Winland Electronics, Inc. Reports Third Quarter 2009
Q3 Revenues total $5.1 million; $0.19 EPS loss
Mankato, Minn. / November 12, 2009 - Winland Electronics, Inc. (AMEX: WEX), a leading designer and manufacturer of custom electronic control products and systems, today announced net sales of $5.1 million for the third quarter ending September 30, 2009 versus $7.0 million, down 26.9 percent, in the comparable period in 2008. The Company reported a net loss of $695,000, or $0.19 per share, versus a net profit of $118,000, or $0.03 per share, in the third quarter of 2008.
The Company’s Electronic Manufacturing Services (EMS) segment sales for the quarter totaled $4.2 million versus $6.1 million in the second quarter of 2008, a decrease of 30.1 percent year-over-year. The segment recorded an operating loss of $332,000 in the period, versus an operating profit of $553,000 in the third quarter of 2008. Net sales for Winland’s Proprietary Products segment totaled $894,000, down $58,000, or 6.1 percent, from the comparable period in 2008. The Company’s Proprietary Products segment recorded an operating profit of $133,000 versus an operating profit of $130,000 in the comparable period of 2008.
“In spite of encouraging signs of life within the manufacturing and technology sectors, during the quarter our clients continued to hold their inventory levels very low and have been reluctant to place new production orders,” said Thomas de Petra, President and Chief Executive Officer of Winland Electronics. “Sales of our proprietary products, however, are encouraging, having improved significantly on a sequential basis over the second quarter and in profitability both sequentially and year-over-year.”
Overall operating expenses were down $55,000 or 5.4 percent, from the comparable period in 2008. G&A expenses were down 18.8 percent, while sales and marketing spending was up 15.7 percent, as a result of increased sales efforts.
“After laying the foundation over the past several quarters with operational and quality improvements, we continue to push hard with aggressive sales efforts that compliment recent successes with new customer acquisitions,” de Petra said. “This effort is a top priority, along with achieving a healthy level of sales relative to our cost structure.”
While third quarter results reflected continued industry-wide softness in the EMS industry, the Company has been encouraged by increases in requests for quotations on new products from long-term customers, as well as the number of small but growing orders from customers acquired during the past several months. “We are seeing quote requests coming from additional divisions and subsidiaries of existing customers,” de Petra said. “We believe these new opportunities are the direct result of operational and quality improvements undertaken during the past several quarters that have moved Winland up to preferred supplier status with these customers.”
Operationally, gross margins during the quarter continued to be negatively affected by unabsorbed fixed overhead from lower sales and the higher costs of initial production with new customers. Overall gross margins declined to 5.7 percent from 16.0 percent in the comparable period in 2008.
During the quarter, the Company continued to benefit from its efforts to broaden its customer base and to extend its service capabilities into design engineering, allowing the Company to engage with customers earlier on in the product development cycle. “We are encouraged by new manufacturing customer prospects from the medical, electronic instrumentation and industrial markets, as we continue to engage with these kinds of customers in the engineering design and prototype development stages that precede production-level manufacturing,” de Petra said.
Winland’s customer base now includes companies in transportation logistics and fleet management, safety, industrial, instrumentation and medical market sectors.
Nine-Month Results
Net sales for the nine months ended September 30, 2009 were $18.0 million, down $2.9 million, or 13.8 percent, from the comparable period in 2008. EMS net sales totaled $15.6 million, down 14.0 percent from the first nine months of 2008, and proprietary product sales of $2.4 million declined by 12.5 percent, from $2.7 million in the comparable period in 2008. The net loss for the period totaled $1.5 million, or $0.42 per share, versus $1.0 million, or $0.28 per share, in the first nine months of 2008. Gross margins decreased to 10.3 percent from 11.5 percent for the nine months ended September 30, 2009 versus the corresponding period in 2008.
The Company reported an operating loss of $1.3 million in the first nine months of 2009 versus $1.1 million for the nine months ended September 30, 2008. The Company’s EMS segment reported operating income of $100,000 for the nine months ended September 30, 2009 compared to operating income of $630,000 reported a year ago. Operating income for the Company’s Proprietary Products segment totaled $239,000 for the nine months ended September 30, 2009 compared to $60,000 last year. The $179,000 of increased income was driven by $500,000 in reduced spending on new product development offset by $234,000 of wages and benefits relating to increased sales and marketing staff, a $50,000 increase in advertising & promotions, $37,000 in commissions paid to outside rep agencies and $20,000 in travel-related expenses.
“Our entire industry has been under significant pressure from a sales standpoint, but we have continued to make progress in our plans to target customers and industry segments for growth and diversification, de Petra said. “We’ve set a very high bar for ourselves – with service and quality levels that mirror the standard-setters in our industry and by becoming a true partner with our customers in helping them design and implement solutions that lower their own manufacturing costs, minimize supply chain risks, enhance time-to-market, and improve their efficiency and profitability.”
Call Details:
Date: Thursday, November 12, 2009
Time: 3:30 p.m. CT / 4:30 p.m. ET
Call name: Winland Electronics Third Quarter Fiscal 2009 Conference Call
Dial-in number: 877-407-7184
Call Replay:
A replay of the conference call will be available from 5:00 p.m. CT / 6:00 p.m. ET on Thursday, November 12, 2009 through Thursday, November 19, 2009. To access the replay, call 877-660-6853, using Account #336 and enter replay ID 328185.
Web Cast:
Winland will also host a webcast of the conference call on-line at www.winland.com. The webcast will be available until Thursday, December 3, 2009. To access the web cast, you will need to have the Windows Media Player on your desktop. For a free download of the Media Player, visit http://www.windowsmedia.com/mediaguide/Downloads.
About Winland Electronics
Winland Electronics is an electronic manufacturing services (EMS) company, providing product development and manufacturing expertise and innovation for more than 20 years. Winland also markets proprietary products for the security/industrial marketplace. Winland's product development offering includes program management, analog circuit design, digital circuit design, printed circuit board design and embedded software design. Winland differentiates itself from the contract manufacturer competition with its integrated product development and manufacturing services to offer end-to-end product launch capability, including design for manufacturability, design for testability, transition to manufacturing and order fulfillment. Winland's core competency is delivering time-to-market through superior program management, experience, integrated development processes, and cross-functional teams. Winland Electronics is based in Mankato, MN.
| CONTACT: | | Thomas J. de Petra | | Jan Drymon |
| | | President, Chief Executive Officer | | The Carideo Group, Inc. |
| | | (507) 625-7231 | | (612) 317-2881 |
| | | | | jan@carideogroup.com |
Cautionary Statements
Certain statements contained in this press release and other written and oral statements made from time to time by the Company do not relate strictly to historical or current facts. As such, they are considered forward-looking statements, which provide current expectations or forecasts of future events. The statements included in this release with respect to the following matters are forward looking statements; (i) that after laying the foundation over the past several quarters with operational and quality improvements, the Company continues to push hard with aggressive sales efforts that compliment recent success with new customer acquisitions, (ii) the Company has been encouraged by increases in requests for quotations on new products from long-term customers, as well as the number of small but growing orders from customers acquired during the past several months, (iii) the Company believes that there are new opportunities are the direct results of operational and quality improvements undertaken during the past several quarters and that have moved the Company up to preferred supplier status with these customers and (iv) the Company is encouraged by new manufacturing customer prospects from the medical, electronic instrumentation and industrial markets, as it continues to engage with these kinds of customers in the engineering design and prototype development stages that precede production-level manufacturing. These statements involve a variety of risks and uncertainties, known and unknown, including among other risks that (i) the Company’s aggressive sales efforts do not in fact result in new customer acquisitions, (ii) that the increased requests for quotations on new products from long-term customers, as well as the number of small but growing orders from customers acquired during the past several months does not in fact lead to substantial new business, (iii) the Company’s efforts in operational and quality improvements undertaken during the past several quarters have not in fact moved the Company up to a preferred supplier status with any of its customers and (iv) the new manufacturing customer prospects from the medical, electronic instrumentation and industrial markets do not lead to production level manufacturing. Consequently, no forward-looking statement can be guaranteed and actual results may vary materially.
-Tables Follow-
| WINLAND ELECTRONICS, INC. | |
| CONDENSED BALANCE SHEETS | |
| (In Thousands of Dollars) | |
| | | | | | | |
| ASSETS | | September 30, 2009 | | | December 31, 2008 | |
| | | (Unaudited) | | | | |
| Current Assets | | | | | | |
| Cash | | $ | 290 | | | $ | 356 | |
| Accounts receivable, less allowance for doubtful | | | | | | | | |
| accounts of $38 and $127 | | | 3,022 | | | | 3,901 | |
| Refundable income taxes | | | 391 | | | | 595 | |
| Inventories | | | 3,817 | | | | 4,337 | |
| Prepaid expenses and other assets | | | 446 | | | | 231 | |
| Total current assets | | | 7,966 | | | | 9,420 | |
| | | | | | | | | |
| Property and equipment at cost | | | 12,100 | | | | 12,112 | |
| Less accumulated depreciation | | | (7,757 | ) | | | (7,201 | ) |
| Net property and equipment | | | 4,343 | | | | 4,911 | |
| Total assets | | $ | 12,309 | | | $ | 14,331 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
| | | | | | | | | |
| Current Liabilities | | | | | | | | |
| Revolving line of credit agreement | | $ | 506 | | | $ | - | |
| Current maturities of long-term debt | | | 375 | | | | 392 | |
| Accounts payable | | | 1,528 | | | | 2,457 | |
| Accrued expenses: | | | | | | | | |
| Compensation | | | 521 | | | | 446 | |
| Allowance for rework and warranty costs | | | 51 | | | | 80 | |
| Other | | | 31 | | | | 41 | |
| Total current liabilities | | | 3,012 | | | | 3,416 | |
| | | | | | | | | |
| Long Term Liabilities | | | | | | | | |
| Long-term debt, less current maturities | | | 794 | | | | 1,079 | |
| Deferred revenue | | | 124 | | | | 130 | |
| Other long term tax liabilities | | | 258 | | | | 129 | |
| Total long-term liabilities | | | 1,176 | | | | 1,338 | |
| | | | | | | | | |
| Stockholders' Equity | | | | | | | | |
| Common stock, par value $0.01 per share; authorized | | | | | |
| 20,000,000 shares; issued and outstanding 3,679,719 and 3,669,148 shares as of September 30, 2009 and December 31, 2008, respectively. | | | 37 | | | | 37 | |
| Additional paid-in capital | | | 4,991 | | | | 4,913 | |
| Retained earnings | | | 3,093 | | | | 4,627 | |
| Total stockholders' equity | | | 8,121 | | | | 9,577 | |
| Total liabilities and stockholders' equity | | $ | 12,309 | | | $ | 14,331 | |
| | | | | | | | | |
| WINLAND ELECTRONICS, INC. | |
| CONDENSED STATEMENTS OF OPERATIONS | |
| (In Thousands, Except Share and Per Share Amounts) | |
| (Unaudited) |
| | | | | | | | | | | | | |
| | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | |
| | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
| Net sales | | $ | 5,122 | | | $ | 7,003 | | | $ | 18,008 | | | $ | 20,901 | |
| Cost of sales | | | 4,831 | | | | 5,883 | | | | 16,153 | | | | 18,487 | |
| Gross profit | | | 291 | | | | 1,120 | | | | 1,855 | | | | 2,414 | |
| | | | | | | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | | | | | |
| General and administrative | | | 468 | | | | 576 | | | | 1,636 | | | | 1,769 | |
| Sales and marketing | | | 347 | | | | 300 | | | | 1,122 | | | | 993 | |
| Research and development | | | 143 | | | | 137 | | | | 394 | | | | 731 | |
| Total operating expenses | | | 958 | | | | 1,013 | | | | 3,152 | | | | 3,493 | |
| | | | | | | | | | | | | | | | | |
| Operating income (loss) | | | (667 | ) | | | 107 | | | | (1,297 | ) | | | (1,079 | ) |
| | | | | | | | | | | | | | | | | |
| Other income (expense) | | | | | | | | | | | | | | | | |
| Interest expense | | | (30 | ) | | | (34 | ) | | | (75 | ) | | | (98 | ) |
| Other income (expense), net | | | 2 | | | | 12 | | | | (12 | ) | | | 22 | |
| Total other expense | | | (28 | ) | | | (22 | ) | | | (87 | ) | | | (76 | ) |
| | | | | | | | | | | | | | | | | |
| Income (loss) before income taxes | | | (695 | ) | | | 85 | | | | (1,384 | ) | | | (1,155 | ) |
| | | | | | | | | | | | | | | | | |
| Income tax benefit (expense) | | | - | | | | 33 | | | | (150 | ) | | | 128 | |
| Net income (loss) | | $ | (695 | ) | | $ | 118 | | | $ | (1,534 | ) | | $ | (1,027 | ) |
| | | | | | | | | | | | | | | | | |
| Income (loss) per common share: | | | | | | | | | | | | | | | | |
| Basic & Diluted | | $ | (0.19 | ) | | $ | 0.03 | | | $ | (0.42 | ) | | $ | (0.28 | ) |
| | | | | | | | | | | | | | | | | |
| Weighted-average number of common shares outstanding: | | | | | | | | | |
| Basic & Diluted | | | 3,679,719 | | | | 3,656,668 | | | | 3,672,710 | | | | 3,647,309 | |
| WINLAND ELECTRONICS, INC. | |
| CONDENSED STATEMENTS OF CASH FLOWS | |
| (In Thousands of Dollars) | |
| (Unaudited) | |
| | | For the Nine Months Ended September 30, | |
| | | 2009 | | | 2008 | |
| Cash Flows From Operating Activities | | | | | | |
| Net loss | | $ | (1,534 | ) | | $ | (1,027 | ) |
| Adjustments to reconcile net loss to net cash used in | | | | | | | | |
| operating activities: | | | | | | | | |
| Depreciation and amortization | | | 615 | | | | 611 | |
| Non-cash stock based compensation | | | 72 | | | | 202 | |
| Allowance for doubtful accounts | | | (89 | ) | | | - | |
| Loss on disposal of property and equipment | | | 20 | | | | - | |
| Deferred tax assets | | | - | | | | 118 | |
| Changes in assets and liabilities: | | | | | | | | �� |
| Accounts receivable | | | 968 | | | | (401 | ) |
| Refundable income taxes | | | 204 | | | | (262 | ) |
| Inventories | | | 520 | | | | (7 | ) |
| Prepaid expenses and other assets | | | (215 | ) | | | (80 | ) |
| Accounts payable | | | (929 | ) | | | 904 | |
| Accrued expenses, including deferred revenue and | | | | | |
| other long term tax liabilities | | | 159 | | | | (224 | ) |
| Net cash used in operating activities | | | (209 | ) | | | (166 | ) |
| | | | | | | | | |
| Cash Flows From Investing Activities | | | | | | | | |
| Purchases of property and equipment | | | (75 | ) | | | (130 | ) |
| Proceeds from sale of property and equipment | | | 8 | | | | - | |
| Net cash used in investing activities | | | (67 | ) | | | (130 | ) |
| | | | | | | | | |
| Cash flows From Financing Activities | | | | | | | | |
| Net borrowings on revolving line of credit | | | 506 | | | | 55 | |
| Payments on long-term borrowings, including capital | | | | | |
| lease obligations | | | (302 | ) | | | (397 | ) |
| Proceeds from issuance of common stock | | | 6 | | | | 20 | |
| Net cash provided by (used in) financing activities | | | 210 | | | | (322 | ) |
| | | | | | | | | |
| Net decrease in cash | | | (66 | ) | | | (618 | ) |
| | | | | | | | | |
| Cash | | | | | | | | |
| Beginning of period | | | 356 | | | | 1,152 | |
| Ending of period | | $ | 290 | | | $ | 534 | |
| | | | | | | | | |
| Supplemental information | | | | | | | | |
| Cash payments for interest | | $ | 77 | | | $ | 98 | |
| Cash received for income taxes | | $ | 183 | | | $ | 1 | |
| | | | | | | | | |
| WINLAND ELECTRONICS, INC. | |
| SEGMENT REPORTING | |
| | | | | | | | | | | | | |
| ($ in thousands) | | EMS | | | Proprietary | | | Other | | | Total | |
| Three months ended September 30, 2009 | | | | | | | |
| Net sales | | $ | 4,228 | | | $ | 894 | | | $ | - | | | $ | 5,122 | |
| Operating income (loss) | | | (332 | ) | | | 133 | | | | (468 | ) | | | (667 | ) |
| | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2008 | | | | | | | | | |
| Net sales | | $ | 6,051 | | | $ | 952 | | | $ | - | | | $ | 7,003 | |
| Operating income (loss) | | | 553 | | | | 130 | | | | (576 | ) | | | 107 | |
| | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2009 | | | | | | | | | | | | |
| Net sales | | $ | 15,636 | | | $ | 2,372 | | | $ | - | | | $ | 18,008 | |
| Operating income (loss) | | | 100 | | | | 239 | | | | (1,636 | ) | | | (1,297 | ) |
| | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2008 | | | | | | | | | | | | |
| Net sales | | $ | 18,191 | | | $ | 2,710 | | | $ | - | | | $ | 20,901 | |
| Operating income (loss) | | | 630 | | | | 60 | | | | (1,769 | ) | | | (1,079 | ) |
| | | | | | | | | | | | | | | | | |
