SCM Microsystems announces financial results for the third quarter of 2009

SCM Microsystems, Inc. ( SCMM, Prime Standard: SMY), a leading provider of solutions for secure access, secure identity and secure exchange, today announced results for its third quarter ended September 30, 2009. In the second reporting period following SCM's merger with Hirsch Electronics Corporation, revenue more than doubled, reflecting the success of the Company's strategy to increase its revenue by expanding its customer base and market reach through acquisitions and market investment.

"We are very pleased with the momentum we are seeing from our merger with Hirsch. Customers around the globe are expressing their interest and enthusiasm, we have new opportunities in every region, and SCM is being recognized as the first company capable of delivering truly converged solutions for network and physical access applications," said Felix Marx, chief executive officer of SCM Microsystems. "The integration of Hirsch and SCM has proceeded rapidly as we have focused on creating synergies within our sales and marketing organizations to accelerate the acquisition of new customers, expand our mutual distribution channels and introduce new products in target markets."

"Our merger with Hirsch was the first significant transaction of our acquisition strategy and we are working to replicate this achievement with our proposed business combination with Bluehill ID, which our stockholders will vote on in December. Both SCM and Bluehill ID are focused on access control, identity management and RFID technologies and markets, which are important applications that leverage contactless technologies, but each company operates under complementary brands within the RFID and smart card value chains. We believe combining with Bluehill ID will accelerate our development of a leadership position in contactless markets and technology and further diversify our business geographically," continued Marx.

Third Quarter Results

On April 30, 2009, SCM completed its merger with Hirsch Electronics Corporation, and SCM's financial results have included operating results for the Hirsch subsidiary since the date of acquisition. All figures are reported in accordance with U.S. GAAP, except as noted.

SCM's primary business segment, which includes operations from the Hirsch subsidiary, is Security and Identity Solutions, which provides contact, contactless and mobile smart card reader technology, digital identity and transaction platforms and access control systems to enable security, identity, contactless payment, e-health and electronic government services. Revenue from the Security and Identity Solutions business was $12.5 million in the third quarter of 2009, up 113% from $5.9 million in the third quarter of 2008. The primary reason for this increase was the inclusion of revenue from the Hirsch subsidiary.

Sales of Hirsch products and services in the third quarter of 2009 were up year over year. In addition to strong sales in the U.S. for government agency deployments, focus on building channels and relationships in Europe and Asia resulted in new revenue streams for Hirsch in these regions in the 2009 third quarter. Sales of SCM smart card reader products in the U.S. and Asia remained relatively strong and rose sequentially in the third quarter of 2009, but were lower compared with the same quarter of the previous year. Sales of SCM smart card reader products were higher year over year in Europe and benefitted from a large order for an ID project in Spain. At the same time, sales of eHealth terminals for the electronic healthcard program in Germany were lower than expected, due to slower than anticipated adoption within the initial test region and the transition in governmental administration following the country's recent national elections.

Revenue from SCM's Digital Media and Connectivity business increased 59% to $0.8 million in the third quarter of 2009, compared with $0.5 million in the third quarter of 2008.

In aggregate, total revenue in the third quarter of 2009 was $13.3 million, up 109% from $6.4 million in the third quarter of 2008.

Gross profit margin was 48% in the third quarter of 2009, compared with 46% in the third quarter of 2008, and was positively impacted by sales of higher-margin products made by the Hirsch subsidiary and in the Digital Media and Connectivity business.

As expected, operating expenses in the third quarter increased year over year as a result of the addition of expenses for the Hirsch subsidiary, from $5.0 million in the third quarter of 2008 to $8.0 million in the third quarter of 2009, an increase of 61%. Operating expenses in the third quarter of 2009 included approximately $0.8 million in transaction-related costs related to the proposed combination with Bluehill ID and $0.5 million in severance expenses, offset by a pre-tax gain of $1.2 million from the sale of SCM's office building in India. Excluding the incremental expenses from the Hirsch business and the one-time expenses and credits described above, operating expenses decreased year over year and were flat with the previous quarter.

Operating loss was $(1.6) million in the third quarter of 2009, compared with operating loss of $(2.0) million in the third quarter of 2008. Loss from continuing operations in the third quarter of 2009 was $(2.3) million, or $(0.09) per share, compared with loss from continuing operations of $(3.3) million, or $(0.21) per share in the third quarter of 2008.

Cash and cash equivalents at the end of the third quarter of 2009 were $6.2 million, up from $5.3 million at the end of the previous quarter. The increase in cash in the 2009 third quarter resulted from the gain on the sale of SCM's office building in India during the quarter.

Earnings before interest, taxes, depreciation and amortization (EBITDA) in the third quarter of 2009 was $(1.3) million, compared with EBITDA of $(3.3) million in the third quarter of 2008. (EBITDA is not reported in accordance with U.S. GAAP. See reconciliation of EBITDA to GAAP accounting contained within this press release.)

Business Outlook

Due to the severity and unpredictability of the global economic downturn and the resulting disruption in forecasting of future financial results, SCM will not provide financial guidance until it feels visibility has improved regarding the economic environment and its impact on SCM's business.