AstroNova Inc (ALOT) 2007 Q1 法說會逐字稿

Good morning ladies and gentlemen.

Thank you for standing by and welcome to the Astro-Med, Inc.

first-quarter fiscal year 2008 results conference call.

(OPERATOR INSTRUCTIONS).

During today's presentation the conference will be opened for questions.

(OPERATOR INSTRUCTIONS).

I would now like to turn the conference over to Albert Ondis, Chairman and CEO of Astro-Med, Inc.

Please go ahead, sir.

Thank you.

Good morning, everyone, and thank you for participating in today's conference call.

With me as usual art Everett Pizzuti, President and Chief Operating Officer and Joseph O'Connell, Senior Vice President and Chief Financial Officer.

Each of us is going to make a brief presentation and then we will open the call to questions.

As you know we reported after the close yesterday on our first quarter of fiscal year 2008.

Sales in the quarter came in at $16.4 million, which was close to our plan.

Net income amounted to $548,000, equal to $0.07 per diluted share and both net income and earnings per share were close to our plan.

As you will recall from prior conference calls we have singled out three especially significant opportunities for growth within the broad range of products that Astro-Med makes.

Let me give you a brief report on each of these and Everett Pizzuti, when he makes his report, will provide more detail.

The first significant opportunity for growth is our color label printer and consumables product group, which we call QuickLabel Systems.

In the quarter, QuickLabel posted a 22.7% increase in revenue and a 24% increase in new orders when compared to the corresponding quarter of the prior year.

Now the second significant opportunity for growth is our ruggedized products, which includes our airborne cockpit printers and some other ruggedized devices.

Within that group, revenue grew 17% while new orders grew 50%.

Our third significant opportunity for growth lies in sleep, sleep monitoring.

And that is part of our Grass Technologies unit.

Here, we experienced some disappointment but we believe that this is a temporary setback and we are confident that the opportunity for growth represented by sleep will fully meet our expectations in the months ahead.

And now to give you a more in-depth look at our products and our markets, see how they are doing, I'm going to call on Everett Pizzuti to give his report.

Everett?

Thank you and good morning, everyone.

As Albert mentioned, we have been discussing our latest opportunities for growth during our meetings with analysts and at financial conferences.

These opportunities include color label printers and consumables, ruggedized products and Sleep Diagnostics systems.

I will review each of these along with the outlook for the year.

As stated in our press release we achieved high double-digit growth in new orders as well as the sales of our color label printers and consumables, led by our Vivo!

printer.

We completed the rollout of the Vivo!

to most of our international markets and we added sales staff in Canada, the UK and France.

Going forward during this new year, we now have distribution in all major countries of the world, using both direct sales in our branch offices and dealer sales in the rest of the world.

During our last conference call, we mentioned that we would be introducing a new color printer late in the first quarter, and indeed we did!

We introduced the new Zeo!

color printer at three tradeshows that ran concurrently, one in Long Beach, California, one in Chicago and one in Toronto.

The response to the Zeo!

was exciting.

Normally at tradeshows we hope to gather leads for subsequent follow-up by our field sales force.

However, when we introduced the Zeo!

at these shows we actually took orders on the show floor!

The Zeo!

fills another niche in our broad line of color printers.

It is a low-priced model intended for relatively low-volume applications in small businesses or marketing departments of large companies.

It prints using inkjet technology that we developed in partnership with Hewlett-Packard.

The Zeo!

sells for $2995.

As a reminder, we now produce color printers using thermal transfer, electrophotographic laser and inkjet technology.

Each has a place in the market to fulfill specific applications.

And, of course, we make and sell the consumables for all of these printers, including labels of all types, thermal transfer ribbon, toners and inks.

Our ruggedized products, which includes cockpit and cabin printers, also achieved high double-digit growth in new orders and sales.

It is worth repeating what we have told you previously, that we have contracts in hand totaling over $100 million over the next 15 years or so and negotiations in progress totaling in excess of $300 million.

We expect to book new contracts in the second and third quarters, as some of these negotiations begin to turn into specific RFPs and then orders.

To our knowledge, we have not lost one of these cockpit printer contracts to a competitor in the last four years.

Our printers embody leading-edge technology, which makes them the first choice for all new applications.

During the first quarter, we completed the designs and qualifications of two new ruggedized products, one a special Ethernet switch for military ground vehicles and the other a special charge for PDAs carried by the crew on commercial aircraft.

These milestones set the stage for production later in the year.

Although we did not achieve the same double-digit growth in our Sleep Diagnostics products, as some opportunities were delayed due to construction delays of new sleep clinics, we are confident of the balance of the year for sleep and related products for neurology.

The new wireless sleep product that we began shipping late last year is progressing very well and we expect this to be a catalyst in driving up our growth in sleep applications.

We are in the midst of a major release in the new software with new features especially for the sleep market.

We will be introducing this at major sleep show of the year, which takes place in early June.

And, of course, we will continue to introduce new products.

Later in the year we will introduce new products for our Test and Measurement group, products for data acquisition and field service applications as well as for Aerospace needs.

And that is my report, Albert.

Thank you, Everett.

And now for some analysis of our financials, I'm going to call on Joseph O'Connell, Senior Vice President and CFO.

Joe?

Thank you, Albert.

Good morning, everyone.

I will review the Company's financial statements, including the statement of operations as well as highlight some of the changes on the balance sheet.

As you heard, the Company's first-quarter net sales were $16,407,000.

That represents a 4.9% increase over the previous year's first-quarter sales.

Our domestic sales in the quarter were $11,947,000, representing some 73% of our total sales and that volume increased 7.7% from the prior year.

Our international sales in the quarter were $4,461,000, which reflects a 2% decrease from last year.

And actually in some respects it's a little lower than that because we had some favorable foreign exchange contributing a couple of hundred thousand dollars in the top line.

We profiled the sales by product group.

QuickLabel Systems, as you heard, had a terrific start to the fiscal 2008, reaching a record sales volume of $8,910,000.

And as you heard, that represents a 22.7% increase over the previous year.

And also encouraging it exhibits both double-digit growth for both our hardware systems, printer systems, as well as our consumable product line.

So we are very encouraged with the results of the QuickLabel Systems group.

T&M sales were $3,465,000 in the quarter and that is down 8.2% from last year, although as you heard the ruggedized product line had a particularly strong performance in the quarter, up 17% over the prior year.

The Grass Technologies product group sales of $4,026,000 in the quarter, that is a decrement of 12.5% over the prior year and it really is confined really to the clinical and the research hardware systems sold for the first quarter.

Our consumable business continues to be strong, actually growing double-digit rates from last year.

Gross profit dollars.

The first-quarter sales generated $6,846,000 in gross profit dollars.

That is a 9% improvement over last year and provides a margin of 41.7% against last year's 40.1%.

Relative to operating expenses, our spending during the quarter in our selling, R&D, G&A activities reached $6,225,000 in expenses and consumed approximately $0.42 of the sales dollar.

The selling and G&A expenses were $5,127,000 and rose some 13.7% from the prior year.

The increases in spending is confined to additional personnel, benefits, marketing expenses related to trade shows and advertising, as well as some additional professional fees.

Other income.

The Company achieved operating income of $621,000 in the quarter and reflects an operating margin of 3.8%.

However, this year's operating income ran behind last year's operating income of $712,000 that generated a return or a margin of 4.6%.

Other income.

Other income in the quarter was strong at $249,000, represents a 66% improvement over last year.

The improvement is really due to additional interest and dividend income as well as favorable exchange from our foreign seat currency transactions.

Income tax provision in the quarter.

The tax provision on the quarter was $348,000, reflecting an effective tax rate of 40%.

Slightly higher than last year's effective tax rate of 37% for the same time frame.

Net income, as you heard, net income reached $522,000 in the quarter.

It is down slightly from last year's $543,000.

However, on an earnings per share basis, the quarter's $0.07 per diluted share matched last year's $0.07 per diluted share.

And relative to the return on sales, this quarter's net income represents a 3.2% return on sales in comparison to last year's 3.5% return on sales.

Just to quickly go through the balance sheet, the Company's cash and marketable securities declined from the year-end balance of 20.1 to 16.5 at the end of the quarter.

The reduced cash position is due to funding used in the purchase of a 1031 building in Rockland, Massachusetts, where the Company's Grass Technologies manufacturing operations were moved after the sale of our Braintree property, approximately $3.2 million.

The additional funds were used for working capital requirements, as well as paying the quarterly dividend.

Accounts Receivable.

The accounts receivable balances declined 11.5% in the quarter to 10.7% at the end, representing some 59 days sales outstanding.

That is a three-day improvement from the year-end 62 days sales outstanding.

Inventories.

The Company's investment in inventories rose 11% to $12.7 million at the end of the first quarter.

This balance translates into 119 days on hand, representing a turnover rate of 3.0.

This quarter's rate is slightly lower then what we had at year-end, which is a turnover rate of 3.6 times.

Capital expenditures.

As I mentioned earlier, the Company funded $3.4 million in capital expenses during the quarter.

The major portion, as we referenced, was the acquisition of real estate in Rockland for $3.2 million.

The balance is required for funding in our machinery and equipment, tools and dyes as well as information technology.

Accounts Payable.

The balance in our Accounts Payable declined 11% during the quarter to $3.2 million at the end of the quarter.

Shareholder's equity.

The balance in the equity account rose 2% during the quarter to $47 million, representing a book value per share of $6.83.

That is up nominally from the year-end book balance of $6.78.

However, this equity balance is prior to the final determination relative to the Company's adoption of FAS Interpretation No.

48, Accounting for Uncertainty in Income Taxes and Interpretation of FAS Statement No.

109 as of February 1, 2007.

We will reach a final disposition prior to the filing of our Form 10-Q for the quarter on or about June 19, 2007.

Population.

Our employee population at the end of the quarter stands at some 394 persons.

That is down slightly from the year-end level of approximately 400 persons.

Lastly, our sales per employee.

Our sales per employee at the end of the quarter was $167,000 per employee.

That is a slight improvement over the comparable period for last year, where we had $161,000 per employee.

Albert, that covers the financial review for the Company for the first quarter.

Well, thank you, Joe.

Before we take questions, I want to give our listeners and investors our guidance for the current year.

We are giving guidance of revenue range of between $71 million and $74 million, and earnings per share of between $0.41 and $0.50.

It is a little broad, I understand, and we will refine this guidance at subsequent conference calls.

And now we're ready for questions, May.

(OPERATOR INSTRUCTIONS).

Harvey Shafren, Private Investor.

Hi, Albert and Everett.

I was just wondering whether or not you could monetize the amount of contract orders you have in the aviation division for the ruggedized printers?

And you had previously said you had about $100 million in contracts, and you said there was a 50% increase over last year's quarter.

Is there a way that you can monetize that 50% into a number?

Thank you for the question, Harvey.

I think what we mentioned before very recently is that we are currently at a run rate, an annual run rate, of a little over $5 million on the ruggedized products.

And the $100 million under contract is not reflected in our backlog because although it is under contract we usually do not put it into our backlog until we get a definite schedule of shipments from our customers.

No, that I realize, but when you compare a 50% increase what numbers are you comparing it to?

In other words, what was it and what is it in terms of showing the 50% increase?

(multiple speakers).

Joe is doing some calculations while you wait.

Our annual -- our current annual run rate is a little over $5 million (multiple speakers).

Right, but I think what he is saying is if you say your business is up 17% or 15%, 50% what was your starting point?

Just under $1 million that first quarter (multiple speakers)

Okay, maybe he did not hear you, Joe, so if you would -- do you want to --?

Basically, we are basically running at a run rate of $1.2 million, $1.3 million almost for each quarter, consistent with the $5 million run rate that we quoted before.

So we're down -- the increase is below from what we had last year was under the $1 million level in terms of the increase.

So that represents -- order of magnitude, we're talking about $1.2 million versus a number below that in terms of what last year's actual for the first quarter.

Okay.

So that really does not concern the contracts in hand number, the 50%, that is really --?

That is correct.

It is strictly the actual releases that have been given to us by the customers.

I see.

As I think mentioned earlier, we translate the $100 million "order opportunities," we translate those into specific orders when we actually do get a release from the customer.

I see.

Now in the increase of proposals that you have put out, which has now gone from about $100 million on a previous conference call to about $300 million, and of course the comforting statement that you have never lost a bid in the last four years that you've bid on when can we expect to see some announcements as to additional confirmation of orders to increase that $100 million number, which I realize does not reflected self in anything until you actually ship the product?

But it would be nice to see that your bookings number or confirmed orders starts to really increase up to the potential of the $300 million.

And do you feel that $300 million is a top number?

Or do you actually see yourself in the future gaining more business?

Okay, first of all, we expect to announce at least one new opportunity or contract in the second quarter and at least one in the third.

There may be others.

It is strictly a close call right now.

But we see at least two announcements, at least one in the second and one in the third.

And so far as the overall pool of opportunities is concerned we are getting asked about new requirements on an ongoing basis.

And some of these are long term.

For example, I think we have mentioned several times that both Boeing and Airbus have asked us to quote informally on retrofitting some of the existing aircraft.

And those are rather large opportunities and they are still there but they are in the distance.

Is that like basically getting some business for that product in the 747s, which of course have so many aircraft up in the air?

Right, 747s but even greater than that would be the 737s and the A319s, and A320s, which I think we're talking about between five and 8000 of those kinds of aircrafts that are out there.

So when they do get around to retrofitting the cockpit with new avionics which will include things like our printer, then we're our talking about some serious numbers.

How often do the airplanes retrofit?

Is there a cycle time on that?

That is a good question.

I'm not fairly sure.

Okay, I can always get back to you or Albert at a later date on that.

But I thank you for your information.

Dennis Scannel, Rutabaga Capital.

Good morning, gentlemen.

Just real quick on Test and Measurement, we saw nice growth on the ruggedized printer side, but it sounds like the rest of the business was pretty soft, at least on a year-over-year basis.

Can you talk a little bit about that and about your outlook for the rest of the year?

Yes, on some of that T&M business, we're looking at timing.

One of the components of the Test and Measurement business besides the ruggedized is the Everest product.

And the Everest is a product that sells -- has an average selling price between $22,000 and $25,000.

And we have a very specific market for that, it is the telemetry Aerospace market, and we were expecting to receive and ship a sizable order for Everest in the first quarter.

Because of timing it is going to fall in the second quarter, so the bad news is it did not fall in the first quarter.

The good news is we did not lost it.

It is a question of timing.

And that is kind of the way it is with the Everest business.

It comes in spikes and it is not exactly predictable.

But we did the best we could to forecast it for the first quarter and it just slipped by a couple of weeks.

But ongoing, we see continued good demand for the balance of the Test and Measurement products, which include the Dash series.

We're doing well with the Dash series, which are the portable recorders that cover a wide variety of applications, not just in Aerospace but in the industry of all types, power monitoring and oil well logging and all kinds of geophysical applications.

And so we see that business continuing and in fact we're introducing another product in that Dash series later on this year.

Great.

And again there was not -- Dash held up pretty well during the quarter?

It is not as if customers pulled back in anticipation of maybe taking a harder look at the new product versus buying some of the heritage products?

Yes, no, the Dash is -- we are okay.

We are really -- we are not bad at all.

(multiple speakers) it was really the Everest that brought down the T&M in general.

We also had a particularly strong first quarter last year, Dennis, in terms of the Everest itself, so that also was -- we are going up against a very strong as you say first quarter fiscal 2007 relative to the Everest.

Got you.

Good.

And then quickly shifting gears to the sleep business, to Grass Technologies, is this kind of a one-quarter event, the delays in construction, or is this something that you expect to kind of dog you for the rest of the year?

Well, that happens on occasion but this time there were several of them that took place.

You see the sleep market is growing so fast that it's not just growing in the hospitals where they add more beds to the existing rooms.

The bigger growth is in the formation of new freestanding independent clinics.

And quite often those require either building a new building or refurbishing a building to make it a bedroom-like facility.

In fact some of the customers, in order to shortcut the delays, have actually gone to using motels to tide them over until they can build their facility.

So it comes and goes all the time.

I'm not going to say that is going to happen all year.

We just happen to get caught with some poor timing again in the first quarter that shifted the business, which we were expecting to receive, book and ship in the first quarter.

Now it is not going to happen until the second quarter.

Okay.

And then one last thing, the proposed acquisition of VIASYS by Cardinal Health care, does that affect your sleep business at all?

I know that they have been pretty active in the sleep business.

Would you anticipate that they would continue to be focused there are lessen their focus, or does the Cardinal relationship give them a competitive advantage versus yourselves?

I don't see it as being a competitive advantage in any way.

In fact it should probably help us in a positive way, because I think where there are so many products that they have intermingled there now because you know VIASYS was on a pretty strong buying binge of companies to begin with.

And we kind of thought they had a little indigestion from all of those companies, and now they have been gobbled up by Cardinal Health.

And I think as they sought all of that out, we're just going to continue to forge ahead with our sleep business.

It certainly does not give them a competitive advantage.

It is either neutral or possibly even slightly positive for us, I would say.

More likely it will be a neutral event.

Paul St.

Pierre, Private Investor.

This question is for Joe, please.

I would like to know how many shares were repurchased during the last quarter?

We did not purchase any shares during the last quarter, Paul.

Why not?

Do you feel the security is fairly priced?

Well I think as you say there is a number of factors.

I think obviously we're continuing to try to increase the shares that are outstanding.

I think that we have had a number of folks that have responded saying that the challenge for us, they very much like what we -- the business opportunity, the business model and what have you, and the challenge has been in terms of being able to get access to the shares.

So I think we have been particularly sensitive to that in terms of taking shares off the market.

(OPERATOR INSTRUCTIONS).

I show no further questions at this time.

I would like to turn the call back over to management.

Well thank you, one and all, for participating in today's conference call.

We will be back at you in August, as you know.

Right now, Joe O'Connell has a few words to say.

This is the Company's Safe Harbor statement.

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

These statements are based on the Company's present expectations and beliefs concerning the future events and are necessarily based on certain assumptions, which are subject to risks and uncertainties.

Actual results may differ materially from those discussed here.

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

Thank you very much, folks.

Good bye, one and all.

Thank you, ladies and gentlemen.

This concludes the Astro-Med, Inc.

first-quarter fiscal year 2008 results conference call.

Thank you for your participation and you may now all disconnect.