Allen-Vanguard estimates fiscal 2008 revenues
2008-11-13 09:21 ET - News Release
Mr. David Luxton reports
ALLEN-VANGUARD CORPORATION PROVIDES GENERAL UPDATE TO SHAREHOLDERS
Allen-Vanguard Corp. has provided a general update, including its revenue for the fourth quarter of fiscal 2008, an update to the business and financial drivers and opportunities for fiscal 2009 which commenced Oct. 1, 2008, as well as further commentary on the progress of its financial discussions.
Recent performance
The company recorded a pronounced upturn in the finish to its fiscal year ended Sept. 30, 2008, after a very disappointing third quarter. Revenue for the fourth quarter grew by approximately 50 per cent over the third quarter to approximately $45-million, which resulted in estimated revenue for fiscal 2008 in the range of $300-million to $310-million, with all figures subject to final audit. Allen-Vanguard noted that its year-end financial report will show the previously announced restructuring charge for severance and other costs of downsizing its global work force and rationalizing manufacturing facilities, and will also show a large writedown of goodwill and other intangible assets.
The company also reported a very strong start to its new fiscal year which began Oct. 1, 2008, with a sharp increase in its services business in particular, resulting in order backlog as of Oct. 31 of approximately $120-million. The pace of orders six weeks into the new fiscal year represented an annualized revenue rate of $325-million, which is in line with the company's expectations for fiscal 2009.
Business and financial drivers for fiscal 2009
The company has just completed an exacting analysis and forecast for fiscal 2009, against a macroenvironment where improvised explosive devices (IEDs) are projected to remain a persistent global threat, per worldwide military doctrine and per United States Homeland Security doctrine. Allen-Vanguard's suite of products and services is core to the worldwide counter-IED mission.
The revenue expectations for fiscal 2009 represent an increase of approximately 5 per cent over fiscal 2008, led by a plus-50-per-cent increase in service revenues. More than 60 per cent of forecast 2009 revenue is estimated to come from the combined systems and services, and the personal protection systems business segments. Systems and services comprise counter-IED training programs as the company enlarges its incumbency in key, long-term counter-IED training programs for U.S. and NATO special forces, as well as additional revenue streams from its proprietary global data base of IED incidents. Personal protection systems comprise established products such as bomb suits, bomb tools and robots, and new proprietary products including microclimate systems, blast protection seats and personal armour. Following the disappointing performance of sales of electronic countermeasures (ECM) equipment in fiscal 2008 due to order delays, the fiscal 2009 revenue expectations for the electronic systems business unit have been limited to high-visibility contracts already in backlog and high-probability opportunities already well advanced in the sales process. The electronic systems business is concentrated in two major U.S. military programs and thus carries the most exposure to any change in spending priorities, in contrast to the systems and services segment and in particular the personal protection systems segment with its highly diversified product and customer base.
The company noted that revenue by quarter is expected to be more consistent compared with fiscal 2008, when 75 per cent of revenues were recorded in the first half of the year. Quarterly revenue is expected to expand as the year progresses. Predictability of revenue is high due to the program nature of the service revenue component, as well as the strong backlog of product revenue.
David Luxton, president and chief executive officer of Allen-Vanguard, said: "After disappointing our stakeholders in the second half of last year, we have been particularly rigorous in our forecasts for fiscal 2009, ensuring that all of our product line revenue forecasts are supported by order backlog, pending orders or through pipelines of advanced sales opportunities. The result is a forecast that is driven by our own sales and technical efforts, and is less susceptible to external factors and program delays. In addition, we continue to increase market reach through expanded partnerships, alliances and teaming agreements with prime contractors and system integrators. We have recently signed a teaming agreement with a global electronics and communications firm for an ECM opportunity with an expected potential value to Allen-Vanguard of more than $100-million over two years. We are also in active discussions with other global players to take several of our product lines into more markets and programs. At this juncture, we see limited downside risk, attributable mainly to timing of ECM orders as we and others in our industry await clarification of defence spending priorities following the U.S. presidential election. As against that, we see upside potential from our new products, in particular microclimate systems, vehicle blast seats and personal counter-IED armour, as well as opportunities to improve our product margins."
The company anticipates that its overall gross margin will be approximately 40 per cent, which will be an average of the high margins on proprietary personal protection products where the company has global market shares in excess of 50 per cent and the lower margins on services and systems. General and administrative expenses have been reduced to an estimated $10-million per quarter, or $40-million on an annualized basis, following the restructuring announced Sept. 25, 2008, as reported in Stockwatch, which included a 15-per-cent reduction in head count as well as consolidation of manufacturing facilities. Research and development expense is forecast at $14-million on a net basis, slightly below the level of fiscal 2008 due to financial prudence, but with continued emphasis on defending the company's technology leadership position, as well as new product development.
With these financial metrics, the company anticipates strong levels of operating cash flow with free cash flow available for debt reduction and a steady reduction in the ratio of debt/cash flow throughout the year.
Update on financial discussions
After an initial rapid paydown of the debt incurred in the acquisition of Med-Eng Systems in September, 2007, the company has been unable to make quarterly debt repayments since Sept. 30, 2008, due largely to significant order delays by the U.S. DoD for ECM equipment.
As at Aug. 31, 2008, the company had debt outstanding of $188-million on its $200-million term loan facility. The company has obtained accommodations from its lending syndicate to Nov. 28, 2008, which defers compliance with certain financial covenants, including the deferral of the $10-million quarterly principal repayment which was due Sept. 30, 2008. The accommodation permits the parties to continue a constructive dialogue regarding revisions to the existing credit terms. The company is currently meeting its operating cash requirements with cash flow generated from operations.
Allen-Vanguard is also in discussions with potential investors to provide adequate working capital and to explore recapitalization alternatives. The company and its board of directors, advised by its investment bankers, continue to explore potential investments and strategic transactions, some of which entail new capital and financial deleveraging.
"We recognize that all our stakeholders are anxious to know the outcome of these deliberations as soon as possible, especially given the severely deteriorated condition of financial and credit markets," concluded Mr. Luxton. "In the meantime, we are continuing our practice of updating shareholders on highlights of our progress and our business plan."
We seek Safe Harbor.
