AstroNova Inc (ALOT) 0 Q0 法說會逐字稿

Welcome to the Astro-Med, Inc., second-quarter fiscal-year 2008 conference call.

During today's presentation, all parties will be in a listen-only mode.

Following the presentation, the conference will be open for questions.

(OPERATOR INSTRUCTIONS) At this time, I would like to remind participants this conference is being recorded on Thursday, August 23 of 2007.

At this time I would like to turn the presentation over to the Chief Executive Officer, Mr.

Ondis.

Please go ahead, sir.

Good morning, everybody, and thank you very much for attending this conference call.

With me today as usual are Everett Pizzuti, President and Chief Operating Officer, and Joseph O'Connell, Senior Vice President and CFO.

As usual, each of us will give a brief report and make some appropriate comments, and then we will take your questions.

I think you all know that yesterday after the close we reported results for the second quarter.

That is the period which ended on August 4, just 19 days ago.

We were pleased and are pleased, of course, since we set an all-time revenue record at $18,695,000, which is a 15% increase over the previous year.

On the $18,695,000 we earned $0.12 per diluted share.

For the six-month period, we reported sales of $35,101,000 on which we earned $0.19 per share, compared to last year when we reported sales of $31,908,000 and earnings of $0.17 per share.

Here are a couple of additional metrics.

The revenue increase of 15% for the quarter included a 35% gain in export sales.

I would just like to comment now that over the years we have invested heavily to build strong branch office sales and services centers in Canada and in Western Europe.

Also, we have worked hard to build and train a strong network of dealers and distributors in the rest of the world, and we are beginning to see the payoff of these investments, I am happy to say.

In the quarter, our net income increased by 20%.

Operating income improved by 24%.

New orders grew by 7%.

Gross profit margin at only 41.9% was the only disappointment, and we are working very hard to achieve our goal of 45% gross profit margin.

As a matter of fact, we expect to be reporting progress in this area during the balance of the year.

A couple of other things I would like to comment.

QuickLabel Systems grew by 23% to $9,662,000.

Our Test & Measurements brand also grew by 23% in the quarter to $4.5 million.

Grass, with sales of $4,533,000, increased by 13% over the first quarter, but is still behind last year.

But we have begun a number of new initiatives we have been putting in place over the past couple of quarters.

We are seeing the sleep products sales at Grass are really resurging.

As a result, we expect to report significant sales growth from Grass during the balance of the year.

We continue to strengthen our traditionally strong financial position, while at the same time we are investing heavily in new product development and also in modern marketing programs.

At this point, I am going to ask Everett Pizzuti, President and Chief Operating Officer, to make his report.

Everett?

Thank you, Albert, and good morning, everybody.

During the second quarter, we achieved many of the objectives that we have been discussing earlier in the year.

In addition to double-digit growth in sales, we introduced and shipped several (technical difficulty) that will support our continued growth.

We participated in major trade shows for each of our main product groups, and we participated in financial forums to further promote the opportunities for investing in Astro-Med.

I will now expand on some of these highlights of the quarter.

Our color printer and consumables sales increased by 23% over the previous quarter, with strong contributions from our new Vivo!

laser color printer, as well as our QLS-4100 XE and QLS-2000/3000 thermal transfer printers.

In addition, we had our first strong shipments of the very new Zeo!

inkjet color printers.

Our platform of color printers now includes more models to reach more markets than ever before.

The traditional thermal transfer models continue to be the printers of choice, especially for heavy-duty industrial applications such as tire manufacturers, chemical plants, and apparel makers.

The laser color models are very well suited for applications where high-resolution photo-quality labels are needed, and for such applications for food products, pharmaceuticals, and personal care products.

Now, the Zeo!

with inkjet brings color printer to smaller companies with smaller production demands but with very high-quality and resolution needs.

We market the color printers with e-mailings as well as postal mail shots, Web ads, and targeted trade shows.

During the second quarter, we exhibited across North America at shows focused on packaging, fancy foods, sanitary products, gift and gourmet items, coffee, cosmetics, and tea.

The applications for our color printer products are endless.

As we continue to deliver more and more printers around the world, the return in consumables increases dramatically.

Consumables include label material of all types for laser, thermal transfer, and inkjet printing, along with toners, inks, and thermal transfer ribbon.

Our Test & Measurement products also grew by some 23% over the previous year's quarter.

This growth was from both from our ruggedized products as well as from our Dash Series data acquisition recorders.

Even though some of the planes for which we are furnishing cabin and cockpit printers have not gone into commercial flight yet, we are shipping printers for use in development and testing.

Of course, some of our printers are in use on existing model planes, such as the 767, 777, and the C-17.

We are currently shipping ruggedized products at an annual rate of over $6 million.

During the quarter, Albert Ondis and I visited Airbus in Toulouse, France, for high-level discussions of new opportunities with new aircraft.

We feel the outlook based on these meetings is favorable.

We have been a supplier to Airbus -- as well as Boeing, for that matter -- since the mid 1980s.

Our Dash products, which include the Dash 8Xe, the Dash 8HF, and the Dash 18X, all contributed to the growth in T&M.

We experienced very good sales for these products from companies around the world in Europe, as well as in Asia, including Taiwan, South Korea, and India.

Applications range from power companies to steel mills to research labs and universities.

During the quarter, we also finalized the development and qualification of an all-new Dash 32HF which combines high channel counts, 32 channels, along with high-frequency response into a compact, yet rugged, package for use in field as well as the lab.

We expect to see contributions to sales from this new product beginning towards the end of this year.

We made good progress with our products for sleep and other neurophysiological applications during the second quarter, with growth in EEG as well as sleep.

During the quarter we received and shipped multiple sleep systems to some very large and key medical centers across the country.

These were especially significant since they were new sites for us, where competition was keen from most of our competitors.

Our selection as the winning bidder was based more on technical features and benefits than on pricing.

During the quarter, we presented our products at the major sleep show of the year, which was held in Minneapolis.

We received many exciting new leads for our sleep systems including our new wireless product.

Also during the quarter, we forged a relationship with the Association of Black Cardiologists to bring sleep labs directly to the cardiologists, who know that there is a direct link between sleep disorders and heart-related problems.

We expect this alliance to bring substantial new business in the second half of this year.

In July, we released a major new version of our TWin software, featuring an all-new database manager and patient scheduler, as well as important new features for sleep monitoring.

Also in July, we released and shipped a new software product for neuromonitoring.

This new software module has the objective of bringing monitoring of EEG to patient monitoring around the hospital, by presenting the data in easy-to-read and interpret screen displays.

It is acknowledged that neuromonitoring will be a growing market in the very near future, and we are now ready with our product which carries the Neurotrac trademark.

All in all, we had a very significant second quarter, both with respect to sales growth as well as with introductions of new products to sustain our growth into the future.

And that is my report, Albert.

Well, thank you very much.

Now Joseph O'Connell, our Senior Vice President and COO, will be making his report.

Joe?

Thank you very much.

Good morning, everybody.

Well, as you have heard both from Albert and Everett, Astro-Med reported strong financial results for the second quarter of fiscal 2008.

Let me just recap the financials relative to our operations as well as the balance sheet.

The Company's sales revenues were $18,695,000, and that does reflect a 14.9% increase over the prior year's second quarter.

We did have some favorable foreign exchange which contributed $234,000 or 1.4% to the quarterly increment.

The sales revenues were distributed by channel with domestic billings at $12,629,000, representing a 7% improvement over the prior year, while as you heard the international shipments were $6,069,000, representing some 32% of our total revenues for the quarter and increased 34.6% from last year.

As we profile the second-quarter sales by product group, as you have heard the QuickLabel Systems were at $9,662,000; that represents 52% of the Company's revenue; increased 23% from last year.

The double-digit growth was achieved both in the hardware line of color printers as well as the broad line of consumable products.

The Test & Measurement sales in the quarter were $4,500,000, representing again 24% of our quarterly revenues; increased 23% as well from the prior year.

Here as you have heard, the ruggedized line of thermal printers together with the Dash line of portable recorders drove the double-digit increment.

Grass Technologies sales in the quarter were $4,533,000, representing again 24% of our total revenues in the quarter.

It did run behind last year's sales volume by some 5%.

Here, the decrement to the prior year is traceable exclusively to our research product line, as our Grass Technologies clinical products -- including sleep, EEG, and long-term monitoring systems, as well as our consumable line of electrodes and creams --reported nominal growth year-over-year.

Gross profit dollars in the quarter were $7,831,000, representing a 12% increase in gross profit dollars from the previous year.

The gross profit margin in the quarter was 41.9%, a nominal increase from the first quarter but below the prior year's margin of 43.0%.

Combination of product mix and some higher manufacturing costs contributed to the lower gross profit margins in the quarter.

Operating expenses.

The Company's secondary costs of selling, marketing, R&D, and G&A were $6,568,000 in the quarter, reflecting a 10% increase in spending from the prior year.

The increment in selling and G&A was traceable to personnel costs, marketing programs, T&E, and professional service fees.

The increase in R&D spending was due to personnel costs and an increment in our outside contract services.

In totality, this quarter's selling, R&D, and G&A costs consumed $0.351 of our sales dollars, down from the prior year's consumption of $0.368 of the sales dollars for the prior second quarter.

Operating income in the quarter was $1,263,000, representing a 24% improvement over the prior year and reflecting an operating margin of 6.8%.

That is up some 50 basis points from the prior year operating margin of 6.3%.

The improvement from the first-quarter operating income was 103% or some $641,000.

Our other income in the quarter was $214,000.

That is a 13% increase from the previous year and is due to increased dividend and interest income.

The Company's tax provision in the quarter was $591,000.

That is a 26% increase from the prior year.

This quarter's provision represents an effective tax rate of 40% as compared to the effective tax rate in the prior year of 39%.

Net income.

Astro-Med's earnings after-tax in the second quarter were $886,000, representing $0.12 per diluted share.

This level of net income does reflect a 20% improvement from the prior year's $740,000 or $0.10 per diluted share.

The return on sales for the quarter was 4.7% comparable to the previous year's return on sales of 4.6%.

Prior to reviewing the Company's balance sheet at the end of the second quarter, let me offer some brief comments on the year-to-date operating results of the Company.

The Company has reported sales and revenues for the first six months of $35,101,000.

That is a 10% improvement over the prior year's corresponding period of fiscal 2007.

Favorable foreign exchange added another $477,000 or 1.5% to the increment over the prior year.

Our domestic sales were $24,576,000, being 8% higher than the prior year; while international shipments at $10,525,000, representing some 30% of the total revenue, grew at the rate of 16% over the prior year.

The distribution of this year's sales revenues by product group has QuickLabel Systems at $18,577,000; that is up 23% from the prior year.

Our Test & Measurement product group at $7,965,000 is up 7% from the prior year.

Grass Technologies at $8,559,000 is down 8% from the prior year.

Gross profit dollars for the six-month period is $14,677,000.

That is an '11% improvement over last year, with a corresponding gross profit margin of 41.8%; compares to last year's 41.6%.

The Company's selling, marketing, R&D, and G&A expenses rose 11% to $12,793,000 at the end of the six-month period, and consumed some $0.364 of the sales dollars as compared to last year's $0.362 on the sale dollars.

Operating income for the current year is $1,884,000.

That is a 9% increase from last year and reflects an operating margin of 5.4%, which was flat with the prior year.

Other income is up 36% to $463,000.

It reflects higher investment income as well as favorable currency transactions.

We are using an effective tax rate of 40% for the current year, which is roughly some 200 basis points higher than last year's effective tax rate of 38% for the same time frame.

The Company earned $1,408,000 for the first six months or $0.19 per diluted share.

This year's improvement is 10% or $125,000.

This year's return on the sales is 4%, which is comparable to last year's 4%.

Just quickly moving to the balance sheet, our cash and marketable security balance in the second quarter declined 4% from the first quarter to $15,900,000.

Our accounts receivable balances rose 20% in the second quarter to $12,800,000, representing some 62 days sales outstanding.

Our inventory investment declined 1% in the second quarter to $12,500,000, representing approximately 104 days on hand, with a turnover rate of 3.5 times, slightly up from the year-end turnover rate of 3.6 or 100 days on hand.

Accounts Payable balances declined 7% in the quarter to 2.9%.

Our capital expenditures for the first six months was $3,700,000.

$3,200,000 of that represents the acquisition of our Rockland facility in Massachusetts.

Our employee population grew by 7 to 403 employees at the end of the quarter.

Our sales per employee improved by 7% to $173,000 per employee from $162,000 at the end of the previous year.

That concludes the financial report.

Albert?

Thank you, Joe.

Now we are ready to provide guidance for the balance of the year.

Earlier at the end of the first quarter, we indicated that our revenue for the year would range between 71 and $74 million and earnings would come in at between $0.41 and $0.50 per share.

We are now indicating revenue will range between 72 and $75 million and earnings will come in between $0.42 and $0.50 per share.

Andrew, we are ready now for questions.

(OPERATOR INSTRUCTIONS) [Joe Furst] with [Furst] Associates.

Congratulations on a good quarter.

I had a couple of questions.

The cockpit printer ramp up, I know you -- I thought you had expected maybe you would get some new contracts in July.

I haven't seen anything about that.

I am wondering if you could elaborate a little bit on the step-up of that program with Boeing and Airbus.

Yes, Joe.

This is Everett Pizzuti speaking.

We did announce a new contract in the second quarter.

That was a new contract on the C-17 program, and so that contract is in place.

We continued our discussions with both Boeing and Airbus on some of the other deals that are in the works.

These are, of course, preliminary discussions and budgetary quotes.

So there is still a lot of activity going on in the -- I'll say ruggedized product area, because it's not only cockpit and cabin printers, but it also includes other products such as ethernet switches.

So things look very positive on that front.

We still have lots of deals that are in all kinds of discussion, and we look forward to continued good news in that area of our business.

Good.

The second question is, you are doing a good job and you are back on a growth path.

You have gotten past this revenue number per quarter to start earning some decent money.

What are you doing to get your Company better known?

Are you using Stan Berger or whatever to get your Company known in the investment community?

Because most people never heard of it.

Yes, that is a situation, Joe.

We are working with Stan Berger and his organization.

They have introduced us to a number of excellent organizations, money market people, and investment companies.

Beginning in September, we will be making some tours in the Chicago region, and later in New York, and probably also in Boston.

Probably, the best advocate we have will be our earnings growth figures.

We are going to make sure that those numbers keep coming in good and that they get some publicity as well.

Sure, right.

Thank you.

(OPERATOR INSTRUCTIONS) Gary Siperstein what Eliot Rose Asset Management.

Good morning, guys.

Congratulations.

Nice, solid quarter.

Al, just two questions.

You know, the gross margin has been an issue for a while, about getting it back to levels we had years ago.

You have indicated some confidence that it will be improving for the balance of the year.

Can you get us a little color on why that is so?

Primary reason why it has remained low, lower than we would like it to be, Gary, primarily because of start-up expenses.

We have a large number of new products that are going through the start-up phase.

You know, we speak about the cockpit printer, but in reality there are about six different models of that product; and every one of them is now going through a start-up phase.

They are all different.

They require different testing procedures.

There are many different requirements that we have to meet for each of them.

As they serially go into production and become black label, which is a designation of production, we will see our expenses, our start-up expenses, declining.

We are very confident, as we project the next couple of quarters, we are very confident that we will begin to see an improvement in that gross profit margin beginning in the third quarter.

And you can hold me to that.

Our goal is 45%.

I am not saying we will get to 45% in the third quarter, but we will definitely improve it somewhat from the rather pallid 41.9% that we reported in the second quarter.

That is the key to greatly increasing our earnings.

Super.

My second question is, I guess I was hoping for a dividend increase this quarter.

We had the land sale, and executives got bonuses based on that, and I was hoping there would be something for the shareholders as well.

Cash has gone up 40% or 50% over the past 12, 18 months with that land sale.

I know it's been difficult to buy stock in the open market with the light volume.

Can you talk to that point, maybe giving some of that extra cash back to the shareholders?

Well, we talk about the dividend situation at each and every Board meeting.

We had a Board meeting here on Tuesday, and we all agreed -- there was certainly no controversy on it -- that exceeding a payout of more than 50% of earnings per share was not a prudent thing to do.

So the Board decided that there would be no increase in the budget, at least for the next period.

I think in these days of financial insecurity and de-stability that we are all witnessing, the value of cash on hand is extremely important.

I made a little study the other day to see what kind of cash balances peer companies were running.

When I say peer, I don't necessarily mean peer in size, but peer in terms of philosophy and business profile.

I took a look at Hewlett-Packard, and I observed that with a shareholders equity of $44 billion, they are carrying $22 billion of cash on hand.

So they are running at 50% of shareholders equity in the form of cash.

We are not at that level, but I would like to think that we can maintain enough cash on hand to take advantage of opportunities that come our way.

We are going to be more a little more aggressive in our search for acquisitions.

We are going to be in a position to handle those acquisitions, not only to buy for them, but pay for them, but also to provide sufficient working capital for any new subsidiaries that we may acquire.

Very good.

Thank you very much.

David (inaudible) with [Elk and Partners].

My question is the QuickLabel segment.

I think I read in the annual report that hardware sales were a little weaker than the consumables side.

So I was wondering if there is anything going on, on the hardware side of the business?

Would you mind repeating your name again?

Yes, it is [David Bohey] [Elk Street Partners].

Yes, actually the ratio between hardware sales and consumables sales is always significantly, significantly different.

It is not a one-to-one, because the hardware generates sales sometimes equal annually, after the acquisition, to the value of the price.

So our ratio of hardware sales is about 38% of total sales, and -- sorry; the increase was 38%, so it was certainly not weak.

We thought we had a very strong hardware quarter.

But once again, I want to repeat that while hardware sales can be looked upon as a onetime sale -- each time we sell a printer it is like a onetime sale; but then they will purchase the consumables.

Our role of thumb is that a hardware purchase of $1 will result in a $1 purchase annually thereafter for the consumables.

It is a typical razor and razor blade business.

That's great.

So if we look at the current quarter, what was the growth in hardware versus consumables?

Growth in hardware was 38% and the growth in consumables was, year to date, was 19% year-to-date.

Okay.

All right, great.

I was reading in one of the filings about the new real estate purchase.

Yes.

What was the purpose for that?

Well, we had an operation in the town of Braintree, Massachusetts.

That was our Grass Technologies operation.

But as the technology of those products evolved over the years, it became obvious to us that we had a far more real estate than we needed for the current purposes.

So we sold the whole property to a real estate developer who has demolished the buildings that we had and is building a high rental (technical difficulty) units there.

We then moved the business, the manufacturing of the instruments and other products that are made in our Grass Technologies group.

We moved it to a nearby town called Rockland, into a smaller building far more appropriate to the needs of the Company.

We elected to purchase the building.

It was a very smooth transition.

The physical move did not disrupt any of our employees.

We did not lose, nor make uncomfortable even, none of our employees.

Just made uncomfortable by the move.

Now we are happily situated in a building that is a modern, new building, far more appropriate to the needs of that business, a one single story building.

Okay, great.

Then I read that you put out some financial goals over the next three years.

I think you want to get to $100 million of annual sales.

Yes.

I am just wondering, in your model internally, is that organic growth?

Or are you assuming acquisitions to get to that target?

Well, it involves principally organic growth.

But we do have provision in there for an acquisition.

We believe we can maintain about a 12% compound annual growth in revenues.

With that kind of a model we would bring ourselves up to the level of about $92 million in three years.

The difference we think we can make up with an acquisition.

Okay, that makes sense.

Then the last question was, are you guys complying with Sarbanes-Oxley Section 404 yet?

Or is that something --?

Joe O'Connell will answer that question.

Yes, we are.

Actually we are (technical difficulty) we are a nonaccelerated filer; but we do have to this year basically have Albert and myself attest to that we meet the criteria on the internal controls.

Next year, our outside auditors will come in and also opine on the internal controls.

So we are very deep into the process of documenting all our processes in place, establishing a suite of test plans, and doing walk-throughs, and if necessary doing any kind of remediation that would be appropriate.

So yes, we are very much into the preparation and work associated with complying with the 404 of the Sarbanes-Oxley Act.

And we are spending some money on it (multiple speakers).

Yes, we are.

It is obviously for our purposes, it's a significant investment that we are making in order to be able to be compliant with the requirements of the Act.

How much do you think that is going to cost?

We think this year it could be as much as $200,000 to $250,000.

Okay, and then next year?

Well, it is a good question.

The number that -- it speculates -- it conceivably could be that high or hopefully a little less.

So we are trying to do a number of things of this year to, quote unquote, perhaps temper some of the costs when the outside auditor is able to come in.

So we are hoping that it may not be at that level.

Great, thank you very much.

(OPERATOR INSTRUCTIONS) Joe Furst.

You talked about the possibility of making an acquisition.

First of all, can I assume that any acquisition you would make would be accretive to earnings?

Secondly, what particular areas are you looking at in that area?

Joe, yes, it would definitely be accretive.

We're looking at the possibility of acquiring a company that you would refer to as a bolt-on.

We are not interested in getting into new, brand-new fields.

With the limitation that we will not enter new fields, it does make it difficult; because we basically are talking about acquiring possible competitors or companies that make directly related products to those that we now make.

So we are being very careful as we make our search.

Good, thank you.

Management, at this time we have no additional questions in the queue.

I would like to turn the conference back to you for any closing remarks.

Thank you, one and all, for participating in this conference call this morning.

We will be talking to you again in November.

Meanwhile, Joe O'Connell would like to leave a few (technical difficulty).

Yes, (technical difficulty) our Safe Harbor statement is said because during this conference call we may have made 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 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.

We will talk to you again in November.

Thank you, management.

Ladies and gentlemen, at this time, we will conclude today's teleconference.

We do thank you for your participation on the program.

You may now disconnect and please have a pleasant day.