NEWS RELEASE

 

AEROFLEX ANNOUNCES SECOND QUARTER FISCAL 2012 RESULTS

 

PLAINVIEW, New York — February 9, 2012 — Aeroflex Holding Corp. ("Aeroflex") (NYSE: ARX), a leading global provider of high performance microelectronic components, and test and measurement equipment, today announced its financial results for the second quarter of fiscal 2012, which ended December 31, 2011.

 

Net sales for the second quarter of fiscal 2012 were $171.1 million, up approximately 10% sequentially from the first quarter of fiscal 2012. AMS net sales were $84.6 million and ATS net sales were $86.5 million in the second quarter of fiscal 2012. Operating income was $8.2 million and net income (loss) was $(535,000), or $(0.01) per share, in the second quarter of fiscal 2012.

 

Non-GAAP operating income was $27.8 million, Adjusted EBITDA was $32.4 million and Non-GAAP net income per share was $0.15 in the second quarter. For the second quarter, the book-to-bill ratio was approximately 1-to-1.

 

“I am pleased that we exceeded our expectations this quarter,” said Len Borow, Chief Executive Officer of Aeroflex. “Contributing to our success were shipments of several prototype PXI lines to wireless test customers in Asia which we believe are a prelude for future business. We continued to build upon our success in AMS with significant contract wins across our high reliability and high performance microelectronics business.” Mr. Borow added, “Our unique technology and strong product portfolio allows both our AMS and ATS businesses to remain at the forefront of their respective industries.”

 

The following tables present selected financial information for the three and six months ended December 31, 2011 and 2010 prepared in accordance with generally accepted accounting principles (“GAAP”) and on a basis other than GAAP (“Non-GAAP”). The GAAP and Non-GAAP effective tax rates in fiscal 2012 were 31% and 35%, respectively. The GAAP and Non-GAAP effective tax rates in fiscal 2011 were 59% and 31%, respectively. The GAAP and the Non-GAAP tax rates are a result of Aeroflex’s geographic mix of pre-tax income. These rates were applied to the respective pre-tax income (loss) for the three and six month periods. A reconciliation between GAAP and Non-GAAP amounts is presented at the end of this press release.

 

 

Selected GAAP Results

(In thousands, except percentages and per share data)

 

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2011				2010				2011				2010
Net sales		$	171,138			$	181,579			$	326,022			$	337,510
Gross profit			85,691				94,840				164,210				174,666
Gross margin			50.1	%			52.2	%			50.4	%			51.8	%
Operating income (loss)			8,246				(5,351	)			8,784				(2,148	)
Net income (loss)		$	(535	)		$	(11,403	)		$	(5,577	)		$	(17,220	)
Net income (loss) per common share:
Basic		$	(0.01	)		$	(0.15	)		$	(0.07	)		$	(0.25	)
Diluted		$	(0.01	)		$	(0.15	)		$	(0.07	)		$	(0.25	)
Weighted average number of common shares outstanding:
Basic			84,804				74,034				84,797				69,517
Diluted			84,804				74,034				84,797				69,517

 

Selected Non-GAAP Results

(In thousands, except percentages and per share data)

 

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2011				2010				2011				2010
Net sales		$	171,138			$	181,603			$	326,022			$	337,558
Gross profit		$	85,693			$	95,214			$	164,202			$	175,843
Gross margin			50.1	%			52.4	%			50.4	%			52.1	%
Operating income			27,801				39,522				46,785				65,049
Net income		$	12,591			$	14,328			$	19,598			$	18,090
Net income per common share:
Basic		$	0.15			$	0.19			$	0.23			$	0.26
Diluted		$	0.15			$	0.19			$	0.23			$	0.26
Weighted average number of common shares outstanding:
Basic			84,804				74,034				84,797				69,517
Diluted			84,814				74,034				84,802				69,517
Adjusted EBITDA		$	32,385			$	44,494			$	56,139			$	74,540

 

 

Business Outlook

 

Mr. Borow added, “Despite our success this quarter, the economic uncertainties surrounding our wireless end markets, the European economy and uncertainty in defense spending has made visibility more challenging and our future outlook more cautious.” For the fiscal third quarter ending March 31, 2012, Aeroflex expects net sales to be between $167 million and $177 million, GAAP net income (loss) to be between $(650,000) and $2 million, Adjusted EBITDA to be between $31 million and $35 million, GAAP net income (loss) per share to be between $(0.01) and $0.02, and Non-GAAP net income per share to be between $0.14 and $0.17.

 

For the full fiscal year ending June 30, 2012, Aeroflex expects net sales to be between $700 million and $720 million, GAAP net income to be between $12 million and $17 million, Adjusted EBITDA to be between $147 million and $155 million, GAAP net income per share to be between $0.14 and $0.20, and Non-GAAP net income per share to be between $0.73 and $0.79.

 

The range of expected GAAP and Non-GAAP net income (loss) per share for the fiscal third quarter and the full fiscal year was calculated using GAAP and Non-GAAP effective tax rates of 31% and 35%, respectively.

 

Non-GAAP Presentation

 

This press release contains Non-GAAP financial measures that are not in accordance with, or an alternative for, measures prepared in accordance with generally accepted accounting principles and may be different from Non-GAAP measures used by other companies. In addition, these Non-GAAP measures: (i) are not based on any comprehensive set of accounting rules or principles; and (ii) have limitations in that they do not reflect all of the amounts associated with Aeroflex's results of operations as determined in accordance with GAAP. As such, these measures should only be used to evaluate Aeroflex's results of operations in conjunction with the corresponding GAAP measures.

 

Aeroflex believes that the presentation of Non-GAAP financial measures, when shown in conjunction with the corresponding GAAP measures, provides useful supplemental information to investors and management regarding financial and business trends relating to its financial condition and results of operations because they exclude certain non-cash charges or items that management does not believe are reflective of its ongoing operating results when assessing the performance of its business.

 

Aeroflex believes that these Non-GAAP financial measures also facilitate the comparison by management and investors of results between periods and among its peer companies. However, its peer companies may calculate similar Non-GAAP financial measures differently than Aeroflex, limiting the information’s usefulness as comparative measures.

 

Webcast and Conference Call Information

 

Aeroflex will host a live webcast and conference call at 8:15 a.m. eastern standard time on Thursday, February 9^th during which management will discuss the financial results. To participate in the live webcast, please visit the events page of the website located at http://ir.aeroflex.com. Please plan to join five to ten minutes before the start of the webcast to facilitate a timely connection. If you are unable to participate and would like to hear a replay of the call, an audio replay of the webcast will be available on the Aeroflex website for approximately 90 days or can be accessed telephonically for domestic callers at (888) 286-8010 or internationally at (617) 801-6888 with pass code 46532525.

 

 

About Aeroflex

 

Aeroflex Holding Corp. is a leading global provider of high performance microelectronic components, and test and measurement equipment used by companies in the space, avionics, defense, commercial wireless communications, medical and other markets. 

 

Forward-looking Statements

All statements other than statements of historical fact included in this press release regarding Aeroflex’s business strategy and plans and objectives of its management for future operations are forward-looking statements. When used in this press release, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to Aeroflex or its management, identify forward-looking statements. Such forward-looking statements are based on the current beliefs of Aeroflex’s management, as well as assumptions made by and information currently available to its management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors, including but not limited to, adverse developments in the global economy; changes in government spending; dependence on growth in customers’ businesses; the ability to remain competitive in the markets Aeroflex serves; the inability to continue to develop, manufacture and market innovative, customized products and services that meet customer requirements for performance and reliability; any failure of suppliers to provide raw materials and/or properly functioning component parts; the inability to meet covenants contained in debt agreements; the termination of key contracts, including technology license agreements, or loss of key customers; the inability to protect intellectual property; the failure to comply with regulations such as International Traffic in Arms Regulations and any changes in regulations; the failure to realize anticipated benefits from completed acquisitions, divestitures or restructurings, or the possibility that such acquisitions, divestitures or restructurings could adversely affect Aeroflex; the loss of key employees; exposure to foreign currency exchange rate risks; and terrorist acts or acts of war. Such statements reflect the current views of management with respect to the future and are subject to these and other risks, uncertainties and assumptions. Aeroflex does not undertake any obligation to update such forward-looking statements. Any projections in this release are based on limited information currently available to Aeroflex, which is subject to change. Although any such projections and the factors influencing them will likely change, Aeroflex will not necessarily update the information, since Aeroflex will only provide guidance at certain points during the year.

 

Contact:

Andrew Kaminsky

Aeroflex Holding Corp.

(516) 752-6401

andrew.kaminsky@aeroflex.com

 

 

Aeroflex Holding Corp. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

 (In thousands, except per share data)

 

		Three Months Ended December 31,
		2011				2010
Net sales		$	171,138			$	181,579
Cost of sales			85,447				86,739
Gross profit			85,691				94,840
Operating expenses:
Selling, general and administrative costs			38,445				38,266
Research and development costs			22,420				21,656
Amortization of acquired intangibles			15,665				15,843
Termination of Sponsor Advisory Agreement			-				18,133
Restructuring charges			915				6,293
Total operating expenses			77,445				100,191
Operating income (loss)			8,246				(5,351	)
Other income (expense):
Interest expense			(8,560	)			(20,713	)
Loss on extinguishment of debt and write-off of deferred financing costs			-				(25,178	)
Gain from a bargain purchase of a business			-				173
Other income (expense), net			(398	)			(378	)
Total other income (expense), net			(8,958	)			(46,096	)
Income (loss) before income taxes			(712	)			(51,447	)
Provision (benefit) for income taxes			(177	)			(40,044	)
Net income (loss)		$	(535	)		$	(11,403	)
Net income (loss) per common share:
Basic		$	(0.01	)		$	(0.15	)
Diluted		$	(0.01	)		$	(0.15	)
Weighted average number of common shares outstanding:
Basic			84,804				74,034
Diluted			84,804				74,034

 

 

Aeroflex Holding Corp. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(In thousands, except per share data)

 

		Six Months Ended December 31,
		2011				2010
Net sales		$	326,022			$	337,510
Cost of sales			161,812				162,844
Gross profit			164,210				174,666
Operating expenses:
Selling, general and administrative costs			75,979				74,969
Research and development costs			46,695				43,814
Amortization of acquired intangibles			31,401				31,806
Termination of Sponsor Advisory Agreement			-				18,133
Restructuring charges			1,351				8,092
Total operating expenses			155,426				176,814
Operating income (loss)			8,784				(2,148	)
Other income (expense):
Interest expense			(17,134	)			(41,951	)
Loss on extinguishment of debt and write-off of deferred financing costs			-				(25,178	)
Gain from a bargain purchase of a business			-				173
Other income (expense), net			(693	)			(407	)
Total other income (expense), net			(17,827	)			(67,363	)
Income (loss) before income taxes			(9,043	)			(69,511	)
Provision (benefit) for income taxes			(3,466	)			(52,291	)
Net income (loss)		$	(5,577	)		$	(17,220	)
Net income (loss) per common share:
Basic		$	(0.07	)		$	(0.25	)
Diluted		$	(0.07	)		$	(0.25	)
Weighted average number of common shares outstanding:
Basic			84,797				69,517
Diluted			84,797				69,517

 

 

Selected Segment Data

(In thousands except percentages)

 

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2011				2010				2011				2010
Net sales:
Microelectronic solutions ("AMS")		$	84,592			$	89,225			$	166,397			$	166,530
Test solutions ("ATS")			86,546				92,354				159,625				170,980
Total net sales		$	171,138			$	181,579			$	326,022			$	337,510
Gross profit:
- AMS		$	42,280			$	44,696			$	83,302			$	83,415
- ATS			43,411				50,144				80,908				91,251
Total gross profit		$	85,691			$	94,840			$	164,210			$	174,666
Gross Margin:
- AMS			50.0	%			50.1	%			50.1	%			50.1	%
- ATS			50.2	%			54.3	%			50.7	%			53.4	%
Total gross margin			50.1	%			52.2	%			50.4	%			51.8	%

 

 

Aeroflex Holding Corp. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

 

		December 31,				June 30,
		2011				2011
Assets
Current assets:
Cash and cash equivalents		$	64,370			$	66,278
Accounts receivable, less allowance for doubtful accounts of $1,114 and $1,210			148,668				168,141
Inventories			182,560				186,370
Deferred income taxes			54,617				51,855
Prepaid expenses and other current assets			13,020				10,044
Total current assets			463,235				482,688
Property, plant and equipment, net of accumulated depreciation of $92,640 and $82,581			100,709				105,162
Deferred financing costs, net			14,395				15,289
Other assets			29,598				29,000
Intangible assets with definite lives, net			151,160				183,614
Intangible assets with indefinite lives			113,838				114,730
Goodwill			462,956				465,443
Total assets		$	1,335,891			$	1,395,926
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt		$	7,635			$	7,635
Accounts payable			26,176				48,737
Advance payments by customers and deferred revenue			26,395				25,859
Income taxes payable			-				8,371
Accrued payroll expenses			17,047				22,063
Accrued expenses and other current liabilities			37,028				45,772
Total current liabilities			114,281				158,437
Long-term debt			714,125				717,750
Deferred income taxes			115,615				117,150
Defined benefit plan obligations			5,685				5,539
Other long-term liabilities			14,532				13,526
Total liabilities			964,238				1,012,402
Stockholders' equity:
Preferred stock, par value $.01 per share; 50,000,000 shares authorized, no shares issued and outstanding			-				-
Common stock, par value $.01 per share; 300,000,000 shares authorized; 84,824,064 and 84,789,180 shares issued and outstanding			848				848
Additional paid-in capital			646,163				644,262
Accumulated other comprehensive income (loss)			(40,731	)			(32,536	)
Accumulated deficit			(234,627	)			(229,050	)
Total stockholders' equity			371,653				383,524
Total liabilities and stockholders' equity		$	1,335,891			$	1,395,926

 

 

Aeroflex Holding Corp. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)

 

		Six Months Ended December 31,
		2011				2010
Cash flows from operating activities:
Net income (loss)		$	(5,577	)		$	(17,220	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization			41,804				41,534
Loss on extinguishment of debt and write-off of deferred financing costs			-				25,178
Deferred income taxes			(754	)			(55,926	)
Share-based compensation			1,730				1,026
Non - cash restructuring charges			-				4,860
Amortization of deferred financing costs			1,009				2,839
Paid in kind interest			-				2,434
Other, net			1,100				2,019
Change in operating assets and liabilities, net of effects from purchases of businesses:
Decrease (increase) in accounts receivable			17,994				13,629
Decrease (increase) in inventories			1,349				(24,214	)
Decrease (increase) in prepaid expenses and other assets			(1,533	)			(1,088	)
Increase (decrease) in accounts payable, accrued expenses and other liabilities			(38,706	)			(6,128	)
Net cash provided by (used in) operating activities			18,416				(11,057	)
Cash flows from investing activities:
Payments for purchase of businesses, net of cash acquired			(5,106	)			(23,591	)
Capital expenditures			(9,494	)			(11,213	)
Proceeds from sale of marketable securities			-				2,000
Proceeds from the sale of property, plant and equipment			79				741
Net cash provided by (used in) investing activities			(14,521	)			(32,063	)
Cash flows from financing activities:
Net proceeds from issuance of common stock			-				244,097
Repurchase of senior unsecured notes and senior subordinated unsecured term loans, including premiums and fees			-				(207,690	)
Payment of contingent consideration related to business acquisition			(948	)			-
Debt repayments			(3,625	)			(21,458	)
Deferred financing costs			(115	)			(3,332	)
Net cash provided by (used in) financing activities			(4,688	)			11,617
Effect of exchange rate changes on cash and cash equivalents			(1,115	)			1,483
Net increase (decrease) in cash and cash equivalents			(1,908	)			(30,020	)
Cash and cash equivalents at beginning of period			66,278				100,663
Cash and cash equivalents at end of period		$	64,370			$	70,643

 

   

Aeroflex Holding Corp. and Subsidiaries

Reconciliation of GAAP Operating Income (Loss) to Non-GAAP Operating Income

(In thousands)

 

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2011				2010				2011				2010
Operating income (loss) -GAAP		$	8,246			$	(5,351	)		$	8,784			$	(2,148	)
Amortization of acquired intangibles			15,665				15,843				31,401				31,806
Impact of purchase accounting adjustments			70				450				140				1,397
Merger related expenses			-				507				-				1,222
Restructuring costs and related pro forma savings (a)			1,079				8,211				2,124				11,449
Share-based compensation			1,130				513				1,730				1,026
Termination of Sponsor Advisory Agreement			-				18,133				-				18,133
Other adjustments			1,611				1,216				2,606				2,164
Operating income - non-GAAP		$	27,801			$	39,522			$	46,785			$	65,049

 

Reconciliation of GAAP Net Income (Loss) to Non-GAAP Net Income

(In thousands)

 

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2011				2010				2011				2010
Net income (loss) -GAAP		$	(535	)		$	(11,403	)		$	(5,577	)		$	(17,220	)
Amortization of acquired intangibles			15,665				15,843				31,401				31,806
Impact of purchase accounting adjustments			70				450				140				1,397
Merger related expenses			-				507				-				1,222
Restructuring costs and related pro forma savings (a)			1,079				8,211				2,124				11,449
Share-based compensation			1,130				513				1,730				1,026
Termination of Sponsor Advisory Agreement			-				18,133				-				18,133
Loss on extinguishment of debt and write-off of deferred financing costs			-				25,178				-				25,178
Gain from a bargain purchase of a business			-				(173	)			-				(173	)
Amortization of deferred financing costs			507				1,646				1,009				2,839
Other adjustments			1,611				1,904				2,606				2,852
Tax impact of adjustments			(6,936	)			(46,481	)			(13,835	)			(60,419	)
Net income -non-GAAP		$	12,591			$	14,328			$	19,598			$	18,090

 

 

Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA

(In thousands)

 

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2011				2010				2011				2010
Net income (loss) -GAAP		$	(535	)		$	(11,403	)		$	(5,577	)		$	(17,220	)
Interest expense			8,560				20,713				17,134				41,951
Provision (benefit) for income taxes			(177	)			(40,044	)			(3,466	)			(52,291	)
Depreciation and amortization			20,830				20,648				41,804				41,534
EBITDA			28,678				(10,086	)			49,895				13,974
Non-cash purchase accounting adjustments			-				391				-				1,046
Merger related expenses			-				507				-				1,222
Restructuring costs and related pro forma savings (a)			1,079				8,211				2,124				11,449
Share-based compensation			1,130				513				1,730				1,026
Termination of Sponsor Advisory Agreement			-				18,133				-				18,133
Loss on extinguishment of debt and write-off of deferred financing costs			-				25,178				-				25,178
Gain from a bargain purchase of a business			-				(173	)			-				(173	)
Other defined items (b)			1,498				1,820				2,390				2,685
Adjusted EBITDA (c)		$	32,385			$	44,494			$	56,139			$	74,540

 

(a)

Primarily reflects costs associated with the reorganization of our European operations and consolidation of certain of our U.S. components facilities. Pro forma savings reflect the costs that we estimate would have been eliminated during the fiscal year in which a restructuring occurred had the restructuring occurred as of the first day of that fiscal year.

 

(b)

Reflects other adjustments required in calculating our debt covenant compliance. These other defined items include legal fees related to litigation, business acquisition costs and pro forma EBITDA for periods prior to the acquisition dates for companies acquired during the respective fiscal year.

 

(c)

Pro forma savings of $164,000 and $773,000 were applicable to the three and six months ended December 31, 2011, respectively, and relate to restructuring activities recorded throughout fiscal 2012. The portion of pro forma savings that was applicable to the three months ended September 30, 2011 ($609,000) was not reflected in our Adjusted EBITDA as reported in our September 30, 2011 report on Form 10-Q. Pro forma savings of $1.9 million and $3.4 million were applicable to the three and six months ended December 31, 2010, respectively, and relate to restructuring activities recorded throughout fiscal 2011. The impact of these savings, when combined with other adjustments of $255,000 and $451,000 for the three and six months ended December 31, 2010, respectively, totaled $2.2 million and $3.8 million for the three and six months ended December 31, 2010, respectively, and were not reflected in our Adjusted EBITDA as reported in our September 30, 2010 and December 31, 2010 reports on Form 10-Q.