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Relm Wireless posts third quarter loss, predicts worse in fourth

Relm Wireless posts third quarter loss, predicts worse in fourth

Relm Wireless, West Melbourne, Fla, posted dismal operating results this morning at 9:45 ET for the third quarter and nine months ended Sept. 30. For
  • Written by Urgent Communications Administrator
  • 4th November 2002

Relm Wireless, West Melbourne, Fla, posted dismal operating results this morning at 9:45 ET for the third quarter and nine months ended Sept. 30.

For the quarter, Relm lost $395,000 on $4 million in revenue, compared with income of $213,000 on $6.2 million in revenue for the comparable period last year.

For the nine months, Relm lost $1.4 million on $13.7 million in revenue, compared with a net income of $71,000 on $17.1 million in revenue for the same period last year.

Relm’s stock was little affected by the news, falling 2 cents or about 5 percent to 41 cents per share on the NASDAQ Small Cap Exchange by 2 p.m. ET and with no appreciable change in volume of shares traded compared to the average.

In May, NASDAQ had notified Relm of possible delisting from the exchange because its shares had failed to meet the exchange’s minimum $1 bid requirement, but Relm appears to have qualified for an extension through the end of April 2003 because its shareholders’ equity met a NASDAQ minimum on June 30.

This year’s figures include a one-time $900,000 loss on a note receivable having to do with a paper manufacturing business that Relm sold several years ago and that ceased operations, defaulting on the seller financing that Relm provided. Excluding the loss on note receivable, the net loss for the nine months $508,000.

The company reported that the U.S. Army discontinued purchases of Relm’s BK Radio products for use by the army’s Communications Electronics Command. Last year, shipments to CECOM totaled $2.4 million.

The contract under which those shipments were made expired in October 2001. CECOM solicited bids for a new contract in March 2002, and Relm submitted proposals. Relm said that “unspecified delays have been encountered by CECOM and a contract has not yet been awarded.”

The lack of sales to CECOM had the most effect on Relm’s revenue and net income, but reduced sales of BK Radio-brand mobile radios to other customers contributed to the loss.

Relm explained that revenue for BK Radio-brand mobile radios declined because it was not awarded the mobile radio portion of the 2002 contract with the U. S. Forest Service. But after a year off the contract, Relm has again won participation on the USFS contract for mobile radios, and continuing participation for portable radios, base stations and repeaters.

Relm reported continuing sluggish demand for business and industrial radio products that it attributed to general economic conditions. But it said that it realized modest revenue gains from the first two models in its new family of portable radios, the RP Series. The RP series was designed as a full-featured, low-cost product line.

Relm’s gross margin for the third quarter was 29.1 percent, compared to 31 percent for the same period last year. For the nine months, the gross margin was 29.7 percent compared to 28.7 percent for the same period in the prior year.

Relm attributed the decline in the third-quarter gross margin to under-absorbed manufacturing overhead costs resulting from lower production volumes. It said the increase in gross margin for the year-to-date reflected continuing initiatives to reduce direct product costs and manufacturing infrastructure costs. These initiatives, which began in 2000, have included facility and staff reductions, and leveraging strategic external manufacturing relationships, some of which are offshore.

Relm’s president, David P. Storey, said, “We are continuing to pursue our strategic business plan objectives to develop and market new products, and to make our existing products high-quality, low-cost leaders. As a result, during the third quarter we continued to incur additional development costs.”

Storey said that the pilot production of Relm’s VHF digital portable radio has been completed and the product is ready for introduction, pending FCC type acceptance, which is expected this quarter.

“Our digital technology is smarter, simpler and inherently more cost-efficient than other alternatives. It simplifies radio use by eliminating complex, non-critical functions, an important feature in emergency situations,” Storey said.

Storey said that two additional RP models are undergoing FCC type acceptance and were likely be released for sale late this year.

He said that the company has launched what he called an aggressive campaign to market its UHF ESAS trunked radio systems to expand on an initial implementation of four systems in southwest Texas.

“Concurrent with these new product programs, we have evaluated and changed the way in which we address particular markets and products. We believe that swift execution of these objectives will ultimately yield profitable revenue growth,” Storey said.

Despite those accomplishments and plans, Storey said that fourth-quarter results are expected to be worse than the third quarter’s.

“For the remainder of 2002, we anticipate that economic conditions will continue to depress revenue growth in the business and industrial market segment. Also, revenues from the USFS and other federal customers are typically lighter in the fourth quarter compared to the first three quarters,” he said.

Storey said that once Relm introduces its portable digital radio, the company anticipates writing off the remaining $200,000 book value of a digital technology license that it will not use.

He projected fourth-quarter revenue to be between $3.5 million and $4 million, with an estimated loss between $600,000.

Relm Wireless manufactures two-way FM business band radios and high-specification public safety mobile and portable radios, repeaters and accessories, base station components and subsystems. The company’s products distributed under RELM Communications, Uniden PRC and BK Radio brand names.

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