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Hemisphere GPS Reports Q2 2009 Results

^{Published on 2009-07-30 03:40:03, Last Modified on 2009-07-30 03:40:12 - Market Wire}
 

 CALGARY, July 30 /CNW/ - (TSX: HEM) Hemisphere GPS, a designer and manufacturer of advanced GPS products, today reported financial results for the second quarter and six months ended June 30, 2009. All amounts in this news release are expressed in US dollars. For the second quarter ended June 30, 2009, Hemisphere GPS reported a 37% decrease in revenues to $14.5 million, versus $23.0 million in the second quarter of 2008. Customer purchasing activity in the agriculture sector continued to be at the low end of management's expectations due to cautious recessionary spending within the agricultural equipment market. Revenue from international and OEM/system integrator customers for Agriculture and Precision Products markets were lower as customers adjusted purchases and inventory levels to respond to recessionary conditions. Revenues from Agriculture were down by 41% compared to the second quarter of 2008, whereas revenues from the Precision Products segment were down by 11%. While the first half of 2009 was impacted by the global economic slow-down, mid and long-term fundamentals for Hemisphere GPS' market sectors are solid. Agricultural markets remain positive driven by population growth, limited arable land, the need for increased output, and a relatively low global penetration of precision agriculture technologies such as GPS and auto-steering. Crop prices and farm income levels have declined from the record levels seen in 2008, however, remain high by historical standards. The USDA has recently projected a positive report on potential grain production in 2009, with a record number of planted acres for soybeans and the second highest recorded number of planted acres of corn. For the second quarter, North American revenues decreased 32%, showing a moderate stabilizing compared to the 35% decrease in the first quarter of 2009. Potentially indicating the weak markets have bottomed, North American revenues under the Outback brand for the month of June 2009 were particularly strong, actually showing an increase over June 2008. International revenues decreased 48% year-over-year for the second quarter, with European revenues decreasing by 29%, Australian revenues decreasing by 69% and other markets decreasing by 55%. International sales decreased in general due to the global economic slowdown and also due to the stronger US dollar - which increases the net price for international customers as Hemisphere GPS' products are priced in US dollars. In addition, second quarter international revenues were impacted as certain forecasted shipments were not made due to credit concerns and prudent credit management practices. "In the first half of 2009 we were hit by recessionary pressures and currency challenges that have generated significant caution for order flow within the industry," said Steve Koles, President & CEO of Hemisphere GPS. "We are also comparing our results year-over-year to a very robust first half of 2008. With positive outlooks for this years' crops, falling input costs, and a weakening US dollar, optimism is beginning to return to the market. We intend to capture this optimism with new products, new customers, and new markets as we continue to drive towards generating a stronger second half relative to 2008." Despite the decrease in second quarter revenues, gross margins were 50%, down only marginally from 52% in the second quarter of 2008. Gross margins were lower primarily as a result of the impact of fixed manufacturing costs on lower revenue levels as well as from lower software revenues. Cost reductions through outsourcing the manufacture of an increased number of component and finished goods products has been a key driver in maintaining gross margin strength. "Operationally we are stable even in the current down market, and we have maintained strong gross margins," said Mr. Koles. "We maintain a leadership position in our market and our technology and products continue to set benchmarks. In 2009 we are adding more new products, and further expanding our markets while we also manage expenses prudently during the economic pullback." Research and development expense for the quarter was essentially unchanged at $2.0 million The investment in research and development activities is critical for the Company to maintain and build its position in current and targeted markets. Total operating expenses for the second quarter decreased by 12% to $7.6 million. Global market uncertainty has resulted in an increasingly more conservative cost management strategy. Further to the previously announced closure of the Euless, Texas office, the Company implemented a workforce reduction initiative during the second quarter, reducing headcount from 262 employees to 241 employees. Restructuring costs of $0.8 million were recorded in the second quarter related to these activities. Hemisphere GPS reported a net loss prior to foreign exchange and restructuring costs of $283 thousand in the second quarter of 2009 compared to income of $3.5 million in the second quarter of 2008. Including foreign exchange and restructuring costs, a consolidated net loss of $1.3 million, or ($0.02) per share (basic and diluted), was reported in the second quarter of 2009 compared to net income of $3.2 million, or $0.06 per share (basic and diluted), in the second quarter of 2008. For the first six months of 2009, Hemisphere GPS reported revenues of $32.4 million, a 34% decrease from revenues of $49.0 million for the same period in 2008. Gross margin for the first half of 2009 was consistent with the first half of 2008 at 51%. Year-over-year expenses decreased by $1.4 million. Earnings for the first half of 2009 were $1.3 million, prior to foreign exchange and restructuring costs, compared to $8.4 million for the first half of 2008. Net income was $0.3 million, or $0.01 per share (basic and diluted), compared to $9.0 million, or $0.17 per share (basic and diluted) in the first half of 2008. At June 30, 2009, Hemisphere GPS held cash of $8.8 million, as compared to a balance of $16.3 million at December 31, 2008. Agriculture-related inventory was built in anticipation of strong sales during the first half of the year, which is the strongest agriculture buying season. Softer sales than anticipated during the second quarter resulted in the increase in inventory. Inventory levels have now stabilized and are expected to decrease through the remainder of the fiscal year. Working capital at June 30, 2009 was approximately $30 million. Operational Highlights - During the second quarter, the Ground Agriculture and Air business units were combined into a single business unit. The Company's Air sales office in Euless, Texas was closed and activities were transferred to the Ground Agriculture business unit's office in Kansas. As a result, for reporting purposes, the Company will now report activities under two operating segments: Agriculture and Precision Products. Amounts reported in the past for Ground Agriculture and Air will be combined and reported as Agriculture. - Kip Pendleton joined Hemisphere GPS as vice-president and general manager of the Company's newly formed Agriculture business unit, bringing over 25 years of experience in agriculture business management with both large and small agriculture companies. The newly formed Agriculture business unit combines the former Air and Ground Agriculture business units, creating more synergy between air and ground agriculture platforms and applications, including the Company's patented dual-flow and variable-rate technologies. - Hemisphere GPS entered the China market with a new version of the Outback S-Lite guidance system software that supports Simplified Chinese language characters. The new version carries over all the proven features of the existing Outback Guidance product and now also supports 20 languages. New sales distribution partners have been established, along with a local Hemisphere GPS representative. "With China actively developing its biofuel production capability with an annual production capacity target of 10 million tons of ethanol by 2020, together with the country's estimated potential fertilizer consumption growth of 80 per cent, a tremendous opportunity is developing for our precision agriculture technology in that region," explained Mr. Koles. - Hemisphere GPS is adapting its product portfolio to cater to many regions of the world by adding product features and language support including: French, Spanish, Portuguese, Dutch, Latvian, Ukrainian, Romanian, Lithuanian and Slovakian. By making existing products more inclusive and developing new products specific to targeted market regions, Hemisphere GPS continues its commitment to broadening its global market share. - Hemisphere GPS expanded its popular line of Outback Guidance eDrive hydraulic steering installation kits to be used with a wide variety of agricultural tractors, floaters, sprayers and combines. Hemisphere GPS has added customized kits to support 23 new machinery models, bringing the number of compatible agricultural machines to over 650. Outback eDriveTC GPS-assisted steering system extends the functionality of the Outback S series, including Outback S, Outback S2, Outback Sts and Outback S3. Once eDriveTC engages, it uses GPS technology to automatically steer the agricultural machines. "We are proud to have North America's most popular aftermarket hydraulic steering system," added Mr. Koles. "In 5 years Hemisphere GPS has sold over 11,000 units." - Juniper Systems Inc., fully integrated Hemisphere GPS' new XF101 DGPS receiver with Juniper's ultra-rugged Archer Field PC delivering sub- meter DGPS to location-based applications in the most demanding environments. For less than US$3,500, users can collect sub-meter DGPS real time data using SBAS corrections, or post-process positions back at the office. This represents accurate geospatial information at unparalleled value. - Hemisphere GPS and Stara SA of Brazil, one of the world's largest agricultural implement manufacturers, launched Stara's newest self- propelled sprayer, Gladiador, which comes standard equipped with Hemisphere GPS precision agriculture guidance, automated steering and boom control technology. Conference Call - Thursday, July 30th at 11:00AM ET (9:00am MT) A conference call and Web cast for shareholders, analysts and other members of the investment community has been scheduled for Thursday, July 30, 2009 at 11:00 a.m. Eastern Time (9:00 a.m. Mountain Time) to discuss the financial results and provide updates on operations. To participate in the conference call, please dial 1-800-814-4941 approximately 10 minutes before the conference call. Please note that a live Web cast of the call will be available on the Hemisphere GPS Web site at [ http://www.hemispheregps.com ]. The Web cast will be archived there for later review. A recording of the call will be available through August 6. Please dial 416-640-1917 or 1-877-289-8525 and enter the reservation number 21311856 followed by the number sign to listen to the rebroadcast. About Hemisphere GPS Hemisphere GPS designs and manufactures innovative, cost-effective GPS products for positioning, guidance, and machine control applications in agriculture, marine and other markets. The Company holds numerous patents and other intellectual property and owns leading brand names, including Outback Guidance(R) and BEELINE(R), two of the leading brands in precision GPS for ground agriculture. The Company is headquartered in Calgary, Alberta, with major product development, sales, and marketing facilities in Arizona, Kansas and Australia. Hemisphere GPS trades on the Toronto Stock Exchange under the symbol "HEM" and is a component of Standard & Poor's TSX SmallCap Index. For more information about Hemisphere GPS, please go to [ www.hemispheregps.com ]. The above disclosure contains certain forward-looking statements that involve substantial known and unknown risks and uncertainties. These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond Hemisphere GPS' control, including: the impact of general economic conditions, industry conditions, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to the announced transactions and the final valuations thereof, and obtaining required approvals of regulatory authorities. Hemisphere GPS' actual results, performance or achievement could differ materially from those expressed in, or implied by these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits, including the amount of proceed, that Hemisphere GPS will derive therefrom. HEMISPHERE GPS INC. Consolidated Balance Sheets (unaudited - expressed in U.S. dollars) ------------------------------------------------------------------------- June 30, December 31, 2009 2008 ------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 8,790,906 $ 16,288,684 Accounts receivable 7,539,907 7,409,108 Inventories 18,565,097 14,016,645 Deferred commissions 204,957 215,402 Prepaid expenses and deposits 661,998 679,863 ----------------------------------------------------------------------- 35,762,865 38,609,702 Deferred commissions 156,150 171,852 Property and equipment 7,167,888 6,871,801 Intangible assets 7,206,701 7,029,627 Goodwill 36,840,281 34,972,095 ------------------------------------------------------------------------- $ 87,133,885 $ 87,655,077 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 4,591,551 $ 6,634,059 Foreign exchange contract - 3,270,210 Deferred revenue 1,370,860 1,484,166 ----------------------------------------------------------------------- 5,962,411 11,388,435 Deferred revenue 1,044,008 1,035,220 Shareholders' equity: Share capital 107,711,504 108,162,136 Share capital purchased for cancellation under Normal Course Issuer Bid - (450,633) Contributed surplus 3,556,735 3,134,045 Deficit (33,897,596) (34,232,193) Accumulated other comprehensive income 2,756,823 (1,381,933) ------------------------------------------------------------------------- 80,127,466 75,231,422 ------------------------------------------------------------------------- $ 87,133,885 $ 87,655,077 ------------------------------------------------------------------------- ------------------------------------------------------------------------- HEMISPHERE GPS INC. Consolidated Statements of Operations and Deficit (unaudited - expressed in U.S. dollars) ------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, --------------------------- --------------------------- 2009 2008 2009 2008 ------------------------------------------------------------------------- Sales $ 14,465,261 $ 23,036,767 $ 32,420,313 $ 48,945,531 Cost of sales 7,182,484 10,948,560 15,730,497 23,783,077 ------------------------------------------------------------------------- 7,282,777 12,088,207 16,689,816 25,162,454 Expenses: Research and development 1,995,546 2,026,017 4,096,908 3,830,408 Sales and marketing 2,832,314 3,299,394 6,056,998 6,597,461 General and administrative 1,768,856 2,168,144 3,344,061 4,133,650 Stock-based compensation 205,638 220,911 422,506 348,791 Amortization 762,970 911,301 1,476,450 1,839,066 ------------------------------------------------------------------------- 7,565,324 8,625,767 15,396,923 16,749,376 ------------------------------------------------------------------------- Earnings before undernoted items (282,547) 3,462,440 1,292,893 8,413,078 Foreign exchange loss (gain) 173,254 322,565 162,790 (271,794) Interest income (7,345) (92,101) (16,680) (207,273) Restructuring costs 812,186 - 812,186 - Other income - - - (263,036) ------------------------------------------------------------------------- Earnings before income taxes (1,260,642) 3,231,976 334,597 9,155,181 Current income taxes - 62,134 - 175,903 ------------------------------------------------------------------------- Net earnings (1,260,642) 3,169,842 334,597 8,979,278 Deficit, beginning of period (32,636,954) (34,660,278) (34,232,193) (40,469,714) Adjustment due to adoption of new accounting policy - 150,135 - 150,135 ------------------------------------------------------------------------- Deficit, end of period $(33,897,596) $(31,340,301) $(33,897,596) $(31,340,301) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings per common share from continuing operations: Basic and diluted $ (0.02) $ 0.06 $ 0.01 $ 0.17 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings per common share: Basic and diluted $ (0.02) $ 0.06 $ 0.01 $ 0.17 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average shares outstanding: Basic 55,561,667 56,229,439 55,561,667 53,510,557 Diluted 55,561,667 56,921,538 55,561,667 53,976,161 HEMISPHERE GPS INC. Consolidated Statements of Cash Flows (unaudited - expressed in U.S. dollars) ------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, --------------------------- --------------------------- 2009 2008 2009 2008 ------------------------------------------------------------------------- Cash flows from (used in) operating activities: Earnings from continuing operations $ (1,260,642) $ 3,169,842 $ 334,597 $ 8,979,278 Items not involving cash: Amortization 762,970 911,301 1,476,450 1,839,066 Stock-based compensation 205,638 220,911 422,506 348,791 Unrealized foreign exchange loss (gain) 724,410 134,419 594,071 (715,765) ----------------------------------------------------------------------- 423,376 4,436,473 2,827,624 10,451,370 Change in non-cash operating working capital: Accounts receivable 3,165,179 2,828,228 445,478 (1,198,888) Inventories 868,289 611,800 (3,493,575) 497,345 Prepaid expenses and deposits 66,425 86,960 54,748 203,158 Deferred commissions 13,600 1,445 44,582 (41,882) Accounts payable and accrued liabilities (4,373,213) (3,643,464) (2,515,713) (1,627,206) Settlement of foreign currency contract (1,433,039) 15,708 (2,323,539) 15,708 Notes payable - (11,463) - (322,680) Deferred revenue (185,617) 32,615 (234,865) 336,107 ----------------------------------------------------------------------- (1,446,000) 4,358,302 (5,195,260) 8,313,032 Cash flows from (used in) financing activities: Capital lease obligations - (50,762) - (101,003) Issue of share capital, net of share issue costs - 675,202 - 939,940 ----------------------------------------------------------------------- - 624,440 - 838,937 Cash flows used in investing activities: Purchase of property and equipment (298,996) (383,061) (529,397) (854,530) Intangible asset additions (493,390) - (697,300) - Business acquisition, net - (92,654) - (92,654) ------------------------------------------------------------------------- (792,386) (475,715) (1,226,697) (947,184) ------------------------------------------------------------------------- Increase (decrease) in cash position (2,238,386) 4,507,027 (6,421,957) 8,204,785 Effect of currency translation on cash balances and cash flows (1,482,777) (28,254) (1,075,812) 195,473 Cash and cash equivalents, beginning of period 12,512,069 17,377,264 16,288,675 13,455,779 ------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 8,790,906 $ 21,856,037 $ 8,790,906 $ 21,856,037 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash and cash equivalents consist of: Cash $ 4,790,906 $ 21,856,037 $ 4,790,906 $ 21,856,037 Term deposits 4,000,000 - 4,000,000 - Supplemental disclosure: Interest paid $ 14,448 $ 7,252 $ 18,500 $ 14,435 

For further information: Cameron Olson, Chief Financial Officer, Hemisphere GPS, (403) 259-3311, [ CFO@HemisphereGPS.com ]; Cory Pala, Investor Relations, e.vestor Communications Inc., (416) 657-2400, [ InvestorRelations@HemisphereGPS.com ]