RF Monolithics, Inc. reported sales of $8.3 million for its third quarter ended May 31, 2011, representing a 9.3% increase from $7.6 million in sales for the second quarter of the current year but a 4.9% decrease from $8.7 million in sales for the third quarter of FY 2010.
For the first three quarters of fiscal 2011 sales were $24.4 million, compared to sales of $25.1 million for the first three quarters of the prior year.
The Company reported third quarter net income of $72,000 or $0.01 per share, compared to net income for the comparable prior year third quarter ended May 31, 2010 of $219,000 or $0.02 per share and net income for the second quarter of fiscal 2011 of $77,000 or $0.01 per share. Cumulative net income for the three quarters ended May 31, 2011 was $309,000 or $0.03 per share compared to $291,000 for the three quarters ended May 31, 2010 or $0.03 per share.
RFM President and CEO, Farlin A. Halsey said, “For the third quarter, we reported a recovery in sales from our historical seasonally low second quarter and maintained bottom line profitability, despite experiencing manufacturing production issues in our supply chain. We outsource most of our production, which includes complex products and processes and from time to time our supply chain partners experience production and material supply issues. In the quarter, we experienced delays in shipments for some Wireless Solutions products, which meaningfully contributed to our sales decrease from prior year third quarter levels. We have taken proactive measures and will continue to deploy resources to improve our supply chain and support our offshore manufacturers, as required. We have made significant progress in resolving the production issues, and we are now returning to normal production levels.”
“Third quarter results illustrate the robust nature of our current business model, enabling us to generate profitability and substantial levels of adjusted EBITDA, despite lower sales than last year. Our operating expenses remained flat in comparison to last year while we continued our marketing and product development initiatives designed to generate future sales growth. Lower inventories and reduced reliance on bank credit under our revolving line of credit allowed us to reduce interest expense in comparison to last year. With some top line growth, we believe our business model will deliver a substantial increase in profitability.”
“Our strategic focus remains on positioning the Company for strong top line growth. We recently announced the launch of three new product lines, including our WLS series of Wi-Fi® and Bluetooth® modules, a ZigBee Pro module and wireless sensor modem and gateway product platforms. Each of these is a broad product offering to large markets such as medical, industrial monitoring and smart home applications. The WLS series of products are the initial products to be released as a result of our collaboration with Murata Manufacturing Co., Ltd. and we recently announced the first order and production shipments of the WLS1271. Module revenue continues to be strong, reflecting our efforts to focus on the M2M business in the industrial space, and we have had some initial success with our timing products for GNSS (Global Navigation Satellite System) applications. We are expanding our worldwide sales channels with two of the top three global distributors.”
“We remain optimistic about RFM’s prospects for future growth. With our existing breadth of products and planned new products, we are working to take advantage of M2M market opportunities and to grow sales,” Halsey said.
Highlights and Additional Details:
- Sales recovered 9.3% from seasonal lows in our second quarter across most of our products and markets. Third quarter fiscal 2011 Wireless Components segment sales of $4.3 million increased 9% from the previous quarter, and Wireless Solutions segment sales of $4.0 million increased 10% over the same period. Sales to the medical market increased 28% over the previous quarter as the inventory corrections on the part of customers that occurred in prior quarters appeared to be completed. Automotive sales increased 16% and industrial sales increased 10%, primarily due to seasonal recoveries.
- Sales were 5% lower than the third quarter of the prior year, mostly due to an 8% decrease for the Wireless Solutions segment, where revenues were adversely affected by the manufacturing issues mentioned above. Automotive sales were 16% lower than last year, as production rates were lower for several specific programs.
- Third quarter fiscal 2011 gross profit of $2.7 million was nearly identical to the second quarter of fiscal 2011 on increased sales, but down $214,000 from last year on decreased sales. Quarterly gross margin of 33% was down 300 basis points from the second quarter of fiscal 2011 and 100 basis points from the prior year. The lower margins were due to the production issues and product mix within our segments:
- In comparison to fiscal 2011 second quarter, the decrease in overall gross margin was due to decreases in gross margin for both segments. Gross margin for our Wireless Components segment decreased from 31.8% in second quarter fiscal 2011 to 27.2% this quarter due to the impact of product mix in that the previous quarter included the favorable impact of a HI-REL filter program that did not recur. The gross margin for our Wireless Solutions segment decreased from 40.4% in second quarter fiscal 2011 to 39.0% this quarter due to the production issues that involved increased costs.
- In comparison to the comparable quarter of the prior year, the decrease in overall gross margin was largely due to lower sales of Wireless Solutions segment high margin products and additional costs resulting from the production issues. Gross margins for our Wireless Solutions segment decreased from 41.7% to 39.0% this quarter. Gross margins for Wireless Component products increased from 25.8% last year to 27.2% this year on an improved product mix, with more non automotive sales.
- Year-to-date fiscal 2011 gross margin increased 100 basis points to 34.7%, primarily due to more favorable product mix overall towards higher margin products.
- Third quarter operating expenses of $2.6 million were flat with last year and the second quarter of fiscal 2011. Operating expenses were 32% of sales.
- Other expense of $43,000 continues to decrease from prior periods with lower debt levels causing less interest expense and a small gain on currency transactions. Our positive cash flow allowed us to further reduce debt levels during the quarter.
- We generated quarterly positive adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) of $388,000 for the quarter and $1.4 million on a year-to-date basis, versus $644,000 and $1.8 million respectively for the comparable prior year’s quarter and year–to-date periods. The decrease largely results from increased operating expenses resulting from our growth initiative (marketing, awareness and product development) programs.
- Operating cash flow for our third quarter was a positive $555,000, primarily due to a positive net income adjusted for noncash items and a decrease in working capital, mostly resulting from decreased inventory.
- Accounts receivable at $5.8 million was essentially flat with the previous quarter. We experienced slightly improved days sales outstanding and a small reduction in rates of account delinquency, which historically were very modest.
- Net inventory decreased $326,000 from our second quarter, which was largely the result of the production issues we experienced in the quarter. We anticipate a moderate increase in inventory going forward, primarily on active products which will allow us to improve our customer service and protect future sales.
- Our total bank debt decreased $615,000 from our previous quarter to $3.1 million. At May 31, 2011, we had $2.7 million available but unused on our revolving credit bank line.
- We introduced our new “Peel and Stick” wireless sensor networking platform products including modular sensor modems and gateways that provide M2M application developers and systems integrators a variety of sensor and RF capabilities that are ready-to-install.
- Additionally, we announced the first order and production shipment to Logic PD of our new WLS products just released in April in our expanded M2M business.
- We are continuing to expand our worldwide sales channels and enhance our involvement with global distributors.
Segment mix for current and comparative quarter ($ millions):
|Segment Sales||Q3 FY11||Q2 FY11||Q3 FY10|
Market diversification for current and comparative quarter sales:
|Market||Q3 FY11||Q2 FY11||Q3 FY10|
*Market classifications involve the Company’s attempt to classify distribution sales which are recognized upon shipment. Market classification is estimated based upon point-of-sales information provided to the Company by its distributors.
**Other includes government and those sales through distribution which are not considered material for tracking by market application by the Company’s distributors.
Geographic diversification for current and comparative quarter sales:
|Q3 FY11||Q2 FY11||Q3 FY10|
|North America ***||34||%||35||%||39||%|
|Asia and the rest of the world||44||%||40||%||46||%|
RF Monolithics, Inc., headquartered in Dallas, Texas, is a provider of solutions-driven, technology-enabled wireless connectivity for a broad range of wireless applications—from individual standard and custom components to modules for comprehensive industrial wireless sensor networks and machine-to-machine (M2M) technology. For more information on RF Monolithics, Inc., please visit the Company’s website at http://www.RFM.com.