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8-K - FORM 8-K - MOCON INCmoco20160809_8k.htm
EX-99.2 - EXHIBIT 99.2 - MOCON INCex99-2.htm
EX-10.1 - EXHIBIT 10.1 - MOCON INCex10-1.htm

Exhibit 99.1

 

 

FOR IMMEDIATE RELEASE For More Information Contact:
  Elissa Lindsoe, CFO
August 9, 2016 763-493-6370 /
  www.mocon.com

 

MOCON Reports Solid Second Quarter 2016 Results

 

MINNEAPOLIS, MN, August 9, 2016 – MOCON, Inc. (NASDAQ: MOCO), today reported financial results for the second quarter and six-months ended June 30, 2016.

 

Highlights for the second quarter included:

 

 

Overall revenue grew four percent year-over-year. The Package Testing segment grew by double-digits, IAP & Other grew solidly and Permeation grew sequentially

 

Gross profit as a percent of revenue improved three percentage points year-over-year

 

Net income was $0.8 million, or $0.14 per diluted share, compared to $0.5 million, or $0.08 per diluted share in the first quarter of 2016

 

Adjusted EBITDA was $2.5 million, a $0.9 million sequential improvement

 

Recorded a $352,000 gain for the sale of the Company’s Texas lab, formerly known as Microanalytics (“Microanalytics”)

 

Commenting on the Company’s quarterly performance, MOCON’s president and chief executive officer, Robert L. Demorest said, “Overall second quarter revenue was up four percent on a year-over-year basis and up six percent sequentially. Most of the sales force disruption we had experienced during the first quarter is now behind us. Our Package Testing segment continues to experience strong demand for its products growing 13 percent year-over-year and our Industrial Analyzers and Other segments met our expectations, growing at eight percent year-over-year driven primarily by a 60 percent increase in sensor shipments to our US based OEM customers. Our Permeation segment improved sequentially by four percent and was down eight percent year-over-year which is an improvement from the first quarter’s year-over-year decline of 13 percent. Three percentage points of the second quarter year-over-year decline in Permeation was attributable to the sale of Microanalytics, while the remaining five percent was driven by European orders that were pushed to the third quarter.

 

Demorest added, “In conjunction with our One MOCON initiative, the integrations of our European based businesses are near completion which has changed the leadership needs in our business as a whole from one that is operationally based toward another that is designed to fuel growth through our sales strategy. As a result, we strategically eliminated two senior executive positions in our company which included our chief operating officer. We are reinvesting these dollars into our sales growth strategy with the expected additions of several new positions, one of which will be a Senior Vice President of Sales and Marketing. In conjunction with these changes, we recorded a $750,000 realignment charge in our second quarter of 2016 which was offset in part by a $352,000 gain on the sale of Microanalytics which was also part of our strategic realignment efforts.”

 

 
 

 

 

2016 Revenue and Earnings Summary

 

Second quarter 2016 results compared to second quarter 2015:

 

Revenue increased four percent as compared to the second quarter 2015.

 

Revenue from foreign customers accounted for 63 percent (38 percent in Europe, 25 percent outside of Europe & the U.S.A.) of total revenue for the second quarter of 2016 compared to 69 percent (35 percent in Europe, 34 percent outside of Europe & the U.S.A.) in the second quarter of 2015.

 

Realignment expenses were $0.8 million, or five percent of revenue, in the second quarter of 2016 compared to $0.1 million, or one percent of revenue, in the second quarter of 2015. The 2016 charge was driven by severance accruals for departures of certain executives from the Company.

 

Operating income was $0.9 million, or five percent of revenue in the second quarter of 2016 compared to $1.1 million, or seven percent of revenue in the year-ago quarter.

 

Other income was $0.3 million in the second quarter of 2016 compared to Other expense of $0.1 million in the comparable 2015 quarter, driven by a $352 thousand gain on the sale of Microanalytics.

 

Net income was $0.8 million, or $0.14 per diluted share, compared to net income of $0.6 million, or $0.11 per diluted share in the year-ago quarter.

 

Adjusted EBITDA for the second quarter of 2016 was $2.5 million compared to $2.0 million in the second quarter of 2015. (See reconciliation to non-GAAP information below)

 

Six months ended June 30, 2016 compared to the year ago six month period:

 

Revenue was consistent at $30.4 million for each of the six month periods.

 

Revenue from foreign customers accounted for 65 percent (41 percent in Europe, 24 percent outside of Europe & the U.S.A.) of total revenue for the first half of 2016 compared to 68 percent (38 percent in Europe, 30 percent outside of Europe & the U.S.A.) in the first half of 2015.

 

Net income was $1.3 million, or $0.22 per diluted share, compared to net income of $1.6 million, or $0.27 per diluted share in the first half of 2015.

 

Adjusted EBITDA for the first half of 2016 was $4.1 million compared to $3.9 million in the first half of 2015. (See reconciliation to non-GAAP information below)

 

 
 

 

  

Revenue by Segment ($ in thousands)

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
                                             
                   

Year-over-Year

Growth

                   

Year-over-Year

Growth

 
   

2016

   

2015

   

$

   

%

   

2016

   

2015

   

$

   

%

 

Package Testing

  $ 7,328     $ 6,473     $ 855       13 %   $ 14,331     $ 13,229     $ 1,102       8 %

Permeation

    5,483       5,966       (483 )     -8 %     10,766       12,068       (1,302 )     -11 %

Industrial Analyzers and Other

    2,820       2,610       210       8 %     5,264       5,112       152       3 %

Total Revenue

  $ 15,631     $ 15,049     $ 582       4 %   $ 30,361     $ 30,409     $ (48 )     0 %

 

Revenue from the Package Testing segment for the three and six months ended June 30, 2016 increased 13 percent and eight percent, respectively, compared to the year-ago periods due increased demand for leak, mixer and on-line products.

 

Revenue for the Permeation segment for the three and six months ended June 30, 2016 declined by eight percent and 11 percent compared to the year-ago periods respectively. We recorded $160,000 less in odor and aroma consulting revenue during the three months ended June 30, 2016 as a result of the sale of Microanalytics and our June 30, 2016 backlog included an additional $600,000 for European orders when compared to historical levels. In addition to the second quarter impact, the year-to-date results were further impacted by the disruption that occurred during the first quarter of 2016 as a result of a US sales force realignment.

 

Our Industrial Analyzers and Other segment grew eight percent and three percent year-over-year for the three and six months ended June 30, 2016, respectively. The growth is primarily a result of an increase in revenue from sensor and detectors of approximately $0.5 million and $1.0 million, for the three and six-month periods ended June 30, 2016, respectively. The increase in revenue was offset by continued softness in the oil and gas exploration markets.

 

Gross Profit, Operating Income and Operating Expense Commentary

 

For the three-months ended June 30, 2016 and 2015, gross profit was 56 percent and 53 percent of revenue, and operating income was five percent and seven percent of revenue, respectively. Five percent, or $750,000, of the second quarter’s operating expenses were in realignment expenses attributable to executive changes discussed above.

 

The gross profit rate for our Package Testing segment increased by two percentage points to 56 percent in the current quarter, compared to 54 percent in the year ago period, due to increased volumes and process improvement initiatives. The gross profit rate for our Permeation segment increased to 60 percent from 57 percent as compared to the prior year quarter due to customer mix and a reduced cost structure to support our consulting revenue. Our Industrial Analyzers and Other segment gross profit rate for the current quarter increased by four percentage points to 48 percent compared to 44 percent in the prior year quarter due to efficiencies gained as a result of the increased in volume of OEM sensor and detector related revenue as well as product cost reduction initiatives that were introduced during the three months ended June 30, 2016.

 

 
 

 

 

Selling, general and administrative expenses were slightly higher during the three and six months ended June 30, 2016 compared to the year-ago periods. Cost reductions from the Company’s 2015 realignment plan were offset by increased professional fees, new hires made prior to the realignment and inflation related to personnel costs. Research and development expenses were 8 percent and 7 percent of revenue in the second quarters of 2016 and 2015, respectively, which is in line with the Company’s commitment to continued innovation.

 

Balance Sheet and Cash Flow Summary

 

 

Cash and cash equivalents increased to $6.8 million at June 30, 2016 compared to $6.3 million at December 31, 2015.

 

Days sales outstanding were 60 in the second quarter of 2016 compared to 63 in the first quarter of 2016. The improvement was driven by the timing of revenue within the quarter.

 

Total debt was $2.5 million at June 30, 2016 compared to $3.0 million at December 31, 2015.

 

About MOCON

 

MOCON is a leading provider of detectors, instruments, systems and consulting services to research laboratories, production facilities, and quality control and safety departments in the medical, pharmaceutical, food and beverage, packaging, environmental, oil and gas and other industries worldwide. See www.mocon.com for more information.

 

Use of Non-GAAP Financial Measures

 

MOCON supplements its financial statements to provide investors with earnings before interest, taxes, depreciation and amortization (“EBITDA”) and EBITDA plus share-based compensation, gain on sale of business, realignment expenses, and foreign currency transactional losses (“Adjusted EBITDA”), which are not calculated in accordance with general accepted accounting principles (“GAAP”) in the United States of America.

 

MOCON believes that these non-GAAP measures provide useful information to the Company’s Board of Directors, management and investors regarding certain trends relating to its financial condition and operating performance. MOCON’s management uses these non-GAAP measures to compare the Company's performance to that of prior periods for trend analyses and planning purposes

 

 
 

 

 

The method MOCON uses to produce non-GAAP results is not computed according to GAAP, is likely to differ from the methods used by other companies and should not be regarded as a replacement for corresponding GAAP measures. MOCON urges investors to review the reconciliation of its non-GAAP financial measures to the comparable GAAP financial measures that are included in this press release.

 

Safe Harbor

 

This press release contains forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements that can be identified by words such as “will,” “may,” “expect,” “believe,” “anticipate,” “estimate,” “continue,” “planned”, or other similar expressions. All forward-looking statements speak only as of the date of this press release. MOCON undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. In addition to the risks and uncertainties of ordinary business operations and conditions in the general economy and the markets in which the Company competes, there are important factors that could cause actual results to differ materially from those anticipated by the forward-looking statements made in this press release. These factors include, but are not limited to, the Company’s ability to realize the cost savings associated with the realignment plan implemented in 2015, fluctuations in foreign currency exchange rates, the terms of MOCON’s credit agreement including financial covenants included therein, dependence on certain key industries, pricing and lack of availability of raw materials, crude oil pricing impact on oil exploration activities, and other factors set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 and other documents MOCON files with or furnishes to the Securities and Exchange Commission.

 

MOCON's shares are traded on the NASDAQ Global Market System under the symbol MOCO.

MOCON is a registered trademark of MOCON, Inc.; other trademarks are those of their respective holders.

 

 
 

 

 

MOCON, INC.

SUMMARY CONSOLIDATED FINANCIAL DATA

(in Thousands, Except Per Share Data)

 

STATEMENT OF OPERATIONS DATA: (unaudited)

                               
   

Quarters Ended June 30,

   

Six Months Ended June 30,

 
   

2016

   

2015

   

2016

   

2015

 

Revenue

                               

Products

  $ 12,244     $ 12,032     $ 23,628     $ 24,201  

Services

    2,702       2,338       5,514       4,842  

Consulting

    685       679       1,219       1,366  

Total revenue

    15,631       15,049       30,361       30,409  

Cost of revenue

                               

Products

    5,085       5,497       10,055       10,783  

Services

    1,294       1,016       2,468       2,064  

Consulting

    481       511       963       1,058  

Total cost of revenue

    6,860       7,024       13,486       13,905  

Gross profit

    8,771       8,025       16,875       16,504  
                                 

Selling, general and administrative expenses

    5,870       5,707       12,008       11,978  

Research and development expenses

    1,298       1,126       2,501       2,195  

Realignment expenses

    750       128       750       128  

Operating income

    853       1,064       1,616       2,203  

Other income (expense), net

    309       (113 )     274       138  

Income before income taxes

    1,162       951       1,890       2,341  

Income tax expense

    373       305       613       787  

Net income

  $ 789     $ 646     $ 1,277     $ 1,554  

Net income per common share:

                               

Basic

  $ 0.14     $ 0.11     $ 0.22     $ 0.27  

Diluted

  $ 0.14     $ 0.11     $ 0.22     $ 0.27  

Weighted average common shares outstanding:

                               

Basic

    5,794       5,750       5,793       5,746  

Diluted

    5,817       5,846       5,813       5,840  

 

 

CONDENSED BALANCE SHEET DATA: (unaudited)

               
   

June 30, 2016

   

December 31, 2015

 

Assets:

               

Cash and marketable securities

  $ 6,789     $ 6,344  

Accounts receivable, net

    10,449       8,786  

Inventories

    7,655       7,790  

Other current assets

    1,518       1,782  

Total current assets

    26,411       24,702  

Property, plant and equipment, net

    5,588       5,995  

Goodwill, intangibles and other assets

    16,446       16,722  

Total assets

  $ 48,445     $ 47,419  

Liabilities and Shareholders’ Equity:

               

Notes payable, current

  $ 60     $ 65  

Other current liabilities

    10,299       9,535  

Total noncurrent liabilities

    3,702       4,348  

Shareholders’ equity

    34,384       33,471  

Total liabilities and shareholders’ equity

  $ 48,445     $ 47,419  

 

 
 

 

 

CONDENSED CASH FLOW DATA: (unaudited)

 

June 30, 2016

   

June 30, 2015

 
                 

Net cash provided by operations

  $ 1,499     $ 2,127  

Net cash provided by (used in) investing activities

    160       (933 )

Net cash used in financing activities

    (1,708 )     (1,046 )

Effect of exchange rate changes

    494       (461 )

Net increase in cash

    445       (313 )

Cash beginning of year

    6,344       6,332  

Cash end of year

  $ 6,789     $ 6,019  

 

 

 

 

 

MOCON, INC.

NON-GAAP RECONCILIATION

(in Thousands)

 

   

Quarters Ended June 30,

   

Six Months Ended June 30,

 
   

2016

   

2015

   

2016

   

2015

 
                                 

Net income

  $ 789     $ 646     $ 1,277     $ 1,554  

Interest expense, net

    15       37       41       64  

Income tax expense

    373       305       613       787  

Depreciation and amortization

    698       615       1,387       1,220  
                                 

EBITDA

    1,875       1,603       3,318       3,625  

Share-based compensation

    189       162       375       322  

Gain on sale of business

    (352 )     -       (352 )     -  

Realignment expenses

    750       128       750       128  

Foreign currency transaction loss (gain)

    28       75       37       (203 )
                                 

Adjusted EBITDA

  $ 2,490     $ 1,968     $ 4,128     $ 3,872