Landauer second quarter revenue increases 21% to $39.1 million

Landauer, Inc. (NYSE: LDR), a recognized leader in personal and environmental radiation monitoring, outsourced medical physics services and high quality medical consumable accessories, today reported financial results for its fiscal 2012 second quarter ended March 31, 2012.

Fiscal 2012 Second Quarter Highlights

• Revenue grew 21 percent to $39.1 million, compared to prior year period.
• Gross profit grew 11 percent to $23.1 million on increased revenue and improved business mix.
• Operating income of $10.1 million includes $1.2 million of non-recurring acquisition ($0.3 million), IT platform enhancement ($0.3 million) and non-cash stock based compensation ($0.6 million) expenses.
• Net income of $7.1 million, or $0.75 per diluted share, including $0.10 per diluted share, of acquisition, IT platform enhancement, and non-cash stock based compensation expenses.
• Adjusted EBITDA of $14.9 million compared to $15.0 million in the prior year period.
• Adjusted Free Cash Flow of $21.8 million, an 11 percent increase over prior year period.

"We are pleased with the progress we made across multiple initiatives during the quarter," said Bill Saxelby, President and CEO of Landauer. "Our recently acquired Medical Products business contributed strong results and the Medical Physics segment continues to show profit improvement. We are on plan with our military initiatives and are well positioned to achieve our full year guidance as planned."  

Second Fiscal Quarter Financial Overview and Business Segment Results

Revenues for the second fiscal quarter of 2012 were $39.1 million, an increase of $6.8 million, or 20.9 percent compared with revenues of $32.3 million for the same quarter in fiscal 2011.  The Medical Physics segment contributed an increase of $2.9 million and the new Medical Products segment increased revenues by $4.0 million.  The Radiation Monitoring segment experienced a reduction of $0.1 million.

Gross margins were 59.0 percent for the second fiscal quarter of 2012, compared with 64.1 percent for the second fiscal quarter of 2011.  The decline in gross margin rate was primarily due to an increase in Medical Physics segment revenues, which has lower margins compared to the Radiation Monitoring and Medical Products segments, along with lower margin equipment sales in the quarter.

Total operating expenses for the second fiscal quarter of 2012 were $12.9 million, an increase of $4.1 million, or 46.1 percent, compared with operating expenses of $8.8 million for the same quarter in fiscal 2011.  The operating expenses increase was due to $1.5 million associated with acquired companies purchased subsequent to the prior year's comparable quarter, $0.7 million due to timing of the recording of incentive compensation expenses associated with improved operating performance in fiscal 2012 versus fiscal 2011, investment in research and development in support of military and first responder initiatives, investment in customer facing organizations, and expenses related to the company's IT systems initiative.  For the second fiscal quarter of 2012, total operating expenses before $0.3 million of non-recurring acquisition expenses, $0.3 million of IT platform enhancement related expenses, and $0.6 million of non-cash stock based compensation expenses were $11.7 million, for an operating margin of 29.9 percent of total revenues.  This compares with the $8.0 million reported for the second fiscal quarter of 2011, before $0.1 million of non-recurring acquisition expenses, $0.2 million of IT platform enhancement related expenses, and $0.5 million of non-cash stock based compensation expenses, for an operating margin of 24.7 percent of total revenues in the prior year period.

Operating income for the second fiscal quarter of 2012 was $10.1 million, a decrease of $1.8 million, or 14.6 percent compared with operating income of $11.9 million for the same quarter in fiscal 2011.  The decrease in operating income was primarily driven by a decline of $4.1 million in the Radiation Monitoring segment due principally to an increased mix of lower margin sales and higher operating expenses, offset by an increase of $0.3 million in the Medical Physics segment, and the addition of the Medical Products segment which contributed $2.0 million in operating income.  Adjusted operating income, before non-recurring acquisition expenses, IT platform enhancement related expenses, and non-cash stock based compensation expenses, for the second fiscal quarter of 2012 was $11.3 million, a 10.6 percent decrease compared with adjusted operating income on a relative basis of $12.7 million for the second fiscal quarter of 2011.

Net other income for the second fiscal quarter of 2012 was $0.2 million, a decrease of $0.3 million, or 63.9 percent, from the prior year quarter.  An increase of $0.5 million in the equity in income of joint ventures was offset by a $0.8 million increase in interest expense associated with borrowings to acquire IZI in the first fiscal quarter of 2012.

The effective tax rate was 30.0 percent and 34.6 percent for the second fiscal quarters of 2012 and 2011, respectively.  The decline in the effective tax rate was due primarily to the cumulative effect of prior year foreign tax credits that were approved during the second fiscal quarter of 2012.

Net income for the second fiscal quarter ended March 31, 2012 was $7.1 million, or $0.75 per diluted share. This represents a decrease of $0.9 million, or 11.1 percent, compared with $8.0 million, or $0.85 per diluted share, for the second fiscal quarter of 2011.  Excluding the costs associated with the acquisitions, IT platform enhancement, and non-cash stock based compensation, net income was $8.0 million, as compared to $8.6 million in the prior year period.  The resulting diluted earnings per share for the second fiscal quarter of 2012 were $0.85, excluding $0.10 per diluted share of acquisition, IT platform enhancement, and non-cash stock based compensation expenses.  This compares with $0.91, excluding $0.06 per diluted share of acquisition, IT platform enhancement, and non-cash stock based compensation expenses, for the second fiscal quarter of 2011.

Earnings before interest, taxes, depreciation and amortization ("EBITDA") were $ 13.7 million, a 3.0 percent decrease compared with $14.1 million in the comparable prior year period.  The decrease was due primarily to higher cost of sales based on revenue mix and higher selling, general and administrative expenses for the second fiscal quarter of 2012 partially offset by favorable equity in income of joint ventures.   Adjusted earnings before interest, taxes, depreciation and amortization, acquisition related expenses, IT platform enhancement expenses, and non-cash stock based compensation expenses ("Adjusted EBITDA") were $14.9 million, consistent with the comparable prior year period.  A reconciliation of net income to EBITDA and Adjusted EBITDA is included in the attached financial exhibits.

Radiation Monitoring Segment

Radiation Monitoring revenues for the second fiscal quarter of 2012 decreased 0.6 percent, or $0.1 million, from the second fiscal quarter of 2011 to $27.4 million.  The slight decrease resulted from foreign exchange losses, partially offset by International Radiation Monitoring organic revenues.

Radiation Monitoring operating income for the second fiscal quarter of 2012 decreased to $8.0 million, a 33.5 percent decrease from $12.1 million in the comparable prior year period.  The decrease in operating income was primarily impacted by an increase in lower margin equipment sales both domestically and internationally, and higher selling, general and administrative expenses.  Selling, general and administrative costs for the second fiscal quarter of 2012 increased 29.9 percent, or $2.2 million, from the comparable prior year period, to $9.6 million.  The increase was due primarily to a $0.7 million increase in compensation costs, consistent with operating performance expectations and timing of short-term and long-term incentive plans, $0.3 million of increased professional fees, a $0.3 million increase in research and development activities in connection with military and first responder initiatives, a $0.3 million increase from investment in the Company's customer facing organizations, a $0.2 million increase in employee benefit plan and medical expenses, a $0.2 million increase due to the Company's IT systems initiative, and $0.2 million of increased spending to support international revenue growth.

Corporate expenses for shared functions are recognized in the Radiation Monitoring segment where they have been reported historically.  Radiation Monitoring adjusted operating income, exclusive of the impact of acquisition related transaction expenses, IT platform enhancement expenses, and non-cash stock based compensation expenses for the second fiscal quarter of 2012 decreased 28.3 percent, or $3.7 million, to $9.2 million compared with adjusted operating income of $12.9 million for fiscal 2011.

Medical Physics Segment

Medical Physics revenues for the second fiscal quarter of 2012 increased 60.2 percent, or $2.9 million, from the comparable period in 2011 to $7.7 million on $0.7 million of organic growth and $2.2 million due to the impact of acquired companies.  The Medical Physics segment operating income of $0.1 million, or 1.4 percent of revenues, increased $0.3 million as compared to a loss of $0.2 million, or 4.0 percent of revenues, in the second fiscal quarter of 2011.  The improvement in operating income was primarily due to operating efficiencies in the organic Medical Physics business and higher episodic equipment commissioning sales leveraging a relatively fixed cost structure, as well as higher volume sales inclusive of acquired companies.

Medical Products Segment       

Medical Products revenues for the second fiscal quarter of 2012 were $4.0 million.  Medical Products operating income was $2.0 million or 49.7 percent of revenues for the second fiscal quarter of 2012.  Given the acquisition of IZI was completed during the first quarter of fiscal 2012, there is no direct comparison to the prior year quarter.

Fiscal Six Months Financial Overview and Business Segment Results

Revenues for the first six months of fiscal 2012 were $75.8 million, an increase of $15.0 million, or 24.7 percent compared with revenues of $60.8 million for the same period in fiscal 2011.  The Medical Physics segment and the Radiation Monitoring segment contributed an increase of $5.8 million and $3.0 million, respectively.  The contribution of the new Medical Products segment increased revenue by $6.2 million.

Gross margins were 59.2 percent for the first six months of fiscal 2012, compared with 62.7 percent for the first six months of fiscal 2011.  The decline in gross margin rate was primarily due to a shift in the mix of cost of sales resulting from the overall growth of the Medical Physics segment, which has lower margins compared to the Radiation Monitoring and Medical Products segments, along with lower margin equipment sales.

Total operating expenses for the first six months of fiscal 2012 were $27.1 million, an increase of $9.0 million, or 50.1 percent, compared with operating expenses of $18.1 million for the same period in fiscal 2011.  The operating expenses increase was due to $2.9 million associated with acquired companies purchased subsequent to the prior year's comparable period, $1.0 million due to timing of the recording of incentive compensation expenses associated with improved operating performance in fiscal 2012 versus fiscal 2011, $0.5 million due to performance against incentive compensation plans, investment in research and development in support of military and first responder initiatives, investment in customer facing organizations, expenses supporting international growth, and expenses related to the Company's IT systems initiative.  For the first six months of fiscal 2012, total operating expenses before $2.2 million of non-recurring acquisition expenses, $0.6 million of IT platform enhancement related expenses, and $1.4 million of non-cash stock based compensation expenses were $22.9 million, for an operating margin of 30.3 percent of total revenues.  This compares with the $16.3 million reported for the first six months of fiscal 2011, before $0.2 million of non-recurring acquisition expenses, $0.6 million of IT platform enhancement related expenses, and $1.0 million of non-cash stock based compensation expenses, for an operating margin of 26.8 percent of total revenues in the prior year period.

Operating income for the first six months of fiscal 2012 was $17.7 million, a decrease of $2.3 million, or 11.5 percent compared with operating income of $20.0 million for the same period in fiscal 2011.  The decrease in operating income was primarily driven by a $2.0 million increase in acquisition costs incurred in the first fiscal quarter of 2012, which primarily related to the acquisition of IZI.  An additional decline of $4.4 million in Radiation Monitoring operating income, due primarily to the higher operating expenses, was offset partially by an increase in operating income of $1.7 million in the Medical Physics segment and the addition of the Medical Products segment which contributed $2.4 million in operating income.  Adjusted operating income, before non-recurring acquisition expenses, IT platform enhancement related expenses, and non-cash stock based compensation expenses, for the first six months of fiscal 2012 was $21.9 million, compared with adjusted operating income, on a relative basis, of $21.8 million for the first six months of fiscal 2011.

Net other income for the first six months of fiscal 2012 was $0.5 million, a decrease of $0.7 million, or 59.1 percent, from the prior year period.  An increase of $0.8 million in the equity in income of joint ventures was offset by a $1.5 million increase in interest expense associated with borrowings to acquire IZI in the first fiscal quarter of 2012.

The effective tax rate was 32.2 percent and 33.2 percent for the first six months of fiscal 2012 and 2011, respectively.

Net income for the first six months of fiscal 2012 was $12.0 million, a decrease of $1.8 million, or 12.9 percent compared with $13.8 million for the same period in fiscal 2011.  Excluding the costs associated with the acquisitions, IT platform enhancement, and non-cash stock based compensation, net income was $14.9 million, as compared to $15.0 million in the comparable prior year period.  The resulting diluted earnings per share for the six month period ended March 31, 2012 were $1.59 per share, excluding $0.32 per diluted share of acquisition, IT platform enhancement, and non-cash stock based compensation expenses.  This compares with $1.60 per share, excluding $0.13 per diluted share of acquisition, IT platform enhancement, and non-cash stock based compensation expenses, for the six month period ended March 31, 2011.

EBITDA for the first six months of fiscal 2012 were $24.2 million, a 1.0 percent decrease compared with $24.4 million in the comparable prior year period.  The decrease was due primarily to higher cost of sales based on revenue mix and higher selling, general and administrative expenses for the first six months of fiscal 2012, partially offset by favorable equity in income of joint ventures.  Adjusted EBITDA for the first six months of fiscal 2012 were $28.4 million, an 8.2 percent increase compared with $26.3 million in the comparable prior year period.  Adjusted Free Cash Flow (Adjusted EBITDA, plus or minus changes in working capital, less capital expenditures) was $21.8 million, an 11.4 percent increase over the comparable prior year period of $19.6 million due principally to improved working capital partially offset by increased capital expenditures.  A reconciliation of net income to EBITDA, Adjusted EBITDA, and Adjusted Free Cash Flow is included in the attached financial exhibits.

Radiation Monitoring Segment

Radiation Monitoring revenues for the first six months of fiscal 2012 increased 5.8 percent, or $3.0 million, from the first six months of fiscal 2011 to $54.4 million.  Of the increase, $2.1 million was related to the impact of higher equipment sales, primarily from the Company's ongoing initiatives with the military market.  International Radiation Monitoring revenues increased 5.9 percent, or $0.9 million, from the comparable prior year period, driven primarily by organic growth in most regions, including both equipment sales and service revenues.

Radiation Monitoring operating income for the first six months of fiscal 2012 decreased to $14.3 million, a 30.7 percent decrease from $20.7 million in the comparable prior year period, impacted by a $2.0 million increase in acquisition related expenses, primarily related to IZI, $0.3 million from the increase in lower margin equipment sales both domestically and internationally, and higher selling, general and administrative expenses.  Selling, general and administrative costs for the first six months of fiscal 2012 increased 27.2 percent, or $4.1 million, to $19.2 million.  The increase was due primarily to a $1.5 million increase in compensation costs, consistent with operating performance expectations and timing of short-term and long-term incentive plans, $0.5 million of increased spending to support international revenue growth, a $0.5 million increase in employee benefit plan and medical expenses, a $0.4 million increase in research and development activities in connection with the military and first responder initiatives, a $0.6 million investment in customer facing organizations, and $0.3 million of increased professional fees.

Radiation Monitoring adjusted operating income, exclusive of the impact of acquisition related transaction expenses, IT platform enhancement expenses, and non-cash stock based compensation expenses for the first six months of fiscal 2012 decreased 17.5 percent, or $4.0 million, to $18.5 million compared with adjusted operating income of $22.5 million for the comparable period in fiscal 2011.

Medical Physics Segment

Medical Physics revenues for the first six months of fiscal 2012 increased 62.0 percent, or $5.8 million, from the comparable period in 2011 to $15.1 million on $1.7 million of organic growth and $4.1 million due to the impact of acquired companies.  The Medical Physics segment operating income of $1.0 million, or 6.6 percent of revenues, increased $1.7 million as compared to a loss of $0.7 million, or 7.0 percent of revenues, in the first six months of fiscal 2011.  The improvement in operating income was primarily due to operating efficiencies in the core Medical Physics business and higher episodic equipment commissioning sales leveraging a relatively fixed cost structure, as well as higher volume sales inclusive of acquired companies. 

Medical Products Segment

Revenues for the period from the date of acquisition through March 31, 2012 were $6.2 million.  Medical Products operating income was $2.4 million or 38.2 percent of revenues for the same period.  Given the acquisition of IZI was completed during the first quarter of fiscal 2012, there is no direct comparison to the prior year six month period.

Balance Sheet

Landauer ended the second fiscal quarter of 2012 with total assets of $284.4 million, an increase of $115.7 million compared to total assets of $168.7 million at the end of fiscal 2011 due principally to the acquisition of IZI in November 2011.  The Company completed the quarter with $18.7 million of cash and cash equivalents on the balance sheet and unused borrowing capacity of $45.9 million under its current $175 million credit facility, which provides adequate liquidity to meet its current and anticipated obligations.  Adjusted Free Cash Flow provided by operating activities for the six months ended March 31, 2012 was $21.8 million, an increase of $2.2 million from the fiscal first half of 2012. The increase benefited from a tax refund during the first half of fiscal 2012, which was partially offset by an increase in capital expenditures.

Fiscal 2012 Outlook

Landauer's business plan for fiscal 2012 currently anticipates aggregate revenues for the year to be in the range of $150 to $157 million, which includes 10 months of contributions from the recent IZI acquisition.  The business plan also anticipates:

• $4.2 million ($2.8 million net of tax) of non-recurring expense spending to support the successful completion of the Company's IT Platform systems initiative and the related post implementation support.
• Incremental depreciation and amortization over fiscal 2011 of $1.0 million ($0.7 million net of tax) related to the deployment of the final phase of the Company's IT systems initiative in the third quarter of fiscal 2012.
• The accretive impact of the November 2011 acquisition of IZI is anticipated to produce $1.1 million to $1.5 million of net income for the 10 months included in fiscal 2012.
• The blended effective tax rate for the full fiscal year is anticipated to be within a range of 31 percent to 33 percent.

Based upon the above assumptions, the Company anticipates reported net income for fiscal 2012 in the range of $21 to $23 million and Adjusted EBITDA expected for fiscal 2012 in the range of $53 to $57 million.  In addition, the Company will begin to receive an annual cash tax benefit of approximately $2 million as a result of the structure of the acquisition of IZI.