AstroNova Inc (ALOT) 2008 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Astro-Med Incorporated Q4 and 2009 year-end fiscal earnings conference call.

(Operator Instructions).

This conference is being recorded today, March 18th, 2009.

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

Stan Berger.

Please go ahead, sir.

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 fourth quarter and year-end financial results and business discussion.

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 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 risks 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, Senior Vice President, Treasurer, and Chief Financial Officer.

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

Ondis.

Thank you, Stanley.

I'm always happy to lead these conference calls, and I want to confirm what Stan just said, which is that with me are Everett Pizzuti and Joe O'Connell, and they will each make a report following the rather brief report I'm going to make.

And then all three of us will take your questions.

Let me start by saying that despite our very broad product lines, and our very long international distribution reach, Astro-Med experienced a very sudden downturn in orders, quite late in the fourth quarter.

As a matter of fact, in early January, we were forecasting that we would have a pretty decent fourth quarter, based on some forecasts that we had received from our field sales people.

And those forecasts turned out to be in error.

The orders did not come.

And so, we were quite surprised to face the news that our fourth quarter was going to be much poorer than we had thought.

You know, we have always felt that the tentacles of our very diverse product lines and our international distribution organizations not only provided us with growth opportunities in many, many fields, but at the same time, we felt that those assets insulated us from a sector downturn or specific industry downturn.

That theory was tested late in our fiscal year as I mentioned, and it came up wanting.

That said, however, we believe that when the recovery begins, it will happen rather quickly at Astro-Med.

So, in order to deal with the present downturn, lower level of incoming orders, as you might expect, we have adjusted our manufacturing organization to match the lower level of incoming orders that we're currently experiencing, and in doing so, we've done what many of our -- or most of our peers have done.

We have frozen wages and salaries, deferred capital expenditures, reduced inventories, reduced our manufacturing staff, and have cut hours.

But we have not reduced our research and development staff or cut out any of our development programs and nor will we.

Because we know that a continuous flow of advanced product is the key to growth and profitability in the future.

More over, we have not reduced our selling and marketing organization.

On the contrary, we have stepped up sales and marketing activity.

Sure, we cut out a few marginal trade shows, and we did eliminate some advertising, but, on the other hand, we have always spent our sales dollar very carefully.

So what we're doing is not new to this organization.

At the present time, we're looking carefully at acquisition candidates.

And as a matter of fact, we've identified several targets, both domestic and international, I might add, and all of these targets are presently operating within our present market areas.

And that has always been one of our criteria.

We would not step outside the present areas that we now operate in, in the course of making an acquisition.

And so any of these candidates, should the acquisitions take place, would be accretive to both revenue and net income.

We feel that this is an opportune time to make acquisitions, as we have a strong cash position, and as you know, we're debt-free.

By the way, I hasten to say that while we are engaged in discussions with more than one target, please do not expect an early acquisition announcement.

At this point, I'm going to turn the phone over to Everett Pizzuti, who will add some color to the comments that I have made.

Everett?

Thank you, Albert, and good morning, everyone.

Although we saw some of the first real signs of the downturn last summer, and more in the third quarter, we really did not experience the steeper drop until well into the fourth quarter.

The reasons were several.

Certainly, the tightening of the credit market, which placed many of our pending orders for capital equipment on hold.

And on the consumable side, the widespread slowdown of production impacted our label product group where typically orders are placed daily for JIT delivery.

And still another reason for the decline in our sales was the delay of ruggedized product shipments.

Not only because of delays in our customers' programs, such as the 787 Boeing delay, but also technical delays attributable to customer testing requirements prior to shipment.

Certainly, the latter is not attributable to the economy and will not be an issue in the current year.

The ongoing issues with the general economy will impact us in differing degrees due to the many diverse markets that Astro-Med participates in.

Let me review some of these markets now.

As you have heard, our medical products were not impacted too severely in the fourth quarter, and in spite of the fact that some of our larger pending orders for long-term epilepsy monitoring systems were placed on hold.

Grass sales grew for the quarter and the year.

We continue to see opportunities in sleep as well as routine EEG.

And, of course, consumable sales from medical markets grew in the quarter and the year.

Other markets for our medical products saw general physiological research, especially for universities and pharmaceutical companies where we sell amplifiers, transducers, and software.

In the area of Test and Measurement products, the markets are even more diverse and include aerospace contractors such as L3, Lockheed Martin, Northrop Grumman, United Technologies, (Secorski) and Raytheon.

These companies purchase our Dash products as well as the Everest.

In the industrial segment, our markets include automotive, geophysical, steel and aluminum mills, gas and electric power companies, amusement parks, light rail transit and railroad companies, university research centers and more.

Customers in this industrial segment include Hyundai, BMW, US Steel, Pacific Gas and Electric, Kepco, Disney World, BART, Amtrak, Siemens, Medtronic, and ITW to mention a few.

And when capital equipment budgets are tight, companies tend to rent or lease.

And we participate by selling our Dash products to the biggest rental companies in the world, such as Electro Rent and TRS and others.

And another important market segment for Astro-Med is defense, where we sell not only to large government contractors, but also directly to Army, Air Force, and Navy bases not only in the US, but also in other countries, including France, the UK, and Italy.

Now, in the color printer and consumable world, we sell to an even greater array of markets and companies.

These markets include food and beverage, chemical, pharmaceutical, manufacturers of electrical equipment, medical devices, tires, housewares, auto license plates, apparel, and big appliances.

Customers are large and small, such as Whole Food Markets, Ghirardelli Chocolates, M&M Mars, Heiniken Brewery, Windsor Vineyards, DuPont, Bio Med, Alcon Labs, Siemens Healthcare, Boston Scientific, Smith and Nephew, GE, and Eagle Delight, and Snyder Electric.

Because of this diversity of markets and customers that we enjoy for all of our products, it's obvious that we are not dependent upon any one vertical market, and hence our ability to withstand downturns in the economy, such as we are now facing.

We are optimistic that we can maintain profitability as we weather the storm that nearly every company in the world is faced with now.

And that's my report, Albert.

Thank you, Everett.

And now Joe O'Connell, our CFO, will deliver his report.

Thank you, Albert.

Good morning, everyone.

I will review Astro-Med's fourth quarter financial results, the annual financial results for all of fiscal 2009, and the composition of the Company's year-end balance sheet and cash flow.

Astro-Med sales revenues in the fourth quarter were $15,631,000, which compares closely to our orders received during the fourth quarter.

However, relative to last year, sales were down 13.8% in the quarter.

Our sales through our domestic channels were $10,783,000, representing 69% of our total revenues, but were down 12% over last year's domestic sales in the prior year's fourth quarter.

International shipments were $4,848,000 in the quarter, which were also down by about 17% from last year, although half of that is related to exchange losses relative to the dollar.

The distribution of the fourth quarter sales varied by product group with the Test and Measurement segment with sales of $3,247,000, that's down 20% from the prior year sales.

QuickLabel System sales at $7,786,000 was down by 19%.

And as you heard from Everett, our Grass Technologies was strong in the quarter with sales of $4,598,000, representing an increase of 4.5% over the prior year's fourth quarter sales of Grass Technologies.

The sales volume in the Test and Measurement product group were adversely affected by delays in the production of the new commercial aircraft as reported by Boeing and Airbus, as well as the downturn -- a slowdown rather, in demand for the portable recorders in our telemetry applications.

QuickLabel Systems revenues, which were most seriously affected by the global recession experienced a double-digit decline in both printer hardware as well as consumers, relative to the prior year's fourth quarter sales.

Grass Technologies product group reported a healthy quarter, as I mentioned, with sales up 4.5%, and was dominated by increases by our domestic channels which were up 9.3% year-over-year.

This quarter's sales growth in Grass Technologies was traceable to the Grass line of clinical diagnostic products and the Grass line of consumable products.

Both product lines posted double-digit sales growths over last year.

The company's year-end backlog stands at $6.4 million.

That's a slight decrease from the prior year end, and was a result of some declines in the QuickLabel Systems and the GT, although the Test and Measurement sector had an increase in it's backlog.

The Company achieved gross profit dollars in the quarter of $6,553,000, representing a gross profit margin of 41.9%.

It's down from last year's profit margin of 44.5%.

This quarter's lower margin is traceable really to a combination of product mix and lower volume.

Operating expenses in the quarter were down at $6,239,000, representing a 10.5% decrease from last year's level of operating expenses for the same quarter.

Lower benefits, commissions, marketing and professional fees account for the lower spending levels.

Operating income in the quarter was $314,000, well below the prior year's operating income of $577,000 which does include a charge of $515,000 related to our restructuring that took place in our Italian and our Netherlands offices.

This quarter's operating margin is at 2% compared to last year's 6% in the same time frame.

Other expense in the quarter was $49,000.

That's down from the previous year's other income of $222,000 and is due to lower investment income as well as the impact -- negative impact of foreign exchange with the dollar.

Our provision for federal taxes in the quarter, federal, state, and foreign taxes in the quarter was $2,000, negligible, as the Company adjusted its effective tax rate as to coincide with the appropriate annual effective tax rate for fiscal 2009.

Net income in the quarter was $263,000, reflecting a return on sales of 1.7% and an earnings per diluted share of $0.04.

On a comparative basis the Company earned $1,340,000 in net income or $0.18 per diluted share in the prior year with a return on sale of 7.4%.

The prior year's net income did include a tax benefit of $0.06 on an earnings per share basis.

Prior to reviewing the balance sheet detail, I will review -- take a quick moment to review Astro-Med's financial results for fiscal 2009.

For the 12 months ended January 31st, 2009, Astro-Med had net sales revenues of $71,783,000, which is slightly lower than the prior year sales of $72,371,000.

Sales through our domestic channels were $49,960,000 representing 70% of our total revenues, were off only 1% from the previous year.

International shipments at $21,823,000 were approximately flat with prior year export sales.

Profiling this year's sales by segment we have Test and Measurement sales revenues at $15,796,000, down 4% from the previous years as lower sales in the ruggedized product line of avionic printers impacted the product group's overall sales volume.

QuickLabel System sales of monochrome and color printers, along with the media consumables, were $37,402,000 for the fiscal year, lower by 2% from the prior year.

Here the hardware printer sales were off some 6% while our media consumables sales were approximately flat with the prior year.

Grass Technologies sales were strong at $18,589,000.

That is almost 5% ahead of last year's sales volume.

Here at both our domestic and international sales channels posted growth rates, with demand for the product group's clinical diagnostic products, specifically sleep and long-term epilepsy monitoring, together with increases in our consumable line, drove the year-over-year sales growth.

The Company achieved gross profits for the year of $31,068,000 on sales, approximately flat with the last year's dollars, and reflecting a gross profit margin of 43.3%, a slight improvement over the last year's margin of 43.0%.

Spending in the selling, research, and development and general administrative operations was $26,442,000, approximately flat with the previous year's spending and consumed some $0.37 of this year's sales dollar.

Operating income for the year was -- as a result was $4,626,000.

That represents a 10% increase over the prior year's operating income with a margin of 6.4%, relative to last year's margin, which was 5.8%.

Last year's margin did include a restructuring charge of $515,000, as I mentioned earlier related to the closing of our Italian and our Netherlands offices.

Other expenses for the year was $49,000, and again, reflects the lower interest income as well as the negative impact of foreign exchange.

Our provision for income taxes for the year was $1,613,000, representing an effective tax rate of 35.2%.

The Company earned net income of $2,964,000 during fiscal 2009, which reflect an earnings per diluted share of $0.40.

This year's results are lower than the prior year's net income of $4,310,000 with a corresponding earnings per share of $0.57.

The prior year's earnings do include a favorable tax adjustment related to $0.11 per share.

Quickly to review the balance sheet.

Our balance sheet at the end of the year stands with our assets of $62,155,000.

Our equity position is $51,472,000 and translates into a book value of $7.33 per share, slightly up over the prior year book value per share.

Our cash and marketable security position is $22,105,000 and represents almost an 26% increase over our year-end -- prior year-end cash and marketable security investment position.

Account receivables during the year declined to $9,246,000.

However, it translates the -- the dollar value translates into some 50 days sales outstanding, a significant improvement from the previous 58 days sales at the prior year end.

Inventory balances also declined to $12,826,000.

Again, reflecting an improvement in the turnover of 180 days, down from last year's 185 days on hand.

Capital expenditures during the year reached just under $1.7 million and were slightly higher than the depreciation we booked for the year of $1.4 million.

Our dividends paid during the year were $1,678,000 at the rate of $0.06 per share.

Our employee population rose slightly during -- at the end of the year to 402 folks.

And our sales per employee was $179,000 per employee, down slightly from the previous year's $183,000 per employee.

Albert, that concludes a review of the financials for the quarter and for the year end.

Well, thank you, Joe.

At this point in our conferences, we usually provide guidance.

But due to the great uncertainties which we are looking at the present time, we have decided against giving guidance.

But as we go forward, and we see stability returning to our businesses that most assuredly will, we'll revisit this, perhaps at the end of the second or third quarter.

Nicole, we're now ready to take questions.

Thank you, sir.

Ladies and gentlemen, at this time, we'll conduct a question and answer session.

(Operator Instructions) One moment, please.

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

Please go ahead.

Good morning, gentlemen.

I was curious, on the various cuts you have made to save operating expenses, on an annualized basis, what you expect that would save you over the next year?

We have, in adding up all the various pieces, Joe, it looks like it will be about $2 million.

Okay.

That's good.

And also, in your business segments, which of the segments do you think is the most likely to recover first whenever that might happen?

Usually, in the past it's been our label products, especially -- excuse me, the consumables and sales.

Those are usually the first to see the downturn and the first to come back.

So that's what we're expecting to happen again.

Okay, thank you.

I'll let someone else ask a question.

Thank you.

Our next question comes from the line of John Walthausen with Walthausen & Company.

Please go ahead.

Yes, good morning.

I wanted to follow up on the question of the label consumables.

It struck me as surprising that it fell, I think you said at a double digit rate in the quarter.

Is that unprecedented for you?

And when you look at the numbers, do you have any insights as to why it -- what would seem like, as a consumable, more -- a steadier demand picture, why it fell that quickly?

You know, the consumables -- our label consumables are very, very close to the consumer market, as you might imagine, John, because they go on all manner of products.

Many of which, if not most of which, end up in retail channels.

And it looks to us as though a big part of this downturn has come from the retail segment.

And our customers tend not to purchase large quantities of these consumables in advance.

They tend to buy them as needed.

And the moment their business began to decline, and I can point to a couple of good examples, for example, tires, automobile tire manufacturing came to a very, very dramatic slowdown.

And that is one of the areas where we do an extensive amount of business.

So all in all, I think it's -- we see it as being related to proximity of our consumables business to the retail business.

And for that reason, we think that when retail sales begin to increase, we believe that we will see an immediate increase in the purchase of the consumables.

And I'm not sure I answered with the question you started with, which was have we experienced this before, and the answer is yes.

But not to this extent.

That's helpful.

But for clarification, as far as you can make out, it hasn't been that any customers have shifted to a different printer or different printing technology?

Oh, no, not at all.

Not at all.

Good, thanks.

Thank you.

(Operator Instructions) Our next question comes from the line of Dennis Scannell with Rutabaga Capital.

Good morning, gentlemen.

Good morning.

Just a couple of quick things.

I'm not sure I understood some of the delays on the ruggedized printer.

You mentioned that there were some issues at the customer level on testing.

Was it testing the printers or testing the aircraft?

I'm not sure I --

Yes, it's testing the printers.

After we qualify the printers by our own extensive testing in-house as well as at independent testing labs, and when we do that testing at the independent testing labs, it's usually witnessed by representatives from our customers, the airlines in this case.

So after we do all that testing, then we submit a few of these printers directly to the customer for them to do some additional testing on their own.

And it's that additional testing by the customer that took longer than expected, and as a result, we were not in a position to make some sizable shipments that were scheduled to go out in January.

So by your estimations, are the printers passing the test and the customer hasn't been quick enough to put them into service, or are the customers finding (inaudible) when they're operating them on their own?

Yes, We pass all the tests successfully.

It's just the administrative delays in the customers going through their process at their end.

Of course, there's some well known delays among the airplane manufacturers that have contributed as well.

As you know, the Boeing 787 project has been -- is running about two years behind.

They have not even flown the first plane, although they are taking some deliveries from us for that airplane to be used in the training systems that they're presently setting up.

Okay.

Of course, in addition, some airlines have either postponed or even cancelled the purchase of planes, and some of that is figuring into this delay that we're experiencing.

Okay.

But it is a sound business.

There is simply no question about it.

And the printers are working?

Working very well.

And would you expect those to be shipping in the first half of the current fiscal year, or are we looking at a longer term push-out?

Oh, we are shipping -- we're now in the first quarter, as you know.

We'll be making some shipments in the first quarter and in every quarter from now on.

Terrific.

The rate will slowly increase.

Okay.

Thank you.

That's helpful.

Couple other quick things.

Joe, I think you were saying on Grass Technologies that for the year, both the epilepsy and the sleep business contributed to the growth.

But in the fourth quarter, was it really just the sleep portion?

It sounded like the epilepsy business might have fallen off a bit.

Actually, in the fourth quarter, the LTM -- epilepsy was extremely strong in the fourth quarter, and it was strong for the year as well.

The sleep in particular, though, for the -- they weren't quite as strong in the fourth quarter as they were for the year.

For the year they're up over 22% in terms of sleep, Dennis, where as the LTM was up over -- just single digits.

Okay.

So again, I'm sorry, which fell off in the fourth quarter?

The EEG was down a little bit from what it had been.

Okay.

But the long term monitoring and the sleep --

Were both strong, both in the -- I was going to say, LTM was especially strong in the fourth quarter and strong for the year, but sleep was strong for the year, not quite as strong in the fourth quarter.

Okay.

But still positive?

Sorry?

Was sleep still positive in the fourth quarter?

Yes, it was.

Single digit.

It just wasn't the double digit that we did for the whole year.

Got you.

Can you explain to me the foreign exchange losses that are flowing through other income?

I'm not sure if I understand, are these hedges, or are these actual cash losses?

How do we think of --?

We have, as you know, we have the three branches in Europe, then we have Canadian branches, all of which are in functional currency, so when the pound and then the Euro dropped in the last half of the year, and then the Canadian dollar dropped relative to -- our dollar got stronger, it was a precipitous impact on us in terms of the exchange rates.

So as a consequence when we're reporting our results for the three branches in Europe and in Canada, the impact obviously has -- it's a loss for us in terms of reporting the actual results.

So we have had -- when the dollar was weak, we had some terrific results, and I think those are reflected in last year and the year before.

This is the first time we've seen, as I say, a strengthening dollar, so that is how it impacts us in terms of the P&L.

When we convert sales in euros to dollars, --

Exactly right.

Everything is converted into US dollars, and we have -- in particular, Dennis, the branches have done extremely well this years in terms of local currency.

So as a consequence the impact on us is significant as a result of the strengthening of the dollar.

So in those -- let me understand this a little bit more.

I definitely understand the dollar has strengthened versus all of those currencies.

So you will be selling, say a QuickLabel System in Canada in Canadian dollars, but then when you translate those sales at January 30th, or whatever, at the end of the quarter, you -- I'm just trying to get a sense of where is the loss?

It is the loss when you are converting -- for example, when we take their balance sheet and take their P&L at the end of each period, in the quarter, for the year, and we translate that into US dollars, that translation effect causes us the loss.

So as a consequence, for example, we have made -- during the early part, if you are setting up a higher value in terms of your P&L and -- I'm sorry, your balance sheet, when you are converting that at the lower exchange rate, which happens here, then the loss is in terms of the P&L, you'd have to adjust your balance sheet and your P&L to the US dollars.

Got you.

I think I understand now.

And then the last thing, just out of curiosity, so 35% tax --

For the year.

What would you estimate going forward?

We're using, for budgeting purposes, Dennis, I'm using 39%.

Okay.

Thank you.

That's it for me.

Good luck.

Thank you.

Thank you.

(Operator Instructions) And we do have a follow-up question from the line of Joe First with First Associates.

Please go ahead.

What do you see as far as these distribution (inaudible) you saw in the last couple quarters in the Grass Technologies placed in this region [and so on there].

There were a couple large ones that you saw where hospitals would buy from you as a preference.

What's going on with that?

Joe, what we've seen is during the quarter, the fourth quarter, we received notice of another group purchasing contract from hospitals.

And this one was from Broadlane, which is probably the biggest -- has the most hospitals of any of the GPOs.

So now we have two of these GPO contracts.

One with Premier.

The Premier contract was just for sleep systems.

The Broadlane contract is for all three of our modalities, sleep, EEG, and long-term epilepsy monitoring.

And these contracts don't mean that the hospitals are required to buy off of contract, but they sure do help get our name and get us the leads into these hospitals.

And because we've negotiated a good price on those contracts, it's easier for them to make purchases.

And we haven't seen a great -- we've seen some new business as a direct result of these contracts, and we expect more of that to happen as this year progresses.

Because the Broadlane contract is quite new, and it just goes into effect on -- in fact, it goes into effect on April 1st.

The Premier contract went into effect on July 1st of last year.

So, we know both of these contracts are going to help us.

We can't give you any numbers right now.

Okay.

Thank you.

Thank you.

And we do have a follow-up question from the line of Dennis Scannell with Rutabaga Capital.

Sorry, just one other follow-up.

I think Albert, you were talking about the possibility of acquisitions as a use of the cash, and in active discussions with folks in your current business area.

Can you size it at all in terms of maybe the size of revenues?

I'm kind of curious, are these small little tuck-ins, or would they have the potential of doubling say the size of your T&M business or the Grass business?

Well, there is a combination of what you might describe as tuck-ins and some others that would be significant contributors to the revenues of whichever of the product groups we may be talking about.

So there is a combination of both.

So potentially there could be what I will call kind of a game changer in terms of really increasing your size in a particular product area, or --

That is a possibility, yes.

Very definitely.

OK, Well, I guess we'll stay tuned.

Thank you.

Thank you.

Thank you.

And there are no further questions at this time.

I would like to turn the call back over to management for closing remarks.

Well, thank you, once again, thank you one and all for participating.

As you know, our next conference call will take place in May, and so we look forward to seeing you there.

It will be sometime around mid May, I guess, and you will be getting the appropriate notification.

We thank you for participating today, and we'll talk to you then if not before.

Bye now.

Thank you ladies and gentlemen, that does conclude the Astro-Med Incorporated Q4 and 2009 year-end fiscal earnings conference call.

Thank you so much for your participation.

You may now disconnect.