Chyron Revenue Up 2 Percent in Q1 2013, Gives Update on Merger, Layoffs, and Potential NASDAQ Delisting

Posted by Joe Zaller
May 10 2013

Broadcast graphics specialist Chyron reported that its revenue for the first quarter of 2013 was $8.01m, up 2% versus the same period a year ago, and up 8% versus the previous quarter.

The net loss for the quarter was $921,000, or $0.05 per share, compared to a net loss of $951,000, or $0.06 per share last year, and a net loss of $20m, or $1.17 per share, last quarter, when the company took a $19.5m valuation allowance against the company’s deferred tax assets (see below for implications).

The operating loss for the first quarter of 2013 was $810,000, compared to an operating loss of $1.074m last year, and an operating loss of $570,000 last quarter.

The company’s net loss and operating loss were both impacted by transaction costs associated with Chyron’s pending merger with Hego AB, which was announced in March 2013. Excluding Hego transaction costs, net loss would have been $220,000, and the operating loss would have been $110,000.

The company’s service revenue, which includes the sales of its AXIS cloud-based graphics service, maintenance agreements, training and creative services was $2.04m in the quarter, or 25% or total revenue. This is a decrease of 2% versus the same period a year ago, and a decrease of 7% versus the previous quarter.  The company the lower service revenue to lower revenues from training and other professional services offset by increased sales of software and hardware maintenance contracts for broadcast graphics products.

Product revenue in the quarter was $5.97m (75% of total revenue), an increase of 3% versus Q1 2012, and an increase of 15% versus last quarter.  The company said it experienced a slight increase in product revenue as a result of an improvement in market share in Asia and a major program upgrade in our European market. However, sales fell in North America, due to price competition and weak demand. Sales in Latin America also declined during the quarter.

Gross margins for the quarter were 71%, up from 70% last year, and up from 69.1% last quarter.

Operating expenses for the first quarter of 2013 were $6.53, up 1% compared to last year, and up 15% versus the previous quarter. Excluding Hego transaction costs, operating expenses would have been $5.84m, or 12% lower than the same period a year ago.

Last quarter, Chyron combined its reporting of sales and G&A expenses.  This quarter it did not break out its expenses at all, making it difficult to determine the full impact of the cost-cutting exercise that the company embarked upon several quarters ago.  However, the company did say that its expenses in both research and development and sales and marketing, were essentially flat with the previous year when Hego transaction costs are excluded.

The company ended the quarter with $2.3m in cash, versus $2.4m last quarter.

 

Update on Latest Round of Staff Layoffs

Prior to the release of its Q1 2013 earnings, Chyron disclosed that it has cut the size of its workforce by 20 employees as part of a reorganization plan designed to “reduce operating expenses while maintaining its focus on strategic initiatives.”

The company says that it will take a charge of approximately $950,000 in Q2 2013 to cover the cost of the staff reduction, and that these actions will result in savings of approximately $3m on an annualized basis, beginning in the third quarter of 2013.

Chyron has reduced the size of its employee base by more than 30% since the end of Q1 2012.  At that time, the company had 126 employees.  There were 107 employees at the end of Q1 2013; and there are now 86 employees following the latest round of staff cuts.

Chyron CEO Michael Wellesley-Wesley told investors that the layoffs came after “eight weeks of very, very rigorous studying and discussion as to where these changes should be made,” and that the cuts were made “across the board.”

According to Wellesley-Wesley, the only departments not impacted by the layoffs were the company’s customer service department and customer-facing product specialists. Sales, engineering, internal administration, and “quite a layer of mid and senior management figures were affected,” he said.

The company will gain an additional 90 – 100 full-time employees following the completion of its pending merger with Hego AB.

 

Update on Potential Nasdaq Delisting:

In March 2013, Chyron received a letter from The NASDAQ Stock Market notifying the company that it is no longer in compliance with the minimum stockholders’ equity requirement for continued listing on the NASDAQ Global Market because its stockholder’s equity has fallen below the minimum $10m threshold set by NASDAQ Listing Rule 5450(b)(1)(A).

If it does not regain compliance with the Rule, Chyron’s shares could be delisted from Nasdaq.

On the company’s earnings call, Wellesley-Wesley said that the company’s stockholders equity fell below this level at the end of the previous quarter as the result of the company taking a $19.5m valuation allowance against the company’s deferred tax assets (described above).

Wellesley-Wesley said that because this allowance reduced the company’s shareholders’ equity by $19.5m, the company ended the year 2012 with shareholders’ equity of about $1.9m, which put it in violation of Nasdaq’s listing requirement.

Wellesley-Wesley said the company has filed a plan of compliance with Nasdaq, and that a primary element of this plan is the company’s proposed merger with Hego, which the company believes will bring with it enough shareholders’ equity to bring the company’s total about $10m.

However, Wellesley-Wesley cautioned that regaining compliance with Rule 5450(b)(1)(A) was not a certainty because of additional one-time charges will be recorded in the second quarter of 2013.  These include a charge of approximately $950,000 for the headcount reduction that the company enacted at the beginning of May 2013,  and a second charge of approximately $1.3m due to the early vesting of equity awards upon the closing of  the Hego transaction.

Nevertheless, Wellesley-Wesley assured shareholders: “The bottom line is this – these shares are not going to be delisted. There are all kinds of ways that we can get back in compliance. We’ll make sure that we don’t get delisted.”

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Related Content:

Press Release: Chyron Reports Financial Results for the First Quarter 2013

Previous Quarter: Chyron Posts Another Loss in Q4 2012 as Revenue Continues to Decline

Previous Year: Revenue and Losses Up at Chyron in Q1 2012

Chyron Lays Off 20 Employees, Says it will Save $3 Million per Year

Chyron Receives Another Delisting Notice From NASDAQ

More Broadcast Vendor M&A: Chyron to Acquire Hego Group in All-Stock Deal

Chyron – Hego Stock Purchase Agreement

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2 Responses

  1. Those of us who learned TV on an Ampex 1200, RCA TK-76, Grass Valley 1600 or Chyron 2 may shed a tear for Chyron while Millennials may wonder why a lower third graphic is called a Chyron. In business school we learned all businesses are like people or perhaps stars; they are born, burn bright and then slowly fade to black.

    Though Millennials may scoff at this, by their retirement Google, BlackMagic Design and perhaps Apple may be black dwarfs. Then they too may shed a tear.

  2. […] Prior to the official merger, Chyron reported revenue for the first quarter was $8.01 million, up 2% from the same period a year ago, and up 8% from the previous quarter, reports Joe Zaller, an industry analyst and owner of Devoncroft Partners. […]

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