Directed Electronics, Inc. News
Directed Electronics Reports First Quarter 2008 Financial Results
(Logo: http://www.newscom.com/cgi-bin/prnh/20020424/DIRECTLOGO) First Quarter Financial Highlights — Achieved Q1 2008 total pro forma sales of $75.4 million, despite the soft consumer environment; GAAP net sales totaled $60.5 million with implementation of satellite radio net reporting as described below — Definitive Technology product sales increased double-digits partially offsetting lower security and Polk home audio sales to a major retailer, resulting in total Security & Entertainment product sales declining by 7% — Satellite Radio pro forma sales increased 14% — Reported GAAP EPS of ($0.06), which included ($0.02) of workforce reduction expenses and RSU tax shortfalls, as compared to ($0.11) in the prior year, which included certain legal expenses — Generated $19 million in operating cash flow resulting in cash balance of $17 million, an undrawn revolver of $50 million, and a 19% reduction in debt as compared with Q1 2007 Recent Operating Highlights — Extended SIRIUS agreement to January 31, 2009; Given the reduced risk of satellite radio warranty costs, implemented net reporting of satellite radio sales in the first quarter of 2008 — Shipped Polk Audio's new I-Sonic Entertainment System II to Apple Stores at the end of the first quarter and expect to ship a broad home audio product assortment to Best Buy in the second quarter — Identified or implemented $4.5 million of annualized workforce right-sizing initiatives and continuing to identify additional savings opportunities — Based on improved balance sheet, removed from Standard & Poor's and Moody's credit watch lists — Successfully renegotiated debt agreement providing greater financial flexibility
"We are pleased to have delivered
"While we are pleased with our progress on these important initiatives, we also have a number of significant opportunities ahead of us to improve our overall performance. The additional opportunities include launching Polk Audio at 900 Best Buy locations, introducing a number of new security and remote start products later this year, reducing our cost structure further, and capitalizing on the potential approval of the SIRIUS and XM merger."
First Quarter 2008 Results
Prior to
Sales
Pro forma net sales in the first quarter of 2008 totaled
Gross Margins
For the first quarter of 2008, gross margin was 48.6% compared with 40.6% in the first quarter of 2007. The increase is attributable to the change in accounting for the company's satellite radio products on a net basis in the current quarter as described above.
Operating Expenses
Operating expenses decreased by approximately
Interest Expense
Net interest expense decreased 10.4% to
Income (Loss)
Operating income increased 56.9% to
First quarter 2008 EBITDA (earnings before interest, taxes, depreciation and amortization) was
The company's net loss for the first quarter of 2008 was
Product Category Results
The following table provides pro forma sales and margins on a category basis for the first quarter of 2008 as compared to the same period in the prior year. The following pro forma financial results are reconciled to GAAP results in the accompanying tables.
"We believe the change to net reporting of our satellite radio sales coupled with providing our security and entertainment and satellite radio product category margins will ultimately provide increased transparency into the fundamental drivers of our profitability," commented
Security & Entertainment Satellite Radio Total Q1 07 Q1 08 Q1 07 Q1 08 Q1 07 Q1 08 Pro Forma Results: Net Product Sales $61,382 $57,032 $15,452 $17,580 $76,834 $74,612 Royalty & Other 1,060 705 39 96 1,099 801 Net Sales $62,442 $57,737 $15,491 $17,676 $77,933 $75,413 Cost of Sales 33,295 31,144 13,004 14,865 46,299 46,009 Gross Profit $29,147 $26,593 $2,487 $2,811 $31,634 $29,404 % Margin 46.7% 46.1% 16.1% 15.9% 40.6% 39.0%
Security & Entertainment
Security and entertainment product sales, net of rebates, decreased 7.1% to
Gross profit margin on security and entertainment products totaled 46.1% in the first quarter of 2008, materially consistent with the prior year.
Satellite Radio
Satellite radio pro forma product sales, net of rebates, for the first quarter of 2008 totaled
On a pro forma basis, gross profit margin on satellite radio sales decreased from 16.1% in the first quarter of 2007 to 15.9% in the first quarter of 2008. As part of the company's amended distribution agreement with SIRIUS, it agreed to reduce gross margin on sales of satellite radio products in exchange for a reduction in the risk associated with product returns.
Balance Sheet and Cash Flows
The company generated
Conference Call and Webcast
Directed Electronics will host a conference call and webcast to discuss its financial results today at
To participate in the conference call, investors should dial 800-762-8973 ten minutes prior to the call. International callers should dial 480-629-9039. A telephone replay of the call will be available through
About Directed Electronics
Headquartered in
Forward-Looking Statements
Certain statements in this news release that are not historical fact constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements typically are identified by the use of terms such as "may," "should," "might," "believe," "expect," "anticipate," "estimate" and similar words, although some may be expressed differently. Forward-looking statements in this release include, but are not limited to, statements as to expected savings from the company's staff reductions. Shareholders and other readers are cautioned not to place undue reliance on these forward-looking statements. Such forward- looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results of Directed to be materially different from historical results or from any results expressed or implied by such forward- looking statements. These factors include competition in the consumer electronics industry, development of new products and changing demand of customers, reliance on certain key customers, adverse developments affecting SIRIUS Satellite Radio, decline in consumer spending, reliance on certain manufacturers and their ability to maintain satisfactory delivery schedules, disruption in supply chain, shortages of components and materials, economic risks associated with changes in social, political, regulatory, and economic conditions in the countries where the company's products are manufactured, quality installation of products by customers, significant product returns or product liability claims, compliance with various state and local regulations, risks with international operations, impairment of goodwill and intangible assets, claims related to intellectual property, ability to service debt obligations, restrictive terms of the company's senior secured credit facility, vulnerability to increases in interest rates, disruption in distribution centers, ability to raise additional capital if needed, dependence on senior management, ability to realize on investments made in the business, and integration of acquired businesses. Certain of these factors, as well as various additional factors, are discussed from time to time in the reports filed by Directed with the Securities and Exchange Commission, including the Form 10-K for the year ended
DIRECTED ELECTRONICS, INC. Consolidated Statements of Income (unaudited, in thousands, except per share amounts) GAAP Pro Forma Quarter Quarter Quarter Quarter Ended Ended Ended Ended 3/31/2008 3/31/2007 3/31/2008 3/31/2007 Sales: Security and entertainment product sales, net $57,032 $61,382 $57,032 $61,382 Satellite radio product sales, net 2,715 15,452 17,580 15,452 Net product sales 59,747 76,834 74,612 76,834 Royalty and other revenue 801 1,099 801 1,099 Net Sales 60,548 77,933 75,413 77,933 Cost of sales: Cost of security and entertainment sales 31,144 33,295 31,144 32,353 Cost of satellite radio sales - 13,004 14,865 13,004 Total cost of sales 31,144 46,299 46,009 45,357 Gross profit 29,404 31,634 29,404 32,576 Operating expenses: Selling, general and administrative 25,154 23,431 25,154 23,431 Provision for litigation - 5,494 - - Total operating expenses 25,154 28,925 25,154 23,431 Income from operations 4,250 2,709 4,250 9,145 Other income (expense): Interest expense, net (6,232) (6,959) (6,232) (6,959) Income (loss) before provision for income taxes (1,982) (4,250) (1,982) 2,186 Provision for (benefit from) income taxes (379) (1,482) (379) 942 Net income (loss) $(1,603) $(2,768) $(1,603) $1,244 Net income (loss) per common share: Basic and diluted $(0.06) $(0.11) $(0.06) $0.05 Weighted average number of shares: Basic and diluted 25,858 25,955 25,858 25,955
This earnings release includes information presented on a pro forma basis. These pro forma financial measures are considered "non-GAAP" financial measures within the meaning of SEC Regulation G. The Company believes that this presentation of pro forma results provides useful information to both management and investors by excluding specific revenue, costs and expenses that the Company believes are not indicative of core operating results. Additionally, in accordance with GAAP, beginning in the first quarter of 2008, the Company reported satellite radio sales on a net basis, but has not recast prior period satellite radio sales as the change in presentation is not considered a change in accounting principle but is the application of the same principle to different facts and circumstances. For comparison and discussion purposes, the Company provides sales and cost information on a gross basis. Although not in accordance with GAAP, the Company believes this information is informative as to the level of its satellite radio business, provides increased transparency, and presents satellite radio sales on a basis comparable to prior periods and to security and entertainment sales. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with generally accepted accounting principles. The reconciliations set forth below are provided in accordance with Regulation G and reconcile the pro forma financial measures with the most directly comparable GAAP-based financial measures.
DIRECTED ELECTRONICS, INC. Reconciliation of GAAP to Pro Forma Net Sales, Cost of Sales, and Gross Profit
(unaudited, in thousands) As Reported Reclassification Pro Forma As Reported Quarter Quarter Quarter Quarter Ended Ended Ended Ended 3/31/2008 3/31/2008 3/31/2008 3/31/2007 Sales: Security and entertainment product sales, net $57,032 $- $57,032 $61,382 Satellite radio product sales, net 2,715 14,865 17,580 15,452 Net product sales 59,747 14,865 74,612 76,834 Royalty and other revenue related to security and entertainment products 705 - 705 1,060 Other revenues related to satellite radio products 96 - 96 39 Royalty and other revenue 801 - 801 1,099 Net Sales $60,548 $14,865 $75,413 $77,933 Cost of sales: Cost of security and entertainment sales 31,144 - 31,144 33,295 Cost of satellite radio sales - 14,865 14,865 13,004 Total cost of sales $31,144 $14,865 $46,009 $46,299 Security and entertainment gross profit, including royalty and other revenue $26,593 $26,593 $29,147 Satellite radio gross profit, including other revenue - 2,811 2,487 Consolidated gross profit $29,404 $29,404 $31,634 Security and entertainment gross profit margin 46.1% 46.1% 46.7% Satellite radio gross profit margin - 15.9% 16.1% Consolidated gross profit margin 48.6% 39.0% 40.6% DIRECTED ELECTRONICS, INC. Reconciliation of GAAP to Pro Forma Net Income (Loss) Available to Common Shareholders (unaudited, in thousands, except per share amounts) Quarter Quarter Ended Ended 3/31/2008 3/31/2007 GAAP net income (loss) $(1,603) $(2,768) Adjustments: Gross profit reduction from purchase accounting - 942 Patent litigation costs - 5,494 Tax effects of adjustments - (2,424) Pro forma net income (loss) $(1,603) $1,244 GAAP net income (loss) per common share, diluted $(0.06) $(0.11) Pro forma net income (loss) per common share, diluted $(0.06) $0.05 Diluted weighted average number of shares (GAAP and pro forma) 25,858 25,955 DIRECTED ELECTRONICS, INC. Reconciliation of GAAP Net Income (Loss) to Pro Forma and Adjusted EBITDA (Note 1) (unaudited, in thousands) Quarter Quarter Ended Ended 3/31/2008 3/31/2007 Net income (loss) $(1,603) $(2,768) Adjustments: Interest expense, net 6,232 6,959 Depreciation 695 632 Amortization 1,897 1,684 Taxes (379) (1,482) EBITDA (Note 1) $6,842 $5,025 Gross profit reduction from purchase accounting - 942 Patent litigation costs - 5,494 Pro forma EBITDA (Note 1) $6,842 $11,461 Non-cash stock-based compensation 304 125 Other 521 (795) Adjusted EBITDA (Note 1) $7,667 $10,791
Note 1: EBITDA (earnings before interest, income taxes, depreciation, and amortization, including goodwill and intangible asset impairment) is not a measure of financial performance under generally accepted accounting principles, or GAAP, but is used by some investors to determine a company's ability to service or incur indebtedness. The company presents pro forma EBITDA as it believes that pro forma results provide useful information to both management and investors by excluding specific revenue, costs and expenses that the company believes are not indicative of core operating results. Adjusted EBITDA is presented as it includes other adjustments permitted under the company's lending agreement for covenant calculations. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with generally accepted accounting principles. The reconciliation set forth above is provided in accordance with Regulation G and reconciles EBITDA, pro forma EBITDA, and adjusted EBITDA with the most directly comparable GAAP-based financial measure. EBITDA is not calculated in the same manner by all companies and accordingly is not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies. EBITDA is not intended to represent and should not be considered more meaningful than, or as an alternative to, measures of operating performance as determined in accordance with GAAP.
DIRECTED ELECTRONICS, INC. Condensed Consolidated Balance Sheets (in thousands) March 31, December 31, 2008 2007 ASSETS Cash and cash equivalents $16,679 $4,760 Accounts receivable, net 47,445 77,366 Inventories 67,880 64,219 Other current assets 19,571 22,936 Total current assets 151,575 169,281 Property and equipment, net 7,202 7,353 Intangible assets, net 154,929 157,265 Other assets 7,888 6,535 Total assets $321,594 $340,434 LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Accounts payable $36,769 $44,814 Accrued expenses 27,122 28,527 Current portion of notes payable 2,669 2,669 Total current liabilities 66,560 76,010 Revolving loan - 4,000 Senior notes, less current portion 259,589 260,257 Deferred tax liability 8,117 8,864 Other liabilities 5,686 5,201 Total liabilities 339,952 354,332 Shareholders' equity (deficit) (18,358) (13,898) Total liabilities and shareholders' equity (deficit) $321,594 $340,434
SOURCE Directed Electronics, Inc.
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