Flow International Corp. Reports Operating Results (10-Q)
Flow International Corp. has a market cap of $164 million; its shares were traded at around $3.48 with and P/S ratio of 0.9. FLOW is in the portfolios of Arnold Schneider of Schneider Capital Management, Chuck Royce of Royce& Associates, Mario Gabelli of GAMCO Investors, Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations: During the current period, business activity in all of our geographic regions, including North America, exhibited signs of growing economic activity. Capacity utilization levels continued to increase from their lows in the first half of our fiscal year 2010. As a result, our system sales increased by 28% to $34.9 million for the three months ended October 31, 2010 compared to the year-ago quarter. Consumable parts sales increased by 23% to $18 million during the same period a level which surpassed our pre-recession quarterly highs.
We generated operating income of $873,000 during the three month ended October 31, 2010 which compared to $337,000 in the year-ago quarter. Our operating income in the year-ago quarter included a gain on the sale of our building in Hsinchu, Taiwan of $601,000.
Consolidated Adjusted EBITDA (Adjusted EBITDA) for the three month ended October 31, 2010 was $3.1 million compared to $2.3 million the comparative prior period. The increase in Adjusted EBITDA was as a direct result of the improvement in sales, partially offset by the overall decline in gross margin and increase in operating expenses as discussed in the Matters Affecting Comparability section below.
In fiscal year 2010, we terminated our option to acquire OMAX following a thorough investigation of financing alternatives to complete the merger and unsuccessful attempts to negotiate a lower purchase price with OMAX. Pursuant to the terms of the amended Merger Agreement and the Settlement and Cross Licensing Agreement, the $15 million held in escrow was released to OMAX. We recorded a $6 million charge pursuant to the provisions of the amended Merger Agreement in the first quarter of fiscal year 2010, net of a $2.8 million discount as the two subordinated notes issued to OMAX were at a stated interest rate of 2%, which is below our incremental borrowing rate. This discount is being amortized as interest expense through the maturity of the subordinated notes in August 2013.
Sales for the three months ended October 31, 2010 increased $10.9 million or 26% over the prior year period primarily driven by improved sales volume due to the stabilizing of the macroeconomic environment. The increase in sales was driven by our Standard segment and consumable parts, which improved $13.4 million or 43% over the prior year period. All geographies in our Standard segment experienced double digit growth over the prior year comparative period, which was significantly impacted by the recession. This increase in our Standard segment over the prior year was offset by a decrease of $2.5 million or 24% in our Advanced segment sales, much of which was anticipated due to the timing of contract awards and our manufacturing and installation schedules.
Sales for the six months ended October 31, 2010 increased $19.7 million or 25% over the prior year comparative period which was consistent with our quarterly results. In particular, we experienced significant sales volume increases in our Standard segment systems and consumable parts sales which had a combined revenue increase of $25.9 million or 43%, with North America and Europe Standard segment systems and consumable parts sales representing $16.0 million or 36% of this increase. The increase in our standard segment sales were partially offset by a decrease of $6.2 million or 31% in our Advanced segment sales, much of which was anticipated due to the timing of contract awards and our manufacturing and installation schedules.
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