Hemisphere Reports 2012 4Q & Year End

Hemisphere GPS reported financial results for the fourth quarter and year ended December 31, 2012.

On September 5, 2012, Hemisphere GPS announced a corporate restructuring, appointing a new CEO with the objective to return Hemisphere GPS to profitability by focusing on three key priorities: (i) the core agricultural business, (ii) streamlining and simplifying the business, and (iii) adopting market driven innovation.

In pursuit of these objectives, all manufacturing activities have been outsourced and the Calgary office will be closed before the end of June 2013. Head office and key functions have been relocated to the company’s Hiawatha, KS location, which has a lower cost environment and is centrally located in the U.S. corn-belt which represents the company’s largest market.

The company exited its non-agriculture-related business, announcing on January 31, 2013 the sale of the business assets associated with its non-agriculture business assets to the Canadian subsidiary of Beijing UniStrong Science & Technology Co. Ltd. for cash of $14.96M million. As part of the transaction, UniStrong and Hemisphere GPS have formed a strategic alliance and a business relationship covering supply chain management, customer support, non-competition, and perpetual technology cross-licensing.

The company plans to change its corporate name to “AgJunction Inc.” subject to shareholder approval at its 2012 annual shareholders meeting, planned for May 15, 2013.

Total restructuring costs recorded in 2012 were $7.4 million, with $6.2 million reported as restructuring costs and $1.2 million included in discontinued operations. The total cash cost of the restructuring recorded in 2012 was $4.0 million (incurred and accrued) and non-cash costs recorded were $3.4 million. All restructuring activities are expected to be completed prior to the end of June 2013. The company has sufficient capital to complete the restructuring.

Subsequent to the end of 2012, in the first quarter of 2013, the company netted cash inflow of approximately $14.3 million from the divestiture of the non-agriculture assets, net of transaction costs, and repaid its outstanding loan to Export Development Canada for approximately $1.1 million. At March 18, 2013 the company held cash of approximately $13.4 million.

For the three months ended December 31, 2012, the company’s agricultural business reported revenues of $10.2 million, an increase of 12% from $9.1 million in the fourth quarter of 2011. Fourth quarter gross margin contribution was 40% or $4.0 million, a decrease compared to 48% and $4.3 million for the fourth quarter of 2011.

The lower gross margin resulted primarily from select product price discounting initiated to accelerate conversion of inventory to cash which became a priority to support restructuring cash costs, and is not indicative of the typical gross margin of its agriculture business. Operating expenses, prior to restructuring costs, were $6.2 million compared to $5.9 million in the fourth quarter of 2011. For the fourth quarter of 2012, the company reported restructuring costs of $5.7 million and an impairment in its goodwill of $21 million, resulting in a net loss from continuing operations of $29.2 million, compared to a loss from continuing operations of $1.6 million in 2011.

For the year ended December 31, 2012, revenues were $55.4 million representing an increase of 5% from $52.8 million in 2011. Sales to non-North American customers represented 29% of total revenues during 2012 (2011: 33%), while North American sales were 71% of total revenues in 2012 (2011: 67%).