Herley Reports Year-End Results With Record Fourth Quarter and Fiscal Year Sales

LANCASTER, Pa., Oct. 14 /PRNewswire-FirstCall/ -- Herley Industries, Inc. (Nasdaq: HRLY) today reported financial results for the Fourth Quarter and Fiscal Year ended August 1, 2010.

Net sales for the fourth quarter of fiscal 2010 were the highest of all quarters in fiscal 2010 as part of a record setting year with sales of $48.4 million, an increase of 12.6% over the prior year fourth quarter net sales of $43.0 million.  The revenue increase for the quarter of $5.4 million over the prior year fourth quarter was related to increased deliveries under several production programs, including increases attributable to continued focus on manufacturing process improvements as well as revenue recognized under certain percentage-of-completion contracts. In the fourth quarter of fiscal 2010, the Company also resolved the class action litigation which had originated in 2006. This negotiated settlement resulted in a charge to operations of approximately $10.0 million.  Including the settlement, the net loss for the quarter was approximately $(3.0) million, or $(.22) per diluted share, compared to a net loss of $(44.4) million, or $(3.26) per diluted share, in the fourth quarter of the prior fiscal year. Excluding the impact of this settlement, net income for the quarter would have been $3.0 million, or $.22 per diluted share.  The net loss in the fourth quarter of 2009 related to several significant charges aggregating $66.9 million, including a non-cash impairment charge for goodwill and other intangible assets of $44.2 million.

Herley achieved record net sales for fiscal 2010 of $188.1 million, up 17.5% compared to $160.1 million in fiscal 2009. The Company has achieved several performance milestones that resulted in improved sales volume and profitability, while clearing the way for renewed operating focus with the settlement of the major claims against the Company. Customer backlog has also increased to $186.7 million compared to $182.0 million at the end of fiscal 2009. The Company reported net income for the year of $7.0 million, providing earnings per basic and diluted share of $.51 and $.50, respectively.  Excluding the impact of the litigation settlements of approximately $11.0 million, net income for the fiscal year would have been $13.6 million, or $ .97 per diluted share.

Gross profit for fiscal 2010 was $53.8 million (28.6% gross profit margin) compared to $27.4 million (17.1% gross profit margin) in the prior fiscal year, an increase of $26.4 million.  The primary factors contributing to the favorable increase over the prior year include sales volume increases and continued improvement in manufacturing efficiencies in comparison to lower sales volumes and various inventory adjustments impacting margin performance in 2009.

Selling and administrative ("S&A") expenses in fiscal 2010 were $31.4 million or 16.7% of net sales, compared to $29.0 million, or 18.1% of net sales, in fiscal 2009.  The $2.4 million increase in S&A expenses is primarily attributable to increased bid and proposal costs, increased foreign sales commissions, and increased payroll costs.

The Company's balance sheet continues to be very strong, with total cash and cash equivalents of $25.7 million, working capital of $87.6 million, and long-term debt of $12.2 million at August 1, 2010.  The Company also experienced improved cash flow performance for the year with net cash provided by operations of $17.2 million, an increase of approximately 16% over the prior fiscal period.

The Company's EBITDA was $16.5 million for fiscal 2010 and, when adjusted for the impact of net litigation costs and litigation settlements, results in adjusted EBITDA of $28.2 million. (See table below for a reconciliation of the non-GAAP measure to net income.)

Richard Poirier, Chief Executive officer and President, commented, "I am very pleased with Herley's record fiscal year 2010.  By the end of the fiscal year, we ended the significant litigation that has impacted the Company since 2006. This was a major accomplishment for the Company this year. Even with the effect that the legal fees and settlement costs had on the fiscal year, the Company achieved record revenues and saw the return to profitability. As predicted, our book to bill was greater than 1 to 1 and our cash provided from operations was approximately $17 million.  With our healthy backlog and bookings we intend to grow organically and will continue to explore opportunities to make strategic acquisitions within the industry."

John Thonet, Chairman of the Board, commented, "Herley's Board of Directors commends our CEO, Richard Poirier and his division managers for delivering four solid quarters in fiscal 2010 and positioning Herley for a good year in 2011 as well." 

We present the non-GAAP (generally accepted accounting principles) measure EBITDA (as defined herein) in this report and anticipate referring to this measure in the conference call referenced below. Presentation of EBITDA is consistent with how we evaluate our performance internally and EBITDA is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. EBITDA is a non-GAAP operating measure under Regulation G of the Securities and Exchange Commission. We compute EBITDA by adding back net interest, taxes, depreciation and amortization to net income. Each of these GAAP financial measures is included in our financial statements and thus EBITDA can be reconciled to net income attributable to common shareholders, the most comparable GAAP financial measure to it. However, other companies in our industry may calculate EBITDA differently than we do. EBITDA is not a measurement of financial performance under GAAP and should not be considered as a substitute for cash flow from operating activities as a measure of liquidity or a substitute for net income as an indicator of operating performance or any other measure of performance derived in accordance with GAAP.

Reconciliation of net income to EBITDA and adjusted EBITDA (unaudited):

We also present net income and earnings per diluted share, excluding the impact of litigation settlements, for the fourth quarter and the fiscal year.  The following sets forth a reconciliation of these adjusted non-GAAP amounts to the corresponding GAAP measures:

John Thonet, Chairman of the Board, and Richard Poirier, Chief Executive Officer and President, will host a conference call on Friday, October 15, 2010 at 10:00 a.m. Eastern Time to discuss financial results for the Fourth Quarter and Fiscal Year ended August 1, 2010. To join the conference call, dial 1 (888) 425-4188 and reference Conference ID # 16300394.  

Replay of the conference call is scheduled to begin on October 15, 2010, one hour after completion of the call, and end on October 22 at 11:59 p.m. Eastern Time.  To listen to the replay, dial: 1 (800) 642-1687 (U.S.) or 1 (706) 645-9291 (International) and Conference ID #16300394.

In addition, the conference call will be broadcast live over the internet and can be accessed through the following URL: http://www.videonewswire.com/event.asp?id=73036. To listen to the live call on the internet, go to the website at least 15 minutes early to register, download and install any necessary audio software.

Herley Industries, Inc. is a leader in the design, development and manufacture of microwave technology solutions for the defense, aerospace and medical industries worldwide. Based in Lancaster, PA, Herley has seven manufacturing locations and approximately 1,000 employees. Additional information about the Company can be found on the internet at www.herley.com.

Safe Harbor Statement - Except for the historical information contained herein, this release may contain forward-looking statements. Such statements are inherently subject to risks and uncertainties. Forward-looking statements involve various important assumptions, risks, uncertainties and other factors which could cause our actual results to differ materially from those expressed in such forward-looking statements. Forward-looking statements in this discussion can be identified by words such as "anticipate," "believe," "could," "estimate," "expect," "plan," "intend," "may," "should" or the negative of these terms or similar expressions. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance or achievement. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors including, but not limited to, competitive factors and pricing pressures, changes in legal and regulatory requirements, cancellation or deferral of customer orders, technological change or difficulties, difficulties in the timely development of new products, difficulties in manufacturing, commercialization and trade difficulties and current economic conditions, including the potential for significant changes in U.S. defense spending under the new Administration which could affect future funding of programs and allocations within the budget to various programs, as well as the factors set forth in this release and in our public filings with the Securities and Exchange Commission.

SOURCE Herley Industries, Inc.