SCM Microsystems Reports Third Quarter 2008 Results
Ismaning, Germany – SCM Microsystems, Inc. (Nasdaq: SCMM, Prime Standard: SMY), a leading provider of solutions that open the Digital World, today announced results for the third quarter ended September 30, 2008.
Revenues from continuing operations in the third quarter of 2008 were $6.4 million, down 16% from revenues of $7.6 million in the third quarter of 2007. Revenues for the first nine months of 2008 were $19.4 million, down 6% from revenues of $20.7 million for the first nine months of 2007. By product segment, third quarter 2008 revenues included $5.9 million from sales of smart card readers and other products for secure network and physical access, compared with sales of $6.1 million in the third quarter of 2007; and $0.5 million from sales of original equipment manufacturer (OEM) digital media reader technology, compared with sales of $1.5 million in the third quarter of 2007.
U.S. sales in the third quarter of 2008 were positively affected by stronger demand for smart card readers for U.S. government programs, which had been very weak in the first two quarters of 2008 primarily due to budget and project delays. Asian sales of smart card interface chips also remained strong. However, European sales were lower than expected due to variability in the timing of orders for regional programs requiring smart card readers. In addition, sales of digital media readers historically have been concentrated among a small number of major customers, and demand from these customers was unexpectedly light in the third quarter of 2008.
“The product investments we have been making for the last several quarters have resulted in innovative new devices for emerging security applications around the world,” said Felix Marx, chief executive officer of SCM Microsystems. “Within the last several weeks we have introduced @MAXX™ prime, enabling secure mobile authentication for financial and enterprise applications, and certified terminals for the electronic health card program in Germany. Additional product introductions will soon follow. These new products are important tools in our strategy to expand and diversify our customer base and to bring the strength of our technology, reputation and relationships to emerging markets.”
Gross profit margin in the third quarter of 2008 was 46%, compared with 45% in the second quarter of 2007. Gross profit margin improved to 43% of revenue in the first nine months of 2008, compared with 41% in the first nine months of 2007. These improvements are primarily due to a more favorable mix of products sold in the 2008 periods and ongoing product cost reductions that have continued to strengthen PC Security product margins for the past several quarters.
Operating expenses in the third quarter of 2008, as reported in accordance with GAAP, were $5.0 million, compared with $3.8 million in the third quarter of 2007. Higher operating expenses in the third quarter of 2008 primarily reflect investments the Company has made to diversify and expand its sales base and to develop new products and business opportunities in the contactless market, which started in the beginning of 2008.
Operating loss for the third quarter of 2008, as reported in accordance with GAAP, was $(2.0) million, compared with operating loss of $(0.4) million in the year ago quarter.
Earnings before interest, taxes, depreciation and amortization (EBITDA) in the third quarter of 2008 was $(3.3) million, compared with EBITDA of $(0.4) million in the third quarter of 2007. (See reconciliation of EBITDA to GAAP accounting contained within this press release.)
As reported in accordance with GAAP, loss from continuing operations in the third quarter of 2008 was $(3.3) million, or $(0.21) per share, compared with loss from continuing operations of $(0.1) million, or $(0.01) per share, in the third quarter of 2007. The loss in the third quarter of 2008 includes other expenses, net of $(1.1) million that are primarily related to a non-cash loss on foreign currency exchange. Third quarter 2007 results included other income, net of $0.3 million.
Cash, cash equivalents and short-term investments at September 30, 2008 were $25.0 million, compared with $28.0 million at June 30, 2008.
“We continue to invest in business development activities to expand sales of our traditional products into new geographies, strengthen our expertise in contactless technology and build partnerships in key markets and regions,” said Marx. “Our equity investment in TranZfinity strengthens our ability to deliver innovative services to the contactless applications market. Our partnership with XIRING should enable us to rapidly deliver a new mobile terminal for the German eHealth market. We have a unique opportunity to become a key supplier of infrastructure technology for emerging contactless applications in banking, commerce, transportation and personal authentication, and we are focused on continuing to invest in the activities that can help us realize this opportunity.”
Guidance for 2008
For the full year 2008, the Company expects to achieve revenue of $27 million to $30 million, which represents flat to 10% lower revenues than those recorded for the full year 2007. The upper end of this forecast is subject to the German government beginning to implement its national electronic health card program before the end of the year and sufficient quantities of the Company’s eHealth terminals being purchased for the program during the fourth quarter.
In August 2008, the Company previously announced expected revenue growth of 5% to 15% for the year as a whole, or revenues of approximately $32 million to $35 million. The decrease in expected revenue compared with the guidance given in August is primarily due to lower than expected sales in the third quarter of 2008 as a result of variability in the timing of orders for smart card readers in Europe and unexpectedly light demand for digital media readers in the U.S.
The Company further expects base operating expenses of approximately $20 million to $21 million in 2008, including anticipated further investments in sales and marketing resources and in new product development to address growth initiatives. Within these ranges, the Company currently expects to record operating and net loss from continuing operations for the full year.
SCM does not plan to hold a conference call or webcast to discuss the results of its 2008 third quarter. For more information on SCM’s third quarter results, please see the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, filed with the U.S. Securities and Exchange Commission.
About SCM Microsystems
SCM Microsystems is a leading provider of solutions that open the Digital World by enabling people to conveniently access digital content and services. The company develops, markets and sells the industry’s broadest range of smart card reader technology for secure PC, network and physical access and digital media readers for transfer of digital content to OEM customers in the government, financial, enterprise, consumer electronics and photographic equipment markets worldwide. Global headquarters are in Ismaning, Germany. For additional information, visit the SCM Microsystems web site at www.scmmicro.com.
NOTE: This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These include, without limitation, our statements contained above regarding the near-term introduction of additional new products and our expectations for the Company’s fourth quarter and full fiscal year 2008, including specifically our statements regarding our expectations that we expect revenue to decrease 0% to 10% in the full year 2008 compared to prior year levels; that base operating expenses will be between $20 million and $21 million in 2008; and that we will record operating and net loss for the full year 2008. These statements are subject to risks and uncertainties which may cause actual results to differ materially from those contemplated herein. Our financial results may not meet expectations. Some of the risks and uncertainties that could cause our actual business and operating results to differ include, but are not limited to, our ability to grow revenues based on a strategy of expanding our sales into new geographic markets and on diversifying and growing our customer base; our ability to successfully develop and introduce new products, particularly contactless reader products, that satisfy the evolving and increasingly complex requirements of customers; sales of smart card readers to the U.S. government market may decline faster than currently expected; sales to the German government for its national electronic health card program may not occur or may decline; sales to a relatively small number of customers historically have accounted for a significant percentage of our revenues; the markets in which we participate or target may not grow, converge or standardize at anticipated rates or at all, including the government, financial and enterprise security markets that we are targeting; we may not successfully compete in the markets in which we participate or target; competitors could take market share or create pricing pressure; the current economic conditions could negatively impact our ability to access capital, could increase the cost of capital, could negatively impact customer demand, or could negatively impact the ability of our suppliers to produce and sell to us key components for our products; and our operating expenses may not be at levels that support profitability. For a discussion of further risks and uncertainties related to our business, please refer to our public company reports, including our Annual Report on Form 10-K for the year ended December 31, 2007 and subsequent reports, filed with the U.S. Securities and Exchange Commission.
Note: @MAXX is a trademark of SCM Microsystems, Inc. All trade names are trademarks or registered trademarks of their respective holders.
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