OTTAWA, Aug. 14 /CNW Telbec/ - Allen-Vanguard Corporation (TSX: VRS)
("Allen-Vanguard" or the "Company") of Ottawa, Canada today reported financial
results for the third quarter ended June 30, 2008. The Company also announced
that it has received and is considering unsolicited expressions of interest
for significant strategic investment in the Company by outside investors. All
figures are in Canadian dollars unless otherwise noted.
Third quarter (Q3) results
In summary, the third quarter continued to be impacted by delays in
timing of major orders, particularly in Electronic Counter Measures ("ECM")
equipment to strategic U.S. partners, General Dynamics and Lockheed Martin.
This in turn led to a significant under-absorption of fixed overheads,
resulting in negative operating margins.
At the same time, order intake in the quarter increased substantially to
$84 million, resulting in backlog at June 30, 2008 of $93.4 million, more than
double the level of $45 million recorded at the end of the previous quarter.
This increase in backlog reflected a pronounced upturn in order intake of
Electronic Systems ("ES") equipment of approximately $60 million vs.
$12 million in the previous quarter.
The Company noted that the timing and receipt of final approvals on major
defense orders for the U.S. will continue to have a significant impact on
Electronic Systems revenue over the next several quarters. To mitigate that
volatility the Company stated that it is taking steps to strengthen order
visibility from its major customers. "Although we had a pronounced upturn in
Chameleon order intake in the third quarter and recently announced a follow-on
Symphony order, we recognize that this uneven order flow makes it difficult
for investors to monitor and evaluate our business," said David E. Luxton,
President and CEO. "We are exploring potential solutions to improve the
predictability and recurring nature of order intake with our major customers
and after those discussions we expect to be in a better position to update all
our stakeholders on expected order flow for the balance of 2008 and into
The Company reported revenue of $31.2 million in the third quarter, an
increase from $12.4 million reported in the third quarter a year ago but down
significantly from $91.3 million in the second quarter ended March 31, 2008.
EBITDA (1) was a loss of $9.6 million, compared to an EBITDA loss of
$1.3 million a year ago, and EBITDA of $21.6 million last quarter. A net loss
of $36.6 million, or $0.34 per share, was recorded in the quarter, which
included non-cash charges such as amortization of intangibles and acquisition
financing charges of $24.3 million. This compared to a net loss of
$1.8 million, or $0.03 per share, a year ago and a net loss of $34.2 million,
or $0.32 per share, last quarter. The Company used cash of $14.5 million in
the quarter, reflecting mainly its cash operating loss and building inventory
to support the anticipated demand for ES product, in particular Symphony
For the nine months ended June 30, 2008, revenue was $262.8 million,
EBITDA was $56.4 million and the net loss was $64.0 million, or $0.60 per
share. These compare to revenue of $46.1 million, EBITDA of $1.7 million and a
net loss of $3.4 million, or $0.07 per share in the first nine months of
fiscal 2007. Due to the acquisition of Med-Eng Systems Inc. ("Med-Eng") in
September 2007 and Hazard Management Solutions Ltd. ("HMS") in June 2008 and
the related financings, the year-over-year figures are not comparable. The
Company remains in full compliance with covenants on its $250 million senior
Unsolicited expressions of interest in strategic investment
Allen Vanguard announced that it has received several unsolicited
expressions of interest in strategic investment by outside investors. "These
investors understand our industry and have the potential to bring strategic
weight to advance our growth plans, and they have expressed interest in
significant participation," said Mr. Luxton. "Our advisors, RBC Capital
Markets, are assisting with an evaluation of proposals and we expect to
conclude on and announce a preferred strategy in the very near future."
Financial Highlights of Q3 2008
(all figures in thousands of Canadian dollars)
Revenue from ES products represented 27% and 72% of revenue in Q3 2008
and YTD 2008 respectively, compared to 45% in Q3 2007 and 47% in YTD 2007.
Sales to General Dynamics Armament and Technical Products ("GDATP") comprised
the majority of ES revenue in Q3 2008, while Q3 2007 ES revenue was derived
primarily from Lockheed Martin Corporation ("LM"). The timing of receipt of
final approvals on US Marine Corps and Symphony orders will have a significant
impact on Allen-Vanguard's ES revenue in the final quarter of FY 2008.
Revenue from PPS products accounted for 45% of Q3 2008 revenue and 20% of
YTD 2008 revenue, compared to 51% in Q3 2007 and 49% in YTD 2007. Sales of
MES ballistic protection, demining and cooling systems were the largest
contributor to sales, with the balance derived primarily from sales of
EOD search and tactical equipment.
Revenue from Services accounted for 22% of Q3 2008 and 7% of YTD 2008
revenue and is almost entirely generated by the Company's HMS subsidiary.
Allen-Vanguard anticipates service revenue growth from HMS into FY 2009 as it
pursues several major training contracts.
In Q3 2008 and YTD 2008, customers based in the United States, led by
ES shipments to GDATP and LM, generated a majority of revenue. In total, North
America revenue was $17,262 in Q3 2008 and $234,447 in YTD 2008, compared to
$7,883 in Q3 2007 and $24,725 in YTD 2007.
ES margin was 16% in Q3 2008 and 42% in YTD 2008, compared to 56% in
Q3 2007 and 54% in YTD 2007. The lower ES margin reflected the delays in
timing of orders while retaining fixed costs within the product line.
PPS margin was 44% in Q3 2008 and 42% in YTD 2008, compared to 45% in
Q3 2007 and 39% in YTD 2007. The YTD margin improvement over that of the prior
year was primarily due to a sales mix shift in favour of higher margin
Services margin was 1% in Q3 2008 and 16% in YTD 2008, compared to 52% in
Q3 2007 and 43% YTD 2007. The low Q3 2008 services margin was primarily due to
order delays on several training contracts, with a resulting under-absorption
of training salaries included in cost of sales and the recognition of an
annual bonus in the amount of $637 related directly to the training personnel.
Selling and administration expenses were $13,800 in Q3 2008 and $36,600
in YTD 2008, compared to $6,209 in Q3 2007 and $15,370 in YTD 2007. Med-Eng
and HMS overheads represented the majority of the year-over-year increases,
with the balance attributable to higher audit, accounting and legal costs,
capital taxes, and headcount additions to the corporate financial and
administrative support staff, associated with the Med-Eng and HMS
acquisitions. Q3 expenses increased over Q2 primarily due to $2.7 million of
non-recurring items including insurance, accounting, professional fees and
corporate incentive adjustments.
Research and development expenses, net of grants received and investment
tax credits, were $4,023 in Q3 2008 and $12,668 in YTD 2008, compared to
$1,432 in Q3 2007 and $3,966 in YTD 2007. Development of ES upgrades
modifications and next-generation technology represented the majority of the
YTD 2008 R&D expenditures, with the balance split between ballistic and
robotic product development.
Acquisition and financing related charges and amortization
Allen-Vanguard incurred charges of $22,160 in Q3 2008 and $114,443 in
YTD 2008 pertaining to the MES and HMS acquisitions and attendant financings.
Such expenses compared to nil last year. Non-cash charges, consisting of
amortization of financing fees and acquired intangible assets, included in
these amounts were $12,069 in Q3 2008 and $88,767 in YTD 2008.
Net interest expense was $14,072 in Q3 2008 and $27,553 in YTD 2008,
compared to net interest income of $432 in Q3 2007 and net interest income of
$307 in YTD 2007. Interest on the Med-End Senior Debt and RBC Term Loan
represented approximately one-third all of the interest expense in Q3 2008
with the majority of the remaining balance relating to the extinguishment
costs of the Med-Eng Senior Debt.
EBITDA was $(9,600) in Q3 2008 and $56,371 in YTD 2008, representing
(30%) and 21% of revenue respectively. This compares to EBITDA of $(1,342) in
Q3 2007 and $1,670 in YTD 2007, representing (11%) and 4% of revenue
The net provision for income tax recovery was $13,228 in Q3 2008 and
$34,029 in YTD 2008, compared to a net income tax recovery provision of $906
in Q3 2007 and $571 in YTD 2007. The Company's basic income tax rate was
approximately 36% in Q3 2008, from which there are a number of adjustments for
provincial and foreign tax rate differentials and permanent and temporary
differences in the deductibility of certain expenses and inclusion or
exclusion of income. The Company had approximately $30,361 of non-capital
losses carried forward for income taxes at the end of FY 2007, the majority of
which expire by FY 2027.
Net loss was $34,512 or $0.32 per share in Q3 2008, and $61,870 or
$0.58 per share in YTD 2008. This compared to a net loss of $1,764 or
$0.03 per share in Q3 2007, $3,387 or $0.07 per share in YTD 2007
Liquidity and cash flow
Allen-Vanguard's cash and cash equivalents totalled $8,536 at the end of
Q3 2008, a decrease of $14,463 from the beginning of the quarter.
Operating cash flow, defined as net earnings adjusted for non-cash items,
was $(4,232) in Q3 2008 and $22,248 in YTD 2008, compared to operating cash
flow deficits of $(831) in Q3 2007 and $(1,375) in YTD 2007
Changes in non-cash working capital used cash of $17,070 in the third
quarter. ES shipment volume was very high in Q1 2008 with trailing orders in
Q2, resulting in substantial receivable balances which were collected in
Q3 2008. Shipment volume was relatively low in Q3 2008 which also resulted in
a reduction in receivable balances. Approximately 29% of Allen-Vanguard's
outstanding receivables at the end of Q3 2008 were due from GDATP and LM, with
government departments and agencies representing the majority of the balance.
The inventory increase was primarily to support the upcoming demand for ES
product. The reduction in accounts payable and accrued charges in Q3 2008
resulted from payments made to ES component suppliers following the
substantial ES shipment volume in Q1 2008.
The Company entered into a payout arrangement with the lender of its
senior debt facility dated September 17, 2007, and on May 6, 2008, the Company
made cash payments in the amount of $175,363 (US$174,109) to repay the
principal amount outstanding, $3,960 (US$3,932) in respect of accrued interest
and $8,768 (US$8,705) in respect of pre-payment fees. The prepayment fee was
expensed in Q3 2008. The Company also expensed $1,005 of financing fees
relating to the senior debt facility that had been deferred and was being
Effective May 6, 2008, the Company entered into new secured credit
facilities, consisting of a three-year $188,703 (US$187,391) and a Canadian
$6,796 term loan facility and revolving credit facility with availability up
to $50,000. The interest rate on the US dollar term loan is based on the LIBOR
rate plus 3.5%. The interest rate on the Canadian dollar term loan is based on
the Prime rate plus 2.5%. The interest rate on the Revolving credit facility
is based on the US base rate plus 2.0%. The Company is required to repay the
term loan in quarterly principal payments of US$9,704, plus additional
quarterly payments ranging from 50% to 75% of excess cash flow, with any
remaining principal repayable upon the maturity date of the term loan.
Allen-Vanguard had common shares outstanding of approximately 109,050,000
and fully diluted common shares outstanding of approximately 121,772,000 at
the end of Q3 2008.
Financial Statements and the Management Discussion and Analysis for the
third quarter ended June 30, 2008 have been filed on www.sedar.com.
The Company will be hosting an investor and analyst conference call and
webcast as follows:
Date: Thursday, August 14, 2008
Time: 9:00 a.m. ET
Dial-in numbers: 1-800-591-7539
1-416 644 3427
Web access: http://cnw.ca/en/webcast/viewEvent.cgi?eventID=2366320
For those unable to listen to the call live, a replay will be available
for a two week period beginning at 11:00 a.m. on August 14, 2008. The replay
phone number is 877-289-8525 and the access code is 21280164 (pound key).
(1) Earnings before interest, taxes, depreciation, amortization, foreign
exchange and stock-based compensation
Forward looking statements
This press release may contain forward-looking statements, which reflect
Allen-Vanguard's current expectations regarding future events, its strategy,
expected performance and condition. Forward-looking statements include
statements that are predictive in nature, that depend upon or refer to future
events or conditions, or that include words such as "expects," "anticipates,"
"plans," "believes," "estimates" or negative versions thereof and similar
expressions. In addition, any statement that may be made concerning future
performance, strategies or prospects, and possible future acquisitions or
dispositions, is also a forward-looking statement. Forward-looking statements
are based on current expectations and projections about future events and are
inherently subject to, among other things, risks, uncertainties and
assumptions about the Company and economic factors. Forward-looking statements
are not promises or guarantees of future performance, and actual events and
results could differ materially from those expressed or implied in any
forward-looking statements made about the Company. Any number of important
factors could contribute to these digressions, including, but not limited to,
general economic, political and market factors in North America and
internationally, interest and foreign exchange rates, global equity and
capital markets, business competition, technological change, changes in
government regulations, unexpected judicial or regulatory proceedings, and
catastrophic events. We stress that the above-mentioned list of important
factors is not exhaustive. We encourage you to consider these and other
factors carefully before making any investment decision and we urge you to
avoid placing undue reliance on forward-looking statements. Further, you
should be aware that the Company disclaims any obligation to publicly update
or revise any such forward-looking statements whether as a result of new
information, future events or otherwise, prior to the release of the next
Management Discussion and Analysis to be released by the Company or except as
required by law.
Allen-Vanguard Corporation supports the mission of military and homeland
security forces around the world with leading proprietary solutions for
protection and counter-measures against hazardous devices of all kinds,
whether chemical, biological, radiological or explosive (CBRNE), including
improvised explosive devices (IEDs) and remotely controlled IEDs (RCIEDs).
Allen-Vanguard equipment is in service in more than 120 countries. Products
include Electronic Counter-Measures ("ECM") equipment for jamming remote
detonation of terrorist devices, specialty security equipment for Explosive
Ordnance Disposal ("EOD"), remote intervention robots for hazardous
applications, and personal protective wear for use in dealing with explosive
and bio-chemical agents. Allen-Vanguard is the developer and/or sole,
worldwide licensee of proprietary technologies such as the Med-Eng bomb suit,
the Defender(TM) and Vanguard(TM) Mk2 bomb disposal robots, and the Universal
Containment System and CASCAD Foam system for blast mitigation and
decontamination of bio-chemical warfare agents. Professional services
encompass counter-IED intelligence, training and advisory services, including
the Triton(TM) Report on terrorist incidents around the world. The Company
operates globally through its wholly-owned subsidiaries under the names
"Allen-Vanguard", "Med-Eng" and "Hazard Management Solutions". Head office
operations are located in Ottawa, Ontario, Canada, with manufacturing
operations in Stoney Creek and Pembroke, Ontario; Ogdensburg, New York;
Tewkesbury, U.K.; and Cork, Ireland; The Company has professional services
operations in Shrivenham, UK, Canada and in the U.S. in Arlington, Virginia,
plus sales offices in Canada, the U.S., the U.K. and Asia. Allen-Vanguard's
shares are listed on The Toronto Stock Exchange (TSX) under the symbol "VRS".
To find out more about Allen-Vanguard Corporation (TSX: VRS), visit our
website at www.allenvanguard.com.
For further information:
For further information: David Luxton, CEO, (613) 288-5555