NEWS RELEASE

 

AEROFLEX ANNOUNCES THIRD QUARTER FISCAL 2013 RESULTS

 

PLAINVIEW, New York — May 9, 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 third quarter of fiscal 2013, which ended March 31, 2013.

 

For the third quarter of fiscal 2013:

 

·

Net sales were $161.0 million compared to $162.3 million in the third quarter of fiscal 2012.

 

·

Operating loss was $(2.5) million and net loss was $(9.4) million, or $(0.11) per share, compared to operating loss of $(61.1) million and a net loss of $(65.3) million, or $(0.77) per share in the third quarter of fiscal 2012. This quarter, operating and net loss included a one-time $8 million International Traffic in Arms Regulation (“ITAR”) settlement expense to resolve historical self-disclosed ITAR violations. The third quarter of fiscal 2012 included a non-cash goodwill and intangibles impairment charge of $59.7 million in the RFMW group.

 

·

On a Non-GAAP basis, compared to the third quarter of fiscal 2012, operating income was $24.1 million compared to $23.0 million, net income was $9.9 million, or $0.12 per share compared to net income of $7.4 million, or $0.09 per share, and Adjusted EBITDA was $29.4 million compared to Adjusted EBITDA of $27.8 million in the third quarter of fiscal 2012.

 

“Our wireless ATS business has continued its turnaround this fiscal year. The significant operational changes we implemented are now visible in our results as demonstrated by our increased gross margins and Adjusted EBITDA. We are executing on our strategic plan despite the challenges that exist due to sequestration in some of our government markets,” stated Len Borow, Chief Executive Officer of Aeroflex. “Our AMS business continues to have a strong bookings year contributing to our nine month book-to-bill of over 1-to-1, which provides increased confidence going into our largest quarter of the fiscal year.”

 

The following tables present selected financial information for the three and nine months ended March 31, 2013 and 2012 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 40% 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 nine month periods ended March 31, 2013 and 2012, respectively.

 

 

Selected GAAP Results

(In thousands, except percentages and per share data)

 

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2013				2012				2013				2012
Net sales		$	160,954			$	162,262			$	458,337			$	488,284
Gross profit			80,560				79,173				228,457				243,383
Gross margin			50.1	%			48.8	%			49.8	%			49.8	%
Operating income (loss)			(2,523	)			(61,063	)			(2,228	)			(52,279	)
Net income (loss)		$	(9,389	)		$	(65,261	)		$	(22,783	)		$	(70,838	)
Net income (loss) per common share:
Basic and diluted		$	(0.11	)		$	(0.77	)		$	(0.27	)		$	(0.84	)
Weighted average number of common shares outstanding:
Basic and diluted			84,904				84,824				84,870				84,806

 

Selected Non-GAAP Results

(In thousands, except percentages and per share data)

 

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2013				2012				2013				2012
Net sales		$	160,954			$	162,262			$	458,337			$	488,284
Gross profit			80,803				79,292				229,081				243,494
Gross margin			50.2	%			48.9	%			50.0	%			49.9	%
Operating income			24,138				22,977				62,003				73,686
Net income		$	9,948			$	7,353			$	22,423			$	29,518
Net income per common share:
Basic		$	0.12			$	0.09			$	0.26			$	0.35
Diluted		$	0.12			$	0.09			$	0.26			$	0.35
Weighted average number of common shares outstanding:
Basic			84,904				84,824				84,870				84,806
Diluted			85,055				84,908				84,932				84,837
Adjusted EBITDA		$	29,445			$	27,848			$	77,267			$	87,911

 

 

Business Outlook

 

For the fiscal fourth quarter ending June 30, 2013, Aeroflex expects net sales to be between $175 million and $185 million, GAAP net income to be between $8 million and $11 million, Adjusted EBITDA to be between $41 million and $45 million, GAAP net income per share to be between $0.09 and $0.12 and Non-GAAP net income per share to be between $0.21 and $0.25.

 

The range of expected GAAP and Non-GAAP net income per share for the fiscal fourth quarter was calculated using GAAP and Non-GAAP effective tax rates of 23% and 30%, 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, May 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 or can be accessed telephonically for domestic callers at (888) 286-8010 or internationally at (617) 801-6888 with pass code 86207952.

 

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 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 March 31,
		2013				2012
Net sales		$	160,954			$	162,262
Cost of sales			80,394				83,089
Gross profit			80,560				79,173
Operating expenses:
Selling, general and administrative costs			37,449				38,172
Research and development costs			23,247				22,245
Amortization of acquired intangibles			13,991				15,642
Restructuring charges			396				4,031
Impairment of goodwill and other long-lived assets			-				59,700
ITAR settlement expense			8,000				-
Change in fair value of acquisition contingent consideration liability			-				446
Total operating expenses			83,083				140,236
Operating income (loss)			(2,523	)			(61,063	)
Other income (expense):
Interest expense			(9,448	)			(8,252	)
Write-off of deferred financing costs			-				(864	)
Other income (expense), net			(389	)			(251	)
Total other income (expense), net			(9,837	)			(9,367	)
Income (loss) before income taxes			(12,360	)			(70,430	)
Provision (benefit) for income taxes			(2,971	)			(5,169	)
Net income (loss)		$	(9,389	)		$	(65,261	)
Net income (loss) per common share:
Basic and diluted		$	(0.11	)		$	(0.77	)
Weighted average number of common shares outstanding:
Basic and diluted			84,904				84,824

 

 

Aeroflex Holding Corp. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(In thousands, except per share data)

 

		Nine Months Ended March 31,
		2013				2012
Net sales		$	458,337			$	488,284
Cost of sales			229,880				244,901
Gross profit			228,457				243,383
Operating expenses:
Selling, general and administrative costs			109,769				113,300
Research and development costs			65,213				68,940
Amortization of acquired intangibles			42,634				47,043
Restructuring charges			3,729				5,382
Impairment of goodwill and other long-lived assets			1,340				59,700
ITAR settlement expense			8,000				-
Change in fair value of acquisition contingent consideration liability			-				1,297
Total operating expenses			230,685				295,662
Operating income (loss)			(2,228	)			(52,279	)
Other income (expense):
Interest expense			(29,294	)			(25,386	)
Write-off of deferred financing costs			(824	)			(864	)
Other income (expense), net			(890	)			(944	)
Total other income (expense), net			(31,008	)			(27,194	)
Income (loss) before income taxes			(33,236	)			(79,473	)
Provision (benefit) for income taxes			(10,453	)			(8,635	)
Net income (loss)		$	(22,783	)		$	(70,838	)
Net income (loss) per common share:
Basic and diluted		$	(0.27	)		$	(0.84	)
Weighted average number of common shares outstanding:
Basic and diluted			84,870				84,806

 

 

Aeroflex Holding Corp. and Subsidiaries

Selected Segment Data

(In thousands, except percentages)

 

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2013				2012				2013				2012
Net sales:
Microelectronic solutions ("AMS")		$	85,662			$	91,288			$	238,663			$	257,685
Test solutions ("ATS")			75,292				70,974				219,674				230,599
Total net sales		$	160,954			$	162,262			$	458,337			$	488,284
Gross profit:
- AMS		$	41,733			$	46,363			$	116,803			$	129,665
- ATS			38,827				32,810				111,654				113,718
Total gross profit		$	80,560			$	79,173			$	228,457			$	243,383
Gross margin:
- AMS			48.7	%			50.8	%			48.9	%			50.3	%
- ATS			51.6	%			46.2	%			50.8	%			49.3	%
Total gross margin			50.1	%			48.8	%			49.8	%			49.8	%

 

 

Aeroflex Holding Corp. and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

 

		March 31,				June 30,
		2013				2012
Assets
Current assets:
Cash and cash equivalents		$	34,786			$	41,324
Accounts receivable, less allowance for doubtful accounts of $3,651 and $981			134,087				146,597
Inventories			158,348				158,090
Deferred income taxes			30,957				33,315
Income taxes receivable			437				4,935
Prepaid expenses and other current assets			9,736				11,942
Total current assets			368,351				396,203
Property, plant and equipment, net of accumulated depreciation of $114,338 and $102,310			100,465				101,632
Deferred financing costs, net			13,248				15,720
Other assets			32,266				34,955
Intangible assets with definite lives, net			79,466				119,476
Intangible assets with indefinite lives			112,639				113,461
Goodwill			408,310				408,361
Total assets		$	1,114,745			$	1,189,808
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable		$	27,591			$	26,822
Advance payments by customers and deferred revenue			22,756				23,433
Income taxes payable			3,365				593
Accrued payroll expenses			19,485				18,635
Accrued expenses and other current liabilities			34,766				37,559
Total current liabilities			107,963				107,042
Long-term debt			606,375				641,375
Deferred income taxes			73,841				94,022
Other long-term liabilities			23,788				20,592
Total liabilities			811,967				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, 84,930,387 and 84,845,687 shares issued and outstanding			849				848
Additional paid-in capital			650,988				648,092
Accumulated other comprehensive income (loss)			(43,589	)			(39,476	)
Accumulated deficit			(305,470	)			(282,687	)
Total stockholders' equity			302,778				326,777
Total liabilities and stockholders' equity		$	1,114,745			$	1,189,808

 

 

Aeroflex Holding Corp. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)

		Nine Months Ended March 31,
		2013				2012
Cash flows from operating activities:
Net income (loss)		$	(22,783	)		$	(70,838	)
Adjustments to reconcile net income (loss)  to net cash provided by (used in) operating activities:
Depreciation and amortization			59,880				62,863
Change in fair value of acquisition contingent consideration liability			-				1,297
Impairment of goodwill and other long-lived assets			1,340				59,700
Special accounts receivable reserve			2,529				-
Write-off of deferred financing costs			824				864
Deferred income taxes			(17,291	)			(11,133	)
Share-based compensation			2,610				2,649
Non-cash restructuring charges			-				1,015
Amortization of deferred financing costs			1,648				1,515
Other, net			606				2,063
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable			8,868				38,182
Decrease (increase) in inventories			(2,362	)			5,563
Decrease (increase) in prepaid expenses and other assets			1,758				(7,710	)
Increase (decrease) in accounts payable, accrued expenses and other liabilities			5,473				(31,024	)
Net cash provided by (used in) operating activities			43,100				55,006
Cash flows from investing activities:
Payments for purchase of businesses, net of cash acquired			-				(5,106	)
Proceeds from the sale of building held for sale			1,582				-
Capital expenditures			(14,311	)			(15,030	)
Other, net			572				239
Net cash provided by (used in) investing activities			(12,157	)			(19,897	)
Cash flows from financing activities:
Payment of contingent consideration related to business acquisition			-				(948	)
Debt repayments			(35,000	)			(68,625	)
Deferred financing costs			-				(158	)
Other, net			(641	)			-
Net cash provided by (used in) financing activities			(35,641	)			(69,731	)
Effect of exchange rate changes on cash and cash equivalents			(1,840	)			114
Net increase (decrease) in cash and cash equivalents			(6,538	)			(34,508	)
Cash and cash equivalents at beginning of period			41,324				66,278
Cash and cash equivalents at end of period		$	34,786			$	31,770

 

 

Aeroflex Holding Corp. and Subsidiaries

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

(In thousands)

 

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2013				2012				2013				2012
Operating income (loss)  - GAAP		$	(2,523	)		$	(61,063	)		$	(2,228	)		$	(52,279	)
Amortization of acquired intangibles			13,991				15,642				42,634				47,043
Restructuring costs and related pro forma savings (a)			499				5,903				5,083				11,951
Impairment of goodwill and other long-lived assets			-				59,700				1,340				59,700
ITAR settlement expense			8,000				-				8,000				-
Change in fair value of acquisition contingent consideration liability			-				446				-				1,297
Share-based compensation			1,243				919				2,610				2,649
Special accounts receivable reserve			2,529				-				2,529				-
Other adjustments			399				1,430				2,035				3,325
Operating income - non-GAAP		$	24,138			$	22,977			$	62,003			$	73,686

 

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

(In thousands)

  

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2013				2012				2013				2012
Net income (loss) - GAAP		$	(9,389	)		$	(65,261	)		$	(22,783	)		$	(70,838	)
Amortization of acquired intangibles			13,991				15,642				42,634				47,043
Restructuring costs and related pro forma savings (a)			499				5,903				5,083				11,951
Impairment of goodwill and other long-lived assets			-				59,700				1,340				59,700
ITAR settlement expense			8,000				-				8,000				-
Change in fair value of acquisition contingent consideration liability			-				446				-				1,297
Share-based compensation			1,243				919				2,610				2,649
Special accounts receivable reserve			2,529				-				2,529				-
Write-off of deferred financing costs			-				864				824				864
Amortization of deferred financing costs			547				506				1,648				1,515
Other adjustments			399				1,430				2,035				3,325
Tax impact of adjustments			(7,871	)			(12,796	)			(21,497	)			(27,988	)
Net income - non-GAAP		$	9,948			$	7,353			$	22,423			$	29,518

  

 

Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA

 (In thousands)

  

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2013				2012				2013				2012
		(In thousands)
Net income (loss)		$	(9,389	)		$	(65,261	)		$	(22,783	)		$	(70,838	)
Interest expense			9,448				8,252				29,294				25,386
Provision (benefit) for income taxes			(2,971	)			(5,169	)			(10,453	)			(8,635	)
Depreciation and amortization			20,077				21,059				59,880				62,863
EBITDA			17,165				(41,119	)			55,938				8,776
Restructuring costs and related pro forma savings(a)			499				5,903				5,083				11,951
Impairment of goodwill and other long-lived assets			-				59,700				1,340				59,700
ITAR settlement expense			8,000				-				8,000				-
Change in fair value of acquisition contingent  consideration liability			-				446				-				1,297
Share-based compensation			1,243				919				2,610				2,649
Special accounts receivable reserve			2,529				-				2,529				-
Write-off of deferred financing costs			-				864				824				864
Other defined items(b)			9				1,135				943				2,674
Adjusted EBITDA		$	29,445			$	27,848			$	77,267			$	87,911

  

(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 $103,000 and $1.4 million for the three and nine months ended March 31, 2013. The pro forma savings of $1.9 million and $6.6 million for the three and nine months ended March 31, 2012 were not fully reflected in our Adjusted EBITDA as reported in our March 31, 2012 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.