Hemisphere GPS today reported financial results for the first quarter ended March 31, 2011. All currency amounts are expressed in U.S. dollars. The Company notes that its financial results are reported under International Financial Reporting Standards ("IFRS") for the first time this quarter. While the conversion did not have a significant impact on the Company's results, certain components, as well as 2010 comparatives, have been reclassified and adjusted within the financial statements to reflect the conversion. The most significant change resulting from the conversion to IFRS is the change in the Company's functional or measurement currency from the Canadian dollar to the United States dollar.
For the first quarter ended March 31, 2011, Hemisphere GPS achieved revenue growth of 41%, reporting $21.2 million in revenues, compared to $15.1 million in the first quarter of 2010. Revenues from all market segments increased in the first quarter. "The recovery in our business that began in the back half of last year continued and strengthened in the first quarter of 2011 with a return to profitability," stated Steven Koles, President and CEO of Hemisphere GPS. "Traction from new products, stronger grain prices and signs of global economic recovery contributed to stronger growth in every geographic market, and all of our product lines."
Gross margins were relatively consistent year over year at 48.5% compared to 49.2% for the first quarter of 2010, which have been revised based upon the conversion from Canadian to US functional currency under IFRS. Revised gross margins for 2010 are higher than originally reported under Canadian generally accepted accounting principles as a result of the impact of a strengthening Canadian dollar on the weighted average costing of Canadian inventories when using the US dollar as functional currency.
Although revenues grew 41% in the first quarter, total operating expenses for the quarter were flat year-over-year at $8.4 million, in-line with Management's objectives. This demonstrates the scalability of the Company's business model. Effective January 1, 2011, Management implemented a hedging program focused on mitigating the impact of foreign currency changes on Canadian and Australian operating expenses. Hedging gains earned in the quarter were offset against the related operating expenses, mitigating the impact of stronger Canadian and Australian currencies in the first quarter.
Research and development expenses for the first quarter remained unchanged year-over-year at $2.4 million, and were down by approximately $0.4 million from the fourth quarter of 2010. As a percentage of revenues, R&D expenses decreased to 11% of revenues for the first quarter of 2011, as compared to 16% of revenues for the first quarter of 2010. This is in line with Management's general objectives of investing approximately 11% to 12% of total revenues into R&D. Sales and marketing expenses for the quarter were lower by 1% to $3.3 million. General and administrative expenses were unchanged, at $1.8 million. In accordance with IFRS, stock-based compensation is not reported separately and has been allocated to the functional expense categories for both 2011 and 2010.
Hemisphere GPS reported a first quarter net margin of 9%, resulting in net income of $1.8 million, or $0.03 per share, a significant improvement from a net loss of $1.0 million, or ($0.02) per share, for the first quarter of 2010.
Comprehensive income of $330 thousand in the first quarter, represents the mark-to-market gain on hedging instruments put in place to hedge operating expenses for the remainder of 2011. There were no outstanding hedging instruments in place at March 31, 2010.
The Company generated $3.0 million in positive cash flow from operations before working capital changes during the quarter, compared to $50 thousand in the first quarter of 2010. In addition, during the first quarter of 2011, the Company completed an equity financing for net proceeds of approximately $7.5 million. At March 31, 2011, the Company held cash of approximately $12.0 million and had working capital of approximately $31 million.
At March 31, 2011, Hemisphere GPS had 60,824,409 common shares outstanding.
Product Segment Sales Review
Total sales for the Agriculture segment increased by 40% compared to the first quarter of 2010. Sales of the Company's ground-based agriculture products, including the Outback Guidance® branded products, increased 47% year over year. Agriculture revenues contributed 83% of total first quarter revenues, consistent with the first quarter of 2010. Sales of the eDrive auto-steering portfolio, including the new Outback eDriveX™ and Outback eDriveVSi™ offerings helped to drive growth in this segment.
Total sales for the Precision Products segment were up 44%, contributing 17% of total revenue in the quarter in both comparable quarters. Sales of Vector heading sensor products to the marine markets and GPS boards to OEM customers continue to lead the growth in this segment.
Regional Sales Review
Total revenues from the United States and Canada grew by approximately 32% each. The US remains Hemisphere GPS' largest market, contributing 49% of revenues in the first quarter. Combined with Canada, the two markets contributed 66% of total revenues for the first quarter.
European sales increased 78%, contributing 17% of total first quarter revenues.
Australia sales increased by 186% from the first quarter of 2010, contributing 5% of total revenues. Sales to Australia showed the strongest relative performance resulting from the 2010 launch of an Outback sales network in Australia, modeled after the existing Outback sales network deployed in North America.
Other international sales, including South America and Asia among others, grew by 13%, contributing 11% of total revenues. Sales in the Southern Hemisphere are seasonally stronger during the second and third quarters due to the reversal of agriculture seasons. International sales growth for the quarter was primarily driven by customer growth in Asia, where the Company has been successfully partnering with distribution and OEM partners.
International exports of ground agriculture products increased by 95% overall compared to the same period one year ago. International sales continue to become a larger percentage of total revenues due to the higher growth rates. The percentage of total revenues derived outside North America in the first quarter 2011 increased to 34% from 30% for the first quarter of 2010.
"We were pleased with our results in the first quarter. In addition, our total open orders at March 31 were up significantly from last year, providing confidence in the near term quarters as well," stated Mr. Koles.
The deadline for the filing of Financial Statements with notes and Management's Discussion and Analysis ("MD&A") has been extended by securities regulators by one month in order to provide companies and their auditors sufficient time to complete additional work related to the conversion to IFRS. The Company will file its financial statements and MD&A prior to the deadline. Readers are cautioned that there may be some revisions to the financial information reported in this press release as a result of the final application of IFRS standards or the completion of the review engagement by the Company's auditors.
Hemisphere GPS' commitment to research and development has resulted in the awarding of two new patents. The patents are the latest innovations in precision farming and for new GNSS compass technology used primarily for marine navigation.
Specifically, the Company was awarded a patent for a comprehensive guidance, navigation and control system for precision farming, comprised of a GNSS receiver, inertial sensors, a steering control module and user interface. The patent is based on Hemisphere GPS' exclusive Vector™ technology and includes a multiple GNSS antenna configuration for accurate position, heading, pitch and roll of a vehicle. The patent also covers the positioning and independent guidance and control of a farm implement and individual nozzle control of a spray boom. The patent is incorporated into Hemisphere GPS' precision farming product line including the Outback Guidance® branded products.
The second patent was awarded for its method of combining elements of a GNSS compass onto a single printed circuit board and is utilized in the world's most compact all-in-one vector products announced by Hemisphere GPS earlier this year; the V102™ GPS compass and positioning system and the H102 OEM board. Marine and land-based users and system integrators benefit from the value of such a compact and accurate GPS compass solution.
"Hemisphere GPS' continuous focus on innovation has generated over 70 pending and issued patents," said Dr. Mike Whitehead, Vice President, Technology at Hemisphere GPS. "Through these innovations we enhance the capability and performance of our positioning, guidance and machine control solutions in the marketplace."
About Hemisphere GPS Hemisphere GPS designs and manufactures innovative, cost-effective GPS products for positioning, guidance, and machine control applications in agriculture, marine, construction, and other markets. The Company holds numerous patents and other intellectual property and owns several leading brand names, including Outback Guidance®, a leading brand in precision GPS for agriculture. The Company is headquartered in Calgary, Alberta, with major product development, sales, and marketing facilities in Arizona, Kansas, and Australia. Hemisphere GPS is listed on the Toronto Stock Exchange (TSX) trading under the symbol "HEM" and is one of the TSX Cleantech designated companies. For more information about Hemisphere GPS, please go to www.hemispheregps.com.