Winland Electronics, Inc. Reports Third Quarter 2009

Electronics, Inc. (AMEX: WEX), a designer and manufacturer of custom electronic control products and systems, today announced net sales of $5.1 million for the third quarter ending September 30, 2009 versus $7.0 million, down 26.9 percent, in the comparable period in 2008. The Company reported a net loss of $695,000, or $0.19 per share, versus a net profit of $118,000, or $0.03 per share, in the third quarter of 2008.

The Company's Electronic Manufacturing Services (EMS) segment sales for the quarter totaled $4.2 million versus $6.1 million in the second quarter of 2008, a decrease of 30.1 percent year-over-year. The segment recorded an operating loss of $332,000 in the period, versus an operating profit of $553,000 in the third quarter of 2008. Net sales for Winland's Proprietary Products segment totaled $894,000, down $58,000, or 6.1 percent, from the comparable period in 2008. The Company's Proprietary Products segment recorded an operating profit of $133,000 versus an operating profit of $130,000 in the comparable period of 2008.

"In spite of encouraging signs of life within the manufacturing and technology sectors, during the quarter our clients continued to hold their inventory levels very low and have been reluctant to place new production orders," said Thomas de Petra, President and Chief Executive Officer of Winland Electronics. "Sales of our proprietary products, however, are encouraging, having improved significantly on a sequential basis over the second quarter and in profitability both sequentially and year-over-year."

Overall operating expenses were down $55,000 or 5.4 percent, from the comparable period in 2008. G&A expenses were down 18.8 percent, while sales and marketing spending was up 15.7 percent, as a result of increased sales efforts.

"After laying the foundation over the past several quarters with operational and quality improvements, we continue to push hard with aggressive sales efforts that compliment recent successes with new customer acquisitions," de Petra said. "This effort is a top priority, along with achieving a healthy level of sales relative to our cost structure."

While third quarter results reflected continued industry-wide softness in the EMS industry, the Company has been encouraged by increases in requests for quotations on new products from long-term customers, as well as the number of small but growing orders from customers acquired during the past several months. "We are seeing quote requests coming from additional divisions and subsidiaries of existing customers," de Petra said. "We believe these new opportunities are the direct result of operational and quality improvements undertaken during the past several quarters that have moved Winland up to preferred supplier status with these customers."

Operationally, gross margins during the quarter continued to be negatively affected by unabsorbed fixed overhead from lower sales and the higher costs of initial production with new customers. Overall gross margins declined to 5.7 percent from 16.0 percent in the comparable period in 2008.

During the quarter, the Company continued to benefit from its efforts to broaden its customer base and to extend its service capabilities into design engineering, allowing the Company to engage with customers earlier on in the product development cycle. "We are encouraged by new manufacturing customer prospects from the medical, electronic instrumentation and industrial markets, as we continue to engage with these kinds of customers in the engineering design and prototype development stages that precede production-level manufacturing," de Petra said.

Winland's customer base now includes companies in transportation logistics and fleet management, safety, industrial, instrumentation and medical market sectors.

Nine-Month Results

Net sales for the nine months ended September 30, 2009 were $18.0 million, down $2.9 million, or 13.8 percent, from the comparable period in 2008. EMS net sales totaled $15.6 million, down 14.0 percent from the first nine months of 2008, and proprietary product sales of $2.4 million declined by 12.5 percent, from $2.7 million in the comparable period in 2008. The net loss for the period totaled $1.5 million, or $0.42 per share, versus $1.0 million, or $0.28 per share, in the first nine months of 2008. Gross margins decreased to 10.3 percent from 11.5 percent for the nine months ended September 30, 2009 versus the corresponding period in 2008.

The Company reported an operating loss of $1.3 million in the first nine months of 2009 versus $1.1 million for the nine months ended September 30, 2008. The Company's EMS segment reported operating income of $100,000 for the nine months ended September 30, 2009 compared to operating income of $630,000 reported a year ago. Operating income for the Company's Proprietary Products segment totaled $239,000 for the nine months ended September 30, 2009 compared to $60,000 last year. The $179,000 of increased income was driven by $500,000 in reduced spending on new product development offset by $234,000 of wages and benefits relating to increased sales and marketing staff, a $50,000 increase in advertising & promotions, $37,000 in commissions paid to outside rep agencies and $20,000 in travel-related expenses.

"Our entire industry has been under significant pressure from a sales standpoint, but we have continued to make progress in our plans to target customers and industry segments for growth and diversification, de Petra said. "We've set a very high bar for ourselves - with service and quality levels that mirror the standard-setters in our industry and by becoming a true partner with our customers in helping them design and implement solutions that lower their own manufacturing costs, minimize supply chain risks, enhance time-to-market, and improve their efficiency and profitability."

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