EMS Technologies, Inc. (NASDAQ: ELMG) today announced
significantly higher third-quarter operating income in 2010
compared with 2009. The continued recovery in the Company’s LXE
mobile-computing business was the biggest contributor to the this
increased profitability. These consolidated third-quarter results
also follow year-over-year growth in operating income reported for
the first and second quarters of this year.
Third-quarter 2010 operating income was $4.3 million and
earnings from continuing operations were $3.5 million, or $0.23 per
share, on revenues of $85.7 million. For the comparable period in
2009, operating income was $2.6 million and earnings from
continuing operations were $6.0 million, or $0.39 per share, on
revenues of $85.7 million. The 2009 net earnings included $4.1
million of income tax benefits for research credits and the benefit
of tax losses in certain jurisdictions. Adjusted EBITDA for the
third quarter increased 24% year-over-year, with $9.5 million in
2010 as compared with $7.7 million in 2009. The Company also
generated approximately $16 million in cash flow from continuing
operations during the third quarter, further improving an already
strong balance sheet.
“Among our key goals for 2010 has been to execute a strong year
of recovery and to improve alignment across our segments. The first
three quarters have shown the success of the EMS team’s focus on
these goals, resulting in improved efficiency, quality and
profitability in our businesses and more coordinated development,”
stated Neil Mackay, president and CEO, EMS Technologies. “Although
revenues from some market sectors in commercial aviation remain
slow, renewed activity in markets for our rugged mobile-computing
products, especially in North America, have also helped our overall
profitability continue to improve.”
Continued Improvement in Market for Rugged Mobile
Computers
The Company’s LXE rugged mobile computers generated higher
revenues (year-over-year for comparable quarters) for the third
consecutive quarter, mainly on the strength of recovering North
American markets. Sales growth and operational improvements
combined to push LXE’s Adjusted EBITDA to $3.2 million, which was
the highest third-quarter total in history. The third quarter’s 9%
Adjusted EBITDA margin was the highest for any quarter since
2006.
In addition to the profit performance for the period, we believe
the third quarter included a step forward for the LXE product line,
which in September introduced the Marathon™ field computer. The
Marathon field computer is part of EMS’s long-term strategy to
project its terrestrial terminal technologies and products into
broader markets for mobile connectivity. Smaller than a laptop,
with a larger screen and greater computing power than a PDA, and
able to communicate over wide-area networks, the Marathon field
computer is targeted for the mobile worker in field-force
automation, route accounting and public safety. We expect that the
capabilities of this device will also be important to the
development of broader solutions for aviation and tracking
applications in the future. The Company expects to begin delivering
this new product in early 2011.
High-Speed Data Products Drive Profits in Aviation
The Company’s Aviation business generated $3.4 million in
Adjusted EBITDA on revenues of $24.1 million for the third quarter
of 2010, compared with $1.8 million in Adjusted EBITDA on revenues
of $25.7 million for the comparable period one year earlier. The
higher profitability in 2010 compared with 2009 resulted from a
more favorable mix of contracts and ongoing cost reductions.
Sales of high-speed satellite connectivity products for both
military and larger commercial aircraft anchored the third quarter.
However, the business jet market remains slow, and the rollout of
air-to-ground connectivity systems has been uneven, with both of
these sectors still feeling the effects of an uncertain economy. We
believe that these sectors are unlikely to show stronger signs of
recovery before mid-2011.
Recently, EMS announced the launch of its new Aspire™ airborne
communications systems. This family of innovative products supports
communications via the Inmarsat or Iridium networks and offers
valuable flexibility to aircraft operators and manufacturers.
Aspire products will allow EMS to expand its business base into the
market for small- and medium-sized business aircraft. The first
Aspire systems will be available for shipping in the fourth quarter
of this year.
Expanded Market Reach of Global Tracking
Third-quarter Adjusted EBITDA for the EMS Global Tracking
business was $0.9 million in 2010 on $9.4 million of revenues,
compared with $1.5 million Adjusted EBITDA in the third quarter of
2009 on $10.8 million in revenues. Factors affecting this
comparison included search-and-rescue orders that were delayed into
the fourth quarter and a temporary drop in airtime revenues while a
defense customer upgraded its network capabilities. Based on high
activity in the Company’s tracking markets, fourth-quarter revenues
are expected to be significantly higher than the third-quarter
level.
There are several reasons for the positive outlook for Global
Tracking, one of which is the favorable reception that tracking
markets have given to the recently-introduced Osprey™ personal
tracker. The Company has just announced its first 1,000-unit order
for this new product, which was selected by a major provider of
satellite-based services for its vessel monitoring system (“VMS”).
This VMS uses the Osprey personal tracker not only to enable alerts
and messaging in emergency situations, but also to help effective
management of fisheries. In addition to the expanded product reach
offered by the Osprey personal tracker, the EMS Global Tracking
business has also recently expanded its geographic reach with a
significant order for tracking equipment and services for a major
U.S. defense supplier in the Middle East.
Maintaining Strong Execution at Defense & Space
The EMS Defense & Space business continued to execute
effectively on production-phase programs and to control costs well
in the third quarter. As a result, this business achieved an
Adjusted EBITDA margin of 14%, earning Adjusted EBITDA of $2.3
million on revenues of $16.8 million in the third quarter of 2010,
which is comparable with the second quarter of this year. The 2010
third-quarter results were lower than the 2009 results of $3.1
million in Adjusted EBITDA on revenues of $23.0 million, due to
completion of work on a large cost-plus defense program.
The D&S backlog was down from $85 million at the beginning
of the quarter to $71 million at the end. The Company believes that
the low orders level in the third quarter reflects the current
uncertainty in defense budgets, with the start-up of some
communications programs being delayed for a quarter or more.
However, we believe that there is promising new business potential
in high-volume antenna applications, where the Company has
exceptional expertise and experience.
Business Outlook Is Optimistic
“The favorable business developments in the third quarter, and
indeed in the first nine months, do not merely reflect improving
economic conditions in certain of our markets. They are also the
product of the Company’s focus on doing things that make businesses
better: reducing product and operating costs, expanding channels to
market, and capitalizing on new technologies,” said Mackay. “We
believe that our rugged mobile-computing and global tracking
businesses are already realizing substantial benefits from this
Company focus. Our Aviation and D&S businesses, though facing
lower revenues and current market uncertainties, have nonetheless
continued to improve their profitability as well, and I believe
they have put themselves in very good position for future market
opportunities. We are especially optimistic about the long-term
prospects for our Aviation business because of our market position
as the leading connectivity enabler for commercial aircraft.
“We believe that the Company is on pace to achieve earnings from
continuing operations in the upper end of the range of revised
guidance of $0.80 to $0.90 per share, excluding acquisition-related
charges and goodwill impairment and related charges. This estimate
includes an effective income tax rate for the year of approximately
19 percent, based on the assumption that the tax credit provision
related to research and development expenditures in the U.S. is not
enacted into law for 2010. Furthermore, we expect that our Adjusted
EBITDA for the full year 2010 will be in the range of approximately
$38 to $40 million, which would be an all-time record for EMS.”
About EMS Technologies, Inc.
EMS Technologies, Inc. (NASDAQ: ELMG) is a leading provider of
wireless connectivity solutions over satellite and terrestrial
networks. EMS keeps people and systems connected, wherever they are
— on land, at sea, in the air or in space. Serving the
aeronautical, asset tracking, security, defense, and mobile
computing industries, EMS products and services enable universal
mobility, visibility and intelligence. EMS has four operating
segments:
- EMS Aviation supplies a broad array of
communications terminals and antennas that enable end-users in
aircraft and other mobile platforms to communicate over satellite
and air-to-ground links; connectivity products, including
aeronautical wi-fi communications and data storage, aeronautical
voice and tracking, and satellite-based machine-to-machine mobile
communications;
- EMS Defense & Space supplies
highly-engineered subsystems for defense electronics and
sophisticated satellite applications – from military
communications, radar, surveillance and countermeasures to
commercial high-definition television, satellite radio, and live TV
for innovative airlines;
- EMS Global Tracking supplies global
telematics, security, and force-tracking solutions, and is a
pioneer in search and rescue technology. These solutions are used
around the world to locate, track and communicate with cargo,
personnel and fleets, even in the world's most remote and hostile
places; and
- LXE is a leading provider of rugged
mobile computers and wireless data networks for automatic
identification and data capture. LXE’s products currently serve
mobile information users at over 7,500 sites worldwide, mainly in
distribution centers, warehouses and container ports.
Visit www.ems-t.com for more information.
There will be a conference call at 9:30
AM Eastern time on November 5, 2010, in which the Company's
management will discuss the financial results for the third quarter
of 2010. If you would like to participate in this conference,
please dial 1-888-674-0222 (international callers dial
1-201-604-0498) approximately 10 minutes before the call is
scheduled to begin. A taped replay of the conference call will be
available through November 12, 2010 by dialing 1-888-632-8973 and
entering the replay code 27779671 followed by the # sign.
(International callers use 1-201-499-0429 and enter same replay
code.)
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 and contract-award schedules;
- 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 consolidated 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, changes in tax laws, including
the provisions of the U.S. tax law that have not been extended for
2010, such as the research and development credit, and the extent
to which deferred tax assets are considered realizable;
- 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, space-based communications and commercial and private
aviation) and whether these responses and conditions develop
according to our expectations;
- the increased potential for asset
impairment charges as unfavorable economic or financial market
conditions or other developments might affect the estimated 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 availability of financing for
various mobile and high-speed data communications systems;
- risk that unsettled conditions 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, 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;
- 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; and
- our ability to maintain compliance with
the requirements of the Federal Aviation Administration and the
Federal Communications Commission, and with other government
regulations affecting our products and their production, service
and functioning.
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, 2009.
EMS Technologies, Inc. and Subsidiaries Consolidated
Statements of Operations (In millions, except per-share data)
Unaudited
Three Months Ended Nine
Months Ended October 2 October 3 October 2 October 3 2010 2009 2010
2009 Net sales $ 85.7 85.7 257.1 274.9 Cost of sales 54.5 57.7
163.9 186.4 Gross profit 31.2 28.0 93.2 88.5 Selling, general and
administrative 22.0 20.5 65.8 65.4 Research and development 4.9 5.1
15.0 13.8 Impairment loss on goodwill related charges - - 0.4 -
Acquisition-related items - (0.2) 0.6 5.3 Operating income 4.3 2.6
11.4 4.0 Interest income 0.1 - 0.3 0.2 Interest expense (0.5) (0.5)
(1.5) (1.9) Foreign exchange loss - (0.2) (0.4) 1.0
Acquisition-related FX adjustment - - - (1.4)
Earnings from continuing operations before
income taxes
3.9 1.9 9.8 1.9 Income tax (expense) benefit (0.4) 4.1 (1.9) 4.3
Earnings from continuing operations 3.5 6.0 7.9 6.2 Loss
from discontinued operations net of tax - (0.7) - (0.7) Net
earnings $ 3.5 5.3 7.9 5.5 Net (loss) earnings per share:
From continuing operations $ 0.23 0.39 0.52 0.41 From discontinued
operations - (0.05) - (0.05) Earnings per share $ 0.23 0.34 0.52
0.36 Outstanding shares - diluted 15.3 15.3 15.2 15.3
Supplemental data from continuing operations: Adjusted
EBITDA $ 9.5 7.7 28.1 27.2 Adjusted EPS 0.23 0.38 0.57 0.85
Net cash provided by operating activities 16.1 10.9 22.3
33.0
EMS Technologies, Inc. and Subsidiaries Consolidated Condensed
Balance Sheets (In millions) Unaudited
October 2
2010
December 31
2009
Assets Cash and cash equivalents $
49.7 47.2 Trade
accounts receivable
65.3 61.0 Revenue in excess of billings
on long-term contracts
17.4 25.3 Inventories
48.8
40.7 Other current assets
14.5 23.3 Current assets
195.7 197.5 Net property, plant and equipment
48.1
47.9 Goodwill
60.5 60.3 Other assets
69.6 68.4 $
373.9 374.1
Liabilities and Shareholders' Equity
Current installments of long-term debt $
1.5 1.4 Accounts
payable
28.5 27.3 Other current liabilities
55.4 70.6
Current liabilities
85.4 99.3 Long-term debt, less current
installments
28.2 26.4 Other noncurrent liabilities
12.2 11.3 Shareholders' equity
248.1 237.1 $
373.9 374.1
EMS Technologies, Inc.
and Subsidiaries Segment Data (In millions) Unaudited Three
Months Ended Nine Months Ended October 2 October 3 October 2
October 3 2010 2009 2010 2009
Net sales Aviation $ 24.1 25.7
75.7 93.6 LXE 35.6 26.2 102.5 80.0 Defense & Space 16.8 23.0
50.1 75.1 Global Tracking 9.4 10.8 29.8 26.2 Less intercompany
sales (0.2 ) - (1.0 ) - Total $ 85.7 85.7
257.1 274.9
Operating income
(loss) Aviation $ 1.5 (0.4 ) 3.6 8.4 LXE 2.1 (1.3 ) 5.1 (6.2 )
Defense & Space 1.6 2.1 4.3 7.3 Global Tracking 0.1 0.9 0.9 0.1
Corporate & Other (1.0 ) 1.1 (1.5 ) (0.3 ) Impairment loss and
related charges - - (0.4 ) - Acquisition-related items - 0.2
(0.6 ) (5.3 ) Total $ 4.3 2.6 11.4 4.0
Adjusted EBITDA Aviation $ 3.4 1.8 9.3 15.5
LXE 3.2 (0.4 ) 8.0 (3.6 ) Defense & Space 2.3 3.1 6.8 10.1
Global Tracking 0.9 1.5 3.6 3.3 Corporate & Other (0.3 ) 1.7
0.4 1.9 Total $ 9.5 7.7 28.1
27.2
This press release contains information regarding our net
earnings and earnings per share, excluding impairment loss related
charges, acquisition-related items, and an acquisition-related
foreign exchange adjustment, and earnings before interest expense,
income taxes, depreciation and amortization and excluding
impairment loss related charges, 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 net earnings and earnings
per share to the non-GAAP financial measures that exclude
impairment loss related charges, acquisition-related items and an
acquisition-related foreign exchange adjustment for the third
quarter and first nine months of 2010 and 2009 (in millions, except
per share data - unaudited):
Three Months Ended Nine Months Ended October 2, 2010
October 3, 2009 October 2, 2010 October
3, 2009 Net earnings Earnings
per share
Net earnings Earnings
per share
Net earnings Earnings
per share
Net earnings Earnings
per share
From continuing operations: As reported $ 3.5 0.23 6.0 0.39 7.9
0.52 6.2 0.41
Impairment loss and related charges, net
of tax
- - - - 0.2 0.01 - - Acquisition-related items - - (0.2 ) (0.01 )
0.6 0.04 5.3 0.35
Acquisition-related foreign exchange
adjustment
- - - - - - 1.4 0.09 As adjusted $ 3.5 0.23 5.8
0.38 8.7 0.57 12.9 0.85
Following is a reconciliation of net earnings to Adjusted EBITDA
and earnings (loss) before income taxes to Adjusted EBITDA by
segment, for the three months and nine months ended October 2, 2010
and October 3, 2009 (in millions - unaudited):
Aviation LXE D&S
GT Corp &
Other
Total Three Months Ended October 2, 2010
Net earnings $ 3.5 Income tax expense 0.4
Earnings (loss) from continuing operations
before income taxes
$ 1.4 2.4 1.7 (0.1 ) (1.5 ) 3.9 Interest expense - - - - 0.5 0.5
Depreciation and amortization 1.9 0.8 0.6 1.0 0.3 4.6 Stock-based
compensation 0.1 - - - 0.4
0.5 Adjusted EBITDA $ 3.4 3.2
2.3 0.9 (0.3 ) $ 9.5
Nine Months
Ended October 2, 2010 Net earnings $ 7.9 Income tax expense
1.9
Earnings (loss) from continuing operations
before income taxes
$ 3.2 5.3 4.3 0.8 (3.8 ) 9.8 Interest expense - - - - 1.5 1.5
Depreciation and amortization 5.9 2.5 2.3 2.7 1.0 14.4 Impairment
loss on goodwill related charges - - - - 0.4 0.4 Stock-based
compensation 0.2 0.2 0.2 0.1 0.7 1.4 Acquisition-related items
- - - - 0.6 0.6
Adjusted EBITDA $ 9.3 8.0 6.8 3.6 0.4
$ 28.1
Three Months Ended October
3, 2009 Net earnings $ 5.3 Loss from discontinued operations
0.7 Income tax benefit (4.1 )
Earnings (loss) from continuing operations
before income taxes
$ (0.4 ) (1.2 ) 2.2 0.6 0.7 1.9 Interest expense - - - - 0.5 0.5
Depreciation and amortization 2.2 0.7 0.8 0.9 0.3 4.9 Stock-based
compensation - 0.1 0.1 - 0.4 0.6 Acquisition-related items -
- - - (0.2 ) (0.2 ) Adjusted
EBITDA $ 1.8 (0.4 ) 3.1 1.5 1.7 $ 7.7
Nine Months Ended October 3, 2009 Net
earnings $ 5.5 Loss from discontinued operations 0.7 Income tax
benefit (4.3 )
Earnings (loss) from continuing operations
before income taxes
$ 9.0 (6.4 ) 7.4 0.5 (8.6 ) 1.9 Interest expense - - - - 1.9 1.9
Depreciation and amortization 6.4 2.6 2.5 2.8 0.8 15.1 Stock-based
compensation 0.1 0.2 0.2 - 1.1 1.6 Acquisition-related items - - -
- 5.3 5.3 Acquisition-related foreign exchange adjustment -
- - - 1.4 1.4
Adjusted EBITDA $ 15.5 (3.6 ) 10.1 3.3 1.9 $
27.2
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