Well positioned to become a leading
supplier of intelligent edge solutions for the global IoT
ecosystem
Communications Systems, Inc. (NASDAQ: JCS) (“CSI” or the
“Company”), a global IoT intelligent edge products and services
company, today announced financial results for the first quarter
(“Q1”) ended March 31, 2020, including a discussion of results of
operations by segment.
Management Comments for Q1
2020 “Overall sales performance in Q1 2020 was
substantially affected by lower international sales, driven by the
COVID-19 pandemic and continuing delays in education spending from
our key JDL client. These declines were partially offset by higher
sales from critical solutions for intelligent network edge products
as we continued to execute our strategy of focusing on products and
services for the rapidly growing IoT ecosystem,” said CSI’s Chief
Executive Officer Roger H.D. Lacey. “However, we ended Q1 2020 with
substantially improved net income of $1.5 million as compared to a
net income of $240,000 in Q1 2019, due in part to the sale of our
remaining Suttle operating assets.”
Discussing results by segment, Mr. Lacey noted, “Although
Transition Networks’ Q1 2020 total sales were lower than Q1 2019,
due largely to weakness in international markets and lower sales
for traditional products, our sales in the critical intelligent
edge segment grew by 36% year-over-year. This growth reinforces our
confidence in our transformational business strategy. Net2Edge’s Q1
2020 sales were slightly below last year’s due to delays in
completing final test approval for an important new product for a
key international carrier customer. JDL’s total sales were once
again affected by funding delays in our large education customer;
however, we learned in April 2020 that internal funding for these
previously delayed JDL projects exceeding $6.0 million in value
were approved by the education customer. We expect work on this
project to begin before the end of Q2 2020 and continue into
2021.”
Mr. Lacey further commented, “Our growth strategy for 2020 and
beyond is designed to make services an increasing proportion of
future revenue which would be recurring, highly predictable and
higher margin, along with expanding our client base both by
building an ecosystem of partnerships and through acquisitions that
can either increase CSI’s technical capabilities or scale market
share and geographic reach.”
Our vision is to become a leading supplier of intelligent edge
solutions for the global IoT ecosystem by:
- Developing easy-to-use / easy-to-integrate applications and
services for both domestic and international markets/clients and
capturing market share.
- Targeting disruptive solutions that address the growing demand
from critical infrastructure initiatives, including security and
surveillance, intelligent transportation, smart lighting, and smart
cities, based on IoT intelligent edge products and services for
governments, public and private corporations, and individuals
around the globe.
- Creating an organizational structure that achieves world-class
productivity with cost-effective parameters driven by continuous
improvement of processes and increasingly focused on recurring
revenue models.
Management Comments on the Effects of
the COVID-19 Pandemic “Similar to many other companies
doing business around the globe, our business was adversely
impacted by the COVID-19 global pandemic. Thus far we have seen
limited effect on our North American sales, but the impact on our
international sales was much more significant,” said Mr. Lacey.
Mr. Lacey continued, “Currently, most of our daily operations
continue largely uninterrupted thanks to early, proactive steps
taken by our human resources & IT departments and senior
management team to manage, respond and quickly adjust to this new
operating and economic environment by enabling most of our
workforce to operate remotely or in an appropriate socially distant
environment. While the long-term impact of the COVID-19 pandemic
will be primarily driven by the severity and duration of the
pandemic, we believe that CSI is well positioned to manage through
this challenging situation and most importantly take advantage of
opportunities that might arise from growing demand for critical
infrastructure services and products such as security and
surveillance, data protection and intelligent transportation.”
“We ended Q1 2020 with working capital of $40.6 million, no debt
and a cash, cash equivalents, and investments balance of $32.3
million; this well-capitalized balance sheet gives us the
resilience and flexibility to react to potential challenges related
to the COVID-19 pandemic and most importantly execute our mid- and
long-term growth strategy.”
Q1 2020 Summary
- Q1 2020 consolidated sales from continuing operations were $9.2
million compared to $11.2 million in Q1 2019, with first quarter
year-over-year sales decreasing in all segments.
- Q1 2020 consolidated gross profit decreased by 19% to $3.7
million from $4.6 million in the same period of 2019. Gross margin
also declined to 40.8% in Q1 2020 from 41.2% in Q1 2019 driven by
lower margins at JDL due to lower education sales.
- Q1 2020 consolidated operating loss from continuing operations
was $1.2 million compared to a Q1 2019 consolidated operating loss
from continuing operations of $0.8 million.
- Transition Networks’ operating income was $216,000 as compared
to operating income of $59,000 in Q1 2019.
- Net2Edge’s operating loss narrowed to $383,000 from an
operating loss of $527,000 in Q1 2019.
- JDL Technologies’ operating loss was $121,000 compared to
operating income of $491,000 in Q1 2019.
- Other operating expenses totaled $936,000 in Q1 2020 and
included $319,000 of expenses originally allocated to Suttle that
do not meet the criteria to be included in discontinued operations,
compared to $844,000 of other operating expenses in Q1 2019, with
$259,000 attributable to Suttle.
- Other income from continuing operations in Q1 2020 was $411,000
and included a $308,000 gain on sale of assets, $22,000 of
operating income on the transition services agreement with the
buyer of the Suttle business, and investment income. This compared
to $26,000 other income in Q1 2019.
- Income from discontinued operations totaled $2.3 million in Q1
2020 and included a $2.2 million gain on the sale of the Suttle
business. This compared to income from discontinued operations of
$1.0 million Q1 2019.
- Q1 2020 net income improved to $1.5 million, or $0.16 per
diluted share, compared to a net income of $0.2 million, or $0.03
per diluted share, in Q1 2019.
- At March 31, 2020, cash, cash equivalents, and investments
totaled $32.3 million and working capital was $40.6 million.
Q1 2020 Segment Financial
Overview
Transition Networks
(in 000s)
Three
Months Ended March 31
2020
2019
Sales
$ 8,164
$ 8,890
Gross profit
3,560
3,754
Operating income
216
59
Sales in North America increased by $532,000, or 8%, primarily
due to a strong quarter for projects related to federal government
contracts, partially offset by a decline in sales to one major
telecommunications customer. International sales decreased by
$1,258,000, or 64%, primarily due to an overall drop in demand for
traditional products and the economic effects of the COVID-19
pandemic. Sales of intelligent edge solutions (IES)1 products
increased by 36% or $828,000 due to higher sales for security and
surveillance products and federal government orders. Traditional
product sales decreased by 23% or $1,554,000 due mainly to a
decline in media converter sales.
Gross profit on Q1 sales decreased to $3,560,000 as compared to
$3,754,000 in the same period of 2019. Gross margin increased to
43.6% in Q1 2020 from 42.2% in Q1 2019 primarily due to higher
sales of some lower margin media converter products in the prior
period. Q1 2020 selling, general and administrative expenses
decreased by 9% to $3,344,000, or 41.0% of sales, compared to
$3,695,000, or 41.6% of sales, in the same period of 2019 due to
reduced personnel expenses.
Transition Networks had operating income of $216,000 in Q1 2020
compared to operating income of $59,000 in Q1 2019.
1 IES refers to Transition Networks’ connectivity and power
solutions that provide actionable intelligence at the edge of
networks through Power over Ethernet (PoE) products, software, and
services.
Net2Edge
(in 000s)
Three
Months Ended March 31
2020
2019
Sales
$ 424
$ 448
Gross profit
210
221
Operating loss
(383)
(527)
Net2Edge’s sales decreased by 5% to $424,000 in Q1 2020 compared
to $448,000 in the same period of 2019 primarily due to delays in
completing final approval for a new product for a key Latin
American customer as a result of their country-wide COVID-19
pandemic lock-down. Gross profit decreased by 5% to $210,000 in Q1
2020 compared to $221,000 in the same period of 2019. Gross margin
increased slightly to 49.5% in Q1 2020 from 49.3% in Q1 2019. Q1
2020 selling, general and administrative expenses decreased by 21%
to $593,000 compared to $748,000 in Q1 2019 due to a reduction in
selling expenses and other cost saving measures. Net2Edge narrowed
its operating loss to $383,000 in Q1 2020 compared to an operating
loss of $527,000 in the same period of 2019.
JDL Technologies
(in 000s)
Three
Months Ended March 31
2020
2019
Sales
$ 827
$ 2,208
Gross profit
207
867
Operating (loss) income
(121)
491
JDL Technologies total sales decreased by 63% to $827,000 in Q1
2020 compared to $2,208,000 in the same period of 2019.
Revenues from the education sector decreased by $1,380,000 or
94% in Q1 2020 as compared to the 2019 first quarter due to ongoing
funding related delays at our largest education customer. We
recently learned that these projects, which have a total value
exceeding $6.0 million, are back on track. Work on these projects
will be commencing in Q2 2020 and continue into 2021. Commercial
services sector sales to small and medium-sized businesses,
primarily healthcare, grew by 18% in Q1 2020 as compared to Q1
2019.
In total, JDL gross profit decreased by 76% to $207,000 in Q1
2020 compared to $867,000 in the same period of 2019. Gross margin
decreased to 25.0% in Q1 2020 compared to 39.3% in Q1 2019 due to
the cost of maintaining the specialized education sector
engineering team in anticipation of the pending projects beginning
again in the second quarter of 2020. Selling, general and
administrative expenses decreased by 13% in Q1 2020 to $328,000, or
39.7% of sales, compared to $376,000, or 17.0% of sales, in the
same period of 2019 due to cost saving measures put in place.
JDL Technologies reported an operating loss of $121,000 in Q1
2020 compared to operating income of $491,000 in the same period of
2019.
Discontinued Operations –
Suttle On March 11, 2020, the Company announced the sale
of the remainder of its Suttle business to Oldcastle Infrastructure
in a transaction structured as an asset sale that included
inventory, working capital, certain capital equipment, intellectual
property, and customer relationships. Gross proceeds of $8.3
million including a working capital adjustment, resulted in an
initial gain on the sale of $2.2 million during the quarter ended
March 31, 2020. In connection with the transaction, the Company
recorded $320,000 of restructuring expenses, primarily severance
and employee benefits. The Company expects to record additional
severance and employee benefit costs over the next six months as it
completes its obligations under a transition services agreement.
The Company retained ownership of three buildings in Hector,
Minnesota, with two leased to Oldcastle Infrastructure, and also
retained ownership of injection molding equipment, warehouse
equipment and tools. The Company plans to sell the remaining assets
after the transition services agreement ends by September 2020.
Financial Condition CSI’s
balance sheet at March 31, 2020 included cash, cash equivalents,
and investments of $32.3 million, working capital of $40.6 million,
and stockholders’ equity of $49.0 million.
Form 10-Q
For further information, please see the Company’s Form 10-Q,
which will be filed on or about May 15, 2020.
About Communications Systems
Communications Systems, Inc., an IoT intelligent edge products and
services company, provides connectivity infrastructure and services
for global deployments of broadband networks. Focusing on
innovative, cost-effective solutions, CSI provides customers the
ability to deliver, manage, and optimize their broadband network
services and architecture. From the integration of fiber optics in
any application and environment to efficient home voice and data
deployments to optimization of data and application access, CSI
provides tools for maximum utilization of the network from the edge
to the user. With partners and customers in over 50 countries, CSI
has built a reputation as a reliable global innovator focusing on
quality and customer service. CSI operates three business units:
Transition Networks, Net2Edge and JDL Technologies. For more
information visit: commsysinc.com.
Forward-Looking Statements
This press release includes certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act
of 1995, including statements regarding future financial
performance, future growth and future acquisitions or partnerships.
These statements are based on Communications Systems’ current
expectations or beliefs and are subject to uncertainty and changes
in circumstances. Actual results may vary materially from those
expressed or implied by the statements here due to changes in
economic, business, competitive or regulatory factors, and other
risks and uncertainties affecting the operation of Communications
Systems’ business. These risks, uncertainties and contingencies are
presented in the Company’s Annual Report on Form 10-K and, from
time to time, in the Company’s other filings with the Securities
and Exchange Commission. The information set forth herein should be
read in light of these risks. Further, investors should keep in
mind that the Company’s financial results in any particular period
may not be indicative of future results. Communications Systems is
under no obligation to, and expressly disclaims any obligation to,
update or alter its forward-looking statements, whether as a result
of new information, future events, changes in assumptions or
otherwise.
Selected Income Statement Data
Unaudited
Three Months Ended
Mar. 31,
2020
Mar. 31,
2019
Sales
$
9,162,742
$
11,216,170
Gross profit
$
3,737,147
$
4,626,216
Operating loss from continuing
operations
(1,223,743)
(821,379)
Operating loss before income taxes from
continuing operations
(813,176)
(795,868)
Income tax benefit
(4,457)
(3,972)
Income from discontinued operations
2,313,352
1,032,009
Net income
$
1,504,633
$
240,113
Basic net income (loss) per share
$
0.16
$
0.03
Diluted net income (loss) per share
$
0.16
$
0.03
Cash dividends declared per share
$
0.02
$
0.02
Average basic shares outstanding
9,265,590
9,176,093
Average dilutive shares outstanding
9,445,299
9,176,093
Selected Balance Sheet Data
Unaudited
Mar. 31,
2020
Dec. 31,
2019
Total assets
$ 56,838,766
$
59,150,712
Cash, cash equivalents &
investments
32,340,714
24,057,160
Working capital
40,592,182
38,051,766
Property, plant and equipment, net
7,951,593
8,238,089
Long-term liabilities
276,006
408,386
Stockholders’ equity
48,962,702
47,392,282
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200514005478/en/
Communications Systems, Inc. Mark D. Fandrich Chief
Financial Officer 952-582-6416 mark.fandrich@commsysinc.com
Roger H. D. Lacey Chief Executive Officer 952-996-1674
The Equity Group Inc. Lena Cati Vice President
212-836-9611 lcati@equityny.com
Devin Sullivan Senior Vice President 212-836-9608
dsullivan@equityny.com
Communications Systems (NASDAQ:JCS)
Historical Stock Chart
From Apr 2024 to May 2024
Communications Systems (NASDAQ:JCS)
Historical Stock Chart
From May 2023 to May 2024