Cummer Infant Wrts (MM) (NASDAQ:SUMRW)
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Summer Infant, Inc. (the “Company”)
(Nasdaq: SUMR, SUMRW) today announced financial results for the first
quarter ended March 31, 2008.
First Quarter 2008 Results
Prior to March 7, 2007, the Company was known as KBL Healthcare
Acquisition Corp. II (“KBL”).
With respect to the results for the first quarter of 2007, the Company
has included and refers below solely to the Pro Forma operating
performance of Summer Infant (USA), Inc., Summer Infant Europe Limited
and Summer Infant Asia Ltd (collectively, the “Summer
Operating Companies”) on a stand alone basis
(excluding the combination with KBL), as this is the clearest comparison
of the underlying operations year over year. The full year 2007 results
for the Company may be found in the Company’s
10-K for the year ended December 31, 2007, which was filed on March 27,
2008.
Net revenues for the first quarter of 2008 were $28.43 million, a 65.6%
increase from $17.17 million in the first quarter of 2007. This growth
was driven primarily by an expanded product offering at existing
customers and penetration into a larger number of stores within existing
customers’ networks. The Company benefited
from strong increases at all major existing customers as well as solid
growth from new customers, such as Wal-Mart and Lowe’s.
The increase in revenue was also driven by new product launches within
the soft goods and baby gear categories in addition to strong sales of
the 3 Stage Super Seat. In addition, sales momentum remains strong in
core categories, including baby monitors, which continues to benefit
from solid performance of the new flat screen monitor.
Gross profit for the first quarter of 2008 was $9.94 million, a 51.4%
increase compared to $6.56 million in the first quarter of 2007. Gross
margin for the first quarter of 2008 decreased to 35.0% from 38.2% in
the first quarter of 2007 and 37.0% in the fourth quarter of 2007. As
expected, gross margins continued to be negatively impacted by an
increase in costs for products sourced from China, higher resin costs
for products manufactured in the US and a change in product mix. The
Company continues to make progress on implementing alternative sourcing
strategies and price increases.
Selling, general and administrative (“SG&A”)
expenses excluding depreciation and amortization as well as stock based
compensation expense for the first quarter of 2008 were $7.33 million,
or 25.8% of net revenues, compared to $4.90 million, or 28.6% of net
revenues, in the first quarter of 2007. The year-over-year decrease as a
percentage of net revenues was primarily due to leveraging fixed costs
on higher sales.
Operating income was $2.05 million in the first quarter of 2008,
compared to $1.20 million in the first quarter of 2007. Earnings before
interest, taxes, depreciation and amortization (“EBITDA”)
increased 57.5% to $2.61 million for the first quarter of 2008 compared
to the $1.66 million reported in the first quarter of 2007. EBITDA
margin in the first quarter of 2008 decreased to 9.2% of net revenues
from 9.6% in the year-ago quarter primarily due to increased cost of
goods sold, partially offset by the ability to leverage fixed costs on
higher sales.
For the quarter ended March 31, 2008, net income was $1.00 million and
earnings per share totaled $0.07 compared to $0.76 million of net income
and $0.05 per share in the first quarter of 2007.
As of March 31, 2008, the Company had $2.2 million of cash and $32.5
million of debt on the balance sheet. The debt consists of $28.2 million
outstanding on the Company’s line of credit
with Bank of America and $4.3 million of other debt primarily related to
the mortgage on the new corporate headquarters. On April 10, 2008, the
Company secured a new $50.0 million bank facility. Including the amounts
borrowed to fund the Kiddopotamus acquisition in April, the total unused
capacity of its borrowing facilities is now approximately $8.0 million.
Acquisitions
Basic Comfort
On March 31, 2008, the Company acquired substantially all of the assets
of Basic Comfort, Inc. (“Basic Comfort”),
a leading manufacturer and supplier of infant comfort and safety
products, including infant sleep positioners, infant head supports and
portable changing pads. The acquisition price was approximately $4.7
million in cash and 450,000 shares of unregistered Summer Infant common
stock, which were valued at approximately $1.8 million using the $3.95
closing stock price on March 31, 2008. The owners of Basic Comfort can
receive additional payments based on the achievement of certain EBITDA
targets for the twelve months ended March 31, 2009.
Kiddopotamus
On April 18, 2008, the Company completed the acquisition of
Kiddopotamus & Company (“Kiddopotamus”),
a leading manufacturer and supplier of infant nursery, travel and
feeding accessories. The total purchase price paid by the Company to the
stockholders of Kiddopotamus, plus the payment of various closing
expenses, was approximately $12.5 million. Of the total purchase price,
approximately $9.6 million was paid in cash and $2.9 million was paid by
the issuance of 697,890 unregistered shares of the Company’s
common stock.
2008 Pro Forma Guidance
The company is also updating its 2008 revenue, EBITDA and EPS guidance
to reflect the impact of higher than expected sales in addition to the
Basic Comfort acquisition which closed on March 31, 2008 and the
acquisition of Kiddopotamus, which closed on April 18, 2008. The
following guidance assumes that the transactions occurred on January 1,
2008, and therefore, is on a pro forma basis. The Company now expects
net revenues for 2008 to be in the range of $129.0 to $133.0 million, up
from the previous guidance range of $95.0 to $100.0 million. The Company
expects EBITDA for 2008 to be in the range of $13.8 to $14.4 million, up
from the previous guidance range of $10.2 to $10.6 million. The Company
now expects earnings per share for 2008 to be in the range of $0.37 to
$0.40, up from the previous guidance range of $0.30 to $0.32. This
outlook assumes stable currency exchange rates and raw material prices
for the remainder of the fiscal year and, to the extent there are
further changes in currency valuation or raw material prices, that the
Company is successful in implementing future select price increases to
its customers.
“We are very pleased with our performance in
the first quarter,” commented Jason Macari,
Chief Executive Officer of the Company. “While
we continued to face rising raw material, currency and labor cost
headwinds in China, we remain focused on growing our business and
positioning it for the long term. Our recently announced acquisitions of
Basic Comfort and Kiddopotamus complement our existing product
offerings, enable us to expand our brand presence at existing customers,
and provide access to new retailers. We are confident we can realize
significant sales and cost synergies, as we integrate these operations
into our existing platform. In addition, we are very pleased with our
ability to expand our bank facilities to a total of $50.0 million in
April, providing us with additional access to capital despite the
turbulent financial markets.”
Mr. Macari continued, “Looking ahead, we
expect our sales momentum in 2008 to remain healthy, as ordering rates
and customer feedback continue to suggest solid demand for 2008. While
we anticipate raw material inflation, higher labor costs and devaluation
of the US dollar in China to continue to pressure gross margins in the
near-term, we have been able to implement select price increases in
order to pass on some of the incremental costs we are experiencing in
the marketplace. We expect these price increases to begin to take effect
in the second half of 2008. In addition, we continue to implement
sourcing and supply chain initiatives to help offset some of the cost
pressures we are incurring.”
Summer Infant is also presenting pro forma results for the first quarter
of 2008, which include the results of Basic Comfort and Kiddopotamus, in
order to provide additional information to investors as to the relative
impact of these companies on the overall Summer Infant business. Note
that these results reflect the performance of the companies prior to
being part of Summer Infant, and therefore the results going forward
could differ materially from these results. For the three months ended
March 31, 2008, the consolidated pro forma results of Summer Infant,
including Basic Comfort and Kiddopotamus, were as follows: a) net
revenues totaled $34.4 million; b) EBITDA totaled $3.6 million; and c)
earnings per share totaled $0.10 per share. These results are unaudited.
Summer Infant, Inc. will host a conference call today, Thursday, May 8,
2008 at 4:30 p.m. Eastern Time, to discuss financial results for its
first quarter ended March 31, 2008. This call is being web cast and can
be accessed by visiting the Investor section of our website at www.summerinfant.com.
Investors may also listen to the call via telephone by dialing (913)
312-0821 (pass code 2498037). In addition, a telephone replay will be
available by dialing (719) 457-0820 (pass code 2498037) through May 22,
2008, at 11:59 p.m. Eastern Time.
About Summer Infant, Inc.
Based in Woonsocket, Rhode Island, the Company is a designer, marketer
and distributor of branded durable juvenile health, safety and wellness
products (for ages 0-3 years), which are sold principally to large U.S.
retailers. The Company currently sells proprietary products in a number
of different categories, including nursery audio/video monitors, safety
gates, durable bath products, bed rails, infant thermometers and related
nursery, health and safety products, booster and potty seats, soft
goods, bouncers, strollers, travel accessories, highchairs and swings.
Use of Non-GAAP Financial Information
This release includes presentations of EBITDA, which is defined as
income before interest and taxes plus depreciation, amortization and non
cash stock option expense. The Company believes that the presentation of
EBITDA provides useful information to investors as it indicates more
clearly the ability of the Company's assets to generate cash sufficient
to pay interest on its indebtedness, meet capital expenditure and
working capital requirements and otherwise meet its obligations as they
become due. EBITDA is commonly used as a measure of leverage capacity,
debt service ability and liquidity. EBITDA is not considered a measure
of financial performance under U.S. generally accepted accounting
principles (GAAP), and the items excluded from EBITDA are significant
components in understanding and assessing our financial performance.
EBITDA should not be considered in isolation or as an alternative to
such GAAP measures as net income, cash flows provided by or used in
operating, investing or financing activities or other financial
statement data presented in our consolidated financial statements as an
indicator of financial performance or liquidity. The Company provides
reconciliations of EBITDA and any other non-GAAP financial measures in
its press releases of historical performance. However, reconciliation
for forward-looking EBITDA projections presented in this release is not
being provided due to the number of variables in the projected range of
EBITDA. The EBITDA range in this release is calculated in accordance
with the Company's past practices. Since EBITDA is not a measure
determined in accordance with GAAP and is susceptible to varying
calculations, EBITDA, as presented, may not be comparable to other
similarly titled measures of other companies.
Forward Looking Statements
Certain statements in this release that are not historical fact may be
deemed “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act of
1995, and the Company intends that such forward-looking statements be
subject to the safe harbor created thereby. These forward-looking
statements relate to information or assumptions about the acquisitions
of Basic Comfort, Inc. and Kiddopotamus and Company, benefits and
synergies of these transactions, future opportunities for the combined
company and products and any other statements regarding the future
expectations, beliefs, goals or prospects of the Company. These
statements are accompanied by words such as "anticipate," "expect,"
"project," "will," "believes," "estimate" and similar expressions. The
Company cautions that these statements are qualified by important
factors that could cause actual results to differ materially from those
reflected by such forward-looking statements. Such factors include the
concentration of the Company’s business with
retail customers; the ability of the Company to compete in its industry;
the Company’s dependence on key personnel;
the Company’s reliance on foreign suppliers;
the costs associated with pursuing and integrating strategic
acquisitions; and other risks as detailed in the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2007,
and subsequent filings with the Securities and Exchange Commission. The
Company assumes no obligation to update the information contained in
this presentation.
Summer Operating Companies
Consolidated Statement of Income (unaudited)
(in thousands of US dollars, except for share and per share
data)
Three Months Ended March 31,
2008
2007(a)
Net revenues
$
28,425
$
17,170
Cost of goods sold
18,490
10,607
Gross profit
9,935
6,563
Selling, general, and administrative expenses
7,326
4,907
Depreciation & amortization
471
305
Non-cash stock option expense
90
153
Income before interest
2,048
1,198
Interest expense (income)
382
(64
)
Income before taxes
1,666
1,262
Provision for income taxes (b)
662
505
Net income
$
1,004
$
757
Earnings per share
$
0.07
$
0.05
Shares used in fully diluted EPS
13,908,000
13,908,000
EBITDA Reconciliation:
Income before interest
2,048
1,198
Plus: depreciation & amortization
471
305
Plus: non-cash stock option expense
90
153
EBITDA
$
2,609
$
1,656
(a) The above condensed income statement reflects the unaudited
operating performance of Summer Operating Companies on a stand
alone basis for Q1 of 2008 versus 2007. This is the clearest
comparison of the underlying operations year over year, as it
excludes the impacts of the combination with KBL. This is a pro
forma comparison for informational purposes only. The actual
reporting in Form 10-K for the year ended December 31, 2007
contains the twelve months of activity of KBL Healthcare plus the
Summer operating performance subsequent to the merger (March 6,
2007 through December 31, 2007).
(b) Provision for income taxes assumes a pro forma income tax rate
of 40% for 2007.
Summer Infant, Inc.
Consolidated Pro Forma Statement of Income (unaudited)
(in thousands of US dollars, except for share and per share
data)
Three Months Ended March 31, 2008
Summer Infant
Acquired
Companies (a)
Pro forma Total
Net revenues
$
28,425
$
5,929
$
34,354
Cost of goods sold
18,490
3,472
21,962
Gross profit
9,935
2,457
12,392
Selling, general, and administrative expenses
7,326
1,465
8,791
Depreciation & amortization
471
22
493
Non-cash stock option expense
90
0
90
Income before interest
2,048
970
3,018
Interest expense (b)
382
196
578
Income before taxes
1,666
774
2,440
Provision for income taxes
662
307
969
Net income
$
1,004
$
467
$
1,471
Earnings per share
$
0.07
$
0.10
Shares used in fully diluted EPS (d)
13,908,000
15,056,000
EBITDA reconciliation:
Income before interest
2,048
970
3,018
plus: depreciation and amortization
471
22
493
plus: non-cash stock option expense
90
0
90
EBITDA
$
2,609
$
992
$
3,601
(a) The results of Basic Comfort and Kiddopotamus are unaudited, and
reflect their performance for the first three months of 2008 prior
to their being acquired by Summer Infant. The results are being
presented to give the reader additional information regarding these
acquisitions and their relative impact on Summer Infant.
(b) Interest expense is a pro forma calculation which assumes a
January 1, 2008 acquisition date, and therefore it calculates the
additional interest related to the amounts borrowed to fund the
acquisitions of Basic Comfort and Kiddopotamus.
(c) Provision for income taxes is presented using a 39.7% effective
rate for the acquired companies (comparable to the rate used for
Summer Infant on a stand alone basis in Q1).
(d) Outstanding shares for EPS purposes assume that the 1,148,000
shares issued in conjunction with acquisitions were issued as of
January 1, 2008.
Summer Infant, Inc.
Consolidated Balance Sheet
(in thousands of US dollars)
Unaudited
March 31, 2008
Audited
December 31, 2007
Cash and cash equivalents
$
2,283
$
1,771
Trade receivables
26,570
21,245
Inventory
22,251
19,327
Property and equipment, net
9,657
9,279
Goodwill and other intangibles
45,581
40,099
Other assets
1,303
1,504
Total assets
$
107,645
$
93,225
Line of credit
$
28,213
$
17,591
Accounts payable, accrued expenses and other liabilities
19,116
18,122
Current portion of long term liabilities
273
265
Long term debt, less current portion
4,008
3,977
Total liabilities
51,610
39,955
Total stockholders equity
56,035
53,270
Total liabilities & stockholders equity
$
107,645
$
93,225
The March 31, 2008 amounts include the effects of the acquisition
of Basic Comfort, which occurred on March 31, 2008.