Communications Systems, Inc. (NASDAQ:JCS) (“CSI” or the
“Company”), a global provider of physical connectivity
infrastructure and services for deployments of broadband networks,
today announced financial results for the fourth quarter (“Q4”) and
full year ended December 31, 2014, including a discussion of
results of operations by segment.
Full Year 2014 Summary
- 2014 consolidated sales of $119.1
million compared to $131.3 million in 2013.
- Suttle sales grew 24%
- Transition Networks sales declined
2%
- JDL Technologies sales decreased 74%,
reflecting the substantial completion of a large infrastructure
project in 2013
- 2014 net income was $2.0 million, or
$0.23 per diluted share, compared to a net loss of $1.0 million, or
$(0.11) per diluted share, in 2013.
- Cash, cash equivalents, and investments
increased to $29.9 million at December 31, 2014 from $29.7 million
at December 31, 2013.
Fourth Quarter 2014
Summary
- Q4 2014 consolidated sales of $27.2
million compared to $27.3 million in Q4 2013.
- Suttle sales grew 17%
- Transition Networks sales declined
10%
- JDL Technologies sales decreased
52%
- Q4 2014 operating loss of $1.5 million
compared to an operating loss of $0.1 million in Q4 2013.
- Suttle operating income grew 148% to
$0.5 million
- Transition Networks operating loss was
$1.5 million, and included a $1.1 million non-cash inventory
reserve charge
- JDL Technologies operating loss was
$0.6 million
- Q4 2014 net loss was $1.0 million, or
$(0.12) per diluted share, compared to a net loss of $0.8 million,
or $(0.09) per diluted share, in Q4 2013.
CSI’s Chief Executive Officer Roger H.D. Lacey commented, “Our
full year and fourth quarter results reflected continuing strong
revenue growth and rising margins at Suttle, which continued to
benefit from broad customer acceptance of our FTTx (fiber to the
home or node) products and our core FutureLink™ brands. Suttle
revenues increased 17% to $15.5 million from $13.2 million in Q4
2013, driven by a 261% increase in combined FTTx product sales.
Suttle’s full year 2014 revenues rose 24% to $67.3 million, while
operating income increased 78% to $6.6 million. Suttle remains well
positioned for growth in 2015 as our clients continue to deploy
high-speed networks and we reap the benefits of significant
investments in new product development made during 2014.”
Further commenting, Mr. Lacey stated, “Although full year and
fourth quarter revenues declined at Transition Networks and JDL
Technologies, we took important steps throughout 2014 to reposition
each of these businesses for growth in 2015 and beyond. At
Transition Networks, we streamlined our inventory and captured
efficiencies in the supply chain while focusing the business on
attractive growth categories, including a renewed emphasis on core
media conversion products. For example, the Scorpion USB Ethernet
Adapter, and 3110 and 4110 Fiber to Fiber Repeaters are recent
additions to our Fiber-to-the-Desk solutions bringing the
bandwidth, distance and security benefits of fiber to mission
critical points of the Enterprise network within a native Ethernet
environment. We continue to invest in R&D and professional
engineering staff, and expect an improved product portfolio to
deliver revenue growth and margin expansion.”
Mr. Lacey added, “At JDL Technologies, fourth quarter revenues
declined by 52% year-over-year, reflecting the completion of a
large infrastructure project in Q1 2014. While 2014 represented a
challenging year for JDL Technologies given the temporary lull
created by E-Rate program funding constraints, our managed services
recurring revenue stream approximately doubled from 2013, driven by
an increase in HIPAA-compliant IT services to the Florida
healthcare market, where we are a leading provider. JDL
Technologies is fully scaled for the scheduled return of the E-Rate
funding program in September 2015, and we are optimistic that a
number of our responses to requests-for-proposal will convert to
contracts this year.”
Mr. Lacey concluded, “We enter 2015 with optimism. We are
encouraged that the solid product revenue growth we experienced in
2014 from our manufacturing businesses will continue and that the
availability of E-Rate funding in 2015 will support our services
business. We believe that the strategic initiatives we implemented
in 2014 across all of our businesses are leading to higher, more
consistent revenue growth going forward and improved operational
efficiency.”
Segment Financial
Overview
See the Form 10K to be filed on March
12, 2015 for more details, including our Management Discussion and
Analysis comparing full year 2014 results to 2013.
CSI operates through the following business units:
- Suttle manufactures and markets copper
and fiber connectivity systems, enclosure systems, xDSL filters and
splitters, and active technologies for voice, data and video
communications under the Suttle brand in the United States and
internationally;
- Transition Networks manufactures media
converters, network interface devices (NIDs), network interface
cards (NICs), Ethernet switches, and other connectivity products
that offer customers the ability to affordably integrate fiber
optics into any data network; and
- JDL Technologies provides technology
solutions including virtualization, managed services, wired and
wireless network design and implementation, HIPAA-compliant IT
solutions, and converged infrastructure configuration and
deployment.
Suttle
Three
MonthsEnded December 31
Twelve
MonthsEnded December 31
2014
2013
2014
2013
Sales $ 15,503,000 $
13,244,000 $ 67,330,000
$ 54,346,000
Gross profit
4,759,000 3,657,000
20,992,000
15,812,000
Operating income 510,000
206,000
6,603,000 3,716,000
Q4 2014 sales rose 17% from Q4 2013, primarily due to revenue
generated from new FTTx product platforms. FTTx product sales, as a
group, increased 261% to $3.7 million from $1.0 million in Q4 2013.
Sales to the major communication service providers rose 15% to
$12.5 million from $10.8 million in Q4 2013, and comprised 81% of
total segment revenues, compared to 82% in Q4 2013. Higher sales to
communications service providers reflected growth in core
high-speed copper connectivity products and success in securing new
business in multiple FTTx domains. Suttle’s international sales
increased 115% to $1.7 million from $0.8 million in Q4 2013,
primarily driven by DSL and legacy voice business.
Gross profit in Q4 2014 rose 30% to $4.8 million, or 30.7% of
sales, from $3.7 million, or 27.6% of sales, in Q4 2013. Gross
profit as a percentage of sales increased due to higher volumes and
a favorable shift in mix to higher-margin new products.
Operating income rose 148% to $0.5 million from $0.2 million in
Q4 2013, reflecting higher gross profit, which more than offset a
$1.0 million increase in selling, general and administrative
(“SG&A”) expense. Higher SG&A expense primarily reflects
incremental investment in new product development and the hiring of
additional professional staff to support the anticipated,
continuing growth of the business.
Transition
Networks
Three
MonthsEnded December 31
Twelve
MonthsEnded December 31
2014
2013
2014
2013
Sales $ 10,585,000
$ 11,700,000 $ 43,174,000
$ 43,857,000
Gross profit
4,117,000
5,858,000 19,199,000
22,419,000
Operating (loss)
income (1,455,000 )
280,000 (2,432,000 )
(5,791,000 )
Q4 2014 sales declined 10% to $10.6 million from $11.7 million
in Q4 2013, reflecting lower sales in the U.S. and international
markets. By product category, an increase in media converter sales
was more than offset by declines in sales of Ethernet adapters,
switches and other products. Media converter sales represented 70%
of total business unit sales in Q4 2014, up from 62% of total
business unit sales in Q4 2013.
Gross profit decreased 30% to $4.1 million, or 38.9% of sales,
from $5.9 million, or 50.1% of sales, in Q4 2013. In addition to
the impact of lower sales, gross profit in Q4 2014 included a $1.1
million non-cash inventory reserve charge associated with the
identification of excess and obsolete inventory. There was not a
similar charge in Q4 2013.
Operating loss totaled $1.5 million compared to operating income
of $0.3 million in Q4 2013, reflecting lower gross profit and a
$0.7 million increase in SG&A expense. Higher SG&A expense
primarily reflects the hiring of additional professional
engineering staff, and incremental investment in research and
development.
JDL
Technologies
Three
MonthsEnded December 31
Twelve
MonthsEnded December 31
2014
2013
2014
2013
Sales $ 1,141,000
$ 2,369,000 $ 8,567,000
$ 33,116,000
Gross profit
188,000 456,000
1,968,000
6,668,000
Operating (loss) income
(574,000 ) (571,000 )
(878,000 )
3,231,000
Results at JDL Technologies continued to be affected by the
federal government’s decision to withhold all priority two E-Rate
funding in 2014, as the E-Rate program underwent an extensive
modernization project that affected most key elements in the
program. The E-Rate program was developed to assist schools and
libraries in the United States in obtaining affordable
telecommunications and Internet access. The Company expects funding
under the E-Rate program will be reinstated in September 2015.
Q4 2014 sales declined 52% to $1.1 million from $2.4 million in
Q4 2013, reflecting a $1.3 million decrease in revenues due to the
completion of a large infrastructure project for Miami-Dade County
Public Schools in Q1 2014. In the month of December 2014, JDL’s
managed services business reached an annual recurring revenue run
rate of approximately $1.0 million, primarily driven by strong
demand for its HIPAA-Compliant IT services and expansion into the
financial and legal verticals.
Q4 2014 gross profit declined 59% to $0.2 million, or 16.5% of
sales, from $0.5 million, or 19.3% of sales, in Q4 2013.
Operating loss was $0.6 million compared to an operating loss of
$0.6 million in Q4 2013.
Financial Condition
CSI’s balance sheet at December 31, 2014 included cash, cash
equivalents, and investments of $29.9 million, working capital of
$56.9 million, and stockholders’ equity of $86.0 million.
CSI’s Board recently declared a cash dividend of $0.16 per
common share payable on April 1, 2015 to shareholders of record as
of March 16, 2015. This marks the 50th consecutive quarter that CSI
has paid a dividend to its shareholders.
About Communications
Systems
Communications Systems, Inc. provides physical connectivity
infrastructure and services for global deployments of broadband
networks. Focusing on innovative, cost-effective solutions, CSI
provides customers the ability to deliver, manage, and optimize
their broadband network services and architecture. From the
integration of fiber optics in any application and environment to
efficient home voice and data deployments to optimization of data
and application access, CSI provides tools for maximum utilization
of the network from the edge to the user. With partners and
customers in over 50 countries, CSI has built a reputation as a
reliable global innovator focusing on quality and customer
service.
Forward- Looking
Statements
This press release includes certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act
of 1995, including statements regarding future financial
performance, future growth and future acquisitions. These
statements are based on Communications Systems’ current
expectations or beliefs and are subject to uncertainty and changes
in circumstances. Actual results may vary materially from those
expressed or implied by the statements herein due to changes in
economic, business, competitive or regulatory factors, and other
risks and uncertainties affecting the operation of Communications
Systems’ business. These risks, uncertainties and contingencies are
presented in the Company’s Annual Report on Form 10-K and, from
time to time, in the Company’s other filings with the Securities
and Exchange Commission. The information set forth herein should be
read in light of such risks. Further, investors should keep in mind
that the Company’s financial results in any particular period may
not be indicative of future results. Communications Systems is
under no obligation to, and expressly disclaims any obligation to,
update or alter its forward-looking statements, whether as a result
of new information, future events, changes in assumptions or
otherwise.
CSI CONSOLIDATED SUMMARY OF EARNINGS Selected
Income Statement Data Unaudited
Three Months Ended Twelve Months
Ended Dec. 31, 2014 Dec. 31,
2013 Dec. 31, 2014 Dec. 31,
2013 Sales $ 27,230,132 $ 27,313,304 $ 119,071,439 $
131,319,510 Gross profit 9,064,273 9,971,098 42,158,558 44,898,528
Operating (loss) income (1,518,571 ) (85,622 ) 3,292,919 1,156,367
(Loss) income before income taxes (1,562,818 ) (100,382 ) 3,181,228
1,103,125 Income tax expense (532,888 ) 702,488 1,219,355 2,061,013
Net income (loss) $ (1,029,930 ) $ (802,870 ) $ 1,961,873 $
(957,888 ) Basic net income (loss) per share
$
(0.12 ) $ (0.09 ) $ 0.23 $ (0.11 ) Diluted net income (loss) per
share $ (0.12 ) $ (0.09 ) $ 0.23 $ (0.11 ) Cash dividends per share
$ 0.16 $ 0.16 $ 0.64 $ 0.64 Average basic shares outstanding
8,653,191 8,517,212 8,622,032 8,531,073 Average dilutive shares
outstanding 8,653,191 8,517,212 8,640,416 8,531,073
Selected Balance Sheet Data Unaudited Dec. 31,
2014 Dec. 31, 2013 Total assets $ 100,286,235 $
103,352,741 Cash, cash equivalents & investments 29,879,835
29,722,412 Working capital 56,910,880 70,599,599 Property, plant
and equipment, net 18,153,152 14,941,492 Long-term liabilities
1,270,876 1,837,848 Stockholders’ equity 86,020,498 88,622,043
Communications Systems, Inc.Edwin C. Freeman,
952-996-1674Chief Financial Officerefreeman@commsysinc.comorRoger
H. D. Lacey, 952-996-1674Chief Executive OfficerorThe Equity
Group Inc.Devin Sullivan, 212-836-9608Senior Vice
Presidentdsullivan@equityny.comorKalle Ahl, CFA, 212-836-9614Senior
Associatekahl@equityny.com
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