CUI Global Reports Unaudited Second Quarter 2014 Financial Results

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Aug 11, 2014, 04:43 ET

TUALATIN, Ore., Aug. 11, 2014 /PRNewswire/ -- CUI Global, Inc. (NASDAQ: CUI), a platform company dedicated to the acquisition, development, and commercialization of new, innovative products, today reported their unaudited financial results for the second quarter, ended June 30, 2014.

Second Quarter 2014 Financial Performance Summary: (Comparisons to 2Q 2013)

Quarterly revenue was up 6% to $19.2 million from $18.2 million
Gross Profit margin was 40%, as compared to 39%
Consolidated loss of $(66) thousand or $(0.00) per share versus $437 thousand profit or $0.02 per share
Quarterly adjusted EBITDA was $1.3 million or $0.06 a share, as compared to $1.8 million or $0.10 a share in Q2 2013
Year to date Adjusted EBITDA was $2.2 million or $0.10 a share, as compared to $1.8 million or $0.12 a share in 2013
Cash and cash equivalents were $15.2 million with an additional $12.0 million in short-term investments
Power and Electro-Mechanical segment unaudited backlog of $14.0 million as of June 30, 2014
Gas segment unaudited backlog of $23.7 million as of June 30, 2014

CUI Global's President & CEO, William Clough commented, "We are pleased with our second quarter and year to date results, as we continue to build on our momentum from the first quarter. We saw increases in revenues in both segments and our backlog remains robust."

"We have now signed up 33 new distributors in Europe and North America. In addition, we announced in early May the fact that National Grid had selected our IRIS technology for use in remotely controlling their entire grid. Since that announcement, we have continued discussions with GE and are now preparing a presentation of the IRIS technology for joint marketing and sales presentation with GE to such North American customers as Kinder-Morgan, Williams Pipeline, Spectra Energy and others," Clough continued.

Clough explained, "We believe these distributor agreements and our cooperation with GE's Intelligent Platform Group represent significant steps in our plan to develop a substantial distribution network for our ground breaking technology and, specifically, for sales targeting North American energy producers and transporters."

"Sales of our GasPTi product remain steady, as we have now received orders for 21 units in 2014. In addition, we have now completed a four month field trial of six units by Snam Rete Gas. Those trials went very well, with all six units passing the testing. The VE technology remains a strong product for us and is now being considered by a number of large energy producers and transporters in North America and Europe for implementation on their pipelines, both as sampling systems and as thermowell replacements," concluded Clough.

For the quarter ended June 30, 2014, CUI Global produced consolidated total revenues of $19.2 million and year to date consolidated total revenues of $36.1 million. Gross revenues for the second quarter grew 14% sequentially from first quarter revenues of $16.9 million and 6% year-over-year, when compared to $18.2 million in the second quarter of 2013.

The cost of revenue for the quarter ended June 30, 2014, was $11.5 million, versus $11.1 million for the same period in 2013. The increase when compared to the second quarter of 2013 is primarily the result of increased revenues associated with growth in the power and electro-mechanical segment. As a percentage of sales, the cost of revenue remained relatively consistent at 60% for Q2 2014 compared with 61% in Q2 2013 with the change associated with the product mix delivered during the period. Gross profit was $14.7 million year to date versus $10.9 million in 2013 and $7.7 million for the quarter ended June 30, 2014 versus $7.0 million during Q2 2013.

SG&A decreased 3% as a percentage of revenues for the second quarter sequentially from first quarter and increased 5% as a percentage of revenues as compared to the quarter ended 2013.

The company reported a net loss of $(66) thousand or $(0.00) per share (EPS) for the quarter ended June 30, 2014 as compared with a net profit of $437 thousand or $0.02 per share in the prior year period. The net loss, during the quarter ended June 30, 2014 as compared to the prior year period is primarily the result of consistent increases for selling, general and administrative expenses related to the increased revenues and selling and marketing efforts associated with introducing new technologies and Orbital to the global marketplace.

The earnings before interest, taxes, depreciation and amortization (EBITDA) for the second quarter were $868 thousand or $0.04 EBITDA per share. Adjusted EBITDA for the second quarter 2014 was $1.3 million or $0.06 per share.

Operating activities generated positive cash flow of $49 thousand during the six months ended June 30, 2014, versus positive cash flow from operations of $603 thousand for the same period in 2013. The change in cash provided by operations is primarily related to the changes in the operating assets associated primarily with increased revenues during the period as well as the net income generated by operating activities exclusive of non-cash expenses during the year to date period.

In addition, as an operating unit, the power and electro-mechanical segment (CUI, Inc. and CUI Japan) posted revenues of $13.6 million for the quarter, which represented a $985 thousand (8%) increase as compared to the same period in 2013. The gas segment posted revenues of $5.6 million in the second quarter.

The power and electro-mechanical segment unaudited order back log was $14.0 million and the gas segment unaudited order back log was $23.7 million as of June 30, 2014.

The company had $15.2 million of cash and cash equivalents as of June 30, 2014, a decrease of $1.4 million since December 31, 2013. The Company had an additional $12.0 million in short-term investments, an increase of $1.1 million since December 31, 2013.

CONFERENCE CALL

The Company will conduct a conference call and webcast to review the results on Tuesday, August 12, 2014 at 9:00am ET.

To access the call, please dial the toll free number at (888) 734-0328 and provide the Conference ID: 81760447. For international callers, please dial (678) 894-3054. At the conclusion of the call, a replay will be available until August 23, 2014. To access the replay of the call dial (855) 859-2056 and provide the same Conference 81760447. This replay will be available until August 23, 2014.

A simultaneous webcast will also be available via: http://www.media-server.com/m/p/fpj9fmny

Condensed Consolidated Balance Sheets

			June 30, 2014	December 31, 2013
			(unaudited)
Assets:
Current assets:
	Cash and cash equivalents		$ 15,182,145	$ 16,575,508
	Short term investments held to maturity		11,955,454	10,868,961
	Trade accounts receivable, net of allowance of $239,102 and $285,348, respectively		11,257,374	9,055,561
	Inventories, net of allowance of $511,128 and $549,981, respectively		7,175,904	7,027,644
	Costs in excess of billings		-	552,012
	Prepaid expenses and other		1,116,496	603,960
		Total current assets	46,687,373	44,683,646

Property and equipment, net			8,315,414	8,206,563

Other assets:
	Investment - equity method		325,121	283,011
	Other intangible assets, net		22,236,921	23,512,394
	Deposits and other		34,219	25,364
	Notes receivable, net of allowance of $564,194 and $564,194, respectively		-	-
	Goodwill, net		22,761,679	22,448,613
		Total other assets	45,357,940	46,269,382
		Total assets	$ 100,360,727	$ 99,159,591

Liabilities and Stockholders' Equity:
Current liabilities:
	Accounts payable		$ 4,686,227	$ 4,146,262
	Mortgage note payable, current portion		78,764	76,814
	Leases payable, current portion		64,279	83,904
	Accrued expenses		2,368,734	2,253,773
	Accrued taxes payable		397,047	263,804
	Accrued compensation		553,959	426,402
	Billings in excess of costs		5,766,757	6,787,231
	Unearned revenue		1,684,932	1,257,346
		Total current liabilities	15,600,699	15,295,536
	Long term leases payable		93,644	58,363
	Derivative liability		544,981	427,818
	Long term mortgage note payable, net of current portion due of $78,764 and $76,814, respectively		3,564,210	3,604,242
	Long term notes payable, related party		5,303,683	5,303,683
	Deferred tax liabilities, net		2,856,846	3,111,361
		Total long term liabilities	12,363,364	12,505,467
		Total liabilities	27,964,063	27,801,003

Commitments and contingencies

Stockholders' equity
	Common stock, par value $0.001; 325,000,000 shares authorized; 20,634,072 shares issued and outstanding at June 30, 2014 and 20,566,663 shares issued and outstanding at December 31, 2013		20,634	20,567
	Additional paid-in capital		147,263,288	146,614,995
	Accumulated deficit		(77,669,315)	(77,114,935)
	Accumulated other comprehensive gain		2,782,057	1,837,961
		Total stockholders' equity	72,396,664	71,358,588
		Total liabilities and stockholders' equity	$ 100,360,727	$ 99,159,591

Condensed Consolidated Statements of Operations
(unaudited)

			For the three months ended June 30,		For the six months ended June 30,
			2014	2013	2014	2013
Revenues:
	Product sales		$ 19,202,860	$ 18,138,599	$ 36,092,981	$ 28,190,845
	Revenue from freight		11,333	12,492	21,121	19,606
		Total revenue	19,214,193	18,151,091	36,114,102	28,210,451

Cost of revenues			11,506,825	11,148,154	21,412,512	17,263,366

Gross profit			7,707,368	7,002,937	14,701,590	10,947,085

Operating expenses:
	Selling, general and administrative		6,494,599	5,289,249	12,686,299	9,227,870
	Depreciation and amortization		1,076,155	920,478	2,129,168	1,064,007
	Research and development		328,765	198,775	598,617	443,465
	Bad debt		30,231	47,470	(77,769)	42,470
		Total operating expenses	7,929,750	6,455,972	15,336,315	10,777,812

Income (loss) from operations			(222,382)	546,965	(634,725)	169,273

Other income (expense):
	Other income		70,195	56,057	152,064	117,295
	Other expense		(65,580)	(4,961)	(65,875)	(9,906)
	Unrealized (loss) on derivative		(61,583)	-	(117,163)	-
	Earnings (loss) from equity investment		26,740	(6,229)	42,110	(4,126)
	Gain (loss) on disposals of fixed assets		-	-	(4,754)	-
	Amortization of investment premiums and discounts		(17,319)	-	(32,301)	-
	Amortization of debt offering costs and debt discount		-	(18,333)	-	(36,666)
	Interest expense		(127,783)	(86,979)	(253,274)	(201,453)
		Total other income (expense), net	(175,330)	(60,445)	(279,193)	(134,856)

Income (loss) before taxes			(397,712)	486,520	(913,918)	34,417
	(Benefit) provision for taxes		(331,250)	49,287	(359,538)	59,276
Consolidated net income (loss)			$ (66,462)	$ 437,233	$ (554,380)	$ (24,859)

Basic income (loss) per common share			$ (0.00)	$ 0.02	$ (0.03)	$ (0.00)
Diluted income (loss) per common share			$ (0.00)	$ 0.02	$ (0.03)	$ (0.00)
Basic weighted average common shares outstanding			20,628,347	18,835,103	20,608,048	14,881,158
Diluted weighted average common and common equivalent shares outstanding			20,628,347	18,851,315	20,608,048	14,881,158

Condensed Consolidated Statements of Cash Flows (unaudited)

			For the six months ended June 30,
			2014	2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss)			$ (554,380)	$ (24,859)
Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities:
	Stock, options and notes issued for compensation and services		526,692	295,541
	Unrealized loss on derivative		117,163	-
	Non-cash interest expense, including amortization of debt offering costs		-	36,666
	Non-cash (profit) loss on equity method investment		(42,110)	4,126
	Allowance for bad debt expense and returns allowance		(47,769)	42,470
	Amortization of investment premiums and discounts		32,301	-
	Amortization of intangibles		1,739,207	866,403
	Deferred income taxes		(349,127)	(142,455)
	Inventory reserve		(47,859)	18,400
	Loss on disposal of assets		4,754	-
	Depreciation		516,844	327,999
(Increase) decrease in assets:
	Trade accounts receivable		(2,020,815)	1,654,312
	Inventories		(21,082)	(898,397)
	Costs in excess of billings		570,091	90,871
	Prepaid expenses and other current assets		(358,939)	(673,266)
	Deposits and other assets		(8,855)	11,360
Increase (decrease) in liabilities:
	Accounts payable		470,658	456,307
	Accrued expenses		93,371	(1,514,443)
	Accrued compensation		119,169	124,547
	Accrued taxes payable		124,546	(401,223)
	Unearned revenue		427,586	259,539
	Billings in excess of costs		(1,242,763)	68,803
		NET CASH PROVIDED BY OPERATING ACTIVITIES	48,683	602,701
CASH FLOWS FROM INVESTING ACTIVITIES:
	Cash paid upon acquisition, net of cash received		-	(17,709,507)
	Investment in patents		-	(2,500)
	Purchase of short term investments held to maturity		(6,282,980)	-
	Maturities of short term investments held to maturity		5,164,186	-
	Proceeds from notes receivable		-	18,116
	Purchase of property and equipment		(483,262)	(442,086)
		NET CASH USED IN INVESTING ACTIVITIES	(1,602,056)	(18,135,977)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Payments on demand notes payable, net of debt offering costs		-	(459,448)
	Payments on leases payable, net of proceeds		(70,719)	(3,736)
	Payments on notes and loans payable		(38,082)	-
	Payments on notes payable, related party		-	(2,000,000)
	Proceeds from sales of common stock, and exercise of warrants and options, net of offering costs		-	45,135,280
		NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES	(108,801)	42,672,096
EFFECT OF EXCHANGE RATE CHANGE ON CASH			268,811	(73,111)
Cash and cash equivalents at beginning of period			16,575,508	3,039,840
Cash and cash equivalents at end of period			15,182,145	28,105,549
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS			$ (1,393,363)	$ 25,065,709

	For the six months ended June 30,
	2014	2013
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid	$ 138,663	$ 62,948
Interest paid	$ 254,925	$ 201,233

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital leases	$ 81,716	$ 16,381

About CUI Global, Inc.
Delivering Innovative Technologies for an Interconnected World . . . . .

CUI Global, Inc. is a publicly traded company dedicated to maximizing shareholder value through the acquisition and development of innovative companies, products and technologies. From Orbital Gas Systems' advanced GasPT2 platform targeting the energy sector, to CUI Inc.'s digital power platform serving the networking and telecom space, CUI Global and its subsidiaries have built a diversified portfolio of industry leading technologies that touch many markets. As a publicly traded company, shareholders are able to participate in the opportunities, revenues, and profits generated by the products, technologies, and market channels of CUI Global and its subsidiaries. But most importantly, a commitment to conduct business with a high level of integrity, respect, and philanthropic dedication allows the organization to make a difference in the lives of their customers, employees, investors and global community.

For more information please visit www.cuiglobal.com

Important Cautions Regarding Forward Looking Statements
This document 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. Such statements are subject to risks and uncertainties that could cause actual results to vary materially from those projected in the forward-looking statements. The company may experience significant fluctuations in future operating results due to a number of economic, competitive, and other factors, including, among other things, our reliance on third-party manufacturers and suppliers, government agency budgetary and political constraints, new or increased competition, changes in market demand, and the performance or reliability of our products. These factors and others could cause operating results to vary significantly from those in prior periods, and those projected in forward-looking statements. Additional information with respect to these and other factors, which could materially affect the company and its operations, are included in certain forms the company has filed with the Securities and Exchange Commission.

Reconciliation of Non-GAAP Financial Measures
EBITDA, Adjusted EBITDA, and Adjusted Net Income are a non-GAAP financial measures and are reconciled in the tables below. These non-GAAP financial measures do not represent funds available for management's discretionary use and are not intended to represent cash flow from operations. EBITDA, Adjusted EBITDA, and Adjusted Net Income should not be construed as substitutes for net loss or as a better measure of liquidity than cash flow from operating activities, which is determined in accordance with United States generally accepted accounting principles ("GAAP"). EBITDA, Adjusted EBITDA, and Adjusted Net Income exclude components that are significant in understanding and assessing the company's results of operations and cash flows. In addition, EBITDA, Adjusted EBITDA, and Adjusted Net Income are not terms defined by GAAP and as a result our measure of these non-GAAP financial measures might not be comparable to similarly titled measures used by other companies. However, EBITDA, Adjusted EBITDA, and Adjusted Net Income are used by management to evaluate, assess and benchmark the company's operational results and the company believes these non-GAAP financial measures are relevant and useful information which are often reported and widely used by analysts, investors and other interested parties in the company's industry. Accordingly, the company is disclosing this information to permit a more comprehensive analysis of its operating performance, to provide an additional measure of performance and liquidity and to provide additional information with respect to the company's ability to meet future debt service, capital expenditure and working capital requirements. Adjusted net income eliminates the amortization expenses associated with intangible assets acquired with Orbital Gas Systems Limited in April 2013 as well as non-cash expenses associated with stock, warrants, options and notes issued for compensation and services during the period ended.

	For the 3 months ended June 30,		For the 6 months ended June 30,
	2014	2013	2014	2013
EBITDA:
Consolidated Income (loss)	$ (66,462)	$ 437,233	$ (554,380)	$ (24,859)
Plus: Interest expense	127,783	86,979	253,274	201,453
Plus: (Benefit) provision for taxes	(331,250)	49,287	(359,538)	59,276
Plus: Depreciation	261,369	184,390	516,844	327,999
Plus: Amortization	876,237	798,876	1,739,207	866,403
Plus: Amortization of debt offering costs and debt discount	-	18,333	-	36,666
EBITDA	$ 867,677	$ 1,575,098	$ 1,595,407	$ 1,466,938
Adjusted EBITDA:
Plus: Bad debt	30,231	47,470	(77,769)	42,470
Plus: Unrealized loss on derivative	61,583	-	117,163	-
Plus: Stock, options and notes issued for compensation and services	302,197	207,752	526,692	295,541

Adjusted EBITDA	$ 1,261,688	$ 1,830,320	$ 2,161,493	$ 1,804,949

EBITDA per share	$ 0.04	$ 0.08	$ 0.08	$ 0.10
Adjusted EBITDA per share	$ 0.06	$ 0.10	$ 0.10	$ 0.12
Basic weighted average shares outstanding	20,628,347	18,835,103	20,608,048	14,881,158

Adjusted net income (loss):
Consolidated Income (loss)	$ (66,462)	$ 437,233	$ (554,380)	$ (24,859)
Plus: Amortization expense of Orbital acquisition related intangible assets	798,193	731,345	1,583,292	731,345
Plus: Stock, options and notes issued for compensation and services	302,197	207,752	526,692	295,541
Adjusted net income	$ 1,033,928	$ 1,376,330	$ 1,555,604	$ 1,002,027
Adjusted income per common share	$ 0.05	$ 0.07	$ 0.08	$ 0.07
Basic weighted average shares outstanding	20,628,347	18,835,103	20,608,048	14,881,158