Sierra Monitor Pays its First Dividend, Orders Jump

Zacks Small Cap Research

By Ken Nagy, CFA

On October 30, 2012, Sierra Monitor Corporation (OTC Markets:SRMC), the designer, manufacturer and seller of electronic safety and environmental instrumentation, reported financial results for its third quarter and nine months ended September 30, 2012.

Sierra Monitor reported mixed results with year over year third quarter revenues increasing $237,070 or over 6 percent to $4.040 million from $3.803 million for the comparable quarter of 2011.

 The Company’s third quarter 2012 GAAP net income declined $29,341 to net income of $152,395 from $181,736 during the three months ended September 30, 2011.

The year over year decline in net income was a primarily a result of lower gross margin and slightly higher total operating expenses.

Gross margin dropped slightly year over year from 58.9 percent to 57.9 percent for the three months ended September 30, 2012 while total operating expense increased year over year by $149,242 to $2.086 million.

Based on a weighted average number of basic common shares of 9.905 million, basic net income per share resulted in $0.02 per share during the third quarter fiscal 2012.  This compared to basic net income per share of $0.02 on a weighted average number of basic shares of 9.901 million during the three months ended September 30, 2011.

Non-GAAP net income for the third quarter of 2012 decreased year over year by $19,389 to 274,322 while non-GAAP earnings per basic share for the third quarter of 2011 remained steady at $0.03.

For the nine months ended June 30, 2012, year over year revenues improved by nearly 25 percent or $2.951 million to $14.907 million from $11.956 million for fiscal 2011.

GAAP Net income for the nine months jumped by $334,766 year over year to $1.060 million for the nine months ended September 30, 2012. This compares to $725,560 for the comparable nine months ended June 30, 2011.

The year over year jump in net income was a primarily a result of a drop in total operating expenses as a percentage of revenues.

While total operating expenses increased by $541,166 year over year, they fell as a percentage of revenues to 43.1 percent from 49.3 percent of revenues for the nine months ended September 30, 2011.

However, gross margin for the nine months fell to 55 percent compared to gross margin of 59.4 percent for the nine months ended September 30, 2011.

Based on a weighted average number of basic common shares of 9.902 million, basic net income per share resulted in $0.11 per share for the nine months ended September 30, 2012.  This compared to basic net income per share of $0.07 on a weighted average number of basic shares of 9.898 million during the six months ended September 30, 2011.

Non-GAAP net income for the first nine months of 2012 increased year over year by over 34 percent to $1.403 million and non-GAAP earnings per basic share for the first nine months of 2012 jumped to $0.14 compared to $0.011 for the nine months ended September 30, 2011.

Sierra Monitor’s balance sheet remained strong with cash and equivalents of $2.408 million, net accounts receivables of $2.089 million and no bank debt.  This compares to cash and equivalents of $2.132 million and net accounts receivables of $2.455 million for the three months ended June 30, 2012.

Likewise, the Company had a Days Sales Outstanding in Accounts Receivable of 43 days.

Similarly, working capital for the quarter improved sequentially to $6.849 million from $6.639 million for the period ended June 30, 2012.

It should further be noted that the Company’s FieldServer sales team has continued to produce higher bookings through more focus on OEM and repeat customer accounts.

Sierra Monitor recently received a follow-on order to supply FieldServer gateways for integration of smoke and flame detectors in a LonWorks network aboard Zumwalt-class U. S. Navy destroyers.

Likewise, the Company received a design/build order from a major international instrument company to supply a custom FieldServer gateway platform for ultra-sonic flow meters used in a broad range of industrial applications.

Furthermore, Sierra Monitor’s domestic gas detection sales team has increased its focus on clean energy projects such as alternate fuel fleet maintenance facilities while its international team continues to focus on oil and gas projects

The Company was recently selected by an international company specializing in the reduction of sulfur content in transport fuels, such as diesel and jet fuel, to supply gas and flame detection systems on their skid mounted process equipment.

More recently, as announced on October 30, 2012, Sierra Monitor’s board of directors adopted a dividend policy, approving a quarterly cash dividend of $0.01 per share of common stock.

The first quarterly dividend will be payable on November 15, 2012 to shareholders of record as of the close of business on November 10, 2012 and will represent a quarterly payout of approximately $100,043 in aggregate, based on 10,004,311 shares outstanding as of October 30, 2012.


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