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Anaren Reports 2nd Quarter Fiscal 2014 Results

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SYRACUSE, N.Y., Jan. 28, 2014 (GLOBE NEWSWIRE) -- Anaren, Inc. (Nasdaq:ANEN) today reported net sales for the fiscal 2014 second quarter ended December 31, 2013 of $41.8 million, up 10.0% from $38.0 million for the second quarter of last year.

GAAP (U.S. generally accepted accounting principles) net income for the second quarter of fiscal 2014 was $2.8 million, or $0.21 per diluted share, compared to $3.5 million, or $0.27 per diluted share for the second quarter of last year. Current second quarter net income included approximately $2.0 million, or $0.15 per diluted share, in one-time pre-tax costs related to the pending acquisition of the Company by an affiliate of Veritas Capital Fund IV, L.P.

Non-GAAP diluted earnings per share, excluding non-cash equity based compensation, intangible asset amortization and expenses attributable to the pending acquisition of the Company, was $0.35 for the second quarter of fiscal 2014 compared to non-GAAP diluted earnings per share of $0.33 for the second quarter of fiscal 2013.

GAAP operating income for the second quarter of fiscal 2014 was $3.8 million, or 9.2% of net sales, down 24.5% from $5.1 million, or 13.4% of net sales for the second quarter of last year. Non-GAAP operating income for the second quarter of fiscal 2014, which excludes non-cash equity based compensation, intangible asset amortization and expenses attributable to the pending acquisition of the Company, was $6.9 million, or 16.4% of net sales, up 9.0% from $6.3 million, or 16.6% of net sales for the second quarter of fiscal 2013.

Income taxes for the second quarter of fiscal 2014 were $1.2 million, representing an effective tax rate of 29.7% compared to income tax expense of $1.7 million for the second quarter of fiscal 2013, representing an effective tax rate of 32.0%. The projected effective tax rate for fiscal 2014, absent one-time events is expected to be approximately 30%.

Net sales for the six months ended December 31, 2013 were $80.4 million, up 4.3% from net sales of $77.1 million for the first six months of last year. GAAP net income for the first half of fiscal 2014 was $5.7 million, or $0.43 per diluted share, compared to $6.4 million, or $0.47 per diluted share for the first half of last year. Net income for the current first six months included $2.1 million in pre-tax one-time costs related to the pending acquisition of the Company.

Non-GAAP diluted earnings per share, excluding non-cash equity based compensation, intangible asset amortization and expenses attributable to the pending acquisition of the Company was $0.64 for the first six months of fiscal 2014 compared to non-GAAP diluted earnings per share of $0.59 for the first six months of fiscal 2013.

During the second quarter of fiscal 2014, the Company generated $7.9 million in operating cash flow compared to $3.5 million in the first quarter of fiscal 2014. Additionally, during the current quarter the Company expended $1.3 million for capital additions. Cash, cash equivalents and marketable debt securities at December 31, 2013 were $62.1 million, up $8.6 million from $53.5 million at September 30, 2013.

Wireless Group

Wireless Group net sales for the quarter were $14.2 million, up 10.8% from the second quarter of fiscal 2013, and up 4.8% sequentially compared to the first quarter of fiscal 2014, reflecting higher continued demand in the wireless infrastructure market. Demand from wireless infrastructure customers was robust throughout the second quarter and current forecasts indicate comparable demand for the third quarter.

New product investments for the quarter continued to be focused on expansion of the wireless infrastructure components and low power wireless Anaren Integrated Radio (AIR) module product lines.

Customers that generated greater than 10% of Wireless Group net sales for the quarter were Arrow Electronics, Richardson and Huawei.

Space & Defense Group

Space & Defense Group net sales for the quarter were $27.6 million, up 9.6% from the second quarter of fiscal 2013. Space & Defense Group sales are expected to be higher in the second half of fiscal 2014 based on anticipated customer contractual deliveries.

New orders for the quarter totaled $21.4 million and were driven largely by radar, electronic warfare and satellite applications. Space & Defense Group order backlog at December 31, 2013 was approximately $94.2 million.

Customers that generated greater than 10% of Space & Defense Group net sales for the quarter were Lockheed Martin, Northrop Grumman and Raytheon.

Non-GAAP Financial Measures

In addition to presenting financial results calculated in accordance with GAAP, Anaren's earnings release contains non-GAAP financial measures including: non-GAAP gross profit, non-GAAP operating income, non-GAAP net income and non-GAAP net income per diluted share. These non-GAAP measures are each adjusted from GAAP results to exclude certain items including equity based compensation, intangible asset amortization and expenses attributable to the pending acquisition of the Company by an affiliate of Veritas Capital Fund IV, L.P.

The Company believes these non-GAAP financial measures provide useful information to both management and investors to help understand and compare business trends among reporting periods on a consistent basis. Additionally, these non-GAAP financial measurements are one of the primary indicators management uses for planning and forecasting in future periods. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.

Outlook

For the third quarter of fiscal 2014, we anticipate comparable sales for the Wireless Group and an increase in sales for the Space & Defense Group compared to the second quarter levels. As a result, we expect net sales to be in the range of $41 to $45 million. We expect GAAP net earnings, exclusive of one-time costs associated with the pending acquisition transaction and related litigation, to be in the range of $0.30 - $0.34 per diluted share for the third quarter.

Non-GAAP net earnings, which are inclusive of approximately $0.05 -$0.06 per diluted share related to expected equity based compensation expense and amortization of intangibles assets and exclusive of one-time costs associated with the pending acquisition transaction and related litigation, are expected to be in the range of $0.35 - $0.39 per diluted share for the third quarter.

Forward-Looking Statements

This press release contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, any statement that may project, indicate or imply future results, events, performance or achievements, and may contain the words "anticipate," "expect," "intend," "plan," "believe," "estimate," "may," "project," "will," "continue" and similar expressions of a future or forward-looking nature. Forward-looking statements may include discussions concerning revenue, expenses, earnings, cash flow, impairments, losses, dividends, capital structure, market and industry conditions, premium and commission rates, interest rates, contingencies, the direction or outcome of regulatory investigations and litigation, income taxes and the Company's operations or strategy. These and other forward-looking statements are based on management's current expectations and are subject to business, market and economic risks and uncertainties that could cause actual results to differ materially from those discussed. You are encouraged to review Anaren's filings with the Securities and Exchange Commission, including but not limited to, Anaren's 2013 Annual Report on Form 10-K for the fiscal year ended June 30, 2013, and the definitive proxy statement filed on November 4, 2013, to learn more about the various risks and uncertainties facing Anaren's business and their potential impact on Anaren's revenue, earnings and stock price. Unless required by law, Anaren disclaims any obligation to update or revise any forward-looking statement.

Conference Call

Anaren will not host a teleconference in connection with its second quarter fiscal 2014 earnings.

Company Background

Anaren designs, manufactures and sells complex microwave components and subsystems for the wireless communications, satellite communications and defense electronics markets. For more information on Anaren's products, visit our Web site at www.anaren.com.

ANAREN, INC.
Condensed Consolidated Statements of Income
(in thousands except per share data)
(unaudited)
Three Months Ended Six Months Ended
December 31, 2013 December 31, 2012 December 31, 2013 December 31, 2012
Net sales $ 41,809 $ 38,002 $ 80,353 $ 77,064
Cost of sales 26,673 22,987 51,330 47,634
Gross profit 15,136 15,015 29,023 29,430
36.2% 39.5% 36.1% 38.2%
Operating expenses:
Marketing 2,362 2,376 4,492 4,915
Research and development 3,329 3,243 6,552 6,577
General and administration 5,611 4,317 9,785 8,867
Total operating expenses 11,302 9,936 20,829 20,359
Operating income 3,834 5,079 8,194 9,071
9.2% 13.4% 10.2% 11.8%
Other income (expense):
Other income 123 138 215 360
Interest expense (22) (47) (41) (65)
Total other income, net 101 91 174 295
Income before income tax expense 3,935 5,170 8,368 9,366
Income tax expense 1,170 1,657 2,620 3,000
Net income $ 2,765 $ 3,513 $ 5,748 $ 6,366
6.6% 9.2% 7.2% 8.3%
Earnings per share:
Basic $ 0.22 $ 0.28 $ 0.45 $ 0.50
Diluted $ 0.21 $ 0.27 $ 0.43 $ 0.47
Weighted average common shares outstanding:
Basic 12,833 12,697 12,741 12,848
Diluted 13,321 13,191 13,257 13,433
ANAREN, INC.
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
December 31, 2013 June 30, 2013
Assets:
Cash, cash equivalents and short-term investments $ 62,087 $ 50,996
Receivables, less allowances 31,515 32,059
Inventories 37,159 34,928
Prepaid expenses and other assets 3,769 5,108
Total current assets 134,530 123,091
Securities held to maturity -- 2,582
Property, plant, and equipment, net 41,053 40,842
Goodwill 42,408 42,297
Other intangibles, net 6,833 6,833
Total assets $ 224,824 $ 215,645
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable $ 10,437 $ 7,319
Accrued expenses 3,742 4,806
Customer advance payments 1,077 1,603
Other liabilities 3,841 5,335*
Total current liabilities 19,097 19,063
Other non-current liabilities 11,157 10,279
Total liabilities 30,254 29,342
Stockholders' Equity:
Common stock and additional paid-in capital 235,783 230,653
Retained earnings 160,495 154,747*
Accumulated other comprehensive loss (711) (858)
Less: cost of treasury shares (200,997) (198,239)
Total stockholders' equity 194,570 186,303
Total liabilities and stockholders' equity $ 224,824 $ 215,645
* - Balance has been adjusted for an out of period error totaling $3.4 million related to income taxes.
ANAREN, INC.
Reconciliation of GAAP and Non-GAAP Gross Profit, Operating Income, Net Income and Diluted Earnings Per Share
(in thousands except per share data)
(unaudited)
Three Months Ended Six Months Ended
December 31, 2013 December 31, 2012 December 31, 2013 December 31, 2012
Net sales $ 41,809 $ 38,002 $ 80,353 $ 77,064
GAAP gross profit $ 15,136 $ 15,015 $ 29,023 $ 29,430
Equity-based compensation expense (1) 215 238 431 477
Amortization of intangibles (3) -- 39 13 78
Non-GAAP gross profit $ 15,351 $ 15,292 $ 29,467 $ 29,985
% of sales 36.7% 40.2% 36.7% 38.9%
GAAP operating income $ 3,834 $ 5,079 $ 8,194 $ 9,071
Equity-based compensation expense (1) 849 997 1,752 2,047
Acquisition related costs (2) 1,998 -- 2,064 --
Amortization of intangibles (3) 188 227 390 482
Non-GAAP operating income $ 6,869 $ 6,303 $ 12,400 $ 11,600
% of sales 16.4% 16.6% 15.4% 15.1%
GAAP net income $ 2,765 $ 3,513 $ 5,748 $ 6,366
Equity-based compensation expense (1) 849 997 1,752 2,047
Acquisition related costs (2) 1,998 -- 2,064 --
Amortization of intangibles (3) 188 227 390 482
Tax effect (1,093) (441) (1,514) (910)
Non-GAAP net income $ 4,707 $ 4,296 $ 8,440 $ 7,985
% of sales 11.3% 11.3% 10.5% 10.4%
Diluted earnings per share
GAAP diluted earnings per share $ 0.21 $ 0.27 $ 0.43 $ 0.47
Equity-based compensation expense (1) 0.06 0.08 0.13 0.15
Acquisition related costs (2) 0.15 -- 0.16 --
Amortization of intangibles (3) 0.01 0.02 0.03 0.04
Tax adjustments (0.08) (0.04) (0.11) (0.07)
Non-GAAP diluted earnings per share $ 0.35 $ 0.33 $ 0.64 $ 0.59
Weighted average common shares outstanding
Diluted 13,321 13,191 13,257 13,433
1) These costs represent expense recognized in accordance with the share-based payment accounting rules.
2) These costs represent deal costs related to the pending acquisition of the Company for the three and six months ended December 31, 2013 and 2012.
3) These costs represent amortization of intangible assets for the three and six months ended December 31, 2013 and 2012.
ANAREN, INC.
Reconciliation of GAAP and Non-GAAP Gross Profit, Operating Income, and Earnings Per Share
(in thousands)
(unaudited)
The following table details the Non-GAAP expenses related to equity-based compensation, acquisition related costs, and intangible asset amortization by expense category.
Three Months Ended December 31, 2013
(in thousands)
(unaudited)
Equity Based Acquisition Amortization
Compensation Related Costs of Intangibles Total
Cost of sales $ 215 $ -- $ -- $ 215
Marketing 66 -- -- 66
Research and development 81 -- -- 81
General and administrative 487 1,998 188 2,673
$ 849 $ 1,998 $ 188 $ 3,035
Six Months Ended December 31, 2013
(in thousands)
(unaudited)
Equity Based Acquisition Amortization
Compensation Related Costs of Intangibles Total
Cost of sales $ 431 $ -- $ 13 $ 444
Marketing 140 -- -- 140
Research and development 174 -- -- 174
General and administrative 1,007 2,064 377 3,448
$ 1,752 $ 2,064 $ 390 $ 4,206
Three Months Ended December 31, 2012
(in thousands)
(unaudited)
Equity Based Acquisition Amortization
Compensation Related Costs of Intangibles Total
Cost of sales $ 238 $ -- $ 39 $ 277
Marketing 86 -- -- 86
Research and development 108 -- -- 108
General and administrative 565 -- 188 753
$ 997 $ -- $ 227 $ 1,224
Six Months Ended December 31, 2012
(in thousands)
(unaudited)
Equity Based Acquisition Amortization
Compensation Related Costs of Intangibles Total
Cost of sales $ 477 $ -- $ 78 $ 555
Marketing 172 -- -- 172
Research and development 228 -- -- 228
General and administrative 1,170 -- 404 1,574
$ 2,047 $ -- $ 482 $ 2,529
ANAREN, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Three Month Ended Six Month Ended
December 31, 2013 December 31, 2013
Cash flows from operating activities:
Net income $ 2,765 $ 5,748
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 1,815 3,595
Amortization 222 472
Gain on disposal of fixed assets (606) (606)
Deferred income taxes (203) 395
Equity-based compensation 849 1,752
Receivables 206 543
Inventories (899) (2,231)
Accounts payable 3,646 2,968
Other assets and liabilities 69 (1,262)
Net cash provided by operating activities 7,864 11,374
Cash flows from investing activities:
Capital expenditures (1,321) (3,806)
Payment for purchase of Cellular Machines -- (350)
Proceeds from sale of fixed assets 606 606
Proceeds from sale and maturities of held to maturity securities 7,248 9,188
Net cash provided by investing activities 6,533 5,638
Cash flows from financing activities:
Stock options exercised 2,412 2,766
Excess tax benefit from equity-based compensation 206 612
Purchase of treasury shares (1,227) (2,758)
Net cash provided by financing activities 1,391 620
Effect of exchange rates on cash 62 147
Net increase in cash and cash equivalents $ 15,850 $ 17,779
Cash and cash equivalents at beginning of period $ 46,237 $ 44,308
Cash and cash equivalents at end of period $ 62,087 $ 62,087

CONTACT: George Blanton, CFO 315-362-0436 Joseph E. Porcello, VP-Accounting 315-362-0514

Source:Anaren, Inc.