SOURCE: Sierra Monitor Corporation

Sierra Monitor Corporation

July 27, 2015 08:00 ET

Sierra Monitor Corporation Announces Financial Results for the Second Quarter Ended June 30, 2015

Sales, Gross Margin, Earnings, and Cash Increase Year Over Year

MILPITAS, CA--(Marketwired - July 27, 2015) - Sierra Monitor Corporation (OTCQB: SRMC), a provider of Industrial Internet of Things (IIoT) solutions that connect and protect high-value infrastructure assets, today announced financial results for the second quarter ended June 30, 2015.

Financial Highlights

  • Achieved Q2 2015 net sales of approximately $5.02 million, compared to approximately $4.75 million in the prior year period, resulting in Trailing Twelve Month (TTM) sales of $20.42 million
  • Delivered Q2 2015 gross margin of 59.5%, compared to 57.8% in the prior year period, resulting in a TTM gross margin of 57.1%
  • Reported Q2 2015 GAAP net income per share of $0.02 (basic and diluted), compared to GAAP net income of $0.01 per share (basic and diluted) for the prior year period, resulting in a TTM GAAP net income of approximately $0.06 per share (basic and diluted)
  • Achieved Q2 2015 EBITDA of $448,710, compared to $288,903 for the prior year period, resulting in TTM EBITDA of approximately $1.7 million
  • Reported Q2 2015 Non-GAAP net income per share of $0.04 (basic and diluted), compared to $0.03 per share (basic and diluted) for the prior year period, resulting in a TTM Non-GAAP net income of $0.16 per share (basic and diluted)
  • Ended Q2 2015 with a cash balance of approximately $4.5 million and no bank debt compared to a cash balance of approximately $4.0 million at end of Q1 2015, and compared to a cash balance of approximately $3.1M at end of Q2 2014.
  • Declared twelfth consecutive quarterly dividend of $0.01 per share, to be paid on August 14, 2015.

First Quarter 2015 Financial Results
Net sales for the quarter ended June 30, 2015 were $5,016,999, an increase of approximately 6%, compared to $4,752,375 reported for the same period of 2014. Sierra Monitor posted GAAP net income of $169,051 or $0.02 per share (basic and diluted), for the quarter ended June 30, 2015, an increase of approximately 35%, compared to GAAP net income of $125,630 or $0.01 per share (basic and diluted), for the same period of 2014. See Table A of this release for condensed statements of operations.

Sierra Monitor posted non-GAAP net income of $403,382 or $0.04 per share (basic and diluted), for the quarter ended June 30, 2015, an increase of approximately 43%, compared to non-GAAP net income of $282,325 or $0.03 per share (basic and diluted), for the same period of 2014. See Table C of this release for a reconciliation of GAAP to non-GAAP operating results.

Sierra Monitor achieved EBITDA of $448,710, an increase of approximately 55%, compared to EBITDA of $288,903 for the same period of 2014. See Table D of this release for reconciliation between GAAP Net Income and EBITDA operating results.

Sierra Monitor had $4,524,267 in cash on June 30, 2015 with no bank borrowings, compared to $3,339,952 on December 31, 2014. Net trade receivables on June 30, 2015 were $2,287,982, compared to $2,571,994 on December 31, 2014. The company's days' sales outstanding were 43 days, compared to 46 days for the same period in 2014. Inventory at the end of Q2 2015 was $2,701,006 compared to $2,896,614 on December 31, 2014. See Table B of this release for a summary of the balance sheet.

Business Highlights
Sierra Monitor continued to expand its nearly two hundred strong Original Equipment Manufacturer (OEM) customer base for its FieldServer protocol gateway products. Our customer wins reinforce our position as a leading integration partner to OEMs in the Building Automation or the Building segment of the Industrial Internet of Things (IIoT) market.

  • Distech Controls, an innovation leader in energy management solutions, is offering the FieldServer protocol gateway to connect their ECLYPSE™ BMS to various M-Bus meters commonly used in Europe. A significant advantage of specifying the FieldServer product as the integration gateway is its ability to support numerous variants of M-Bus, Modbus, and BACnet on the same gateway, giving Distech and its partners the ability to respond to requirements beyond M-Bus.
  • Weil-McClain, a leading designer of gas and oil-fired hot water and steam boilers for space heating in residential, commercial and institutional buildings, has selected the FieldServer protocol gateway to interface their new product lines to Building Management Systems (BMS). Each FieldServer protocol gateway on site can connect a variety of installed boilers to popular BMS protocols such as BACnet MS/TP and BACnet/IP.
  • Autoflame, a UK-based burner controls company with over 10,000 systems in operation globally has selected the FieldServer protocol gateway to interface their Data Transfer Interface product to BMS protocols commonly used in the US buildings market. We believe that key criteria in the selection of the FieldServer products were the BTL-certified BACnet implementation and the gateway's capacity to support thousands of data points.
  • OJ Electronics of Denmark, manufacturers of the OJ Air2 system, a total control system for Air Handing Units (AHUs), is offering a next generation Air2 LON interface based on the FieldServer gateway to integrate the OJ Air2 system into any Building Management system that communicates using the LonWorks control networking protocol.

Additionally, Sierra Monitor's FieldServer protocol gateway products continued to be purchased and used by leading system integrators in high-value and complex IIoT projects in settings such as data centers and Telecom switching stations. We also recognized a significant first win for the easy-to-use BACnet Router that was introduced last quarter.

  • Performance Services, experts in the processes and technologies required to deliver high-performance buildings is deploying nearly fifty of Sierra Monitor's newly introduced BACnet routers at eleven school districts in the Midwestern states. The routers are used to connect BACnet MS/TP based building systems to BACnet/IP based management systems.
  • JCI's Dallas office is using FieldServer multiprotocol gateways on a project at State Farm Insurance's 130,000 square foot data center being constructed in Richardson, Texas. The gateway is used to bridge the Johnson Controls BMS system and the Schneider Data Center Information Management (DCIM) system, and serves as a neutral demarcation device between the two vendor networks.
  • JCI's Fort Worth office is using FieldServer multiprotocol gateways on a project at the 10,000 square feet Alcon/Novartis data center in south Fort Worth that will serve the Swiss pharmaceutical company's operations in North and South America. The gateways are part of a high-availability network design that brings thousands of Modbus RTU and Allen Bradley Ethernet IP data points from various electrical devices to the DCIM system over Modbus TCP.
  • Zonatherm, an Illinois-based maintenance and services company, used FieldServer protocol gateways as part of a data center commissioning project. The gateway connects to Generac back-up diesel generators, displays critical generator data on a web page, and interfaces that data to the DCIM using the SNMP protocol commonly used in data centers.
  • Albireo Energy, a provider of building automation solutions and energy efficiency services to commercial buildings used FieldServer protocol gateways to integrate a large number of McQuay Air Handling Units that speak the McQuay Microtech1 protocol to a BACnet infrastructure for their customer JP Morgan Chase. Support for specialized protocols such as the McQuay Microtech1 is one of the distinguishing attributes of the FieldServer protocol gateway.
  • Honeywell Building Solutions in India is using FieldServer protocol gateways at a project for Airtel, India's leading wireless operator. A gateway is used at each Level 2 switching station to interface the Honeywell XLS fire alarm system used within that station to a BACnet/IP based management system. Potential future uses of the gateway within a switching station include integrating other sub-systems such as emergency lighting, uninterrupted power systems and networking switches to the management system.

Additionally, Sierra Monitor's Sentry IT line of fire and gas solutions continued to be selected to protect high-value assets and facilities around the world for various applications. As in previous quarters, Sierra Monitor continued to demonstrate leadership in the alternative fuel conversion segment of the market.

  • Alliance Energy and Integration, a leading systems integration and energy conservation specialist selected the Sentry IT solution for a new UTA fuel and fare building being constructed in Salt Lake City, Utah, to serve the city's Compressed Natural Gas (CNG) vehicles. The facility consists of indoor CNG dispensing area, six maintenance bays, and offices; and is protected by Sentry IT controllers, sensor modules that detect methane, carbon monoxide, and Nitrous Oxide, and includes warning devices such as horns and strobes. The project was designed by Colvin Engineering Associates.
  • KT Maritime Services of Australia selected the Sentry IT controller and combustible gas detection modules for installation on board three new tug boats being commissioned. The solution will protect the accommodation areas on the tug boats from possible leaks in the Liquefied Natural Gas (LNG) tankers being towed by the tug boats. The project was delivered through Wartsila Singapore Private Limited.
  • York Adams Transportation Authority of York, PA is using grants from the Pennsylvania Department of Transportation Initiative for Alternative Fuels to upgrade their fleet to CNG and to build out a new bus maintenance facility. JMT Engineering of Hunt Valley, MD has designed the gas detection solution for the facility consisting of Sentry IT controllers and combustible gas detection modules. We believe that the comprehensive set of product approvals and certifications held by the Sentry products was a key selection criterion. The project is being implemented by Lobar Construction of Harrisburg, PA.
  • Empire Gas, Puerto Rico's largest Liquefied Propane Gas (LPG) wholesaler works with large industrial plants that rely on liquid fuel for their energy needs to convert them over to LPG. In order to mitigate the risk of gas leakage, Empire Gas and CSA, the Architectural and Engineering firm responsible for project engineering, have selected Sentry combustible gas sensors for a project at Abbvie Pharma (formerly Abbott Laboratories). We believe that the product's intuitive user interface and the product's rigorous FM certification were key selection criteria.

"We are pleased with our momentum in 2015 and appreciate the confidence that our customers continue to show in us to connect and protect high-value infrastructure assets," said Varun Nagaraj, President and CEO. "We also met several other milestones that are important for future success. Just a quarter after introducing our BACnet router, we introduced our new EZ Gateway product line to simplify the integration of field devices into the Industrial Internet of Things (IIoT). We also received UL 2017 certification for our Sentry IT Fire and Gas Controller, which in conjunction with the previously awarded UL 2075 performance based approvals for its Catalytic Bead and Infrared (IR) based Combustible Gas sensor modules, makes Sierra Monitor the only company to have a comprehensive UL approved solution consisting of a controller and sensors for industrial-grade applications such as Alternative Fuel Maintenance or Refueling that involve the presence of explosive gases."

About Sierra Monitor Corporation
Sierra Monitor Corporation addresses the industrial and commercial facilities management market with Industrial Internet of Things (IIoT) solutions that connect and protect high-value infrastructure assets.

The Company's FieldServer brand of protocol gateways is used by system integrators and OEMs to enable local and remote monitoring and control of assets and facilities. With more than 100,000 products, supporting over 140 protocols installed in commercial and industrial facilities, FieldServer is the industry's leading multi-protocol gateway.

Sierra Monitor's Sentry IT fire and gas detection solutions are used by industrial and commercial facilities managers to protect their personnel and assets. Sentry IT branded controllers, sensor modules, and software are installed at thousands of facilities such as natural gas vehicle fueling and maintenance stations, wastewater treatment plants, oil and gas refineries and pipelines, parking garages, US Navy ships, and underground telephone vaults.

Headquartered in the heart of Silicon Valley in Milpitas, California, Sierra Monitor was founded in 1979 and has been a public company since 1989. By combining its distinguished track record in industrial sensing and automation with emerging IoT technologies such as cloud connectivity, big data, and analytics, Sierra Monitor is at the forefront of the emerging IIoT trend.

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Table A
Condensed Statements of Operations
   For the three months ended
June 30,
 For the six months ended
June 30,
   2015  2014  2015  2014
Net sales  $5,016,999  $4,752,375  $9,944,786  $8,853,633
Cost of goods sold   2,033,284   2,005,498   4,015,211   3,632,602
  Gross profit   2,983,715   2,746,877   5,929,575   5,221,031
Operating expenses                
 Research and development   574,965   579,895   1,141,046   1,139,499
 Selling and marketing   1,308,946   1,250,713   2,493,624   2,495,279
 General and administrative   755,207   706,917   1,531,461   1,365,772
    2,639,118   2,537,525   5,166,131   5,000,550
  Income from operations   344,597   209,352   763,444   220,481
 Interest income   31   32   63   70
  Income before income taxes   344,628   209,384   763,507   220,551
Income tax provision   175,577   83,754   380,961   88,220
  Net income  $169,051  $125,630  $382,546  $132,331
Net income available to common shareholders per common share            
  Basic  $0.02  $0.01  $0.04  $0.01
  Diluted  $0.02  $0.01  $0.04  $0.01
Weighted average number of common shares used in per share computations:                
  Basic   10,128,311   10,114,311   10,128,311   10,110,978
  Diluted   10,121,427   10,180,344   10,118,072   10,159,674
Table B
Balance Sheet
Assets  June 30,  December 31,
   2015  2014
Current assets:        
 Cash  $4,524,267  $3,339,952
 Trade receivables, less allowance for doubtful accounts of approximately $79,000 in 2015 and 72,000 in 2014, respectively   2,287,982   2,571,994
 Inventories, net   2,701,006   2,896,614
 Prepaid expenses   213,069   317,269
 Income tax deposit   134,433   180,306
 Deferred income taxes - current   207,231   207,231
   Total current assets   10,067,988   9,513,366
Property and equipment, net   285,166   277,088
Other assets   434,236   342,546
   Total assets  $10,787,390  $10,133,000
Liabilities and Shareholders' Equity        
Current liabilities:        
 Accounts payable  $888,865  $814,090
 Accrued compensation expenses   677,927   471,014
 Other current liabilities   78,213   74,353
   Total current liabilities   1,645,005   1,359,457
Deferred tax liability   138,125   138,125
   Total liabilities   1,783,130   1,497,582
Commitments and contingencies        
Shareholders' equity:        
 Common stock, $0.001 par value; 20,000,000 shares authorized; 10,128,311 shares issued and outstanding   10,128   10,128
 Additional paid-in capital   3,588,041   3,399,179
 Retained earnings   5,406,091   5,226,111
   Total shareholders' equity   9,004,260   8,635,418
   Total liabilities and shareholders' equity  $10,787,390  $10,133,000

The accompanying news release dated July 27, 2015 contains non-GAAP financial measures. The following tables reconcile the non-GAAP financial measures used to the most directly comparable financial measures prepared in accordance with Generally Accepted Accounting Principles (GAAP). These non-GAAP financial measures include EBITDA, non-GAAP operating expenses, non-GAAP profit from operations and related non-GAAP profit as a percentage of revenue, non-GAAP net profit and basic and diluted non-GAAP net profit per share.

Sierra Monitor continues to provide all information required in accordance with GAAP and does not suggest or believe non-GAAP financial measures should be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP, and the financial results calculated in accordance with GAAP and reconciliations from these results should be carefully evaluated. Sierra Monitor believes that these non-GAAP financial measures provide meaningful supplemental information regarding its operating results primarily because they exclude amounts the Company does not consider part of ongoing operating results when assessing the overall Company performance.

We believe that our non-GAAP financial measures facilitate the comparison of results for current periods with results for past periods. We exclude the following items from non-GAAP financial measures:

Depreciation and Amortization of Tangible and Intangible Assets
In accordance with GAAP, depreciation and amortization of tangible and intangible assets includes depreciation of purchased capital assets and amortization of intangible assets including third party approval fees. We exclude these amounts from our internal measures for budget and planning purposes.

Provision for Bad Debt Expense
We maintain an allowance for doubtful accounts which is analyzed on a periodic basis to ensure that it is adequate to the best of management's knowledge. We exclude these amounts from our internal measures for budget and planning purposes.

Provision for Inventory Losses
We evaluate our inventories for excess or obsolescence on a quarterly basis. Inventories identified as slow moving or obsolete are determined based on historical experience and current product demand. The quarterly analysis is used to adjust the provision for inventory losses. We exclude the provision for inventory losses from our internal measures for budget and planning purposes.

Deferred Income Taxes
The effect of changes in deferred tax balances is non-cash and is not comparable across periods or with other companies. We exclude these amounts from our internal measures for budget and planning purposes.

Stock-based Compensation Expense
Our non-GAAP financial measures exclude stock-based compensation expenses, which consist of expenses for stock options. While stock-based compensation is an expense affecting our results of operations, management excludes stock-based compensation from our budget and planning process. For these reasons we exclude stock-based compensation expenses from our non-GAAP financial measures. We compute weighted average dilutive stocks using the methods required by GAAP for both GAAP and non-GAAP diluted net income per share.

EBITDA represents net earnings attributable to Sierra Monitor excluding interest expense, income taxes, depreciation and amortization. As required by SEC rules, we have provided reconciliation on Table D of this measure to the most directly comparable GAAP measure. Management believes that EBITDA is one of the appropriate measures for evaluating the operating performance of the Company because it reflects the resources available for strategic opportunities including, among others, to invest in the business, strengthen the balance sheet, and make strategic acquisitions.

Sierra Monitor refers to these non-GAAP financial measures in evaluating and measuring the performance of our ongoing operations and for planning and forecasting in future periods. These non-GAAP financial measures also facilitate our internal comparisons to historical operating results. We are reporting non-GAAP financial measures because we believe that the inclusion of comparative numbers provides consistency in our financial reporting. We compute non-GAAP financial measures using the same consistent method from quarter to quarter and year to year.

Sierra Monitor believes that non-GAAP measures have significant limitations in that they do not reflect all of the amounts associated with Sierra Monitor's financial results as determined in accordance with GAAP and that these measures should only be used to evaluate Sierra Monitor's financial results in conjunction with the corresponding GAAP measures, and the financial results calculated in accordance with GAAP and reconciliations from these results should be carefully evaluated. Because of these limitations, Sierra Monitor qualifies the use of non-GAAP financial information in a statement when non-GAAP information is presented. In addition, the exclusion of the charges and expenses indicated above from the non-GAAP financial measures presented does not indicate an expectation by Sierra Monitor management that similar charges and expenses will not be incurred in subsequent periods.

Table C  
Reconciliation of GAAP to Non-GAAP Operating Results  
   For the three months ended
June 30,
  For the six months ended
June 30,
   2015  2014   2015  2014  
GAAP Net Income  $169,051  $ 125,630   $382,546  $132,331  
 Depreciation and amortization   104,051   79,551    212,635   156,300  
 Provision for bad debt expense   -   (3,210 )  6,308   (6,817 )
 Provision for inventory losses   36,000   13,704    47,165   15,231  
 Stock based comp expense   94,280   66,650    188,862   134,160  
  Total adjustments   234,331   156,695    454,970   298,874  
Non-GAAP Net Income  $403,382  $ 282,325   $837,516  $431,205  
Non GAAP Net Income Per Share:                   
 Basic  $0.04  $0.03   $0.08  $0.04  
 Diluted  $0.04  $0.03   $0.08  $0.04  
Weighted-average number of shares used in per share computations:                   
 Basic   10,128,311   10,114,311    10,128,311   10,110,978  
 Diluted   10,121,427   10,180,344    10,118,072   10,159,674  
Table D  
Reconciliation of GAAP to EBITDA Operating Results  
   For the three months ended
June 30,
  For the six months ended
June 30,
   2015   2014   2015   2014  
GAAP Net Income  $169,051   $125,630   $382,546   $132,331  
 Interest Income   (31 )  (32 )  (63 )  (70 )
 Income Tax Provision   175,577    83,754    380,961    88,220  
 Depreciation and amortization   104,051    79,551    212,635    156,300  
Non-GAAP EBITDA  $448,648   $288,903   $976,079   $376,781