Orbit International Corp. (OTC:ORBT)

HAUPPAUGE, N.Y.--(BUSINESS WIRE)--Orbit International Corp. (NASDAQ: ORBT), an electronics manufacturer and software solution provider, today announced that its Orbit Instrument Division received an order of approximately $440,000 for Standard Terminal Automation Replacement System ("STARS") keyboards that will be incorporated into air traffic control systems in U.S. airports. Deliveries are expected to commence in the third quarter of 2011 and continue through year-end, with additional orders expected in the fourth quarter of 2011, for delivery next year.

Sam Berhumoglu, Vice President, Director of Marketing of the Orbit Instrument Division commented, "This is our second STARS order this year bringing year-to-date orders for our ruggedized keyboard to over $1 million. These keyboards are integrated into the state-of-the-art STARS air traffic control system. Based on information provided by our customer, we look forward to additional orders for the STARS keyboard in the final quarter of this year with ongoing orders through 2013, as the keyboards used in air traffic control systems continue to be upgraded throughout all air traffic control towers in the United States."

Mitchell Binder, President & Chief Executive Officer, stated, "With this order, bookings for our Instrument Division through May are up 45% compared to the first five months of 2010. We are also seeing higher levels of business activity, bookings and backlog at our Power Group, for both our COTS and Commercial divisions. With five months of the year behind us, we remain very confident that 2011 will be a strong year for sales and profitability."

“Although our first quarter results were below our expectations, this shortfall can be identified and attributed to schedule delays and timing issues. Both net sales and profitability were adversely affected by approximately $2.5 million of production orders that were previously scheduled for delivery in the first three quarters, but have now been delayed by our customers due to technical issues at the prime contractor level unrelated to our hardware. We now expect to receive these orders in the second half of the year, although final technical resolution and revised shipping dates are beyond our control. In addition, certain orders for the Orbit Instrument Division that were projected to be booked in the first quarter and shipped starting in the second quarter have now been delayed until the second half of 2010.”

, “We are pursuing a number of program opportunities that should have a positive impact on our backlog and our operational results for the remainder of 2010 and beyond.

“Given our current backlog, delivery schedules and several pending orders, we expect our second half operating results for 2010 to be significantly stronger than the first half, and management anticipates an improved operating performance in 2010 compared to 2009.”

“Because of our first quarter loss due to shipping schedule delays, our Company was not in compliance with one of its financial covenants with its primary lender. The Company believes it will obtain a waiver from its lender, but there can be no assurance that such waiver will be obtained. In the event such waiver is not obtained, all long term debt reflected on the Company’s financial statements would be reclassified to current liabilities.”

GeoSpecial On The Radar, Orbit Intl Corp reported a loss for its 2010 first quarter. This has caused the company to be in non-compliance with one of its financial covenants.

This underscores the risk we outlined in our original note:

Since a significant amount of all of the products which they manufacture are used in military applications, any substantial reduction in overall military spending by the United States Government could have a material adverse effect on sales and earnings.

The bad news is that the stock will likely get hit hard today.

The good news is that this seems like a temporary hiccup:

“Given our current backlog, delivery schedules and several pending orders, we expect our second half operating results for 2010 to be significantly stronger than the first half, and management anticipates an improved operating performance in 2010 compared to 2009.”

Company believes it will obtain a waiver from its lender.

We may still have to deal with a sub par second quarter. If the stock falls under $3.00 we may build a position as the full year outlook still appears in tact.  Conservative investors may want to wait to see if the company receives a waiver from its lender before considering ORBT.

ORBT still does not quietly as a GeoSpecial.

We will be tracking the Orbit Intl story closely. While revenue levels have been stagnant for the past several years, and although valuation on adjusted trailing EPS of $0.10 basis is pricey at the current levels, we were encouraged by developments reported in the company's 2009 year end release.

1. GAAP results masked a solid finish to the end of year that non-GAAP results revealed

• GAAP Fourth Quarter 2009 vs. 2008 net sales declined by 5.6% ($7,489,000 vs. $7,930,000).
• GAAP Net loss was $1,580,000 or $0.36 per share compared to GAAP net loss of $5,927,000 or $1.34 per share
• On a Non-GAAP basis, excluding non-cash impairment charges taken in connection with recorded intangible assets and goodwill of $1,622,000 and $426,000, respectively, net income would have been $468,000 or $0.11 per diluted share compared to net income of $1,092,000 or $0.25 per diluted share (prior to a non-cash goodwill impairment charge of $6,889,000 and a $130,000 other than temporary impairment loss in our corporate bond portfolio).
  
• For Year End 2009 vs. 2008 GAAP Net sales decreased by 3.1% to $26,518,000 from $27,364,000.
• GAAP Net loss was $1,607,000 or $0.37 per share compared to $6,007,000 or $1.33 per share for 2009 and 2008 respectively; Prior to the aforementioned impairment charges for both years, on a Non-GAAP basis, net income was $441,000 or $0.10 per diluted share compared to net income of $1,012,000 or $.22 per diluted share.

2. Commentary is exceptionally bullish:

“Our backlog at the end of the year was approximately $20.5 million, the highest level reported in several years. We continue to pursue a number of program opportunities that should continue to have a positive impact on our backlog for the remainder of 2010. Although our 2009 fourth quarter operating results were the strongest of the year, revenue and operating income still did not meet our expectations. Our financial results were impacted by extensive contract delays that resulted in several awards not being received until late in the year. These awards were expected to have been booked by our Company in early 2009 to meet previously scheduled delivery requirements. The issue of contract delays and its impact on our financial results do not in any way imply that our Company has lost any potential program awards.”

“Looking forward to 2010 and beyond, given the current dollar magnitude of our backlog, together with several new program opportunities that could have significant 'game changing' potential for our Company, we anticipate significantly improved operating revenue, backlog, and profitability. Specifically, our TDL subsidiary has entered into a five-year Supplier Partner Agreement with Synexxus, Inc. that provides TDL with the exclusive right to manufacture and supply its color display in support of the Oberon V4 Electronic Keel System ('Oberon'). Oberon was recently selected for deployment in the Mine Resistant Ambush Protected-All Terrain Vehicles (MRAP-ATV) manufactured by the Oshkosh Corporation. TDL is currently working directly with the Synexxus team to develop several strategies to optimize high quantity potential production efficiencies.”

3. Tangible book value at December 31, 2009 increased to $3.43 per share, compared to $3.28 per share at September 30, 2009, and $3.19 at December 31, 2008.

4. ORBT intends to continue to purchase shares under its repurchase program.

Using historical revenue to backlog relationships (revenues divided by backlog) as a guide, we can attempt to gain a cursory idea of what the top line may look like in 2010:

	2009	2008	2007	2006	2005	2004	2003	2002
Beginning Year Backlog	$16.0	$15.0 M	$15.0 M	$13.0 M	$11.0 M	$10.0 M	$13.0 M	$12.0 M
End of Year Sales	$26.5 M	$27.4 M	$25.9 M	$25.0 M	$24.3 M	$18.0 M	$17.1 M	$16.7 M
Multiplier (sales/backlog)	1.66	1.83	1.73	1.92	2.21	1.80	1.31	1.39

Source: SEC Filings

The one thing that is apparent from this analysis is that sales have historically eclipsed the year's beginning backlog. With the exception of 2002 & 2003, the multiplier of sales to backlog had been greater than 1.66, although in a gradual decline since 2005. With this information in hand we have constructed a few scenarios to provide us with an initial glance at what 2010 revenues and EPS could look like.

Multiplier Assumption	2010 Revenues Based on $20.0 M Backlog	EPS Applying 2009 4th qtr Margins
High (2.21)	$44.2 M	$0.41
Average( 1.73)	$34.6 M	$0.32
Low (1.31)	$26.2 M	$0.24
Reduction of 10% from 2009 (1.51)	$30.2 M	$0.28

Without an interview it is difficult to determine which scenario to apply the most weight to. But one thing is for sure: The company is certainly confident about its future. In seeing phrases such as "game changing potential", we would be a fools to not closely track this story, even at the very least. In order to convince us to aggressively buy ORBT we would need to believe that 2010 tax adjusted EPS could minimally reach $0.35. Even applying a P/E of 15 as the worst case scenario could imply that ORBT shares are near a bottom.

We will request an interview.

Risks to ponder:

• ORBT has high customer concentration which could leave revenues susceptible to changes in order patterns.
  
• Since a significant amount of all of the products which they manufacture are used in military applications, any substantial reduction in overall military spending by the United States Government could have a material adverse effect on sales and earnings.

Disclosure: GeoTeam long ORBT