SYS-CON MEDIA Authors: Roberto Medrano, Dmitriy Stepanov, Gilad Parann-Nissany, Srinivasan Sundara Rajan, Sean Houghton

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API Technologies Reports Results for the Fiscal Fourth Quarter Ended November 30, 2013

API Technologies Corp. (NASDAQ:ATNY) ("API" or the "Company"), a leading provider of high performance RF/microwave, power, and security solutions for critical and high-reliability applications, today announced results for the fiscal fourth quarter and twelve months ended November 30, 2013.

“Over the past twelve months we have successfully de-levered our balance sheet, driven operational efficiencies, and introduced innovative and differentiated products, resulting in design wins and sales funnel growth in both our defense and commercial end markets. Notwithstanding a challenging defense budget environment, we have grown our defense revenue year over year, a testament to our technologically advanced solutions and ability to adapt to a changing defense landscape,” said Bel Lazar, President and Chief Executive Officer of API Technologies.

Results for the Quarter Ended November 30, 2013

API Technologies reported revenue of $59.1 million for the quarter ended November 30, 2013, compared to $62.6 million for the quarter ended August 31, 2013, versus $53.4 million in the quarter ended November 30, 2012.

Gross profit as a percentage of sales was 15.2% for the quarter ended November 30, 2013, which included $4.0 million dollars of inventory write downs, compared to 23.9% for the quarter ended August 31, 2013, versus 20.1% for the quarter ended November 30, 2012. Adjusted EBITDA from continuing operations for the quarter ended November 30, 2013 was $6.3 million (10.7% margin), versus $8.4 million (13.3% margin) for the quarter ended August 31, 2013, compared to $6.3 million (11.7% margin) in the quarter ended November 30, 2012.

API Technologies posted a net loss of $7.2 million in the quarter ended November 30, 2013, versus a net income of $7.0 million in the quarter ended August 31, 2013, and a net loss of $12.3 million in the quarter ended November 30, 2012.

Results for the Twelve Months Ended November 30, 2013

API Technologies reported revenue of $244.3 million for the twelve months ended November 30, 2013, compared to $242.4 million for the twelve months ended November 30, 2012. Gross margin was 20.7% for the twelve months ended November 30, 2013 versus 19.2% for the prior-year period. Adjusted EBITDA from continuing operations was $27.1 million for the twelve months ended November 30, 2013, compared to $31.8 million for the twelve months ended November 30, 2012.

The Company posted a net loss of $7.2 million for the twelve months ended November 30, 2013, compared to a net loss of $148.7 million for the prior-year period. The decrease in net loss was driven primarily by a) a $107.5 million Goodwill impairment charge in fiscal 2012, b) $16.2 million dollars of fiscal 2013 net income from Discontinued Operations from the gains on the sales of the Sensors business and Data Bus product line, and c) a $14.5 million dollar decrease in restructuring charges from fiscal 2012 to fiscal 2013. Restructuring costs recorded in the twelve months ended November 30, 2013 were $2.6 million, compared to $17.1 million for the fiscal year ended November 30, 2012.

As of November 30, 2013, the Company had $7.9 million in cash and cash equivalents, including $1.5 million in restricted cash, and $104.8 million in debt obligations, net of discounts.

Subsequent Events

On January 6, 2014, API Technologies announced the completion of a sale/leaseback transaction for its State College, PA facility for $15.5 million. The Company used $14.2 million of the proceeds to pay down the Company’s term loan facility. As of November 30, 2013, the Company had $86.8 million in term loan obligations. As of February 12, 2014, the term loan balance is $72.6 million.

Conference Call

API Technologies will host a conference call to review the Company’s fiscal fourth quarter results tomorrow, February 13, at 10:00 a.m. Eastern Time. Bel Lazar, President and Chief Executive Officer, and Phil Rehkemper, Executive Vice President and Chief Financial Officer, will host the call.

The call will be available by dialing 1-877-317-6789 or 1-412-317-6789 and accessible by webcast at http://www.apitech.com/investor-relations. Recorded replays of the webcast will be available on the Company’s Investor Relations App, and for 30 days on the Company’s website and by telephone at 1-877-344-7529 or 1-412-317-0088, replay passcode #10039914, beginning noon Eastern Standard Time on February 13, 2014.

The API Technologies Investor Relations App is available for iPhone® and iPad® via the Apple iTunes store and for Android™ devices via Google Play. For more information, visit http://www.apitech.com/investor-relations.

About API Technologies Corp.

API Technologies (NASDAQ: ATNY) is an innovative designer and manufacturer of high performance systems, subsystems, modules, and components for technically demanding RF, microwave, millimeter wave, electromagnetic, power, and security applications. A high-reliability technology pioneer with over 70 years of heritage, API Technologies products are used by global defense, industrial, and commercial customers in the areas of commercial aerospace, wireless communications, medical, oil and gas, electronic warfare, unmanned systems, C4ISR, missile defense, harsh environments, satellites, and space. Learn more about API Technologies and our products at www.apitech.com.

Non-GAAP Financial Information

In this press release, API has provided non-GAAP financial measures for Adjusted EBITDA from continuing operations and from discontinued operations. Non-GAAP Adjusted EBITDA from continuing operations and discontinued operations (Earnings before interest, taxes, depreciation and amortization) excludes restructuring charges, acquisition and divestiture-related charges, C-MAC pro forma adjustments, foreign exchange losses, stock-based compensation expenses, amortization of note discounts and deferred financing costs, goodwill impairment, SenDEC earn-out reversal, and certain other adjustments. Management believes the supplemental non-GAAP presentations provide investors an additional analytical tool for understanding the Company’s financial performance by excluding the impact of items which may obscure trends in the operating performance of the business. These are not recognized measures under US GAAP, do not have a standardized meaning, and are unlikely to be comparable to similar measures used by other companies. Accordingly, investors are cautioned that these non-GAAP measures should not be construed as an alternative to net earnings or loss determined in accordance with GAAP as an indicator of the financial performance of the Company or as a measure of the Company's liquidity and cash flows. We expect our financial statements to continue to be affected by items similar to those excluded in the non-GAAP adjustments described above, and exclusion of these items from our non-GAAP financial measures should not be construed as an inference that all such costs are unusual or infrequent.

Safe Harbor for Forward-Looking Statements

Except for statements of historical fact, the information presented herein constitutes forward-looking statements. All forward-looking statements are subject to certain risks, uncertainties and assumptions which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include but are not limited to, general economic and business conditions, including without limitation, reductions in government defense spending, government regulations, our ability to integrate and consolidate our operations, our ability to expand our operations in both new and existing markets, the ability of our review of strategic alternatives to maximize stockholder value and the effect of growth on our infrastructure. Should one or more of these risks or uncertainties materialize, or should the assumptions prove incorrect, actual results may vary in material aspects from those currently anticipated. The forward-looking statements in this news release should be read in conjunction with the more detailed descriptions of the above factors located in our Annual Report on Form 10-K under Part I, Item 1A “Risk Factors” as well as those additional factors we may describe from time to time in other filings with the Securities and Exchange Commission. All information in this release is as of the date hereof. We undertake no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations. Except as required by law, the Company assumes no obligation to update or revise any forward-looking statements in this press release, whether as a result of new information, future events, or otherwise.

 
API Technologies Corp.
Financial Results
For the Three and Twelve Months Ended November 30, 2013 and 2012
 
Consolidated Statements of Operations (unaudited)
in thousands USD
       
For the Three
Months Ended
November 30,
2013
For the Three
Months Ended
November 30,
2012
For the Twelve
Months Ended
November 30,
2013
For the Twelve
Months Ended
November 30,
2012
Revenue, net $ 59,137 $ 53,368 $ 244,300 $ 242,381
Cost of revenues
Cost of revenues 48,942 41,933 192,279 186,209
Restructuring charges   1,223     703     1,405     9,742  
 
Total cost of revenues   50,165     42,636     193,684     195,951  
 
Gross profit   8,972     10,732     50,616     46,430  
 
Operating expenses
General and administrative 6,169 6,693 25,873 24,957
Selling expenses 3,752 3,682 15,015 14,440
Research and development 2,305 2,280 9,190 9,610
Business acquisition and related charges (129 ) 584 849 4,027
Restructuring charges   529     2,631     1,212     7,337  
 
  12,626     15,870     52,139     60,371  
 
Operating income (loss) (3,654 ) (5,138 ) (1,523 )

(13,941

)

Other expenses (income), net
Goodwill impairment 107,495
Interest expense, net 2,301 4,311 14,208 16,209

Amortization of note discounts and deferred
financing costs

1,224 727 13,020 15,684
Other expenses (income), net   172     3,225     (14 )   813  
 
  3,697     8,263     27,214     140,201  
 

Loss from continuing operations before income taxes

(7,351

)

(13,401 )

(28,737

)

(154,142

)

Expense (benefit) for income taxes   (2,019 )   (422 )   (5,335 )  

(5,307

)

 

Loss from continuing operations, net of income taxes

(5,332 ) (12,979 )

(23,402

)

(148,835

)

Income (loss) from discontinued operations, net of income taxes

  (1,911 )   676     16,174     132  
 
Net loss $ (7,243 ) $ (12,303 ) $ (7,228 )

$

(148,703

)

Accretion on preferred stock  

(387

)

      (1,057 )    
 
Net loss attributable to common shareholders $ (7,630 )

$

(12,303

)

$ (8,285 )

$

(148,703

)

 

Loss per share from continuing operations—Basic
and diluted

$ (0.10 ) $ (0.23 ) $ (0.44 ) $ (2.69 )

Income (loss) per share from discontinued
operations—Basic and diluted

$ (0.03 ) $ 0.01   $ 0.29   $ 0.00  
 
Net loss per share—Basic and diluted $ (0.14 ) $ (0.22 ) $ (0.15 ) $ (2.69 )
 
Weighted average shares outstanding
Basic 55,426,635 55,365,978 55,405,764 55,314,263
Diluted 55,426,635 55,365,978 55,405,764 55,314,263
 

Consolidated Balance Sheets (unaudited)

in thousands USD

 
 

November 30,
2013

 

November 30,
2012

Assets
Current
Cash and cash equivalents $ 6,351 $ 20,550
Restricted cash 1,500 700
Accounts receivable, net 39,751 41,624
Inventories, net 58,218 57,863
Deferred income taxes 2,426 1,038
Prepaid expenses and other current assets 2,445 2,560
Current assets of discontinued operations         13,836  
110,691 138,171
Fixed assets, net 35,231 40,075
Fixed assets held for sale 150 900
Goodwill 116,770 116,770
Intangible assets, net 38,780 47,934
Other non-current assets 2,956 5,760
Long-lived assets of discontinued operations       43,105  
Total assets $ 304,578   $ 392,715  
 
Liabilities, Redeemable Preferred Stock and Shareholders’ Equity
Current
Accounts payable and accrued expenses $ 32,217 $ 39,598
Deferred revenue 3,519 385
Current portion of long-term debt 8,155 2,328
Current liabilities of discontinued operations       1,888  
43,891 44,199
Deferred income taxes 5,517 3,411
Other long-term liabilities 1,135 1,048
Long-term debt, net of current portion and discount   96,606     179,503  
  147,149     228,161  
 
Redeemable Preferred Stock 26,326 25,581
 
Shareholders’ equity
Common stock 55 55
Special voting stock
Additional paid-in capital 327,901 326,973
Common stock subscribed but not issued 2,373 2,373
Accumulated deficit (200,798 ) (192,513 )
Accumulated other comprehensive income   1,572     2,085  
  131,103     138,973  

Total Liabilities, Redeemable Preferred Stock and Shareholders’ Equity

$ 304,578   $ 392,715  
 

Consolidated Adjusted EBITDA

in thousands USD

 

The following table reconciles three and nine months GAAP income (loss) from continuing operations to
non-GAAP Adjusted EBITDA from continuing operations and discontinued operations.

 
   

Three Months Ended
November 30,

 

Twelve Months Ended
November 30,

  2013       2012   2013     2012  
Income (loss) from continuing operations $ (5,332 )   $ (12,979 ) $ (23,402 )     $ (148,835 )
Adjustments
Interest expense, net 2,301 4,311 14,208 16,209

Amortization of note discounts and
deferred financing costs

1,224 727 13,020 15,684
Depreciation and amortization 3,906 4,489 17,130 16,945
Goodwill impairment 107,495
Income and franchise taxes (1,980 ) (421 ) (5,062 ) (5,307 )
Stock based compensation 137 290 928 2,224
Restructuring charges 1,752 3,334 2,617 17,079
Acquisition related charges (129 ) 584 849 4,027
Other adjustments (A) 4,235 4,709 6,491 5,968
SenDEC earn-out reversal (2,213 )
C-MAC pro-forma adjustment 924 2,101
Foreign exchange loss   193     301     352     425  
Adjusted EBITDA from
continuing operations
6,307 6,269 27,131 31,803
Discontinued operations       1,986     4,415     7,833  
 

Total Adjusted EBITDA

$ 6,307   $ 8,255   $ 31,546   $ 39,636  

Adjusted EBITDA Margin from
continuing operations

  10.7 %   11.7 %   11.1 %   13.1 %

(A) Charges in fiscal year 2013 primarily relate to $6.3 million of non-cash inventory provisions, $0.4 million financing related charges, partially offset by a $0.5 million reduction of a contingency accrual. Charges in fiscal year 2012 primarily relate to non-cash inventory provisions.

 

Additional Adjusted EBITDA Reconciliations by Segment from Continuing Operations

in thousands USD

 

Three Months Ending

November 30, 2013

  SSC   SSIA   EMS   Corporate   Total
Q4 Q4 Q4 Q4 Q4
 
Revenue $ 42,573 $ 5,611 $ 10,953 $ - $ 59,137

Income (loss) from continuing
operations

(10,126 ) 624 (3,374 ) 7,544 (5,332 )
Adjustments
Interest expense, Net 2,302 80 32 (113 ) 2,301

Amortization of note discounts
and deferred financing costs

- - - 1,224 1,224
Depreciation and amortization 2,585 127 1,118 76 3,906
Income and franchise taxes 7,803 354 1 (10,138 ) (1,980 )
Stock based compensation - - - 137 137
Restructuring charges 1,512 37 132 71 1,752
Acquisition related charges 92 - 17 (238 ) (129 )
Other adjustments (A) 2,191 508 1,749 (213 ) 4,235
Foreign exchange loss - - - 193 193
Net corporate costs (B) (1,047 ) (138 ) (272 ) 1,457 -
Add-Back Total   15,438     968     2,777     (7,544 )   11,639  

Adjusted EBITDA from
continuing operations

$ 5,312   $ 1,592   $ (597 ) $ -   $ 6,307  

Adjusted EBITDA Margin from
continuing operations

  12.5 %   28.4 %   (5.5 %)   0.0 %   10.7 %

(A) Charges primarily relate to inventory provisions (approximately $4.0 million) and finance related charges (approximately $0.2 million).

(B) Net Corporate costs are allocated to the three segments by percentage of total consolidated revenues.

 

Additional Adjusted EBITDA Reconciliations by Segment from Continuing Operations

in thousands USD

         

Three Months Ending

August 31, 2013

SSC SSIA EMS Corporate Total
Q3 Q3 Q3 Q3 Q3
 
Revenue $ 45,653 $ 3,712 $ 13,265 $ - $ 62,630

Income (loss) from continuing
operations

8,296 606 (1,197 ) (6,043 ) 1,662
Adjustments
Interest expense, Net 41 (17 ) 35 3,027 3,086

Amortization of note discounts
and deferred financing costs

- - - 521 521
Depreciation and amortization 2,907 94 1,522 82 4,605
Income and franchise taxes (3,304 ) 46 - 169 (3,089 )
Stock based compensation - - - 191 191
Restructuring charges 67 (6 ) 57 18 136
Acquisition related charges 30 - 10 (151 ) (111 )
Other adjustments (A) 882 21 243 164 1,310
Foreign exchange loss - - - 43 43
Net corporate costs (B) (1,442 ) (117 ) (420 ) 1,979 -
Add-Back Total   (819 )   21     1,447     6,043     6,692  

Adjusted EBITDA from
continuing operations

$ 7,477   $ 627   $ 250   $ -   $ 8,354  

Adjusted EBITDA Margin from
continuing operations

  16.4 %   16.9 %   1.9 %   0.0 %   13.3 %

(A) Charges primarily relate to non-cash reserves (approximately $0.3 million), inventory provisions (approximately $0.8 million), and finance related charges (approximately $0.2 million).

(B) Net Corporate costs are allocated to the three segments by percentage of total consolidated revenues.

 

Additional Adjusted EBITDA Reconciliations by Segment from Continuing Operations

in thousands USD

         

Three Months Ending

November 30, 2012

SSC SSIA EMS Corporate Total
Q4 Q4 Q4 Q4 Q4
 
Revenue $ 39,339 $ 3,370 $ 10,659 $ - $ 53,368

Income (loss) from continuing
operations

(2,675 ) (246 ) (2,906 ) (7,152 ) (12,979 )
Adjustments
Interest expense, Net 1,850 (2 ) 86 2,377 4,311

Amortization of note discounts
and deferred financing costs

- - - 727 727
Depreciation and amortization 3,455 134 820 80 4,489
Income and franchise taxes (694 ) (42 ) 10 305 (421 )
Stock based compensation - - - 290 290
Restructuring charges 877 634 1,749 74 3,334
Acquisition related charges 8 - - 576 584

C-MAC pro-forma adjustments

924 - - - 924
Other adjustments (A) 3,138 - 373 1,198 4,709
Foreign exchange loss - - - 301 301
Net corporate costs (B) (903 ) (77 ) (244 ) 1,224 -
Add-Back Total   8,655     647     2,794     7,152     19,248  

Adjusted EBITDA from
continuing operations

$ 5,980   $ 401   $ (112 ) $ -   $ 6,269  

Adjusted EBITDA Margin from
continuing operations

  15.2 %   11.9 %   (1.1 %)   0.0 %   11.7 %

(A) Charges primarily related to non-cash inventory provisions (approximately $1.8 million), impairment of fixed assets held for sale (approximately $1.8 million) and Corporate contingency accrual (approximately $1.1 million).

(B) Net Corporate costs are allocated to the three segments by percentage of total consolidated revenues.

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