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Aeroflex Holding Corp. (ARX - Snapshot Report) reported its financial results for the second quarter of fiscal 2014 on February 7. Aeroflex recorded net income of $1.13 million or 1 penny per share in the second quarter of fiscal 2014 versus $745,000 or 1 penny per share in the year-ago quarter.

Non-GAAP net income for the reported quarter was $9.25 million or 11 cents per share compared with $8.71 million or 10 cents per share in the year-earlier quarter. The adjusted earnings for the reported quarter comfortably beat the Zacks Consensus Estimate by three cents.

Revenues

Revenues in the second quarter of fiscal 2014 were $151.1 million, which was in line with the Zacks Consensus Estimate. However, on a year-over-year basis, revenues decreased marginally from $151.9 million in second quarter fiscal 2013.

Gross margins were down 150 bps year over year to 49.6% in the reported quarter. Non-GAAP operating income was $20.8 million compared with $22.5 million in the year-ago quarter.

Segment Performance    

Sales for Microelectronic Solutions (AMS) were flat at $83.76 million, compared with $83.30 million in the year-ago quarter. The segment’s book-to-bill ratio was above 1 for the quarter. AMS bookings were driven by two significant contract wins for mixed-signal semiconductors in new market adjacencies.

Sales for Test Solutions (ATS) decreased marginally to $67.35 million, down from $68.57 million in the year-ago quarter. The ATS wireless infrastructure business continued to profit from demand for next generation LTE (Long Term Evolution) technology in growing markets such as Asia, which resulted in a record bookings quarter for TM500s. Moving forward, increasing equipment spending by wireless telecommunications carriers in Asia to develop fourth generation networks will support higher demand for wireless test equipment and revenues in the ATS segment.

Gross margins for AMS declined to 44.8% from 49.1% in the year-earlier quarter. Gross margins for ATS improved to 55.6% compared with 54.1% in the year-ago quarter.

Balance Sheet

Cash and cash equivalents as of Dec 31, 2013 were $60.95 million. Long-term debt at year end was $587,000.

Cash Flow

Cash flow from operating activities was $10.04 million for the first six months of fiscal 2014 compared with $44.11 million in the prior-year period. The sharp decrease was on account of losses booked on disposal of operations, as well as payoffs relating to accrued expenses and creditors.

Outlook

For third quarter fiscal 2014, sales are expected in the range of $155 million–$162 million. GAAP income from continuing operations is expected to be between $4 million and $8 million and adjusted EBITDA within $26 million and $30 million. On a per share basis, GAAP earnings are expected to be between 4 cents and 7 cents and non-GAAP earnings between 11 cents and 14 cents.

Just a day before the earnings release, Aeroflex announced the acquisition of Shenick Network Systems, a leading provider of virtual testing for next generation software-defined networking. This acquisition is anticipated to aid in continued growth of Aeroflex and help it in maintaining the leading market position in wireless infrastructure test equipment. It is also expected to enhance the company’s gross margins and profitability while expanding its market coverage. Aeroflex expects the acquisition to be neutral to its fiscal 2014 results and accretive to its fiscal 2015 financial results.

Share price rose 14.6% following the earnings announcement as the earnings data turned out to be better than expected. In addition, the acquisition of Shenick Network Systems might have also played a part in the share price uptrend.

Aeroflex currently holds a Zacks Rank #3 (Hold). Other stocks in the industry that look promising and are worth a look include Alpha & Omega Semiconductor, Ltd. (AOSL - Snapshot Report), Ambarella, Inc. (AMBA - Snapshot Report) and Integrated Device Technology, Inc. (IDTI - Snapshot Report), each carrying a Zacks Rank #1 (Strong Buy).

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