SOURCE: RAE Systems

RAE Systems

August 05, 2009 16:15 ET

RAE Systems Reports Second Quarter 2009 Results

Second Quarter 2009 Revenue Increased 4% Over First Quarter 2009

SAN JOSE, CA--(Marketwire - August 5, 2009) - RAE Systems Inc. (NYSE Amex: RAE), a leader in delivering innovative sensor solutions to serve industrial, energy, environmental, and government safety markets worldwide, reported financial results and business highlights for the second quarter ended June 30, 2009.

Financial Results

For the second quarter of 2009, RAE Systems reported revenue of $19.9 million, an increase of four percent over the first quarter of 2009 and a 19 percent decrease from the second quarter 2008 revenue of $24.6 million. For the second quarter of 2009, the Americas contributed 42 percent of total revenue, Asia contributed 41 percent and Europe contributed 17 percent of revenue. Gross margin for the second quarter was 50 percent, compared with 49 percent for the first quarter 2009 and 53 percent for the second quarter of 2008. Operating expenses for the second quarter 2009 were $11.9 million or 60 percent of revenue, compared with $12.6 million or 51 percent of revenue for the second quarter of 2008. The second quarter net loss was $2.3 million or $0.03 per share, compared with a net loss of $0.5 million or $0.01 per share for the second quarter of 2008.

For the six months ended June 30, 2009, revenue was $39.0 million, compared with $42.5 million for the same period in 2008. The net loss for the six months ended June 30, 2009 was $3.2 million, compared with $2.8 million for the same period in 2008. The net loss per share was $0.05 for both the 2009 and 2008 six month periods.

"While the global recession has impacted our global customer spending, we believe our mix of new and existing product offerings positions us well to benefit when the global economy begins to improve," said Robert Chen, RAE Systems president and CEO. "Our wireless product initiatives address the continued demand for time and life critical information. Many of our new products enable our customers to increase their productivity while benefiting from reduced operating costs."

"Due to the uncertainty of the worldwide economic outlook for 2009 combined with our first half revenue performance, as well as performance issues at RAE Fushun, we now expect full year 2009 revenue of between $83.0 million and $86.0 million and we no longer expect to be profitable for the year," Chen commented.

Business Highlights

Following are key business highlights in the company's second quarter:

 -- In the Oil and Gas market:
   -- Sold UltraRAE 3000 benzene monitors to multiple refineries,
      chemical plants and pipelines in Colorado, New Mexico and Utah.
   -- Received the first Americas order for the new MeshGuard,
      single gas wireless monitors.
   -- Sold wireless AreaRAE Rapid Deployment Kits to several
      multi-national petroleum and refining companies.
   -- Delivered QRAE2's and AutoRAE Lite Calibration Stations
      to the oil sands services sector in Canada.
   -- Won a major bid to provide an AreaRAE Wireless Gas-Detection
      Network to the Puguang Gas Field in China.
-- In the Hazardous Material Management market:
   -- Delivered ppbRAE 3000 VOC monitors, EntryRAE 5-gas monitors,
      HazRAE decision support tools and wireless AreaRAE Rapid
      Deployment Kits to several fire departments in the
      Asia-Pacific region.
-- In the Industrial Safety market:
   -- Sold ppbRAE's, MultiRAE Plus and MultiRAE IR Carbon Dioxide
      monitors, AutoRAE calibration stations and EntryRAE 5-gas monitors
      to companies in Korea, Taiwan, Canada and Malaysia.

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 disposable gas detection tubes, single gas personal monitors, multi-sensor chemical detection monitors, photoionization (PID) monitors for volatile organic compounds (VOCs), wireless gas detection systems, and radiation monitoring networks for energy production and refining, industrial and environmental safety, and public and government first responder security sectors. RAE Systems' products are used in over 95 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.
                  Condensed Consolidated Balance Sheets
              (in thousands, except share and par value data)
                                (unaudited)


                                                  June 30,    December 31,
                                                    2009          2008
                                                ------------  ------------
ASSETS
Current assets:
  Cash and cash equivalents                     $     15,316  $     14,845
  Trade notes receivable                               1,722         1,870
  Accounts receivable, net of allowances of
   $4,840 and $3,472, respectively                    19,006        20,961
  Accounts receivable from affiliate                     151           100
  Inventories                                         14,510        17,604
  Prepaid expenses and other current assets            4,716         4,991
  Income taxes receivable                                846           895
                                                ------------  ------------
      Total current assets                            56,267        61,266
                                                ------------  ------------
Property and equipment, net                           15,996        14,976
Intangible assets, net                                 2,876         3,342
Investments in unconsolidated affiliates                 334           467
Other assets                                             694         1,124
                                                ------------  ------------
  Total assets                                  $     76,167  $     81,175
                                                ============  ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                              $      5,392  $      6,387
  Accounts payable to affiliate                           76           382
  Payable to Fushun shareholder                            2            64
  Bank lines of credit                                 3,741         2,584
  Accrued liabilities                                 11,839        12,318
  Notes payable to related parties, current              624         1,329
  Income taxes payable                                   454           425
  Deferred revenue, current                              550           631
                                                ------------  ------------
      Total current liabilities                       22,678        24,120
                                                ------------  ------------
Deferred revenue, non-current                            564           685
Deferred tax liabilities, non-current                    357            83
Deferred gain on sale of real estate,
 non-current                                           4,761         5,079
Other long-term liabilities                            1,362         1,292
Notes payable to related parties, non-current            729         1,219
                                                ------------  ------------
      Total liabilities                               30,451        32,478
                                                ------------  ------------

COMMITMENTS AND CONTINGENCIES (NOTE 5)

SHAREHOLDERS' EQUITY:
  Common stock, $0.001 par value, 200,000,000
   shares authorized; 59,443,914 and 59,443,914
   shares issued and outstanding, respectively            59            59
  Additional paid-in capital                          63,272        62,549
  Accumulated other comprehensive income               6,687         6,555
  Accumulated deficit                                (29,185)      (25,947)
                                                ------------  ------------
      Total RAE Systems Inc. shareholders'
       equity                                         40,833        43,216
    Noncontrolling interest                            4,883         5,481
                                                ------------  ------------
      Total shareholders' equity                      45,716        48,697
                                                ------------  ------------
      Total liabilities and shareholders'
       equity                                   $     76,167  $     81,175
                                                ============  ============





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


                                    Three Months Ended   Six Months Ended
                                         June 30,            June 30,
                                    ------------------  ------------------
                                      2009      2008      2009      2008
                                    --------  --------  --------  --------
Net sales                           $ 19,907  $ 24,647  $ 39,020  $ 42,516
Cost of sales                         10,039    11,556    19,822    20,570
                                    --------  --------  --------  --------
Gross profit                           9,868    13,091    19,198    21,946
                                    --------  --------  --------  --------
Operating expenses:
  Sales and marketing                  4,849     5,421     9,231    10,801
  Research and development             1,384     1,545     2,979     3,281
  General and administrative           5,692     5,627    10,105     9,923
                                    --------  --------  --------  --------
       Total operating expenses       11,925    12,593    22,315    24,005
                                    --------  --------  --------  --------
Operating (loss) income from
 continuing operations                (2,057)      498    (3,117)   (2,059)
Other income (expense):
  Interest income                          8        38        17        86
  Interest expense                       (90)      (99)     (235)     (201)
  Other, net                              53      (225)       (8)       82
  Equity in loss of unconsolidated
   affiliate                             (66)      (27)     (133)      (36)
                                    --------  --------  --------  --------
(Loss) income from continuing
 operations before income taxes       (2,152)      185    (3,476)   (2,128)
Income tax expense                      (401)     (469)     (360)     (665)
                                    --------  --------  --------  --------
Loss from continuing operations       (2,553)     (284)   (3,836)   (2,793)
Gain from discontinued operations,
 net of tax                                -         5         -        15
                                    --------  --------  --------  --------
Net loss                              (2,553)     (279)   (3,836)   (2,778)
  Net loss (income) attributable to
   the noncontrolling interest           303      (188)      598       (25)
                                    --------  --------  --------  --------
Net loss attributable to RAE
 Systems Inc.                       $ (2,250) $   (467) $ (3,238) $ (2,803)
                                    ========  ========  ========  ========


Net loss per share-basic and
 diluted:
  Continuing operations             $  (0.03) $  (0.01) $  (0.05) $  (0.05)
  Discontinued operations                  -         -         -         -
                                    --------  --------  --------  --------
Net loss per share-basic and
 diluted                            $  (0.03) $  (0.01) $  (0.05) $  (0.05)
                                    ========  ========  ========  ========

Weighted-average common shares
 outstanding-Basic                    59,359    59,178    59,351    59,089
                                    ========  ========  ========  ========





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


                                             Three Months     Six Months
                                            Ended June 30,  Ended June 30,
                                            --------------  --------------
                                             2009    2008    2009    2008
                                            ------  ------  ------  ------
Net sales                                      100%    100%    100%    100%
Cost of sales                                   50%     47%     51%     48%
                                            ------  ------  ------  ------
Gross profit                                    50%     53%     49%     52%
                                            ------  ------  ------  ------
Operating expenses:
  Sales and marketing                           24%     22%     24%     26%
  Research and development                       7%      6%      7%      8%
  General and administrative                    29%     23%     26%     23%
  Adjustment to lease abandonment accrual        0%      0%      0%      0%
                                            ------  ------  ------  ------
       Total operating expenses                 60%     51%     57%     57%
                                            ------  ------  ------  ------
Operating (loss) income from continuing
 operations                                    -10%      2%     -8%     -5%
Other income (expense):
  Interest income                                0%      0%      0%      0%
  Interest expense                              -1%      0%     -1%      0%
  Other, net                                     0%     -1%      0%      0%
  Equity in loss of unconsolidated affiliate     0%      0%      0%      0%
                                            ------  ------  ------  ------
(Loss) income from continuing operations
 before income taxes                           -11%      1%     -9%     -5%
Income tax expense                              -2%     -2%     -1%     -2%
                                            ------  ------  ------  ------
Loss from continuing operations                -13%     -1%    -10%     -7%
Gain from discontinued operations, net of
 tax                                             0%      0%      0%      0%
                                            ------  ------  ------  ------
Net loss                                       -13%     -1%    -10%     -7%
  Net loss (income) attributable to the
   noncontrolling interest                       2%     -1%      2%      0%
                                            ------  ------  ------  ------
Net loss attributable to RAE Systems Inc.      -11%     -2%     -8%     -7%
                                            ======  ======  ======  ======


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