Cartesian Reports Third Quarter 2016 Financial Results

OVERLAND PARK, Kan., Nov. 10, 2016 (GLOBE NEWSWIRE) -- Cartesian, Inc. (NASDAQ:CRTN), a specialist provider of consulting services and managed solutions to the global communications, technology and digital media industries, reported financial results for the third quarter ended October 1, 2016.

Q3 2016 Operational Highlights
  • Sales execution and cost management drive significant operating income improvement
  • Mix of services improves, with a greater percentage of higher margin projects in the EMEA region
  • Strong growth in consulting projects for European regulatory customers
  • Added several new customers, including a Tier 2 operator in EMEA and a network service provider in North America

Q3 2016 Financial Highlights (results compared to the same year-ago quarter)
  • GAAP revenues declined 18% to $17.3 million
  • Gross profit decreased 20% to $6.1 million
  • GAAP income from operations increased $0.6 million, turning positive to $0.1 million
  • Non-GAAP revenues (on a constant currency basis) decreased 10% to $19.0 million (see reconciliation to GAAP, below)
  • Non-GAAP adjusted income from operations was $0.8 million (see reconciliation to GAAP, below)

Management Commentary

Cartesian CEO, Peter Woodward, commented, "We are very pleased with the progress we made in the third quarter.  The significant impact of currency translation contributed to our lower reported revenue, but our level of sales activity continues to improve consistent with our strategy to grow within current customers and selectively add new customers. We also executed against our cost management goals. As a result, we were able to report significantly improved bottom line performance. The fourth quarter is seasonally lower, but we currently expect to see the underlying improved performance continue in 2017. Ongoing industry consolidation should provide opportunities to support our customers through transition, and long-term technological innovation is driving change in the industry."

Q3 2016 Financial Results

Revenues in the third quarter of 2016 decreased by 18% to $17.3 million from $21.2 million in the same year-ago period.  The decrease was primarily due to a large customer engagement in North America during the third quarter of 2015 that was substantially completed as scheduled during the first half of fiscal 2016. The decrease was also partially due to the impact of a $1.6 million unfavorable change in foreign currency exchange rates.

On a non-GAAP constant currency basis, revenues in the third quarter of 2016 were $19.0 million, a decrease of 10% from $21.2 million in the same year-ago period (see reconciliation to GAAP, below).

Gross profit decreased 20% to $6.1 million (35% of revenues) in the third quarter of 2016 compared to $7.6 million (36% of revenues) in the third quarter of 2015. The decrease in gross profit was primarily due to lower revenues and unfavorable project mix in North America.

Selling, general and administrative expenses in the third quarter of 2016 were $6.0 million (35% of revenues), compared to $8.1 million (38% of revenues) in the third quarter of 2015. The decrease in selling, general and administrative expenses as a percentage of revenues was primarily due to lower compensation and other related expenses.   The decrease was also partially affected by the impact of the change in foreign currency exchange rates.

GAAP income from operations in the third quarter of 2016 totaled $0.1 million, an improvement from GAAP loss from operations of $0.5 million in the third quarter of 2015.

Non-GAAP adjusted income from operations in the third quarter of 2016 totaled $0.8 million, as compared to non-GAAP adjusted income from operations of $0.8 million in the third quarter of 2015 (see reconciliation to GAAP, below).

GAAP net income for the third quarter of 2016 was break-even, an improvement from a GAAP net loss of $1.1 million, or $0.13 per diluted share in the third quarter of 2015.

Non-GAAP adjusted net income for the third quarter of 2016 totaled $0.7 million or $0.08 per diluted share, an improvement from non-GAAP adjusted net income of $0.6 million, or $0.07 per diluted share in the same year-ago period (see reconciliation to GAAP, below).  

At quarter-end, cash and cash equivalents totaled $4.2 million, as compared to $4.5 million at the end of the prior quarter. Management believes the company's current cash position, cash generated from operations, and working capital funding available from its accounts receivable arrangements, will be sufficient to meet the company's cash requirements over the next 12 months.

Conference CallCartesian management will hold a conference call today (November 10, 2016) at 4:30 p.m. Eastern time (1:30 p.m. Pacific time) to discuss these results. The call may also include discussion of company developments, forward-looking information and other material information about Cartesian's business and financial matters.

Cartesian CEO Peter Woodward and CFO John Ferrara will host the presentation, followed by a question and answer period.

Date: Thursday, November 10, 2016 Time: 4:30 p.m. Eastern time (1:30 p.m. Pacific time)U.S. dial-in: 1-877-407-0784International dial-in: 1-201-689-8560

Please call the conference telephone number 10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Liolios Group at 949-574-3860.

The conference call will be broadcasted live and available for replay via the investor section of the company's website.

A replay of the call will be available after 7:30 p.m. Eastern time on the same day through December 10, 2016.

U.S. replay dial-in: 1-844-512-2921International replay dial-in: 1-412-317-6671Replay ID: 13649401

About Cartesian, Inc.

Cartesian, Inc. (NASDAQ:CRTN) is a specialist provider of consulting services and managed solutions to leaders in the global communications, technology and digital media industries. Cartesian provides strategic advice, management consulting, and managed solutions to clients worldwide. The company has offices in Boston, Kansas City, London, New York, Philadelphia and Washington. For more information, visit www.cartesian.com.

Non-GAAP AdjustmentsIn addition to reporting results of operations on a GAAP basis, this press release contains certain non-GAAP adjustments which are described in the schedules accompanying this press release entitled Reconciliation of GAAP Net Income (Loss) to Non-GAAP Adjusted Net Income (Loss) and GAAP Income (Loss) from Operations to Non-GAAP Adjusted Income (Loss) from Operations" and "Reconciliation of Non-GAAP Constant Currency Revenues to GAAP Revenues".  In making these non-GAAP adjustments, the Company took into account certain non-cash expenses, including non-cash goodwill impairment, and benefits and the impact of certain items that are generally not expected to be on-going in nature or that are unrelated to the Company's core operations, including in each case tax effects as applicable. In calculating revenues for the third quarter and year-to-date period of fiscal 2016 on a constant currency basis, the Company applied average foreign exchange rates from the comparable period of the prior fiscal year to the Company's foreign-denominated revenues in the third quarter and year-to-date period of the current fiscal year (other than revenues from the Farncombe business acquired in the third quarter of fiscal 2015). Management believes non-GAAP financial information provides a useful basis for evaluating underlying business performance, but should not be considered in isolation and is not a substitute for GAAP financial information. The Company believes that providing such adjusted results allows investors and other users of the Company's financial statements to better understand Cartesian's comparative operating performance for the periods presented.

Cartesian's management uses the non-GAAP financial measures in its own evaluation of the Company's performance, particularly when comparing performance to the prior year's period. Cartesian's non-GAAP measures may differ from similar measures used by other companies, even if similar terms are used to identify such measures. Although Cartesian's management believes the non-GAAP financial measures are useful in evaluating the performance of its business, Cartesian acknowledges that items excluded from such measures have a material impact on the Company's income (loss) from operations, net income (loss), net income (loss) per diluted share and revenues calculated in accordance with GAAP. Therefore, management uses non-GAAP measures in conjunction with GAAP results. Investors and other users of our financial information should also consider the above factors when evaluating Cartesian's results.

Cautionary Statement Regarding Forward Looking Information This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, any statements that do not relate to historical or current facts constitute forward-looking statements, including any statements contained herein regarding expectations with respect to the Company's future business, financial condition and results of operations. Forward-looking statements are subject to known and unknown risks, uncertainties, and contingencies, many of which are beyond the Company's control, which may cause actual results, performance, or achievements to differ materially from those projected or implied in such forward-looking statements.  Factors that might affect actual results, performance, or achievements include, among other things, our ability to successfully implement our strategic relationship with Elutions, conditions in the telecommunications industry, overall economic and business conditions, the demand for the Company's services (including the slowing of client decisions on proposals and project opportunities along with scope reduction of existing projects), the level of cash and non-cash expenditures incurred by the Company, our ability to protect client or Cartesian data or information systems from security breaches and cyber-attacks, technological advances and competitive factors in the markets in which the Company competes, foreign currency exchange rate fluctuations, and the factors described in this press release and in Cartesian's filings with the Securities and Exchange Commission, including the risks described in its periodic reports filed with the SEC, including, but not limited to, "Cautionary Statement Regarding Forward Looking Information" under Part I of its Annual Report on Form 10-K for the fiscal year ended January 2, 2016 and subsequent periodic reports containing updated disclosures of such risks. These filings are available at the SEC's web site at www.sec.gov. Any forward-looking statements made in this release speak only as of the date of this release. Cartesian does not intend to update these forward-looking statements and undertakes no duty to any person to provide any such update under any circumstances.

CARTESIAN, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (unaudited)
 
    Thirteen Weeks Ended   Thirty-Nine Weeks Ended
    October 1,  2016   October 3,  2015   October 1,2016   October 3,  2015
Revenues   $ 17,335     $ 21,205     $ 56,551     $ 56,144  
Cost of services   11,224     13,585     37,128     36,294  
Gross Profit   6,111     7,620     19,423     19,850  
Selling, general and administrative expenses (includes non-cash share-based compensation expense of $33 and $65 for the thirteen weeks ended October 1, 2016 and October 3, 2015, respectively, and $222 and $511 for the thirty-nine weeks ended October 1, 2016 and October 3, 2015, respectively)   6,031     8,098     22,032     23,564  
Goodwill impairment           10,830      
Income (loss) from operations   80     (478 )   (13,439 )   (3,714 )
Other income (expense):                
Interest expense, net   (68 )   (59 )   (190 )   (167 )
Change in fair value of warrants and derivative liabilities   114     (506 )   65     (611 )
Incentive warrants expense   (9 )   (10 )   (43 )   (57 )
Other expense (income)   (23 )       45      
Total other (income) expense   14     (575 )   (123 )   (835 )
Income (loss) before income taxes   94     (1,053 )   (13,562 )   (4,549 )
Income tax provision   (89 )   (82 )   (221 )   (372 )
Net income (loss)   $ 5     $ (1,135 )   $ (13,783 )   $ (4,921 )
                 
Net income (loss) per common share:                
  Basic   $ 0.00     $ (0.13 )   $ (1.60 )   $ (0.59 )
                 
  Diluted                
    $ 0.00     $ (0.13 )   $ (1.60 )   $ (0.59 )
Weighted average shares used in calculation of net income(loss) per common share                
  Basic   8,637     8,667     8,639     8,313  
                 
  Diluted   8,650     8,667     8,639     8,313  

CARTESIAN, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
 
    October 1,  2016 (Unaudited)   January 2,  2016
ASSETS        
CURRENT ASSETS:        
Cash and cash equivalents   $ 4,164     $ 6,879  
Accounts receivable, net   15,644     16,556  
Inventory, net   469     625  
Prepaid and other current assets   1,629     1,754  
Total current assets   21,906     25,814  
         
NONCURRENT ASSETS:        
Property and equipment, net   2,248     2,511  
Goodwill       11,071  
Intangible assets, net   655     996  
Deferred income tax assets   515     509  
Other noncurrent assets   429     458  
Total Assets   $ 25,753     $ 41,359  
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
CURRENT LIABILITIES:        
Trade accounts payable   $ 1,721     $ 3,253  
Current borrowings   3,269     3,269  
Liability for derivatives   887     952  
Accrued payroll, bonuses and related expenses   5,281     5,125  
Contingent consideration liability   1,941      
Deferred revenue   1,127     1,551  
Secured borrowing   886      
Other accrued liabilities   2,561     2,251  
Total current liabilities   17,673     16,401  
         
NONCURRENT LIABILITIES:        
Deferred income tax liabilities   862     780  
Deferred revenue   575     407  
Contingent consideration liability       2,176  
Other noncurrent liabilities   659     952  
Total noncurrent liabilities   2,096     4,315  
         
TOTAL STOCKHOLDERS' EQUITY   5,984     20,643  
Total Liabilities and Stockholders' Equity   $ 25,753     $ 41,359  
         
         

CARTESIAN, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)(unaudited)
 
    For the Thirty-Nine Weeks Ended
    October 1, 2016   October 3, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net loss   $ (13,783 )   $ (4,921 )
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization of intangible assets   994     800  
Goodwill impairment   10,830      
Other, net   290     1,772  
Changes in operating assets and liabilities, net   (707 )   (734 )
         
Net cash used in operating activities   (2,376 )   (3,083 )
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Business acquisition, net of cash acquired   (270 )   363  
Acquisition of property and equipment   (650 )   (869 )
         
Net cash used in investing activities   (920 )   (506 )
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
Secured borrowing   886      
Repurchase of common stock   (85 )   (135 )
Issuance of common stock   19     50  
         
Net cash provided by (used in) financing activities   820     (85 )
         
Effect of exchange rate on cash and cash equivalents   (239 )   (181 )
         
Net decrease in cash and cash equivalents   (2,715 )   (3,855 )
Cash and cash equivalents, beginning of period   6,879     12,999  
Cash and cash equivalents, end of period   $ 4,164     $ 9,144  

CARTESIAN, INC.  RECONCILIATION OF GAAP INCOME (LOSS) FROM OPERATIONS TO NON-GAAP ADJUSTED INCOME (LOSS) FROM OPERATIONS AND GAAP NET INCOME (LOSS) TO NON-GAAP ADJUSTED NET INCOME (LOSS)  (unaudited)  (in thousands, except per share data)
 
    Thirteen Weeks Ended   Thirteen Weeks Ended   Thirty-Nine Weeks Ended   Thirty-Nine Weeks Ended
                                                                                                                                                                                                                                                                    October 1,  2016   October 3,  2015   October 1,  2016   October 3,  2015
Reconciliation of GAAP income (loss) from operations to non-GAAP adjusted income (loss) from operations:                 
GAAP income (loss) from operations   $ 80     $ (478 )   $ (13,439 )   $ (3,714 )
Depreciation   251     302     759     717  
Amortization of intangible assets   70     83     235     83  
Non-cash share based compensation expense   33     65     222     511  
Goodwill impairment           10,830      
Fair value adjustment to contingent consideration   66     (22 )   (235 )   (22 )
Inventory adjustment   52         156     300  
Accrued executive severance and related costs   182     356     932     821  
Lease expense for discontinuation of office space               256  
Acquisition expenses       364         656  
Foreign currency exchange loss on note payable   95     100     428     96  
Adjustments to GAAP income (loss) from operations   749     1,248     13,327     3,418  
Non-GAAP adjusted income (loss) from operations   $ 829     $ 770     $ (112 )   $ (296 )
Reconciliation of GAAP net income (loss) to non-GAAP adjusted net income (loss):                
GAAP net income (loss)   $ 5     $ (1,135 )   $ (13,783 )   $ (4,921 )
Depreciation   251     302     759     717  
Amortization of intangible assets   70     83     235     83  
Non-cash share based compensation expense   33     65     222     511  
Goodwill impairment           10,830      
Fair value adjustment to contingent consideration   66     (22 )   (235 )   (22 )
Inventory adjustment   52         156     300  
Accrued executive severance and related costs   182     356     932     821  
Lease expense for discontinuation of office space               256  
Acquisition expenses       364         656  
Change in fair value of derivative liabilities   (114 )   506     (65 )   611  
Foreign currency exchange loss on note payable   95     100     428     96  
Incentive warrants expense   9     10     43     57  
Tax effect of applicable non-GAAP adjustments (1)   5     (53 )   (33 )   (24 )
Adjustments to GAAP net income (loss)   649     1,711     13,272     4,062  
Non-GAAP adjusted net income (loss)                                                                                                                             $ 654     $ 576     $ (511 )   $ (859 )

    Thirteen Weeks Ended   Thirteen Weeks Ended   Thirty-Nine Weeks Ended   Thirty-Nine Weeks Ended
    October 1,  2016   October 3,  2015   October 1,  2016   October 3,  2015
Reconciliation of GAAP net income (loss) per diluted common share to non-GAAP adjusted net income (loss) per diluted common share:                
GAAP net income (loss) per diluted common share   $ 0.00     $ (0.13 )   $ (1.60 )   $ (0.59 )
Depreciation   0.03     0.03     0.09     0.09  
Amortization of intangible assets   0.01     0.01     0.03     0.01  
Non-cash share based compensation expense       0.01     0.03     0.06  
Goodwill impairment           1.25      
Fair value adjustment to contingent consideration   0.01         (0.03 )    
Inventory adjustment   0.01         0.02     0.04  
Accrued executive severance and related costs   0.02     0.04     0.11     0.10  
Lease expense for discontinuation of office space               0.03  
Acquisition expenses       0.04         0.07  
Change in fair value of derivative liabilities   (0.01 )   0.07     (0.01 )   0.07  
Foreign currency exchange loss on note payable   0.01     0.01     0.05     0.01  
Incentive warrants expense               0.01  
Tax effect of applicable non-GAAP adjustments (1)       (0.01 )        
Adjustments to GAAP net income (loss) per diluted common share   0.08     0.20     1.54     0.49  
Non-GAAP adjusted net income (loss) per diluted common share   $ 0.08     $ 0.07     $ (0.06 )   $ (0.10 )
Weighted average shares used in calculation of Non-GAAP adjusted net income (loss) per diluted common share   8,650     8,745     8,694     8,313  
                 

(1) The Company calculated the tax effect of non-GAAP adjustments by applying an applicable estimated jurisdictional tax rate to each specific non-GAAP item after consideration of the Company's valuation allowance.

CARTESIAN, INC. RECONCILIATION OF NON-GAAP CONSTANT CURRENCY REVENUES TO GAAP REVENUES(unaudited)(in thousands, except growth rates)
 
    Thirteen Weeks Ended       Thirty-Nine Weeks Ended    
    October 1,  2016   October 3,  2015   Year-Over- Year Growth (Decrease)   October 1,  2016   October 3,  2015   Year-Over- Year Growth
Non-GAAP Constant Currency Revenues Reconciliation (1),(2)                        
GAAP revenues, as reported   $ 17,335     $ 21,205     (18.3 )%   $ 56,551     $ 56,144     0.7 %
Foreign currency exchange impact on fiscal 2016 revenues using fiscal 2015 average rates (2)   1,649             2,563          
Non-GAAP revenues, at constant currency   $ 18,984     $ 21,205     (10.5 )%   $ 59,114     $ 56,144     5.3 %

(1) Non-GAAP revenues on a constant currency basis are calculated by applying the average foreign exchange rates for the thirteen weeks and thirty-nine weeks ended October 3, 2015 to foreign-denominated revenues in the comparable current year periods. The difference between non-GAAP revenues and revenues calculated in accordance with GAAP is shown as "foreign currency exchange impact" in the table above. The change in Non-GAAP constant currency revenues (expressed as a percentage) is calculated by determining the increase (decrease) in non-GAAP constant currency revenues in the interim and year-to-date periods of fiscal 2016 compared to GAAP revenues for the prior year periods.

(2) The calculation of the foreign currency exchange impact on our fiscal 2016 revenues excludes the impact of the Farncombe acquisition on July 22, 2015. Revenues for the Farncombe entities are included in our GAAP revenues for the thirteen weeks and thirty-nine weeks ended October 1, 2016.

Investor Contact:Matt Glover or Najim MostamandLiolios Group, Inc.949-574-3860CRTN@liolios.com

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