SCM Microsystems Reports Third Quarter Results FREMONT, Calif.,
Oct. 29 /PRNewswire-FirstCall/ -- SCM Microsystems, Inc. (Nasdaq:
SCMM; Prime Standard: SMY), a leading provider of solutions that
open the Digital World, today announced results for the third
quarter ended September 30, 2003. Third quarter financial
performance reflects continuing operations for the Company's
Security business only, as SCM sold its consumer digital media and
video business during the quarter. SCM's continuing Security
business is focused on enabling secure access to digital content
and services through the digital television and PC platforms.
Financial results for the digital media and video business are
being treated as discontinued operations. Revenues from continuing
operations in the third quarter of 2003 were $15.9 million, down
15% compared with revenues of $18.7 million in the third quarter of
2002. By product segment, third quarter 2003 revenues included $8.1
million from sales of Digital TV security modules, $5.1 million
from sales of smart card readers and other products for PC and
network security, and $2.7 million from sales of flash media reader
technology. Please see attached tables for historical and year to
date segment revenues. Gross margin from continuing operations in
the third quarter of 2003 was 42%. Operating expenses for
continuing operations for SCM's Security business in the third
quarter of 2003, as reported in accordance with GAAP, were $7.4
million. This figure includes amortization of intangibles of $0.3
million and a $0.6 million credit for restructuring costs related
to the Company's continuing Security business. Operating loss for
the quarter was $(0.8) million, compared with operating loss of
$(1.8) million in the year ago quarter. Net income from continuing
operations for SCM's Security business for the third quarter of
2003, as reported in accordance with GAAP, was $1.1 million, or
$0.07 per share, compared with net loss of $(6.3) million, or
$(0.40) per share in the third quarter of 2002. The third quarter
2003 figure included a net tax benefit of $1.5 million arising
primarily from a tax refund received in the U.S. Loss from
discontinued operations for SCM's consumer digital media and video
business was $(10.0) million in the third quarter of 2003, and
included $(5.9) million of loss on sale of discontinued operations
and $(4.1) million of operational loss for the business in the
third quarter. Business Highlights Business highlights of the third
quarter include: -- Strategic agreement with CANAL+ TECHNOLOGIES to
sell and license the company's MEDIAGUARD digital TV conditional
access software for use with SCM's security modules; -- SCM's
selection by CanalDigitaal, a Dutch pay-TV operator, to provide
removable security modules based on CANAL+TECHNOLOGIES' MEDIAGUARD
system; -- Demonstration, with Samsung, of the OpenCable DOCSIS(R)
Set-Top Gateway, the first consumer system to satisfy two-way
communications criteria for the Korean digital cable TV market; and
-- Qualification of SCM's OpenCable(TM) CableCard(TM) module using
NDS' VideoGuard(TM) conditional access. Nine-Month Results For the
nine months ended September 30, 2003, revenues from continuing
operations for the Company's Security business were $53.9 million,
down 19% compared with revenues of $66.3 million for the first nine
months of 2002. Net loss from continuing operation for the
nine-month period, as reported in accordance with GAAP, was $(3.8)
million, or $(0.25) per share, compared with net loss of $(3.6)
million, or $(0.23) per share for the first nine months of 2002.
"SCM continues to make progress against our strategic goals,
despite a challenging economic and market environment," said Robert
Schneider, chief executive officer of SCM Microsystems. "We have
maintained a leading position across our markets, as measured by
key industry relationships and market share. Our technology
position remains strong, with new product development well underway
to address our customers' needs. And we have successfully divested
our consumer digital media and video operations, freeing us to
focus on our core Security business." Guidance For the fourth
quarter of 2003, management estimates that revenues from its
continuing Security business will be in the range of $14 million to
$17 million, reflecting continued economic pressure in Europe and
the U.S. and a lack of visibility into the timing of known digital
security projects in the U.S. and Europe. Gross margin is expected
to be between 39% and 42%. Within this range of revenue and gross
margin, SCM expects to record an operating loss for its continuing
Security business in the fourth quarter. For fiscal 2004, the
Company expects first quarter revenues to increase modestly over
fourth quarter 2003 levels, and that further increases will take
place in the second quarter of 2004. Based on new projects being
planned by its digital TV and PC Security customers, SCM management
believes 2004 revenues will grow over 2003 levels. Over the next
two quarters, the Company expects to receive more than $20 million
in cash proceeds from the sale of Pinnacle Systems stock and future
cash payments received in exchange for the Company's consumer
digital media and video business. Conference Call SCM will hold a
conference call and webcast on October 29, 2003 at 8:30 AM Eastern
Time to discuss the results of its third quarter. The webcast can
be accessed at through the Company's investor relations site at
http://www.scmmicro.com/ir_en/index.html. About SCM Microsystems
SCM Microsystems is a leading supplier of solutions that open the
Digital World by enabling people to conveniently access digital
content and services. The company markets and sells its smart card
reader technology for network and physical access and conditional
access modules for secure digital TV decryption to OEM customers in
the government, financial, enterprise and broadcasting markets
worldwide. Global headquarters are in Fremont, California, with
European headquarters in Ismaning, Germany. For additional
information, visit the SCM Microsystems web site at
http://www.scmmicro.com/. This press release contains
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934. These statements are subject to
risks and uncertainties which may cause actual results to differ
materially from those contemplated herein. These include our
statements regarding (i) our expectations for revenue, gross
margins and operating loss for the fourth quarter; (ii) our
expectation that we will receive cash proceeds from sales of
Pinnacle Systems' stock during the fourth quarter; (iii) our
expectations that we will be able to grow revenues in the first and
second quarters of 2004; (iv) our expectations that projects
planned by our digital TV and PC security customers will go forward
in 2004 as anticipated; (v) our expectations for revenue growth in
2004 based on these customer projects; and (vi) our belief that we
will be able to address the needs of our customers with new
products currently under development. Actual results could differ
materially. Our financial results may not meet expectations. Our
customers may not go forward with planned projects that we believe
would create demand for our products, and these projects, if
carried out, may not create demand for our products. We may not
successfully execute against our market opportunities or the
identified markets and market opportunities may grow or develop
differently than anticipated. Other risks and uncertainties that
could cause SCM's actual business and operating results to differ
include, but are not limited to our ability to manage our business
given the greater volatility in sales and net margins we experience
as an OEM Security company; our ability to continue to grow based
on a strategy of participating in multiple early stage markets; our
ability to successfully develop and introduce new products that
satisfy the evolving and increasingly complex requirements of
customers; the markets in which we participate or target may not
grow, converge or standardize at anticipated rates or at all and we
may not participate fully in our target markets and competitors
could take market share or create pricing pressure. For a
discussion of further risks and uncertainties related to SCM's
business, please refer to SCM's public company reports, including
the Report on Form 10-Q for the quarter ended June 30, 2003, filed
with the U.S. Securities and Exchange Commission. All trade names
are trademarks or registered trademarks of their respective
holders. NOTE: This press release includes pro forma operating
results that are not in accordance with GAAP. A reconciliation of
the presentation of pro forma results to GAAP is provided in the
following tables. As described in the tables, pro forma net
earnings exclude charges related to the amortization of intangibles
and restructuring, and infrequent charges. We believe pro forma
results allow for SCM and our investors to better evaluate
comparable operating results. Further, our pro forma results are a
primary indicator our management uses to plan and forecast for
future periods. These pro forma results are not intended as a
substitute for information presented in accordance with GAAP.
Furthermore, our pro forma information may not be comparable to pro
forma information that other companies provide. SCM MICROSYSTEMS,
INC. Condensed Consolidated Statements of Operations (in thousands,
except per share data) (unaudited) Quarter ended Nine months ended
September 30, September 30, 2003 2002 2003 2002 Revenues $15,860
$18,671 $53,913 $66,282 Cost of revenues 9,243 11,386 32,363 39,326
Gross margin 6,617 7,285 21,550 26,956 Operating expenses: Research
and development 1,949 2,294 6,879 6,410 Sales and marketing 2,748
2,769 8,571 7,472 General and administrative 3,082 2,343 8,975
8,005 Amortization of intangible assets 287 254 841 507
Restructuring and infrequent charges (credit) (647) 1,438 1,779
3,401 Total operating expenses 7,419 9,098 27,045 25,795 Income
(loss) from operations (802) (1,813) (5,495) 1,161 Gain (loss) from
investments 365 (1,242) (95) (1,242) Interest and other, net 75
(151) 520 (664) Loss from continuing operations before income taxes
(362) (3,206) (5,070) (745) Benefit (provision) for income taxes
1,456 (3,055) 1,235 (2,886) Net income (loss) from continuing
operations 1,094 (6,261) (3,835) (3,631) Loss from discontinued
operations (4,074) (13,490) (13,214) (15,721) Loss on sale of
discontinued operations (5,911) -- (11,800) -- Net loss $(8,891)
$(19,751) $(28,849) $(19,352) Income (loss) per share from
continuing operations: Basic $0.07 $(0.40) $(0.25) $(0.23) Diluted
$0.07 $(0.40) $(0.25) $(0.23) Loss per share from discontinued
operations: Basic and diluted $(0.66) $(0.86) $(1.63) $(1.01) Net
loss per share: Basic and diluted $(0.59) $(1.26) $(1.88) $(1.24)
Shares used in computing income (loss) per share: Basic 15,169
15,629 15,334 15,588 Diluted 15,476 15,629 15,334 15,588 Pro forma
results: Pro forma continuing operating income (loss) $(1,162)
$(121) $(2,875) $5,069 Pro forma net income (loss) $(2,676)
$(3,327) $(4,165) $1,519 Diluted shares used in pro forma operating
income (loss) per share 15,169 15,629 15, 334 16,031 Pro forma net
income (loss) per share $(0.18) $(0.21) $(0.27) $0.09 See attached
tables for reconciliation of pro forma to GAAP results. SCM
MICROSYSTEMS, INC. Reconciliation of Pro Forma Results (in
thousands, except per share data) Quarter ended Nine months ended
September 30, September 30, 2003 2002 2003 2002 Reconciliation of
pro forma income (loss) from continuing operations Income (loss)
from continuing operations $(802) $(1,813) $(5,495) $1,161 Add
back: Amortization of intangible assets 287 254 841 507
Restructuring and infrequent charges (credit) (647) 1,438 1,779
3,401 Pro forma income (loss) from continuing operations $(1,162)
$(121) $(2,875) $5,069 Reconciliation of pro forma net income
(loss) Net income (loss) $(8,891) $(19,751) $(28,849) $(19,352) Add
back: Amortization of intangibles 287 254 841 507 Restructuring and
infrequent charges (credit) (647) 1,438 1,779 3,401 Gain (loss)
from investments (365) 1,242 95 1,242 Reimbursement of investment
(558) -- (558) -- Income tax refund and interest (2,487) -- (2,487)
-- Discontinued operations 9,985 13,490 25,014 15,721 Pro forma net
income (loss) $(2,676) $(3,327) $(4,165) $1,519 Diluted shares used
in pro forma net income (loss) per share 15,169 15,629 15,334
16,031 Pro forma net income (loss) per share $(0.18) $(0.21)
$(0.27) $0.09 SCM MICROSYSTEMS, INC. Revenue by Product Segment (in
thousands) Quarter ended Nine months ended September 30, September
30, 2003 2002 2003 2002 Digital TV $8,086 $5,074 $29,913 $35,083 PC
Security 5,075 9,203 16,490 23,442 Flash Media Interface 2,699
4,394 7,510 7,757 Total $15,860 $18,671 $53,913 $66,282 SCM
MICROSYSTEMS, INC. Condensed Consolidated Balance Sheets (in
thousands) (unaudited) September 30, December 31, ASSETS 2003 2002
Current assets: Cash, cash equivalents and short-term investments
$39,448 $55,517 Accounts receivable, net 11,258 31,254 Inventories
7,706 39,114 Consideration due from sale of assets 21,550 -- Other
current assets 5,086 6,629 Assets held for sale 1,204 -- Total
current assets 86,252 132,514 Property, equipment and other assets,
net 14,509 11,786 Intangibles, net 3,172 4,317 Total assets
$103,933 $148,617 LIABILITIES AND STOCKHOLDERS' EQUITY Current
liabilities: Accounts payable $8,856 $21,470 Accrued expenses and
other current liabilities 24,236 27,047 Total current liabilities
33,092 48,517 Stockholders' equity 70,841 100,100 Total liabilities
and stockholders' equity $103,933 $148,617 DATASOURCE: SCM
Microsystems, Inc. CONTACT: Steve Moore, Chief Financial Officer,
+1-510-360-2300, or ; or Darby Dye, Investor Relations-US,
+1-510-360-2302, or ; or Manfred Mueller, Investor
Relations-Europe, +49 89 9595 5140, or Web site:
http://www.scmmicro.com/
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