Norsat International Inc. ("Norsat" or "the Company") (TSX: NII and
OTC BB: NSATF):
Conference Call Details
Norsat will host a conference call today on November 7, 2012 at 8:30
am Pacific Time (11:30 am Eastern Time) to discuss third quarter and
year-to-date 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/investor-info/conference-call-recordings
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
challenging applications and environments, today reported financial
results for the three and nine months ended September 30, 2012. The
Company 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.
(1) EBITDA is a Non-IFRS Measure that is defined in the 2011
Annual Management's Discussion and Analysis posted on Norsat's
website and SEDAR.
Third Quarter 2012 Highlights
"Our results were driven by strong revenue performance from the Sinclair
Technologies and Microwave Products segments," said Dr. Amiee Chan,
Norsat's President and CEO.
"Demand was especially strong for our full range of Sinclair antenna and
RF conditioning products, with this division continuing to perform above
expectations. Our Microwave Products segment also posted significant
gains during the quarter, reflecting increased demand for our products,
including our customized Ka and Ku-band receivers," said Dr. Chan.
"Results from our Satellite Solutions segment were not as strong as a
year ago, reflecting the completion of two large contracts that
contributed higher-than-normal revenues and margins in Q3 2011. While we
anticipated the return to more typical results from this segment, we
also note that competitive conditions within the satellite solutions
market have increased as US military spending slows."
"Going forward, we will continue to pursue our strategy of diversifying
both our products and end-markets to reduce our reliance on any one
customer or market," added Dr. Chan. "Our acquisition of Sinclair
Technologies has been very successful in expanding our presence in the
commercial sector, particularly with public safety and transportation
customers. Going forward, we see opportunities to continue growing
Sinclair's business, particularly with existing customers who have a
high appreciation for the reliability of Sinclair products and are
turning to us for new products. In other parts of our business, we are
continuing to pursue opportunities with military customers outside of
the US and targeting an expanded range of end-markets including the
commercial, resource, transportation and public safety sectors. We also
continually evaluate strategic opportunities that will improve our
overall operating and financial performance," said Dr. Chan.
For the three months ended September, 2012
For the three months ended September 30, 2012, Norsat recorded total
sales of $11.0 million, compared to $11.3 million in Q3 2011.
Sales from the Sinclair Technologies segment improved 11% to $6.0
million from $5.4 million during the same period in 2011, reflecting
strong market demand. Third quarter sales of Microwave Products
increased by 8% to $2.7 million, from $2.5 million in 2011. The $0.2
million increase was partially driven by increased demand for Norsat's
products, including Ku-band and customized Ka-band receivers. Norsat
continues to benefit from its widely recognized reputation within the
microwave communications market.
Satellite Solutions sales, which now include our Maritime antenna sales
, declined to $2.4 million, from $3.4 million in Q3 2011. This change
reflects the completion of the equipment portion of the contract for the
First Nations' Emergency Security Society (FNESS) and the completion of
a service contract with NATO, both of which benefited last year's
results. In addition, equipment and services sales to the US military
were lower than in Q3 2011. There were no Maritime antenna sales in the
third quarter, compared to $0.2 million the same period last year.
On a consolidated basis, Norsat's third quarter gross margin percentages
declined to 41%, from 45%. Gross profit margins from the Sinclair
Technologies segment returned to a more typical 41% in Q3 2012, from the
47% achieved in Q3 2011. Margins from this segment were higher than
normal last year, primarily reflecting the release of an inventory
provision (approximately $0.3 million, or 5% gross profit equivalent) as
conditions were no longer present that required the provision.
Gross profit margins from the Microwave Products segment increased to
44% in Q3 2012, from 40% during the same period last year. This
improvement reflects the sale of higher-margin customized products.
Third quarter gross profit margins from the Satellite Solutions segment
declined year-over-year to 40%, from 43% in Q3 2011. This decrease was
anticipated and reflects lower selling prices for some existing product
lines, as well as the absence of higher-margin equipment sales
associated with the FNESS contract. Also, gross margins were lower due
to lower proportion of high-margin service revenues.
For the three months ended September 30, 2012, total expenses increased
to $3.8 million from $3.2 million in Q3 2011 as the Company continued to
invest in its sales channels. Third quarter selling and distributing
expenses increased to $2.0 million from $1.4 million, reflecting
investments in additional sales and marketing resources, including $0.2
million for the launch of the new Norsat Power segment. Sales
commissions and bonuses were also higher year-over-year as a result of
year-to-date improvement in financial performance. General and
administrative expenses decreased to $1.0 million from $1.7 million last
year, reflecting the absence of approximately $0.6 million in bonus
accrual for the former president of Sinclair. The balance of the
decrease reflects lower employee costs.
Third quarter net product development expenses declined by $0.2 million,
to $0.3 million, reflecting a higher-than-expected recovery from
government contributions. Gross product development expenses were
consistent with last year at $0.6 million, reflecting the Company's
commitment to ongoing product development activities.
EBITDA for the three months ended September 30, 2012 was lower by 8% at
$1.7 million, compared to $1.8 million the same period last year.
Reduced gross profit contribution of $0.5 million from the Satellite
Systems segment and a $0.1 million reduction in gross profit
contribution from Sinclair Technologies where offset by reduced
operating expenses and $0.2 million increase in gross profit from the
Microwave Products segment.
Earnings before income taxes decreased to $0.7 million from $1.8 million
during Q3 2011, primarily reflecting an unfavourable foreign exchange
movement of approximately $1.0 million.
Third quarter net earnings from continuing operations declined by $0.4
million to $0.8 million, reflecting the $1.0 million negative foreign
exchange impact, partially offset by a $0.6 million reduction in net tax
expense resulting from the Company's recent legal reorganization.
During the third quarter, the Company sold its maritime vessel
monitoring unit for £70,000, with related revenues and costs
reclassified to net earnings (loss) from discontinued operations. The
decision to divest the unit was based on the disproportionately high
costs of maintaining this relatively low revenue-generating revenue
Third quarter net earnings were $1.0 million, or $0.01 per share, basic
and diluted, down slightly from $1.1 million, or $0.02 per share, basic
and diluted, during the same period in 2011.
For the nine months ended September 30, 2012
For the nine months ended September 30, 2012, Norsat's total sales
increased by $3.5 million or 12% to $31.8 million, from $28.3 million
during the same period last year.
The Sinclair Technologies segment was a significant contributor to this
improvement, with sales increasing to $18.5 million, from $15.0 million
last year. These gains reflect the positive impact of nine months
contribution from the Sinclair Technologies segment, compared to just
over eight months contribution last year. Sales from this segment were
also above historical norms, reflecting strong demand, especially in the
public safety and transportation sectors.
Year-to-date sales from Microwave Products increased to $7.1 million,
from $6.1 million during the first nine months of 2011. This gain
reflects higher volumes, as well as the addition of new products
suitable for airborne applications.
Satellite Solutions sales for the first nine months of 2012 decreased to
$6.2 million, from $7.2 million during the same period in 2011. The
change in sales from this segment reflects lower equipment and services
sales to the US military. In addition, Maritime Solutions-related sales
declined by approximately $0.2 million.
On a consolidated basis, Norsat's year-to-date gross margin percentage
was 43%, on par with the same period last year. Gross profit from the
Microwave Products segment improved to 44% from 42% due to higher demand
for higher margin customized products. Sinclair Technologies maintained
a gross margin percentage of 44%, consistent with the same period last
year. As anticipated, gross profit margins from the Satellite Solutions
segment declined to 38% from 43% in 2011, reflecting lower margins on
the FNESS and NATO contracts, together with lower selling prices for
some existing product lines. Also, gross margins were lower due to lower
proportion of high-margin service revenues.
For the nine months ended September 30, 2012, total expenses increased
to $11.9 million from $10.5 million in 2011. Selling and distributing
expenses increased to $5.7 million from $4.2 million in 2011. This
increase included approximately $0.5 million of costs related to the
launch of the new Norsat Power segment, higher sales commissions and
bonuses, and the added costs of operating the Sinclair Technologies
segment for an extra month in 2012.
General and administrative expenses decreased to $3.8 million, from $4.9
million during the nine months ended September 30, 2011. This reduction
primarily reflects the absence of $0.5 million in acquisition costs
incurred in the first two quarters of 2011 as part of the Sinclair
transaction. The lower G&A expense also reflects savings in
employee-related costs. Partially offsetting these reductions were the
added costs of operating the Sinclair division for one extra month in
the 2012 period.
Net product development expenses increased to $1.6 million from $1.4
million last year, reflecting nine months of Sinclair operations. Direct
expenses increased by $0.4 million year-over-year as a result of
continued investment in research and development of next-generation
product offerings. Increases in direct costs were offset by an
approximately $0.1 million increase in government contributions and a
$0.1 million decrease in amortization costs. Product development
continues to be a core focus for Norsat and is reflected through
development programs in the Sinclair Technologies and Satellite
Solutions business units.
EBITDA for the nine months ended September 30, 2012 improved by $0.2
million or 6% to $3.5 million. This reflects gross profit contribution
increases of $1.4 and $0.5 million, respectively, from the Sinclair
Technologies and Microwave Products segments. These gains were partially
offset by a $0.7 million reduction in gross profit contribution from the
Satellite Solutions segment. Selling and distributing expenses resulting
from investments in sales and marketing resources, including the launch
of Norsat Power, also increased during the period, as did commission and
bonus expenses related to the Company's improved financial performance.
Nine month earnings before income taxes were $1.7 million, compared to
$1.9 million in the first three quarters of last year. This change was
primarily the result of the positive gross profit contribution of $1.2
million, offset by unfavourable foreign exchange impact of approximately
Net earnings from continuing operations increased by $3.5 million
year-over-year to $4.2 million. This primarily reflects a $3.0 million
deferred income tax recovery and a reduction in current tax expenses
related to the Company's recent legal restructuring. Norsat's legal
structure was reorganized on June 29, 2012 such that all the assets and
liabilities of Sinclair Technologies Inc. ("STI"), a wholly owned
subsidiary of Sinclair Technologies Holdings Inc. ("STHI"), were
transferred to STHI. STHI was a wholly owned subsidiary of Norsat.
Immediately following the reorganization, all of the assets and
liabilities of STHI were transferred to Norsat. As of June 29, 2012, STI
and STHI were dissolved under the Business Corporation Act (Ontario) and
hence, ceased to exist as legal entities. "Sinclair Technologies"
continues to operate as a division of Norsat.
Net earnings for the nine months ended September 30, 2012 increased to
$4.3 million, from $0.6 million last year. Earnings per share increased
to $0.07 per share, basic and diluted, from $0.01 per share, basic and
diluted, during the same period last year.
Norsat ended the third quarter of 2012 with cash and cash equivalents of
$4.4 million, compared to $4.2 million as at December 31, 2011. In
connection with its acquisition of Sinclair in January 2011, the Company
secured and was funded a non-revolving acquisition loan of $12.0
million. As of November 6, 2012, the loan balance had been paid down to
$7.7 million and Norsat was in compliance with its bank covenants.
The Company also has access to undrawn credit facilities totaling $4.7
million as at September 30, and November 7, 2012.
As at September 30, 2012, working capital1 was at $6.5
million, compared to $5.1 million at December 31, 2011. The current ratio2
as at September 30, 2012 was 1.4 times compared to 1.3 times as at
December 31, 2011.
Looking forward, demand for Sinclair RF antenna and filter products is
expected to remain robust and the Company will continue to invest in new
products for this segment. Demand for Microwave Products is also
expected to continue to benefit from Norsat's proven ability to provide
modified or custom solutions specific to its customers' applications.
In the satellite industry, US military spending is projected to remain
slow in the near term, resulting in reduced demand. We have noted
competition in the satellite industry has intensified as more companies
focus on the satellite terminal and related services markets. Given
these anticipated pressures, Norsat will continue to work to diversify
its customer and product base, with a focus on militaries beyond the US,
as well as the commercial, resource, transportation and public safety
segments. As the segment diversifies beyond its traditional military
focus, revenues would be expected to increase, however gross margins
would be somewhat lower.
Norsat's management remains focused on implementing a business model
that will serve to (i) add a recurring revenue stream by offering a
range of services, (ii) broaden the portfolio of products and services,
(iii) actively recruit and cultivate reseller channel partners, and (iv)
diversify its base of customers to include non-defense customers.
Currently, Norsat is working to execute a balanced growth strategy that
incorporates investment in staffing levels, new product introductions,
and continued enhancement of existing product lines, as well as greater
diversification by geographic region and by industry vertical, and a
broadening of the solutions it provides to customers. We are also
continually evaluating strategic opportunities that will improve our
overall operating and financial performance.
While Norsat will maintain its strict focus on preserving a sustainable
cost structure, it anticipates higher costs of production and higher
operating costs as investments are made to pursue its strategic
objectives. The Company is cognizant of the extent of the current credit
crisis and will remain vigilant in its credit granting practices;
however, it believes its exposure to bad debt is relatively low overall.
Most of Norsat's trade accounts receivables are generated from various
military and large commercial customers, which are not believed to be at
risk of default. Additionally, the balance of amounts owing is spread
over a diverse range of customers.
Finally, Norsat will actively pursue merger and acquisition
opportunities. The current recessionary trends, coupled with the
Company's strong financial position and capital structure, have created
excellent conditions for realizing growth through business combinations.
However, Norsat will not undertake any transaction unless it meets
strict criteria to provide strong value, further the Company's strategic
objectives and have the potential to be accretive to shareholders.
A full set of financial statements and Management's Discussion and
Analysis for Norsat is available at www.norsat.com
and will be available at www.sedar.com.
Net earnings for the period from continuing operations
Net earnings (loss) for the period from discontinued operations
Exchange differences on translation of operations in currencies
other than US Dollars
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 challenging applications and environments. Norsat's
products and services include leading-edge product design and
development, production, distribution and infield support and service of
portable ground station satellite terminals, antennas, Radio Frequency
(RF) conditioning products, microwave components, maritime based
satellite terminals and remote network connectivity solutions.
Additionally, through its Norsat Power Solutions segment, Norsat is a
provider of power conversion and energy storage solutions for the
communications, transportation and resource sectors. More information is
available at www.norsat.com,
via email at firstname.lastname@example.org
or by phone at 1-604-821-2808.
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.
1 Working Capital is calculated by subtracting current
liabilities from current assets and is a non-IFRS measure. See Section
4.1 - "Non-IFRS Measurements" of our Management's Discussion & Analysis.
2 Current ratio is defined as current assets divided by
current liabilities and is a non-IFRS measure. See section 4.1 -
"Non-IFRS Measurements" of our Management's Discussion & Analysis.
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