SCM Microsystems Reports Second Quarter 2008 Results

Tag : Down Product
ISMANING, Germany, Aug. 12 /PRNewswire-FirstCall/ -- SCMMicrosystems, Inc. (Nasdaq: SCMM, Prime Standard: SMY), a leadingprovider of solutions that open the Digital World, today announcedresults for the second quarter ended June 30, 2008.

Revenues from continuing operations in the second quarter of 2008were $6.5 million, up 40% from revenues of $4.6 million in thesecond quarter of 2007. Revenues for the first six months of 2008were $13.0 million, down slightly from revenues of $13.1 millionfor the first six months of 2007. By product segment, secondquarter 2008 revenues included $4.9 million from sales of smartcard readers and other products for secure network and physicalaccess, compared with sales of $3.9 million in the second quarterof 2007; and $1.6 million from sales of original equipmentmanufacturer (OEM) digital media reader technology, compared withsales of $0.8 million in the second quarter of 2007.

In the second quarter of 2008, sales of the Company's smart cardreader products continued to be impacted by weak demand from U.S.government-based smart card authentication programs. Additionally,demand continued to shift away from external reader devices towardsreaders embedded within laptops and keyboards. Lower U.S. sales ofSCM's smart card readers were offset by higher sales in Asia ofinterface chips for embedded readers, as well as strong sales inEurope of smart card readers, which were balanced across theenterprise, government and small business markets and distributedamong several countries. Sales of CHIPDRIVE(R) businessproductivity solutions were once again strong in the quarter, andSCM's new contactless readers comprised a significant proportion ofsmart card reader sales.

"There were many signs in the second quarter that our strategy todiversify and expand our customer base is beginning to yield goodresults," said Felix Marx, chief executive officer of SCMMicrosystems. "Increases in both sales levels and the number ofcustomers in Europe indicate the success of our efforts to expandsales of our CHIPDRIVE productivity solutions into new geographicmarkets, and the effectiveness of market development activities inthe enterprise and e-government sectors."

Gross margin in the second quarter of 2008 was 43%, compared withgross margin of 29% in the second quarter of 2007. The increase ingross margin compared with the prior year primarily reflects higherrevenue levels in the 2008 period, a more favorable mix of highermargin products, including CHIPDRIVE solutions, and product costreductions.

Operating expenses in the second quarter of 2008, as reported inaccordance with GAAP, were $5.1 million, including $0.2 million inseverance costs, compared with $5.4 million in the second quarterof 2007, which included amortization of intangibles of $0.1 millionand severance and other costs of $1.4 million related to theresignation of the Company's former CEO in June 2007. Higher baseoperating expenses in the second quarter of 2008 primarily reflectthe recent investment in new sales resources in Latin America,Asia, Europe and the U.S. to support the Company's strategy todiversify and expand its sales base, as well as increased spendingon new product development.

Operating loss for the second quarter of 2008, as reported inaccordance with GAAP, was $(2.3) million, compared with operatingloss of $(4.1) million in the year ago quarter.

Earnings before interest, taxes, depreciation and amortization(EBITDA) in the second quarter of 2008 was $(2.1) million, comparedwith EBITDA of $(3.9) million in the second quarter of 2007. (Seereconciliation of EBITDA to GAAP accounting contained within thispress release.)

As reported in accordance with GAAP, loss from continuingoperations in the second quarter of 2008 was $(2.0) million, or$(0.13) per share, compared with loss from continuing operations of$(3.7) million, or $(0.23) per share, in the second quarter of2007.

Cash, cash equivalents and short-term investments at June 30, 2008were $28.0 million, compared with $28.7 million at March 31, 2008.

Strategic Update

"In May, we announced our strategy to target the worldwidefinancial services and enterprise markets with new contactlessreader products," said Marx. "Contactless technology is changingthe way people travel, work, and perform everyday transactions suchas purchasing goods and services. SCM has a unique opportunity toestablish itself as a significant provider of contactless devicesfor emerging applications, with our strong background in security,a talented and experienced team and an innovative vision. We havealready delivered our first contactless reader, which in only onequarter has begun to generate significant sales. We are encouragedby our progress and remain focused on developing additionalcontactless solutions and building the sales and marketingcapabilities to generate high margin, sustainable growth."

Guidance for 2008

For the second half of 2008, the Company expects to achieve revenuegrowth between 10% and 27% compared to the second half of 2007.Taken together with sales for the first half of 2008, the Companytherefore expects to achieve revenue growth of 5% to 15% for theyear as a whole, which would result in total revenues of $32million to $35 million for the full year. In May 2008, the Companypreviously announced expected revenue growth of 25-35% and revenueof $38 million to $40 million for the year as a whole. The decreasein expected revenue compared with the guidance given in May isprimarily due to weaker demand and the faster than expected shiftto embedded smart card readers in the U.S. government market. TheCompany's projections of revenue growth are based on the release ofnew products currently being prepared for release, underdevelopment or recently released, which are forecast to begingenerating increased sales in the second half of 2008. The Companyfurther expects base operating expenses of approximately $20million to $21 million in 2008, including anticipated furtherinvestments in sales and marketing resources and in new productdevelopment to address growth initiatives. Within these ranges, theCompany currently expects to record operating and net loss fromcontinuing operations for the full year, rather than the announcedexpectation in May 2008 to record operating and net profit for thefull year.

Additional Information

SCM does not plan to hold a conference call or webcast to discussthe results of its 2008 second quarter. For more information onSCM's second quarter results, please see the Company's QuarterlyReport on Form 10-Q for the quarter ended June 30, 2008, filed withthe U.S. Securities and Exchange Commission.

About SCM Microsystems

SCM Microsystems is a leading provider of solutions that open theDigital World by enabling people to conveniently access digitalcontent and services. The company develops, markets and sells theindustry's broadest range of smart card reader technology forsecure PC, network and physical access and digital media readersfor transfer of digital content to OEM customers in the government,financial, enterprise, consumer electronics and photographicequipment markets worldwide. Global headquarters are in Ismaning,Germany. For additional information, visit the SCM Microsystems website at http://www.scmmicro.com.

NOTE: This press release contains forward-looking statements withinthe meaning of Section 27A of the Securities Act of 1933, asamended, and Section 21E of the Securities Exchange Act of 1934, asamended. These include, without limitation, our statementscontained above regarding our expectations for the Company's secondhalf and full fiscal year 2008, including specifically ourstatements regarding our expectations that we will achieve revenuegrowth of 10% to 27% in the second half of 2008 and revenue growthof 5% to 15% in the full year 2008 compared to prior year levels,based on sales of new contactless smart card reader products in thesecond half of 2008; that base operating expenses will be between$20 million and $21 million in 2008; and that we will recordoperating and net loss for the full year 2008. These statements aresubject to risks and uncertainties which may cause actual resultsto differ materially from those contemplated herein. Our financialresults may not meet expectations. Some of the risks anduncertainties that could cause our actual business and operatingresults to differ include, but are not limited to, our ability togrow revenues based on a strategy of expanding our sales into newgeographic markets and on diversifying and growing our customerbase; our ability to successfully develop and introduce newproducts, particularly contactless reader products, that satisfythe evolving and increasingly complex requirements of customers;sales of smart card readers to the U.S. government market maydecline faster than currently expected; sales to a relatively smallnumber of customers historically have accounted for a significantpercentage of our revenues; the markets in which we participate ortarget may not grow, converge or standardize at anticipated ratesor at all, including the government, financial and enterprisesecurity markets that we are targeting; we may not successfullycompete in the markets in which we participate or target;competitors could take market share or create pricing pressure; andour operating expenses may not be at levels that supportprofitability. For a discussion of further risks and uncertaintiesrelated to our business, please refer to our public companyreports, including our Annual Report on Form 10-K for the yearended December 31, 2007 and subsequent reports, filed with the U.S.Securities and Exchange Commission

Note: CHIPDRIVE is a registered trademark of SCM Microsystems, Inc.All trade names are trademarks or registered trademarks of theirrespective holders. - FINANCIALS FOLLOW - SCM MICROSYSTEMS, INC.Condensed Consolidated Statements of Operations (in thousands,except per share data) (unaudited) Three months ended Six monthsended June 30, June 30, 2008 2007 2008 2007 Revenues $6,520 $4,647$12,984 $13,104 Cost of revenues 3,697 3,314 7,478 8,031 Grossprofit 2,823 1,333 5,506 5,073 Operating expenses: Research anddevelopment 1,043 792 2,078 1,512 Sales and marketing 2,569 1,6184,730 3,177 General and administrative 1,518 2,879 3,021 4,279Amortization of intangible assets 0 97 0 272 Total operatingexpenses 5,130 5,386 9,829 9,240 Loss from operations (2,307)(4,053) (4,323) (4,167) Interest and other income, net 330 412 824720 Loss from continuing operations before income taxes (1,977)(3,641) (3,499) (3,447) Provision for income taxes (1) (32) (48)(92) Loss from continuing operations (1,978) (3,673) (3,547)(3,539) Income (loss) from discontinued operations (26) (102) (151)(119) Gain on sale of discontinued operations 496 1,530 509 1,553Net income (loss) $(1,508) $(2,245) $(3,189) $(2,105) Loss pershare from continuing operations: Basic and diluted $(0.13) $(0.23)$(0.22) $(0.23) Gain (loss) per share from discontinued operations:Basic and Diluted $0.03 $0.09 $ 0.02 $ 0.09 Net income (loss) pershare: Basic and Diluted $ (0.10) $ (0.14) $ (0.20) $ (0.14) Sharesused in computing loss per share: Basic and Diluted 15,744 15,73015,742 15,715 SCM MICROSYSTEMS, INC. Reconciliation of EBITDACalculation to GAAP Accounting (in thousands) (unaudited) ThreeMonths Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007EBITDA $(2,080) $(3,882) $(3,816) $(3,842) Interest income 174 413469 811 Provision for income taxes (1) (32) (48) (92) Depreciationand amortization (71) (172) (152) (416) Net loss from continuingoperations $(1,978) $(3,673) $(3,547) $(3,539) We conduct a significant amount of our business in Europe, we aredually traded on the U.S. Nasdaq Global Market and the PrimeStandard of the Frankfurt exchange and the majority of ourinvestors are German-based. In addition, our corporate headquartersare in Germany. Based on these factors, we have determined thatEBITDA, as defined above, is a relevant measure of performance forthe Company, as it is a metric commonly used among companies doingbusiness in Europe and is therefore a helpful tool forcommunicating our performance to our investors and analysts and forcomparisons to other companies in Europe and within our industry.

EBITDA should be considered in addition to, but not as a substitutefor, other measures of financial performance reported in accordancewith accounting principles generally accepted in the United States("GAAP"). While we believe that EBITDA is useful within the contextdescribed above, it is in fact incomplete and not a measure thatshould be used to evaluate the full performance of the Company orits prospects. Such evaluation needs to consider all of thecomplexities associated with our business including, but notlimited to, how past actions are affecting current results and howthey may affect future results, how we have chosen to finance thebusiness and how regulations and the other aforementioned itemsaffect the final amounts that are or will be available toshareholders as a return on their investment. Net income determinedin accordance with GAAP is the most complete measure availabletoday to evaluate all elements of our performance. Similarly, ourConsolidated Statement of Cash Flows, as presented in our mostrecent filings with the Securities and Exchange Commission, providethe full accounting for how we have decided to use resourcesprovided to us from our customers, lenders and shareholders.

SCM MICROSYSTEMS, INC. Condensed Consolidated Balance Sheets (inthousands) (unaudited) June 30, December 31, ASSETS 2008 2007Current assets: Cash, cash equivalents and short-term investments $27,991 $ 32,444 Accounts receivable, net 7,228 8,638 Inventories4,108 2,738 Other current assets 1,483 1,455 Total current assets40,810 45,275 Property, equipment and other assets, net 3,315 3,289Total assets $ 44,125 $ 48,564 LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities: Accounts payable $2,733 $3,063 Accruedexpenses and other current liabilities 7,336 8,185 Total currentliabilities 10,069 11,248 Long-term income taxes payable 133 200Deferred tax liability 81 77 Stockholders' equity 33,842 37,039Total liabilities and stockholders' equity $ 44,125 $ 48,564 SOURCE SCM Microsystems, Inc.




Copyright © 2004 PR Newswire All rights reserved.