SCM Microsystems Reports Second Quarter Results FREMONT, Calif.,
Aug. 5 /PRNewswire-FirstCall/ -- SCM Microsystems, Inc. (Nasdaq:
SCMM; Prime Standard: SMY), a leading provider of solutions that
open the Digital World, today announced results for its second
quarter ended June 30, 2004. SCM's reported financial performance
for the 2004 second quarter reflects continuing operations for the
Company's Security business only, as SCM sold its retail
Dazzle(TM)-branded digital media and video business in July of
2003. 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 retail
digital media and video business are being treated as discontinued
operations. Second Quarter Results Revenues from continuing
operations in the second quarter of 2004 were $11.5 million, as
communicated by SCM in a preliminary press release on July 9, 2004.
This represents a decrease of 40% from revenues of $19.3 million in
the second quarter of 2003. By product segment, second quarter 2004
revenues included $4.4 million from sales of digital TV security
modules for pay-TV broadcast decryption, $4.3 million from sales of
smart card readers and other products for PC and network security,
and $2.8 million from sales of OEM digital flash media reader
technology. Sales of digital TV modules to the Company's
traditional small-operator customer base declined sharply in the
quarter, due to aggressive competition from non-licensed products.
In addition, the Company experienced delays in launching and
deploying new digital TV products, which had been expected to
generate significant revenue in the second quarter. Gross margin
from continuing operations in the second quarter of 2004 was 15%
and included the writedown of approximately $2.9 million in
inventory for the Company's digital TV products. Without the
writedown, gross margin for the second quarter would have been 40%,
within the range of management guidance of 40% to 42% for the
quarter. Operating expenses for continuing operations in the second
quarter of 2004, as reported in accordance with GAAP, were $8.9
million. This figure includes amortization of intangibles of $0.3
million and a credit to restructuring and other charges of $0.1
million, which resulted from tax adjustments to other charges taken
in 2003. Operating loss for the quarter was $(7.2) million. This
compares with operating loss of $(4.2) million in the year ago
quarter, which included amortization of intangibles of $0.3 million
and restructuring and other charges of $2.1 million. Net loss from
continuing operations for SCM's Security business for the second
quarter of 2004, as reported in accordance with GAAP, was $(6.9)
million, or $(0.44) per diluted share, compared with net loss of
$(5.0) million, or $(0.33) per diluted share in the second quarter
of 2003. Robert Schneider, chief executive officer of SCM
Microsystems commented, "The rapid deterioration of our traditional
digital TV business in the second quarter created a significant gap
between revenues and expenses. To address this gap and to position
the Company for profitability, SCM's management has adopted a
strategy to lower expenses by approximately 25% over the next six
months. To accomplish this, we intend to reduce headcount-related
costs by 20% to 25% and are evaluating additional areas for
reduction throughout all functions of the organization." "After
careful consideration, SCM's management has determined that our
best strategy for revenue growth is continued investment in new
products and technologies to address the evolving needs of our
current markets," continued Schneider. "SCM holds a unique position
in the Digital TV, PC Security and Flash Media Interface markets.
We are a trusted partner to conditional access providers who will
implement the next generation of digital television technology. We
have strong relationships with government integrators and banking
institutions who are at the forefront of digital authentication
based on smart cards. We have many years experience in developing,
manufacturing and implementing security solutions for our customers
around the world. We believe we can leverage our market leading
position with next generation secure access products to address new
market opportunities and drive revenue growth." Guidance For the
third quarter of 2004, management estimates that revenues from its
Security business will be in the range of $8 million to $12
million, reflecting continued pressure on sales of Digital TV
products in Europe and a lack of visibility into the timing of
anticipated digital security projects. Gross margin is expected to
be between 38% and 41%. Within this range of revenue and gross
margin, SCM expects to record an operating loss for its Security
business in the third quarter of 2004. Conference Call SCM will
hold a conference call and webcast on August 5, 2004 at 8:30 AM
Eastern Time to discuss the results of its 2004 second quarter. The
webcast can be accessed 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 securely 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/. NOTE: 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, without
limitation, our statements regarding (i) our expectations for
revenue, gross margin and operating loss for the third quarter;
(ii) our ability to lower expenses; and (iii) our ability to
address new market opportunities and drive revenue growth. Actual
results could differ materially. Our financial results may not meet
expectations. Our efforts to reduce expenses may be unsuccessful,
or may take longer than expected. Other risks and uncertainties
that could cause our actual business and operating results to
differ include, but are not limited to our ability 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; we
may not successfully compete in the markets in which we participate
or target; and competitors could take market share or create
pricing pressure. For a discussion of further risks and
uncertainties related to our business, please refer to our public
company reports, including our Annual Report on Form 10-K for the
year ended December 31, 2003 and our Quarterly Report on Form 10-Q
for the quarter ended March 31, 2004, both filed with the U.S.
Securities and Exchange Commission. NOTE: All trade names are
trademarks or registered trademarks of their respective holders.
NOTE: The Condensed Consolidated Statements of Operations in this
press release include pro forma operating results that are not in
accordance with GAAP. A reconciliation of the presentation of pro
forma results to GAAP is also provided in this release. As
described in the tables, pro forma net earnings exclude charges
related to the amortization of intangible assets, restructuring and
infrequent charges and discontinued operations. We believe pro
forma results enable our management 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) Three
months ended Six months ended June 30, June 30, 2004 2003 2004 2003
Revenues $11,511 $19,331 $24,741 $38,053 Cost of revenues 9,793
12,555 17,618 23,121 Gross margin 1,718 6,776 7,123 14,932
Operating expenses: Research and development 2,797 2,491 5,553
4,929 Sales and marketing 3,054 2,917 6,372 5,824 General and
administrative 2,949 3,171 5,774 5,893 Amortization of intangible
assets 290 281 593 554 Restructuring and other charges (credits)
(149) 2,098 (58) 2,426 Total operating expenses 8,941 10,958 18,234
19,626 Loss from operations (7,223) (4,182) (11,111) (4,694) Loss
from investments -- (460) -- (460) Interest and other, net 374
(277) 773 445 Loss from continuing operations before income taxes
(6,849) (4,919) (10,338) (4,709) Provision for income taxes (10)
(115) (126) (221) Loss from continuing operations (6,859) (5,034)
(10,464) (4,930) Loss from discontinued operations (79) (5,311)
(108) (9,140) Loss on sale of discontinued operations (35) (5,889)
62 (5,889) Net loss $(6,973) $(16,234) $(10,510) $(19,959) Loss per
share from continuing operations: Basic and diluted $(0.44) $(0.33)
$(0.68) $(0.32) Loss per share from discontinued operations: Basic
and diluted $(0.01) $(0.73) $(0.00) $(0.97) Loss per share: Basic
and diluted $(0.45) $(1.06) $(0.68) $(1.29) Shares used in
computing loss per share: Basic and diluted 15,392 15,293 15,359
15,421 Pro forma results: Pro forma operating loss from continuing
operations $(7,082) $(1,803) $(10,576) $(1,714) Pro forma net loss
from continuing operations $(6,718) $(2,195) $ (9,929) $(1,490)
Diluted shares used in pro forma operating loss per share 15,392
15,293 15,359 15,421 Pro forma net loss per share $(0.44) $(0.14)
$(0.65) $(0.10) SCM MICROSYSTEMS, INC. Reconciliation of Pro Forma
Results For Continuing Security Operations (in thousands) Three
months ended Six months ended June 30, June 30, 2004 2003 2004 2003
Reconciliation of pro forma operating loss from continuing
operations Loss from continuing operations $(7,223) $(4,182)
$(11,111) $(4,694) Add back: Amortization of intangible assets 290
281 593 554 Restructuring and infrequent charges (credits) (149)
2,098 (58) 2,426 Pro forma operating loss from continuing
operations $(7,082) $(1,803) $(10,576) $(1,714) Reconciliation of
pro forma net loss from continuing operations Net loss $(6,973)
$(16,234) $(10,510) $(19,959) Add back: Amortization of intangibles
290 281 593 554 Loss from investments -- 460 460 Restructuring and
infrequent charges (credits) (149) 2,098 (58) 2,426 Discontinued
operations 114 11,200 46 15,029 Pro forma net loss from continuing
operations $(6,718) $(2,195) $(9,929) $(1,490) SCM MICROSYSTEMS,
INC. Condensed Consolidated Balance Sheets (in thousands)
(unaudited) June 30, December 31, 2004 2003 ASSETS Current assets:
Cash, cash equivalents and short-term investments $ 50,064 $ 55,038
Accounts receivable, net 7,248 10,378 Inventories 10,947 9,108
Other current assets 2,971 8,909 Total current assets 71,230 83,433
Property, equipment and other assets, net 7,519 9,933 Intangibles,
net 2,414 3,076 Total assets $ 81,163 $ 96,442 LIABILITIES AND
STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $5,036
$7,571 Accrued expenses and other current liabilities 23,024 25,447
Total current liabilities 28,060 33,018 Stockholders' equity 53,103
63,424 Total liabilities and stockholders' equity $ 81,163 $ 96,442
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 , all of SCM Microsystems,
Inc. Web site: http://www.scmmicro.com/
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