AstroNova Inc (ALOT) 2007 Q3 法說會逐字稿

Good morning, ladies and gentlemen.

Thank you for standing by.

Welcome to the Astro-Med third-quarter fiscal year 2008 results 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).

This conference is being recorded today, Wednesday, November 21st, 2007.

I would now like to turn the conference over to Mr.

Albert W.

Ondis, CEO.

Please go ahead, sir.

Good morning, everyone, and thank you very much for participating in our teleconference.

With me, as usual, is Everett Pizzuti, who is the President and Chief Operating Officer; and Joseph O'Connell, Senior Vice President and CFO.

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

As you know, we released our third-quarter results yesterday after the close, and we want to talk to you about them.

There are lots of figures on the tables which accompanied our release, but I would like to stress some of those figures which we feel are especially significant.

For example, sales at $19,139,000 are up 19% over the comparable period of last year.

Gross profit margins at 43.7% are beginning to approach the 45% figure which we have often cited as our goal.

Operating income for the quarter was $1,738,000, and that's a 177% increase over last year's $628,000.

Of course, GAAP diluted EPS at $0.21 per share is very good.

But I hasten to point out that pro forma diluted EPS is $0.15 per share, and that, of course, is the important figure.

The $0.06 per share difference is the result of some favorable tax adjustments, which, of course, we are always happy to take.

Here are some other interesting figures.

QuickLabel Systems, our color label and consumables product group, grew by 28%.

Test & Measurement, which includes dynamic ruggedized products, including our advanced airborne printer, grew 15%, and our Grass Technologies activity, which includes our sleep monitoring products, grew 7%.

I want to emphasize something which we don't always do, and it is that all of our products employ cutting edge technology, both hardware and software, and all of it is developed in-house by our very capable R&D group.

Here are some more interesting figures.

We broke some new ground with $21 million in new orders, and of course that bodes very well for the future.

Our growth came from all products and all geographic markets.

I want to single out especially the growing contribution of our international branch sales and service offices.

Sales from those branches grew 46% in the quarter.

Export sales, which came through our export dealers, grew significantly also, as a matter of fact, by 53%, but of course from a much smaller base.

Total export sales were 29% of total sales, and we expect that this will continue to grow, in part because of the favorable dollar exchange ratio.

At this point I'm going to call on Everett Pizzuti, Chief Operating Officer, to provide some additional insight into the quarter.

After he gives his presentation, Joe O'Connell will take the floor.

Everett?

Thank you, Albert, and good morning, everyone.

As you have heard, we achieved the highest level of sales in the quarter to-date, along with strong earnings as a result of excellent contributions from all of our major products in all markets, domestic and international.

In addition to high double-digit sales growth, our new orders also reached a new record high for a quarter with T&M increasing 34%, QLS increasing 35% and Grass increasing 22% from the prior-year quarter.

Our color printers and consumables continue to be the major growth engine of the Company.

We made significant shipments of the new Zeo!

color label printers to customers throughout the U.S.

Demand for this new product is strong, and customer acceptance has been totally positive.

As you may recall, we rolled out the Zeo!

late in the first quarter to our domestic and Canadian sales force only.

In September we launched the Zeo!

with our branches in Europe and expect to see good contributions from them in the fourth quarter.

Also, early in the fourth quarter, we began the rollout of Zeo!

to our dealers in other parts of the world, including Australia, Singapore, Puerto Rico and Mexico.

Sales of the Vivo!

and 4100 Xe color printers also contributed heavily to the third-quarter growth.

In September, we exhibited all our color printers at the PAC Expo show in Las Vegas, where we often had standing room only in our lodge exhibit booth as we gathered hundreds of new opportunities for sales.

As a matter of fact, although it is not typical to take orders at an exhibit of this type, we actually booked several orders for color printers right on the spot.

As a refresher, we have color printer models to fulfill requirements for nearly all applications.

The Zeo!

with inkjet technology for photo-quality low-quantity applications; the Vivo!

with laser technology for high-volume, high-resolution applications; and the QLS-4100 Xe with thermal transfer ribbon technology for high-volume industrial applications where good print quality coupled with labels for special environments is a must.

Demand for QLS consumables, including labels, ribbon, ink and toner, continue to increase as we place more and more printers in the field.

Consumable sales are increasing at well over 25% per year.

Test & Measurement product growth continues from both our Dash series recorders as well as the ruggedized products for avionics and other applications.

During the quarter we released in the new Dash 32HF and Dash 20HF recorders and expect to see good contributions from these products beginning in the fourth quarter.

In October we exhibited our products at the international telemetry conference in Las Vegas.

Monitoring data that is telemetered down from satellites, rocket ships and new planes has been a key application for our recorders for years, and this show brings all the key customers in this market to see our latest products.

Sales of our ruggedized products, including cockpit and cabin printers, were very good contributors to the growth in the third quarter.

We are now shipping these products at an annualized rate of well over $6.6 million.

We booked several new contracts during the quarter for both cockpit and cabin printers for new and existing aircraft.

At the present time we're bound by confidentiality agreements not to disclose details, but we do expect to get clearance to announce in the next month or two.

We're also continuing to make proposals on requirements for new future applications, including the business jet market.

On the Grass Technologies front we're pleased not only with the sales for the quarter but also the 22% growth in new order bookings compared to the prior-year quarter.

While sales of sleep systems remain the top opportunity for growth in the U.S., our sales to the international markets are strong in EEG and long-term epilepsy monitoring, as sleep markets are different there.

We have very strong sales positions in South Korea, Mexico and Japan, as well as Europe and the Middle East.

In the quarter we released another version of our twin software with heavy emphasis on new features for the sleep market.

This new software, combined with our world-famous amplifiers, makes the Grass products for sleep the finest in the world.

Sales of Grass supplies and consumables, which include electrodes and electrode cream, increased 20% in the quarter.

It is interesting to note that the Grass electrodes are so good that they are purchased not only by hospitals and labs but also by our competitors for sales to their customers.

As we said at the end of the second quarter, we will continue to invest aggressively in new product development to assure continued growth in the next year.

Meanwhile, we look to a strong fourth quarter as well.

And that's my report, Albert.

At this point I'm going to ask Joseph O'Connell, our Chief Financial Officer, to provide additional information, specifically financial.

Thank you, Albert, and good morning, everybody.

Well, as you've heard, the numbers were very strong for Astro-Med.

We're certainly pleased to share these numbers with you for our third-quarter results.

But as you heard, our Astro-Med sales in the third quarter reached a record level of $19.1 million, and Albert points out that's an increase of 19% over the prior year's third quarter of $16 million as well as 2% higher than the current year's second-quarter sales of $18.7 million.

The Company's distribution by channel at our domestic sales at $13.6 million.

That's up 11% from the previous year, whereas our international shipments, as Albert mentioned, were also quite strong at 5.5 million, rising 47% from the prior year's international sales for the third quarter.

We did have a little advantage in terms of the currency of about $351,000 favorable exchange there, which in overall dollars was less than 2% of the third-quarter sales.

If we profile the Company's third-quarter sales by product group, each of the brands reported growth in the quarter, which is very encouraging.

QuickLabel systems sales were $9.9 million in the quarter; and, as you heard, reflects an increase of 28% over the prior year.

The QuickLabel systems growth was really driven by a double-digit increase in our product group's printer lines as well as a double-digit growth rate in our consumer lines.

Sales within the Test & Measurement product group were $4.5 million in the third quarter, again, as you heard before, 15% over the prior year.

Here, the sales growth was concentrated in our ruggedized product line and also the Company's product line of portable recorder products, specifically the Dash series.

Grass Technologies sales grew 7% in the quarter to $4.8 million.

Here, the Company has realized single-digit growth in our clinical and our research device product lines, while our Grass consumable products achieved a double-digit growth rate over the third quarter of the prior year.

Our gross profit in the third quarter was $8.4 million, reflecting a 30% improvement from the prior year, while attaining a gross profit margin of 43.7%.

That compares to the gross profit margin of 40.1% reported in third quarter of a year ago.

Astro-Med has benefited from the favorable product mix in the quarter, as well as a reduction in our manufacturing costs due to absorption as well as efficiency.

Expenses in our selling, R&D, G&A accounts in the third quarter rose 14% to $6.6 million.

This level of spending was normally consistent with the second-quarter level and up some 6 percentage points from the first-quarter level of secondary spending.

Selling and general and administrative expenses were $5.5 million in the quarter, an increase of 13% from the prior year and traceable to increments in personnel costs, commission, travel as well as professional service fees.

Our research and development expenses were $1.2 million in the third quarter.

That's a 21% increase in spending from the prior year and is due exclusively to an SBIR grant credit that we had in the prior-year numbers.

Operating income in the third quarter was $1.7 million, which is for the current fiscal year.

This level of increase reflects an operating margin of 9.1% and a healthy improvement over the second quarter's operating margin of 6.8%, as well as an improvement over the first quarter's margin of 3.8%, respectively.

The prior year's operating income in the third quarter was $5.9 million and includes a one-time gain related to the sale of real estate of $5.3 million.

If we exclude the real estate gain for the prior year's operating income, it would reflect a normalized operating income of $628,000 or an operating margin of 3.9% on the sales dollar.

Our other income in the quarter was $170,000, consisting primarily of dividend and interest income from the Company's security investments.

Our tax provision -- the Company's tax provision in the third quarter was $346,000, reflecting an effective tax rate of 18%.

This quarter's provision is an outgrowth of a normalized tax rate of 41.5%, as well as tax benefits of approximately $446,000 related to the favorable resolution of certain income tax examinations.

The prior year's tax provision for the third quarter was 2.3 or a 36% effective tax rate.

The prior year's provision consists of normalized rate of 37.5%, a tax provision of 2.1% related to the gain on the sale of the real estate booked in the third quarter of the prior year, as well as favorable tax adjustments of $231,000 identified in the filing of the prior-year tax return.

Our net income for the third quarter was $1.6 million, represents our best quarter to date this year and generated a return on sales of 8.2%.

This level of income represents a GAAP basis earnings per share of $0.21 per diluted share.

However, on a pro forma basis, by excluding the tax benefits of approximately $0.06 per share reported in the quarter, the Company's pro forma EPS for the third quarter is $0.15 per diluted share.

This quarter's net income compares to $4 million reported in the third quarter of the prior year.

This level of net income translates into a GAAP basis $0.53 per diluted share.

However, on a pro forma basis, by excluding the net profit realized on the sale of the Company's real estate of $0.42 per diluted share, as well as certain favorable tax adjustments of approximately $0.03 per diluted share, the prior year's pro forma EPS is $0.08 per diluted share.

Hence, on a pro forma basis, this year's third-quarter earnings per diluted share nearly doubled the pro forma earnings per diluted share of the third quarter of the prior year.

Prior to discussing the changes in the balance sheet at the end of the third quarter, I will review Astro-Med's operating financial results for the nine months ended November 3, 2007.

The Company reported sales for the nine months of $54.2 million, representing a 13% increase over the prior year's sales for the same period.

Sales for our domestic channels were $38.2 million.

That's an increment of 9% from the prior year's domestic sales, where our international shipments in the first nine months were over $16 million, an increase of 25% over the prior year's international sales of $12.8 million.

Favorable changes in foreign currency rates added approximately $828,000 to the revenues, less than 2% of our total sales for the year.

If we profile this year's sales volume by product group, our QuickLabel Systems continues to do well at $28.5 million, up 25% over the prior year.

Test & Measurement product group at $12.4 million for the nine months is up 10%.

And our Grass Technologies at $13.3 million is down 4% from last year.

Overall, both of the Company's hardware products and the consumable products have experienced double-digit sales growth from the previous year for the nine months ended.

Gross profits -- the Company earned $23 million in gross profit dollars thus far this year.

The result represents a 17% improvement from the previous year and projects a gross profit margin of 42.5% against a margin of 41.1% reported in the prior year.

This year's improvement in margin is primarily due to sales volume as well as lower manufacturing costs.

Expenses in the secondary accounts of selling, R&D and G&A are $19.4 million this year.

That's a 12% increase over last year's spending.

The increments mostly relate to increases in personnel costs related in selling as well as some foreign currency exchanges and some professional service fees.

Operating income -- the Company achieved $3.6 million in income from operations for the nine-month period, representing an operating margin of 6.7% on sales.

On a comparative pro forma basis to the previous year's operating income, this year's results reflect an improvement of 54% over last year's operating income after excluding the one-time gain of $5.2 million related to the sale of real estate.

Net income -- Astro-Med has earned $3 million in net income through the first three quarters of fiscal 2008.

This level of net income translates into a GAAP basis of $0.39 per diluted share with a return on sales of 5.5%.

The prior year's net income was $5.3 million with a corresponding GAAP EPS of $0.71 per diluted share.

However, again on a pro forma basis, after excluding the income tax benefits from both years as well as the gain on the sale of real estate from the prior year, this year's pro forma EPS of $0.33 per diluted share has improved 27% from the prior year's pro forma EPS of $0.26 per diluted share.

Just to quickly look at the balance sheet, again very strong performance.

Our cash and marketable securities rose 8% during the third quarter to $17.2 million.

The accounts receivable balance were virtually flat with the second quarter at $12.8 million.

However, we did see an improvement in the Company's days sales outstanding, moving down from 65 days to 63 days at the end of the third quarter.

Inventories and investments rose 7% in the third quarter to $13.3 million and represents 111 days on hand, up slightly from the second quarter's 104 days on hand.

Our capital expenditures so far this year through the nine months is $4.2 million; most of it relates to the acquisition of real estate in the second quarter of $3.2 million.

The balance represents investments in machinery and equipment, as well as information technology.

Lastly, we paid dividends through the first nine months of $1 million.

Our book value per share is $7, and our employee population is approximately 400 persons.

We improved our sales per employee some 10% to $180,000 per employee.

That concludes the financial review, Albert.

Before we take questions, I would like to talk about our guidance for the 12 months.

Our guidance is as follows.

We're looking at revenues that will range between $73 million and $75 million and EPS that will range between $0.50 and $0.56 per share.

Vince, we're ready for questions.

(OPERATOR INSTRUCTIONS).

[Sam Bigman], [MMRY Capital Management].

Good morning, gentlemen.

Nice quarter.

A couple questions.

One regarding a comparison.

Can you compare the backlog of last year's third quarter, entering the fourth quarter, and also the bookings versus what was on the news release today?

Yes, give us a minute.

The backlog at the end of the third quarter last year as compared to backlog at the beginning of our fourth quarter.

Backlog at the end of last year third quarter was at $7.7 million.

Our current backlog is $8 million.

What about the bookings going into -- for that third quarter last year?

Our bookings in the fourth quarter had a total of -- third?

Our third quarter.

Our fourth quarter, just about $16.5 million.

Versus $21 million.

Where do you expect -- the margins this quarter were at 43.7%.

Do you expect them to improve going forward, or do you expect them to be flat, around this area?

That is very much related, of course, to volume.

As we have been saying right along, volume is a key, one of the two keys, to the gross profit margin.

Volume and of course product mix as well as efficiency.

We think that in the fourth quarter we will probably be in the same range as we were in the third quarter, the same general range.

We do expect to move it up to 45%, ultimately, but it may take a couple of more steps before we get to the 45% level.

(OPERATOR INSTRUCTIONS).

Greg Weaver, Kern Capital.

Nice quarter, guys.

In the paragraph about net income, you say at the end there's favorable changes in foreign currency rates that added approximately $351,000.

Now, is that $351,000 in revenue, or net?

That's the revenues.

Right, because it says if they're representing 2% of sales.

Right, that's correct.

Okay, that's helpful.

I think that was all I had.

Thank you, gentlemen.

Charlie [Doe], Private Investor.

I wonder if you could comment on the potential of the private plane industry and the ruggedized printers and what you expect in terms of a timeline versus the commercial airlines.

I know we're talking about over 10 or 15 years we have been quoting on, and what you think the potential market is.

Yes, the potential market of the business jet field is quite large.

We have begun to make some inroads.

In fact, we do currently have a contract with a supplier to furnish printers for a new Bombardier business jet.

That contract we have in hand.

We also are making discussions and negotiations with aircraft manufacturers, such as Embraer in Brazil and a couple of others here in the States.

We expect to see that big a business begin to come to fruition in the second quarter of next year in addition to what we already have on hand.

So we think the opportunity is great because the numbers are quite high in the business jet field, and we think that's a great opportunity for us to continue to grow.

In terms of the commercial potential market, I think you commented in the past that you were looking at something in the neighborhood of a $400 million over the next 10 to 15 years.

What kind of rough estimates would you suggest that the business airlines that represents and over what kind of a timeline?

Well, I think the estimates we gave on the commercial jets was a couple hundred million in terms of contracts that we had on hand.

But we think the business jet market is just as big if not bigger.

And the timeline on that, I think, will be also 10 to 20 years, just as it is for the big commercial jets.

Just a point of clarification on the commercial.

I think you were talking about having something over $100 million in terms of contracts last quarter or the quarter before, and over $100 million of RFPs outstanding.

I thought that you anticipated that the future RFPs over the next -- again, I don't know what timeframe -- also represented the potential of another $200 million.

Yes, I would say that's about right when you begin to add in now the business jet potential.

But also in those numbers are other products that we make for avionics besides printers.

And we make a number of different types of Ethernet switches.

These are ruggedized Ethernet switches for both air and land vehicles, and we make some other accessories that are used in the cabins of aircraft.

So altogether, they add up to those numbers that we have been quoting here.

We also have been talking about new aircraft production, and there is a large potential market to retrofit existing fleets.

We believe that we're beginning to see the beginnings of an outline of some of that kind of business coming as well.

It's hard to quantify, but there definitely is real opportunity in the retrofitting of existing fleets of commercial airlines as well as business jets.

Dennis Scannell, Rutabaga Capital.

When you talk about orders on the -- maybe the phrasing wasn't orders -- but opportunities on the ruggedized printers for aircraft customers, when do we see that in backlog?

You talk about $100 million worth of opportunities.

Do we wait for actual purchase orders, or when you sign a contract -- again, when will we see that flow in?

Yes.

Although we get contracts that are typically cover the span of 10 to 15 years, we don't book those into our orders or bookings or backlog until we get released orders from the airlines or from the contractors.

So it's the released orders that are going into the backlog that you see growing.

But the contracts themselves we really don't book until we get those orders.

As you look at those contracts, in terms of what has been signed to date, is there a bulge over the next few quarters or few years that you see those releases being -- coming through, or is it more kind of a steady, gradual growth as you look over the next several years?

Well, they are beginning to layer upon themselves.

Last year and earlier this year we are just developing the configurations of printers for the various airlines, and we're not really into full production on any of those big contracts yet, including the 787 and the A380.

So all these great sales we are getting now are really before the real production begins.

So I guess, in the second quarter of next year, some of these production orders will begin.

There you will see some better increases from the ruggedized products in terms of sales.

I think you guys talked about a normalized tax rate of 41.5%.

It seems kind of high to me.

Is that a number we should use going forward, looking out a few years?

Or is there something going on this year that has your effective tax rate pretty high?

I think, that's -- to use a 40%, I think, is probably appropriate for prospective for pro formas in terms of anticipating what the effective tax rate will be.

But I think for our planning purposes we are using a number of roughly 40% prospectively.

There are no further questions at this time.

I'll turn it back to you for any closing remarks.

Thank you, one and all, for participating.

We wish you all a very pleasant and happy Thanksgiving.

And a few words for Joe here -- Joe wants to say before we bid you so long.

Just as you know, our Safe Harbor statement is that during this 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 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.

Thank you very much, and we will be talking to you again in March.

Thank you, sir.

Ladies and gentlemen, this concludes the Astro-Med third-quarter fiscal year 2008 results conference call.

You may now disconnect.

Thank you for using AT&T Teleconference.

Thanks.