Globecomm Systems Reports Fiscal 2010 Third Quarter and Nine-Month Financial Results

11 May 2010

Globecomm Systems Inc. announced financial results for the fiscal 2010 third quarter and nine months ended March 31, 2010. Globecomm is reporting its financial results on a generally accepted accounting principles (GAAP) basis as well as adjusted EBITDA and fully diluted earnings per share adjusted for acquisition related costs, both non-GAAP financial measures. In the attached tables the Company provides a detailed reconciliation of GAAP earnings to adjusted EBITDA and fully diluted earnings per share adjusted for acquisition related costs. A summary of the Company’s third quarter results are:

• Service revenues increased 77.2% to a record $34.0 million as compared to $19.2 million in the same period last year.
• Revenues from infrastructure solutions decreased 3.2% to $18.8 million as compared to $19.4 million in the same period last year.
• Consolidated revenues increased 36.8% to $52.8 million as compared to $38.6 million in the same period last year.
• GAAP earnings per diluted share increased 100% to $0.06, as compared to GAAP earnings per diluted share of $0.03 in the same period last year. Excluding the previously announced acquisition costs charge of $0.03 relating to the Company’s acquisition of Carrier to Carrier Telecom BV (C2C) and the assets of Evolution Communication Ltd. (Evocomm) on March 5 earnings per diluted share would have increased 200% to $0.09, as compared to $0.03 in the same period last year.
• Adjusted EBITDA increased 84.9% to a record $5.5 million as compared to $3.0 million in the same period last year. Adjusted EBITDA excludes the previously announced acquisition costs relating to the Company’s C2C/Evocomm acquisition.

Fiscal Year 2010 Third Quarter Results

Revenues for the Company’s fiscal 2010 third quarter increased 36.8% to $52.8 million as compared to $38.6 million in the same period last year. Revenues from services increased 77.2% to a record $34.0 million as compared to $19.2 million in the same period last year. Revenues from infrastructure solutions decreased 3.2% to $18.8 million as compared to $19.4 million in the same period last year. The increase in service revenues was primarily driven by the Company’s acquisitions of Mach 6, Telaurus and C2C/Evocomm, which combined contributed $8.9 million, coupled with an increase in the access services offering in the government marketplace. Infrastructure solutions revenue remained relatively flat as bookings and revenues in the infrastructure solutions segment continue to be adversely impacted by the global economic slowdown.

Net income for the Company’s fiscal 2010 third quarter increased 129.7% to $1.2 million, or $0.06 per diluted share, as compared to net income of $0.5 million, or $0.03 per diluted share, in the third quarter of fiscal 2009 on a GAAP basis. Under the 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. In the third quarter of fiscal 2010, the Company incurred approximately $0.9 million, or $0.03 per diluted share of acquisition costs related to the acquisition of C2C/Evocomm. Excluding the acquisition costs, earnings per diluted share would have increased 200% to $0.09 as compared to $0.03 in the same period last year. Adjusted EBITDA for the third quarter of 2010 increased 84.9% to $5.5 million compared to $3.0 million in the third quarter of 2009. Adjusted EBITDA excludes the acquisition costs relating to the C2C/Evocomm acquisition. The increase in net income and adjusted EBITDA was primarily driven by the significant increase in service revenues and the related operating leverage the Company is currently experiencing.

Fiscal Year 2010 Nine Month Results

Revenues for the Company’s fiscal 2010 nine months ended March 31, 2010 increased 30.3% to a record $157.6 million as compared to $120.9 million in the same period last year. Revenues from services increased 69.8% to a record $96.2 million as compared to $56.7 million in the same period last year. The increase in service revenues was primarily driven by the Company’s acquisitions of Mach 6, Telaurus and C2C/Evocomm, which combined contributed $25.4 million, coupled with an increase in the access service offering primarily in the government marketplace. Infrastructure solutions revenues decreased 4.5% to $61.4 million from $64.3 million as bookings and revenues in the infrastructure segment continue to be adversely impacted by the global economic slowdown.

Net income for the Company’s first nine months of fiscal 2010 increased 67.7% to $3.9 million, or $0.19 per diluted share, compared to net income of $2.3 million, or $0.11 per diluted share, in the same period last year on a GAAP basis. During the third quarter, the Company completed the acquisition of C2C/Evocomm and incurred $0.9 million of acquisition costs, or $0.03 per diluted share. Excluding these costs, earnings per diluted share increased 100% to $0.22 as compared to $0.11 in the same period last year. Adjusted EBITDA for the first nine months of fiscal 2010 increased 53.5% to $13.9 million compared to $9.1 million in the same period last year. Adjusted EBITDA excludes the acquisition costs relating to the C2C/Evocomm acquisition. The increase in net income and adjusted EBITDA was primarily driven by the significant increase in service revenues and the related operating leverage the Company is currently experiencing.

Management’s Review of Results and Expectations

David Hershberg, Chairman and CEO of the Company, said, “The largest acquisition in the Company’s history capped off a record revenue quarter along with an increase in operating income of 128%. Momentum in the service segment remains robust. We expect that to continue for the foreseeable future and look forward to record fourth quarter and full year consolidated revenues. The Company is experiencing good operating leverage in the service segment at this time and it appears that the infrastructure segment revenues are bottoming. New Ka band commercial satellites and the US Government’s wideband global X band satellites should drive demand for new ground segment equipment. The Company is investing heavily in both Ka and X band terminals to be positioned for an eventual market rebound in capital spending. We have issued revised revenue guidance reflecting the anticipated four month impact of the C2C/Evocomm acquisition and we are maintaining our earnings guidance, which includes a $0.03 per diluted share charge for the acquisition costs. We believe that C2C/Evocomm will prove to be a very strategic acquisition both in the short and long term. Our balance sheet remains strong further enabling the Company to be opportunistic during the current downturn.”

Keith Hall, President and COO of the Company said, “Low customer churn, coupled with contract expansion within our existing customer base has set the foundation for top and bottom line stability during the current economic downturn. This was supported in the third quarter with the announced increase of $34.2 million to an existing government service contract and a $9.1 million increase in NATO Force Tracking services funding. New hosted service platforms were launched as highlighted by the introduction of our new software application TEMPO enabling interactive web-based training and corporate communications. Recently, we began operation of our IP-based 3G cellular switch and activated our first customers. We are excited as we continue to evolve our value proposition as a managed services provider creating new application based offerings for new and existing vertical market segments. Initial integration of our new acquisitions has begun, and I look forward to a record fourth quarter as we set the stage for continued growth in fiscal 2011.”

Management’s Current Expectations for the Fiscal Year Ending June 30, 2010

Globecomm currently expects the following financial results for the fiscal year 2010:

• Consolidated revenues to be approximately $225 million.
• Service segment revenues to be approximately $140 million.
• GAAP earnings per diluted share to be between $0.30 and $0.35.
• Adjusted EBITDA to be approximately $20 million.