Fargo (NASDAQ:FRGO)
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Fargo Electronics, Inc. (NASDAQ:FRGO) today reported net
sales for the third quarter ended September 30, 2005, of $22,456,000,
an increase of 14% over net sales of $19,626,000 reported in the third
quarter of 2004. Net income for the third quarter was $3,071,000, an
increase of 33% over the $2,305,000 achieved in the third quarter of
2004. Earnings per diluted share for the third quarter were $0.23
compared to $0.18 in the third quarter of 2004.
"Revenues, net income and earnings per share each represented
record quarterly results for Fargo," said Gary R. Holland, Fargo's
president and chief executive officer. "Our strategy to provide end
users with the most secure card identity solutions by offering secure
printer/encoders linked with secure materials and secure software is
delivering results. In September, we launched several new products at
the ASIS tradeshow. Initial reactions from our distribution channel to
these have been very favorable."
Gross profit margins for the quarter were 43% compared to 41% in
the third quarter of 2004. The improvement is due to lower
manufacturing costs and the mix of product sales. Operating expenses
were $5,412,000 compared to $4,909,000 last year. The increase is
primarily a result of higher compensation expense due to growth and
professional fees. Operating income for the quarter was $4,325,000, an
increase of 37% over the $3,159,000 achieved last year.
For the nine months ended September 30, 2005, the company reported
net sales of $59,999,000, an increase of 14% over the $52,725,000
reported for the same period in 2004. Operating income was $10,323,000
compared to $7,855,000 in 2004. Net income for the first nine months
of 2005 was $7,586,000, or $0.58 per diluted share, compared to
$5,479,000, or $0.43 per diluted share in 2004.
Other accomplishments in the quarter include:
-- Launched the Persona C30 card printer and the DTC550 secure
card printer/encoder.
-- Received and shipped an order for 290 HDP600-LC laminating
card printer/encoders for use by the National Guard Bureau as
part of the U.S. Department of Defense Common Access Card
project.
-- Received and shipped an order for 50 HDP600 card
printer/encoders for the U.S. Department of State. These
printer/encoders will be used to provide smart cards for
embassy officials to securely access facilities and
information systems.
-- Launched the SecureVault(TM) ID Management System to assist
users in securing and managing card production materials.
-- Received three new patents issued by the United States Patent
and Trademark Office. In addition, received a notice of
allowance on the first SecureMark(R) patent from the European
Patent and Trademark Office.
Outlook
Fargo presently anticipates that earnings per diluted share for
the fourth quarter of fiscal 2005 will be in the range of $0.18 to
$0.21. This represents a range for the full fiscal year 2005 of $0.76
to $0.79.
Forward-looking Statements
Statements made in this report concerning our expectations about
future results or events, are "forward-looking statements". When used
in this report, words such as "anticipate," "believe," "estimate,"
"expect," and "forecast" as they relate to us or our management are
intended to identify such forward-looking statements, but are not the
exclusive means of identifying these statements. Such statements are
subject to the safe harbor created by the Private Securities
Litigation Reform Act of 1995, and are necessarily subject to risks
and uncertainties. Actual results may differ materially from those
reflected in these forward-looking statements. These statements are
based on current expectations, forecasts and assumptions, and are
subject to the risks and uncertainties inherent in general industry
and market conditions, general domestic and international economic
conditions, and other factors. These risks and uncertainties include,
but are not limited to: product acceptance and customer demand for our
card personalization systems and proprietary supplies; actions taken
and alternative products marketed by our competitors; supplier
relationships, including reliance on sole and single-source suppliers;
manufacturing or design defects that we may discover after shipment;
challenges in successfully implementing a new enterprise resource
planning computer system; lack of inventories of component parts or
finished goods; our focus on the identification card personalization
market; continuing technological changes in our industry; our
dependence on a distribution network and the reaction of this network
to changes in distribution programs; domestic and international
regulations and standards; our dependence on international sales and
foreign suppliers; material changes in orders placed by large end
users; challenges in effectively managing growth; our dependence on
technologies we do not own; complex design that could result in
manufacturing delays; protecting and enforcing our intellectual
property rights; inadequate protection against infringement claims;
the costs of implementing and complying with new regulations enacted
in various countries requiring the reduction of hazardous substances
in electrical and electronic equipment, including the European Union
Waste Electrical and Electronic Equipment Directive and Restriction of
Hazardous Substances Directive; and adverse economic and business
conditions, including conditions resulting from the terrorist attack
on the U.S. on September 11, 2001 and the resulting hostilities and
the war with Iraq. For more detail of the risks, uncertainties and
other factors that could affect our future operations and results, see
our filings with the Securities and Exchange Commission, particularly
the Annual Report on Form 10-K for the year ended December 31, 2004
and our Form 10-Q reports.
The Company assumes no obligation to update the forward-looking
statements or any other information contained in this release.
About Fargo
Founded in 1974, Fargo Electronics is a global leader in the
development of secure technologies for identity card issuance systems,
including secure card printer/encoders, materials and software. The
company has sold more than 100,000 systems in the U.S. and over 80
other countries worldwide. Fargo card issuance systems reduce
vulnerabilities and potential for loss of time, money and lives by
continually improving the security of identity credentials. Fargo
provides physical, information, and transaction security for a wide
variety of applications and industries, including government,
corporate, national IDs, drivers' licenses, universities, schools and
membership. Based in Minneapolis, Minn., Fargo markets its products
through a global distribution network of professional security
integrators. For more information about Fargo, visit www.fargo.com.
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FARGO ELECTRONICS, INC.
CONDENSED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
September 30, December 31,
ASSETS 2005 2004
------------- ------------
Current assets:
Cash and cash equivalents $34,231 $23,435
Accounts receivable, net 11,414 9,702
Inventories, net 6,535 6,219
Prepaid expenses 544 271
Deferred income taxes 3,259 3,259
------------- ------------
Total current assets 55,983 42,886
Equipment and leasehold improvements, net 3,238 2,026
Deferred income taxes 14,792 16,966
Other 21 27
------------- ------------
Total assets $74,034 $61,905
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $8,479 $6,018
Accrued liabilities 3,615 2,806
------------- ------------
Total current liabilities 12,094 8,824
------------- ------------
Commitments and contingencies - -
Stockholders' equity:
Common stock, $.01 par value; 50,000
shares authorized, 12,772 and 12,603
shares issued and outstanding at
September 30, 2005 and December 31,
2004, respectively 128 126
Additional paid-in capital 151,574 150,303
Accumulated deficit (89,762) (97,348)
------------- ------------
Total stockholders' equity 61,940 53,081
------------- ------------
Total liabilities and stockholders'
equity $74,034 $61,905
============= ============
FARGO ELECTRONICS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2005 2004 2005 2004
--------- -------- -------- --------
Net sales $22,456 $19,626 $59,999 $52,725
Cost of sales 12,719 11,558 33,999 31,324
--------- -------- -------- --------
Gross profit 9,737 8,068 26,000 21,401
--------- -------- -------- --------
Operating expenses
Research and development 1,428 1,337 4,225 3,841
Selling, general and
administrative 3,984 3,572 11,452 9,705
--------- -------- -------- --------
Total operating expenses 5,412 4,909 15,677 13,546
--------- -------- -------- --------
Operating income 4,325 3,159 10,323 7,855
--------- -------- -------- --------
Other income
Interest, net 246 52 556 106
Other, net - - 393 -
--------- -------- -------- --------
Total other income 246 52 949 106
--------- -------- -------- --------
Income before provision for
income taxes 4,571 3,211 11,272 7,961
Provision for income taxes 1,500 906 3,686 2,482
--------- -------- -------- --------
Net income $3,071 $2,305 $7,586 $5,479
========= ======== ======== ========
Net income per common share
Basic earnings per share $0.24 $0.18 $0.60 $0.44
Diluted earnings per share $0.23 $0.18 $0.58 $0.43
Weighted average common shares
outstanding
Basic 12,756 12,519 12,683 12,494
Diluted 13,145 12,780 13,127 12,817
FARGO ELECTRONICS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
-------------------
2005 2004
--------- ---------
Cash flows from operating activities:
Net income $7,586 $5,479
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 820 781
Provision for excess and obsolete inventory 303 103
Loss on disposal of equipment 8 -
Deferred income taxes 2,174 2,385
Tax benefit recognized for stock options - 16
Changes in operating assets and liabilities
Accounts receivable (1,712) (3,829)
Inventories (619) (878)
Prepaid expenses and other assets (273) (27)
Accounts payable 2,145 2,785
Accrued liabilities 809 (191)
--------- ---------
Net cash provided by operating activities 11,241 6,624
--------- ---------
Cash flows from investing activities:
Purchases of equipment and leasehold
improvements (1,718) (681)
--------- ---------
Net cash used in investing activities (1,718) (681)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 1,273 464
--------- ---------
Net cash provided by financing activities 1,273 464
--------- ---------
Net increase in cash and cash equivalents 10,796 6,407
Cash and cash equivalents, beginning of period 23,435 13,445
--------- ---------
Cash and cash equivalents, end of period $34,231 $19,852
========= =========
Significant noncash activities:
Purchases of equipment included in accounts
payable $316 $105
FARGO ELECTRONICS, INC.
SUPPLEMENTAL SALES INFORMATION
(In thousands)
(Unaudited)
Sales by Product Category
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
---------- ---------- ---------- ----------
Secure printers/encoders $8,981 $7,454 $23,322 $19,840
Secure materials 13,475 12,172 36,677 32,885
---------- ---------- ---------- ----------
Total sales $22,456 $19,626 $59,999 $52,725
========== ========== ========== ==========
Sales by Geographic Region
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
---------- ---------- ---------- ----------
U.S. $13,217 $11,133 $33,780 $29,623
International 9,239 8,493 26,219 23,102
---------- ---------- ---------- ----------
Total sales $22,456 $19,626 $59,999 $52,725
========== ========== ========== ==========
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