Landauer fourth quarter revenue increases 5.3% to $120.5 million

Dec 6 2011

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 2011 fourth quarter and year ended September 30, 2011.

Fiscal 2011 Highlights

• Revenue increased 5.3 percent to $120.5 million.
• Gross profit grew 4.4 percent to $72.9 million on increased revenue and product mix.
• Operating income increased $0.3 million to $34.9 million.
• Net income increased 3.6 percent to $24.5 million, or $2.58 per diluted share.
• Completed acquisition of IZI Medical Products in November.
• Announced quarterly dividend rate of $0.55 for the first fiscal quarter of fiscal 2012 in November, providing an annual dividend rate of $2.20 consistent with 2011 levels.
• The military issued orders totaling $14.5 million relating to the Company's initiatives during the fiscal year for shipments in fiscal 2012 and beyond.

"The results for this year demonstrate the balanced approach we are taking in the pursuit of new growth opportunities and managing resources effectively to produce steadily improving long-term performance in our core dosimetry business and new markets," stated Bill Saxelby, President and CEO of Landauer.  "During fiscal 2011 we made significant progress against our strategic priorities and we continue to see strong interest from the market for services that integrate our traditional occupational monitoring services with our Medical Physics offering."

Saxelby added, "We successfully advanced our military initiative and received orders from the U.S. military for a program totaling $14.5 million during the fiscal year, which will be shared with our military partner. The Company's portion of the approved funding to date is approximately $11 million. We recently completed the acquisition of IZI Medical Products, which significantly increases our product and service offering to help customers ensure the safe utilization of radiation.  The acquisition is an excellent strategic fit and expands our reach across the radiation safety continuum."

Saxelby concluded, "In fiscal 2012 we look forward to executing on the significant growth opportunities in our pipeline across several areas of our business, as well as focusing on increasing our operating efficiency. Those opportunities include:

• Recent contract awards in the nuclear power market which continue to strengthen our position in this market. Since our Q3 report, we have increased our market share in the nuclear power sector from 28% to 41%.
• Continued growth within our Medical Physics segment where we generated positive operating income for the fourth fiscal quarter.
• Continued expansion of our military and first responder opportunities.
• The significant opportunities associated with the recent IZI Medical Products acquisition; and
• Our ability and commitment to returning value to shareholders remains strong, as evidenced by the continuation of our cash dividend program."

Comparison of the Three Months Ended September 30, 2011 and September 30, 2010Revenues for the fourth fiscal quarter of 2011 were $30.5 million, an increase of $1.4 million, or 5.0% compared with revenues of $29.1 million for the same quarter in fiscal 2010. The increase was contributed by the Medical Physics segment.

Cost of sales for the fourth fiscal quarter of 2011 was $12.7 million, an increase of $0.4 million, or 3.5%, compared with cost of sales of $12.3 million for the same quarter in fiscal 2010. The Medical Physics segment contributed an increase of $1.1 million, while the Radiation Monitoring segment decreased $0.6 million. Gross margins were 58.3% for the fourth fiscal quarter of 2011, compared with 57.6% for the same period in fiscal 2010.

Selling, general and administrative costs for the fourth fiscal quarter of 2011 were $9.5 million, an increase of $0.6 million, or 6.3%, compared with the $8.9 million reported for the fourth fiscal quarter of 2010. The increase of $0.6 million occurred in the Radiation Monitoring segment.

Operating income for the fourth fiscal quarter of 2011 was $7.0 million, a decline of $0.5 million, or 5.9%, compared with operating income of $7.5 million for the same quarter in fiscal 2010. For the fourth fiscal quarter of 2011, the Medical Physics segment had operating income of $0.1 million, an increase of $0.4 million, compared to an operating loss of $0.3 million for the fourth fiscal quarter of 2010. The Radiation Monitoring segment had operating income for the fourth fiscal quarter of 2011 of $6.9 million, a decrease of $0.9 million, or 11.4%, compared to $7.8 million for the fourth fiscal quarter of 2010.

Net other income, including equity in income of joint ventures, for the fourth fiscal quarter of 2011 was $0.2 million compared to $0.3 million in the prior year quarter.

The effective tax rate for the fourth fiscal quarter of fiscal 2011 and 2010 was 25.3% and 39.7%, respectively. The decrease in effective tax rate was due primarily to the reduction in the Company's state taxes and the allowance of certain tax credits that had been previously disallowed.

Net income for the fourth fiscal quarter ended September 30, 2011 was $5.2 million, an increase of $0.6 million, or 13.8%, compared with $4.6 million for the fourth fiscal quarter of 2010. The resulting diluted earnings per share for the fourth fiscal quarter of 2011 were $0.54 compared with $0.48 for the fourth fiscal quarter of 2010.

Radiation Monitoring Segment:Radiation Monitoring revenue for the fourth fiscal quarter of 2011 was $24.6 million, which was the same as for the fourth fiscal quarter of 2010. Domestic Radiation Monitoring revenue decreased 5.6%, or $1.0 million, and international Radiation Monitoring revenue increased 16.8%, or $1.0 million.

Radiation Monitoring gross margin for the fourth fiscal quarter of 2011 increased to 66.2% from 63.7% in the fourth fiscal quarter of 2010. Selling, general and administrative costs in the Radiation Monitoring segment for the fourth fiscal quarter of 2011 increased 8.0%, or $0.6 million, to $8.1 million.  The increase is due primarily to an additional $0.7 million of bonus expense and $0.2 million of additional costs to support international growth, partially offset by declines in other miscellaneous expenses. Acquisition and reorganization costs for the fourth fiscal quarter of 2011 increased by $0.9 million to $1.3 million, compared to $0.4 million for the fourth fiscal quarter of 2010. Radiation Monitoring operating income, inclusive of the impact of acquisition related transaction and reorganization costs, for the fourth fiscal quarter of 2011 decreased 11.4%, or $0.9 million, to $6.9 million compared with operating income of $7.8 million for the same period in fiscal 2010.

Medical Physics Segment:Medical Physics revenue for the fourth fiscal quarter of 2011 increased 32.6%, or $1.5 million from the fourth fiscal quarter of 2010, to $6.0 million on $0.9 million of organic growth and $0.6 million due to the impact of acquired companies. Medical Physics gross margin increased to 25.3% from 24.4% in the fourth fiscal quarter of 2010 due to elimination of a non-recurring operating loss within certain Medical Physics business in the fourth fiscal quarter of 2010 prior to divestiture of the business in the first fiscal quarter of 2011, as well as improved operating efficiencies in the therapy physics business. Selling, general and administrative costs in the Medical Physics segment of $1.4 million for the fourth fiscal quarter of 2011 were comparable to costs for the same period in fiscal 2010. Medical Physics operating income for the fourth fiscal quarter of 2011 was $0.1 million, an increase of $0.4 million, compared to an operating loss of $0.3 million for the fourth fiscal quarter of 2010.

Comparison of the Twelve Months Ended September 30, 2011 and September 30, 2010Revenues for fiscal 2011 were $120.5 million, an increase of $6.1 million, or 5.3%, compared with revenues of $114.4 million for fiscal 2010. The Medical Physics segment contributed an increase of $6.6 million, offset by a decline in the Radiation Monitoring segment of $0.5 million.

Cost of sales for fiscal 2011 was $47.5 million, an increase of $3.0 million, or 6.8%, compared with cost of sales of $44.5 million for fiscal 2010. The Medical Physics segment contributed an increase of $5.1 million, offset by a decline in the Radiation Monitoring segment of $2.1 million. Gross margins were 60.6% for fiscal 2011, compared with 61.1% for fiscal 2010. The decline in gross margin rate was primarily due to the overall growth of the Medical Physics segment, which has lower margins.

Selling, general and administrative costs for fiscal 2011 were $36.6 million, an increase of $3.4 million, or 10.1%, compared with the $33.2 million reported for fiscal 2010. The Medical Physics segment and Radiation Monitoring segment contributed an increase of $1.1 million and $2.3 million, respectively. The Medical Physics increase is due to the impact of acquired companies and costs to support organic growth. The Radiation Monitoring increase is due primarily to increased international spending to support international revenue growth and the strengthening of most foreign currencies against the dollar.

In conjunction with the Company's acquisition activity, the Company incurred $1.5 million ($1.0 million, after tax) and $2.0 million ($1.6 million, after-tax) of acquisition related transaction and reorganization costs for fiscal 2011 and 2010, respectively.

Operating income for the twelve months ended September 30, 2011 was $34.9 million, an increase of $0.3 million, or 0.7%, compared with operating income of $34.6 million for fiscal 2010. For fiscal 2011, the Medical Physics segment had an operating loss of $0.5 million, an improvement of $0.4 million compared to an operating loss of $0.9 million for fiscal 2010. The Radiation Monitoring segment had operating income of $35.4 million, compared to operating income of $35.6 million for fiscal 2010.

Net other income, including equity in income of joint ventures, for fiscal 2011 was $1.9 million, an increase of $0.5 million, or 32.7%, from the prior year, due to Nagase-Landauer, the Company's joint venture in Japan, experiencing increased revenue in support of the Japanese nuclear disaster and a reduction in product costs as a result of manufacturing efficiencies in its state of the art manufacturing facility which began operating in April 2010.

The effective tax rate was 31.4% and 33.0% for fiscal 2011 and 2010, respectively. The decrease in effective tax rate was due primarily to the reduction of nondeductible acquisition costs as compared to fiscal 2010 and an increased research and development credit in fiscal 2011.

Net income for the twelve months ended September 30, 2011 was $24.5 million, an increase of $0.8 million, or 3.6%, compared with $23.7 million for the twelve months ended September 30, 2010. The resulting diluted earnings per share for fiscal 2011 were $2.58 compared with $2.52 for fiscal 2010.

Earnings before interest, taxes, depreciation and amortization ("EBITDA") were $44.4 million, a $2.0 million or 4.8% increase, compared with $42.4 million for the prior fiscal year. The increase is due primarily to a $0.8 million increase in net income and a $1.3 million increase in depreciation and amortization expense for fiscal 2011.  A reconciliation of net income to EBITDA is included in the attached financial exhibits.

Radiation Monitoring Segment:Radiation Monitoring revenue for fiscal 2011 declined 0.5%, or $0.5 million to $99.9 million. Of the decline, $1.6 million is due to the change in the supply relationship between Landauer and Nagase-Landauer, the Company's unconsolidated joint venture in Japan. Fiscal 2010 revenue included sales to Nagase-Landauer, Ltd. of $2.5 million for badges and services to support its fiscal 2010 transition of the Japanese service market from the Luxel badge to a next generation badge based upon the InLight platform. With the completion of the transition in the third fiscal quarter of 2010, the joint venture only purchases service badges to support service business growth. The historical Luxel badge revenues were partially replaced by a royalty arrangement, resulting in no corresponding impact on net income. Without the Nagase-Landauer impact, domestic Radiation Monitoring revenue declined 3.3%, or $2.4 million, driven by lower non-recurring InLight equipment sales, primarily to the Canadian government agency responsible for occupational monitoring and radiation emergency preparedness for the citizens of Canada. International Radiation Monitoring revenue increased 13.9%, or $3.6 million, on $2.2 million of organic growth in most regions and $1.6 million from the strengthening of most foreign currencies against the dollar.

Radiation Monitoring gross margin for the twelve months ended September 30, 2011 increased to 68.2% from 66.3% a year ago, primarily due to the decline in lower margin sales to Nagase-Landauer. Selling, general and administrative costs in the Radiation Monitoring segment for fiscal 2011 increased 8.0%, or $2.3 million, to $31.2 million. The increase is due primarily to an additional $0.2 million of costs to replace the Company's IT systems and related depreciation, $1.0 million of increased international spending to support international revenue growth and $0.5 million from the strengthening of most foreign currencies against the dollar. Acquisition and reorganization costs for fiscal 2011 decreased 26.6%, or $0.5 million, to $1.5 million compared to $2.0 million in fiscal 2010. Radiation Monitoring operating income, inclusive of the impact of acquisition related transaction and reorganization costs, for the twelve months ended September 30, 2011 decreased 0.5%, or $0.2 million, to $35.4 million compared with operating income of $35.6 million for fiscal 2010.

Medical Physics Segment:Medical Physics revenue for 2011 increased 46.7%, or $6.6 million, to $20.6 million on $3.2 million of organic growth and $3.4 million due to the impact of acquired companies. Medical Physics gross margin declined to 23.7% from 24.3% in the year ago period due to divestiture of the certain higher margin business in the first fiscal quarter of 2011, and due to non-recurring expense in fiscal 2011 for workforce realignment, partially offset by improved operating efficiencies in the core Medical Physics business. Selling, general and administrative costs in the Medical Physics segment for fiscal 2011 increased 24.0%, or $1.1 million, to $5.4 million. The increase is due to the impact of acquired companies and costs to support organic growth. Medical Physics operating loss was $0.5 million for fiscal 2011, compared with operating loss of $0.9 million for fiscal 2010.

Solid Financial PositionLandauer ended the fourth fiscal quarter of 2011 with total assets of $169 million, an increase of $18 million compared to total assets of $151 million at the end of fiscal year 2010.  Due to the current liability classification of $19.8 million in outstanding borrowings incurred to support the acquisitions completed during the first fiscal quarter of 2010 and thereafter, the Company had negative working capital of $7.3 million.  The Company believes projected operating cash flow and available borrowing under its current credit arrangements provide adequate liquidity to meet its current and anticipated obligations.  Cash provided by operating activities for fiscal year ended September 30, 2011 was $31.2 million, an increase of $5.0 million from fiscal 2010, due primarily to an increase in deferred contract revenue and changes in the other components of working capital.

Dividend Policy The Company also announced on November 14, 2011 that its Board of Directors has declared a regular quarterly cash dividend of $0.55 per share for the first quarter of fiscal 2012.  This represents an annual rate of $2.20 per share, consistent with fiscal 2011 levels.  The dividend will be paid on January 4, 2012 to shareholders of record on December 9, 2011.

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

• $4.4 million ($2.9 million net of tax) of non-recurring expense spending to support the successful completion of the Company's systems initiative and the related post implementation support.
• Incremental depreciation and amortization over fiscal 2011 of $1.8 million ($1.2 million net of tax) related to the deployment of the final phase of the Company's systems initiative in the third fiscal quarter of fiscal 2012.
• The accretive impact of the November 2011 acquisition of IZI Medical Products producing $1.1 million to $1.5 million of net income for the 10 months included in fiscal 2012.

Based upon the above assumptions, the Company anticipates reported net income for fiscal 2012 in the range of $21 to $23 million and EBITDA in the range of $49 to $51 million. In addition to the $5 to $7 million increase in EBITDA expected for fiscal 2012, the Company will begin to receive an annual cash benefit of approximately $2 million as a result of the structure of the acquisition of IZI Medical Products in November 2011.