Norsat Announces Strong First Quarter 2012 Results
May 09, 2012
Norsat International Inc. reported financial results for the three months ended March 31, 2012. The Company serves global customers primarily through three business units: Sinclair Technologies, Satellite Solutions and Microwave Products. All financial results are reported in U.S. dollars and have been prepared in accordance with International Financial Reporting Standards ("IFRS"), unless otherwise stated.
"Our 2012 year is off to an excellent start with a full three months of strong performance from our Sinclair Division and gains in our Microwave Products business helping to drive improved first quarter results," said Dr. Amiee Chan, Norsat's President and CEO. "Revenue increased 21% to $10.5 million and EBITDA improved by 6% to $1.119 million, compared to the same period last year. This represents our 22nd straight quarter of positive EBITDA."
"The Sinclair Division, which was acquired on January 21, 2011, continued to perform above historical norms. This new division has helped to diversify our product lines with antenna and RF conditioning products, and has firmly positioned Norsat in the commercial market, and particularly in the transportation market. Our Microwave division also posted gains during the quarter and we achieved stable results in our Maritime products division," said Dr. Chan."
"As we anticipated, our Satellite Solutions business unit experienced a reduction in order activity related to cuts in US military spending. We were able to offset this impact with sales growth in our other segments. Going forward, we are diversifying our customer base to pursue opportunities with other militaries, and in other markets including the commercial, resource, transportation and public safety sectors. Our new Norsat Power Solutions business unit is an example of this strategy in action. We anticipate attractive growth opportunities for our Satellite Solutions business going forward, and we have seen increased proposal activity in recent months.
Overall, we are pleased with the strong start to the year and enthusiastic about our prospects moving forward." Dr. Chan added.
Financial Review
For the three months ended March 31, 2012
For the three months ended March 31, 2012, Norsat's total sales increased to $10.5 million, from $8.7 million in the first quarter of 2011. The 21% improvement reflects the strong performance from the Company's Sinclair Division, as well as an extra month's contribution from Sinclair this year. Norsat acquired the Sinclair business in late January 2011. Results from the Sinclair Division continue to reflect a favourable product mix and strong product demand, particularly in the transportation sector.
Satellite Solutions sales decreased to $2.1 million, from $2.4 million in Q1 2011, reflecting reduced ordering activity from the US military in a $0.6 million drop in equipment and services sales to this market. This was partially offset by $0.3 million of new revenue from the Company's contract with the First Nations' Emergency Services Society of BC ("FNESS").
First quarter sales of Microwave Products increased to $2.1 million from $1.8 million in 2011. A more favourable product mix and increased ordering activity contributed to the $0.3 million improvement.
For the three months ended March 31, 2012, sales from Maritime Solutions were $0.2 million, consistent with the same period in of 2011.
On a consolidated basis, first quarter gross margin percentage was 44%, on par with the 2011 result. This reflects above-average margins from the Sinclair division, offset by a decline in gross profit margins from the Satellite Solutions segment. The year-over-year change in Satellite Solutions margins from 50% to 42% was anticipated and reflects lower-margin airtime revenue related to the FNESS contract, lower selling prices for existing product lines and increased costs for new product lines. The gross margin percentage for Microwave products was 43%, relatively consistent with the 44% recorded in the same period of 2011 with the difference mainly related to variations in product mix.
First quarter selling and distributing expenses increased to $1.8 million, from $1.3 million in 2011. This increase included approximately $0.1 million of costs related to the launch of the Norsat Power Division, $0.2 million for amortization of intangible assets acquired from Sinclair, and $0.2 million related to higher employee costs and the impact of including Sinclair for a full quarter compared to just over two months in 2011.
General and administrative expenses decreased to $1.5 million from $1.7 million in 2011. This reduction primarily reflects the absence of $0.4 million in acquisition costs incurred in the first quarter of 2011 to acquire Sinclair, which were not repeated in the 2012 period. It also reflects modest cost savings. Partially offsetting these reductions were $0.3 million of restructuring costs and the added costs of operating Sinclair for a full quarter in Q1 2012, compared to just over two months in 2011.
First quarter net product development expenses increased to $0.5 million from $0.4 million last year, reflecting the extra month of Sinclair operations. The increase also reflects the amortization of the intangible assets acquired from Sinclair. Product development continues to be a core focus for Norsat and is reflected through development programs in all three of the Sinclair Technologies, Satellite Solutions and Microwave Products business units.
Other expenses for the three months ended March 31, 2012 were $0.1 million compared to $0.3 million during the same period last year. This increase primarily reflects a favourable foreign exchange variance from translating Canadian dollar-denominated operating expenses into US dollars.
First quarter net earnings were $0.5 million, or $0.01 per share, basic and diluted, compared to a net loss of $0.2 million, or $(0.00) per share, basic and diluted, during the same period last year.
EBITDA for the three months ended March 31, 2012 improved by 6% to $1.119 million compared to the same period last year, reflecting the increased revenues and stable gross margins.
Norsat ended the first quarter of 2012 with cash and cash equivalents of $3.0 million, compared to $4.2 million as at December 31, 2011. In connection with its acquisition of Sinclair in January 2011, the Company secured and was funded a non-revolving acquisition loan of $12.0 million. As of May 8, 2012, the loan balance had been paid down to $9.0 million and the Company is in compliance with its bank covenants.
Norsat also has access to additional credit facilities totaling $3.75 million. As at March 31, 2012 and as of May 8, 2012, the Company had not drawn these facilities.
As at March 31, 2012, working capital remained constant at $11.8 million compared to December 31, 2011 while shareholders' equity increased to $19.4 million compared to $18.7 million at December 31, 2011.
