- Delay in U.S. defense programs impacts Q2 results and fiscal 2008 expectations - Q2 revenue $91.3 million, EBITDA $21.6 million - Long-term program visibility and recurring revenue base strengthens considerably for fiscal 2009 through 2011 - Large defense orders in progress, expected to refresh backlog through Q3 and Q4 - Company expanding program of alliances and teaming agreements with prime contractors
OTTAWA, May 15 /CNW Telbec/ - Allen-Vanguard Corporation (the "Company" or "Allen-Vanguard") (TSX: VRS) of Ottawa, Canada reported today its financial results for the second quarter ("Q2 2008") ended March 31, 2008. All figures are in Canadian dollars.
Summary of Q2 results
Revenue was $91.3 million in Q2 2008, compared to revenue of $23.5 million
in Q2 2007. EBITDA(1) was $21.6 million in Q2 2008, versus EBITDA of $3.4
million in Q2 2008. Net loss after acquisition-related expenses, including
amortization of intangibles and financing charges, was $34.2 million or $0.32
cents per share compared to a net loss of $0.4 million or a loss of $0.02
cents per share in Q2 2007. For the six months ended March 31, 2008, the
Company reported revenue of $231.6 million, EBITDA of $66.0 million and a net
loss of $27.4 million, or a loss of $0.26 per share. These first-half results
compared to revenue of $33.7million, EBITDA of $3.0 million and a net loss of
$1.6 million, or a loss of $0.04 per share in the first half of fiscal 2007.
The Company noted that the results of operations are difficult to compare on a
year-over-year basis due to the inclusion of the operating results of Med-Eng
Systems ("Med-Eng") and Hazard Management Solutions (HMS) in the Company's
consolidated earnings from their respective acquisition dates of 17-Sep-07 and
13-Jun-07.
"Our financial results in the quarter were negatively impacted by the
delay of several large U.S. defense orders for jammers which were expected to
commence in Q2 2008," said David E. Luxton, President & CEO. "However, at the
same time as the U.S. Department of Defense ("DoD") was re-defining
requirements and deferring orders in the very short term, our visibility on
these programs with our strategic partners, Lockheed Martin and General
Dynamics, actually strengthened in this period. This is very positive for our
outlook for fiscal 2009 through fiscal 2011."
In the short-term, the Company stated that delays in expected U.S. DoD
orders will defer at least $70 million of revenue from the second half of
fiscal 2008 into fiscal 2009, which commences on October 1, 2008. The Company
added that discussions ongoing through the remainder of May with its jammer
program partners are expected to bring additional clarity to the timing and
size of orders.
The Company also noted that its overall gross margin for the quarter of
40.4% was lower than anticipated, and was a decrease from the gross margin of
43.1% reported for the first quarter of this fiscal year. Therefore, while
selling and administrative and R&D expenses declined slightly in the quarter
on a sequential basis, EBITDA declined to $21.6 million, or 23.7% of revenue.
The decline in gross margin was due to several factors, the most important of
which was a drop in product sales in the U.S. Personal Protection Systems
("PPS") division, many of which generate high branded gross margins. This
sales volume reduction resulted in an under-absorption of PPS production
overheads. In addition, although revenue from Electronic Systems ("ES")
represented 81% of overall revenues, there were no significant international
sales of ECM equipment, which generate much higher margins than sales to
Lockheed Martin or General Dynamics. Therefore ES gross margins declined
slightly from the first quarter. Finally, the Services margin declined to only
9% in the quarter due to order delays on several training contracts where
training salaries were included in this quarter.
The Company continued to generate strong cash flow in the quarter. Cash
flow provided by operating activities was $61.2 million, all of which was used
to reduce long-term debt. As at March 31, 2008, the Company's long-term debt
stood at $185.1 million and shareholders' equity was $497.2 million. The
combination of this reduction in long-term debt and the more favorable
interest rate on its new long-term debt facility will result in a sharp
reduction in the Company's interest expense for the remainder of the year.
Order backlog at the end of Q2 2008 stood at approximately $45 million,
down sharply from $92 million at December 31, 2007. The Company expects a
refresh to its order backlog in Q3 and Q4 from contracts now in progress.
Orders in progress and sales pipeline
Electronic Systems (ES)
The Company reported that it is currently processing contracts worth
approximately $50 million for Chameleon jammer spares and miscellaneous
systems, expected to become firm orders in the current quarter, for delivery
in late fiscal 2008 and early fiscal 2009. The primary U.S. customer has also
expressed a strong preference to upgrade and maintain the installed base of
Chameleon jammers, with a current upgrade requirement valued at more than
$100 million. Customer discussions are also in progress regarding an ongoing,
comprehensive support program with a significant but currently unquantifiable
value. The customer has also stated a requirement for up to 2,000 additional
new jammers. These various elements to the primary U.S. Chameleon program
constitute significant potential recurring business through the expected life
of the program, driven by the Company's upgrade offering which is in the
process of testing and evaluation. Additional pending requirements for
Chameleon systems in fiscal 2008 include a significant U.S. Homeland Security
program expected to impact fiscal 2008 plus additional export systems to
approved Commonwealth countries in fiscal 2009.
Requirements for Symphony jammers were set out in a DoD IDIQ announced
January 31, 2008, for up to 2,500 systems per year, plus spares and services,
for three years, on a sole-source basis to Lockheed Martin, Allen Vanguard's
partner on the program. Accumulated requirements are believed to be in
progress with DoD as Foreign Military Sales ("FMS") contracts. The Company
continues to expect some significant portion of these requirements - likely
the first several hundred units - to be contracted and delivered in fiscal
2008, and has ramped up component supply for rapid delivery.
International requirements for the Company's overseas export brands of
jammers have picked up, with several orders placed subsequent to Q2, and
significant new prospects including sales bundled with counter-IED training
and support from the Company's Services division.
Personal Protection Systems ("PPS")
Overseas demand and order flow continues to be robust, in particular for
bomb disposal robots. U.S. order flow in Q2 slowed unexpectedly due to timing
on orders from the U.S. military but resumed more briskly subsequent to
quarter-end, including several million dollars in orders for bomb suits and
other explosive ordnance disposal equipment to replace battle-damaged
inventories.
Major new longer-term opportunities are now solidly in the sales pipeline,
driven by several new product offerings and by expanded market channel
arrangements for the Company's established decontamination products. Active
opportunities currently include:
- More than $100 million in U.S. and Canadian military decontamination
programs, primarily through teaming and distribution agreements to be
announced shortly with a prime U.S. contractor.
- Tens of millions of dollars in various defense program requirements for
mine protection seats where the Company is bidding its new mine seat
protection system, which has been successfully tested and evaluated,
with early introductory orders underway now with vehicle OEMs.
- Several tens of millions of dollars in bids for Allen Vanguard's
Micro- Climate System (MCS) for vehicles and personnel.
- Significant potential follow-on requirements for mass-adoption of body
armor to protect extremities from IEDs, following introductory military
sales of protective ensembles derived from the Company's bomb suit
technology.
- Potentially significant follow-on requirements for the Company's new
helmet sensor for brain trauma, further to operational trials by the
U.S. Army of an initial 5,000 units and a recent new order from a
second U.S. military customer.
Services
The Company's Services business, constituted primarily by its Hazard
Management Solutions (HMS) unit, has evolved into a platform for integrating
comprehensive counter-IED solutions, and will now be known as our Systems and
Solutions (S&S) business for business development and segmented financial
reporting purposes. This group continues to bid and win outsourced counter-IED
and counter-terrorism training programs, with a high probability of pending
wins and renewals with a current multi-year value of more than $100 million.
In addition to direct sales to end-users, Systems and Solutions has visibility
on significant opportunities to enlarge its business with several prime
contractors including those who manage large contracts for counter-IED
services to the U.S. military. One such opportunity, of presently undetermined
value, is the recently announced IDIQ contract to the Wexford Group
International for up to US$453 million in support services to JIEDDO over the
next five years. HMS is a strong teaming partner with Wexford, who is prime on
U.S. programs, and Wexford in turn teams with HMS on similar NATO programs
Alliances, teaming and distribution agreements
Allen Vanguard has been in discussions with various prime defense and
homeland security contractors and systems integrators who have requirements to
provide hazard management and counter-IED capabilities under existing and
forthcoming programs. As well, major radio communications suppliers have
expressed interest in strategic relationships to couple or integrate Allen
Vanguard's jammer technology with radio communications systems. Discussions of
potential alliances and teaming arrangements are in progress and ongoing.
"We are very encouraged that our partners and customers are highly
committed to the major program drivers of our business," said Mr. Luxton. "As
well, the substantial growth in our sales pipeline reflects solid prospects
for expansion and diversification in our customer and product base."
Developments subsequent to Q2 fiscal 2008
Subsequent to the quarter-end the Company announced on May 7, 2008 that it
had completed a refinancing of its long-term debt on substantially improved
terms through a $250 million facility led by RBC Capital.
The Company also announced on May 13, 2008 that it is strengthening its
senior management capability with the appointment of Peter Allen as CFO, for
strong Ottawa-based and operationally focused financial management, and the
appointment of Rob Ryan as Vice-President Corporate Development to assist the
Company's substantial external growth agenda, which entails a growing number
of alliances and teaming agreements.
Allen Vanguard also announced a new corporate look and logo to signal its
comprehensive systems capability in countering explosive and CBRN hazards
following a transformational acquisition program in fiscal 2007 that saw the
expertise of Hazard Management Solutions Inc (HMS) and the leading product
brands of Med-Eng Systems Inc. (Med-Eng) integrated into the Company's range
of offerings.
The Company emphasized that with this new range of capability it would be
pursuing opportunities with prime defense contractors and systems integrators
to become the go-to provider for countering hazardous devices and materials,
and that such alliances and teaming arrangements will be a significant
business development focus to enlarge the Company's access to markets where
counter-terrorist programs have been outsourced to prime contractors.
Financial Highlights of Q2 2008
Revenue
- Allen-Vanguard's revenue was $91.3 million in Q2 2008 and
$231.6 million in YTD 2008, compared to $23.5 million in Q2 2007 and
$33.7 million in YTD 2007.
- Revenue from ES products represented 81% and 78% of revenue in
Q2 2008 and YTD 2008 respectively, compared to 51% in Q2 2007 and in
48% YTD 2007. Sales to GDATP comprised the majority of ES revenue in
Q2 2008, while Q2 2007 ES revenue was derived primarily from LM.
- Revenue from PPS products accounted for 13% of Q2 2008 revenue and
17% of YTD 2008 revenue, compared to 47% in Q2 2007 and 49% in YTD
2007. Sales of Med-Eng ballistic protection systems were the largest
contributor to sales, with the balance derived primarily from sales
of EOD search and tactical equipment, cooling systems and robots.
- Revenue from Services accounted for 5% of Q2 2008 and YTD 2008
revenue, almost entirely generated by the Company's HMS subsidiary.
- Customers based in the United States, led by ES shipments to GDATP
and LM, now generate a significant majority of Allen-Vanguard's
revenue base. Revenue generated in North America totaled
$83.9 million in Q2 2008 and $217.2 million in YTD 2008, compared to
$12.0 million in Q2 2007 and $16.8 million in YTD 2007. Revenue
generated outside of North America totaled $7.4 million in Q2 2008
and $14.4 million in YTD 2008, compared to $11.5 million in Q2 2007
and $16.9 million in YTD 2007.
Gross margin
- Gross margin was 40% in Q2 2008 and 42% in YTD 2008, compared to 42%
in Q2 2007 and 44% in YTD 2007.
- ES margin was 42% in Q2 2008 and 43% in YTD 2008, compared to 53% in
both Q2 2007 and YTD 2007.
- PPS margin was 44% in Q2 2008 and YTD 2008, compared to 36% in
Q2 2007 and 37% in YTD 2007.
- Services margin was 9% in Q2 2008 and 23% in YTD 2008.
Overheads
- Selling and administration expenses were $10.6 million in Q2 2008 and
$22.8 million in YTD 2008, compared to $5.0 million in Q2 2007 and
$9.2 million in YTD 2007. Med-Eng and HMS overheads represent the
majority of the year over year increases, with the balance
attributable to sharply higher audit and legal costs, expansion of
Allen-Vanguard's Tewkesbury and Ireland facilities, new ERP system
expenditures, capital taxes and additions to the Corporate financial
and administrative support staff.
- Research and development expenses, net of grants received and
investment tax credits, were $4.7 million in Q2 2008 and $8.6 million
in YTD 2008, compared to $1.6 million in Q2 2007 and $2.5 million in
YTD 2007. Grants received and investment tax credits totaled in
excess of $2 million in Q2 2008.
Acquisition and financing related charges and amortization
- Allen-Vanguard incurred charges and amortization of $54.9 million in
Q2 2008 and $92.3 million in YTD 2008 pertaining to the Med-Eng and
HMS acquisitions and attendant financings.
Earnings measures
- EBITDA was $21.6 million in Q2 2008 and $66.0 million in YTD 2008,
representing 24% and 28% of revenue respectively. This compares to
EBITDA of $3.4 million in Q2 2007 and $3.0 million in YTD 2007,
representing 14% and 9% of revenue respectively.
- The net provision for income tax recovery was $13.2 million in
Q2 2008 and $20.8 million in YTD 2008, compared to a net provision of
$0.7 million in Q2 2007 and $0.3 million in YTD 2007.
- Net loss was $34.2 million or $0.32 per share in Q2 2008, and
$27.4 million or $0.26 per share in YTD 2008. This compared to a net
loss of $1.1 million or $0.02 per share in Q2 2007, $1.6 million or
$0.04 per share in YTD 2007.
Liquidity and cash flow
- Allen-Vanguard's cash and cash equivalents totaled $23.0 million at
the end of Q2 2008, an increase of $10.0 million from the beginning
of the quarter.
- The Company had no borrowings on its $20 million revolver facility.
- Operating cash flow, defined as net earnings adjusted for non-cash
items, was $2.3 million in Q2 2008 and $26.5 million in YTD 2008,
compared to operating cash flow deficits of $0.6 million in Q2 2007
and $0.5 million in YTD 2007.
- Changes in non-cash working capital provided cash of $58.9 million in
Q2 2008 and $44.8 million in YTD 2008, compared to cash used of
$7.8 million in Q2 2007 and $6.9 million in YTD 2007.
- Purchases of capital and intangible assets totaled $1.2 million in
Q2 2008 and $2.4 million in YTD 2008, consisting primarily of general
additions to ES and PPS equipment and facilities.
- The Company repaid long-term debt of $62.0 million in Q2 2008 and
$80.6 million in YTD 2008, including scheduled quarterly principal
payments, excess cash flow sweeps and other mandatory repayments.
- Allen-Vanguard had common shares outstanding of approximately
106.3 million and fully diluted common shares outstanding of
approximately 119.6 million at the end of Q2 2008.
Financial Statements and the Management Discussion and Analysis for the
second quarter ended March 31, 2008 will be filed on www.sedar.com by
May 15, 2008.
The Company will be hosting an investor and analyst conference call at
9:00 am on Thursday May 15, 2008. The call will include a presentation on
second quarter results for fiscal 2008 and a general update. This will be
followed by a question and answer period with analysts. The call-in details
are as follows:
Date: Thursday, May 15, 2008
Time: 9:00 a.m. ET
Dial-in numbers: 1-800-731-6941
1-416-644-3415
Web access:
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID(equal sign)2243780
For those unable to listen to the call live, a replay will be available
for a two week period beginning at 11:00 a.m. on May 15, 2008. The replay
phone number is 877-289-8525 and the access code is 21269297 (pound key).
Forward looking statements
This press release may contain forward-looking statements, which reflect Allen-Vanguard's current expectations regarding future events, its strategy, expected performance and condition. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as "expects," "anticipates," "plans," "believes," "estimates" or negative versions thereof and similar expressions. In addition, any statement that may be made concerning future performance, strategies or prospects, and possible future acquisitions or dispositions, is also a forward-looking statement. Forward-looking statements are based on current expectations and projections about future events and are inherently subject to, among other things, risks, uncertainties and assumptions about the Company and economic factors. Forward-looking statements are not promises or guarantees of future performance, and actual events and results could differ materially from those expressed or implied in any forward-looking statements made about the Company. Any number of important factors could contribute to these digressions, including, but not limited to, general economic, political and market factors in North America and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, technological change, changes in government regulations, unexpected judicial or regulatory proceedings, and catastrophic events. We stress that the above-mentioned list of important factors is not exhaustive. We encourage you to consider these and other factors carefully before making any investment decision and we urge you to avoid placing undue reliance on forward-looking statements. Further, you should be aware that the Company disclaims any obligation to publicly update or revise any such forward-looking statements whether as a result of new information, future events or otherwise, prior to the release of the next Management Discussion and Analysis to be released by the Company or except as required by law .
About Allen-Vanguard
Allen-Vanguard Corporation supports the mission of military and homeland security forces around the world with leading proprietary solutions for protection and counter-measures against hazardous devices of all kinds, whether chemical, biological, radiological or explosive (CBRNE), including improvised explosive devices (IEDs) and remotely controlled IEDs (RCIEDs). Allen-Vanguard equipment is in service in more than 120 countries. Products include Electronic Counter-Measures ("ECM") equipment for jamming remote detonation of terrorist devices, specialty security equipment for Explosive Ordnance Disposal ("EOD"), remote intervention robots for hazardous applications, and personal protective wear for use in dealing with explosive and bio-chemical agents. Allen-Vanguard is the developer and/or sole, worldwide licensee of proprietary technologies such as the Med-Eng bomb suit, the Defender(TM) and Vanguard(TM) Mk2 bomb disposal robots, and the Universal Containment System and CASCAD Foam system for blast mitigation and decontamination of bio-chemical warfare agents. Professional services encompass counter-IED intelligence, training and advisory services, including the Triton(TM) Report on terrorist incidents around the world. The Company operates globally through its wholly-owned subsidiaries under the names "Allen-Vanguard", "Med-Eng" and "Hazard Management Solutions". Head office operations are located in Ottawa, Ontario, Canada, with manufacturing operations in Stoney Creek and Pembroke, Ontario; Ogdensburg, New York; Tewkesbury, U.K.; and Cork, Ireland; The Company has professional services operations in Shrivenham, UK, Canada and in the U.S. in Arlington, Virginia, plus sales offices in Canada, the U.S., the U.K. and Asia. Allen-Vanguard's shares are listed on The Toronto Stock Exchange (TSX) under the symbol "VRS".
To find out more about Allen-Vanguard Corporation (TSX: VRS), visit our website at www.allen-vanguard.com.
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