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Articles 

Advanced Photonix Inc Reports Operating Results (10-Q)

November 14, 2011 | About:

Advanced Photonix Inc (API) filed Quarterly Report for the period ended 2011-09-30.

Advanced Photonix Inc. has a market cap of $23.98 million; its shares were traded at around $0.78 with a P/E ratio of 78 and P/S ratio of 0.83.

Highlight of Business Operations:

Industrial Sensing/NDT market revenue was approximately $2.7 million in the second quarter of fiscal 2012 and $5.5 million for the six-month period, decreases of $576,000 (18%) and $1.2 million (18%) respectively, from the prior year periods, primarily due to lower revenue from several of our Optosolutions customers. Revenue decreased approximately 5%, or $154,000, from the first quarter of fiscal 2012, primarily due to the timing of orders and shipments, offset by an increase to the THz product platform. Industrial customers have proven to be cautious in their ordering patterns during the first half of the year and given the macro economic uncertainties, we now believe the industrial market will continue to remain soft through the balance of the fiscal year. Military/Aerospace market revenue in the second quarter of fiscal 2012 was $1.1 million and $1.9 million for the six months ended September 30, 2011, a decrease of 24% (or $345,000) and 20% (or $469,000) from the comparable prior year periods. This decrease was attributable primarily to the softening in domestic military expenditures. Military/Aerospace market revenue in the second quarter of fiscal 2012 increased $296,000 (or 36%) from the first quarter of fiscal 2012, due to the timing of orders and shipments. We expect military revenues to decrease on a comparative basis for fiscal 2012. Medical market revenues in the second quarter and six months ended September, 2011 were $225,000, and $520,000, an increase of $51,000 (29%) and $291,000 (127%) from the prior year periods due to the return of a significant customer. On a sequential basis, revenue decreased $71,000 from the first quarter of fiscal 2012, primarily because of the timing of shipments from one customer. We expect medical market revenue to remain about the same on a comparative basis for fiscal 2012. Homeland Security revenues were $428,000 for the three-month period ended September 30, 2011, compared to zero revenue in the second quarter of fiscal 2011 and $469,000 in the first quarter of fiscal 2012. On a year to date basis, homeland security revenue is up $897,000 over the prior year. The increase was the result of the In-Q-Tel development contract revenues relating to the development of anomaly detector prototypes for personnel screening. We expect Homeland Security revenues to grow substantially on a comparative basis for fiscal 2012 as a result of this development contract. Gross Profit Gross profit for the second quarter of fiscal 2012 was $3.6 million compared to $2.9 million for the second quarter of fiscal 2011, an increase of $665,000 (or 23%) on an increase in revenue volume of 19% (or $1.4 million), reflecting a 49% gross margin incremental fall through. The higher gross profit for the second quarter of fiscal 2012 was due to increased volume on HSOR products and helped by a reduction in scrap and rework expenses associated with the manufacturing ramp-up of the new 100G line side products. Gross profit was 42.7% of revenue compared to 41.5% in the second quarter of fiscal 2011 and 41.6% in the first quarter of fiscal 2012. Year to date gross profit was $6.9 million (or 42.2% of revenue), compared to the first six months of fiscal 2011 of $5.8 million (or 43.9% of revenue). The higher gross profit dollars are a direct result of the higher HSOR volumes. The slightly lower gross profit margin percentage for the first six months was due primarily to lower gross margin percentage on THz and custom optoelectronic products offset by HSOR improvements.

Operating Expenses Total operating expenses for the quarter and six months ended September 30, 2011 were $3.9 million and $7.7 million respectively, an increase of $834,000 and $1.5 million over comparative 2011 periods. This increase was primarily due to investments made in additional headcount for sales, R&D and corporate administration, partially offset by lower amortization expense on intangible assets. Research, development and engineering (RD&E) expenses of $1.7 million increased by $411,000 (or 32%) in the second quarter of fiscal 2012 compared to the second quarter of fiscal 2011. RD&E expenses were $815,000 higher for the six month period ended September 30, 2011 compared to the six month period ended October 1, 2010 of $2.6 million. The increases are due to qualification costs and an increase in our headcount to develop the next generation 40G/100G HSOR products in order to satisfy the rapidly evolving technology requirements necessary to support the growing bandwidth demands placed on the optical communication infrastructure and increase our application capability in THz, predominately in connection with developing an anomaly detector for homeland security applications. Sales and Marketing (S&M) expenses increased $141,000 (or 33%) to $565,000 (7% of sales) in the second quarter of fiscal 2012 compared to $424,000 (6% of sales) in the prior year second quarter. Sales and marketing expenses increased 32% (or $283,000) to $1.2 million for the six month period ended September 30, 2011, compared to $897,000 for six month period ended October 1, 2010. The increase for both periods was primarily attributable to higher sales volume increasing commissions, increased headcount and attendance at several THz related trade shows. Given the expected revenue profile for the remainder of the year, we expect sales and marketing expenses to decrease for the second half of the year. General and Administrative (G&A) expenses increased $348,000 to approximately $1.3 million (16% of sales) for the second quarter of fiscal 2012, as compared to $952,000 (14% of sales) for the second quarter of fiscal 2011. G&A expenses for the six month period ended September 30, 2011 increased by $495,000 (or 25%), to approximately $2.5 million (15% of sales) compared to $2.0 million (15% of sales) for the six month period ended October 1, 2010. The increase for both periods was primarily attributable to increased headcount, higher recruiting fees, stock compensation, and the partial refund of previously accrued tax credits. We expect G&A expenses to be higher on a dollar basis for fiscal 2012 compared to fiscal 2011, primarily driven by the increase in the executive management team and incremental stock compensation expense. Amortization expense decreased $66,000 to $342,000 compared to the second quarter of fiscal 2011 expense of approximately $408,000. For the six month period ended September 30, 2011, amortization expense decreased 16% to $684,000 compared to $814,000 for the six month period ended October 1 2010. We utilize the cash flow amortization method on the majority of our intangible assets. The non-cash expensing of stock option and restricted stock grants included in operating expenses was $216,000 for the six month period ended September 30, 2011 compared to $67,000 for the six month period ended October 1, 2010. Other Income (Expense), net Interest income for the second quarter of fiscal 2012 was $2,000, compared to $1,000 for the second quarter of fiscal 2011. Interest income for the six month period ended September 30, 2011 totaled approximately $4,000, compared to $2,000 for the six month period ended October 1, 2010, due to higher cash balances available for short-term investments. Interest expense in the second quarter of fiscal 2012 was $44,000 compared to $71,000 in the second quarter of fiscal 2011, a decrease of $27,000 (or 38%). Interest expense for the six month period ended September 30, 2011 was $90,000, compared to $136,000 for the six month period ended October 1, 2010, a decrease of $46,000 (or 34%). We incurred lower interest expense to banks and related parties due to pay down of certain debt obligations with the equity proceeds from the fourth quarter of fiscal 2011. 26

Sales and Marketing (S&M) expenses increased $141,000 (or 33%) to $565,000 (7% of sales) in the second quarter of fiscal 2012 compared to $424,000 (6% of sales) in the prior year second quarter. Sales and marketing expenses increased 32% (or $283,000) to $1.2 million for the six month period ended September 30, 2011, compared to $897,000 for six month period ended October 1, 2010. The increase for both periods was primarily attributable to higher sales volume increasing commissions, increased headcount and attendance at several THz related trade shows. Given the expected revenue profile for the remainder of the year, we expect sales and marketing expenses to decrease for the second half of the year.

General and Administrative (G&A) expenses increased $348,000 to approximately $1.3 million (16% of sales) for the second quarter of fiscal 2012, as compared to $952,000 (14% of sales) for the second quarter of fiscal 2011. G&A expenses for the six month period ended September 30, 2011 increased by $495,000 (or 25%), to approximately $2.5 million (15% of sales) compared to $2.0 million (15% of sales) for the six month period ended October 1, 2010. The increase for both periods was primarily attributable to increased headcount, higher recruiting fees, stock compensation, and the partial refund of previously accrued tax credits. We expect G&A expenses to be higher on a dollar basis for fiscal 2012 compared to fiscal 2011, primarily driven by the increase in the executive management team and incremental stock compensation expense.

As discussed in Note 7 to the Condensed Consolidated Financial Statements, FASB guidance on determining whether instruments granted in share-based payment transactions are participating securities requires our outstanding warrants to be recorded as a liability at fair value with subsequent changes in fair value recorded in earnings. The fair value of the warrant is determined using a Monte Carlo option pricing model, and is affected by changes in inputs to that model including our stock price, expected stock price volatility and contractual term. To the extent that the fair value of the warrant liability increases or decreases, we record an expense or income in our statements of operations. The other income of $142,000 attributed to the change in fair value of the warrant liability in the second quarter of fiscal 2012 is due to the change in the stock price, expected volatility, interest rates and contractual life of the warrants which are the primary assumptions applied to the Monte Carlo model used to calculate the fair value of the warrants. For the second quarter of fiscal 2011, we incurred a net expense of $143,000 on the change in fair value of the warrant liability. For the six month period ended September 30, 2011, we incurred net income of $634,000 on the change in fair value of the warrant liability, compared to a net expense of $89,000 for the six month period ended October 1, 2010. We realized a net loss for the second quarter of fiscal 2012 of approximately $254,000 ($0.01 per share), as compared to a net loss of $398,000 ($0.02 per share) in the second quarter of fiscal 2011, an improvement of approximately $144,000. This improvement for the quarter is primarily attributable to the fair value warrant adjustment of $285,000, offset by an increase in loss from operations. Net loss for the six month period ended September 30, 2011 was $236,000 ($0.01 per share), as compared to a net loss of $671,000 ($0.03 per share) for the comparable prior year periods, a decrease in loss of approximately $435,000. This improvement is primarily attributable to the fair value warrant adjustment of $723,000 and additional $1.1 million gross profit on $3.2 million higher revenue, offset by an increase in operating expenses of approximately $1.5 million. We have invested a significant portion of the additional gross profit in operating expenses like R&D and sales & marketing. Fluctuation in Operating Results Our operating results may fluctuate from period to period and will depend on numerous factors, including, but not limited to, customer demand and market acceptance of our products, new product introductions, product obsolescence, component price fluctuation, manufacturing inefficiencies, varying product mix, and other factors. If demand does not meet our expectations in any given quarter, the sales shortfall may result in an increased impact on operating results due to our inability to adjust operating expenditures quickly enough to compensate for such shortfall. Our result of operations could be materially adversely affected by changes in economic conditions, governmental or customer spending patterns for the markets we serve. The current turbulence in the global financial markets and its potential impact on global demand for our customers products and their ability to finance capital expenditures could materially affect our operating results. In addition, any significant reduction in defense spending as a result of a change in governmental spending patterns could reduce demand for our product sold into the military market. Liquidity and Capital Resources At September 30, 2011, we had cash and cash equivalents of $3.8 million, a decrease of $896,000 from the March 31, 2011 balance of $4.7 million. The lower balance for the six month period is attributable to cash used in operating activities of $522,000, investing activities of $8,000 and financing activities of $366,000. 27

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About the author:

10qk
Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

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