AstroNova Inc (ALOT) 2008 Q1 法說會逐字稿

Welcome to Astro-Med, Incorporated first quarter fiscal 2009 earnings 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).

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

Stanley Berger.

Please go ahead.

Thank you, Nicole.

On behalf of the management of Astro-Med, we are extremely pleased that you have taken the time to participate in our conference call.

Thank you for joining us to discuss the Company's fiscal 2009 first quarter financial results and business outlook.

Before I introduce management, I would like to remind everyone that certain statements made during the course of this conference call, especially those that state management's intentions, hopes, beliefs, expectations, or predictions for the future are forward-looking statements.

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

By now, you should have received a copy of the news release, which was issued yesterday after the market closed.

If you have not received a copy, please go to our website at www.astro-medinc.com, where a copy of the press release can be downloaded from the investor section of our home page.

Hosting the call today are Albert Ondis, Chairman and Chief Executive Officer, Everett Pizzuti, President and Chief Operating Officer, and Joe O'Connell, Vice President, Treasurer, and Chief Financial Officer.

At this time, I will turn the call over to Mr.

Ondis.

Albert?

Thank you, Stan, and thank each of you for participating.

As Stan said, with me are Everett Pizzuti, President and Chief Operating Officer, and Joe O'Connell, Senior Vice President and Chief Financial Officer.

Our custom is that each of us will make a presentation, and then we'll take your questions.

As you know, we reported after the close yesterday, On our first quarter, Joe O'Connell will provide details, but I would like to draw your attention to the fact that sales were up nearly 14%, and earnings per share were up more than 70%.

That is $0.12 per share versus $0.07 for the corresponding quarter of last year.

Joe will also point out that we are inching closer to our often-stated goal of generating gross profits of 45%.

More importantly, perhaps, is that all three brands enjoyed significant growth, and our fine branch offices posted excellent growth with increases of more than 37% over last year.

One of the best strategic moves we ever made was to set up sales and service offices in Canada, France, Germany, and the U.K.

Now for the past couple of years, we have achieved the sales growth rate of about 10%, while growing profits at about twice that rate.

And I would like to say that in a decent business climate, we should be able to do better.

The goals of the Company, which I'd like to talk about for a moment, can be looked at in two ways, developmental and financial.

Here are our developmental goals.

Number one, we plan and intend to expand our color label printer and consumable business at a rate in excess of 10% annually.

We lead in this field, as a matter of fact, we invented the first color label printer, but despite the fact that we lead, we are far from satisfied with our penetration of the market.

We can do better, both as marketeers and as product innovators.

In the works is a stream of exciting new products and improved sales penetration of both our domestic and our export markets.

Second goal.

We want to maintain and strengthen our lead in the field of ruggedized products.

This part of our business is destined to grow as the airlines are presently developing, with the help of the aircraft manufacturers, more efficient airplanes.

And they need to seek out the most direct flight paths in order to conserve fuel.

Our cockpit printers assist greatly to reduce excess weight, and they help to chart the most direct flight and the most direct landing path.

We are investing and we will continue to invest in the development of some very innovative new cockpit printers as well as other high reliability products, such as our ethernet switches.

Number three, we have always been a leader in the field of test and measurement products with our legendary telemetry product, such as the he the Everest.

The Everest is a standard piece of equipment at every civilian and military telemetry test stand around the world, wherever satellites are launched and wherever airplanes or other space vehicles are developed and tested.

And in the T&M field, as we call it, Test and Measurement, our family of portable instruments, which we call our Dash product, are used around the world for the testing of metal rowing mills, communications equipment, electrical generating and transmission equipment, in automotive testing, and in numerous other fields where troubleshooting and testing of systems is done.

Now, in this field, we have set the bar very high.

We intend to become the undisputed leader with a continuous rollout of innovative products, as well as reenergized salesmanship.

Number four, our grass technology products date back to 1935 when Albert Grass, a freshly minted electrical engineer from MIT, made the world's first commercial EEG.

And with that product, he established Grass as the leading company in the new field of neurological instrumentation.

Well, Grass may not be the world leader at present, but it is still the most recognizable and respected name in the industry around the world.

Grass has always been more famous for the quality of its product than for its cutting-edge technology.

We aim to restore Grass as the technology leader again, while maintaining the reputation for quality.

And to do that, we are rolling out a series of new products calculated to return Grass to that coveted position of world leadership.

The SleepTrek 3 product, which we recently introduced, is an example of the new products which will help us to capture new markets such as home sleep study.

Now, let me give you our financial goals, and they are quite simple to enumerate.

Number one, we he intend to maintain a sales growth rate of between 10% and 15% annually.

We intend to improve our net income to be in the range of 20 to 25% annually.

Number three, we intend to increase our export sales, and we've got a good leg up on that.

From the present level of 30% of total sales, we'd like to increase our export sales to 35 to 40%.

Number four, we're going to continue to drive the development of new products with a goal that up to 50% of hardware sales annually will come from products developed by us within the last five years.

Number five, we aim for a return on equity of between 10% and 15%.

And number six, we aim for annual dividend growth in the range of 8% to 10%.

With some of these thoughts fresh in your mind, I'm going to turn the conference over to Everett Pizzuti, President and Chief Operating Officer, so that he can make his report.

Everett?

Thank you, Albert, and good morning, everyone.

In spite of the sluggish economy, we experienced one of the strongest first quarters in the Company's history.

Our success is attributable to the fact that all of our products in all markets, domestic and international, contributed with healthy growth.

Most of the products that we design and sell are useful in a very broad range of markets and industries, and this renders us somewhat insensitive to economic dips in certain sectors.

For example, our color printers are sold to label products in just about every industry imaginable from food and beverage to automotive, apparel, electrical appliances, and pharmaceutical.

Similarly, our test and measurement products, such as our Dash series recorders, are sold to aerospace, automotive, primary metal, telecommunication, pharmaceutical, and military markets.

And, of course, our products for sleep and other life sciences are in demand to improve health all over the world.

Now many of the new products that we introduced late last year, sold briskly during the first quarter.

We had excellent sales of the new Zeo!

color label printers, the new Dash series recorders, and our latest products for the sleep market.

We made great gains in the international markets, as our export sales grew to over 30% of total revenues.

Most of this increase is from our branch offices in Europe and Canada.

Our Grass products grew by high double digits, led by our sleep monitoring systems.

As you may recall, last quarter we discussed the postponement and the expansion of new sleep labs, as the market awaited a decision by Medicare and private health providers on whether or not home sleep monitoring would be reimbursed.

That decision, which came in March, has now settled the market somewhat, and as the sleep labs see the benefits of home screening helping them to provide more referrals to the labs as well.

As a result, we finished the quarter with a resurgence of sales for our sleep systems.

Also related to our Grass product group, we are pleased to announce that one of the major group purchasing organizations, Premier, has awarded us a contract to supply our sleep monitoring systems to their more than 1500 affiliated hospitals.

Our rugged product business is doing very well.

Although we have not announced a new contract recently, we have not lost a major new contract in several years.

At the present time, we have 13 contracts in-house, totaling over $130 million.

We have active negotiations outstanding, totaling over $81 million, with many of those for the growing business jet market.

In addition, we have he several long-term opportunities for new and retrofit programs, totaling over $223 million.

As a matter of fact, two of our sales managers have been in Japan and China last week and this week, and they're in early discussions with Mitsubishi for their new business jet, and with the Embassy in China for their proposed new jumbo jet.

Meanwhile, shipments under existing contracts are going well for us, and will be will begin to ramp up during the second half of this year as all of the new planes go into production.

Now during the first quarter, we completed the construction and equipped the 10,000-square-foot addition to our instrument manufacturing plant here in West Warwick and we paid for it out of cash.

The cost, including construction, new equipment, and installations, was about $850,000.

During this period, our cash balances continued to grow.

And shortly, we will begin breaking ground for a similarly-sized addition to our QuickLabel consumables manufacturing plant here, and we will pay for that out of cash as well.

These additions, of course, are needed to keep up with our planned growth.

Finally, as we are now early in our second quarter, we see the continuation of the momentum of all of our products.

Color printers, Dash recorders, ruggedized cockpit printers, and sleep systems continuing to grow, both domestically and around the world.

And that's my brief report, Albert.

Well, thank you, Everett.

And now, we are going to get Joe O'Connell's report, Chief Financial Officer's report.

Joe?

Thank you, Albert.

Good morning, everyone.

I'm delighted to share more of the detail of Astro-Med's first quarter fiscal 2009 financial results.

As you've heard, the Company's sales in the first quarter did reach 18,688,000, representing a 13.9% increase over the first quarter sales of the previous year, as well as a 3% improvement over the prior fourth quarter sales of 18,131,000.

Our sales through our domestic channels were 13,037,000, representing a 9.1% increase over the prior year's domestic sales, whereas our export sales, as you heard, were particularly strong at 5,651,000, representing a growth rate of 26.7% over the prior year export sales for the same quarter.

And as you heard, the branch business contributed significantly to that improvement.

The Company's three product groups as you heard, contributed to the success we had in our top-line growth in the first quarter.

QuickLabel Systems with sales of $9.749 million in the quarter increased 9.3% over the previous year.

Our printer sales were especially healthy in the quarter, up some 21% over the prior year.

Where our consumables were up a little less than that, in terms of the single-digit growth rate.

Grass Technologies, sales of $4.979 million in the quarter, grew 23.7% over the prior year, here, the Company's sleep diagnostic product line as the leader.

Our sales in our clinical and research markets in the quarter were strong, up 37% over last year.

Sales from the Test and Measurement product group were $3.960 million, that's a 14.3% increase over the prior year.

Here the product lines contributing to the growth include our ruggedized product line, as well as the Dash line of portable recorders.

Relative to profitability, we also made good progress, as Albert alluded to, in terms of our profit margins.

In the quarter, our profit margins were 43.8%.

That's a better than 200% improvement over last year's 41.7%.

The improvement is really traceable to better absorption in the factory, as well as lower manufacturing costs.

Operating expenses in the quarter rose 10.7% to $6.893 million.

The increment is due to increases in our marketing costs, commissions, foreign exchange rates, made contribution to it, stock-based compensation, as well as outside services.

This quarter's spending consumed $0.369 of the sale dollar, that's down a dollar from last year's first quarter of $0.379 to the sale dollars.

Operating income in the quarter was $1.295 million, more than double last year's operating income, and generating an operating margin of 6.9% as compared to last year's operating margin of 3.8%.

Other income in the quarter was $176,000.

It's down from last year's $249,000, and is traceable primarily to a little lower interest rate as well as lower foreign exchange gains.

The provision of our federal, state, and foreign income taxes was $574,000 in the quarter and reflects an effective tax rate of 39%, down slightly from last year's effective tax rate for the same timeframe of 40%.

Net income, as you heard, we earned $897,000, representing, as you heard also, a 72% improvement over the previous year, and achieved on an earnings per diluted share basis $0.12, as opposed to the $0.07 reported in the prior year.

The Company's return on sales in the quarter represents 4.8%, that's a healthy improvement over last year's return on sales of 3.2%.

Quickly turning to the balance sheet, our cash and marketable securities position rose 9.3% during the quarter to $19.193 million.

Our account receivable balances declined in the quarter by some 10.9% to $11.375 million, and represents some 52 days sales outstanding.

That's a nice improvement of seven days from our year-end DSO of 59 days.

Inventory dollars rose 4.5% in the quarter to $14.685 million, representing 126 days of inventory on hand consistent to our year-end levels.

We spent some $576,000 in capital expenditures during the quarter, consisting, as Everett mentioned, our building improvements and expansion, machinery equipment and information technology related investments.

Our dividends in the quarter were about $421,000, representing some $0.06 per share.

Our pro-rate population increased by two individuals to 396 at the end of the quarter.

And our sales per employee improved nicely during the quarter to $187,000 per employee, up from last year's $167,000 per employee, a nice 12% improvement year-over-year.

That completes a review of the financials, Albert.

Thank you, Joe.

Before we take your questions, I would like to give you guidance for the year.

At the present time, we are saying that sales will range between $78 million and $82 million, and earnings per share will range between $0.54 and $0.58.

Our practice is to update these guidance figures at the end of each quarter, and we will be doing it at the time of our next conference call which will be in August.

And now, Nicole, we're ready to take the people's questions.

Ladies and gentlemen, at this time, we will conduct the question-and-answer session.

(OPERATOR INSTRUCTIONS).

Our first question comes from the line of Joe First with First Associates.

Please go ahead.

Good morning, gentlemen.

Congratulations.

It looks like you have all segments of the business going very well.

I was curious of what you're doing to get your story out, because you've goat a really good story to tell now.

You're at the point now, where you can improve your profitability with this earnings.

What are you doing to get the story out and known?

Well, Joe, good morning to you and thank you for your comments.

This is Albert speaking.

We have, as you know, made it a practice to attend a series of financial conferences.

In April, we attended a conference in Las Vegas, put on by the B.

Riley Financial Group, which is a California-based firm.

And at the end of April, we made a presentation before the Providence Society of Security Analysts.

Then of course, we are putting out attractive news releases, such as the one we made yesterday.

With the help of Stan Berger and his group, we will continue to be meeting with prospective investor groups, which has been our practice for the past couple of years, I guess.

Much as we would like to increase our exposure to the financial community, we find that doing much more than we have been doing could be potentially taxing on us and our ability to manage the affairs of the Company.

We're also going to conduct an investor day in early October here in Providence, where we will invite people to come and meet more of the people that make up Astro-Med, look at the -- look at our factories and look at the products we make, to try and evaluate for themselves, the future of the Company.

Any other suggestions you might have, Joe, would be appreciated.

Thank you.

I thought I had heard in a previous call that that investor day might be sometime in May or so.

How come you put it back to October?

Well, there were a variety of conflicts of one type or another, and after giving it some more serious thought, we decided that October would be a better time.

We have an extremely active business period during late spring and early summer.

Our feeling was that when you get deeply into summer, the dog days of July and August and part of September, and perhaps people would rather come to New England in the early October.

That's one of the things that we plan to show off is the beauty of this area in early October.

Okay.

Thank you.

Thank you.

(OPERATOR INSTRUCTIONS).

Our next question comes from the line of Gary Siperstein with Eliot Rose Asset Management.

Please go ahead.

Hi guys.

Good morning.

Congratulations on a solid first quarter.

Thank you.

Good morning, Gary.

Al, I'm just trying to reconcile your goals with your projection.

You mentioned sales going up 10 to 15%, net income going up 20 to 25%.

And for last year, I believe we did $0.57 with an income before taxes of $5 million, net income of $4.3 million With the $0.54 to $0.58 estimate you're putting out there, earnings per share would be flat.

Is there an anomaly in the income statement, Joe?

Maybe it was taxes or something?

That's exactly right.

Do you remember last year, Gary?

We had a benefit of -- we did a couple of things.

We had some FIN 48 related benefits, as well as the restructuring that translates into about $0.11 of tax benefits.

In Albert's guidance, it's really against a normalized $0.46 of last year, is what he's comparing in terms of reflecting the expectations for fiscal 2009.

Okay.

Your net income then was about -- roughly about $3.5 million?

Correct.

And you're looking for it to go to about $4.5 million?

Is that about right?

The math?

Order of magnitude.

Did you guys buy any stock in the quarter?

We didn't, Gary.

Okay.

And, Al, can you give us any color on leadership transition?

You're in your 80s now.

Everett is in his 70s.

Joe, you're in your 60s.

Can you -- do you have anything in place at the board level for management transition?

No, we don't.

But as we have frequently said, we have a significant number of people in their early to mid-40s that are developing very nicely.

One of the reasons that we want to have this investor day is so that investors can meet and see some of these people, and come to understand how the successors of all three of us are probably somewhere within the Company.

We're all in good health.

We're producing -- we're delivering, we think, reasonably good efforts towards the goals of the Company.

None of us has any immediate plans to retire, but we understand that we can't go on forever.

As we all know, that can't be done.

But nothing specific has been done.

Okay.

Is the board still open to a search at the appropriate time?

Or are you saying, it would definitely be someone from within?

No, I think the board will always compare the people who are within as potential leaders with whom we might be able to attract from the outside as well.

We will make sure that our successors are among the very best people that we can find.

Okay.

Super.

And in terms of IR, you mentioned you're doing what you feel you guys are capable of doing.

But you made it sound like, you can only do that because you're managing the business.

But for a small company to have a CEO, a President, and then obviously, you've got Joe as the CFO.

You have three top guys.

It seems like we could -- the Company should be able to do both.

Manage the company and do -- really pick up the IR.

Increase the IR, you're saying?

Well, your answer to the last question was, you did the two conferences.

But then you said, we're doing as much as we can do because we still to have run the business.

Being a public company, there's an expectation that both have to be done.

There are plenty of micro caps out there smaller than you guys that do more and that have coverage.

In your efforts to do coverage, especially with three of you, most companies are just a CEO and a CFO.

There's three of you, so it just seems to me we could expect and get maybe a little more -- I mean, I do appreciate everything you guys have been doing.

Let me say that in describing the activities that we are undertaking to promote the Company, one of the things that we omitted was the considerable amount of contact that we have with investors and potential investors here in person.

We have a steady stream of visitors who come here.

We have a constant stream of correspondence and telephone calls.

I didn't enumerate those activities, but there's a great deal of continued contact we have not only with potential new investors, but with current investors as well.

And so in addition to our meetings with groups outside the Company, a great deal of activity goes on within the Company from visitors and from people who call in.

Okay.

That's fair.

Thank you, Al.

To the addition that you guys put on the back, do you think that will aid you guys in moving -- I mean, the movement in the gross margin, while it's going in the right direction, has been painfully slow for a number of years.

For the long-term shareholder, at these revenue levels, we thought we'd easily be back to the mid to upper 40s in gross margin, and obviously earning a lot more than we do on these revenue levels.

When do you think we'll hit the flash point where we can steadily do better?

Is it a function of those major contracts shipping in the second half?

Or is it more you can do internally?

Well, our goal was 45%.

If you were to track the gross profit margins over the past couple of years, not necessarily quarter-by-quarter, but the trend line is steadily upward, and we're very close to 45% now.

We're not going to stop there, I hasten to say.

Part of what we need, of course, is additional revenue.

That will help to feed the gross profit margins, certainly as well as improve efficiencies all the way around.

Getting longer production runs of our products, Gary, is one of the most important things that can be done.

We make a lot of different products.

Many of them we make in fairly small quantities.

And one of our objectives always has been to strive to sell greater numbers of individual products, so that we can have the advantages of greater efficiency from longer runs.

We expect, for example, that we're going to see in that our cockpit printers, as these new airplanes from Airbus and Boeing and others go, Boeing, Canadian Bombardier.

As those planes go increasingly into service, they will be calling on us to make greater deliveries so that we'll be able to increase our rates of production and get better efficiencies.

That will help the margins as well.

Super.

Thank you.

And one last question, then I'll give someone else a chance.

Has there been any thought, Al, in the early days of the Company, when you had a breakout division, when it became quite evident, you spun it off.

That was originally Astro-Med.

I think there's been some dialogue about the fact that we have three legs to the stool now.

Grass certainly had a big quarter, coming off a prior weak quarter as Everett mentioned with the CMS decision.

Is there any thought to maybe selling one of the legs of the stool and becoming more of a pure play and/or in the absence of selling a leg, maybe spinning off something as a stand-alone?

Anything in that area?

Just to add to that, any thought of monetizing the Company's real estate and maybe giving the shareholders a special dividend or something extra?

The dividend increases have been nice, but they have been modest.

The Company has increased book and increased profits and so forth and so on, but we still have a modest valuation and no visibility from the street.

I'm looking for something, in addition to all you're doing, to try to move the Company forward but something special for the shareholder, the long-term shareholder.

As we said earlier, we intend to continue to increase the dividend, but we don't intend to liquidate the Company or anything like that.

And we're not -- as far as spin-outs are concerned, things are going so well, and the harmony among the product groups is so great at the present time, that we feel that anything that we might do to rock the boat would be detrimental in the long run to the welfare of the Company.

This is not to say we have a closed mind on the subject, having, as you said, done it once, with the spin-out of what is now Astro-Med.

We're mindful of the possible advantages of doing that, but nothing is in the works now.

Okay.

That's fair.

Thank you, Al, and congrats again on a nice start to the year.

Thank you.

Thank you.

We do have a follow-up question from the line of Joe First with First Associates.

Please go ahead.

Could you extrapolate a bit on this large contract that you got in the sleep act area?

Would you mind repeating that?

Could you extrapolate a little bit on this large contract you've got in the sleep act?

Oh, the Premier Health Group.

Everett will answer that.

Joe, what it is -- an award.

We went out for a competitive bid, and this was in process of negotiation since last August, believe it or not.

But Premier is a group purchasing organization that handles the procurements for a wide range of hospitals.

In their case, they have over 1500 hospitals in their group.

They negotiate with vendors like ourselves to get the best products at the best prices.

Then those prices and products are put into a contract and sent out to all their affiliated hospitals.

Now when it comes time for their hospitals to buy a new sleep equipment, they will come directly to Grass, and buy at those already negotiated prices.

There will be no need to go out for bid again.

It makes it a nice deal now to get quick orders from these hospitals as their needs come up.

Putting a price tag on it is hard to do right now.

But we are very optimistic that it will bring a great deal of new sleep business to Grass in the coming years.

And this is a two-year contract, by the way.

Lacking that kind of a contract for Grass has always been a handicap to us.

It's a real feather in the cap of Everett and the sales managers of Grass to have been able to achieve that.

We think it will have a significant impact, but we're not at this point, ready to put a number on that.

But it is quite significant.

Everett said there's a 1500 potential customers is what you're saying, right?

That's right.

When they buy them, do they buy one, two, three, five?

Well, of course, it depends upon the size of the hospital, but on average I would say a four-bed sleep lab is about an average size these days.

But we get them as big as ten, 12 beds at a time, but for an average, I'd say four.

An average selling price per bed is about $20,000.

How often do they buy new ones of these things or change?

About every three years.

About every three years.

Okay.

The whole sleep market is continuing to expand quite rapidly, so it's more than just replacement, Joe.

It's expansion.

But then you could say that maybe one-third of those 1500 customers would have an interest in buying something each year.

That's correct.

That adds up to a lot of them.

Yes.

There are a lot of them.

I see how important that would be.

Thank you.

Our job in the meanwhile, of course, is to convince the principals within the hospitals that our product is the very, very best.

That's why we spend so much of our effort in making demonstrations and in participating in trade shows.

We have a major sleep trade show that will be taking place in Baltimore in early June, an example of our promotion there.

Got you.

Thank you.

Thank you.

(OPERATOR INSTRUCTIONS).

And we have no further questions.

I'd like to turn it back over to management for closing remarks.

Well, thank you very much for participating.

We always enjoy the presentations and the questions.

And we will be meeting with you -- meeting in this format again with you in August.

Thank you very much and good-bye.

Thank you, ladies and gentlemen.

That does conclude our conference for today.

Thank you for your participation and for using ACT.

You may now disconnect.