SCM Microsystems Reports 2006 Fourth Quarter and Year End Results
Tuesday March 20, 3:30 am ET
Completion of restructuring and consolidation activities yields operating profit in fourth quarter
FREMONT, Calif., March 20 /PRNewswire-FirstCall/ -- SCM Microsystems, Inc. (Nasdaq: SCMM, Prime Standard: SMY), a leading provider of solutions that open the Digital World, today announced final results for its fourth quarter and fiscal year ended December 31, 2006.
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Financial results contained in this release reflect continuing operations of the Company's PC Security and Flash Media Reader businesses only. The Company completed the sale of its Digital TV solutions business in May 2006; therefore, financial results for the Digital TV solutions business are being accounted for as discontinued operations.
Fourth Quarter 2006 Results
Revenues from continuing operations in the fourth quarter of 2006 were $9.4 million, in line with the Company's February 7, 2007 guidance of revenue near the high end of the range of $8.5 million to $9.5 million, and up 27% from revenues of $7.4 million in the fourth quarter of 2005. By product segment, fourth quarter 2006 revenues included $7.3 million for the PC Security business from sales of smart card readers and other products for secure network and physical access, an increase of 51% from sales of $4.8 million in the fourth quarter of 2005; and $2.1 million for the Flash Media Reader business from sales of OEM digital media reader technology, down 17% from sales of $2.6 million in the fourth quarter of 2005. Lower Flash Media Reader revenues primarily resulted from product pricing decreases. Increased sales of smart card readers were driven primarily by greater demand for readers for applications such as secure network and facility access for military personnel and corporate enterprises.
Gross margin in the fourth quarter of 2006 was 42%, compared with the Company's February 7, 2007 guidance for gross margin of approximately 40%. Gross margin benefited from a reduction in operations personnel costs, price negotiations with contract manufacturers and tighter inventory control in the quarter, all of which resulted from measures initiated earlier in the year. These measures also resulted in an increase of annualized inventory turns from 4.1 in the fourth quarter of 2005 to 10.0 in the fourth quarter 2006.
Operating expenses in the fourth quarter of 2006, as reported in accordance with GAAP, were $3.5 million, in line with the Company's February 7, 2007 guidance of operating expenses between $3.3 million and $3.6 million, and down 38% from average operating expenses of $5.7 million for the first three quarters of 2006. Lower expense levels in the fourth quarter of 2006 primarily reflect the full benefit of the consolidation and outsourcing actions taken by the Company earlier in the year, which primarily reduced general and administrative costs.
Operating income, as reported in accordance with GAAP, was $0.4 million in the fourth quarter of 2006, compared with an operating loss of $2.6 million in the fourth quarter of 2005.
Income from continuing operations for the fourth quarter of 2006, as reported in accordance with GAAP, was $0.7 million, or $0.05 per share, compared with loss from continuing operations, as reported in accordance with GAAP, of $(2.2) million, or $(0.14) per share, in the fourth quarter of 2005.
Total net income in the fourth quarter of 2006, as reported in accordance with GAAP, was $1.3 million, including a gain from discontinued operations during the quarter of $0.7 million. The gain from discontinued operations mainly resulted from the release of income tax accruals related to locations in which the Company has ceased operations.
Full Year 2006 Results
Revenues for the year ended December 31, 2006 were $33.6 million, in line with the Company's February 7, 2007 guidance for revenues above $33 million and up 20% compared with revenues of $27.9 million in fiscal 2005. By product segment, 2006 revenues included $23.7 million for the Company's PC Security business from sales of smart card readers and other products for secure network and physical access, an increase of 36% from sales of $17.4 million in 2005; and $9.9 million for the Company's Flash Media Reader business from sales of OEM digital media reader technology, down 6% from sales of $10.5 million in 2005. Gross margin in 2006 was 35%, compared with 39% in 2005. Loss from continuing operations in 2006, as reported in accordance with GAAP, was ($7.7) million, or ($0.49) per share, compared with GAAP loss from continuing operations of $(8.2) million, or ($0.53) per share in 2005.
Total net income in 2006, as reported in accordance with GAAP, was $1.0 million, including a gain from discontinued operations of $3.5 million and a gain on the sale of discontinued operations of $5.2 million.
The Company ended fiscal 2006 with cash and cash equivalents of $36.9 million, compared with $32.4 million as of December 31, 2005.
Robert Schneider, chief executive officer of SCM Microsystems commented, "In 2006 we focused on streamlining our operations and lowering our expense base, through the completion of steps to outsource our manufacturing, the transfer of corporate and compliance functions to Germany, and the implementation of successful product cost and inventory reduction programs. The result of these strategies was a significant reduction in our fixed expense levels and a profitable fourth quarter. We are very pleased with the progress we have made in 2006 and expect to continue to pursue these strategies going forward.
"SCM's revenue growth in 2006 and our expected growth going forward is founded on our strength as a trusted supplier of readers for smart card-based security applications and the projected growth in demand for these readers. In 2006 several of our readers were proven compliant with U.S. Homeland Security Presidential Directive (HSPD)-12 and approved for inclusion on the General Services Administration Approved Product List. Our readers are predominantly used to read the nearly four million active cards that have been issued to Department of Defense personnel under the Common Access Card (CAC) program, a predecessor to HSPD-12. We also supplied our first readers for the European e- passport industry, as governments began to comply with U.S. requirements for biometric electronic border documentation that became effective in late 2006. And as the first manufacturer to develop a Secure Interoperable Chip Card Terminal (SICCT) that fulfills all requirements for the German electronic health card program, we expect to be a significant provider to this program as it begins the planned deployment of cards to 82 million citizens in 2007. We believe our strong product portfolio and our long history of involvement with leading players and emerging standards in the smart card industry will allow us to capitalize on the growth taking place in smart card programs in the coming years."
Guidance
The Company expects to achieve revenue growth of 15% to 20% in 2007, which would result in revenues between $38.6 million and $40.3 million for the year ended December 31, 2007. This revenue growth estimate is based on the Company's current expectations for flat sales of smart card readers in the first half of the year 2007 compared to the prior year period and anticipated increases in sales of the Company's smart card readers in the second half of the year from the projected expansion of various government and enterprise security programs using smart cards, such as e-passport, e-health and secure access for employees. The Company further expects gross margin of approximately 40% and to realize an operating profit for 2007 as a whole.
Additional Information
SCM does not plan to hold a conference call or webcast to discuss the results of its 2006 fourth quarter and year end. For more information on SCM's fiscal 2006 results, please see the Company's Annual Report on Form 10-K for year ended December 31, 2006, filed with the U.S. Securities and Exchange Commission on March 20, 2007.
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