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Globecomm Systems Reports Fiscal 2011 Third Quarter and Record Nine-Month Financial Results

 

May 9, 2011

 

Globecomm Systems Inc.  announced financial results for the fiscal 2011 third quarter and nine months ended March 31, 2011. Globecomm is reporting its financial results on a generally accepted accounting principles (GAAP) basis as well as adjusted EBITDA and adjusted diluted net income per common share, both non-GAAP financial measures, for which the Company provides detailed reconciliations on the attached tables. The following are highlights:

 

Service revenues for the quarter increased 35.1% to $46.0 million as compared to $34.0 million in the same period last year. For the nine months ended March 31, 2011, service revenue increased 41.5% to a record $136.2 million as compared to $96.2 million in the same period last year.

 

Consolidated revenues for the quarter increased 18.3% to $62.5 million as compared to $52.8 million in the same period last year.

 

GAAP earnings per diluted share for the quarter increased 133% to $0.14 as compared to $0.06 in the same period last year. Adjusted diluted net income per common share increased 89% to $0.17 as compared to $0.09 in the same period last year.

 

Adjusted EBITDA for the quarter increased 66.9% to a record $9.2 million as compared to $5.5 million in the same period last year.

 

Fiscal Year 2011 Third Quarter Results

 

Revenues for the Company’s fiscal 2011 third quarter increased 18.3% to $62.5 million as compared to $52.8 million in the same period last year. Revenues from service increased 35.1% to $46.0 million, as compared to $34.0 million in the same period last year. The increase in service revenue was primarily driven by organic growth in the access service offering in the government marketplace, coupled with the Company’s acquisition of C2C and Evocomm, which combined contributed net $3.2 million. Revenue from infrastructure solutions decreased 12.0% to $16.5 million as compared to $18.8 million in the same period last year. The Company is experiencing a shift in its infrastructure business from numerous smaller orders to ones that are larger and include various milestones which affect revenue recognition. This may result in more significant quarter-to-quarter shifts in revenues from this segment in the future. The Company expects an increase in revenues from this segment in the fiscal 2011 fourth quarter as a result of this shift.

 

Net income for the Company’s fiscal 2011 third quarter increased to $3.0 million or $0.14 per diluted share as compared to net income of $1.2 million, or $0.06 per diluted share in the same period last year. During the fiscal 2011 third quarter, the Company recorded the following adjustments:

 

Non-recurring acquisition expenses of $0.5 million ($0.02 per share) relating to the acquisition of ComSource announced on April 8, 2011.

 

A $0.4 million ($0.02 per share) charge for the change in fair value of the earn-out as a result of the better than anticipated performance of the previously announced acquisition of C2C and Evocomm.

A non-recurring tax credit of $0.3 million ($0.01 per share) related to research and development tax credits for fiscal years 2005 and 2010.

 

Excluding these net charges, the Company’s adjusted diluted net income per common share increased 89% to $0.17 as compared to $0.09 in the same period last year.

 

Adjusted EBITDA for the third quarter of fiscal 2011 increased 66.9% to $9.2 million compared to $5.5 million in the same period last year.

 

Fiscal Year 2011 Nine Month Results

 

Revenues for the Company’s fiscal 2011 nine months ended March 31, 2011 increased 18.0% to a record $185.9 million as compared to $157.6 million in the same period last year. Revenues from services increased 41.5% to a record $136.2 million as compared to $96.2 million in the same period last year. The increase in service revenue was primarily driven by organic growth in the access service offering in the government marketplace, coupled with the Company’s acquisition of C2C and Evocomm, which combined contributed net $12.6 million. Revenues from infrastructure solutions decreased 18.9% to $49.8 million as compared to $61.4 million in the same period last year. The decrease in infrastructure solution revenues was primarily caused by the timing of revenue milestones and by the global economic slowdown resulting in government and commercial customers and prospects delaying projects. The Company expects a significant increase in fourth quarter infrastructure segment revenues as compared to the third quarter due to the timing of revenue milestones.

Net income for the Company’s first nine months of fiscal 2011 increased 75.7% to $6.8 million, or $0.31 per diluted share, compared to net income of $3.9 million, or $0.19 per diluted share, in the same period last year. During the fiscal 2011 nine months ended March 31, 2011 the Company recorded the following adjustments:

 

Non-recurring acquisition expenses of $0.5 million ($0.02 per share) relating to the acquisition of ComSource announced on April 8, 2011.

 

A $2.5 million ($0.12) charge for the change in fair value of the earn-out as a result of the better than anticipated performance of the previously announced acquisition of C2C and Evocomm. C2C and Evocomm are reaching higher earnings results than the Company’s original forecasts, therefore the Company’s expectations for reaching future earn-out targets have been adjusted accordingly.

 

Non-recurring tax credit of $0.7 million ($0.03 per share) related to research and development tax credits for fiscal years 2005 and 2010.

 

Excluding these net charges, the Company’s adjusted diluted net income per common share increased 90.9% to $0.42 as compared to $0.22 in the same period last year.

 

Adjusted EBITDA for the first nine months of fiscal 2011 increased 70.5% to $23.7 million compared to $13.9 million in the same period past year.

 

Management’s Review of Results and Expectations

David Hershberg, Chairman and CEO, said "A strong third quarter was followed by the acquisition of ComSource, the largest acquisition in the Company’s history, in early April. We are very excited about adding ComSource to the Globecomm family as the Company continues to position itself to capitalize on explosive trends in the wireless marketplace. The proliferation of 4G and LTE networks, coupled with the rapid adoption rates of smart phones and tablets are driving trends such as advanced switch programming, software compliance solutions, network extension and security. ComSource will complement Globecomm’s existing wireless capabilities and we are excited about the potential to address some of the industry’s needs." Mr. Hershberg continued, "Globecomm anticipates a strong finish to fiscal 2011 and the Company’s existing and growing service base positions the Company for continued growth for the forseeable future. The balance sheet remains strong and provides ample liquidity."

 

Keith Hall, President and COO, added "I am very pleased with our team’s execution and our overall financial performance. These results are highlighted by our services segment which continues to exceed expectations, driving both our top and bottom lines. Our wireless and media market initiatives are gaining traction and we continue to add strong revenue diversity to complement our robust Government sector. The ComSource acquisition, completed in Q4, was an important milestone as Globecomm continues its expansion outside satellite-centric applications. Globecomm intends to continue to utilize acquisitions to help diversify our capability portfolio, including developing new market verticals, further expanding our global reach and building breadth to our technology capabilities. I look forward to a strong closing of the year with improving infrastructure revenues which will set the stage for fiscal 2012."

 

Management’s Current Expectations for the Fiscal Year Ending June 30, 2011

Globecomm currently expects the following financial results for the fiscal year 2011:

Consolidated revenues to be between $270 and $280 million, down from $280 to $295 million.

Service segment revenues to be between $185 and $190 million, up from $180 to $185 million.

GAAP diluted net income per common share to be between $0.43 and $0.47, down from $0.50 to $0.55. We continue to expect adjusted diluted net income per common share to be between $0.57 and $0.62 for fiscal 2011.

We continue to expect adjusted EBITDA to be between $31 and $33 million.

 

The reduction in GAAP income per share is primarily due to closing costs and amortization of intangibles expenses related to acquisition of ComSource closed in early April. The reduction in consolidated revenue guidance is primarily due to further delays in achieving revenue milestones on a major infrastructure contract. The increase in service guidance is primarily related to a full quarter of financial results from Comsource.

Non-GAAP Measures

 

Adjusted EBITDA is a non-GAAP measure which represents net income before interest income, interest expense, provision for income taxes, depreciation, amortization expense, non-cash stock compensation expense, acquisition costs and earn-out fair value adjustments. Globecomm believes this provides greater transparency by helping illustrate comparability between current and prior periods. Under a new accounting pronouncement on business combinations, effective in fiscal 2010 for the Company, acquisition-related transaction expenses are required to be expensed rather than capitalized, and changes to the fair value of earn-out payments must be recognized in earnings. Therefore, the exclusion of acquisition costs and the earn-out fair value adjustments in the Adjusted EBITDA calculation provides better comparability.

 

Adjusted EBITDA does not represent cash flows as defined by GAAP. Globecomm discloses adjusted EBITDA since it is a financial measure commonly used in its industry. Because adjusted EBITDA facilitates internal comparisons of our historical financial position and operating performance on a more consistent basis, the Company also uses adjusted EBITDA in measuring performance relative to that of our competitors and in evaluating acquisition opportunities. The Company’s management regularly uses supplemental non-GAAP financial measures internally to understand, manage and evaluate the Company’s business and make operating decisions. Adjusted EBITDA is not meant to be considered a substitute or replacement for net income as prepared in accordance with GAAP. Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. Reconciliation between GAAP net income and adjusted EBITDA is provided in a table immediately following the Condensed Consolidated Balance Sheets.

 

Reconciliation of adjusted diluted net income per common share excludes acquisition related transaction expenses, earn-out fair value adjustments and non-recurring tax adjustments. These amounts are not in accordance with GAAP. However, Globecomm believes this measure provides greater transparency by helping illustrate comparability between current and prior periods. Under the new accounting pronouncement on business combinations, effective in fiscal 2010 for the Company, acquisition related transaction expenses are required to be expenses rather than capitalized, and changes to the earn-out fair value adjustments are required to be expensed rather than capitalized and therefore the exclusion of the earn-out fair value adjustments is a non-GAAP measure that provides better comparability of results. The non-recurring tax adjustment relates to research and development tax credits for fiscal 2005 and 2010, therefore they have been excluded as a non-GAAP measure to provide better comparability of results.

 

Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures, and should be read only in conjunction with the Company’s consolidated financial statements prepared in accordance with GAAP. The Company’s management regularly uses supplemental non-GAAP financial measures internally to understand, manage and evaluate the Company’s business and make operating decisions.