Despite losses, Emrise pushing ahead with acquisition plans

EMRISE Corporation Reports 2008 Second Quarter Financial Results
Thursday August 7, 8:45 am ET

Driven primarily by sales of in-flight entertainment and communications (IFE&C) equipment, digital switches and network timing and synchronization products, net sales for the second quarter increased 16% to $14.0 million from $12.1 million in the second quarter of 2007. Gross profit for the quarter increased to $5.0 million, or 35.5% of net sales, from $4.1 million, or 33.8% of net sales, in the second quarter of 2007. Net loss for the quarter narrowed to $0.3 million, or $(0.01) per share, from a net loss of $0.6 million, or $(0.02) per share, for the second quarter of 2007.

EMRISE Chairman, President and Chief Executive Officer Carmine T. Oliva said: "Similar to the first quarter of this year, during the second quarter we experienced strong sales of IFE&C products, as airlines continue to upgrade and install on-board entertainment and communications technology to not only expand services and add new revenue sources, but now with a new motivation, to reduce weight. During the second quarter we also experienced increased sales of digital and rotary switches, especially orders and shipments to the U.S. government Defense Logistics Agency (DLA). We are also encouraged by gross margin improvements during the quarter at nearly every operating unit, particularly at Digitran, our U.S.-based digital and rotary switch division, which had a very strong second quarter."

Oliva said that sales of power supplies are improving at the Company's U.S.-based power supply subsidiary RO Associates. Sales of network timing and synchronization equipment are also improving, especially due to a new major U.S. communications carrier customer which, like many carriers, is installing more-sophisticated edge network timing equipment in response to increasing video traffic over public networks, including cell phone video traffic.

The Company's overall gross margin for the quarter increased as compared to the second quarter of 2007 due primarily to higher sales of high-margin digital switches to satisfy orders for the U.S. government DLA, higher prices for U.S. power supply products, and improved production efficiency by RO Associates' new contract manufacturer. Increased sales of the Company's higher gross margin TiemPo™ edge network timing and synchronization product also contributed to the improvement in gross margin.

Compared to the second quarter of 2007, net loss for the second quarter of 2008 narrowed as management has addressed numerous issues from prior periods, including shipment delays to the DLA, one-time costs associated with the consolidation of the Company's RO and CXR Larus facilities, and one-time costs related to the transition of RO manufacturing to a contract manufacturer.

Net sales for the first six months of 2008 were $26.3 million, up 10% from $24.0 million in the first half of 2007. Gross profit for the first half of 2008 increased to $9.4 million, or 35.7% of net sales, from $7.9 million, or 33% of net sales, in the first half of 2007. Net loss for the first six months of 2008 was $1.2 million, or $(0.03) per share, compared to net loss of $1.4 million, or $(0.04) per share, for the same period in 2007.

Driven by higher bookings, backlog continued to increase and on June 30, 2008, was at a record $31.1 million, up 23% over March 31, 2008. Approximately 96% of the backlog was attributable to the Company's electronic devices business, with the remaining 4% related to its communications equipment business. EMRISE estimates that the majority of its backlog can be shipped within the next twelve months.

Oliva stated: "We are particularly pleased with both the growth and level of backlog, since we are shipping at record levels and, at the same time, we are booking new business at record levels. For example, despite shipping almost $2 million more during second quarter this year, compared to first quarter, backlog grew by almost $6 million or 23% from quarter to quarter to a record $31.1 million. As a result, we are optimistic about the remainder of the year and believe this trend supports our earlier guidance for full-year 2008 revenues approaching $60 million."

In addition to higher quarterly sales, the company also expects continuing improvement in gross margin in the second half of 2008 driven by continued strong sales of electronic devices and higher sales of communications equipment, especially the Company's TiemPo™ products, and re-designed fiber optic modem products. Additionally, further improvements in operating and net results are expected during the last half of the year, compared to 2007. "The decline in net loss to $0.3 million in this year's second quarter from the $0.9 million net loss in the first quarter of this year marks a significant improvement in our results, and sets the stage for the additional improvements we expect in the last half of 2008," Oliva said.

Oliva also noted that the potential for incremental sales, margin and net income contributions from the Company's pending acquisition of Advanced Control Components is not included in current guidance. On May 28, 2008, the Company announced the agreement to acquire ACC and said that, in the first 12 months following the completion of the acquisition, revenues in the range of $17 to $18 million are expected. The acquisition is also expected to improve cash flow and to be accretive to earnings. Audited financial results for ACC's fiscal year ended June 30, 2007, included revenues of $15.4 million and pretax income of $5.7 million.

As of June 30, 2008, cash and equivalents were $1.9 million. Working capital was $13.6 million with a current ratio of 2.2:1.0. Total assets were $45.2 million, and long term debt was $7.8 million, which includes $2.0 million outstanding on our line of credit. Stockholders' equity was $24.1 million.

Webcast and Conference Call Information

A conference call with management is scheduled for 10:00 a.m. PDT (1:00 p.m. EDT) today to discuss the Company's financial results for the second quarter of 2008. To join the call, dial toll-free (877) 407-8031 five minutes prior to the scheduled start time. For callers outside the United States, dial (201) 689-8031.

A live web cast of the call may also be accessed at http://www.investorcalendar.com. An archived replay of the webcast will be available shortly after the call. The replay may be accessed through the same web link listed above or for callers in the U.S. via telephone at (877) 660-6853, or at (201) 612-7415 for callers outside the U.S. The conference ID is #292600 and the account number 286. The telephone and webcast replays will be available for 90 days.

About EMRISE Corporation

EMRISE designs, manufactures and markets electronic devices, sub-systems and equipment for aerospace, defense, industrial and communications markets. EMRISE products perform key functions such as power supply and power conversion; RF and microwave transmission; digital and rotary switching; and network access, including timing and synchronization of communications networks carrying wireline, wireless, and cable data, voice, and video. Primary growth driver applications for EMRISE products include commercial avionic "In-Flight Entertainment and Communications" products and communications "Network Timing and Synchronization" equipment. EMRISE serves customers in North America, Europe and Asia through operations in the United States, England, France and Japan. The Company has built a worldwide base of customers including all of the Fortune 100 in the U.S. that do business in markets served by EMRISE and many similar-size companies in Europe and Asia. For more information go to www.emrise.com