Published:
Nestor, Inc. Reports 2008 Third Quarter Financial Results
Report Shows Revenues Are up 14% From Third Quarter of 2007 and Cash Flows Are Up 471% Over the Prior Year
Nestor, Inc. (OTCBB: NEST), a leading
provider of advanced automated traffic enforcement solutions and services,
is pleased to release financial results for the third quarter of 2008.
Total revenues for the three-month period ending September 30, 2008
increased 14% to $3,827,000 from $3,349,000 in the third quarter of 2007,
and increased 20% to $10,357,000 from $8,791,000 for the nine months ended
September 30, 2008 and 2007, respectively. This growth reflects the
continued increase in installed systems, with 338 installed
CrossingGuard® units and 7 installed PoliScanSpeed(TM) units generating
revenues at September 30, 2008 as compared to 280 installed
CrossingGuard® units and 7 installed PoliScanSpeed(TM) units at September
30, 2007. Revenues also reflect a one-time equipment sale of $125,000 in
the third quarter of 2008 to one significant customer.
Modified EBITDA for the quarter ended September 30, 2008 was $261,000
compared to $432,000 in the comparable 2007 period. For the nine months
ended September 30, 2008, modified EBITDA improved to $634,000 compared to
$111,000 for the comparable nine month period in 2007. The decline in
Modified EBITDA for the third quarter reflects the Company's investment in
its sales functions to aggressively pursue new automated traffic
enforcement opportunities to accommodate future growth. The increase in
modified EBITDA for the nine month period reflects the growth in recurring
revenues and a one-time royalty payment received in the second quarter of
2008.
Clarence A. Davis, Chief Executive Officer of Nestor, Inc., stated, "The
results reported for the third quarter of 2008 continue to show improved
operating performance despite making important investments in our sales
organization for future growth. In fact, we have now reported positive
operating cash flow in four of our last 6 quarters. With the addition of
new business in Sweetwater, Florida and Manteca, California as well as the
expansion of our Delaware Department of Transportation program announced
this quarter, we expect to continue to demonstrate the company's ability to
grow a successful and profitable business going forward.
"The Company remains actively engaged in its efforts to effect a
restructuring and financing consistent with the general terms and
conditions originally disclosed in its second quarter press release. I
remain optimistic that this process, once completed, will provide Nestor
with the balance sheet and capital base necessary to execute on its growth
plans and provide our existing customers and prospects alike with the
assurance that the Company is committed to our long term success. The
completion of the bridge financing in October, the majority of which was
sourced from our existing debt holders, provided the Company with needed
short-term capital and represented a critical step in the context of the
larger transaction, which I anticipate will close in the coming months."
The Company reported a U.S. GAAP Loss from Operations (U.S. GAAP differs
from modified EBITDA as indicated at the end of this press release by
including a number of
non-cash charges) for the quarter ended September 30, 2008 of $916,000
compared to a Loss from Operations of $612,000 in the third quarter of
2007. Loss from Operations for the nine month period ended September 30,
2008 was $2,728,000 compared to a Loss from Operations of $2,786,000 for
the comparable 2007 period. The Company incurred a
non-cash charge of $122,000 for share-based compensation in the third
quarter of 2008 compared to $130,000 in the third quarter of 2007, and
$306,000 for the nine month period ended September 30, 2008 compared to
$439,000 for the comparable 2007 period. The increase in Loss from
Operations for the quarter ended September 30, 2008 is a result of the
Company's investments in its sales organization. The Company's results for
the nine month period ended September 30, 2008 is a result of the increase
in gross profit achieved through revenue growth and decreased share-based
compensation expense, partially offset by increased selling expenses.
The Company reported a U.S. GAAP net loss for the quarter ended September
30, 2008 of $3,003,000, compared to a net loss of $1,967,000 in the third
quarter of 2007. Net loss for the nine month period ended September 30,
2008 was $7,252,000 compared to $5,436,000 for the comparable 2007 period.
In the third quarter of 2008, non-cash derivative instrument income was
$230,000 compared to $338,000 in the third quarter of 2007. For the nine
months ended September 30, non-cash derivative investment income was
$1,438,000 in 2008 and $2,204,000 in 2007. Also, amortization of debt
discount expense was $1,008,000 for the quarters ended September 30, 2008
and 2007 and $3,023,000 and $3,024,000 for the nine months ended September
30, 2008 and 2007, respectively.
We had cash and cash equivalents of approximately $327,000 at September 30,
2008, compared to $3.1 million at December 31, 2007. More details regarding
our results for the third quarter of 2008 may be found in our Quarterly
Report on Form 10-Q filed with the Securities and Exchange Commission on
November 13, 2008.
Nestor Traffic Systems provides automated traffic enforcement solutions to
state and municipal governments. Our CrossingGuard® red light
enforcement system uses patented multiple, time-synchronized videos to
capture comprehensive evidence of red light violations. In addition,
CrossingGuard® offers customers a unique Collision Avoidance(TM) safety
feature that can help prevent intersection collisions. We also offer a
video-based ViDAR(TM) speed detection and imaging system which uses
non-detectable, passive video detection and enforces multiple, simultaneous
violations bi-directionally. Nestor Traffic Systems is a distributor for
the Vitronic PoliScanSpeed(TM) scanning LiDAR, capable of tracking multiple
vehicles in multiple lanes simultaneously. CrossingGuard® and ViDAR(TM)
are registered trademarks of Nestor Traffic Systems, Inc.
PoliScanSpeed(TM) is a trademark of Vitronic. For more information, call
(401) 274-5658 or visit www.nestor.com.
Statements in this press release about future expectations, plans and
prospects for Nestor, including statements containing the words "expects,"
"will," and similar expressions, constitute forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934.
We may not achieve the plans, intentions or expectations disclosed in our
forward-looking statements and investors should not place undue reliance on
our forward-looking statements. Actual results may differ materially from
those indicated by such forward-looking statements as a result of various
factors, including: market acceptance of our products, competition, further
approvals of contracted approaches, legal and legislative challenges to
automated traffic enforcement, patent protection of our technology, and
other factors discussed in Risk Factors in our most recent Annual Report on
Form 10-K filed with the SEC. Investors are advised to read our Annual
Report on Form 10-K, quarterly reports on Form 10-Q and current reports on
Form 8-K filed after our most recent annual or quarterly report. The
forward-looking statements included in this press release represent our
current views, and we specifically disclaim any obligation to update these
forward-looking statements in the future.
The table below is a reconciliation of U.S. GAAP net loss to modified
EBITDA for the quarter and nine month periods ended September 30:
Three Months Ended Sept. Nine Months Ended Sept.
30, 30,
-------------------------- --------------------------
2008 2007 2008 2007
------------ ------------ ------------ ------------
GAAP net income
(loss) $ (3,003,000) $ (1,967,000) $ (7,252,000) $ (5,436,000)
Interest expense,
net of interest
income 1,309,000 685,000 2,939,000 1,830,000
Income tax expense --- --- --- ---
Depreciation and
amortization 1,055,000 914,000 3,056,000 2,458,000
------------ ------------ ------------ ------------
EBITDA $ (639,000) $ (368,000) $ (1,257,000) $ (1,148,000)
Derivative
instrument
(income) expense (230,000) (338,000) (1,438,000) (2,204,000)
Debt discount
expense 1,008,000 1,008,000 3,023,000 3,024,000
Stock-based
compensation
expense 122,000 130,000 306,000 439,000
------------ ------------ ------------ ------------
Modified EBITDA $ 261,000 $ 432,000 $ 634,000 $ 111,000
============ ============ ============ ============
We calculate Modified EBITDA by first calculating EBITDA, which we define
as net income before interest expense, debt restructuring or debt
extinguishment costs (if any during the relevant measurement period),
provision for income taxes, and depreciation and amortization. Then we
exclude derivative instrument income or expense, debt discount expense,
share-based compensation expense, and asset impairment charges. These
measures eliminate the effect of financing transactions that we enter into
on an irregular basis based on capital needs and market opportunities, and
these measures provide us with a means to track internally generated cash
from which we can fund our interest expense and our growth. In comparing
modified EBITDA from period to period, we also ignore the effect of what we
consider non-recurring events not related to our core business operations
to arrive at what we define as modified EBITDA. Because modified EBITDA is
a non-GAAP financial measure, we include in a table in this press release
reconciliations of modified EBITDA to the most directly comparable
financial measures calculated and presented in accordance with accounting
principles generally accepted in the United States. We present modified
EBITDA because we believe it provides useful information regarding our
ability to meet our future debt payment requirements, capital expenditures
and working capital requirements, and that it provides an overall
evaluation of our financial condition. In addition, modified EBITDA is
defined in certain financial covenants under our Senior Secured Convertible
Notes and was used to adjust the interest rate on those notes at July 1,
2007, and will be used at January 1, 2009 to determine whether the holders
of those notes have a redemption right at May 25, 2009.
Modified EBITDA has certain limitations as an analytical tool and should
not be used as a substitute for net income, cash flows or other
consolidated income or cash flow data prepared in accordance with
accounting principles generally accepted in the United States or as a
measure of our profitability or our liquidity.
NESTOR, INC.
Condensed Consolidated Balance Sheets
IN THOUSANDS, EXCEPT SHARE INFORMATION
SEPTEMBER 30, DECEMBER 31,
2008 2007
-------------- --------------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 327 $ 3,135
Accounts receivable, net 2,762 2,806
Inventory, net 1,018 922
Other current assets 480 255
-------------- --------------
Total current assets 4,587 7,118
Noncurrent assets
Capitalized system costs, net 9,536 9,867
Property and equipment, net 396 487
Goodwill 5,581 5,581
Patent development costs, net 129 128
Other long term assets 1,861 1,865
-------------- --------------
Total Assets $ 22,090 $ 25,046
============== ==============
Liabilities and Stockholders’ Equity
(DEFICIT)
Current liabilities
Current portion of notes payable, net of
discounts $ 18,038 $ ---
Current portion of derivative instruments 482 ---
Accounts payable 2,058 826
Accrued interest and penalties 1,893 572
Accrued expenses 873 763
Accrued employee compensation 434 366
Deferred revenue 691 1,220
Asset retirement obligation 839 330
-------------- --------------
Total current liabilities 25,307 4,077
Noncurrent liabilities
Long term convertible notes payable --- 1,719
Long term notes payable --- 13,295
Derivative instruments - debt and warrants 161 2,081
Long term asset retirement obligation 628 934
-------------- --------------
Total liabilities 26,096 22,106
-------------- --------------
Commitments and contingencies --- ---
Stockholders’ Equity (Deficit)
Preferred stock, $1.00 par value,
authorized 10,000,000 shares;
issued and outstanding: Series
B - 180,000 shares at September
30, 2008 and December 31, 2007 180 180
Common stock, $0.01 par value, authorized
50,000,000 shares issued and outstanding:
28,954,219 shares at September 30, 2008
and December 31, 2007 290 290
Additional paid-in capital 79,278 78,972
Accumulated deficit (83,754) (76,502)
-------------- --------------
Total stockholders’ equity (deficit) (4,006) 2,940
-------------- --------------
Total Liabilities and Stockholders’ Equity
(Deficit) $ 22,090 $ 25,046
============== ==============
NESTOR, INC.
Condensed Consolidated Statements of Operations
IN THOUSANDS, EXCEPT SHARE AND PER SHARE INFORMATION
(UNAUDITED)
Quarter Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2008 2007 2008 2007
---------- ---------- ---------- ----------
Revenues:
Lease and service fees $ 3,698 $ 3,329 $ 9,706 $ 8,771
Product sales 125 --- 125 ---
Product royalties 3 20 526 20
---------- ---------- ---------- ----------
Total revenue 3,827 3,349 10,357 8,791
---------- ---------- ---------- ----------
Cost of sales:
Lease and service fees 2,168 1,943 5,858 5,164
Product sales 104 --- 104 ---
Product royalties --- --- --- ---
---------- ---------- ---------- ----------
Total cost of sales 2,273 1,943 5,962 5,164
---------- ---------- ---------- ----------
Gross profit:
Lease and service fees 1,530 1,386 3,848 3,607
Product sales 21 --- 21 ---
Product royalties 3 20 526 20
---------- ---------- ---------- ----------
Total gross profit 1,554 1,406 4,395 3,627
---------- ---------- ---------- ----------
Operating expenses:
Engineering and
operations 1,077 926 3,209 3,019
Research and development 83 99 234 318
Selling and marketing 518 181 1,282 552
General and
administrative 792 812 2,398 2,524
---------- ---------- ---------- ----------
Total operating
expenses 2,470 2,018 7,123 6,413
---------- ---------- ---------- ----------
Loss from operations (916) (612) (2,728) (2,786)
Derivative instrument
income 230 338 1,438 2,204
Debt discount expense (1,008) (1,008) (3,023) (3,024)
Interest and other expense,
net (1,309) (685) (2,939) (1,830)
---------- ---------- ---------- ----------
Net loss $ (3,003) $ (1,967) $ (7,252) $ (5,436)
========== ========== ========== ==========
Loss per share:
Loss per share, basic and
diluted $ (0.10) $ (0.07) $ (0.25) $ (0.24)
========== ========== ========== ==========
Shares used in computing
loss per share:
Basic and diluted 28,954,219 26,542,888 28,954,219 22,480,692
========== ========== ========== ==========
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