2008 revenues reach $73 million
Calgary, AB — March 3, 2009 — (TSX: HEM) Hemisphere GPS, a designer and manufacturer of advanced GPS products, today reported financial results for the fourth quarter and year ended December 31, 2008. All amounts in this news release are expressed in US dollars.
For the year ended December 31, 2008, Hemisphere GPS reported a 35% increase in revenues to a record of $72.7 million, versus $53.7 million in 2007. 2008 growth was driven by strong market fundamentals in agriculture during the year including high farm incomes. Revenues in the Ground Agriculture business grew 34% for the year, while the Air Agriculture business grew 31%. Strong grain commodity prices lead to record net farm income in the United States in 2007, and similarly in other countries, which in turn drove stronger sales of agricultural products. International sales growth for the year was 44%, contributing 30% of total revenues for the year, as compared to a contribution of 28% in 2007.
The most significant revenue growth from the Hemisphere GPS Ground Agriculture products was from the Outback S3TM, introduced in February 2008 and the Outback S-LiteTM introduced late in 2007 – both of which have been very favourably received by the markets. Auto-steering products continued their strong momentum with the eDriveTCTM product once again representing the largest single revenue-generating product. Software revenues associated with the acquisition of Beeline in December 2007 also contributed to the increase in Ground Agriculture product sales.
Even stronger growth of 45% was seen in sales to non-agriculture markets through the Precision Products segment – including sales to marine, GIS and original equipment manufacture (“OEM”) customers. Revenues for these products are benefiting from a focused global sales channel initiative which has resulted in increased demand for GPS receivers and board level GPS equipment from OEMs and custom integrators, as well as for the marine line of VectorTM heading sensor products.
“2008 was the most successful in the history of Hemisphere GPS, despite the global economic conditions and a late North American harvest which emerged late in the year” stated Steven Koles, President & CEO of Hemisphere GPS. “We are very proud of what we have accomplished last year and are even more excited about the great opportunities we are pursuing for future growth and scalability.”
Gross margin in 2008 increased to 51% of revenues from 47% in 2007. Gross margin has improved as a result of the outsourcing of higher volume components and finished goods to third-party manufacturing overseas, product mix, and from the inclusion of software revenues from the Beeline® integration which naturally generate very high gross margins.
Investment in research and development was $8.1 million in 2008, compared to $5.0 in 2007. The primary increase resulted from the acquisition of Beeline Technologies in December 2007 which added approximately 20 engineering employees, greatly strengthening software engineering capabilities. The investment in research and development activities is critical to maintain and build Hemisphere GPS’ position in current and targeted markets. For 2008, research and development was 11% of revenue. Following the acquisition of Beeline, Hemisphere GPS expects its investment in research and development to be 11% to 12% of revenue.
Total operating expenses in 2008, which include operating expenses from the acquired Beeline business, were $31.4 million, an increase of 39% compared to 2007. Although fully integrated into the Ground Agriculture segment, operating expenses related to the Beeline acquisition were estimated to be approximately $4.2 million for the year, with the remainder of the increase in operating expenses relating to activity associated with the significant growth in revenues over the last year.
Hemisphere GPS reported restructuring costs of $0.3 million arising from activities focused on improving the efficiency of manufacturing and sales activities – including the planned closure of the Company’s office in Euless, Texas.
Hemisphere GPS reported net income of $6.1 million in 2008, or $0.11 per share (basic and diluted), compared to a loss of $0.9 million, or ($0.02) per share, (basic and diluted) in 2007.
For the fourth quarter ended December 31, 2008, Hemisphere GPS reported a decrease in revenues to $10.5 million, as compared to revenues of $13.5 million for the same period in 2007. Despite the weakened global economy, Management believes lower sales activity in the fourth quarter was primarily due to an unusually late North American harvest, as well as foreign currency impacts internationally.
Fourth quarter gross margin increased to 46% from 45%. Expenses increased by $0.6 million to $7.3 million, producing a net loss of $2.6 million, or ($0.05) per share (basic and diluted), compared to a loss of $0.6 million, or ($0.01) per share (basic and diluted) in the fourth quarter of 2007.
Despite a difficult global economic outlook, conditions in the agricultural markets remain generally positive. In its December 2008 Agricultural Income and Finance Outlook, the US Department of Agriculture (“USDA”) reports that net farm income – which includes both crop and livestock farms – will be a new record at $86.9 billion in 2008, little changed from $86.8 billion in 2007, but 42 percent higher than the 10-year average. Net cash income – which includes the carryover of 2007 crops – is projected to be 4 percent above 2007 levels. Increased cash inflows from farming operations provide additional capital for reinvestment in field equipment and precision GPS technology.
Looking specifically at crop farms, 2008 net cash income is forecast to increase by 29% for wheat farmers, 25% for corn farmers and 22% for soybean farmers. These crops are the largest market segment for Hemisphere GPS’ ground agriculture guidance products. Cotton and rice farms are expected to see a decline in net cash income of about 45%.
Overall, the value of crop production is forecast to be $181 billion, a 20% increase over 2007. However, offsetting the increase is an increase in production costs, resulting in the flat net farm income forecast for 2008. Crop prices remain high by historical standards, driven by lower grain inventory levels and increasing global demand, arising from growing demand for ethanol and other grain-based biofuels as well as the changing diets of emerging economies. Production cost increases arise from fertilizer, seed and fuel expenses, expected to rise by 64%, 28% and 26% respectively.
Despite positive net farm and net cash income conditions, it remains uncertain how the volatile financial markets may impact farmer sentiment, and equipment purchases in 2009. However, Management views the fundamentals of the global agriculture markets to be positive for the mid to longer term.
At December 31, 2008, Hemisphere GPS held cash of approximately $16.3 million, or US$0.29 per share, compared to a balance of $13.5 million at December 31, 2007. Working capital at December 31, 2008 was approximately $27.2 million and there were 55,788,376 common shares outstanding, with a book value of US$1.35 per share. Hemisphere reports in US dollars but is quoted in Canadian dollars on the Toronto Stock Exchange.
• Subsequent to year end, Hemisphere GPS signed a new supply agreement with AGCO Corporation to continue to supply and support the Auto-Guide guidance software platform. Under the agreement, Hemisphere GPS continues to design innovative guidance and auto-steering solutions for AGCO.
• Hemisphere GPS’ next generation in Outback® Guidance, the new Outback S3, which began shipping in March of 2008, continues to be one of the most succ
essful product launches in the history of Hemisphere GPS. The S3 includes the latest technology and features, and is expandable to work with other Outback Guidance products and accessories including the Outback eDriveTC GPS assisted steering system which automatically steers the vehicle. Supplemental Outback S3 software was announced in March, and includes advanced features and enhancements that elevate its performance to a new level.
• The new Outback StsTM (S touch screen) was announced in February 2009, and is the latest addition to the Outback line of situational awareness and data management tools. Outback Sts combines features of the successful Outback S2TM with a user-friendly high-resolution colour touch screen interface. The functionality of Outback Sts includes electronically integrated Outback steering and is expandable with the Outback eDriveTC GPS-assisted steering system, and Outback AutoMateTM, an automatic boom control system. Features are powered by Crescent®, the company’s advanced patented GPS receiver technology. Information can be stored on internal memory or data can be transferred via the USB port.
• Hemisphere GPS announced 5 new patents in the past year for innovations in GPS positioning and automated steering, bringing the total number of patents issued or pending to nearly 50. The new patents are related to:
• Hemisphere’s Crescent Vector technology used in marine navigation and various precise positioning and attitude determination applications.
• Outback Guidance BaseLineHDTM portable base station delivering real-time centimeter-level positioning for machine control applications.
• Implement steering technology which enables the position of an implement to be controlled while it is being towed behind a tractor or other self-propelled vehicle.
• Satellite-based vehicle guidance control in straight and contour modes used in its eDriveTC and GPSteer products
• Enabling the position of a towed agricultural implement to be controlled and maintained using GPS data. This technology enables farmers to cultivate precise and repeatable rows even with large and heavy towed implements, which are sometimes difficult to control.
• In September 2008, Hemisphere GPS’ common shares were added to Standard & Poor’s Canadian SmallCap Index. Hemisphere GPS was also honored with the Deloitte Technology Green 15 Award, which recognized companies creating innovative, important and economically viable intellectual property in the burgeoning field of green technology.
• On September 10, 2008, Hemisphere GPS announced a Normal Course Issuer Bid to purchase shares for cancellation on the open market. During 2008, 945,200 common shares were purchased at an average price of Cdn $2.06. 718,500 of these shares were cancelled during 2008 and the remaining 226,700 shares were cancelled in early 2009. The repurchase resulted in a reduction in share capital of $1.5 million, an increase in contributed surplus of $0.3 million and an immaterial increase in deficit.
“In 2008, Hemisphere GPS leveraged its innovation leadership, driving new product releases, patent awards and increasing growth and profitability”, stated Steven Koles. “We are increasingly being recognized for these innovations, earning a place on Deloitte’s Green 15 list, receiving the Alberta Science and Technology (“ASTech”) Leadership Foundation Award for outstanding commercial achievement in science and technology for the Crescent L1 GPS receiver technology, as well as being awarded the Canadian Manufacturers and Exporters (“CME”) Canadian Innovation Award for new technology.
Hemisphere GPS’ Crescent technology is a leading L1 GPS technology known for its superior accuracy and robustness with exclusive patented techniques. Hemisphere GPS has shipped over 100,000 GPS receivers with the Crescent technology into a multitude of precision positioning, navigation and machine control applications.
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® and BEELINE®, 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 trades on the Toronto Stock Exchange under the symbol “HEM” and is a component of Standard & Poor’s TSX SmallCap Index. 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 there from.
A 64.3Kb PDF of this release and Consolidated Statements of Operations and Deficit can be found HERE