OTTAWA, Aug. 17 /CNW/ - Allen-Vanguard Corporation (the "Company" or "Allen-Vanguard") (TSX: VRS) of Ottawa, Canada reported on Friday evening, August 14, 2009, its financial results for the third quarter of fiscal 2009 ("Q3 2009"), which ended June 30, 2009. All figures are in Canadian dollars, except where noted.
Summary of Q3 results
Revenue was $51.3 million in Q3 2009, compared to revenue of $31.2 million in Q3 2008. EBITDA(1) was $2.2 million in Q3 2009, versus an EBITDA loss of $9.6 million in Q3 2008. Net loss was $99.2 million, or a loss of $0.91 per share, compared to a net loss of $36.6 million, or a loss of $0.34 per share in Q3 2008. The net loss in Q3 2009 included impairment of goodwill and intangible assets of $130.3 million (as detailed below), while the net loss in Q3 2008 included non-cash charges totaling $16.5 million pertaining to acquisitions and associated financings.
Allen-Vanguard continues to actively pursue investment by an unrelated U.S. investor with whom the Company signed an exclusivity agreement in April. The Company and its lenders are in active negotiations to amend the terms and covenants of the Company's Credit Facility in conjunction with the proposed investment. The status of these negotiations is more fully described in the notes to the Company's financial statements.
The Company noted that due to reduced revenues from the acquired assets of Med-Eng Systems (now renamed AVTI), management tested for impairment of goodwill and intangibles at June 30, 2009. This testing indicated that the fair value of the AVTI reporting unit was lower than its carrying amount. Management concluded that impairment of goodwill and of certain intangible assets had occurred, and reduced the carrying value of goodwill by $11.3 million, and of certain intangible assets related to the Electronic Systems business by $27.6 million and of certain intangible assets related to the Personal Protective Systems business by $91.4 million.
"Although revenue was up 64% this quarter over the same period last year, it fell short of our expectations due mainly to continued delays in major U.S. government programs and spending reductions or deferrals in certain international markets," said David E. Luxton, President and CEO. "In the face of this we developed plans to reduce our cost structure to a more conservative revenue run rate and have now begun implementing these measures."
"With the support of our lenders, business continues in the normal course," continued Mr. Luxton. "We have been expanding and diversifying our products and services and continue to serve major customers around the world who rely on Allen-Vanguard's leading, proprietary solutions for mission-critical operations."
In the nine months ended June 30, 2009, revenue was $180.6 million, EBITDA was $25.9 million and the net loss was $152.8 million, or a loss of $1.40 per share. This compares to the nine months ended June 30, 2008, when revenue was $262.8 million, EBITDA was $56.4 million and the net loss was $64.0 million or a net loss of $0.60 per share.
Cash flow and liquidity
Cash used in operating activities was $8.2 million in the third quarter of fiscal 2009. The Company increased bank indebtedness, net of proceeds, by $5.1 million in the quarter. Net debt was $229.7 million at June 30, 2009.
Given the decline in the Company's revenue, it has taken the following steps to ensure sufficient operating cash flows:
- In December, 2008, the Company signed a new credit facility (the "New Credit Facility") to allow it to access up to an additional C$16.0 million and to defer and reduce the Company's principal payment obligation in 2008 and 2009 by a total of US$43.7 million. At June 30, 2009, US$7.2 million was drawn under the New Credit Facility of C$16.0 million under that credit facility; - Revised the Company's operating cost structure to one supported by reduced revenues. - Actively pursued investment by an unrelated U.S. investor with whom the Company signed an exclusivity agreement on April 6, 2009, and which was subsequently extended as necessary to facilitate ongoing discussions. Due to the sensitive and exclusive nature of these ongoing discussions, the Company will not be hosting an investor and analyst conference call to discuss the third quarter financial results.
The Company had an undrawn operating line under the New Credit Facility and cash of approximately $12.2 million as at June 30, 2009. There can be no assurance that current sources of liquidity together with cash expected to be generated from operations, will be adequate to meet the Company's operating requirements and scheduled principal debt payments during the next twelve months. Restructured credit facilities and/or equity financing will be necessary to meet anticipated liquidity requirements. As noted above, the Company has entered into exclusive negotiations with an investor to pursue such additional financing.
Events subsequent to Q3 2009
On July 2, 2009, the Company announced that it reached an agreement with its New Credit Facility lenders that defers to September 30, 2009, the US$4.9 million quarterly principal payment due June 30, 2009.
On July 13, 2009, as well as July 27, 2009, the Company reached agreements with the New Facility Lenders that waived compliance with certain financial covenants under the New Credit Facility for the months ending May 31, 2009, and June 30, 2009, respectively.
Financial Highlights of Q3 2009
Revenue
- Allen-Vanguard's revenue was $51.3 million in Q3 2009, compared to
$31.2 million in Q3 2008.
- Revenue from Electronic Services ("ES") products represented 25% of
revenue in Q3 2009, compared to 27% in Q3 2008.
- Revenue from Personal Protection Systems ("PPS") products accounted
for 49% of Q3 2009 revenue, compared to 45% in Q3 2008. Sales in
fiscal 2009 included ballistic protection products, demining, cooling
systems and EOD search and tactical equipment as well as initial
shipments of blast protection seats.
- Revenue from Systems & Services accounted for 26% of Q3 2009 revenue,
compared to 22% in Q3 2008, with most of the increase relating to the
award of a new services contract in Q2 2009.
- Customers based in the United States continue to generate a
significant majority of Allen-Vanguard's revenue. Revenue generated in
the United States comprised 80% of Q3 2009 revenue, compared to 52% of
Q3 2008 revenue.
Gross margin
- Overall gross margin was 30% in Q3 2009, compared to 26% in Q3 2008.
ES gross margin was 16%, the same as Q3 2008. PPS gross margin was 45%
in Q3 2009, up from 37% in Q2 2009, and up from 44% in Q3 2008.
Services gross margin was 13% in Q3 2009, down from 34% in Q2 2009 and
up from 5% in Q3 2008.
Overheads
- Selling and administration expenses were $10.1 million in Q3 2009, a
reduction from $13.8 million in Q3 2008. The reduction reflects
savings realized as a result of restructuring initiatives announced in
Q4 2008, as well as company-wide operational efficiencies.
- Research and development expenses, net of grants received and
investment tax credits were $2.8 million in Q3 2009, compared to
$4.0 million in Q3 2008. Research and development spending decreased
as the evolution of ES technology upgrades are moving from the
research and development phase to the production phase.
Acquisition and financing-related charges, amortization and foreign
exchange
- Allen-Vanguard incurred acquisitions and financing-related charges and
amortization of $6.7 million in Q3 2009, a decrease from $34.1 million
recorded in Q3 2008.
- The Company recorded an unrealized foreign exchange gain of
$18.9 million in Q3 2009 and unrealized foreign exchange loss of
$18.0 million in YTD 2009. These were non-cash charges and were
primarily due to changes in the Canadian dollar equivalent value of
the US$ denominated term loan during the periods. The company carries
its debt in US$ because of its strong US$ denominated revenue stream.
Earnings measures
- EBITDA(1) was $2.2 million in Q3 2009, representing 4.4% of revenue.
This compares to an EBITDA loss of $9.6 million or (30.8)% of revenue
in Q3 2008, reflecting the increase in revenue and gross profit in the
quarter offset by lower selling and administration costs when compared
to Q3 2008.
- Net loss was $99.2 million or a loss of $0.91 per share in Q3 2009.
The net loss included a charge of $130.3 million for impairment of
goodwill and intangible assets. This compared to a net loss of
$36.6 million or a loss of $0.34 per share in Q3 2008. At June 30,
2009, Allen-Vanguard had common shares outstanding of approximately
109.2 million (approximately 163.9 million fully diluted).
Liquidity and cash flow
- Allen-Vanguard's cash and cash equivalents totaled $2.0 million at the
end of Q3 2009, a decrease of $4.6 million from the beginning of the
quarter.
- Operating cash flow, defined as net earnings before adjustment for
changes in non-cash operating working capital items, was cash used of
$7.5 million in Q3 2009, compared to operating cash flow used of
$9.3 million in Q3 2008.
- Changes in non-cash working capital items used cash of $0.7 million in
Q3 2009, and used cash of $16.4 million in Q3 2008.
- Purchases of capital and intangible assets totaled $1.5 million in Q3
2009, consisting primarily of information technology equipment.
(1) EBITDA means earnings before interest, income taxes, depreciation,
amortization, stock-based compensation, foreign exchange, goodwill
impairment, intangible asset impairment, restructuring and
acquisition and financing-related charges and amortization
Financial Statements and the Management Discussion and Analysis for the third quarter ended June 30, 2009 were filed on www.sedar.com on August 14, 2009.
As noted above, the Company will not be hosting an investor and analyst conference call to discuss the financial results due to the sensitive and exclusive nature of the ongoing exclusive discussions regarding an investment with an unrelated U.S. investor.
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 investments, 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 ("RCIED"s). 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 Pembroke, Ontario; Ogdensburg, New York; and Tewkesbury, U.K.. 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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