Hemisphere GPS Reports Q2 2009 Results

    While the first half of 2009 was impacted by the global economic
slow-down, mid and long-term fundamentals for Hemisphere GPS' market sectors
are solid. Agricultural markets remain positive driven by population growth,
limited arable land, the need for increased output, and a relatively low
global penetration of precision agriculture technologies such as GPS and
auto-steering. Crop prices and farm income levels have declined from the
record levels seen in 2008, however, remain high by historical standards. The
USDA has recently projected a positive report on potential grain production in
2009, with a record number of planted acres for soybeans and the second
highest recorded number of planted acres of corn.
For the second quarter, North American revenues decreased 32%, showing a
moderate stabilizing compared to the 35% decrease in the first quarter of
2009. Potentially indicating the weak markets have bottomed, North American
revenues under the Outback brand for the month of June 2009 were particularly
strong, actually showing an increase over June 2008.
International revenues decreased 48% year-over-year for the second
quarter, with European revenues decreasing by 29%, Australian revenues
decreasing by 69% and other markets decreasing by 55%. International sales
decreased in general due to the global economic slowdown and also due to the
stronger US dollar - which increases the net price for international customers
as Hemisphere GPS' products are priced in US dollars. In addition, second
quarter international revenues were impacted as certain forecasted shipments
were not made due to credit concerns and prudent credit management practices.
"In the first half of 2009 we were hit by recessionary pressures and
currency challenges that have generated significant caution for order flow
within the industry," said Steve Koles, President & CEO of Hemisphere GPS. "We
are also comparing our results year-over-year to a very robust first half of
2008. With positive outlooks for this years' crops, falling input costs, and a
weakening US dollar, optimism is beginning to return to the market. We intend
to capture this optimism with new products, new customers, and new markets as
we continue to drive towards generating a stronger second half relative to
2008."
Despite the decrease in second quarter revenues, gross margins were 50%,
down only marginally from 52% in the second quarter of 2008. Gross margins
were lower primarily as a result of the impact of fixed manufacturing costs on
lower revenue levels as well as from lower software revenues. Cost reductions
through outsourcing the manufacture of an increased number of component and
finished goods products has been a key driver in maintaining gross margin
strength.
"Operationally we are stable even in the current down market, and we have
maintained strong gross margins," said Mr. Koles. "We maintain a leadership
position in our market and our technology and products continue to set
benchmarks. In 2009 we are adding more new products, and further expanding our
markets while we also manage expenses prudently during the economic pullback."
Research and development expense for the quarter was essentially
unchanged at $2.0 million The investment in research and development
activities is critical for the Company to maintain and build its position in
current and targeted markets.
Total operating expenses for the second quarter decreased by 12% to $7.6
million. Global market uncertainty has resulted in an increasingly more
conservative cost management strategy. Further to the previously announced
closure of the Euless, Texas office, the Company implemented a workforce
reduction initiative during the second quarter, reducing headcount from 262
employees to 241 employees. Restructuring costs of $0.8 million were recorded
in the second quarter related to these activities.
Hemisphere GPS reported a net loss prior to foreign exchange and
restructuring costs of $283 thousand in the second quarter of 2009 compared to
income of $3.5 million in the second quarter of 2008. Including foreign
exchange and restructuring costs, a consolidated net loss of $1.3 million, or
($0.02) per share (basic and diluted), was reported in the second quarter of
2009 compared to net income of $3.2 million, or $0.06 per share (basic and
diluted), in the second quarter of 2008.
For the first six months of 2009, Hemisphere GPS reported revenues of
$32.4 million, a 34% decrease from revenues of $49.0 million for the same
period in 2008. Gross margin for the first half of 2009 was consistent with
the first half of 2008 at 51%. Year-over-year expenses decreased by $1.4
million. Earnings for the first half of 2009 were $1.3 million, prior to
foreign exchange and restructuring costs, compared to $8.4 million for the
first half of 2008. Net income was $0.3 million, or $0.01 per share (basic and
diluted), compared to $9.0 million, or $0.17 per share (basic and diluted) in
the first half of 2008.
At June 30, 2009, Hemisphere GPS held cash of $8.8 million, as compared
to a balance of $16.3 million at December 31, 2008. Agriculture-related
inventory was built in anticipation of strong sales during the first half of
the year, which is the strongest agriculture buying season. Softer sales than
anticipated during the second quarter resulted in the increase in inventory.
Inventory levels have now stabilized and are expected to decrease through the
remainder of the fiscal year. Working capital at June 30, 2009 was
approximately $30 million.
Operational Highlights
-   During the second quarter, the Ground Agriculture and Air business
units were combined into a single business unit. The Company's Air
sales office in Euless, Texas was closed and activities were
transferred to the Ground Agriculture business unit's office in
Kansas. As a result, for reporting purposes, the Company will now
report activities under two operating segments: Agriculture and
Precision Products. Amounts reported in the past for Ground
Agriculture and Air will be combined and reported as Agriculture.
-   Kip Pendleton joined Hemisphere GPS as vice-president and general
manager of the Company's newly formed Agriculture business unit,
bringing over 25 years of experience in agriculture business
management with both large and small agriculture companies. The newly
formed Agriculture business unit combines the former Air and Ground
Agriculture business units, creating more synergy between air and
ground agriculture platforms and applications, including the
Company's patented dual-flow and variable-rate technologies.
-   Hemisphere GPS entered the China market with a new version of the
Outback S-Lite guidance system software that supports Simplified
Chinese language characters. The new version carries over all the
proven features of the existing Outback Guidance product and now also
supports 20 languages. New sales distribution partners have been
established, along with a local Hemisphere GPS representative. "With
China actively developing its biofuel production capability with an
annual production capacity target of 10 million tons of ethanol by
2020, together with the country's estimated potential fertilizer
consumption growth of 80 per cent, a tremendous opportunity is
developing for our precision agriculture technology in that region,"
explained Mr. Koles.
-   Hemisphere GPS is adapting its product portfolio to cater to many
regions of the world by adding product features and language support
including: French, Spanish, Portuguese, Dutch, Latvian, Ukrainian,
Romanian, Lithuanian and Slovakian. By making existing products more
inclusive and developing new products specific to targeted market
regions, Hemisphere GPS continues its commitment to broadening its
global market share.
-   Hemisphere GPS expanded its popular line of Outback Guidance eDrive
hydraulic steering installation kits to be used with a wide variety
of agricultural tractors, floaters, sprayers and combines. Hemisphere
GPS has added customized kits to support 23 new machinery models,
bringing the number of compatible agricultural machines to over 650.
Outback eDriveTC GPS-assisted steering system extends the
functionality of the Outback S series, including Outback S, Outback
S2, Outback Sts and Outback S3. Once eDriveTC engages, it uses GPS
technology to automatically steer the agricultural machines. "We are
proud to have North America's most popular aftermarket hydraulic
steering system," added Mr. Koles. "In 5 years Hemisphere GPS has
sold over 11,000 units."
-   Juniper Systems Inc., fully integrated Hemisphere GPS' new XF101 DGPS
receiver with Juniper's ultra-rugged Archer Field PC delivering sub-
meter DGPS to location-based applications in the most demanding
environments. For less than US$3,500, users can collect sub-meter
DGPS real time data using SBAS corrections, or post-process positions
back at the office. This represents accurate geospatial information
at unparalleled value.
-   Hemisphere GPS and Stara SA of Brazil, one of the world's largest
agricultural implement manufacturers, launched Stara's newest self-
propelled sprayer, Gladiador, which comes standard equipped with
Hemisphere GPS precision agriculture guidance, automated steering and
boom control technology.
Conference Call - Thursday, July 30th at 11:00AM ET (9:00am MT)
A conference call and Web cast for shareholders, analysts and other
members of the investment community has been scheduled for Thursday, July 30,
2009 at 11:00 a.m. Eastern Time (9:00 a.m. Mountain Time) to discuss the
financial results and provide updates on operations.
To participate in the conference call, please dial 1-800-814-4941
approximately 10 minutes before the conference call. Please note that a live
Web cast of the call will be available on the Hemisphere GPS Web site at
http://www.hemispheregps.com. The Web cast will be archived there for later
review.
A recording of the call will be available through August 6. Please dial
416-640-1917 or 1-877-289-8525 and enter the reservation number 21311856
followed by the number sign to listen to the rebroadcast.