For the third quarter ended
Customer purchasing activity was below management's expectations, particularly in the agriculture sector. In addition to the economic malaise which dampened spending within Hemisphere GPS' target markets, a relatively late harvest in 2009 is also believed to have reduced customer purchasing activity in agriculture. As of
In August, the US Department of Agriculture ("USDA") revised its net farm income projections - which include both crop and livestock farms - downward for 2009 - to
Management continues to view the fundamentals of the global agriculture markets to be positive for the mid to long term. Crop prices have declined from the record levels seen in 2008, however, they remain high by historical standards. The USDA forecasts high farm production costs to decline in 2009 - the first time costs have declined since 2002.
For the third quarter, North American revenues declined 27%, showing a modest improvement compared to the 34% decline for the first half of 2009. International revenues decreased 36% year-over-year for the third quarter, similar to the 34% decrease in the first half of the year. The recent weakening of the US dollar effectively increases the purchasing power in international markets, notably
"Recessionary conditions have impacted global markets during the first three quarters of 2009," stated
Third quarter gross margins were 43% compared to 52% in 2008. The key factors contributing to lower gross margins during the third quarter are the impact of fixed manufacturing costs on lower revenue levels, the impact of the significant weakening of the US dollar and lower software revenues.
Despite significant headcount reductions in its manufacturing department compared to the third quarter of 2008, the allocation of the remaining fixed manufacturing overhead across revenues lower by 31% had a negative impact on gross margins estimated to be approximately 2%.
The weakening of the US dollar also had a significant impact on gross margins for the quarter. With the decline in revenues experienced in 2009, the Company has realized a reduction in its inventory turnover for the year. As a result, a majority of the US dollar inventory held by the Company during the third quarter was acquired during the first and second quarter - when the US dollar was much stronger. The Company estimates that this had a negative impact on gross margins of approximately 3%.
Operating expenses were
For the first nine months of 2009, Hemisphere GPS reported revenues of
At
Quarter-end inventory has reflected the following levels and rates:
Measurement FX Reporting Currency Rate Currency Mar 31, 2009 Cdn$22.6 million $1.2602 US$17.9 million Jun 30, 2009 Cdn$21.6 million $1.1625 US$18.6 million Sep 30, 2009 Cdn$20.7 million $1.0722 US$19.3 million
Management expects a further drawdown of inventory during the fourth quarter.
Working capital at
Operational Highlights
During the quarter Hemisphere's investment in research and development resulted in new product introductions. Further product introductions are scheduled for commercial introduction during the fourth quarter of 2009.
Hemisphere GPS introduced two new smart antennas; the A220 and A221. In rugged, portable all-in-one enclosures, the A220 and A221 deliver centimeter-level positioning accuracy for precise guidance, machine control and survey applications. Combining Hemisphere GPS' Eclipse(TM) dual frequency receiver and antenna technology with optional radio modem, the A220 and A221 are capable of supporting RTK, SBAS and OmniSTAR(R) HP/XP corrections. Fast start-up, reacquisition, and output rates enable the A220 and A221 to provide the best signal for visual guidance and automated steering applications. The A220 and A221 also offer Hemisphere GPS' patented SBAS satellite ranging technology that increases the total number of satellites in view for greater RTK speed and reliability. These latest additions to the Hemisphere GPS line of smart antennas, offer an affordable, dual frequency GPS solution with unparalleled performance.
Hemisphere GPS signed a strategic partnership agreement with Handheld Group of
Ag Leader announced compatibility between Hemisphere GPS data file formats with its SMS(TM) Basic and SMS Advanced mapping software solutions, providing a complete solution for customers across
Hemisphere GPS was awarded a position on the 2009 Cleantech 10(TM) list by Corporate Knights Inc. in recognition of companies that minimize the impact human activity has on the environment. Hemisphere GPS does this by developing technologies that improve operational performance while reducing the impact of chemical applications and lowering energy consumption. The Company was awarded a top 10 ranking out of the 122 Cleantech companies currently traded on the
Hemisphere GPS and CLAAS Agrosystems introduced the customized Outback Sts(TM) at Agritechnica 2009 for
Conference Call -
A conference call and Web cast for shareholders, analysts and other members of the investment community has been scheduled for
To participate in the conference call, please dial 1-800-731-5319 approximately 10 minutes before the conference call. Please note that a live Web cast of the call will be available on the Hemisphere GPS Web site at http://www.hemispheregps.com. The Web cast will be archived there for later review.
A recording of the call will be available through
About Hemisphere GPS
Hemisphere GPS designs and manufactures innovative, cost-effective GPS products for positioning, guidance, and machine control applications in agriculture, marine and other markets. The Company holds numerous patents and other intellectual property and owns leading brand names, including Outback Guidance(R) and BEELINE(R), two of the leading brands in precision GPS for ground agriculture. The Company is headquartered in
The above disclosure contains certain forward-looking statements that involve substantial known and unknown risks and uncertainties. These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond Hemisphere GPS' control, including: the impact of general economic conditions, industry conditions, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to the announced transactions and the final valuations thereof, and obtaining required approvals of regulatory authorities. Hemisphere GPS' actual results, performance or achievement could differ materially from those expressed in, or implied by these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits, including the amount of proceed, that Hemisphere GPS will derive therefrom.
Hemisphere GPS Inc. Consolidated Balance Sheets (unaudited - expressed in U.S. dollars) ------------------------------------------------------------------------- September 30, December 31, 2009 2008 ------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 7,890,268 $ 16,288,684 Accounts receivable 6,071,270 7,409,108 Inventories 19,309,039 14,016,645 Deferred commissions 202,645 215,402 Prepaid expenses and deposits 732,235 679,863 ----------------------------------------------------------------------- 34,205,457 38,609,702 Deferred commissions 140,068 171,852 Property and equipment 7,796,143 6,871,801 Intangible assets 7,495,383 7,029,627 Goodwill 39,942,946 34,972,095 ------------------------------------------------------------------------- $ 89,579,997 $ 87,655,077 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 3,911,128 $ 6,634,059 Foreign exchange contract - 3,270,210 Deferred revenue 1,355,946 1,484,166 Current portion of capital lease 42,910 - ----------------------------------------------------------------------- 5,309,984 11,388,435 Deferred revenue 932,505 1,035,220 Capital lease 87,060 - Shareholders' equity: Share capital 107,708,468 108,162,136 Share capital purchased for cancellation under Normal Course Issuer Bid - (450,633) Contributed surplus 3,775,434 3,134,045 Deficit (37,664,027) (34,232,193) Accumulated other comprehensive income 9,430,573 (1,381,933) ------------------------------------------------------------------------- 83,250,448 75,231,422 ------------------------------------------------------------------------- $ 89,579,997 $ 87,655,077 ------------------------------------------------------------------------- ------------------------------------------------------------------------- HEMISPHERE GPS INC. Consolidated Statements of Operations and Deficit (unaudited - expressed in U.S. dollars) ------------------------------------------------------------------------- Three months ended Nine months ended September 30, September 30, --------------------------- --------------------------- 2009 2008 2009 2008 ------------------------------------------------------------------------- Sales $ 9,068,537 $ 13,200,562 $ 41,488,850 $ 62,146,093 Cost of sales 5,167,702 6,385,168 20,898,199 30,168,245 ------------------------------------------------------------------------- 3,900,835 6,815,394 20,590,651 31,977,848 Expenses: Research and development 2,344,818 1,942,851 6,441,726 5,773,259 Sales and marketing 2,514,406 2,728,792 8,571,404 9,326,253 General and administrative 1,684,214 1,657,301 5,022,275 5,790,951 Stock-based compensation 218,699 190,056 641,205 538,847 Amortization 830,972 860,883 2,307,422 2,699,949 ------------------------------------------------------------------------- 7,593,109 7,379,883 22,984,032 24,129,259 ------------------------------------------------------------------------- Earnings (loss) before undernoted items (3,692,274) (564,489) (2,393,381) 7,848,589 Foreign exchange loss (gain) 76,320 (242,180) 245,110 (513,973) Net interest income (2,163) (88,978) (18,843) (296,252) Restructuring costs - - 812,186 - Other income - - - (263,036) ------------------------------------------------------------------------- Earnings (loss) before income taxes (3,766,431) (233,331) (3,431,834) 8,921,850 Current income taxes - - - 175,903 ------------------------------------------------------------------------- Net earnings (loss) (3,766,431) (233,331) (3,431,834) 8,745,947 Deficit, beginning of period (33,897,596) (31,340,301) (34,232,193) (40,469,714) Adjustment due to adoption of new accounting policy - - - 150,135 Adjustment Due to Normal Course Issuer Bid - (8,623) - (8,623) ------------------------------------------------------------------------- Deficit, end of period $(37,664,027) $(31,582,255) $(37,664,027) $(31,582,255) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings (loss) per common share from continuing operations: Basic and diluted $ (0.07) $ - $ (0.06) $ 0.16 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings (loss) per common share: Basic and diluted $ (0.07) $ - $ (0.06) $ 0.16 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average shares outstanding: Basic 55,561,676 56,223,363 55,561,676 54,482,290 Diluted 55,561,676 56,484,373 55,561,676 54,898,548 HEMISPHERE GPS INC. Consolidated Statements of Cash Flows (unaudited - expressed in U.S. dollars) ------------------------------------------------------------------------- Three months ended Nine months ended September 30, September 30, --------------------------- --------------------------- 2009 2008 2009 2008 ------------------------------------------------------------------------- Cash flows from (used in) operating activities: Earnings (loss) $ (3,766,431) $ (233,331) $ (3,431,834) $ 8,745,947 Items not involving cash: Amortization 895,748 930,553 2,486,938 2,919,311 Stock-based compensation 218,699 190,056 641,205 538,847 Unrealized foreign exchange loss 602,991 793,022 1,197,062 77,257 ----------------------------------------------------------------------- (2,048,993) 1,680,300 893,371 12,281,362 Change in non-cash operating working capital: Accounts receivable 2,064,062 347,111 2,509,540 (851,777) Inventories 813,500 (499,020) (2,662,571) 7,583 Prepaid expenses and deposits (14,151) (711,953) 40,597 (508,795) Deferred commissions 47,685 42,318 92,267 436 Accounts payable and accrued liabilities (1,045,652) 1,122,323 (3,561,365) (504,883) Settlement of foreign currency contract 844,861 (871,780) (1,478,678) (856,072) Notes payable - - - (322,680) Deferred revenue (322,232) (292,776) (557,097) 43,331 ----------------------------------------------------------------------- 339,080 816,523 (4,723,936) 9,288,505 Cash flows from (used in) financing activities: Capital lease obligations - - - (101,003) Issue of share capital, net - 40,992 - 980,932 Purchased and cancelled common shares - (428,854) - (428,854) ----------------------------------------------------------------------- - (387,862) - 451,075 Cash flows used in investing activities: Purchase of property and equipment (290,169) (705,127) (951,817) (1,718,607) Intangible asset additions (205,014) - (902,314) - Business acquisition, net - - - (92,654) ------------------------------------------------------------------------- (495,183) (705,127) (1,854,131) (1,811,261) ------------------------------------------------------------------------- Increase (decrease) in cash position (156,103) (276,466) (6,578,067) 7,928,319 Effect of currency translation on cash balances and cash flows (744,535) (769,505) (1,820,349) (574,032) Cash and cash equivalents, beginning of period 8,790,906 21,856,037 16,288,684 13,455,779 ------------------------------------------------------------------------- Cash and cash equivalents, end of period $ 7,890,268 $ 20,810,066 $ 7,890,268 $ 20,810,066 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash and cash equivalents consist of: Cash $ 3,890,268 $ 3,884,666 $ 3,890,268 $ 3,884,666 Term deposits 4,000,000 16,925,400 4,000,000 16,925,400 Supplemental disclosure: Interest paid $ 1,038 $ 7,687 $ 19,538 $ 22,122
For further information: Cameron Olson, Chief Financial Officer, Hemisphere GPS Inc., (403) 259-3311, [email protected]; Cory Pala, Investor Relations, e.vestor Communications Inc., (416) 657-2400, [email protected]
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