AstroNova Inc (ALOT) 2003 Q2 法說會逐字稿

Please be advised this call is being recorded.

Good afternoon and welcome to the Astro-Med second-quarter results fiscal 2004 conference call for August 20, 2003.

Your host for today is Albert Ondis, CEO.

Mr. Ondis, please go-ahead.

Good afternoon, everyone, and thank you very much for participating in this teleconference.

With me today, as usual, are Everett Pizzuti, President and Chief Operating Officer, and Joseph O'Connell, our Chief Financial Officer.

Each of us will make a presentation, and then we will take your questions.

As you know from the news release, the second quarter was an improved quarter, our third improved quarter in a row.

We achieved record sales of $14 million and earned 810,000 net after-tax, equal to 18 cents per share.

All of our products did very well, especially our new products.

This is interesting; more than 75 percent of our sales in the quarter came from products introduced within the past two years except, of course, for our consumables in service.

So clearly, our continuing investment in product development is paying off.

There are a substantial number of new investors and analysts participating today and for that reason, I want to put the operations of the company into particular context.

Many of you know that we have three product groups which, for the most part, share the basic core technologies.

Each of the three product groups serve different worldwide markets.

Test and Measurement, for example, serves customers in the electrical, automotive, aerospace, telecom and general industrial fields.

Our Grass-Telefactor product group serves the neurophysiological market, which includes research hospitals, ordinary hospitals, sleep clinics, pharmaceutical companies and of course research centers. (technical difficulty) -- Systems with color label printers and bar-code printers serves the broadest of all markets, ranging from pharmaceuticals to food and beverages, to auto tires, electrical and electronic parts, medical supplies and so on; you get the idea.

Wherever there is a product, there is at least one label, and we have carved out a unique position with our color label printers.

For all practical purposes, we have no serious competition for our color printers anywhere in the world.

At this point, I'm going to ask Everett Pizzuti, President and Chief Opening Officer, to give you a more complete picture of the quarter and to comment on the opportunities that lie before us for growth and profitability.

Everett?

Thank you, Albert.

During our last teleconference, we spoke of the investments we make in research and development to stay at the forefront of our technology and introduce multiple new products each and every year.

These new products are the drivers of our sales.

This was reflected in the first quarter and now again in the second quarter.

For those you who may be new to this teleconference, I'm going to review briefly the new products recently introduced, and how they impacted sales in the quarter and in the future.

In our Test and Measurement group, we saw strong sales from the new Dash 8X, the ToughWrite 03 and the ToughSwitch (ph).

The Dash 8X is our highly advanced portable data acquisition recorder that lists for around $10,000.

Portable instruments for data recording and analysis is one of our niches in the T&M field, and a leader in this field since we introduced the very first battery-powered two-channel recorder in 1974.

Last year, our successful Dash 18 recorder made a formidable impact on sales and this year, the Dash 8X leads the way.

In the next couple of months, we will introduce an all-new handheld two-channel recorder, which should be ready for shipment late in the fourth quarter.

This product will be quickly followed by still and (indiscernible) handheld instrument early next year.

We have no shortage of product ideas to make our T&M group grow.

Of course, the flagship of our Test and Measurement group is the Everest Data Acquisition System, which was first introduced -- (technical difficulty).

It's important to point out that the Everest is a platform that is continually enhanced and upgraded to add new and important features, both hardware and software types.

This year, we added some new software features, especially for the targeted telemetry market, and as a result, increased sales to several customers, including the U.S.

Air Force, Boeing and Airbus, to name a few.

The Everest contributed greatly to sales in the second quarter and we see this continuing for the balance of this year as well as for many years to come.

The average selling price of the Everest is around $25,000 and it is not unusual to get orders for 15 to 20 at a time, in addition to the routine onesie-twosie orders.

We continue to make good progress with our ToughWriter 3 (ph) in military aircraft with Boeing and others around the world in addition to marketing this product for commercial aircraft.

We anticipate that the commercial aircraft manufacturers will begin making the cockpit printer a standard with all-new aircraft delivered in the near future.

This could amount to a few hundred printers per year.

Of course, there is also the installed base of some 4800 commercial aircraft.

For your information, the ToughWriter 3 (ph) sells for about $10,000.

Now, turning to our QuickLabel Systems group, the new 4100 Xe continues to increase sales as we penetrate more and more of the market niches for on-demand color printers.

These markets include pharmaceuticals, food and beverage, household supplies, chemicals, automotive and medical instruments and supplies.

We continue to grow the sales by repeated mailings via Post Office, e-mail, targeted tradeshows and magazine advertising.

In parallel, we are heavily promoting the new 8100 Xe color printer (inaudible) similar applications, but (indiscernible) the wide format of the 8.5 inch label as required.

For example, the 8100 Xe will expand our penetration of the vehicle license plate market where countries such as the United States require a seven inch wide plate.

Selling prices of the 4100 Xe and the 8100 Xe are 18,000 and $30,000 respectively.

We have other exciting new printers in development for introduction early next year.

One is a four-color printer, and the other is a printer with the capability of printing and encoding bar-code labels with RFID.

RFID, Radio Frequency Identification, creates an automatic way to collect information about product, place, time or transaction quickly, easily and without human error.

It provides a contactless datalink without need for alignment sight or concerns about harsh or dirty environments that restrict other auto ID technologies, such as barcodes.

An RFID system communicates wirelessly through a reader which broadcasts a signal through an antenna.

When a label with this technology enters the antenna field, it receives a signal and sends back its identifications without any human intervention.

Turning now to our Grass-Telefactor product group, sales in the second quarter continue to increase for all our major clinical products, including Eeg, PSG and long-term monitoring.

Leading the way in this field are the new, Comet Eeg and Comet PSG systems, which we first began to ship late in the first quarter.

The Comets very successful products and have quickly been accepted by the marketplace.

According to a recent Frost and Sullivan report, the neurodiagnostic monitoring market in the United States is expected to witness very strong growth over the next five to seven years, particularly in the polysynography (ph) area for monitoring patients with sleep disorders.

They report that the U.S. market revenues for 2002 totaled some $177.1 million and that projections by 2009 will be $309.6 million.

They go on to say, "Strong growth stemming from the improved diagnosis and monitoring of sleep disturbances over the past ten years has made it the leading segment in 2002, representing almost 49 percent of the Eeg market."

Recent reports indicate that sleep apnea afflicts 12 million people in the United States.

There are three types of sleep apnea, but the most common is obstructive sleep apnea, which is found in two percent of the women and four percent of the men in the United States.

Our Comet PSG monitoring system specifically addresses this market, and we will continue to add new products appropriate for this growing market.

In summary, as we have stated many times, investment in our research and development is key to the success of any technology company.

We will continue to invest approximately seven percent of (indiscernible) present revenues to develop new, leading-edge products.

That's my report.

Thank you very much.

Now, we are going to get a report from Joseph O'Connell, our Chief Financial Officer.

Joe?

Thank you.

Good afternoon, everybody.

I'm going to review the second -- (technical difficulty) -- where we are at the end of six months, and a quick review of our balance sheet as of the end of the second quarter.

As Albert mentioned, sales in the quarter were a record at 14,23,000; that represents an eight percent improvement over the prior year's second quarter as well as a six percent increase over our first-quarter sales of $13,214,000.

The Company's sales by distribution channels had domestic shipments at $9.7 million.

That's an increment of four percent over last year's second quarter, while our export sales of 4.3 million grew some 13 percent, excluding the impact of foreign exchange.

Relative to our product groups in the quarter, QuickLabel Systems reported sales of $6.1 million; that's up eight percent from last year.

Our Grass-Telefactor group at 4.8 was up some 20 percent from last year and rounding out was Test and Measurement at 3.1 was actually down from the prior year but up from the first quarter.

Gross profits in the quarter were $5.8 million; that's a 20 percent improvement from last year and reflects a gross profit margin of 41.5 as, compared to the prior year's second-quarter margin of 37.4.

The improvement really is an outgrowth of sales mix, lower material costs, as well as lower manufacturing costs.

Operating expenses in the quarter were $4.8 million.

That's an increase of one percent from the prior year, and consumed 34.5 cents of the second quarter sales dollar.

As a result, operating income reached 977,000.

That's an $889,000 improvement from the previous year and reflects a return on the sales dollar of seven percent and compares significantly from last year's return of one percent for the same time frame.

Our other income in the quarter was 33,000 against our previous year other income of 111,000.

The difference is traceable to currency gains that we realized in the prior year period.

Income taxes in the second quarter were 200,000 -- represents an effective tax rate of 20 percent.

The rate reflects the favorable impact of the net operating loss carryforward and the anticipated utilization of certain other deferred tax assets, which were fully reserved for in the fiscal year ending 1-31-03.

Our net income in the second quarter was 810,000.

Again, that's a $654,000 improvement from last year and reflects a share value of 18 cents in comparison to last year's 4 cents.

Before coming on the balance sheet, let me review the Company's six-months results.

Sales at the halfway mark are 27,237,000.

That represents a 12 percent decrease over the prior year's sales for the same time frame.

Our domestic sales for the first half are 19.1 million, representing a seven percent decrease over last year.

Export sales are 8.1 million, representing a 12 percent increase over last year, excluding the favorable impact from foreign exchange.

The composition of our product group for this year has QuickLabel Systems at 12.1 million, Grass-Telefactor at 10.1 million and Test and Measurement rounding it out at 5.1 million.

Our gross profit for the first six months was 10,900,000; that's a 25 percent improvement over last year and reflects a gross profit margin of 39.9 and compares favorably with last year's 35.5 for the same time frame.

Operating expenses for the first six months were 9.4 and reflect a one percent decrease from last year's level.

Operating income as a result for the first half is $1.5 million, and that compares against last year's operating loss of 800,000 for the same time frame.

Our other income in the first six months were 84,000 against last year's 184,000, the difference being traceable to foreign currency gains realized in the prior year.

Our net income for the first half -- $1.3 million, representing a 30 cent per share value.

It compares favorably to the loss that we experienced for the first six months of 477,000 or 11 cents per share.

Moving from the P&L to the balance sheet, our cash and marketable securities at the end of the second quarter were $8.3 million.

This represents a $1 million increase from our year-end level of $7.3 million.

Our Accounts Receivable balances were at $9 million, representing an increase of eight percent from year-end and reflects some 55 Days Sales Outstanding.

Inventories levels also rose during the first half to $9.7 million, representing a turnover of 2.9, an improvement over our year-end level of 2.8.

Capital expenditures for the first six months reached 262,000, primarily associated with funding of machinery and equipment, Information Technology, tools, dyes and fixtures.

Our dividends during the first six months were 339,000.

The Company purchased, during the first six months, some 71,800 shares of Astro-Med stock.

We currently have a Board-authorized level of 218,600 shares left.

The Company's book value at the end of the first half was $7.06.

Lastly, our sales per employee for the first six-month period is $160,000 per employee.

That represents a 16 percent improvement over our sales per employee for the same time frame as of last year-end.

Albert, that completes the financial review.

Thank you.

Ladies and gentlemen, we are ready now to take your friendly fire; that is, we're ready to take your questions.

So Karen, will you set the stage?

We'll now begin the question-and-answer session. (OPERATOR INSTRUCTIONS).

Evan Greenberg (ph).

How are you guys?

It's good to be on the call, especially such a joyous day!

A question on product mix this quarter --I wanted to know if a lot of those engineered product sales can through this quarter, or whether that's an emerging story on the engineered side where -- you know, the less specific side?

I'm not sure I follow that.

I'm talking about the -- you've got three different categories.

You've got the printers; you've got the gross Grass-Telefactor; then you have the other, which we talked about --.

Test and Measurement.

Yes, that's what I meant by engineered products.

I apologize.

Test and Measurement business -- did that side perform exceptionally well this quarter?

Is that really the engine of --?

No, the engines of growth have really been QuickLabel Systems and Grass-Telefactor, but the outlook for the Test and Measurement and engineering products, as you say, is quite bright.

There's a significant buildup of anticipated business (inaudible) balance of the year.

So that hasn't even really hit yet?

That is correct.

The Grass-Telefactor I'm expecting nice, steady growth out of it.

The QuickLabel business is what I'm going to get to next.

I want to know what kinds of consumables you're seeing out that business with the razor blade model there.

I wanted to get an idea of the ramp in business there, since I've talked to you and I believe that's a real growth engine of the whole business.

Well, it certainly offers some enormous opportunities.

We've seen an interesting development; the acceptance of our new printers has been exceptional ever since we introduced the two newest products that we have.

They are outstanding and the acceptance has been outstanding.

Now, our revenues from the consumables and ongoing business has been -- for the first several months of the current fiscal year, was not flat but it was not -- but it did not exhibit the same growth that we had expected to see.

The growth was single digit, as opposed to usually 15 or even 20 percent growth.

Now, we attribute that to a general lower level of economic activity, because people label products and if they are not making and shipping products, they are not labeling them.

But there has been an interesting development in the past six weeks; we are observing that people who have placed blanket orders for these consumables to be shipped later in the year are now someone now suddenly calling them in.

They are asking that they be delivered up to two months early.

We feel that that is a very bright economic indicator of overall economic activity.

So, that is quite a promising development that we're seeing.

So these numbers were achieved without any real scaling on the consumables or on the Test and Measurement side?

So, we've got a really bright future here!

We believe we do.

Thanks a lot, Albert.

Bill Jones (ph).

Hi, Al.

Bill Jones.

Nice quarter, good to see!

Your gross profit margin -- do you have a target on how good that could get?

I'm going to relay that question to Joe O'Connell.

Thank you, Albert.

We have really always aspired, Bill, to be at around 45 percent is really what we'd love to see the mix, based on a combination of the hardware and the media.

It's been elusive to date, but I think, as we are hearing, there is certainly some (indiscernible) with some of the newer products (inaudible) an outgrowth of some of the investment in the research and development areas.

So, I guess if you were to ask us to target a number that we shoot for, I would say we are in the neighborhood of about 45 percent

I guess that would come with increasing revenue?

Exactly right, and also I think, as we continue to engineer the products, if you will, in terms of trying to lower the composition of the cost itself, there's a very focused effort here really in terms of establishing target costs for our products and then achieving those.

A different question -- with the stock moving up, Al, I encourage you and the Board to consider a stock dividend/stock split to increase the flow, but that's the Board's decision.

Well, thanks.

That's certainly a suggestion, Bill, that we're going to keep on every one of our Board meeting agendas.

If the cash flow continues to build and the cash goes up, I'd also like to see a little bit of an increase in that dividend, but I'm sure you would too!

Absolutely.

Good luck.

Thanks a lot.

Sam Robodski (ph).

Good afternoon, Albert, Everett and Joseph.

This is the most exciting quarter since I've started participating in the calls!

Clearly, all your research and your cutting costs have contributed to this phenomenal quarter.

Can you talk about this 14.5 million new orders and what your backlog is, what your backlog is compared to the previous quarter and previous year?

What kind of sales are we looking, going forward, to be more of a normal quarter?

Well, as you may know, we are in the third quarter, which includes the month of August as well as September and October.

It's typically our softest quarter because of vacations here and especially abroad.

But it is encouraging that, in the second quarter, the incoming orders exceeded sales by about half a million dollars.

We feel that is signaling, certainly, a continuation of the good results that we've had for the past few quarters.

We're not prepared to make a forecast, but I can say without any fear that I will be overruled by one of my associates here that the signs are quite good, Sam.

That's wonderful.

We entered the third quarter with pretty good backlog.

We are not a backlog company.

Traditionally, we ship all of our products within a period of up to three weeks after receipt of order, so we do not operate with a big backlog.

We never have and we probably never will because we are really making a career out of servicing our customers.

It begins by giving prompt delivery and it continues by taking care of our customers in the aftermarket.

We pride ourselves very much on having a stellar customer service relationship and technical support is what we devote a lot of energy and time to (sic).

One of these days, we're going to talk a little more about that because it's very important to sustain growth.

I presume you're seeing more request for bids, and more interest in your product so that you're getting more activity, which will produce more orders, going forward?

The sales activity is very strong, very strong.

Okay.

I guess I would also reiterate some form of stock dividend would make sense and I guess, at this point, you may get analyst coverage -- which would be wonderful.

All you have to do is keep performing the way you are and there's no question about it!

Well, you're right there.

We firmly believe that nothing speaks better than results.

We're focusing very hard on results.

Good luck, everybody!

Thank you.

(OPERATOR INSTRUCTIONS).

Your next question comes from George Marama (ph).

Good afternoon, gentlemen!

Good afternoon.

Great quarter.

I have a few questions.

My first question has to do with capacity constraints.

At the current sales levels, are you approaching or becoming near any capacity constraints?

No, not at all.

We're very far away from being restrained by capacity.

That would lead me to believe that incremental sales -- you have quite a bit of leverage on your EPS then?

That's true.

If you take a look comparatively at the difference between the second quarter and the third quarter, you'll see that the increment of growth in the third quarter over the second was reflected very, very, very emphatically in net after-tax income.

Yes.

Are you guys having any plans to do any investor institutional conferences in the near future?

Well, we believe that we are on a course that will lead us to continuing good quarters.

As that rolls out, we're going to resume the practice that we followed a few years ago, which was to go to investor conferences and make presentations.

We think that will be an important next step.

Last quarter, you had new orders of approximately 15 million, but that included the Airbus order.

This quarter, I noticed you did 14.5 million worth of new orders.

Where there any big orders in that number that really stuck out?

No, there were none of the scale of the Airbus order.

So, that's kind of a healthy sign in a matter of speaking.

Do you guys have any big orders in the works in the second half this year you see like the Airbus order?

There are a number of significant negotiations or pending -- hopefully pending orders -- but nothing that stands out.

Okay.

What kind of tax rate do you anticipate for the second half of the year?

We're using an effective tax rate of 15 percent.

Okay.

When are you guys filing a Q, tonight or --?

Probably in a week's time, maybe a week and a half.

If I may go off on a tangent a little bit, on your balance sheet, your property, plant and equipment -- can you give me some color on the balance sheet value versus the fair market value of this property and factory?

Yes, I think we can, George.

Joe?

There is a very significant gap between carrying value of our property and real estate and the fair market value.

I figured.

We have property in three places.

We own a small building in London, which is the home of our office (indiscernible) and sales office.

We own 11 acres in West Warwick, Rhode Island on which there are two very modern, well maintained, relatively new buildings.

In Braintree, Massachusetts, we've 24 acres of land, of which about half of it is wetlands, but on the remaining 12 acres, we have a little campus comprised of three buildings that were built in the late '60s -- mid to late '60s.

They are extremely well maintained and they comprise a total of 125,000 square feet there -- in Braintree -- 91,000.

Here in West Warwick, we have 117,000.

The carrying value of all of that real estate on our balance sheet is $7 million.

There is no debt on it; we own all of it.

We think that a fair market value is probably no less than 15 to 20 million.

Okay, so there's a lot of book value that could be hidden there?

Yes, we think there is.

Thank you very much and great quarter.

Thank you, George.

Nice to talk to you.

(OPERATOR INSTRUCTIONS).

There are no further questions at this time.

Thank you very much, folks, for attending.

I'd like to ask you to pay attention for just one moment while we make a few disclaimers.

Joe?

During this conference call, we may have made some forward-looking statements within the meaning of the Securities Exchange Act of 1934.

These statements are based on the Company's present expectations and beliefs concerning future events and aren't necessarily based on certain assumptions, which are subject to risks and uncertainties.

Actual results may differ materially from those discussed here.

More information on the risk factors is included in the Company's filings with the Securities and Exchange Commission.

Thank you again, folks.

We will be talking to you in November.

Good bye.

This concludes today's conference call.

Please disconnect your lines, and we thank you for your participation.