and flow that through the income statement to net
income, investors should expect that large swings in our quarterly
GAAP earnings will continue.” said James Tivy, LGL’s CFO.
Net income was $31.8 million for the three and nine months ended
September 30, 2021 compared to $0.6 million and $1.1 million for
the prior year three and nine month periods, respectively. Diluted
earnings per share was $5.97 and $6.03 per share for the three and
nine months ended September 30, 2021, respectively, and compared to
diluted earnings per share of $0.12 and $0.21 for the prior year
three and nine month periods. The significant increase reflects the
favorable results of the Company’s Sponsor investment triggered by
the IronNet business combination. Weighted average shares
outstanding at September 30, 2021 and 2020 were 5.3 million.
Quarterly adjusted EBITDA, a non-GAAP measure, was $0.7 million
in the third quarter of 2021 versus $0.9 million in the third
quarter of 2020. (See non-GAAP reconciliation in the Appendix.)
LGL Systems SPAC Investment
For the period ending September 30, 2021, LGL recorded a
significant non-recurring item in its receipt of NYSE listed equity
from its investment in a SPAC sponsor. In 2019 the Company invested
in LGL Systems Acquisition Holdings, LLC, the sponsor of LGL
Systems Acquisition Corp. Inc., a NYSE listed special purpose
acquisition company (“SPAC”) trading under the symbol “DFNS”. DFNS
completed a business combination with IronNet Cybersecurity, Inc.
in the third quarter of 2021 and began trading on the NYSE under
the symbol “IRNT”. The total investment in the sponsor of $6.1
million was originally reported under the equity method of
accounting. However, on September 14, 2021, the Company received
1,572,529 IRNT common shares and 2,065,000 IRNT private warrants,
as part of the Sponsor’s distribution to certain of its members,
with an aggregate fair value of $65.3 million. Upon distribution,
the Company’s IRNT common stock and warrants were recorded at fair
value and marked to market. SPACs characteristically exhibit
significant post-combination stock price volatility from a shortage
of tradeable shares coupled with post-merger derivative
transactions, and so we expect significant volatility in our
reported earnings from our large IronNet investment. Accordingly,
the closing prices of IRNT varied widely in September and October
and was $23.32 at the distribution date and $17.05 at September 30,
2021. As a result, we recorded other income of $40.4 million using
fair value GAAP accounting as required under ASC321. This fair
value consisted of a $60.2 million gain on equity investment and a
$19.8 million unrealized fair value loss during the third quarter
of 2021. The results as experienced this quarter, will inevitably
continue, both up and down, while we hold investment
securities.
On October 1, we converted our 2,065,000 private warrants to
1,271,406 shares in a cashless exercise. Including the warrant
conversion, we received a total of 2,843,935 common shares of IRNT,
of which 1,543,935 shares had their restrictions on sale lifted as
of September 30, 2021, the date of the IRNT resale S-1
effectiveness. Of these common shares 1,300,000 shares remained
subject to the applicable shareholder lock-up agreements, which
restricted sale for at least six months from the date of closing.
In an effort to continue its commitment to global corporate
citizenship, the company made a charitable gift on September 28,
2021 of 50,000 of these IRNT shares, leaving 1,250,000 IRNT
restricted common shares outstanding at September 30, 2021.
As of October 31, 2021, after originally investing $6.1 million,
we sold 1,405,315 of our IRNT common stock for approximately $16.9
million, or approximately $12 per share, retaining 1,388,620 IRNT
common shares in our portfolio including the 1,250,000 restricted
shares. The Company has executed and may continue to execute
derivatives transactions as part of its plan to minimize the
economic risk of IRNT share price volatility to its IRNT holdings,
though the Company cannot ensure that this investment will be
hedged against price variance in the future. The company held
derivative positions relating to its IRNT holdings at September 30,
2021 with an unrealized gain of $0.9 million.
“Investors should be aware that gyrations in reported net income
of this magnitude obfuscate the numbers describing the operating
performance of the business” The Company’s President and Chief
Executive Officer, Mike Ferrantino, said. “Nevertheless, we are
pleased with the results of our SPAC Sponsor investment. In
October, we sold about half of our IronNet holdings generating
proceeds of approximately $16.9 million while our initial Sponsor
investment was $6.1 million. We continue to monitor these holdings
and work to maximize LGL shareholder value”. He continued.”
The Company’s deferred tax assets related to net operating loss
and tax credit carryforwards of approximately $2.5 million can be
utilized to reduce taxes payable on our gains realized on IRNT
share sales.
STRATEGIC INITIATIVES:
The board has previously approved a spin-off of the MTronPTI
subsidiary, which will be submitted to a shareholder vote for
approval. The Company continues to strive for profitable growth
internally and by acquisition. LGL believes that spin-off would
enable shareholders to more clearly evaluate the performance and
future potential of each entity on a standalone basis, while
allowing each to pursue its own distinct business strategy and
capital allocation policy. Separating MTronPTI as an independent,
publicly owned company positions the business to increase value to
both MtronPTI and LGL Group. The spin-off permits each company to
tailor its strategic plans and growth opportunities, more
efficiently raise and allocate resources, including capital raised
through debt or equity offerings, flexibly to use its own stock as
currency for teammate incentive compensation and potential
acquisitions and provide investors a more targeted investment
opportunity. Substantially all the cash and investments will remain
in LGL. Historically, our electronic components segment consists
entirely of the operations of MTron/PTI.
The Company continues to explore growth organically and through
diversified mergers and acquisitions and believes the relationship
with the SPAC has enhanced its strategic profile in this
context.
BALANCE SHEET
The Company’s strong balance sheet reflects a net cash position,
including marketable securities, of $66.4 million ($44.4 million of
which are IRNT common stock and warrant holdings) and total working
capital of $74.2 million at September 30, 2021.
About The LGL Group, Inc.
The LGL Group, Inc., through its two principal subsidiaries
MtronPTI and PTF, designs, manufactures and markets
highly-engineered electronic components used to control the
frequency or timing of signals in electronic circuits, and designs
high performance frequency and time reference standards that form
the basis for timing and synchronization in various
applications.
Headquartered in Orlando, Florida, the Company has additional
design and manufacturing facilities in Yankton, South Dakota,
Wakefield, Massachusetts and Noida, India, with local sales offices
in Hong Kong and Austin, Texas.
For more information on the Company and its products and
services, contact James Tivy at The LGL Group, Inc., 2525 Shader
Rd., Orlando, Florida 32804, (407) 298-2000, or visit
www.lglgroup.com and www.mtronpti.com.
Caution Concerning Forward Looking Statements
This press release may contain forward-looking statements made
in reliance upon the safe harbor provisions of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Forward-looking
statements include all statements that do not relate solely to
historical or current facts, and can be identified by the use of
words such as “may,” “will,” “expect,” “project,” “estimate,”
“anticipate,” “plan,” “believe,” “potential,” “should,” “continue”
or the negative versions of those words or other comparable words.
These forward-looking statements are not guarantees of future
actions or performance. These forward-looking statements are based
on information currently available to us and our current plans or
expectations and are subject to a number of uncertainties and risks
that could significantly affect current plans, anticipated actions
and our future financial condition and results. Certain of these
risks and uncertainties are described in greater detail in our
filings with the Securities and Exchange Commission. We are under
no obligation to (and expressly disclaim any such obligation to)
update or alter our forward-looking statements, whether as a result
of new information, future events or otherwise.
THE LGL GROUP, INC.
Condensed Consolidated
Statements of Operations
(Unaudited)
(Dollars in Thousands, Except
Share and Per Share Amounts)
For the Three Months
Ended
September 30,
2021
2020
REVENUES
$
7,501
$
8,071
Costs and expenses:
Manufacturing cost of sales
4,782
5,203
Engineering, selling and
administrative
3,465
2,159
OPERATING (LOSS) INCOME
(746
)
709
Gain (loss) on equity investment in
unconsolidated subsidiary
60,205
(61
)
Unrealized (loss) gain on marketable
securities
(18,867
)
122
Other income (expense), net
237
30
INCOME BEFORE INCOME TAXES
40,829
800
Income tax expense
9,049
171
NET INCOME
$
31,780
$
629
Weighted average number of shares used in
basic EPS calculation
5,273,786
5,212,652
BASIC NET INCOME PER COMMON SHARE
$
6.03
$
0.12
Weighted average number of shares used in
diluted EPS calculation
5,325,815
5,251,078
DILUTED NET INCOME PER COMMON SHARE
$
5.97
$
0.12
For the Nine Months
Ended
September 30,
2021
2020
REVENUES
$
20,919
$
23,748
Costs and expenses:
Manufacturing cost of sales
13,334
15,681
Engineering, selling and
administrative
7,775
6,514
OPERATING (LOSS) INCOME
(190
)
1,553
Gain (loss) on equity investment in
unconsolidated subsidiary
59,453
(200
)
Unrealized (loss) gain on marketable
securities
(18,665
)
15
Other income (expense), net
271
(19
)
INCOME BEFORE INCOME TAXES
40,869
1,349
Income tax expense
9,080
282
NET INCOME
$
31,789
$
1,067
Weighted average number of shares used in
basic EPS calculation
5,273,263
5,159,452
BASIC NET INCOME PER COMMON SHARE
$
6.03
$
0.21
Weighted average number of shares used in
diluted EPS calculation
5,334,534
5,195,754
DILUTED NET INCOME PER COMMON SHARE
$
5.96
$
0.21
THE LGL GROUP, INC.
Condensed Consolidated Balance
Sheets
(Unaudited)
(Dollars in Thousands)
September 30,
2021
December 31,
2020
ASSETS
Cash and cash equivalents
$
15,593
$
18,331
Marketable securities
50,828
5,791
Accounts receivable, net
5,031
4,122
Inventories, net
5,260
5,280
Prepaid expenses and other current
assets
414
257
Total Current Assets
77,126
33,781
Property, plant and equipment, net
3,183
2,785
Right-of-use lease assets
324
422
Equity investment in unconsolidated
subsidiary
-
3,072
Intangible assets, net
271
327
Deferred income tax asset
20
3,052
Other assets
7
16
Total Assets
$
80,931
$
43,455
LIABILITIES AND STOCKHOLDERS'
EQUITY
Total Current Liabilities
$
2,956
$
3,397
Total Long-Term Liabilities
6,274
293
Total Liabilities
9,230
3,690
Total Stockholders' Equity
71,701
39,765
Total Liabilities and Stockholders'
Equity
$
80,931
$
43,455
Reconciliations of GAAP to Non-GAAP Measures
To supplement our consolidated financial statements presented on
a GAAP (generally accepted accounting principles) basis, the
Company uses certain non-GAAP measures, including Adjusted EBITDA,
which we define as net income adjusted to exclude depreciation and
amortization expense, interest income (expense), income taxes
expense (benefit), stock-based compensation expense, investment
income and loss, and other items we believe are discrete events
which have a significant impact on comparable GAAP measures and
could distort an evaluation of our normal operating performance.
These adjustments to our GAAP results are made with the intent of
providing both management and investors a more complete
understanding of the underlying operational results and trends and
our marketplace performance. The presentation of this additional
information is not meant to be considered in isolation or as a
substitute for net earnings or diluted earnings per share prepared
in accordance with generally accepted accounting principles in the
United States.
Reconciliation of GAAP Net Income Before
Income Taxes to Non-GAAP Adjusted EBITDA:
For the Three Months
Ended
September 30,
2021
2020
(000's, except share and per share
amounts)
Income before income taxes
$
40,829
$
800
Interest expense, net
3
3
Depreciation and amortization
146
131
Non-cash stock compensation
19
57
(Gain) loss on equity investment in
unconsolidated subsidiary
(60,205
)
61
Investment loss (income)
18,609
(124
)
Non-cash donation of IRNT common stock
1,318
—
Adjusted EBITDA
$
719
$
928
Basic per share information:
Weighted average shares outstanding
5,273,786
5,212,652
Adjusted EBITDA per share
$
0.14
$
0.18
Diluted per share information:
Weighted average shares outstanding
5,325,815
5,251,078
Adjusted EBITDA per share
$
0.14
$
0.18
For the Nine Months
Ended
September 30,
2021
2020
(000's, except share and per share
amounts)
Income before income taxes
$
40,869
$
1,349
Interest expense, net
9
7
Depreciation and amortization
417
392
Non-cash stock compensation
116
104
(Gain) loss on equity investment in
unconsolidated subsidiary
(59,453
)
200
Investment loss (income)
18,407
(67
)
Non-cash donation of IRNT common stock
1,318
—
Adjusted EBITDA
$
1,683
$
1,985
Basic per share information:
Weighted average shares outstanding
5,273,263
5,159,452
Adjusted EBITDA per share
$
0.32
$
0.38
Diluted per share information:
Weighted average shares outstanding
5,334,534
5,195,754
Adjusted EBITDA per share
$
0.32
$
0.38
Reconciliations of GAAP to Non-GAAP Measures
The Non-GAAP statements have been prepared to exclude
transactions associated with our investment in Sponsor
(collectively the “Sponsor Transactions”). The Sponsor Transactions
include: 1) the Company’s third quarter 2021 $1,318,000 non-cash
donation of 50,000 IRNT shares and related realized gain
($258,000); 2) $60,205000 and $59,453,000 gain on equity investment
in unconsolidated subsidiary for the three and nine months ended
September 30, 2021, respectively; and 3) $19,779,000 unrealized
loss on the mark to market of IRNT securities held at September 30,
2021, which was offset by $940,000 of unrealized gains from the
Company’s derivative strategy to mitigate the risk from volatility
in IRNT. The Sponsor Transactions include the $61,000 and $200,000
loss on equity investment in unconsolidated subsidiary for the
three and nine months ended September 30, 2020, respectively.
Reconciliation of GAAP Net Income Before
Income Taxes to Non-GAAP Proforma without Sponsor
Transactions:
GAAP
Non-GAAP Adjustment for
Sponsor Transactions
Non-GAAP Proforma without
Sponsor Transactions
GAAP
Non-GAAP Adjustment for
Sponsor Transactions
Non-GAAP Proforma without
Sponsor Transactions
For the Three Months
Ended
For the Three Months
Ended
September 30, 2021
September 30, 2020
REVENUES
$
7,501
$
-
$
7,501
$
8,071
$
-
$
8,071
Costs and expenses:
Manufacturing cost of sales
4,782
—
4,782
5,203
—
5,203
Engineering, selling and
administrative
3,465
1,318
2,147
2,159
—
2,159
OPERATING (LOSS) INCOME
(746
)
(1,318
)
572
709
—
709
Gain (loss) on equity investment in
unconsolidated subsidiary
60,205
60,205
—
(61
)
(61
)
—
Unrealized (loss) gain on marketable
securities
(18,867
)
(18,839
)
(28
)
122
—
122
Interest expense, net
—
—
—
(3
)
—
(3
)
Other income (expense), net
237
258
(21
)
33
—
33
Income (loss) before income taxes
$
40,829
$
40,306
$
523
$
800
$
(61
)
$
861
For the Nine Months
Ended
For the Nine Months
Ended
September 30, 2021
September 30, 2020
REVENUES
$
20,919
$
-
$
20,919
$
23,748
$
-
$
23,748
Costs and expenses:
Manufacturing cost of sales
13,334
—
13,334
15,681
—
15,681
Engineering, selling and
administrative
7,775
1,318
6,457
6,514
—
6,514
OPERATING (LOSS) INCOME
(190
)
(1,318
)
1,128
1,553
—
1,553
Gain (loss) on equity investment in
unconsolidated subsidiary
59,453
59,453
—
(200
)
(200
)
—
Unrealized (loss) gain on marketable
securities
(18,665
)
(18,839
)
174
15
—
15
Interest expense, net
(9
)
—
(9
)
(7
)
—
(7
)
Other income (expense), net
280
258
22
(12
)
—
(12
)
Income (loss) before income taxes
$
40,869
$
39,554
$
1,315
$
1,349
$
(200
)
$
1,549
View source
version on businesswire.com: https://www.businesswire.com/news/home/20211115006283/en/
James Tivy The LGL Group, Inc. jtivy@lglgroup.com (407)
298-2000
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