NEWS RELEASE

 

AEROFLEX ANNOUNCES SECOND QUARTER FISCAL 2014 RESULTS

 

PLAINVIEW, New York — February 7, 2014 — 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 2014, which ended December 31, 2013.

 

As announced on September 5, 2013, Aeroflex sold the net assets of Aeroflex Test Equipment Services (“ATES”), a division of its U.K. subsidiary, Aeroflex Limited, for $18.4 million in cash. The results of operations of ATES are reported as income from discontinued operations. Aeroflex’s prior period results have been adjusted to reflect this transaction.

 

Aeroflex’s results from continuing operations for the second quarter of fiscal 2014 are discussed below:

 

·

Net sales were $151.1 million compared to $151.9 million in the second quarter of fiscal 2013.

 

·

Operating income was $9.5 million and income from continuing operations was $1.1 million, or $0.01 per share, compared to operating income of $5.1 million and income from continuing operations of $0.2 million, or $0.00 per share, in the second quarter of fiscal 2013.

 

·

On a Non-GAAP basis, Adjusted EBITDA was $26.1 million compared to Adjusted EBITDA of $27.4 million in the second quarter of fiscal 2013. For the quarter, Non-GAAP operating income was $20.8 million compared to $22.5 million, and Non-GAAP net income was $9.2 million, or $0.11 per share, compared to of $8.7 million, or $0.10 per share, last year.

 

“This quarter we regained our momentum across many of our core growth markets,” stated Len Borow, Chief Executive Officer of Aeroflex. “Led in particular by a strong showing in AMS, our book-to-bill was significantly above 1-to-1 as a company. Our ATS segment’s book-to-bill was also above 1-to-1 for the quarter. AMS bookings were strong led by our two significant contract wins for mixed-signal semiconductors in new market adjacencies. Our ATS wireless infrastructure business continued to benefit from demand for next generation LTE technology in growing markets such as Asia, which resulted in a record bookings quarter for TM500s. Our strong bookings and market momentum are positioning us well to drive a very strong second half of fiscal 2014.”

 

The following tables present selected financial information for the three and six months ended December 31, 2013 and 2012 prepared in accordance with generally accepted accounting principles (“GAAP”) and on a basis other than GAAP (“Non-GAAP”). Prior fiscal year comparative information has been restated to present the operating results of ATES as a discontinued operation. A reconciliation between GAAP and Non-GAAP amounts is presented at the end of this press release. The 32% Non-GAAP effective tax rate in the fiscal 2014 period and 33% in the fiscal 2013 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 months periods ended December 31, 2013 and 2012, respectively.

 

 

Selected GAAP Results

(In thousands, except percentages and per share data)

 

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2013				2012				2013				2012
Net sales		$	151,105			$	151,872			$	283,837			$	289,507
Gross profit			74,980				78,058				140,798				146,280
Gross margin			49.6	%			51.4	%			49.6	%			50.5	%
Operating income (loss)			9,523				5,074				9,486				(949	)
Income (loss) from continuing operations			1,127				173				(2,828	)			(14,343	)
Income from discontinued operations			-				572				14,462				949
Net income (loss)		$	1,127			$	745			$	11,634			$	(13,394	)
Income (loss) per common share - basic:
Continuing operations		$	0.01			$	-			$	(0.03	)		$	(0.17	)
Discontinued operations			-				0.01				0.17				0.01
Net income (loss)		$	0.01			$	0.01			$	0.14			$	(0.16	)
Income (loss) per common share - diluted:
Continuing operations		$	0.01			$	-			$	(0.03	)		$	(0.17	)
Discontinued operations			-				0.01				0.17				0.01
Net income (loss)		$	0.01			$	0.01			$	0.14			$	(0.16	)
Weighted average number of common shares outstanding:
Basic			85,014				84,870				84,965				84,853
Diluted			85,223				84,880				84,965				84,853

 

Selected Non-GAAP Results

(In thousands, except percentages and per share data)

 

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2013				2012				2013				2012
Net sales		$	151,105			$	151,872			$	283,837			$	289,507
Gross profit			75,539				78,244				141,692				146,661
Gross margin			50.0	%			51.5	%			49.9	%			50.7	%
Operating income			20,795				22,497				33,913				37,456
Net income		$	9,248			$	8,707			$	13,485			$	12,201
Net income per common share:
Basic		$	0.11			$	0.10			$	0.16			$	0.14
Diluted		$	0.11			$	0.10			$	0.16			$	0.14
Weighted average number of common shares outstanding:
Basic			85,014				84,870				84,965				84,853
Diluted			85,223				84,880				85,229				84,870
Adjusted EBITDA		$	26,071			$	27,445			$	44,583			$	47,297

 

 

Business Outlook

 

For the third quarter ending March 31, 2014, Aeroflex expects net sales to be between $155 million and $162 million, GAAP income from continuing operations to be between $4 million and $8 million, Adjusted EBITDA to be between $26 million and $30 million, GAAP income from continuing operations per share to be between $0.04 and $0.07 and Non-GAAP net income per share to be between $0.11 and $0.14.

 

The business outlook includes the results of Aeroflex’s recently announced Shenick Network Systems (“Shenick”) acquisition from the date of closing through March 31, 2014. Additionally, the Company anticipates the acquisition of Shenick will be neutral to Adjusted EBITDA in fiscal 2014 and accretive to Adjusted EBITDA in fiscal 2015. For the calendar year 2013, Shenick had net sales of $9.4 million.

 

The range of expected GAAP and Non-GAAP earnings per share for the fiscal third quarter was calculated using GAAP and Non-GAAP effective tax rates of 29% and 32%, 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) today, February 7^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 53187416.

  

 

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; the 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, the Foreign Corrupt Practices Act and Conflict Minerals 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,
		2013				2012
Net sales		$	151,105			$	151,872
Cost of sales			76,125				73,814
Gross profit			74,980				78,058
Operating expenses:
Selling, general and administrative costs			34,012				36,427
Research and development costs			22,694				21,088
Amortization of acquired intangibles			7,212				14,063
Restructuring charges			1,539				66
Impairment of asset held for sale			-				1,340
Total operating expenses			65,457				72,984
Operating income			9,523				5,074
Other income (expense):
Interest expense			(7,240	)			(9,768	)
Write-off of deferred financing costs			-				(227	)
Other income (expense), net			(296	)			(212	)
Total other income (expense), net			(7,536	)			(10,207	)
Income (loss) from continuing operations before income taxes			1,987				(5,133	)
Provision (benefit) for income taxes			860				(5,306	)
Income from continuing operations			1,127				173
Discontinued operations:
Income from discontinued operations, net of tax provision of  $178			-				572
Net income		$	1,127			$	745
Income per common share - basic:
Continuing operations		$	0.01			$	-
Discontinued operations			-				0.01
Net income		$	0.01			$	0.01
Income per common share - diluted:
Continuing operations		$	0.01			$	-
Discontinued operations			-				0.01
Net income		$	0.01			$	0.01
Weighted average number of common shares outstanding:
Basic			85,014				84,870
Diluted			85,223				84,880

 

 

Aeroflex Holding Corp. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(In thousands, except per share data)

 

		Six Months Ended December 31,
		2013				2012
Net sales		$	283,837			$	289,507
Cost of sales			143,039				143,227
Gross profit			140,798				146,280
Operating expenses:
Selling, general and administrative costs			67,180				71,947
Research and development costs			44,179				41,966
Amortization of acquired intangibles			17,730				28,643
Restructuring charges			2,223				3,333
Impairment of asset held for sale			-				1,340
Total operating expenses			131,312				147,229
Operating income (loss)			9,486				(949	)
Other income (expense):
Interest expense			(14,492	)			(19,846	)
Write-off of deferred financing costs			-				(824	)
Other income (expense), net			(347	)			(501	)
Total other income (expense), net			(14,839	)			(21,171	)
Income (loss) from continuing operations before income taxes			(5,353	)			(22,120	)
Provision (benefit) for income taxes			(2,525	)			(7,777	)
Income (loss) from continuing operations			(2,828	)			(14,343	)
Discontinued operations:
Income from discontinued operations, net of tax provision of $105 and $295			360				949
Gain on disposal of operations, net of tax of $0			14,102				-
Income from discontinued operations			14,462				949
Net income (loss)		$	11,634			$	(13,394	)
Income (loss) per common share - basic and diluted:
Continuing operations		$	(0.03	)		$	(0.17	)
Discontinued operations			0.17				0.01
Net income (loss)		$	0.14			$	(0.16	)
Weighted average number of common shares outstanding:
Basic and diluted			84,965				84,853

  

 

Unaudited Selected Segment Data

(In thousands, except percentages)

 

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2013				2012				2013				2012
Net sales:
Microelectronic solutions ("AMS")		$	83,757			$	83,301			$	157,763			$	161,373
Test solutions ("ATS")			67,348				68,571				126,074				128,134
Total net sales		$	151,105			$	151,872			$	283,837			$	289,507
Gross profit:
- AMS		$	37,532			$	40,928			$	71,826			$	78,711
- ATS			37,448				37,130				68,972				67,569
Total gross profit		$	74,980			$	78,058			$	140,798			$	146,280
Gross margin:
- AMS			44.8	%			49.1	%			45.5	%			48.8	%
- ATS			55.6	%			54.1	%			54.7	%			52.7	%
Total gross margin			49.6	%			51.4	%			49.6	%			50.5	%

 

 

Aeroflex Holding Corp. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

 

		December 31,				June 30,
		2013				2013
Assets
Current assets:
Cash and cash equivalents		$	60,949			$	39,424
Accounts receivable, less allowance for doubtful accounts of $3,453 and $3,422			125,417				151,163
Inventories			170,146				156,516
Deferred income taxes			34,496				35,491
Prepaid expenses and other current assets			14,107				9,374
Total current assets			405,115				391,968
Property, plant and equipment, net of accumulated depreciation of $121,091 and $122,479			100,982				101,546
Deferred financing costs, net			10,722				11,580
Other assets			31,188				31,886
Intangible assets with definite lives, net			48,676				65,552
Intangible assets with indefinite lives			113,006				110,779
Goodwill			316,990				315,643
Total assets		$	1,026,679			$	1,028,954
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable		$	29,174			$	34,768
Advance payments by customers and deferred revenue			23,280				23,490
Income taxes payable			3,086				12,003
Accrued payroll expenses			17,655				21,694
Accrued expenses and other current liabilities			34,642				37,184
Total current liabilities			107,837				129,139
Long-term debt			587,000				587,000
Deferred income taxes			62,459				67,296
Other long-term liabilities			20,262				23,061
Total liabilities			777,558				806,496
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, 85,208,482 and 84,936,582 shares issued and outstanding			852				849
Additional paid-in capital			652,175				651,950
Accumulated other comprehensive income (loss)			(28,605	)			(43,406	)
Accumulated deficit			(375,301	)			(386,935	)
Total stockholders' equity			249,121				222,458
Total liabilities and stockholders' equity		$	1,026,679			$	1,028,954

 

  

Aeroflex Holding Corp. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)

 

		Six Months Ended December 31,
		2013				2012
Cash flows from operating activities:
Net income (loss)		$	11,634			$	(13,394	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization			29,762				39,803
Gain on disposal of operations			(14,102	)			-
Impairment of asset held for sale			-				1,340
Write-off of deferred financing costs			-				824
Deferred income taxes			(6,208	)			(7,766	)
Share-based compensation			2,012				1,367
Amortization of deferred financing costs			858				1,101
Other, net			208				774
Change in operating assets and liabilities, net of effects from sale of business:
Decrease (increase) in accounts receivable			23,864				20,404
Decrease (increase) in inventories			(11,728	)			(1,342	)
Decrease (increase) in prepaid expenses and other assets			(2,964	)			3,676
Increase (decrease) in accounts payable, accrued expenses and other liabilities			(23,292	)			(2,678	)
Net cash provided by (used in) operating activities			10,044				44,109
Cash flows from investing activities:
Net proceeds from the sale of business			18,389				-
Capital expenditures			(9,665	)			(9,262	)
Other, net			126				335
Net cash provided by (used in) investing activities			8,850				(8,927	)
Cash flows from financing activities:
Debt repayments			-				(35,000	)
Other, net			(1,757	)			(641	)
Net cash provided by (used in) financing activities			(1,757	)			(35,641	)
Effect of exchange rate changes on cash and cash equivalents			4,388				811
Net increase (decrease) in cash and cash equivalents			21,525				352
Cash and cash equivalents at beginning of period			39,424				41,324
Cash and cash equivalents at end of period		$	60,949			$	41,676

 

 

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,
		2013				2012				2013				2012
Operating income (loss)  - GAAP		$	9,523			$	5,074			$	9,486			$	(949	)
Amortization of acquired intangibles			7,212				14,063				17,730				28,643
Restructuring related costs, including pro forma savings(a)			1,797				811				3,052				5,419
Impairment of asset held for sale			-				1,340				-				1,340
Share-based compensation			1,130				731				2,012				1,367
Other adjustments			1,133				478				1,633				1,636
Operating income - non-GAAP		$	20,795			$	22,497			$	33,913			$	37,456

 

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

(In thousands)

 

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2013				2012				2013				2012
Net income (loss) - GAAP		$	1,127			$	745			$	11,634			$	(13,394	)
Income from discontinued operations			-				(572	)			(14,462	)			(949	)
Income (loss) from continuing operations			1,127				173				(2,828	)			(14,343	)
Amortization of acquired intangibles			7,212				14,063				17,730				28,643
Restructuring related costs, including pro forma savings(a)			1,797				811				3,052				5,419
Impairment of asset held for sale			-				1,340				-				1,340
Share-based compensation			1,130				731				2,012				1,367
Write-off of deferred financing costs			-				227				-				824
Amortization of deferred financing costs			430				547				858				1,101
Other adjustments			1,139				478				1,639				1,636
Tax impact of adjustments			(3,587	)			(9,663	)			(8,978	)			(13,786	)
Net income - non-GAAP		$	9,248			$	8,707			$	13,485			$	12,201

 

 

Aeroflex Holding Corp. and Subsidiaries

Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA

(In thousands)

  

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2013				2012				2013				2012
		(In thousands)
Net income (loss)		$	1,127			$	745			$	11,634			$	(13,394	)
Income from discontinued operations			-				(572	)			(14,462	)			(949	)
Income (loss) from continuing operations			1,127				173				(2,828	)			(14,343	)
Interest expense			7,240				9,768				14,492				19,846
Provision (benefit) for income taxes			860				(5,306	)			(2,525	)			(7,777	)
Depreciation and amortization			13,313				19,564				29,762				39,687
EBITDA			22,540				24,199				38,901				37,413
Restructuring related costs, including pro forma savings(a)			1,797				811				3,052				5,419
Impairment of asset held for sale			-				1,340				-				1,340
Share-based compensation			1,130				731				2,012				1,367
Write-off of deferred financing costs			-				227				-				824
Other defined items(b)			604				137				618				934
Adjusted EBITDA		$	26,071			$	27,445			$	44,583			$	47,297

 

(a)

Primarily reflects costs associated with the reorganization of our European operations and consolidation of certain of our U.S. operations. 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 $258,000 and $745,000 for the three months ended December 31, 2013 and 2012 and $829,000 and $2.1 million for the six months ended December 31, 2013 and 2012, respectively. The pro forma savings for the three months and six months ended December 31, 2012 includes an additional $745,000 and $1.7 million which was not reflected in our Adjusted EBITDA as reported in our December 31, 2012 report on Form 10-Q as it relates to restructuring activities recorded throughout fiscal 2013.

 

(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.