EMS Technologies, Inc. (NASDAQ: ELMG) today announced financial
results for the fourth quarter and the full year 2009. EMS reported
fourth-quarter revenues of $85.0 million and earnings from
continuing operations of $2.4 million, or $0.16 per share, on a
non-GAAP reporting basis, excluding acquisition-related items and
an impairment charge for LXE goodwill. EBITDA, excluding
acquisition-related items and LXE goodwill impairment (“Adjusted
EBITDA”), was $7.7 million for the fourth quarter. Net cash
provided by operating activities from continuing operations was
$9.4 million in the fourth quarter, and cash exceeded debt at
December 31, 2009 by $19.4 million.
As described in more detail below, the Company will recognize a
non-cash impairment charge to goodwill in the LXE division for the
fourth quarter. The Company has not completed the process to
determine the specific impairment charge, but this determination
requires that a significant portion of LXE’s fair value should be
allocated to unrecorded intangibles and appreciated assets rather
than goodwill. As a result, the impairment charge will be higher
than the $5 million deficiency between estimated fair value and
carrying value, and management expects that the charge will be in
the range of $16 million to $21 million. Taking into account this
impairment charge using the midpoint of the estimated range of
$18.5 million, together with $1.9 million of acquisition-related
charges in the fourth quarter, would result in a GAAP-basis loss
from continuing operations for the quarter of $1.18 per share. The
LXE goodwill impairment does not affect the Company’s forecasts for
the LXE business or compliance with the terms of the Company’s
credit facility. There was no impairment related to goodwill in the
Company’s other business units.
Dr. Neil Mackay, EMS president and chief executive officer,
commented, “EMS’s main business focus is enabling mobile
connectivity in places where connectivity is really tough to
achieve. And the ever-growing demand for mobile connectivity helps
our key markets to have resilience, even in the current challenging
economic climate.
- The communications and tracking
(“C&T”) markets helped the fourth-quarter results to show a
$2.8 million increase in revenues and a $2.3 million increase in
Adjusted EBITDA as compared with the third quarter. Aviation sales
were key, with better-than-expected orders related to in-flight
connectivity (“IFC”) and military connectivity.
- Through cost control and good
performance on production-phase contracts, our defense and space
(“D&S”) business was able to basically break even, despite a
$6.5 million drop in sales from the Q3 level and accrual of
approximately $1 million of restructuring expenses following
completion of our B-2 work, and cost growth on several
development-stage contracts; and
- The LXE mobile logistics
business also neared breakeven, led by improving revenues in North
America.”
Aviation Businesses To Combine, Revenues Up from Aviation and
Global Tracking Markets
In 2009, communications and tracking markets were the core of
the Company’s largest mobile connectivity business, contributing
45% of consolidated revenues for the year. Higher total orders for
aviation products, for both commercial and defense customers, were
crucial to achieving $39.1 million in revenues in the fourth
quarter, as compared with $36.4 million just one quarter earlier.
In the fourth quarter, the Company made its largest single-day
shipment (valued at $3.6 million) to its largest in-flight
connectivity customer, Aircell. Aircell uses EMS’s in-cabin
routers, servers and wireless access points for its Gogo® Inflight
passenger Internet service. Aircell recently announced its
two-millionth customer milestone, with the Gogo service now offered
on more than 700 commercial aircraft.
In January 2010, the Company announced that it would begin
combining the aviation-sector business units within the C&T
segment to create EMS Aviation. The markets for EMS Aviation’s
mobile connectivity products generated $130 million in revenues for
the Company in 2009. This new unified aviation business will result
in greater scale and operational efficiencies, new sales
opportunities from cross-selling and more systems solutions, and
better coordination of product development.
“The market for connectivity with our military, general aviation
and commercial users continues to create new business for our suite
of aviation solutions,” Mackay said. “With the emerging
consolidation of our aviation divisions, we believe that EMS will
offer a connectivity portfolio unmatched in the aviation
industry.”
Global tracking revenues also contributed to communications and
tracking business in the fourth quarter. Global tracking airtime
service arrangements have very low turnover, and offering airtime
service after the hardware sale is key to our success in this
market. Significant global tracking hardware orders in the fourth
quarter included almost $1 million for security applications in
Afghanistan, and $2.3 million for a system upgrade and support
contract for a search-and-rescue system in Turkey. EMS also began
beta trials of its new Osprey Personal Tracker system, which the
Company expects to release later this year.
D&S Focuses on High-Volume Potential in
Communications-On-The-Move and Radar
Mobile connectivity in defense and space accounted for nearly
one-fourth of the Company’s revenues in 2009. Most of the segment’s
sales relate to markets for communications-on-the-move (“CoTM”) and
radar.
During the fourth quarter, EMS was selected by L-3
Communications Systems to supply the antenna system for the
Hawklink U.S. Navy helicopter airborne Common Data Link, which is a
strategic communications-on-the-move program. This win reaffirms
EMS as a leading competitor in military data link applications,
which is yet another key mobile connectivity target market. The
Hawklink antenna design may also be adaptable to other airborne
platforms as U.S. armed forces update their data link capabilities.
In addition, the D&S segment began work on a classified radar
panel production contract, which has the potential for significant
long-term production; this type of contract is a high priority in
D&S’s new business development efforts.
“EMS’s defense segment goes into 2010 focused on the growing
CoTM and radar markets, areas that we believe have long-term
importance in U.S. Department of Defense plans,” Mackay said. “And
through awards like Hawklink, EMS is well positioned to capture
more potential high-volume production awards that capitalize on our
proven antenna capabilities for mobile platforms.”
Improving Conditions in the Americas for LXE, Strong Backlog
Heading into 2010
Approximately 30% of the Company’s consolidated revenues come
from markets for logistics and the LXE product line.
In the fourth quarter, LXE accomplished a significant milestone,
as it began shipping the MX9 ultra-rugged handheld terminal to
Itron, the world leader in automated meter intelligence. Management
believes that the wide-area terrestrial communications technology
behind the MX9 provides an important avenue to go beyond the
warehouse by supporting customers in service applications. The
MX9’s technology could also complement EMS’s satellite-based
tracking technologies in emerging applications to track high-value
assets.
LXE continued to expand its indirect distribution channel in the
fourth quarter. Management believes that LXE’s exposure through
high-profile channel partners such as BlueStar, Barex, ScanSource
and others is helping to build sales momentum.
“LXE begins the new year with a stronger-than-usual backlog. We
are encouraged but cautious in the near-term. Economic
uncertainties persist, especially in Europe. Quarterly revenues
have an additional element of uncertainty from delays in our supply
chain, as suppliers that had cut back their operations must now
rebuild their capacity to meet rising product demand,” said
Mackay.
Guidance for 2010 Fiscal Year
Mackay concluded, “EMS remains focused on enabling mobile
connectivity in select markets with the potential for strong
growth. EMS’s recovery should follow improvement in the key markets
of aviation, tracking and logistics, and defense. We are seeing
early signs of what could be an improving economic outlook.
However, we – like others in our markets – are tempering our view
on 2010 to reflect the ongoing uncertainties in world markets,
particularly in the first half of the year. For the 2010 year, we
expect single-digit-percentage growth in overall revenues and
Adjusted EBITDA. Due to current market and economic conditions, as
well as historical business cycles in our markets, we believe that
earnings will be weighted toward the second half of the year. We
expect that earnings from continuing operations will be in the
range of $0.75 to $0.90 per share, excluding acquisition-related
charges and assuming an effective income tax rate of 15%.”
Goodwill Impairment
For its annual goodwill impairment testing, the Company compared
the fair value (estimated using traditional valuation techniques)
of each of its reporting units with the carrying value of each
reporting unit. Only the LXE business unit’s fair value was less
than its carrying value (by approximately $5 million), which
implied that LXE may have an impairment of goodwill. To determine
the actual amount of impairment under generally accepted accounting
principles (“GAAP”), the appropriate level of goodwill is
determined as if in a business combination. This methodology
requires that a significant amount of LXE’s total estimated fair
value be assigned to intangible assets (such as intellectual
property, tradename, customer relationships, etc.) and appreciated
assets (such as property, plant and equipment). This reduces the
amount of LXE’s total estimated fair value that can be assigned to
goodwill, even though GAAP does not permit the Company to record
the fair value of these other intangibles or asset appreciation on
its books. As a result of the effect of unrecorded intangibles and
asset appreciation on the LXE goodwill impairment calculations, the
GAAP-determined impairment charge for goodwill is estimated at $16
to $21 million, rather than the $5 million deficiency in total
estimated value for the LXE business unit. The Company has not
completed the complex analysis process to determine the specific
impairment charge, but it expects to complete this work prior to
the due date for filing its Annual Report on Form 10-K. The LXE
goodwill impairment is a non-cash charge and has no effect on
either the Company’s forecasts for its LXE business or compliance
with the terms of the Company’s credit facility.
Non-GAAP Financial Measures
The Company has presented its earnings and earnings per share
from continuing operations on a non-GAAP basis, excluding
acquisition-related items and a noncash charge for impairment of
goodwill. The Company believes that exclusion of these items
provides useful information about the results of its ongoing
activities that is more comparable to results for prior fiscal
periods and that is not subject to volatility arising from the
timing and cost of acquisition activity and impairment charges.
Acquisition-related charges in 2009 have included typical
services required to complete an acquisition, such as legal advice,
due diligence and asset valuation, which are now required to be
expensed under FASB Statement No. 141(R), which is new in 2009. In
addition, FASB Statement No. 141(R) required that the Company
initially record the earn-out liability related to one of its
recent acquisitions at estimated fair value on a discounted basis;
accretion of that discounted liability and adjustment to its
estimated fair value are reflected in the income statement in the
GAAP results. In the fourth quarter, the Company reached agreement
to settle the earnout provisions, resulting in a charge of $1.9
million, which mainly represents accretion of the discounted
liability that would have otherwise been expensed in 2010.
About EMS Technologies, Inc.
EMS Technologies, Inc. (NASDAQ: ELMG) focuses on enabling mobile
connectivity where it is tough to be connected — in the air, on
land, at sea, or in space. EMS segments serve three market
groups:
- In Communications & Tracking
markets, customers use the Company’s products to communicate from
aircraft and other mobile platforms over satellite and
air-to-ground links, as well as to track mobile, high-value assets
(including aircraft) over satellite links;
- In Defense & Space markets,
customers use the Company’s products for highly-sophisticated
applications involving mobile platforms – from military
communications, radar, surveillance and countermeasures to
commercial high-definition television, satellite radio, and live TV
for innovative airlines; and
- In LXE markets, customers use
the Company’s rugged terminals and wireless data networks for
logistics applications such as distribution centers, warehouses and
container ports. LXE’s automatic identification and data capture
products serve mobile information users at over 7,500 sites
worldwide.
Visit www.ems-t.com for more information.
There will be a conference
call at 9:30 AM Eastern time on Wednesday, March 10, 2010 in which the Company's
management will discuss the financial results for the fourth
quarter of 2009. If you would like to participate in this
conference, please call 888-674-0222 (international: 201-604-0498)
approximately 10 minutes before the call is scheduled to begin.
A taped replay of the conference call will also be available
through March 17, 2010 by dialing 888-632-8973 (intl:
201-499-0429), and enter the replay code 60157753 followed by the #
sign.
Forward-Looking Statements
Statements contained in this press release regarding the
Company's expectations for its financial results for 2010 and the
potential for various businesses and products are forward-looking
statements. Actual results could differ materially from those
statements as a result of a wide variety of factors. Such factors
include, but are not limited to…
- economic conditions in the U.S.
and abroad and their effect on capital spending in our principal
markets;
- difficulty predicting the timing
of receipt of major customer orders, and the effect of customer
timing decisions on our results;
- our successful completion of
technological development programs and the effects of technology
that may be developed by, and patent rights that may be held or
obtained by, competitors;
- U.S. defense budget pressures on
near-term spending priorities;
- uncertainties inherent in the
process of converting contract awards into firm contractual orders
in the future;
- volatility of foreign currency
exchange rates relative to the U.S. dollar and their effect on
purchasing power by international customers, and on the cost
structure of the our operations outside the U.S., as well as the
potential for realizing foreign exchange gains and losses
associated with assets and liabilities denominated in foreign
currencies;
- successful resolution of
technical problems, proposed scope changes, or proposed funding
changes that may be encountered on contracts;
- changes in our effective income
tax rate caused by the extent to which actual taxable earnings in
the U.S., Canada and other taxing jurisdictions may vary from
expected taxable earnings;
- successful transition of
products from development stages to an efficient manufacturing
environment;
- changes in the rates at which
our products are returned for repair or replacement under
warranty;
- customer response to new
products and services, and general conditions in our target markets
(such as logistics and space-based communications), and whether
these responses and conditions develop according to our
expectations;
- the increased potential for
additional asset impairment charges as unfavorable economic or
financial market conditions or other developments might affect the
fair value of one or more of our business units;
- the success of certain of our
customers in marketing our line of high-speed commercial airline
communications products as a complementary offering with their own
lines of avionics products;
- the continued availability of
financing for various mobile and high-speed data communications
systems;
- risk that the recent turmoil in
the credit markets may make it more difficult for some customers to
obtain financing and adversely affect their ability to pay, which
in turn could have an adverse impact on our business, operating
results, and financial condition;
- development of successful
working relationships with local business and government personnel
in connection with distribution and manufacture of products in
foreign countries;
- the demand growth for various
mobile and high-speed data communications services;
- our ability to attract and
retain qualified senior management and other personnel,
particularly those with key technical skills;
- our ability to effectively
integrate our acquired businesses, products or technologies into
our existing businesses and products, and the risk that any such
acquired businesses, products or technologies do not perform as
expected, are subject to undisclosed or unanticipated liabilities,
or are otherwise dilutive to our earnings;
- the potential effects of
Statement of Financial Accounting Standards No. 141(R), “Business
Combinations,” which requires, for acquisitions completed in 2009
and thereafter, that certain acquisition-related expenditures
should be accounted for as period expenses in the income statement,
and that the acquisition-date fair value will become the
measurement objective for all assets acquired and liabilities
assumed, resulting in potential unfavorable effects on the income
statement, including any changes in the amounts expected to be paid
on post-acquisition earn-out agreements, as well as the accretion
of the discounted value of the estimated payments;
- the potential effects, on cash
and results of discontinued operations, of final resolution of
potential liabilities under warranties and representations that we
made, and obligations assumed by purchasers, in connection with our
dispositions of discontinued operations;
- the availability, capabilities
and performance of suppliers of basic materials, electronic
components and sophisticated subsystems on which we must rely in
order to perform according to contract requirements, or to
introduce new products on the desired schedule; and
- uncertainties associated with
U.S. export controls and the export license process, which restrict
our ability to hold technical discussions with customers, suppliers
and internal engineering resources and can reduce our ability to
obtain sales from customers outside the U.S. or to perform
contracts with the desired level of efficiency or
profitability.
Further information concerning relevant factors and risks are
identified under the caption "Risk Factors" in our Annual Report on
Form 10-K for the year ended December 31, 2008 and our Quarterly
Report on Form 10-Q for the period ended October 3, 2009.
EMS Technologies, Inc. and Subsidiaries Consolidated Statements of
Operations (In millions, except per-share data) Unaudited
Three Months Ended Years Ended December 31
December 31 December 31 December 31 2009 2008 2009 2008 Net sales $
85.0 90.4 360.0 335.0 Cost of sales 55.4 59.7 241.1
213.9 Gross profit 29.6 30.7 118.9 121.1
Selling, general and
administrative
21.3 21.2 87.7 81.4 Research & development 5.1 4.0 18.7 20.1
Impairment loss on goodwill 1
18.5 - 18.5 - Acquisition-related charges 1.9 - 7.2
- Operating (loss) income (17.2 ) 5.5 (13.2 ) 19.6
Interest income & other - 0.1 0.2 2.5 Interest expense (0.4 )
(0.5 ) (2.2 ) (1.7 ) Foreign exchange (loss) gain (0.4 ) (0.3 ) 0.6
(0.6 )
Acquisition-related FX
adjustment
- - (1.4 ) -
(Loss) earnings from continuing
operations before income taxes
(18.0 ) 4.8 (16.0 ) 19.8 Income tax benefit - 2.0 4.3
0.7
(Loss) earning from continuing
operations
(18.0 ) 6.8 (11.7 ) 20.5
Gain (loss) from discontinued
operations net of tax
0.1 - (0.7 ) - Net (loss) earnings $ (17.9 )
6.8 (12.4 ) 20.5 Net (loss) earnings per
share: From continuing operations $ (1.18 ) 0.44 (0.77 ) 1.31 From
discontinued operations - - (0.04 ) - (Loss)
earnings per share $ (1.18 ) 0.44 (0.81 ) 1.31
Outstanding shares - diluted 15.2 15.3 15.2 15.6
Supplemental data for continuing operations: Adjusted EBITDA
$ 7.7 8.2 33.3 34.0 Adjusted EPS 0.16 0.44 1.01 1.31
Change in net cash provided by
operating activities
9.4 4.2 42.6 16.5
1 Reflects the midpoint of the
range of the Company's preliminary estimate of the impairment loss
on LXE's goodwill in the three months and year ended December 31,
2009. The charge and potential tax effects are subject to
finalization of certain fair value estimates and may be adjusted
when all aspects of the anlayses are completed.
EMS Technologies, Inc. and Subsidiaries Consolidated Condensed
Balance Sheets (In millions) Unaudited
December 31
2009
December 31
2008
Assets
Cash and cash equivalents $
47.2 87.0 Trade accounts
receivable
61.0 65.8 Revenue in excess of billings on
long-term contracts
25.3 30.5 Inventories
40.7 35.7
Other current assets
21.1 13.8 Current assets
195.3
232.8 Net property, plant and equipment
47.9 40.6 Goodwill
61.4 31.4 Other assets
67.1 22.6 $
371.7 327.4
Liabilities and Shareholders' Equity Current installments of
long-term debt $
1.4 1.3 Accounts payable
27.3 25.4
Other current liabilities
60.9 40.7 Current liabilities
89.6 67.4 Long-term debt, less current installments
26.4 9.3 Other noncurrent liabilities
11.3 8.0
Shareholders' equity
244.4 242.7 $
371.7 327.4 EMS
Technologies, Inc. and Subsidiaries Segment Data (In millions)
Unaudited
Three Months Ended Years Ended
December 31 December 31 December 31 December 31 2009 2008 2009 2008
Net sales Communications & Tracking $ 39.1 30.8 159.0
112.5 LXE 29.5 36.4 109.4 145.9 Defense & Space 16.4
23.2 91.6 76.6 Total $ 85.0 90.4
360.0 335.0
Operating income (loss)
Communications & Tracking $ 2.8 4.4 11.4 14.2 LXE (0.4 ) - (6.6
) 2.8 Defense & Space - 2.5 7.3 6.4 Corporate & Other 0.8
(1.4 ) 0.4 (3.8 )
Impairment loss on goodwill 1
(18.5 ) - (18.5 ) - Acquisition-related items (1.9 ) - (7.2
) - Total $ (17.2 ) 5.5 (13.2 ) 19.6
Adjusted EBITDA Communications & Tracking $ 5.5 5.2 24.3
19.2 LXE 0.2 1.0 (3.4 ) 6.8 Defense & Space 0.9 3.2 10.7 9.3
Corporate & Other 1.1 (1.2 ) 1.7 (1.3 ) Total $
7.7 8.2 33.3 34.0
1 Reflects the midpoint of the
range of the Company's preliminary estimate of the impairment loss
on LXE's goodwill in the three months and year ended December 31,
2009. The charge and potential tax effects are subject to
finalization of certain fair value estimates and may be adjusted
when all aspects of the anlayses are completed.
This press release contains information regarding our earnings
from continuing operations and earnings per share from continuing
operations, excluding impairment loss on goodwill,
acquisition-related items and an acquisition-related foreign
exchange adjustment, and earnings before interest expense, income
taxes, depreciation and amortization and excluding discontinued
operations, the acquisition-related items and acquisition-related
foreign exchange adjustment (“Adjusted EBITDA”). The Company
believes that earnings that are based on these non-GAAP financial
measures provide useful information to investors, lenders and
financial analysts because (i) these measures are more
comparable with the results for prior fiscal periods, and (ii) by
excluding the potential volatility related to the timing and extent
of non-operating activities, such as acquisitions or revisions of
the estimated value of post-closing earn-outs, such results provide
a useful means of evaluating the success of the Company's ongoing
operating activities. Also, the Company uses this information,
together with other appropriate metrics, to set goals for and
measure the performance of its operating businesses, to determine
management’s incentive compensation, and to assess the Company’s
compliance with debt covenants. Management further considers
Adjusted EBITDA an important indicator of operational strengths and
performance of its businesses. EBITDA measures are used
historically by investors, lenders and financial analysts to
estimate the value of a company, to make informed investment
decisions and evaluate performance. Management believes that
Adjusted EBITDA facilitates comparisons of our results of
operations with those of companies having different capital
structures. In addition, a measure similar to Adjusted EBITDA is a
component of our bank lending agreement, which requires certain
levels of Adjusted EBITDA to be achieved by the Company. This
information should not be considered in isolation or in lieu of the
Company’s operating and other financial information determined in
accordance with GAAP. In addition, because EBITDA and adjustments
to EBITDA are not determined consistently by all entities, Adjusted
EBITDA as presented may not be comparable to similarly titled
measures of other companies.
Following is a reconciliation of our 2009 earnings from
continuing operations and earnings per share from continuing
operations to the non-GAAP financial measures that exclude
impairment loss on goodwill, acquisition-related items and an
acquisition-related foreign exchange adjustment (in millions,
except per share data - unaudited):
Three Months Ended
Year Ended December 31, 2009 December 31, 2009
Net (loss)
earnings
(Loss)
earnings
per share
Net (loss)
earnings
(Loss)
earnings
per share
From continuing operations: As reported $ (18.0 ) (1.18 ) (11.7 )
(0.77 ) Impairment loss on goodwill 18.5 1.22 18.5 1.21
Acquisition-related items 1.9 0.12 7.2 0.48 Acquisition-related
foreign exchange adjustment - - 1.4 0.09
As adjusted $ 2.4 0.16 15.4 1.01
Following is a reconciliation of net earnings (loss) from
continuing operations to Adjusted EBITDA and earnings (loss) from
continuing operations before income taxes to Adjusted EBITDA by
segment, for the three months and years ended December 31, 2009 and
December 31, 2008 (in millions - unaudited):
C&T
LXE D&S
Corp &
Other
Total
Three Months Ended December 31, 2009
Net loss from continuing operations $ (18.0 ) Income tax expense
-
Earnings (loss) from continuing
operations before income taxes
$ 2.6 (19.0 ) - (1.6 ) (18.0 ) Interest expense - (0.1 ) - 0.5 0.4
Depreciation and amortization 2.9 0.8 0.9 0.3 4.9 Impairment loss
on goodwill - 18.5 - - 18.5 Acquisition-related charges - -
- 1.9 1.9 Adjusted EBITDA $ 5.5
0.2 0.9 1.1 $ 7.7
Year Ended December 31, 2009
Net loss from continuing operations $ (11.7 ) Income tax benefit
(4.3 )
Earnings (loss) from continuing
operations before income taxes
$ 12.1 (25.3 ) 7.4 (10.2 ) (16.0 ) Interest expense 0.1 0.1 (0.1 )
2.1 2.2 Depreciation and amortization 12.1 3.3 3.4 1.2 20.0
Impairment loss on goodwill - 18.5 - - 18.5 Acquisition-related
charges - - - 7.2 7.2 Acquisition-related foreign exchange
adjustment - - - 1.4 1.4
Adjusted EBITDA $ 24.3 (3.4 ) 10.7 1.7 $ 33.3
Three Months Ended December 31, 2008
Net earnings from continuing operations $ 6.8 Income tax benefit
(2.0 )
Earnings (loss) from continuing
operations before income taxes
$ 4.0 0.1 2.4 (1.7 ) 4.8 Interest expense - 0.2 - 0.3 0.5
Depreciation and amortization 1.2 0.7 0.8 0.2
2.9 Adjusted EBITDA $ 5.2 1.0 3.2
(1.2 ) $ 8.2
Year Ended December 31, 2008
Net earnings from continuing operations $ 20.5 Income tax benefit
(0.7 )
Earnings (loss) from continuing
operations before income taxes
$ 14.0 3.0 6.3 (3.5 ) 19.8 Interest expense 0.1 0.4 - 1.2 1.7
Depreciation and amortization 5.1 3.4 3.0 1.0
12.5 Adjusted EBITDA $ 19.2 6.8 9.3
(1.3 ) $ 34.0
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