Norsat Announces 2014 Third Quarter Financial Results

- Company reports revenues of $8.1 million and adjusted EBITDA of $1.0 million -

- Management to Host Conference Call at 8:30 am Pacific Time (11:30 am Eastern Time) -

VANCOUVER, Nov. 5, 2014 /CNW/ - Norsat International Inc. ("Norsat" or "the Company") (TSX: NII and OTC BB: NSATF), a leading provider of innovative communication solutions that enable the transmission of data, audio and video for remote and challenging applications, today reported financial results for the third quarter ended September 30, 2014.  Norsat serves global customers primarily through three business units: Sinclair Technologies, Satellite Solutions and Microwave Products. All financial results are reported in U.S. dollars and have been prepared in accordance with International Financial Reporting Standards ("IFRS"), unless otherwise stated.

Third Quarter 2014 Highlights

• Third quarter revenues were $8.1 million, compared to $8.8 million during the same period in 2014 on softer Sinclair Technologies revenues, ongoing weaker sales of Satellite Solutions offset by a 21% increase in sales of Microwave components driven by deliveries of our new ATOM series of products;
  
  
• Third quarter revenues from microwave components were $3.0 million, up 21% from $2.5 million during the same period last year, driven by sales of new ATOM Series of products;
• Adjusted EBITDA was $1.0 million, compared to $1.4 million in Q3 2013;
  
  
• Basic and diluted earnings per share for the third quarter were $0.02, an increase from $0.01 in the third quarter of 2013;
  
  
• The Company ended the third quarter with a net cash position, its first in nearly four years, of $1.5 million, as its cash position grew to $4.4 million, up from $3.2 million at the end of Q2 and its acquisition loan decreased to $2.9 million, from $3.4 million at the end of Q2; and
  
  
• Ended the third quarter with $16.0 million in net working capital, excluding acquisition loan.

Management Commentary

Dr. Amiee Chan, president and chief executive officer of Norsat, commented, "Third quarter results were largely within our expectations.  We anticipated weakness in Satellite Solutions as well as in our land mobile radio (Sinclair) segment, but we also experienced approximately $0.6 million in orders that were substantially completed in Q3 2014, but for several reasons were not delivered and were subsequently recognized as revenue early in the fourth quarter of 2014.  I am pleased to see continued strength within our microwave segment.  Growth in our microwave products division was lead primarily by our ATOM series of products, which include block upconverters (BUCs) and solid state power amplifiers (SSPAs) that are the most compact, lightweight, and energy efficient transmitters available on the market. Revenues in that division increased 21% to $3.0 million of which only $0.4 million was attributable to a sizable contract that was completed during the quarter. We continue to receive strong interest in the ATOM series and believe it should continue to provide long-term growth for years to come."

Arthur Chin, chief financial officer of Norsat, commented, "We are very pleased to have returned the company to a positive net cash position.  Our ability to drive operational improvements and broaden our product offerings has allowed us to consistently pay down our acquisition loan while adding to our cash position. With ongoing initiatives in place to continue generating strong cash flows, while also driving revenue growth, we feel positive about the position Norsat is in."

Dr. Chan concluded, "Revenues for the nine month period have increased 4%, while EBITDA has increased 32% during the quarter. We continue to drive cash flows and improve our capital structure. Operationally, the diversity of our products and offerings have really been highlighted during the quarter, with the microwave components segment acting as a catalyst for growth during the year and hopefully for years to come.  Looking forward, while there is some continued softness within land mobile radio, we believe that demand will resume within the coming quarters, which when coupled with an improvement in our satellite solutions backlog leaves me enthusiastic about our future prospects.  We remain confident in our abilities to continue executing upon our business plan and believe we are well on our way to being the leader in providing wireless communications solutions to remote and/or challenging applications for years to come."

Financial Review

For the three months ended September 30, 2014

For the three months ended September 30, 2014, total sales were $8.1 million, compared to $8.8 million in Q3 2013. Third quarter Microwave Products sales were $3.0 million, compared to $2.5 million in Q3 2013. The $0.5 million increase was mainly driven by the product deliveries on the new line ATOM of products. Sales from the Sinclair Technologies segment were $4.7 million for the third quarter of 2014, compared to $5.4 million during the same period in 2013, reflecting recent softness in the infrastructure and public safety markets. Third quarter Satellite Solutions sales were $0.5 million, compared to $0.9 million in Q3 2013, reflecting the continuing decrease in military demand and budget constraints among other non-military customers. Other service revenues were also $0.5 million lower year-over-year due to the non-renewal of significant airtime contracts.

On a consolidated basis, third quarter gross margin percentages were 41% which is comparable to Q3 2013 margins of 41%. Gross margins in our Microwave Products segment were 45% which is comparable to gross margins of 44% in Q3 2013.  Gross margins in our Satellite Solutions segment was 25% compared to 29% in Q3 2013, which reflects a greater portion of lower-margin revenues in the mix.  Our Sinclair margins were 39% in Q3 2014 down from 41% for the same period in 2013, reflecting lower sales volume and relatively fixed manufacturing costs.

For the three months ended September 30, 2014, total expenses decreased to $2.4 million, from $2.9 million in Q3 2013.  The decrease is mainly attributable to a $0.3 million in other income in the third quarter of 2014 compared to other expense of $0.4 million in the same period in 2013, reflected by the change of the US dollar against the Canadian dollar.  In Q3 2014 the US dollar strengthened against the Canadian dollar whereas in Q3 2013 the US dollar weakened against the Canadian dollar.

Third quarter selling and distributing expenses decreased to $1.2 million, from $1.5 million in 2013, reflecting the strengthening of the US dollar against the Canadian dollar, as a significant portion of the Company's expenses are in Canadian Dollars, and certain employee-related costs savings. 

Third quarter general administration expenses increased to $1.2 million, from $0.8 million incurred in 2013.  The increase reflects $0.2 million in corporate development costs related to external costs to pursue a potential acquisition compared to approximately $17,000 in the same period in 2013, investments in organizational infrastructure, increased bonuses due to the Company substantially tracking towards its 2014 targets and objectives, and offset by the impact of certain employee-related cost savings implemented in 2013.

Third quarter direct product development expenses of $0.6 million was on par with $0.6 million during the same period last year.  This was offset by the decrease of government contributions to $0.3 million in the third quarter of 2014 compared to $0.5 million for the same period in 2013.  In Q3 2013 government contributions were higher, reflecting the higher direct product development expenses for the CVG product lines.

Third quarter earnings before income taxes were $0.9 million, compared to $0.7 million during the same period last year, reflecting a $0.4 million gain on foreign exchange in the third quarter of 2014 versus a $0.2 million loss on foreign exchange in the same period in 2013.  This was offset by $0.3 million gross profit due to lower sales and $0.2 million less government funding in Q3 2014 compared to Q3 2013.

Income tax recovery for the third quarter of 2014 was approximately $74,000 compared to approximately $47,000 in the third quarter of 2013. 

Third quarter 2014 net earnings were $0.9 million, or $0.02 per share, basic and diluted, compared to $0.7 million, or $0.01 per share, basic and diluted, for the third quarter in 2013.

Adjusted EBITDA for the three months ended September 30, 2014 decreased by 25% to $1.0 million, compared to $1.4 million for the same period last year, reflecting a $0.3 million decrease in gross profit contributions from lower sales volume, and approximately $0.2 million less government contributions for the third quarter of 2014 compared to the same period in 2013. 

For the nine months ended September 30, 2014

For the nine months ended September 30, 2014, total sales were $26.8 million, compared to $25.7 million for the same period last year. Microwave Products sales were $9.4 million in the first nine months of 2014, compared to $5.7 million during the same period in 2013.  The $3.7 million increase was mainly driven by the product deliveries on the ATOM new line of products. Sales from our Sinclair Technologies segment were $15.9 million in the first nine months of 2014, comparable to $16.2 million during the same period in 2013.  While we saw improved demand in Q1 and Q2, these improvements were not sustained in Q3.  Satellite Solutions sales were $1.6 million for the nine months ended September 30, 2014, compared to $3.9 million for the same period in 2013.  Sales from this segment were impacted by reduced military ordering of satellite equipment and services.  In addition, service revenues declined by $1.1 million as airtime contracts, warranties and post-service contracts expired.

On a consolidated basis, gross margin percentage was 41% for the nine months ended September 30, 2014, comparable to 41% from the same period in 2013.  Our Microwave Products segment achieved a nine months gross margin of 45%, comparable with results of 44% from the nine months of 2013. Margins from the Sinclair Technologies segment were 40%, compared to 42% in first nine months of 2013, reflecting less sales volume in Q3 2014. Satellite Solutions gross margin decreased slightly to 30% year-to-date, from 33% in the first nine months of 2013.  The change in Satellite Solutions gross margin reflects a greater proportion of lower-margin revenues and lower sales volume.

For the nine months ended September 30, 2014, total expenses decreased to $7.4 million, from $8.7 million during the same period in 2013.

Selling and distributing expenses decreased to $3.9 million, from $4.7 million, reflecting the strengthening of the US dollar against the Canadian dollar, as a significant portion of the Company's expenses are in Canadian Dollars, and employee-related costs savings. 

General and administrative expenses were $3.1 million in the nine months of 2014, on par with $3.0 million in the same period in 2013.  In the nine months of 2014, corporate development costs related to external costs to pursue a potential acquisition increased to $0.2 million compared to approximately $17,000 in the same period in 2013.  In addition investments were made in organizational infrastructure, and bonuses increased due to the Company substantially tracking towards its 2014 targets and objectives.  These increases were offset by the decrease in expenses, reflecting the strengthening of the US dollar against the Canadian Dollar, as a significant portion of the Company's expenses are in Canadian dollars.

For the nine months ended September 30, 2014, direct product development expenses decreased to $1.9 million from $2.5 million for the same period last year.  The decrease reflects the accelerated development of the newly acquired CVG product lines in 2013, costs not incurred in 2014, and the impact of the strengthening of the US dollar against the Canadian Dollar, as a significant portion of the Company's expenses are in Canadian Dollars, and employee-related costs savings. 

Government contributions decreased to $0.9 million in the first nine months of 2014 from $1.7 million in the same period in 2013.  In 2013 we secured a new repayable government contribution under the SADI program, which enabled the Company to claim eligible costs incurred between July 27, 2013 and December 31, 2017.  The timing of the award meant that over two quarters worth of government contributions were recorded in Q1 2013, compared to just one in the first quarter of 2014. 

As a result net product development expenses increased to $1.2 million in the nine months ended September 30, 2013 from $1.0 million in the same period last year.

Other net income for the first nine months of 2014 increased to $0.8 million from approximately $31,000 during the same period last year.   The increase reflects a $1.0 million gain on foreign exchange in the nine months ended September 30, 2014 compared to a $0.3 million gain in the same period in 2013 and $0.1 million lower interest expenses resulting from the reduction in the Company's acquisition loan.

For the nine months ended September 30, 2014 earnings before income taxes increased to $3.7 million, from $2.0 million during the same period in 2013, reflecting a $0.7 million higher gain on foreign exchange, $0.5 million higher gross profit and $1.3 million less expenses compared to the same period in 2013.  This was offset by $0.8 million less government funding for the nine months ended September 30, 2014 compared to same period in 2013.

Income tax recovery for the nine months ended September 30, 2014 was $0.4 million compared to income tax recovery of $0.1 million for the same period in 2013, reflecting a current income tax recovery of $0.2 million in the nine months ended September 30, 2014 compared to a tax expense of $0.1 million for the same period in 2013.   Deferred income tax recovery of $0.2 million for the nine months ended September 30, 2014 is on par with $0.2 million for the same period in 2013.

For the nine months ended September 30, 2014, net earnings increased to $4.1 million, or $0.07 per share, basic and diluted, from net earnings of $2.0 million, or $0.03 per share, basic and diluted, during the same period in 2013.

Adjusted EBITDA for the nine months ended September 30, 2014 was $3.9 million, compared to $3.0 million during the same period in 2013.  The change in EBITDA reflects a $0.5 million increase in gross profit contributions from higher sales volume, and lower total operating expenses of approximately $1.3 million in the nine months ended September 30, 2014 compared to the same period in 2013.  The decrease in operating expenses mainly reflects the strengthening of the US dollar against the Canadian dollar, as a significant portion of the Company's expenses are in Canadian Dollars, and lower expenses from employee-related cost savings in the nine months ended September 30, 2014 compared to the same period in 2013. This was partially offset by approximately $0.8 million less government contributions for the first nine months of 2014 compared to the same period in 2013. 

Financial Position

Norsat ended the third quarter with cash and cash equivalents of $4.4 million, comparable to $3.2 million as of June 30, 2014 and to $3.3 million as at December 31, 2013. Norsat continues to repay its acquisition loan, at a loan balance of $2.9 million as of September 30, 2014, down from $3.4 million as of June 30, 2014 and $4.4 million as of December 31, 2013. The Company also has access to undrawn credit facilities totaling $3.8 million as at September 30, 2014 and November 5, 2014. Adjusted Working Capital, which excludes the acquisition loan, at September 30, 2014 was $16.0 million, compared to $14.4 million at December 31, 2013. The Adjusted Current Ratio, which excludes the acquisition loan, at September 30, 2014 was 4.3 times, compared to 3.5 times at December 31, 2013.

Outlook

By segment, in the near term, the Microwave segment is expected to continue to have consistent revenue, with more of its sales driven by the ATOM Series of Ku-Band BUCs and SSPAs.  While the Sinclair Technologies infrastructure and public safety markets have shown softness in Q3 2014, demand is expected to resume in the coming quarters, driving sales closer to historical levels.  Satellite Solutions continues to experience weaker customer demand, stemming from lower military spending, however with the recent award of a large satellite hardware contract in 2014, we enter fiscal 2015 with a more positive backlog compared to the same period in 2014.

A full set of financial statements and Management's Discussion and Analysis for Norsat is available at www.norsat.com and at www.sedar.com.

Conference Call Details

Norsat will host a conference call today, November 5, 2014, at 8:30 am Pacific Time (11:30 am Eastern Time) to discuss 2014 second quarter financial results. To access the conference call, please dial toll-free 1-888-886-7786 or 416-764-8658. The conference call ID is: 'Norsat Investor Call'. Please connect approximately 10 minutes prior to the beginning of the call to ensure participation. A digital recording and transcript of the call will be available later today at: http://www.norsat.com/investors/financial-information/conference-call-recordings/

About Norsat International Inc.

Founded in 1977, Norsat International Inc. is a leading provider of innovative communication solutions that enable the transmission of data, audio and video for remote and challenging applications. Norsat's products and services include leading-edge product design and development, production, distribution and infield support and service of fly-away satellite terminals, microwave components, antennas, Radio Frequency (RF) conditioning products, maritime based satellite terminals and remote network connectivity solutions. More information is available at www.norsat.com, via email at [email protected] or by phone at 1-604-821-2800.

Forward Looking

The discussion and analysis of this news release contains forward-looking statements concerning anticipated developments in Norsat's operations in future periods, the adequacy of its financial resources and other events or conditions that may occur in the future. Forward-looking statements are frequently, but not always, identified by words such as "expects," "anticipates," "believes," "intends," "estimates,", "predicts," "potential," "targeted," "plans," "possible" and similar expressions, or statements that events, conditions or results "will," "may," "could" or "should" occur or be achieved. These forward-looking statements include, without limitation, statements about Norsat's market opportunities, strategies, competition, expected activities and expenditures as it pursues its business plan, the adequacy of available cash resources and other statements about future events or results. Forward-looking statements are statements about the future and are inherently uncertain, and actual achievements of the Company or other future events or conditions may differ materially from those reflected in the forward-looking statements due to a variety of risks, uncertainties and other factors, such as business and economic risks and uncertainties. The forward-looking statements are based on the beliefs, expectations and opinions of management on the date the statements are made. Consequently, all forward-looking statements made in this news release are qualified by this cautionary statement and there can be no assurance that actual results or anticipated developments will be realized. For the reasons set forth above, investors should not place undue reliance on forward-looking statements. These forward-looking statements are made as of the date of this news release and Norsat assumes no obligation to update or revise them to reflect new events or circumstances, other than as required by law.

SOURCE Norsat International Inc.

Related Links

http://www.norsat.com

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