Signal Technology Reports Third Quarter Financial Results; Defense Business Gross Margin Increases and Bookings Remain Strong as Company Exits Commercial Wireless Business
DANVERS, Mass.--(BUSINESS WIRE)--Oct. 24, 2002--Signal Technology Corporation (Nasdaq:STCO), a provider of RF electronics for the defense industry, today reported its financial results for the third quarter ended September 30, 2002.
Net sales from continuing operations were $21.1 million, compared with $19.0 million in the third quarter of 2001. The Company's third quarter loss from continuing operations was $2.3 million, or $0.22 per share, which included a combined operating loss and asset impairment charge of $5.7 million, or $0.55 per share, associated with the Company's commercial semiconductor business. This compares with income of $654,000, or $0.06 per share, for the same period last year. (Sales and earnings for prior periods have been adjusted to reflect discontinued operations.)
In line with its objective of exiting the commercial wireless business, Signal Technology sold its commercial fixed wireless business unit during the third quarter of 2002. The Company has been exploring strategic alternatives, including a potential merger or sale, for its remaining commercial operation that develops semiconductor integrated circuits and modules for wireless devices. The Company recorded a net non-cash charge of $3.8 million for the semiconductor operation in the third quarter of 2002, which was not anticipated in its financial guidance for the quarter.
For the nine months ended September 30, 2002, Signal Technology reported net sales from continuing operations of $59.2 million, compared with net sales of $55.9 million for the first nine months of 2001. The loss from continuing operations for the first nine months of 2002 was $3.3 million, or $0.32 per share, compared with income from continuing operations of $2.6 million, or $0.24 per diluted share, for the first nine months of 2001.
Signal Technology's defense business generated a gross margin of 39.6% during the third quarter of 2002 -- the highest in recent history and significantly better than expected. As a result, net income from the Company's defense business exceeded expectations for the third quarter of 2002. The increase in the gross margin was primarily due to a continuing trend of incremental gross margin improvements and a favorable mix of products. Defense gross margin for the third quarter of 2001 was 35.5%.
Comments on the Third Quarter
"This exceptionally strong gross margin, coupled with continuing vigilance on operating results, substantially improved the profitability of Signal Technology's defense business this quarter," said Chairman and Chief Executive Officer George Lombard. "Our third quarter loss of $0.22 per share includes earnings of $0.33 per basic share from our continuing defense business, which is $0.09 better than our guidance. Looking ahead to the fourth quarter, given the continuing strength in demand for our defense products, we believe we are on track toward meeting our target of $100 million in bookings for 2002."
"Modernization, miniaturization and mobilization are playing an increasingly critical role in America's defense strategy," Lombard said. "With our unique technology assets and manufacturing expertise, Signal Technology is positioned to benefit from this trend. As anticipated, the Company's defense business closed the third quarter with a year-to-date book-to-bill ratio of approximately 1.2:1. We continued to generate positive cash flow and we are making good progress in executing on our strategy to return to our heritage as a pure-play defense electronics business by year-end."
"The strong defense industry presence that Signal Technology enjoys today results from a strategy that we began executing four years ago," Lombard said. "At that time, two-thirds of the Company's backlog consisted of legacy products designed for earlier-generation defense applications. Less than 25% of annual revenue came from new or transitional products and systems, and annual R&D spending was less than $400,000. Since then, we have made an intensive commitment to defense-related R&D investment, which we estimate to be more than $6.0 million this year, including customer-funded R&D. As a result, Signal Technology's product roadmap now fits squarely within the Defense Department's highest priorities, and more than two-thirds of our current backlog is related to new and current product offerings."
"While the outlook for our defense electronics business has brightened considerably over the past year, demand for commercial wireless infrastructure products has weakened," Lombard said. "In order to focus solely on our defense business going forward, we have decided to exit the commercial wireless business. The Company executed the first step in this strategy during the third quarter when we completed the sale of our fixed wireless business unit. We are now focused on exploring strategic alternatives for our commercial semiconductor/module operation and we look forward to completing this initiative in the fourth quarter of 2002."
"Our exit from the commercial wireless business has been carefully planned to ensure that we retain the right to deploy, in defense applications, the commercial technologies this business has developed," Lombard said. "These important dual-use technologies, which include ultra-miniature transceivers and high-capacity secure communications links that transmit digital data at high speeds using very little power, allow us to benefit from investments previously made in pursuit of commercial wireless opportunities. Together with our systems architecture capabilities and proven ability to manufacture quality components and subsystems on a high-volume, low-cost basis, these technologies have vaulted the Company into a leadership position within emerging defense markets - among them, homeland security."
During the third quarter, Signal Technology was awarded a cost-plus contract valued at $4.1 million from an arm of the U.S. Department of Defense for the first phase of a homeland security and defense electronics program. The Company was selected to lead a team from academia and industry that will design and develop a system of networked, ultra-miniaturized microelectronic sensors. The system will collect and distribute tactical and strategic data for intelligence, surveillance and reconnaissance applications.
The $4.1 million award is for the first, eight-month phase of the program, which is expected to extend through development and deployment phases over the next several years. Consequently, Signal Technology expects the contract, which has been structured on a cost-plus, fixed-fee basis, to be funded through 2004 under follow-on contract releases. The initial phases of the program are expected to result in follow-on development contracts amounting to $20 million to $25 million in additional revenue through 2004. "This award represents a milestone in our program to grow the Company's defense business," Lombard said. "Looking ahead, we expect the full-rate production phase to add significantly to Signal Technology's revenue and profitability."
Business Outlook
"Electronic warfare, precision guidance and satellite communications are becoming increasingly critical to America's military superiority, and we have a strong, R&D-driven leadership position in each of these markets," Lombard said. "Signal Technology's state-of-the-art RF transmitters, microwave sub-systems, power supplies, oscillators and switch matrix products are key building blocks within the highly sophisticated and ultra-miniaturized electronic systems at the core of the nation's newest defense platforms. We continue to experience record high proposal activity, and a number of our major existing contracts on newer military platforms are now moving from the development phase into full rate production. In addition, we are making significant inroads as a key provider of intelligence and surveillance technology for the emerging homeland security market. For these reasons, we anticipate solid growth in our defense business going forward."
Financial Guidance
Based on an exit from the Company's remaining commercial business in the fourth quarter of 2002, Signal Technology is revising its previously released financial guidance to include only the expected continuing defense business:
Fourth-quarter 2002 guidance:
-- Total revenues from continuing operations of approximately $23 million to $26 million.
-- Pre-tax income per diluted share from continuing operations of approximately $0.33 to $0.35.
Full-year 2002 guidance:
-- Total revenues from continuing operations of approximately $82 million to $85 million.
-- Pre-tax income per diluted share from continuing operations of approximately $0.82 to $0.85.
Conference Call Webcast
Signal Technology will conduct its quarterly financial results conference call at 11:00 a.m. (ET), this morning, October 24, 2002. The call will be broadcast live over the Internet. To listen to the call, visit the Company's Web site (www.sigtech.com), and click on the "Corporate Information" link. The call will be available in replay format at this site for one week |
