AstroNova Inc (ALOT) 2008 Q2 法說會逐字稿

Good morning, ladies and gentlemen.

Thank you for standing by.

Welcome to the Astro-Med Inc.

second-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).

This conference is being recorded today, Wednesday, August 20, 2008.

I would now like to turn the conference over to Stan Berger.

Please go ahead, sir.

Thank you.

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 second-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 Exchange Act of 1934.

These statements are based on the company's present expectations and beliefs concerning future events and are necessary based on certain assumptions which are subject to risk 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 investing 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.

Thank you, Stan, and thank you all for attending this meeting.

As Stan has said, I am Albert Ondis and with me are Everett Pizzuti, President and Chief Operating Officer; and Joe O'Connell who I should point out is the Senior Vice President and the Chief Financial Officer.

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

As you know, after the close yesterday we reported on the second quarter and the year to date.

And I want to make a few comments about a couple of these significant items that were in the news release.

Firstly, new orders received during the quarter amounted to $20,333,000, which is ahead of our budget and up 10.6% over comparable period last year.

Net sales in the quarter, $19,784,000 which was also above our budget and ahead of last year by 5.8%.

The gross profit margin in the quarter was 43.9% compared to 41.9% for last year.

Earnings per share for the quarter came to $0.15 some 25% ahead of last year's $0.12.

We had a very strong cash flow in the quarter, made some significant reductions in inventories.

And at the end of the quarter our cash position stood at a little over $20 million.

During the quarter all of our brands did well.

QuickLabel Systems, which is our brand name for our family of digital color label printers and consumables exceeded the budget and was up by more than 10% over last year.

Test and measurement systems, which is our brand name for products including our ruggedized cockpit printers and ruggedized ethernet switches, plus our family of Dash test instruments and the Everest telemetry recording system.

Those products all exceeded budget, but showed no growth over the prior year because of the continuing startup problems being experienced by Airbus with the A380 plane and Boeing with the 787 aircraft.

There has been a great deal of news coverage of these events, but I won't dwell on them.

However, once the production problems are solved, we will see significant sales increases because our ruggedized printers are a standard in the cockpit and in the main cabin of both of these advanced planes, which are going into volume production.

However, we are meanwhile shipping ruggedized printers for the Boeing C-17, the Lockheed C-130 and the Boeing 777 as well as a few other aircraft.

And all of those planes are now in production, so we are making some shipments of the ruggedized cockpit printers.

We are very optimistic about our ruggedized products because they will be so widely used and most new passenger and cargo planes that are on the drawing board now, and will soon go into production.

Meanwhile, we are continuing to encounter new applications for ruggedized products, and we also continue to roll out new products in the Dash family of test equipment.

So all in all, the test and measurements brand of products at Astro-Med is definitely on a growth path.

Our Grass Technologies brand of neurological products also had a strong quarter.

Grass is the world's oldest and best recognized brand of neurological instrumentation, and Grass came in very close to budget both in sales and in profit.

As a matter of fact, for the year to date Grass sales are up by more than 12% over last year, and with a strong backlog of orders we are very confident that Grass Technologies will have a record year, both in sales and in profits.

Now with these thoughts fresh in your mind, I'm going to turn the conference call over to Everett Pizzuti who will provide some insight into these results for the second quarter.

Everett, I turn it over to you.

Thank you Albert and good morning everyone.

Last May at the end of the first quarter my opening statement during this conference call was "in spite of the sluggish economy we experienced one of our strongest first quarters in the company's history.

Our success is attributable to the fact that all of our products and all markets, domestic and international, contributed healthy growth." Now for the second quarter just ended the only change I would make to that statement is to substitute the second quarter in place of the first, and to add that the quarter was an all time record for revenues here at Astro-Med.

Our total hardware sales were up with good contributions from Dash products, color and monochrome printers and Grass clinical and research products.

Products such as test and measurement's Everest and Grass's long-term monitoring systems which are rather cyclical in sales, were also strong contributors.

And our consumables for all three product groups were up considerably.

As a refresher, the consumables for the three product groups are as follows.

Test and measurement, we manufacture and sell chart paper for recorders, as well as for cockpit printers.

And we expect the latter to increase substantially in 2009 and thereafter as more and more cockpit printers go into production of new aircraft.

On the QuickLabel systems front, of course, we have labels, thermal transfer ribbons, toner and ink as consumables.

And with respect to the Grass product group, the consumables include electrodes, electrode cream and other sensors.

Now during the quarter some of our ruggedized products contracts were affected by the delays in both the Airbus A380 and the Boeing 787 programs as Albert mentioned.

Based upon present information from these customers, we expect the production to begin to ramp up in January and thereafter.

However, during the quarter we would like to point out that we did receive new orders from the following customers.

From Boeing new orders for cockpit printers for the C-17.

From Boeing again new orders for Tough Switches for the C-17.

From DRS Technologies new orders for Tough Switches for a laser targeting system for the Textron Knight armored vehicle.

And from Thales we received new orders for cabin printers for the 787 and from Panasonic we received new orders for cabin printers for various Boeing aircraft.

Thales, as you may know, along with Panasonic are the two largest manufacturers of IFE, that is in-flight entertainment equipment, in the world.

And we are now supplying printers to both of these companies.

We also during the quarter made good progress with several of the manufacturers of business jets.

On the QuickLabel front our color and monochrome printers led by the Vivo!

and Theo continued to sell well.

It should be pointed out, however, that many of the applications for these products and the associated media are two companies that make products for the retail market.

And based on the slump in the general retail market, we anticipate some additional softening in the QuickLabel market for printers and consumables.

With respect to the sleep market and our Grass product group, the final determinations of just how the CMS decision to reimburse home sleep testing will settle is yet to be accomplished.

The CMS decision is a national one that is then interpreted and modified by the local regions and insurers around the country.

So far the effect on the lab-based sleep market has been minimal as it appears the home testing will have to be controlled by certified sleep labs and physicians certified in sleep diagnosis and therapy.

As a result, the sleep labs are beginning to resume their expansion and growth.

Looking forward to the second half of this year, we are cautiously optimistic about meeting our objectives based upon the current state of the economy in the US, as well as in the rest of the world.

And that is my report, Albert.

Thank you, Everett, and now we will get the report of Joseph O'Connell, our Chief Financial Officer.

Thank you, Albert.

Good morning, everyone.

I am pleased to expand on Albert's and Everett's comments relative to Astro-Med's second-quarter financial results.

The company, as you heard, reached record quarterly sales of $19,784,000.

As you also heard representing 5.8% increase over the prior year, as well as a 5.9% improvement over the first quarter sales revenues.

Our sales through our domestic channels increased 6.8% to $13,486,000 whereas international shipments rose 3.8% to $6,297,000.

International sales accounted for approximately 32% of our total revenues in the second quarter and did benefit from some favorable foreign exchange currency rates.

The second-quarter sales growth was dominated, as you heard, by QuickLabel Systems product group with sales of $10,632,000 representing a 10% growth rate over the prior year.

Hardware printer products were particularly strong, up 16.5% whereas consumable sales were up 8.1% in the quarter.

The test and measurement product group sales were flat at $4,490,000 due to the lower international shipments.

However, domestic sales of the T&M products were especially strong being up 15.8% over the previous year sales.

The Grass Technologies sales in the quarter were $4,661,000.

That is an increase of just under 3% over last year.

Here the hardware system sales were up nominally, while Grass consumable sales rose 8.5%.

The company's overall hardware sales rose 3.9% in the quarter, whereas the consumable sales were up 8%.

Looking at the P&L and the gross profits, the gross profits were especially strong at $8,681,000.

That is up 10.9% from last year while generating a gross profit margin of 43.9%.

That is a 200 basis point improvement over the prior year's gross profit margin of 41.9%.

Improved margins really are an outgrowth of productivity improvements as well as volume through the factory.

Operating expenses in the quarter reached $6,752,000 representing a 2.8% increase in spending over the prior year and consumed approximately $0.34 of the second quarter sales dollars.

That is down from last year's $0.35 on the sales dollar.

Operating income achieved in this quarter was $1,928,000.

This level of profitability was an increase of 52.8% over last year's second quarter, and reflects an operating margin of 9.7% against last year's operating margin of 6.8%, a very nice improvement.

Other income in the quarter was $61,000 that is down from the prior year's other income of $214,000 the lower-level of other income is traceable primarily to lower investment income, as well as some losses in foreign currency, translation as well as some miscellaneous charges.

Income taxes in the quarter, the company's tax provision in federal and state income taxes in the quarter was $836,000, representing an effective tax rate of [42]% as compared to the effective tax rate of the 40% reported in the previous year.

This quarter's rate also includes a discrete tax provision for certain state taxes, which raised it up a little higher.

Net income, Astro-Med earned $1,154,000 net income in the second quarter.

That is a 30% improvement over the prior year's net income and provides a return on sales of 5.8% against last year's 4.7%.

Also on an earnings per share basis this quarter's earnings as you heard per diluted share were $0.15, up from last year's earnings per diluted share of $0.12.

Just prior to looking at the balance sheet I thought I would share with you our company's six months results through fiscal 2009.

Our net sales for the first six months of fiscal 2009 were $38,472,000.

That is an increase of 9.6% over last year.

Our sales through our domestic channels were $26,524,000, up 7.6% whereas international shipments at $11,948,000 are up 13.5% from the prior year.

International sales currently represent about 31% of our total sales for the first six months.

As you also heard earlier all the company's product groups are tracking ahead of their respective sales level in the prior year.

QuickLabel Systems product group with sales of $20,382,000 were up 9.7% against last year.

The Grass Technologies product group with sales of $9,640,000 is increasing 12.6% over the prior year and test and measurement group had sales of $8,450,000 are up 6.1% to last year.

Again, our hardware sales were strong.

Our hardware sales for the first six month are up 13% and consumables are just shy of 7% growth rate against last year.

Our gross profits in the first six months are $16,868,000, up some 14.9% against last year and representing a gross profit margin of 43.8, a nice improvement over last year's 41.8%.

Operating expenses for the six-month period reached $13,645,000.

That is up some 6.6%.

Increases in spending related to compensation outside professional services and fees, as well as some marketing expenses account for the increase.

Operating income for the first six months reached $3,223,000.

That represents a 71.1% improvement over last year and reflects an operating margin of 8.4% against last year's 5.4%.

Income taxes, federal and state taxes are being provided as an effective rate of 41%, up slightly from last year's 40%.

Net income for the first six months, the company has earned some $2,051,000 in the first six months.

The current year represents an improvement of 46% on a comparative basis to last year and reflects some $0.27 per diluted share against $0.19 per diluted share reported for the comparable period the prior year.

Looking at the balance sheet, as you heard the balance sheet continues to remain strong at the end of the second quarter.

Our cash and marketable securities were up 16.3% from year end to $20,415,000.

Accounts receivable balance declined from year-end by some 6% to $11,980,000 but represents a turnover rate of 53 days sales outstanding; a nice improvement from the year-end's 58 days sales outstanding.

Also as you heard inventory levels were down slightly 3% from year end to $13,598,000 but likewise also a nice improvement in the turnover there.

We reduced the days on hand from 126 days at year end to 110 days.

Our capital expenditures in the first six months were $939,000.

Those dollars were spent on building improvements, machinery equipment and information technology related expenses.

We paid dividends of $837,000 for the first six months, representing some $0.12 per share.

The company's book value at the end of the second quarter was $7.40, a nice improvement from the year-end book value of $7.18.

And the company's employee population was up by one person from year end to 395 folks, and we also improved in our sales per employee from $173,000 at the end of the year to $191,000 so overall a very fine result for the second quarter.

That concludes the financial report, Albert.

Thank you, Joe.

At this point in our conferences I usually update the guidance that I had given during the previous call.

Now needless to say, we are in an unusual year.

Many of our products, of course, go into markets that are far removed from fluctuations which are common in the consumer products business.

For example, all of our test and measurement products built for applications which are not likely to be affected by the current economic downturn.

And certainly our Grass Technologies products also are not likely to be affected by the current downturn since they are healthcare related.

But our digital color label printers and their associated consumables are strongly associated with consumer product.

And we will probably feel some effects of the recession for that reason.

And for all of those reasons we are not going to revise the guidance which I gave in May.

And let me refresh that guidance for you.

We said that sales would range between $78 million and $82 million for the year and earnings per share would range between $0.54 and $0.58.

So we are leaving that guidance in place for the present, at least.

I believe now we are ready for questions.

(Operator Instructions) Joe First, First Associates.

Good morning, gentlemen.

Congratulations on a very good quarter.

Just a question, and this is a little bit vague question because I don't remember exactly -- in the last conference call you made a reference to potentially fairly large orders and I think it was in test and measurement area or the graph area, something related to sleep or health.

Can you refresh me on that, and is there any update on that possibility?

You talked about someone possibly wanting a whole lot of the one product.

Do you know what I am talking about?

I'm not sure exactly, Joe, but we did mention I think during the last conference call that we had received a contract from the big GPO, Premier, Premier Healthcare.

And that is a contract where our sleep systems, any EJ systems are specified along with a competitive price and then the member hospitals, and there are thousands of hospitals that belong to Premier, the member hospitals are guided to buy off that contract.

And so that took effect around July 1, and member hospitals of the Premier Healthcare system are beginning to buy systems.

And they will, it is a three-year contract.

So we expect that to bring new business in our sleep market for the next three years.

Yes, that's it.

That is what I am referring to.

But I remember there were quite a few hospitals in there; you may have mentioned some numbers.

Now what were they?

How many are there?

I mentioned there are several thousand hospitals.

I've lost track.

I think there are about 3000 hospitals that belong to that group, but I don't have those numbers in front of me right now.

But it is a very good -- it represents a very good milestone for us because it is one of the first major GPO group purchasing organization contracts that we've had here.

And going forward now we need to make sure we promote the fact that we have that contract through all of the Premier hospitals.

And they are doing it for us.

I think we mentioned that there were 1500 affiliated hospitals with that Premier group.

That is really the number 1500 hospitals throughout the US.

And they buy machines like this -- was at once every three years or something like that?

Well, you're right.

It is typical for a sleep lab to turn over its equipment every three years to stay up to date with the latest technology.

That is the average time for an update.

Okay, so that is obviously a lot of potential business.

No question about it.

Have you gotten any orders so far from them?

Yes, we have.

We have received some orders based on that contract.

Okay and one other question.

You are doing a very good job and the company is doing well but still nobody knows about you.

Have you considered going to your local newspapers, your business section of your papers or a local business magazine just to get some articles written about you ?

Just tell me about your company, just in your local area that would be a

Well, in September there is going to be a lead story in a Rhode Island magazine about Astro-Med.

But you are right, Joe, we do continue to have difficulties getting recognition despite the fact that we meet frequently both here and in the field, so to speak, with people like yourself and others.

You may know that this past spring we went out to the B.

Riley conference in Las Vegas, and we have some other appearances planned.

We also made a large presentation to a business group in Rhode Island in the month of late May.

But small-cap companies are pretty much all in the same boat.

We just have to continue to produce results consistently and blow our own bugles a little bit now and then.

I believe we will get there.

But it is a tough road.

There is no question about it.

That's correct, and I'm sure Stan is doing a good job at getting out in front of small institutions and the people, too.

I was just thinking more of a press type of thing, financial publications or something like that; just even local newspapers like I said that can be helpful.

You're absolutely right, and we do talk to the financial editor of the local paper.

And we do get some coverage, but not enough, I guess.

Okay.

Thank you.

I will let somebody else ask a question.

Dennis Scannell, Rutabaga Capital.

Good morning, gentlemen.

Just a couple quick follow-ups.

Al, I think you had mentioned the orders for the quarter was 20 million -- how much over 20 million?

20,333,000.

And on a year-to-date basis where would that put orders?

Dennis, it is about 38 -- just under $39 million.

Okay, and we are receiving orders for looking at test and measurement right now -- we were receiving orders for the C-17, C-130, the triple seven, but are we booking orders yet for the 787 or the A380?

Yes, the A380 of course is flying, and it is flying with our printer.

There is no question about it.

We have shipped some of them in the second quarter, and we will ship more in the third quarter but not as many as they had anticipated because of the general slowdown in maintenance.

In the case of the 787, which hasn't flown yet, we have certainly delivered a lot of printers for use in their initial design efforts, for use in flight simulators and training.

And we will furnish a few more before year's end but production won't be until 2009.

We got a nice letter from Boeing complimenting us recently on completing all of the tests and elevating the status of this printer to what is called Black Label.

That means it is the final readiness for production.

Okay, terrific.

Congratulations on that.

Just a few other quick questions.

On QuickLabel Systems, growth has been pretty strong.

You know you introduced the color piece last year, and we saw a really nice increase in revenues.

Revenues have been pretty strong on a year-to-date basis almost 10%.

Would we expect to see negative comparisons or just a further slowdown in growth, do you think as we look through the rest of the year and into 2009?

It is kind of a close call.

I think that on the one hand we see a pretty strong recession that will affect consumer products.

On the other hand, we are running -- we are going to be seeing a natural increase in shipments of products associated with the holiday season.

And so I believe that the third quarter is probably going to be pretty good for QuickLabel Systems.

And depending, after that it really depends on the world economy I guess as it affects consumer products because those printers are widely used to label goods that do flow into the consumer channels.

For example, labeling passenger car and truck tires, we have seen a small increase in that business because we believe that a shift is underway toward smaller cars, which require new tires that are being labeled.

On the other hand, some of the food products that end up getting labeled we may see a bit of a slowdown there.

It is a hard call, but we do think that on the whole QuickLabel Systems will show an increase for the whole year.

Got you.

And (multiple speakers) especially strong because we've reached a new threshold of QuickLabel Systems at 10,600,000.

That would be the expectation is that that would be impressive to sustain that going forward.

I see.

So maybe sequentially we might have some declines, but still.

It is possible.

That is fair enough.

I wanted to drill in on the cash side a little bit.

In the Q you did talk about in last quarter's 10-Q you did talk about the auction rate securities and maybe Joe or whomever can give me a little bit of an update on that.

As I understand it you have $4.6 million as of the end of the first quarter.

The bulk of which are munis, backed by munis, some of which I guess 481,000 were spec by student loans.

So can you give us an update as to kind of what the number is now, what the market is like for those?

I know there has been some agreements with the big houses to repurchase some of those; whether that might be affecting, whether your securities might be affected by that.

Good questions asked.

Yes, I am happy to say that a number of the securities, the auction rate securities that we have actually have been called and the balance is approximately $2.9 million that we have right now which does include one of which is the student loan.

The good news is that all of those are going to be covered under the UBF settlement so that our expectation is that perhaps by some as early as the fourth perhaps the third, fourth quarter but certainly we would expect by maybe a year's time would probably -- the only last one I think will probably take a little bit of time is the student loan which is, as you mentioned.

But the others have all been "will be recovered at full par" along with the interest that we've earned on those securities.

That's great.

So the student loans would still be about 481,000?

We took a little bit of a hit.

We just -- all we've done is on the balance sheet, Dennis.

We've got a balance sheet of about $487,000.

Got you.

Great.

Thanks a lot.

(Operator Instructions) Gary Siperstein, Elliot Rose Asset Management.

Good morning.

Great quarter.

Al, can you give us some clarity on the Boeing situation?

You said, and Everett you said in production January sometime in '09 and you mentioned earlier in your comment January '09.

It keeps getting pushed out.

What is your level of confidence that it indeed is January '09 rather than the summer of 09?

Well, we don't really know anymore, Gary, than you and I read in the newspapers about the Boeing situation.

On our end we have concentrated mainly on meeting all of the qualification tests and meeting all the requirements of the printer.

And that is completed.

They are desperately trying to show the world that they can beat the schedules that have been announced.

We've heard, for example, that the first 787 will be flying a couple weeks earlier than they said it would.

They said it would fly by the end of September.

Now it looks as though it is going to be flying by the middle of September.

So that is really about all we can say about it.

Okay but the January '09 is the information they have given you up to this point?

Right, pretty much, yes.

And moving on to the business jets, Everett you mentioned there was progress with the various business jets.

So is progress in order or not quite yet?

If we had an order we would announce it, especially if it is significant as most of these will be.

We are talking I think we mentioned before we are talking to Embraer in Brazil.

We are talking to Gulfstream.

And we are talking to Bombardier.

As well as a couple of others in Asia, in China and in Japan believe it or not.

And they are in various stages, the early stages of defining the requirements.

And as we've defined those requirements then our printers tend to get locked in.

So that is where we are on those.

So we can't get any more specific than that right now.

Okay, fair enough.

And in terms of graphs, separate from the Premier relationship, are there any one-off government contracts that you can bid on in that area?

I don't know if the VA does anything.

Is there anything like that?

As a matter of fact, we do have a price contract with the VA covering all of our Grass clinical systems.

And as you know, we are coming to the end of the fiscal, government fiscal year, and they tend to try to spend leftover money before they lose it.

And so we are seeing some of that spending both on a TMM side where it is very traditional to buy Dash products and (inaudible) with year end money, and we are seeing VA hospitals across the country making these buys before they lose their funds.

So we are in a good position because we have the VA contract for the Grass products, and we have a GSA pricing contract for our test and measurement products.

Okay, and in terms of gross margin can you refresh me?

How -- what is our potential?

If quarterly sales get to $21 million, $22 million, $25 million, how high can we go on the gross margin?

What is your goal?

I think first of all it's getting it up to 45.

I think that is -- and we do think it at those kinds of levels, Gary, could be an opportunity for us to see that 45.

I think also as we mentioned we have made some nice improvements as you say in the factory and the processes and manufacturing.

So I don't think it would be unreasonable that with those type of sales that you would see we are either at or breathing at 45%.

Okay.

Thank you very much.

Congratulations.

At this time I show no further questions in the queue.

I would like to turn to call back over to Mr.

Ondis for any closing remarks.

Thank you very much one and all for participating.

And as you know, we are always available to answer questions.

And our next conference call will be in November.

Look forward to talking to you then.

Thank you, ladies and gentlemen.

That does conclude our conference for today.

Thank you for your participation.

You may now disconnect.