Emrise Releases Second Quarter 2009 Financial Results

Emrise, a manufacturer of defense and aerospace electronic devices and communications equipment, announced financial results for the second quarter and six months ended June 30.

In an August 5 release, Emrise reported that highlights of the second quarter of 2009 included:

- Achieving a 19 percent year-over-year increase in net sales from continuing operations;

- Implemented approximately $750,000 per quarter in major cost-saving measures;

- Increasing gross profit as a percentage of sales from continuing operations to 38.3 percent, from 30.9 percent in the 2008 second quarter a year ago;

- Reducing the year-to-date loss from continuing operations by more than $900,000;

- Producing adjusted EBITDA of more than $900,000, reflecting an increase from an adjusted EBITDA loss in the prior year quarter; and

- Retaining Boenning & Scattergood, Inc. as its exclusive financial advisor.

Unless otherwise indicated, the financial results for the Digitran division of its subsidiary, Emrise Electronics and XCEL Japan which were sold on March 20, have been removed from the comparisons of the results for the periods reported and are presented in Emrise's consolidated statements of operations for all periods as discontinued operations.

Net sales from continuing operations in the 2009 second quarter were $14.3 million, an increase from $12.0 million in the 2008 second quarter. Sales in the 2009 second quarter were higher due primarily to the inclusion of sales at the company's Advanced Control Components ("ACC") subsidiary, which were not included in the Company's 2008 results. This increase more than offset the decline in sales at several of the company's other business units which were down due, in part, to fluctuations in exchange rates. ACC sales included shipments of orders for radio frequency ("RF") devices used in jamming systems for the U.S. military to prevent the detonation of radio controlled improvised explosive devices ("RCIEDs").

Gross profit for the second quarter of 2009 was $5.5 million, or 38.3 percent of net sales from continuing operations, compared to $3.7 million, or 30.9 percent of net sales from continuing operations in the second quarter of 2008. The year-over-year increase in gross profit and gross profit as a percentage of sales in the second quarter of 2009 was due principally to the inclusion of ACC's incremental sales in 2009, which were not included in Emrise's 2008 results, and the gross profit contributed by those additional sales. That increase was partially offset by a decline in gross profit at the company's Communications Equipment segment due to lower sales volumes within that segment.

Operating expenses from continuing operations in the 2009 second quarter were $5.1 million, compared to $4.1 million in the prior year's second quarter. The increase was primarily due to the addition of the operating expenses of ACC acquired in last year's third quarter.

Operating income from continuing operations for the second quarter of 2009 was $396,000, increasing more than $800,000 from an operating loss from continuing operations in the second quarter of 2008 of $424,000. Loss from continuing operations in the 2009 second quarter declined to $411,000 compared to a loss from continuing operations in last year's second quarter of $881,000. The company recently implemented approximately $750,000 per quarter in cost-saving measures, which partially benefited the second quarter. Severance costs associated with these reductions were approximately $200,000 during the second quarter.

Net loss for the 2009 second quarter was $514,000, or a loss of $0.05 per share, which includes the negative impact of a net loss on discontinued operations of $103,000. Net loss for the second quarter of 2008 was $256,000, or a loss per share of $0.03, which included the positive impact of a net gain on discontinued operations of $625,000.

Adjusted EBITDA in the 2009 second quarter was $926,000, compared to an Adjusted EBITDA loss of $155,000 in the same quarter of 2008, representing an improvement of $1.1 million from a year ago.

Net sales from continuing operations for the first six months of 2009 were $28.5 million, increasing 26 percent from $22.7 million in the first half of 2008. Gross profit from continuing operations for the first half of 2009 increased to $10.4 million or 36.6 percent of net sales from continuing operations, from $7.2 million, or 31.6 percent of net sales, in the first half of 2008. Net income for the first six months of 2009 was $4.8 million, or $0.47 per share, compared to net loss of $1.2 million, or a loss of $0.11 per share, for the same period in 2008. Included in this year's first six months net income was a net gain on discontinued operations of $5.9 million related to the sale of the Digitran Operations. Included in the net loss for the first six months of 2008 was a net gain on discontinued operations of $1.0 million.

At June 30, backlog from continuing operations was $27.8 million, which is the same as a year ago. At the end of this year's second quarter, approximately 95 percent of the backlog was for firm orders in the Electronic Devices segment, and approximately 5 percent was for firm orders in the Communications Equipment segment.

As of June 30, Emrise's cash and equivalents were $4.8 million, increasing from $3.2 million at December 31, 2008. Working capital was $7.4 million, and the current ratio was 1.34:1. Total assets were $53.3 million, long term debt was $9.6 million and stockholders' equity was $19.2 million. Total debt on June 30, including both short and long term obligations, totaled $18.0 million, which includes approximately $3 million in additional obligations we accrued to the balance sheet during the second quarter reflecting future long term earn-out obligations associated with the acquisition of ACC. This is offset by our $10 million paydown of the ACC acquisition debt in March 2009.

Overall, business in the Company's Electronic Device segment continued to be strong in this year's second quarter, especially in aerospace and defense. Business in the Communications Equipment segment declined compared to last year's second quarter due to the negative impact of the weak economy on the sales in that segment, especially at the Company's French subsidiary where sales are being negatively impacted by spending reductions at the French Department of Defense and other European government and commercial entities.

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