Hemisphere GPS Reports Q3 2009 Results

CALGARY, Nov. 13 /CNW/ - (TSX: HEM) Hemisphere GPS, a designer and manufacturer of advanced GPS products, today reported financial results for the third quarter and nine months ended September 30, 2009. All amounts in this news release are expressed in US dollars.

For the third quarter ended September 30, 2009, Hemisphere GPS reported a 31% decrease in revenues to $9.1 million, versus $13.2 million in the third quarter of 2008. Hemisphere GPS reported a net loss of $3.8 million, or $(0.07) per share (basic and diluted) in the third quarter of 2009 compared to a net loss of $0.2 million, or $0.00 per share (basic and diluted) in the third quarter of 2008.

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 October 25, 2009, the National Agricultural Statistics Service (NASS) of the USDA reports that 20% of corn in the primary producing States has been harvested compared to 37% at the same time in 2008. Similarly, 44% of soybean crops have been harvested compared to 75% in 2008.

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 $54.0 billion, down from its February estimate of $71.2 billion, which is a 39% decline from actual net farm income of $89.3 billion in 2008. Though projected net farm income is 14% lower than the 10-year average, crop receipts are still projected to represent the second highest level on record after 2008. Corn production for 2009 is projected to total 13 billion bushels, the second highest on record, and Soybean production is projected to be nearly 3.2 billion bushels - the highest on record.

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 South America, Europe and Australia, which could positively influence sales.

"Recessionary conditions have impacted global markets during the first three quarters of 2009," stated Steven Koles, President & CEO of Hemisphere GPS. "Hemisphere GPS' customers continued to be cautious during the third quarter in light of these conditions, as well as due to the extremely late harvest conditions in agriculture. This has generated a negative impact on revenues relative to 2008. While we are seeing the potential for a return to growth in Q4 and throughout 2010, the continued recessionary caution and late harvest will prevent us from achieving our previous estimates for 2009."

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 $7.6 million in the third quarter, an increase of $0.2 million, or 3%, compared to the third quarter of 2008. Research and development expense for the quarter increased from $1.9 million a year ago, to $2.3 million primarily related to increased materials associated with product development activities. Investment in research and development activities is critical for the Company to maintain and build its position in current and targeted markets. Following cost reduction initiatives implemented during the second quarter, total headcount at September 30th is 238, down 24 employees, or 9%, from March 31st. Cost savings from such activities have been offset by the weakening US dollar, which results in higher Canadian and Australian expenses when converted to US dollars for reporting purposes.

For the first nine months of 2009, Hemisphere GPS reported revenues of $41.5 million, a 33% decrease from revenues of $62.1 million for the same period in 2008. Gross margin for the first nine months of 2009 was 50%, compared to 51% in 2008. Year-over-year expenses decreased by $1.1 million to $23.0 million. The Company reported a net loss in the first nine months of 2009 of $3.4 million, or $(0.06) per share (basic and diluted), compared to net income of $8.8 million, or $0.16 per share (basic and diluted) in the first nine months of 2008.

At September 30, 2009, Hemisphere GPS held cash of $7.9 million, as compared to a balance of $8.8 million at June 30, 2009. Inventory was originally built in anticipation of strong sales during the first half of the year, which is historically the strongest buying season for Hemisphere GPS. Softer than anticipated sales did not drawn down inventory levels as expected. Management previously disclosed that it expected inventory would begin to draw down in the last half of 2009. Physical inventory levels have in fact drawn down during each of the second and third quarters when reported in the Company's underlying Canadian dollar measurement currency. However, the weakening US dollar has given the appearance on the balance sheet that inventory is growing.

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 September 30, 2009 was approximately $29 million.

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 Sweden. The result is a custom version of Hemisphere's advanced GPS receiver technology to the GIS data collection market as the Handheld-branded Kenaz DGPS receiver. The new Kenaz DGPS receiver offers superior accuracy for handheld mapping and is specifically designed to work with the popular TDS Nomad(TM). In addition, Hemisphere GPS announced the XF102 DGPS receiver for handheld mapping. The XF102 is ideal for professional GIS applications and surveying, and is specifically designed to work with the popular TDS Nomad(TM) handheld GIS data collection device. As the utilization of GIS grows, the demand for rugged GPS data collection devices grows as well.

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 North America who are collecting site specific data. Ag Leader's compatibility extends across Hemisphere GPS precision guidance products; including Outback 360(TM), Outback Sts(TM), Outback S3(TM) and the Air M3(TM) system. Data such as coverage maps, as-applied rates, field boundaries, marks, and guidance lines are supported.

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 Toronto Stock Exchange.

Hemisphere GPS and CLAAS Agrosystems introduced the customized Outback Sts(TM) at Agritechnica 2009 for Europe. The Outback Sts is the latest addition to the situational awareness and data management tools from the Outback Guidance(R) product line. The new customized version of the Hemisphere GPS Outback Sts guidance system for CLAAS features 16 languages specifically for the European market, including Romanian, Russian, Ukrainian, and Lithuanian.

Conference Call - Friday, November 13 at 11:00AM ET (9:00am MT)

A conference call and Web cast for shareholders, analysts and other members of the investment community has been scheduled for Friday, November 13, 2009 at 11:00 a.m. Eastern Time (9:00 a.m. Mountain Time) to discuss the financial results and provide updates on operations.

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 November 20. Please dial 416-640-1917 or 1-877-289-8525 and enter the reservation number 4179963 followed by the number sign to listen to the rebroadcast.

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 Calgary, Alberta, with major product development, sales, and marketing facilities in Arizona, Kansas, and Australia. Hemisphere GPS is listed on the Toronto Stock Exchange (TSX) trading under the symbol "HEM" and is one of the TSX Cleantech designated companies. For more information about Hemisphere GPS, please go to www.hemispheregps.com.

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
    

SOURCE AgJunction Inc.

For further information: For further information: Cameron Olson, Chief Financial Officer, Hemisphere GPS Inc., (403) 259-3311, CFO@HemisphereGPS.com; Cory Pala, Investor Relations, e.vestor Communications Inc., (416) 657-2400, InvestorRelations@HemisphereGPS.com

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