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Communications Systems, Inc. Reports First Quarter 2018 Financial ResultsMINNETONKA, Minn., May 14, 2018 /PRNewswire/ -- Communications Systems, Inc. (NASDAQ: JCS) ("CSI" or the "Company"), a global provider of connectivity infrastructure and services for deployments of broadband networks, today announced financial results for the first quarter ("Q1") ended March 31, 2018, including a discussion of results of operations by segment. First Quarter 2018 Summary
CSI's Chief Executive Officer Roger H.D. Lacey commented, "While our consolidated Q1 results don't reflect the financial progress we originally expected, we are seeing improvements in many segments of the business and have clear plans for the rest. First, the positives. Transition Networks' business outlook remains positive after seven consecutive profitable quarters. Its new product sales1 were $2.6 million for the quarter and 28% of total sales. Supply chain issues from last year have been addressed and our focus is now on revenue growth with Power-over-Ethernet offerings. "JDL's Q1 loss can be explained by approval delays within its primary education customer's federal funding process and late last week we were informed funding was approved for the customer and therefore we expect a positive recovery in future quarters this year. Net2Edge has experienced some additional revenue delays as customers extended their proof-of-concept stage for Net2Edge's new products. However, new product orders for Net2Edge were a highlight for the quarter and now stand at close to $1.0 million. "The impact of the Tier 1 Telecom companies' continuing pricing pressure and new program delays, industry wide, continues to severely impact Suttle's operations. Extensive right sizing of operations have taken place and improving margins reflect progress within Suttle. Underutilized capacity in manufacturing operations remains a significant cost issue for Suttle, however. Further, the business is rapidly repositioning its operations to take advantage of the emerging market of home automation and residential Internet of Things ("IOT"), where simplifying the installation process and cyber security remain issues. Our new "Securely Wired" offer, expected to launch third quarter 2018, is expected to take advantage of this emerging growth opportunity." Mr. Lacey concluded, "The business transformation process that started in late 2016 continues as we respond to market forces. We certainly are behind where we thought we would be at this time but remain optimistic. In addition, we believe a strong balance sheet with our cash and investments position provides us the stability we need as we seek to return to sales and operating profit growth." 1 "New product sales" represent sales from new products introduced within the last three years. Q1 2018 Segment Financial Overview Transition Networks
Transition Networks' Q1 2018 sales increased $149,000, or 2%, compared to Q1 2017, primarily due to an increase in federal projects. Sales in North America increased $570,000, or 8%, while international sales decreased $421,000, or 22%. Operating expenses in Q1 2018 decreased $24,000 compared to the prior year. Transition Networks' operating income was $212,000 in Q1 2018, compared to $146,000 in Q1 2017, as margins and operating costs remained consistent. Suttle
Suttle's sales decreased 21% to $7.0 million in Q1 2018 from $8.8 million in Q1 2017 due to lower sales of its legacy products. Sales to the major communication service providers decreased 26% to $5.9 million in Q1 2018 from $8.0 million in Q1 2017. Gross margin as a percentage of sales increased to 19.7% from 12.1% in the same period of 2017 primarily due to establishing a new pricing strategy for distributors and discontinuing the sale of several lower margin legacy products. Operating expenses in Q1 2018 decreased $342,000 compared to prior year when Suttle expensed $388,000 in Q1 2017 for restructuring expense related to the closing of its Costa Rica production facility. Operating loss narrowed year over year due to improved margins and the absence of restructuring costs in 2018. JDL Technologies
JDL Technologies' sales decreased 75% to $710,000 in Q1 2018 from $2.9 million in Q1 2017. Revenue from the education sector declined more than we expected with Q1 2018 revenue at $109,000 compared to $2.1 million in Q1 2017. The revenue decline is due to the winding down of the current technology refresh cycle at JDL's largest customer coupled with funding delays in other planned projects. Operating expenses decreased 16% in 2018 to $486,000, compared to $576,000 in 2017 due to expense reduction measures taken in light of the expected revenue delay in the education sector. Q1 2018 ended with an operating loss of $504,000 compared to operating income of $385,000 Q1 2017. Net2Edge
Net2Edge's sales decreased 54% to $165,000 in Q1 2018 from $357,000 in Q1 2017 due to delays in the release of new products and longer customer evaluations of its new products. Operating expenses increased 28% in 2018 to $904,000 compared to $708,000 in 2017 due to increased spending on engineering and research and development on new products. Financial Condition Form 10-Q About Communications Systems Forward-Looking Statements Contacts: Roger H. D. Lacey
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