Hemisphere GPS reported financial results for the fourth quarter and year ended December 31, 2009. All amounts in this news release are expressed in U.S. dollars.
For the fourth quarter ended December 31, 2009, Hemisphere GPS reported a 16% increase in revenues to $12.1 million, versus $10.5 million in the fourth quarter of 2008. Hemisphere GPS reported a net loss of $2.4 million, or $(0.04) per share (basic and diluted), in the fourth quarter of 2009 compared to a net loss of $2.6 million, or ($0.05) per share (basic and diluted), in the fourth quarter of 2008. The similar loss on increased revenues is the result of marginally higher operating costs, R&D investment, a lower foreign exchange gain and the impact of the weakening US dollar on gross margins.
"We were pleased with the fourth quarter," stated Steven Koles, President and CEO of Hemisphere GPS. "It was our first quarter of growth in five quarters, and was in fact, the second best Q4 ever, second only to Q4, 2007. We are encouraged by positive signals heading into 2010 compared to the weakness of 2009. However, balanced by weaker commodity prices and harsh weather conditions, real visibility remains somewhat difficult at this point", added Koles. "More clarity should be available by the end of the first quarter."
Throughout 2009 in general, sales in all areas of business were impacted by uncertainty associated with the decline in global financial markets. Management believes that the weather-driven late harvest in the United States also reduced overall agriculture customer purchasing activity during the quarter.
A weaker US dollar effectively increases the purchasing power in international markets, notably South America, Europe and Australia, which could positively influence sales. International revenues did in fact show a strong performance with growth of 55% compared to the fourth quarter of 2008 with particular strength in Asia, South America and Europe. This is a marked improvement following the 34% decrease in International revenues for the first three quarters of the year. North American revenues were essentially even year-over-year, but an improvement compared to the first three quarters of 2009 where Hemisphere's North American revenues were down more than 30% year-over-year.
In its December 2009 report Agricultural Income and Finance Outlook, the US Department of Agriculture ("USDA") projects that net farm income will be $57.0 billion for 2009, down by 34.5% from record 2008 net farm income of $87.1. Net farm income is forecasted by the USDA to grow in 2010.
Fourth quarter gross margins were 43.3% compared to 45.9% in 2008. Margins were lower primarily as a result of the impact of the significant weakening of the US dollar. The weakening of the US dollar reduced effective gross margins for the quarter, as a majority of the US dollar inventory held by the Company during the fourth quarter was acquired during the first and second quarter - when the US dollar was much stronger. The Company estimates that this had a negative impact on gross margins in the quarter of approximately 6%, in part due to the fourth quarter of 2008 having an opposite foreign exchange impact. Offsetting the negative impact of foreign exchange rates, gross margins were positively impacted during the quarter by cost reductions in the manufacturing department, product mix and by higher software revenues compared to 2008. As inventory turnover improves and foreign exchange rates become more stable, foreign exchange rate changes should have a smaller impact on gross margins.
Operating expenses were $7.4 million in the fourth quarter, an increase of $0.1 million, or 2%, compared to the fourth quarter of 2008. Research and development expense for the quarter increased by $0.1 million to $2.4 million. Investment in research and development is critical to maintain and expand the Company's portfolio of technology and products. Sales and marketing expenses decreased by $0.2 million or 8% from the fourth quarter of 2008 as a result of lower headcount and other cost reduction initiatives, offset by higher commissions. General and administrative expenses increased from the fourth quarter of 2008 by $0.2 million or 15%.
At December 31, 2009, Hemisphere GPS held cash of $8.4 million, as compared to $7.9 million at September 30, 2009. Inventory levels decreased from $19.3 million at September 30, 2009 to $17.8 million at the end of December 2009, which is up from inventory of $14.0 million at December 31, 2008. Inventory was originally built in anticipation of strong sales during the first half of the year, which is historically the strongest buying season for Hemisphere GPS. Softer than anticipated sales did not draw down inventory levels as expected. Physical inventory levels reported in the Company's Canadian dollar measurement currency peaked in March and have drawn down since. However, the weakening US dollar has offset this trend for reported inventory levels. Quarter-end inventory has reflected the following levels and rates: