SPACEHAB, Incorporated
, a leading provider of commercial space services with over $100
million in sales, today announced that it has issued a Special Letter to
Shareholders in an effort to update existing SPACEHAB investors on the current
status of the Company, and more importantly, management’s perspective on the
Company’s future growth outlook. The text from the letter follows:
I am writing today to express our appreciation for your continued
commitment to SPACEHAB, Incorporated. These have been difficult times for the
U.S. human space program, and it is nice to see shareholders looking past the
daily headlines and keeping their eyes on the long-term future of space-
related businesses.
Two years ago SPACEHAB implemented a multi-faceted plan to revitalize the
Company and improve its financial health. The successful execution of this
plan resulted in an improved financial position, satisfactory operating
margins and costs, and a reduction in debt obligations. We have expanded our
existing business backlog and are positioned to take advantage of new
management and business growth opportunities that are intended to enhance our
financial position and continue our progress of building a solid foundation
toward profitability.
Company Names New Chief Executive Officer
As previously announced, Dr. Shelley A. Harrison, Chairman and Chief
Executive Officer, has planned to retire from his position as CEO on March 31,
2003, and I will be assuming this role. Over the past several years as
President and Chief Operating Officer, I have worked shoulder-to-shoulder with
Shelley, transitioning this Company into a future of new opportunities and
enduring success. What drew Shelley to SPACEHAB in 1987 was the opportunity
to be a part of the human spaceflight legacy, blazing new entrepreneurial
trails. Yet what kept him here was the team spirit, one comprised of a
talented group of dedicated, out-of-the-box thinkers. He organized over $200
million of financing, brought on a strong team, and has proudly overseen the
company’s emergence from its development phase to one of distinguished support
to NASA, international space agencies, and commercial customers worldwide. We
look forward to his continued role as SPACEHAB’s Chairman of the Board
focusing on investor relations and creating shareholder value.
It is my sincere privilege to take on the role of CEO. I am a veteran of
the aviation and aerospace industry, beginning with my career in the U.S. Navy
where I served for 26 years as a U.S. Navy Aeronautical Engineering Officer, a
Weapon System Acquisition Specialist, and Program Manager. I then
transitioned to the corporate environment holding management positions at
McDonnell Douglas, primarily supporting NASA’s Space Station program. In 1994
I was offered an opportunity to join SPACEHAB, a small company of only 12
employees that was celebrating the successful completion of their second Space
Shuttle mission. The unique business model and pioneering vision of space
commercialization was simply fascinating. Since this time, we have greatly
expanded our flight assets, grown our business base through the addition of
high-value services and acquisitions, and become a vital participant in the
world’s most complex engineering program — the development of the
International Space Station. The road traveled has not been easy. Market
trends, industry downsizing, delays in Space Station assembly, and most
recently, the Columbia tragedy have created many obstacles for SPACEHAB. But
as you will see in the remaining portions of this letter, we have a strong
management team with a clear operating plan that is intended to accelerate the
progress we are making toward strengthening our long-term position in the
marketplace.
SPACEHAB Revitalization Strategy Shows Results in Second Quarter
In January 2001 we adopted a new strategy to revitalize the Company and
restore profitable performance in response to the rapid change in our market
during 2000. This strategy had three important aspects:
1. Improve operating margins through the execution of customer-driven
disciplined processes, requirements-based subcontracting, and emphasis
on employee accountability,
2. Build revenue through extension of existing core competencies and
strategic relationships, and
3. Enhance financial performance by overhauling the underlying cost
structure of the Company.
Our most recent financial report for the second quarter of fiscal year
2003 clearly shows the success of this strategy. Through the second quarter
of fiscal year 2003, our Astrotech and Space Flight Services business units
both show revenue growth while Astrotech and Johnson Engineering were
operating at strong margins. [charts]
At the same time, under the leadership of our Chief Financial Officer,
Julia Pulzone, corporate expenses continue to drop. We have consolidated
facilities, streamlined functions, and reduced insurance and legal expenses in
order to dramatically reduce our infrastructure costs. [chart]
Columbia Accident Impact on Third Quarter
The tragic loss of the Space Shuttle Columbia on February 1, 2003 impacted
SPACEHAB in two ways. First, we lost a very valuable module asset, the
recently completed Research Double Module (RDM). Second, the resultant delay
in the assembly of the International Space Station (ISS) will reduce our near-
term revenue in Space Flight Services as NASA reschedules program operations
under the principle ‘find the problem, fix the problem, and return to flight.’
At present, the near-term impact of this unfortunate accident is expected
to be modest. Under our contract with NASA, we have several missions
requiring the use of our flight hardware, and NASA has requested that we
submit a proposal in which we will estimate the proposed contract price and
scope changes resulting from launch delays. Once we agree on those changes,
NASA will reimburse us for costs incurred. We have the assets necessary to
carry out our next three missions in support of the ISS. For the long-term,
our existing assets are capable of satisfying NASA’s emerging needs over the
next few years, and we do not anticipate that the RDM will need to be
replaced.
One week after the Columbia incident, our Johnson Engineering business
unit was notified that it did not win the competition for the Neutral Buoyancy
Laboratory and Space Vehicle Mock-up Facility (NBL/SVMF) contract. The loss
of this two-year contract, an extension of a role Johnson Engineering has
performed for over 15 years, was a disappointment. There will be a reduction
in this business unit’s revenue beginning in the fourth quarter of fiscal year
2003. We are in the process of adjusting our staffing and cost base structure
to ensure that we are cost competitive for three new ISS contracts for which
NASA will conduct competitions this spring (see March 14, 2003 press release).
SPACEHAB Business Outlook is Positive
Looking to the future, our current strategy should serve us well as we
face both challenges and opportunities. Astrotech will continue to serve its
two primary commercial customers, Lockheed Martin and The Boeing Company under
long-term contracts through 2006 and 2010, respectively, and will support the
Boeing Sea Launch and Orbital launch systems in a similar role. Astrotech’s
world-class performance and unique facilities are expected to attract new
customers over the next few years that should sustain its growth until the
commercial telecommunications market fully rebounds.
Space Flight Services’ revenue will return to its previous level once the
Space Shuttle returns to flight in support of ISS assembly. We are under
contract to support three of the next five flights, all are key elements of
the baseline ISS program. Once the ISS completes its transition from assembly
to operations, approximately 18-24 months after return to flight, our
logistics modules and the Integrated Cargo Carrier, which we offer under
contract to NASA, are expected to fly frequently to support ISS requirements
for responsive resupply and research services. Further, when ISS operations
are better defined, we hope to obtain more payload mass availability on the
Space Shuttle for use by our commercial customers and to initiate services on
the Russian Progress vehicle in order to expand revenue from commercial
markets.
Despite the loss of the NBL/SVMF procurement this quarter, our Johnson
Engineering business unit has good prospects for growth. We have a solid
reputation with our ISS customer and we have carefully positioned ourselves to
compete for over $40 million of new annual revenue from three five-year
contract opportunities. In addition, we anticipate that we will be awarded a
role on one of the three teams vying for NASA’s new Orbital Space Plane (OSP)
program.
SPACEHAB Strategy Founded on Strong Fundamentals
A steady revenue stream, coupled with strong cost containment efforts, has
taken SPACEHAB around the corner to profitability. In the second quarter of
fiscal year 2003, ended December 31, 2002, we reported revenue of $28.1
million. We have also increased net income by 80% year-over-year to $1.2
million, or $0.09 per diluted share, for this last quarter. On a sequential
basis, net income was up from a loss of $94,000 in the first quarter of fiscal
2003, representing a positive swing to profitability of nearly $1.3 million,
or $0.10 per diluted share.
Our earnings before interest, taxes, depreciation, and amortization
(EBITDA) were $17.8 million for the past 12 months, or approximately 140% of
its recent market cap. At recent prices, the Company has been trading at
about one-eighth trailing 12-month revenues and at roughly eight times
trailing 12-month earnings.
The most significant recent change in the Company’s liquidity position was
the increase in cash and cash equivalents from $1.81 million, or $0.13 per
diluted share as of December 31, 2002, to $19.3 million, or $1.42 per diluted
share as of February 28, 2003. This was primarily a result of a $17.7 million
payment from SPACEHAB’s insurance company to contribute toward the loss of the
Company’s RDM, which was aboard the STS-107 mission that ended tragically on
February 1, 2003.
As previously disclosed in SPACEHAB’s Form 10-Q, our balance sheet will be
impacted by the STS-107 tragedy through a write down of the RDM that had a net
book value of $67.2 million. The write down will be net of insurance proceeds
received and the proceeds from NASA’s indemnification of the loss.
Additionally, the Company anticipates that a write down in the recorded value
of its goodwill will also be required due to the recent loss of the NBL/SVMF
contract. We are evaluating both balance sheet adjustments and will include
these in our third quarter financial report.
With over $173 million in business backlog and a strengthened balance
sheet, we continue to focus on the utilization of our existing asset base and
the delivery of strong financial and operating results going forward. We are
pursuing a number of new business opportunities to build on our backlog.
These include continued work with NASA, subcontract services to other major
aerospace companies, as well as new contracts outstanding on a number of
projects with NASA and RSC Energia in Russia.
Summary
Despite the current challenges, our future health is sound. Our business
units are performing well, future prospects look good in our markets, and we
are positioned to take advantage of new business opportunities. And our
vision, to be the first commercial provider of space transportation services,
remains achievable. With SPACEHAB’s leadership transition, we begin a new era
of ‘business in space.’
Michael E. Kearney
President and Chief Operating Officer
This letter contains forward-looking statements that are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those projected in such statements. Such risks and
uncertainties include, but are not limited to, whether the Company will fully
realize the economic benefits under its NASA and other customer contracts, the
timing and mix of Space Shuttle missions, the impact of the recent Columbia
tragedy on the Company’s existing and future business operations, the amount
of any indemnification payments the Company may receive for its RDM, which was
lost as part of the Columbia tragedy, the successful development and
commercialization of new space assets, technological difficulties, product
demand, timing of new contracts, launches and business, market acceptance
risks, the effect of economic conditions, the impact of war, uncertainty in
government funding, the impact of competition, and other risks detailed in the
Company’s Securities and Exchange Commission filings. The Company assumes no
obligation to update these forward-looking statements.”
About SPACEHAB
With more than $100 million in annual revenue, SPACEHAB, Incorporated is a
leading provider of commercial space services. The Company develops, owns,
and operates habitat and laboratory modules and cargo carriers aboard NASA’s
Space Shuttles. Its Johnson Engineering subsidiary provides orbiter crew
compartment integration, ISS stowage and configuration management, supports
astronaut training, and builds space-flight mockup trainers at NASA’s Johnson
Space Center in Houston. SPACEHAB’s Astrotech subsidiary provides commercial
satellite processing services at facilities in California and Florida.
Additionally, through The Space Store, Space Media provides space merchandise
to the public and space enthusiasts worldwide (www.thespacestore.com).
For more information, contact:
Haris Tajyar Julia A. Pulzone
Managing Partner Chief Financial Officer
Investor Relations International SPACEHAB, Inc. -- Washington Office
Phone 818-981-5300 Phone 202-488-3500
Fax 818-981-5303 Toll free 888-647-9543
htajyar@irintl.com pulzone@hqspacehab.com
