Henry Bros. numbers are down. Is it just a bad 2009?

 - 
03/15/2010
Less than good news coming out of the Henry Bros. Electronics camp. As one of the few pure-play integration firms that's in the public sphere, it's hard not to sometimes see them as a market barometer. If we do use them this way, "the recovery" may be more than a little overblown:
The Company reported revenue of $13.7 million for the three months ended December 31, 2009, representing a 28% decrease from revenue of $19.1 million for the same period a year ago. Revenue was down in all regions, offset in part by an increase in Texas. The overall decline in revenue is due principally to the effects of the continuing credit freeze and economic downturn, which has had a significant negative impact on construction markets and capital spending patterns of commercial businesses, combined with a significant reduction in revenue from the Company's New Jersey region, as a result of the winding down of large projects that were not replaced by similar projects.
Conventional wisdom says that Q4 2008 was particularly ugly, and that things had maybe turned around by Q4 2009, but that's not what happened for Henry Bros. This might be explained by the aforementioned "large projects" that were not replaced - sometimes integrators' revenues are lumpy because there isn't an infinite supply of large projects. But the down-in-all-regions part of that doesn't look good.
The Company reported a net loss of $687,950 or $0.12 per diluted share, for the fourth quarter ended December 31, 2009, compared to net income of $725,756, or $0.12 per diluted share, in the comparable period of 2008. The Company's net loss is principally due to a decline in revenues given the current economy. In addition, the Company's investment in the start up of a new office in Houston, the development of new internet-based service programs, along with process and training costs, also contributed to the net loss.
If investments lead to a small loss, that might not be a big deal. The "internet-based service programs" could be heading in the direction of increasing recurring revenue, and that would seem to be a good thing. Still, this next part isn't encouraging:
Revenue for the year ended December 31, 2009 was $55.1 million, representing a decrease of 11.6% from revenue of $62.4 million for the year ended December 31, 2008, stemming from the continued economic pressure described above. Partially offsetting this decline were increases in the Company's Texas and Colorado operations, which were up 12.4% on a combined basis, as well as an increase in revenue resulting from the Company's agreement with a division of L-3 Communications, which is part of L-3's project for the U.S. Marine Corp. Systems Command to deliver a Tactical Video Capture System ("TVCS"). The L-3 contract generated $3.5 million incremental revenue in 2009 over 2008.
Okay, so 2009 was bad. No one was saying it wasn't...
The Company had a net loss for fiscal 2009 of $823,957, or $0.14 per diluted share, compared to net income of $1.6 million, or $0.26 per diluted share for 2008.
This is doubly disappointing because of all the work Henry Bros. did to get profitable again in the first place. 2008 was a real comeback story for them, and 2009 has to be a kick in the teeth.
Jim Henry, CEO of Henry Bros. Electronics, stated "Though we remain optimistic that we will soon see a turnaround in our business, our entire management team was disappointed by our results for the fourth quarter and the full year 2009. The long term contractual nature of our business is such that we did not really begin to experience the full impact of the protracted recessionary climate until the second half of the year. This lag, coupled with unforeseeable delays in our TVCS project, made it increasingly difficult to forecast our performance. However, although the TVCS project has been moving slower than originally forecast, our contract is still in place, and while the timeline may have been moved further out, our participation and related forecasted revenue share from this project has not changed." Henry concluded, "We were also impacted in 2009 by an increase in our SG&A, as we made strategic investments in our Texas region, the ninth fastest growing market in the country. We strongly believe in the value of the investment, and that it will prove to be a prudent move when commercial spending begins to rebound. Going forward, we expect our success to be tied to how our offerings, and the knowledge of our team, benefits and improves services within organizations. We have addressed this with an enhanced recruitment process and more intensive training of our sales staff. As we look to a profitable 2010, we are poised to take advantage of the coming economic rebound, with a more qualified and efficient team."
So, signs of 2010 being better?
The Company's backlog as of December 31, 2009 was $28.0 million and $4.3 million above the $23.7 million at December 31, 2008.
Well, that's a start.