Tel-Instrument Electronics Corp. Reports Net Income of $272,000 or $0.08 per Basic Share for the Second Quarter of Fiscal 2017

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EAST RUTHERFORD, N.J.--(BUSINESS WIRE)--

Tel-Instrument Electronics Corp. ("Tel", "Tel-Instrument" or the "Company") (NYSE MKT: TIK), a leading designer and manufacturer of avionics test and measurement solutions, today reported its financial results for the second quarter ended September 30, 2016.

Highlights for Second Quarter of Fiscal Year 2017

  • Revenues decreased 25.6% to $5.08 million from $6.82 million in the second quarter of fiscal year 2016.
  • Gross margin percentage improved to 36.0% versus 32.9% for the comparable quarter in the previous year.
  • Legal expenses increased to $188k versus $108k in the year ago quarter.
  • Operating income decreased to $367k as compared to $916k in the second quarter of fiscal year 2016.
  • Non-GAAP Adjusted EBITDA was $411k as compared to $964k in the second quarter last year.
  • Pre-tax income in the second quarter of $382k versus $370k in the 2016 comparable period.
  • Net Income was $272k, or $0.08 per basic share versus $199k or $0.06 in the second quarter of 2016.
  • $1.8 million reduction in liabilities since March 31, 2016 including the satisfaction of the $720k BCA Mezzanine Fund LLP ("BCA") warrant liability.

Total sales for the three months ended September 30, 2016 decreased $1,742,361 (25.6%) to $5,076,029, as compared to $6,818,390 for the three months ended September 30, 2015. The decrease in revenues is mostly attributed to the decrease in shipment of the TS-4530A KITS, CRAFT and ITATS units associated with the U.S. Navy programs, which contracts have now been substantially completed. This decrease is partially offset by the shipment of the TS-4530A SETS and CRAFT units sold to Lockheed Martin for the Joint Strike Fighter ("JSF") program and to other customers. In addition commercial sales increased $247,627 (50.6%) to $737,265 for the three months ended September 30, 2016 as a result of increased sales of the TR-220 and our recently introduced TR-36 commercial Nav/Comm test set.

Gross margin as a percentage of sales increased to 36% for the three months ended September 30, 2016 as compared to 32.9% for the same quarter last year as a result of increased prices for the CRAFT units and the change in sale mix. Gross margin dollars decreased $417,878 (18.6%) to $1,825,588 for the three months ended September 30, 2016 as compared to $2,243,466 for the same period in the prior year primarily as a result of the lower sales.

Selling, general and administrative expenses decreased $8,738 (1.0%) to $875,138 for the three months ended September 30, 2016, as compared to $883,876 for the three months ended September 30, 2015. This decrease was primarily attributed to lower salaries and accrued profit sharing expenses, mostly offset by litigation and expert witness expenses associated with the Aeroflex Wichita, Inc. ("Aeroflex"). Total litigation and expert witness expenses for the quarter were $188,126 as compared to $107,781 for the same quarter last year.

Engineering, research and development expenses increased $140,115 (31.6%) to $583,771 for the three months ended September 30, 2016, as compared to $443,656 for the three months ended September 30, 2015. This reflects increased investment in the new hand-held avionics and radio test set currently under development.

Mr. Jeffrey O'Hara, President and CEO of Tel, stated, "We continue to report solid revenues and profitability despite the substantial completion of the U.S. Army TS-4530A KITS and CRAFT and ITATS units associated with the U.S. Navy programs. Our balance sheet continues to improve and we were able to pay off the $720k warranty liability to BCA while maintaining a solid cash balance. Legal expenses and costs associated with expert testimony continue to be a significant drag on profitability but we expect this litigation to be concluded by the end of this fiscal year. With respect to our Motion to Dismiss filed in late August, we have not yet received a decision from the court.

We have intensified our marketing efforts and increased our investment in research and development. We continue to emphasize the importance of capturing the majority share of the large IFF international market which could generate substantial revenues starting in the 2017/2018 calendar year timeframe. We have been working with our international distributors to ensure that we are well-positioned in this market and are meeting with key customers. To put this in perspective, international orders for the first six months of this fiscal year have only amounted to approximately $250,000 out of our total bookings of $6.9 million. We believe that this booking pace should ramp up next year as there are some large international opportunities now in play. With our wide range of DOD certified Mode 5 test sets, we think we are well positioned to secure the lion's share of this business.

The commercial avionics industry is undergoing a great deal of regulatory change including the requirement that all aircraft be equipped with ADS-B transponder as well as the introduction of new UAT navigation for the general aviation market. As a result, we are starting to see an increase in bookings for our commercial products such as the TR-220 and TR-36. Moreover, we believe that our new hand-held products, that we are planning to introduce by the end of this fiscal year, will generate increased market share at attractive gross margin levels.

The Company is also targeting the extremely large commercial and military radio test set market which is many times the size of our traditional avionics test market. We are also working closely with our military customers on new potential market opportunities.

We continue to be excited and optimistic about our near and long-term prospects," Mr. O'Hara concluded.

The Company encourages investors to read its full results of operations as contained in our Quarterly Report on Form 10-Q filed on November 9, 2016 at www.sec.gov.

Conference Call

The Company will host a conference call and webcast today, Wednesday, November 9, 2016 at 9:00 a.m. Eastern Time to discuss the Company's fiscal second quarter 2017 results.

To access the live webcast, log onto Tel-Instrument's website at:

https://www.telinstrument.com/learn-about-telinstrument/investor-relations.html.

To participate in the call by phone, dial (877) 407-8035 approximately five minutes prior to the scheduled start time. International callers please dial (201) 689-8035.

A replay of the teleconference will be available until December 9, 2016 and may be accessed by dialing (877) 481-4010. International callers may dial (919) 882-2331. Callers should use conference ID: 10131.

About Tel-Instrument Electronics Corp.

Tel-Instrument is a leading designer and manufacturer of avionics test and measurement solutions for the global commercial air transport, general aviation, and government/military aerospace and defense markets. Tel-Instrument provides instruments to test, measure, calibrate, and repair a wide range of airborne navigation and communication equipment. For further information please visit our website at www.telinstrument.com.

This press release includes statements that are not historical in nature and may be characterized as "forward-looking statements," including those related to future financial and operating results, benefits, and synergies of the combined companies, statements concerning the Company's outlook, pricing trends, and forces within the industry, the completion dates of capital projects, expected sales growth, cost reduction strategies, and their results, long-term goals of the Company and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. All predictions as to future results contain a measure of uncertainty and, accordingly, actual results could differ materially. Among the factors which could cause a difference are: changes in the general economy; changes in demand for the Company's products or in the cost and availability of its raw materials; the actions of its competitors; the success of our customers; technological change; changes in employee relations; government regulations; litigation, including its inherent uncertainty; difficulties in plant operations and materials; transportation, environmental matters; and other unforeseen circumstances. A number of these factors are discussed in the Company's previous filings with the U.S. Securities and Exchange Commission. The Company disclaims any intention or obligation to update any forward-looking statements as a result of developments occurring after the date of this press release. The safe harbor for forward-looking statements contained in the Securities Litigation Reform Act of 1995 (the "Act") protects companies from liability for their forward-looking statements if they comply with the requirements of the Act.

         

TEL-INSTRUMENT ELECTRONICS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS

 

September 30,
2016

March 31,
2016

(unaudited)
ASSETS
 
Current assets:
Cash and cash equivalents $ 830,534 $ 972,633
Accounts receivable, net 1,861,256 1,454,361
Inventories, net 3,675,788 4,679,032
Prepaid expenses and other current assets 85,282 128,071
Deferred income tax asset   578,507   578,507
Total current assets 7,031,367 7,812,604
 
Equipment and leasehold improvements, net 152,431 193,518
Deferred income tax asset – non-current 1,787,622 2,065,126
Other long-term assets   34,158   36,871
Total assets   9,005,578   10,108,119
 
LIABILITIES & STOCKHOLDERS' EQUITY
 
Current liabilities:
Current portion of long-term debt 429,660 418,255
Capital lease obligations – current portion 5,981 10,232
Accounts payable and accrued liabilities 1,723,448 2,401,500
Federal and state taxes payable - 53,623
Deferred revenues – current portion 370,454 48,766
Accrued payroll, vacation pay and payroll taxes   579,578   836,589
Total current liabilities 3,109,121 3,768,965
 
Subordinated notes payable - related parties - 25,000
Capital lease obligations – long-term 16,966 20,524
Long-term debt 87,317 304,560
Deferred revenues – long-term 256,088 172,703
Warrant liability – long-term 165,000 1,136,203
Other long-term liabilities   -   7,800
Total liabilities   3,634,492   5,435,755
 
Commitments
 
Stockholders' equity:
Common stock, 4,000,000 shares authorized, par value $0.10 per share,

3,255,887 shares issued and outstanding, respectively

325,586 325,586
Additional paid-in capital 8,091,013 8,074,655
Accumulated deficit   (3,045,513 )   (3,727,877 )
Total stockholders' equity   5,371,086   4,672,364
Total liabilities and stockholders' equity $ 9,005,578 $ 10,108,119
 
         

TEL-INSTRUMENT ELECTRONICS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 
Three Months Ended Six Months Ended

September 30,
2016

   

September 30,
2015

September 30,
2016

   

September 30,
2015

 
       
 
Net sales $ 5,076,029 $ 6,818,390 $ 10,418,398 $ 12,664,309
Cost of sales   3,250,441   4,574,924   6,716,157   8,605,548
 
Gross margin 1,825,588 2,243,466 3,702,241 4,058,761
 
Operating expenses:
Selling, general and administrative 875,138 883,876 1,786,882 1,749,564
Engineering, research and development   583,771   443,656   1,168,648   935,788
Total operating expenses   1,458,909   1,327,532   2,955,530   2,685,352
 
Income from operations 366,679 915,934 746,711 1,373,409
 
Other income (expense):
Amortization of debt discount - - - -
Amortization of deferred financing costs (1,357 ) (1,358 ) (2,713 ) (2,715 )
Change in fair value of common stock warrants 34,000 (518,588 ) 251,203 (450,828 )
Interest expense   (17,507 )   (25,835 )   (35,333 )   (55,469 )
Total other expense   15,136   (545,781 )   213,157   (509,012 )
 
Income before income taxes 381,815 370,153 959,868 864,397
 
Income tax expense   109,760   170,687   277,504   385,865
 
Net income $ 272,055 $ 199,466 $ 682,364 $ 478,532
 
Basic income per common share $ 0.08 $ 0.06 $ 0.21 $ 0.15
Diluted income per common share $ 0.07 $ 0.06 $ 0.20 $ 0.15
 
Weighted average shares outstanding:
Basic 3,255,887 3,256,887 3,255,887 3,256,887
Diluted 3,266,133 3,260,799 3,267,192 3,262,058
 
         

TEL-INSTRUMENT ELECTRONICS CORP.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL INFORMATION
(Unaudited)

 

 
Three Months Three Months
Ended Ended
September 30, September 30,

2016

2015

 
Net income $ 272,055 $ 199,466
 
Income tax provision 109,760 170,687
 
Depreciation and amortization 36,380 39,959
Amortization of deferred financing costs 1,357 1,358
Change on fair value of common stock warrants (34,000) 518,588
Interest, net 17,507 25,835
Non-cash stock-based compensation

8,179

8,577

 
Non-GAAP Adjusted EBITDA

 

$

 

411,238

$ 964,470
 

The term EBITDA consists of net income plus interest, taxes, depreciation and amortization, deferred financing charges, change in fair value of warrants, and non-cash stock-based compensation. EBITDA is not a measure of financial performance under generally accepted accounting principles, and should not be considered in isolation from, or as a substitute for net income or cash flow measures prepared in accordance with generally accepted accounting principles, or as a measure of profitability or liquidity. Additionally, EBITDA may not be comparable to other similarly titled measures of other companies. The Company has included EBITDA as a supplemental disclosure because its management believes that EBITDA provides useful information regarding our ability to service debt, and to fund capital expenditures, and provides investors a helpful measure for analyzing its operating performance. The table above sets forth a reconciliation of EBITDA to net income, which is the most directly comparable measure of financial performance, calculated under generally accepted accounting principles.

Tel-Instrument Electronics Corp.
Joseph P. Macaluso, 201-933-1600
jnesbett@institutionalms.com
or
Institutional Marketing Services (IMS)
John Nesbett or Jennifer Belodeau
203-972-9200

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