API Technologies Reports Results for the Fiscal Second Quarter Ended May 31, 2012

ORLANDO, FL – July 11, 2012 – API Technologies Corp. (NASDAQ:ATNY) (“API", “API Technologies", or the “Company"), a trusted provider of RF/microwave, microelectronics, and security solutions for critical and high-reliability applications, today announced results for the fiscal second quarter ended May 31, 2012.

  • Revenue of $78.9 million for the quarter ended May 31, 2012, up from $70.7 million in the quarter ended February 29, 2012 and $28.7 million in the quarter ended May 31, 2011.
  • Net loss of $109.5 million compared to net income of $0.8 million in the quarter ended February 29, 2012 and net loss of $14.7 million in the comparable quarter of 2011. Restructuring costs recorded in the three months ended May 31, 2012 were approximately $11.5 million compared to approximately $3.3 million in the comparable period of 2011. A Goodwill impairment charge estimated at $87 million was recorded during the quarter ended May 31, 2012.
  • Adjusted EBITDA of $11.2 million (14.2% margin) for the quarter ended May 31, 2012 compared to $10.8 million (15.3% margin) for quarter ended February 29, 2012 and an Adjusted EBITDA loss of $3.4 million (-11.8% margin) in the comparable prior-year period.
  • Excluding the EMS business, Adjusted EBITDA margin was 21.7%.
  • Announced and initiated EMS business restructuring measures to accelerate drive toward Company-wide goal of 20% Adjusted EBITDA margin.
  • Completed integration of C-MAC Aerospace Limited and RTI Electronics, both acquired during the quarter ended May 31, 2012.
  • Implemented $4.6 million of annualized net cost reductions during the quarter ended May 31, 2012.

Results for the Quarter Ended May 31, 2012

API Technologies reported revenue of $78.9 million for the quarter ended May 31, 2012 compared to $28.7 million for the same period in the prior year, primarily due to acquisitions completed in the past twelve months. Gross margin was 13.2% for the quarter ended May 31, 2012 compared to 24.9% for the quarter ended February 29, 2012, adversely affected by the EMS business and associated restructuring costs, and versus 7.5% in the comparable quarter last year. Adjusted EBITDA for the quarter ended May 31, 2012 was $11.2 million (14.2% margin) compared to $10.8 million (15.3% margin) for the quarter ended February 29, 2012, primarily reflecting lower margins in the EMS business. Excluding the Company’s EMS business, API Technologies’ Adjusted EBITDA for the quarter ended May 31, 2012 was $13.3 million (21.7% margin). For the three months ended May 31, 2011, the Company had a total Adjusted EBITDA loss of $3.4 million (-11.8% margin).

API Technologies posted a net loss of $109.5 million for the quarter ended May 31, 2012 compared to net income of $0.8 million in the February quarter and a net loss of $14.7 million for the period ended May 31, 2011. Restructuring costs recorded in the quarter ended May 31, 2012 were approximately $11.5 million, compared to $0.6 million in the quarter ended February 29, 2012 and approximately $3.3 million in the comparable period of 2011. During the quarter ended May 31, 2012, the Company determined that impairment of Goodwill was probable and thus recorded an estimated $87 million write-down. During the quarter ending August 31, 2012, the Goodwill analysis will be completed and possible adjustments to the impairment charge may be recorded.

At the end of the May 31, 2012 quarter, the Company had $18.0 million of cash and cash equivalents, including $0.7 million of restricted cash, and $186.1 million of debt obligations, net of discounts.

Results for the Six Months Ended May 31, 2012

API Technologies reported revenue of $149.6 million for the six months ended May 31, 2012 compared to $53.3 million for the same period in the prior-year period, primarily due to acquisitions completed in the past twelve months. Gross margin was 18.7% for the six-month period ended May 31, 2012, versus 12.8% in the comparable period last year. Adjusted EBITDA was $22.0 million for the six months compared to negative $3.4 million in 2011.

API Technologies posted a net loss of $109.5 million for the six months ended May 31, 2012 compared to a net loss of $25.2 million for the six months ended May 31, 2011. The increase in net loss was driven primarily by the $87 million estimated Goodwill impairment charge recorded in the quarter ended May 31, 2012. Restructuring costs recorded in the six months ended May 31, 2012 were approximately $12.1 million compared to approximately $3.6 million in the comparable period of 2011.

“During the second quarter we continued our progress towards market leadership in high-reliability electronics," said Bel Lazar, President and Chief Operating Officer of API Technologies. “In our non-EMS businesses we saw organic revenue growth – both year-over-year and sequentially from the first quarter – and from an overall Company standpoint strengthened our position in the defense and commercial markets through our acquisition of C-MAC. The increased demand for electronic content, coupled with our differentiated product and solutions portfolio, offers a solid growth platform for API.

"To support our strategic initiatives, we also took specific measures this quarter to improve the financial performance of our EMS business – reflecting our continued focus on driving operational and organizational efficiencies. This commitment to increase margins, combined with our leadership in high reliability electronics, end market diversity, and numerous cross-selling opportunities, we are well positioned to deliver solid returns for our shareholders."

Conference Call

API Technologies will host a conference call to review the Company’s fiscal second quarter results today, July 11, at 10:00 a.m. Eastern Time. Brian Kahn, Chairman and Chief Executive Officer, Bel Lazar, President and Chief Operating Officer, and Phil Rehkemper, Chief Financial Officer, will host the call.

The call will be available by dialing 866-605-3852 or 412-317-6789 and accessible by webcast at www.apitech.com. Recorded replays of the webcast will be available for 30 days on the Company’s website and by telephone for 30 days at 877-344-7529, replay passcode #10015225, beginning 2:00 p.m. Eastern Time on today.

About API Technologies Corp.

API Technologies designs, develops and manufactures electronic systems, subsystems, RF and secure solutions for technically demanding defense, aerospace and commercial applications. API Technologies' customers include many leading Fortune 500 companies. API Technologies trades on the NASDAQ under the symbol ATNY. For further information, please visit the Company website at www.apitechnologies.com.

Non-GAAP Financial Information

In this press release, API has provided a non-GAAP financial measure for adjusted EBITDA (Earnings before interest, taxes, depreciation and amortization), excluding discontinued operations, restructuring charges, acquisition charges, stock-based compensation expenses, amortization of note discounts and deferred financing costs, goodwill impairment, and certain other adjustments, including non-cash inventory provisions, loss on sale of real estate held for sale, and pro forma adjustments for C-MAC. We are also providing the non-GAAP financial measure Gross Margin excluding restructuring costs in the table below. Management believes the supplemental non-GAAP presentations provide investors an additional analytical tool for understanding the Company’s financial performance by excluding the impact of items which may obscure trends in the core operating performance of the business. API is also providing adjusted EBITDA excluding the EMS businesses because management believes that the nature of the EMS businesses (third party designs versus the proprietary design of the other businesses) that results in lower margins is distinct from the non-EMS businesses, and provides investors with additional information regarding the non-EMS businesses. These are not recognized measures under US GAAP, do not have a standardized meaning, and are unlikely to be comparable to similar measures used by other companies. Accordingly, investors are cautioned that these non-GAAP measures should not be construed as an alternative to net earnings or loss determined in accordance with GAAP as an indicator of the financial performance of the Company or as a measure of the Company's liquidity and cash flows. We expect our financial statements to continue to be affected by items similar to those excluded in the non-GAAP adjustments described above, and exclusion of these items from our non-GAAP financial measures should not be construed as an inference that all such costs are unusual or infrequent.

Safe Harbor for Forward-Looking Statements

Except for statements of historical fact, the information presented herein constitutes forward-looking statements. All forward-looking statements are subject to certain risks, uncertainties and assumptions which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include but are not limited to, general economic and business conditions, government regulations, our ability to integrate and consolidate our operations, our ability to expand our operations in both new and existing markets, and the effect of growth on our infrastructure. Should one or more of these risks or uncertainties materialize, or should the assumptions prove incorrect, actual results may vary in material aspects from those currently anticipated. The forward-looking statements in this news release should be read in conjunction with the more detailed descriptions of the above factors located in our Transition Report on Form 10-K under Part I, Item 1A "Risk Factors" as well as those additional factors we may describe from time to time in other filings with the Securities and Exchange Commission. All information in this release is as of the date hereof. We undertake no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations. Except as required by law, the Company assumes no obligation to update or revise any forward-looking statements in this press release, whether as a result of new information, future events, or otherwise

Investor Relations Contacts:
Phil Rehkemper
Chief Financial Officer
+1 855-294-3800
investors@apitech.com

Chris Witty
Darrow Associates
+1-646-438-9385
cwitty@darrowir.com

API Technologies Corp.
Financial Results
For the Three and Six Months Ended May 31, 2012 and 2011

Consolidated Statement of Operations (unaudited) in thousands USD

 

For the Three
Months Ended
May 31,
2012
(Unaudited)

For the Three
Months Ended
May 31,
2011
(Unaudited)

For the Six
Months Ended
May 31,
2012
(Unaudited)

For the Six
Months Ended
May 31,
2011
(Unaudited)

Revenue, net $78,906 $28,702 $149,623 $53,256
Cost of revenues        
Cost of revenues 60,919 25,320 113,690 45,141
Restructuring charges 7,588 1,216 7,893 1,309
         
Total cost of revenues 68,507 26,536 121,583 46,450
         
Gross profit 10,399 2,166 28,040 6,806
         
Operating expenses        
General and administrative 6,425 8,079 12,925 11,303
Selling expenses 4,138 2,261 7,904 4,103
Research and development 2,714 653 5,201 1,135
Business acquisition and related charges 2,378 6,719 2,669 12,798
Restructuring charges 3,910 2,060 4,249 2,322
         
  19,565 19,772 32,948 31,661
         
Operating loss (9,166) (17,606) (4,908) (24,854)
Other expenses (income), net        
Goodwill impairment 87,000 87,000
Interest expense, net 4,534 106 7,904 750
Amortization of note discounts and deferred financing costs 13,494 14,089 2,776
Other expense (income), net (1,986) (373) (1,960) (513)
         
  103,042 (267) 107,033 3,013
         
Loss from continuing operations before income taxes (112,208) (17,339) (111,941) (27,868)
Expense (benefit) for income taxes (2,701) (2,691) (3,207) (2,691)
         
Loss from continuing operations (109,507) (14,648) (108,734) (25,177)
Loss from discontinued operations, net of income taxes (18) (36)
         
Net loss $(109,507) $(14,666) $(108,734) $(25,212)
         
Loss per share from continuing operations—Basic and diluted $(1.98) $(0.32) $(1.97) $(0.78)
Loss per share from discontinued operations—Basic and diluted $0.00 $(0.00) $0.00 $(0.00)
         
Net loss per share—Basic and diluted $(1.98) $(0.32) $(1.97) $(0.78)
         
Weighted average shares outstanding        
Basic 55,329,607 46,242,492 55,261,526 32,505,996
Diluted 55,329,607 46,242,492 55,261,526 32,505,996

Consolidated Balance Sheets (unaudited)
in thousands USD

  May 31,

2012

Nov. 30,

2011

Assets    
Current    
Cash and cash equivalents $17,324 $15,690
Restricted cash 700 700
Accounts receivable 50,112 52,983
Inventories, net 70,879 72,017
Deferred income taxes 7,637 4,797
Prepaid expenses and other current assets 2,745 1,705
  149,397 147,892
Fixed assets, net 44,196 44,149
Fixed assets held for sale 2,681 3,216
Goodwill 179,165 253,170
Intangible assets, net 54,936 50,001
Other non-current assets 10,100 8,019
Total assets $440,475 $506,447
     
Liabilities and Shareholders’ Equity    
Current    
Accounts payable and accrued expenses $36,940 $46,002
Deferred revenue 924 1,892
Current portion of long-term debt 2,466 1,917
  40,330 49,811
Deferred income taxes 12,270 9,905
Other long-term liabilities 1,161
Long-term debt, net of current portion and discount 183,548 165,267
  237,309 224,983
     
Preferred Stock, net of discounts 26,268
     
Shareholders’ equity    
Common stock 55 55
Special voting stock
Additional paid-in capital 326,242 322,675
Common stock subscribed but not issued 2,373 2,373
Accumulated deficit (152,544) (43,810)
Accumulated other comprehensive income 772 171
  176,898 281,464
Total Liabilities and Shareholders’ Equity $440,475 $506,447
     

Consolidated Adjusted EBITDA
in thousands USD

The following table reconciles three and six months GAAP net loss to non-GAAP Adjusted EBITDA from continuing operations.

     
  Three Months Ended

May 31,

Six Months Ended

May 31,

  2012 2011

2012

2011
Net income (loss) $(109,507) $(14,666) $(108,734) $(25,212)
Adjustments        
Interest expense, net 4,534 106 7,904 750
Amortization of note discounts and deferred financing costs 13,494 14,089 2,776
Depreciation and amortization 4,900 1,394 9,096 2,117
Goodwill impairment 87,000 87,000
Income taxes (2,701) (2,691) (3,207) (2,691)
Stock based compensation 635 2,454 1,493 2,727
Restructuring 11,498 3,276 12,142 3,631
Acquisition related charges 2,378 6,719 2,669 12,798
Other adjustments (A) 474 1,145 (288)
SenDEC earn-out reversal (2,213) (2,213)
C-MAC pro-forma adjustment 650 650
Foreign exchange (gain) loss 64
Discontinued operations 18 36
Adjusted EBITDA $11,206 $(3,390) $22,034 $(3,356)
         
(A) Charges in 2012 primarily relate to $1.0 million non-cash inventory provisions and a $0.1 million loss on the sale of real estate held for sale for the three months ended February 29, 2012. Charges in 2011 primarily relate to a gain on the sale of machinery and equipment.

Additional EBITDA Reconciliations
in thousands USD

The following table reconciles three months GAAP net loss to non-GAAP Adjusted EBITDA for Non-EMS and EMS businesses for the quarter ended May 31, 2012.

         
  Non-EMS EMS Corporate Total
  Q2 Q2 Q2 Q2
Revenue $61,015 $17,891 $- $78,906
Net Income loss 8,046 (100,327) (17,226) (109,507)
Adjustments - - -  
Interest expense, Net 20 (1) 4,515 4,534
Amortization of note discounts and deferred financing costs - - 13,494 13,494
Depreciation & amortization 3,879 970 50 4,900
Goodwill impairment (0) 87,000 - 87,000
Income taxes 134 1 (2,836) (2,701)
Stock based compensation - - 635 635
Restructuring 786 10,639 73 11,498
Acquisition related charges 453 - 1,925 2,378
Other adjustments (A) 1,125 - (2,213) (1,089)
Foreign exchange loss (8) - 72 64
Net corporate costs (B) (1,169) (343) 1,511 -
Add-Back Total 5,221 98,266 17,226 120,713
Adjusted EBITDA $13,267 (2,061) $(0) $11,206
Adjusted EBITDA Margin 21.7% -11.5%   14.2%

 

(A) Charges in 2012 primarily relate to $1.0 million non-cash inventory provisions and a $0.1 million loss on the sale of real estate held for sale for the three months ended February 29, 2012. Charges in 2011 primarily relate to a gain on the sale of machinery and equipment.
(B) Net Corporate costs are allocated to EMS and Non-EMS product lines by percentage of total consolidated revenues.
 

Gross Margin without Restructuring Charges
in thousands USD

  Three Months Ended Three Months Ended Three Months Ended
  May 31, 2012 February 29, 2012 May 31, 2011
Revenue $78,906 $70,717 $28,702
Gross Margin $10,399 $17,641 $2,166
Restructuring $7,588 $305 $1,216
Gross profit without restructuring $17,987 $17,946 $3,382
Gross margin % without restructuring 22.8% 25.4% 11.8%