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)
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September 30, December 31,
2009 2008
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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
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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
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$ 89,579,997 $ 87,655,077
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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 -
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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)
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83,250,448 75,231,422
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$ 89,579,997 $ 87,655,077
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HEMISPHERE GPS INC.
Consolidated Statements of Operations and Deficit
(unaudited - expressed in U.S. dollars)
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Three months ended Nine months ended
September 30, September 30,
--------------------------- ---------------------------
2009 2008 2009 2008
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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
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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
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7,593,109 7,379,883 22,984,032 24,129,259
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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)
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Earnings (loss)
before income
taxes (3,766,431) (233,331) (3,431,834) 8,921,850
Current income
taxes - - - 175,903
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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)
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Deficit, end of
period $(37,664,027) $(31,582,255) $(37,664,027) $(31,582,255)
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Earnings (loss)
per common share
from continuing
operations:
Basic and
diluted $ (0.07) $ - $ (0.06) $ 0.16
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Earnings (loss)
per common share:
Basic and
diluted $ (0.07) $ - $ (0.06) $ 0.16
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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
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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
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(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
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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)
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- (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)
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(495,183) (705,127) (1,854,131) (1,811,261)
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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
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Cash and cash
equivalents, end
of period $ 7,890,268 $ 20,810,066 $ 7,890,268 $ 20,810,066
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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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