SOURCE: RAE Systems

March 06, 2008 16:05 ET

RAE Systems Reports Fourth Quarter and Year-End 2007 Results

Fourth Quarter 2007 Revenue Increased 32% From the Fourth Quarter of 2006; Annual Revenue Grew by 34% From 2006 to 2007

SAN JOSE, CA--(Marketwire - March 6, 2008) - RAE Systems Inc. (AMEX: RAE), a leader in delivering innovative sensor solutions to serve industrial, energy, environmental and government safety markets worldwide, reported results for the fourth quarter and year-ended December 31, 2007.

"RAE Systems delivered record quarterly and annual revenue of $27.5 million and $90.8 million, respectively, which is in part attributable to our December 2006 formation of RAE Fushun," said Robert Chen, RAE Systems president and chief executive officer. "While we were pleased with our revenue growth in 2007, we are disappointed by our operating loss. Therefore, we have begun implementing specific programs to improve gross margins, increase productivity, reduce operating expenses and reduce our investments in working capital, all without impacting product quality."

Fourth Quarter 2007 Financial Results

For the fourth quarter of 2007, RAE Systems increased revenue from continuing operations by 32 percent to $27.5 million, compared with revenue from continuing operations of $20.9 million for the same quarter in 2006. The RAE Fushun joint venture contributed 20 percent of our year-over-year revenue growth with the balance coming from existing operations. For the fourth quarter, the Americas contributed 35 percent of total revenue, Asia contributed 53 percent and Europe contributed 12 percent. Gross margin for the quarter was 51 percent, compared with 50 percent for the same quarter of 2006. The slight improvement was attributable to the improving gross margin contribution from the China operations. In the fourth quarter, the company took a non-cash charge of $7.3 million due to a valuation allowance against deferred tax assets related to its operations in the U.S. as required under SFAS No. 109, Accounting for Income Taxes. Net loss for the fourth quarter of 2007 was $7.5 million or $0.13 per share, compared with net loss of $1.0 million or $0.02 per share for the fourth quarter of 2006.

Full Year 2007 Financial Results

For 2007 RAE Systems reported revenue from continuing operations of $90.8 million, compared with revenue from continuing operations of $67.7 million in 2006. This represents a 34 percent year-over-year increase. The RAE Fushun joint venture contributed 17 percent of our year-over-year revenue growth with the balance coming from existing operations. For the full year gross margin declined to 51 percent from 52 percent in 2006.

The 2007 net loss included a $4.2 million loss from the discontinuation of the company's digital video business, a $7.3 million non-cash income tax charge due to valuation allowance against deferred tax assets, and $1.5 million of legal expense related to the Polimaster arbitration award. The loss for the full year was $14.7 million or $0.25 per share, compared with a net loss of $1.5 million or $0.03 per share for 2006.

In December 2007, the company completed the sale and leaseback of its San Jose headquarters facility resulting in a net cash infusion of $12.3 million. The proceeds of which were used to repay bank loans of $9.6 million. The gain from the sale of the building will be recognized ratably over the ten year term of the lease. At December 31, 2007, cash and cash equivalents were $15.9 million.

"During 2007, we focused on integrating the RAE Fushun coal mine safety joint venture and continuing to deliver innovative new products. We also introduced six new, multi-use products, to serve the energy, industrial, chemical, safety and government security markets in more than 85 countries. Given our market and geographic diversity, along with our targeted expense reduction programs, we believe we are well positioned to increase 2008 revenue by 15 percent to 20 percent over 2007 and be profitable for the full year," said Chen.

Fourth Quarter 2007 Business Highlights

--  The Hovensa Refinery in the U.S. Virgin Islands took delivery of
    AreaRAE, wireless systems.
--  In Mexico, the company won a contract to supply all gas detection
    instruments to PEMEX P.E.P., the Exploration and Drilling unit, for the
    next 2 years.
--  The company won government orders from the EPA, FEMA, the U.S. Navy
    and Air Force as well as municipal, state and county emergency management
    agencies.
--  The Bahrain Civil Defense Force made a significant purchase of our
    intrinsically safe, gamma radiation detector/dosimeter, the GammaRAE TWO-R.
--  The company delivered its first large sized orders of wireless AreaRAE
    toxic gas monitors to several China municipal fire brigades. China is
    expected to adopt more wireless systems in 2008.
--  The company continued to win business with PetroChina.
--  The company entered into supplier partnerships with two of the largest
    state run China coal mine operators, which resulted in orders for digital
    mine safety instruments, breathing apparatus and other mine safety
    equipment.
--  The company is supplying toxic gas detection equipment for the August
    2008 Beijing Olympics.
    

About RAE Systems

RAE Systems is a leading global provider of rapidly deployable sensor networks that enable customers to identify safety and security threats in real time. Products include multi-sensor chemical detection networks, wireless gas detection systems and radiation monitors for energy production and refining, industrial and environmental safety, and public and government first responder security. RAE Systems' products are used in over 85 countries by many of the world's leading corporations and by many U.S. government agencies. For more information about RAE Systems, please visit www.RAESystems.com.

Safe Harbor Statement

This press release may contain "forward-looking" statements, as that term is used in Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include, without limitation: expressions of "belief," "anticipation," or "expectations" of management; statements as to industry trends or future results of operations of RAE Systems and its subsidiaries; and other statements that are not historical fact. These types of statements address matters that are subject to risks and uncertainties, which could cause actual results to differ materially. Factors that could cause or contribute to such differences include, but are not limited to, the general economic and industry factors and receptiveness of the market to RAE Systems and its products. In addition, our forward-looking statements should be considered in the context of other risk factors discussed in our filings with the Securities and Exchange Commission, including but not limited to our annual report on Form 10-K and Form 10-Q filings, available online at http://www.sec.gov. All forward-looking statements are based on information available to the company on the date hereof, and the company assumes no obligation to update such statements.

                             RAE Systems Inc.
                        Consolidated Balance Sheets
              (in thousands, except share and par value data)
                                (unaudited)

                                                December 31,  December 31,
                                                    2007          2006
                                                ------------  ------------
ASSETS
Current assets:
 Cash and cash equivalents                      $     15,906  $     18,119
 Short-term investments                                    -         3,248
 Trade notes receivable                                2,793         1,977
 Accounts receivable, net of allowances of
  $2,060 and $843, respectively                       22,749        16,966
 Accounts receivable from affiliate                       21           154
 Inventories, net                                     17,542        15,382
 Prepaid expenses and other current assets             2,930         2,530
 Income taxes receivable                               1,395           968
 Deferred tax assets, current                              -           935
                                                ------------  ------------
      Total current assets                            63,336        60,279
                                                ------------  ------------
Property and equipment, net                           12,258        15,120
Acquisition in-progress                                    -           820
Intangible assets, net                                 3,827         5,304
Goodwill                                               3,143         3,760
Investments in unconsolidated affiliates                 425           420
Deferred tax assets, non-current                           -         3,402
Other assets                                           1,680           648
                                                ------------  ------------
 Total assets                                   $     84,669  $     89,753
                                                ============  ============
LIABILITIES, MINORITY INTEREST IN CONSOLIDATED
 ENTITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable                               $      6,071  $      7,187
 Accounts payable to affiliate                           411           360
 Payable to Fushun shareholder                           609         3,926
 Bank lines of credit                                  2,618             -
 Accrued liabilities                                  12,098         8,793
 Notes payable to related parties, current               191           822
 Income taxes payable                                      -           520
 Deferred revenue, current                               488         2,030
                                                ------------  ------------
      Total current liabilities                       22,486        23,638
                                                ------------  ------------
Deferred revenue, non-current                            514           736
Deferred tax liabilities, non-current                    277           438
Other long-term liabilities                            7,281         1,045
Notes payable to related parties, non-current          2,370         3,222
                                                ------------  ------------
      Total liabilities                               32,928        29,079
                                                ------------  ------------

MINORITY INTEREST IN CONSOLIDATED ENTITIES             5,409         4,495

SHAREHOLDERS' EQUITY:
 Common stock, $0.001 par value, 200,000,000
  shares authorized; 59,177,892 and 59,274,596
  shares issued and outstanding, respectively             59            59
 Additional paid-in capital                           60,957        58,828
 Accumulated other comprehensive income                4,133         1,245
 Accumulated deficit                                 (18,817)       (3,953)
                                                ------------  ------------
      Total stockholders' equity                      46,332        56,179
                                                ------------  ------------
      Total liabilities, minority interest in
       consolidated entities and shareholders'
       equity                                   $     84,669  $     89,753
                                                ============  ============



                             RAE Systems Inc.
                  Consolidated Statements of Operations
                  (in thousands, except per share data)
                                (unaudited)

                                 Three Months Ended        Year Ended
                                    December 31,          December 31,
                                --------------------  --------------------
                                  2007       2006       2007       2006
                                ---------  ---------  ---------  ---------
Net sales                       $  27,513  $  20,905  $  90,836  $  67,721
Cost of sales                      13,548     10,455     44,428     32,198
                                ---------  ---------  ---------  ---------
Gross profit                       13,965     10,450     46,408     35,523
                                ---------  ---------  ---------  ---------
Operating expenses:
 Sales and marketing                8,111      6,456     25,434     18,987
 Research and development           2,659      1,871      7,973      6,075
 General and administrative         4,748      3,679     18,165     13,332
 (Gain) loss on abandonment of
  lease                                 -          -       (595)         -
                                ---------  ---------  ---------  ---------
       Total operating expenses    15,518     12,006     50,977     38,394
                                ---------  ---------  ---------  ---------
Operating loss from continuing
 operations                        (1,553)    (1,556)    (4,569)    (2,871)
Other income (expense):
 Interest income                       17        153        162        782
 Interest expense                    (237)       (90)      (705)      (249)
 Other, net                           131         15        459        232
 Equity in gain (loss) of
  unconsolidated affiliates            38         41          3       (194)
                                ---------  ---------  ---------  ---------
Loss from continuing operations
 before income taxes and
 minority interest                 (1,604)    (1,437)    (4,650)    (2,300)
Income tax expense (benefit)        5,480       (618)     5,883       (882)
                                ---------  ---------  ---------  ---------
Loss before minority interest      (7,084)      (819)   (10,533)    (1,418)

Minority interest in income
 (loss) of consolidated
 subsidiaries                         (41)       (27)        (6)        49
                                ---------  ---------  ---------  ---------
Loss from continuing operations    (7,125)      (846)   (10,539)    (1,369)
Loss from discontinued
 operations, net of tax              (378)      (109)    (4,154)      (160)
                                ---------  ---------  ---------  ---------
Net loss                        $  (7,503) $    (955) $ (14,693) $  (1,529)
                                =========  =========  =========  =========


Net loss per share - basic and
 diluted
   Continuing operations        $   (0.12) $   (0.02) $   (0.18) $   (0.03)
   Discontinued operations          (0.01)         -      (0.07)         -
                                ---------  ---------  ---------  ---------
Net loss per share - basic and
 diluted                        $   (0.13) $   (0.02) $   (0.25) $   (0.03)
                                =========  =========  =========  =========

Weighted average common shares
 outstanding - Basic               58,989     59,155     58,852     58,425
Stock options and warrants              -          -          -          -
                                ---------  ---------  ---------  ---------
Weighted average common shares
 outstanding - Diluted             58,989     59,155     58,852     58,425
                                =========  =========  =========  =========




The following table sets forth the components of our Consolidated
Statements of Operations as a percentage of net sales:

                                       Three Months Ended    Year Ended
                                           December 31,     December 31,
                                        ----------------  ----------------
                                          2007     2006     2007     2006
                                        -------  -------  -------  -------
Net sales                                   100%     100%     100%     100%
Cost of sales                                49%      50%      49%      48%
                                        -------  -------  -------  -------
Gross profit                                 51%      50%      51%      52%
                                        -------  -------  -------  -------
Operating expenses:
 Sales and marketing                         29%      31%      28%      28%
 Research and development                    10%       9%       9%       9%
 General and administrative                  17%      17%      20%      20%
 (Gain) loss on abandonment of lease          0%       0%      -1%       0%
                                        -------  -------  -------  -------
       Total operating expenses              56%      57%      56%      57%
                                        -------  -------  -------  -------
Operating loss from continuing
 operations                                  -5%      -7%      -5%      -5%
Other income (expense):
 Interest income                              0%       0%       0%       1%
 Interest expense                            -1%       0%      -1%       0%
 Other, net                                   0%       0%       1%       0%
 Equity in gain (loss) of
  unconsolidated affiliates                   0%       0%       0%       0%
                                        -------  -------  -------  -------
Loss from continuing operations before
 income taxes and minority interest          -6%      -7%      -5%      -4%
Income tax expense (benefit)                 20%      -3%       6%      -1%
                                        -------  -------  -------  -------
Loss before minority interest               -26%      -4%     -11%      -3%
Minority interest in income (loss) of
 consolidated subsidiaries                    0%       0%       0%       0%
                                        -------  -------  -------  -------
Loss from continuing operations             -26%      -4%     -11%      -3%
Loss from discontinued operations, net
 of tax                                      -1%      -1%      -5%       0%
                                        -------  -------  -------  -------
Net loss                                    -27%      -5%     -16%      -3%
                                        =======  =======  =======  =======

Contact Information

  • Company Contact:
    Investor Relations
    408-952-8449
    Email Contact

    IR Agency Contact:
    Christiane Pelz
    Lippert/Heilshorn & Associates, Inc.
    415-433-3777
    Email Contact