NEWS RELEASE

 

AEROFLEX ANNOUNCES SECOND QUARTER FISCAL 2013 RESULTS

 

PLAINVIEW, New York — February 6, 2013 — 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 2013, which ended December 31, 2012.

 

For the second quarter of fiscal 2013:

 

·

Net sales were $156.2 million compared to $171.1 million in the second quarter of fiscal 2012.

 

·

Operating income was $5.8 million and net income was $745,000, or $0.01 per share, compared to operating income of $8.2 million and a net loss of $(535,000), or $(0.01) per share, in the second quarter of fiscal 2012.

 

·

On a Non-GAAP basis, operating income was $22.5 million, net income was $8.7 million, or $0.10 per share, and Adjusted EBITDA was $27.6 million compared to operating income of $29.8 million, net income of $13.9 million, or $0.16 per share, and Adjusted EBITDA of $34.4 million, in the second quarter of fiscal 2012.

 

“Despite the difficult environment, we again exceeded expectations this quarter. We saw continued improvement in both AMS and ATS and had strong bookings led by our high performance, high reliability products in AMS. Our overall book-to-bill was well over one-to-one this quarter,” stated Len Borow, Chief Executive Officer of Aeroflex. “The benefits of our operational changes have begun to take effect and we will continue to make improvements throughout the year. We continued to generate sufficient cash that allowed us to repay another $10 million of debt this quarter. Although we are encouraged by the strong bookings, we are still cautious as the political and economic issues affecting our end markets still exist.”

 

The following tables present selected financial information for the three and six months ended December 31, 2012 and 2011 prepared in accordance with generally accepted accounting principles (“GAAP”) and on a basis other than GAAP (“Non-GAAP”). A reconciliation between GAAP and Non-GAAP amounts is presented at the end of this press release. The 33% Non-GAAP effective tax rate in the fiscal 2013 period and 35% in the fiscal 2012 period result from Aeroflex’s geographic mix of Non-GAAP pre-tax income. These rates were applied to Aeroflex’s Non-GAAP pre-tax income for the three and six month periods ended December 31, 2012 and 2011, respectively.

 

 

Selected GAAP Results 

(In thousands, except percentages and per share data)

 

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2012				2011				2012				2011
Net sales		$	156,230			$	171,138			$	297,383			$	326,022
Gross profit			78,998				85,691				147,897				164,210
Gross margin			50.6	%			50.1	%			49.7	%			50.4	%
Operating income (loss)			5,824				8,246				295				8,784
Net income (loss)		$	745			$	(535	)		$	(13,394	)		$	(5,577	)
Net loss per common share:
Basic		$	0.01			$	(0.01	)		$	(0.16	)		$	(0.07	)
Diluted		$	0.01			$	(0.01	)		$	(0.16	)		$	(0.07	)
Weighted average number of common shares outstanding:
Basic and diluted			84,870				84,804				84,853				84,797
Diluted			84,880				84,804				84,853				84,797

 

Selected Non-GAAP Results 

(In thousands, except percentages and per share data)

 

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2012				2011				2012				2011
Net sales		$	156,230			$	171,138			$	297,383			$	326,022
Gross profit			79,184				85,693				148,278				164,202
Gross margin			50.7	%			50.1	%			49.9	%			50.4	%
Operating income			22,502				29,768				37,049				50,709
Net income		$	8,714			$	13,866			$	11,928			$	22,165
Net income per common share:
Basic		$	0.10			$	0.16			$	0.14			$	0.26
Diluted		$	0.10			$	0.16			$	0.14			$	0.26
Weighted average number of common shares outstanding:
Basic			84,870				84,804				84,853				84,797
Diluted			84,880				84,814				87,870				84,802
Adjusted EBITDA		$	27,566			$	34,352			$	47,006			$	60,063

 

 

Business Outlook

 

For the fiscal third quarter ending March 31, 2013, Aeroflex expects net sales to be between $154 million and $162 million, GAAP net loss to be between $(2) million and $(1) million, Adjusted EBITDA to be between $26 million and $29 million, GAAP net loss per share to be between $(0.02) and $(0.01) and Non-GAAP net income per share to be between $0.09 and $0.12.

 

The range of expected GAAP and Non-GAAP net income per share for the fiscal third quarter was calculated using GAAP and Non-GAAP effective tax rates of 68% and 28%, 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 4:30 p.m. eastern standard time on Wednesday, February 6^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 or can be accessed telephonically for domestic callers at (888) 286-8010 or internationally at (617) 801-6888 with pass code 36066861.

 

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, financial results 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,
		2012				2011
Net sales		$	156,230			$	171,138
Cost of sales			77,232				85,447
Gross profit			78,998				85,691
Operating expenses:
Selling, general and administrative costs			36,617				37,997
Research and development costs			21,088				22,420
Amortization of acquired intangibles			14,063				15,665
Restructuring charges			66				915
Impairment of asset held for sale			1,340				-
Change in fair value of acquisition contingent consideration liability			-				448
Total operating expenses			73,174				77,445
Operating income			5,824				8,246
Other income (expense):
Interest expense			(9,768	)			(8,560	)
Write-off of deferred financing costs			(227	)			-
Other income (expense), net			(212	)			(398	)
Total other income (expense), net			(10,207	)			(8,958	)
Income (loss) before income taxes			(4,383	)			(712	)
Provision (benefit) for income taxes			(5,128	)			(177	)
Net income (loss)		$	745			$	(535	)
Net income (loss) per common share:
Basic		$	0.01			$	(0.01	)
Diluted		$	0.01			$	(0.01	)
Weighted average number of common shares outstanding:
Basic			84,870				84,804
Diluted			84,880				84,804

 

 

Aeroflex Holding Corp. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(In thousands, except per share data)

 

		Six Months Ended December 31,
		2012				2011
Net sales		$	297,383			$	326,022
Cost of sales			149,486				161,812
Gross profit			147,897				164,210
Operating expenses:
Selling, general and administrative costs			72,320				75,128
Research and development costs			41,966				46,695
Amortization of acquired intangibles			28,643				31,401
Restructuring charges			3,333				1,351
Impairment of asset held for sale			1,340				-
Change in fair value of acquisition contingent consideration liability			-				851
Total operating expenses			147,602				155,426
Operating income			295				8,784
Other income (expense):
Interest expense			(19,846	)			(17,134	)
Write-off of deferred financing costs			(824	)			-
Other income (expense), net			(501	)			(693	)
Total other income (expense), net			(21,171	)			(17,827	)
Income (loss) before income taxes			(20,876	)			(9,043	)
Provision (benefit) for income taxes			(7,482	)			(3,466	)
Net income (loss)		$	(13,394	)		$	(5,577	)
Net income (loss) per common share:
Basic and diluted		$	(0.16	)		$	(0.07	)
Weighted average number of common shares outstanding:
Basic and diluted			84,853				84,797

 

 

Aeroflex Holding Corp. and Subsidiaries

Selected Segment Data

(In thousands, except percentages)

 

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2012				2011				2012				2011
Net sales:
- Microelectronic solutions ("AMS")		$	78,551			$	84,592			$	153,001			$	166,397
- Test solutions ("ATS")			77,679				86,546				144,382				159,625
Total net sales		$	156,230			$	171,138			$	297,383			$	326,022
Gross profit:
- AMS		$	38,621			$	42,280			$	75,070			$	83,302
- ATS			40,377				43,411				72,827				80,908
Total gross profit		$	78,998			$	85,691			$	147,897			$	164,210
Gross margin:
- AMS			49.2	%			50.0	%			49.1	%			50.1	%
- ATS			52.0	%			50.2	%			50.4	%			50.7	%
Total gross margin			50.6	%			50.1	%			49.7	%			50.4	%

 

 

Aeroflex Holding Corp. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

 

		December 31,				June 30,
		2012				2012
Assets
Current assets:
Cash and cash equivalents		$	41,676			$	41,324
Accounts receivable, less allowance for doubtful accounts of $1,562 and $981			126,260				146,597
Inventories			160,049				158,090
Deferred income taxes			26,402				33,315
Income taxes receivable			462				4,935
Prepaid expenses and other current assets			10,310				11,942
Total current assets			365,159				396,203
Property, plant and equipment, net of accumulated depreciation of $111,391 and $102,310			102,234				101,632
Deferred financing costs, net			13,794				15,720
Other assets			32,989				34,955
Intangible assets with definite lives, net			94,112				119,476
Intangible assets with indefinite lives			114,344				113,461
Goodwill			410,462				408,361
Total assets		$	1,133,094			$	1,189,808
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable		$	28,917			$	26,822
Advance payments by customers and deferred revenue			22,290				23,433
Income taxes payable			66				593
Accrued payroll expenses			18,139				18,635
Accrued expenses and other current liabilities			36,667				37,559
Total current liabilities			106,079				107,042
Long-term debt			606,375				641,375
Deferred income taxes			79,914				94,022
Other long-term liabilities			19,423				20,592
Total liabilities			811,791				863,031
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, 84,930,237 and 84,845,687 shares issued and outstanding			849				848
Additional paid-in capital			649,741				648,092
Accumulated other comprehensive income (loss)			(33,206	)			(39,476	)
Accumulated deficit			(296,081	)			(282,687	)
Total stockholders' equity			321,303				326,777
Total liabilities and stockholders' equity		$	1,133,094			$	1,189,808

 

 

Aeroflex Holding Corp. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

 

		Six Months Ended December 31,
		2012				2011
Cash flows from operating activities:
Net income (loss)		$	(13,394	)		$	(5,577	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization			39,803				41,804
Change in fair value of acquisition contingent consideration liability			-				851
Impairment of asset held for sale			1,340				-
Write-off of deferred financing costs			824				-
Deferred income taxes			(7,766	)			(754	)
Share-based compensation			1,367				1,730
Amortization of deferred financing costs			1,101				1,009
Other, net			774				1,100
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable			20,404				17,994
Decrease (increase) in inventories			(1,342	)			1,349
Decrease (increase) in prepaid expenses and other assets			3,676				(1,533	)
Increase (decrease) in accounts payable, accrued expenses and other liabilities			(2,678	)			(39,557	)
Net cash provided by (used in) operating activities			44,109				18,416
Cash flows from investing activities:
Payments for purchase of businesses, net of cash acquired			-				(5,106	)
Capital expenditures			(9,262	)			(9,494	)
Other, net			335				79
Net cash provided by (used in) investing activities			(8,927	)			(14,521	)
Cash flows from financing activities:
Payment of contingent consideration related to business acquisition			-				(948	)
Debt repayments			(35,000	)			(3,625	)
Deferred financing costs			-				(115	)
Other, net			(641	)			-
Net cash provided by (used in) financing activities			(35,641	)			(4,688	)
Effect of exchange rate changes on cash and cash equivalents			811				(1,115	)
Net increase (decrease) in cash and cash equivalents			352				(1,908	)
Cash and cash equivalents at beginning of period			41,324				66,278
Cash and cash equivalents at end of period		$	41,676			$	64,370

 

 

Aeroflex Holding Corp. and Subsidiaries

Reconciliation of GAAP Operating Income to Non-GAAP Operating Income

(In thousands)

 

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2012				2011				2012				2011
Operating income -GAAP		$	5,824			$	8,246			$	295			$	8,784
Amortization of acquired intangibles			14,063				15,665				28,643				31,401
Impact of purchase accounting adjustments			13				70				55				140
Change in fair value of acquisition contingent consideration liability			-				448				-				851
Restructuring costs and related pro forma savings (a)			66				3,046				3,768				6,048
Share-based compensation			731				1,130				1,367				1,730
Impairment of asset held for sale			1,340				-				1,340				-
Other adjustments			465				1,163				1,581				1,755
Operating income - non-GAAP		$	22,502			$	29,768			$	37,049			$	50,709

 

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

(In thousands)

 

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2012				2011				2012				2011
Net income (loss) -GAAP		$	745			$	(535	)		$	(13,394	)		$	(5,577	)
Amortization of acquired intangibles			14,063				15,665				28,643				31,401
Impact of purchase accounting adjustments			13				70				55				140
Change in fair value of acquisition contingent consideration liability			-				448				-				851
Restructuring costs and related pro forma savings (a)			66				3,046				3,768				6,048
Share-based compensation			731				1,130				1,367				1,730
Impairment of asset held for sale			1,340				-				1,340				-
Write-off of deferred financing costs			227				-				824				-
Amortization of deferred financing costs			547				507				1,101				1,009
Other adjustments			465				1,163				1,581				1,755
Tax impact of adjustments			(9,483	)			(7,628	)			(13,357	)			(15,192	)
Net income -non-GAAP		$	8,714			$	13,866			$	11,928			$	22,165

 

 

Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA

(In thousands)

 

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2012				2011				2012				2011
		(In thousands)
Net income (loss)		$	745			$	(535	)		$	(13,394	)		$	(5,577	)
Interest expense			9,768				8,560				19,846				17,134
Provision (benefit) for income taxes			(5,128	)			(177	)			(7,482	)			(3,466	)
Depreciation and amortization			19,680				20,830				39,803				41,804
EBITDA			25,065				28,678				38,773				49,895
Restructuring costs and related pro forma savings(a)			66				3,046				3,768				6,048
Share-based compensation			731				1,130				1,367				1,730
Impairment of asset held for sale			1,340				-				1,340				-
Change in fair value of acquisition contingent consideration liability			-				448				-				851
Write-off of deferred financing costs			227				-				824				-
Other defined items(b)			137				1,050				934				1,539
Adjusted EBITDA		$	27,566			$	34,352			$	47,006			$	60,063

 

(a)

Primarily reflects costs associated with the reorganization of our European operations and consolidation of certain of our U.S. component 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. Pro forma savings were estimated to be $0 and $435,000 for the three and six months ended December 31, 2012. The pro forma savings of $2.1 million and $4.7 million for the three and six months ended December 31, 2011 were not fully reflected in our Adjusted EBITDA as reported in our December 31, 2011 report on Form 10-Q as they relate to restructuring activities recorded throughout fiscal 2012.

 

(b)

Reflects other adjustments required in calculating our debt covenant compliance. These other defined items include legal fees related to certain litigation and business acquisition and divestiture related costs.