AstroNova Inc (ALOT) 2009 Q1 法說會逐字稿

Ladies and gentlemen, welcome to the Astro-Med first quarter fiscal 2010 conference call.

I will now hand the conference over to Stanley Berger.

Please go ahead sir.

Thank you Holly.

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

Thank you for joining us to discuss the Company's fiscal 2010 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 make 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 based on certain assumptions which are subject to risk and uncertainties.

Actual results may differ materially from those discussed here.

More information on these risks 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 morning.

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 turn the call over to Mr.

Ondis.

Albert?

Thank you, Stan and to all listeners I apologize for our late start this morning.

I apologize.

Although we're here to talk about the first quarter, I'd like to roll back time for six months or so to give you an idea of how we have seen things unfold.

For us, we've now realized that the recession began in October 2008, just as the fourth quarter of our last year was beginning.

By January, which was the last month of our fiscal year, we were feeling the full force of the recession and we began to make plans to deal with it.

And as we tallied the results for the year -- and as you know from our previous call -- our sales in that year receded to $71.8 million, from $72.4 million in the prior year and our net income for the year declined to slightly under $3 million, from the $4.3 million in the previous year.

Interestingly, export sales through our branches in Canada and Europe fared better percentage-wise than our domestic sales and as we've noted before, our foreign branch offices are doing a great job, providing outstanding customer support as well as excellent sales results.

In early February, which was the first month of the new fiscal year and the first month of the first quarter, of course, after studying the results of the year that just ended and then also looking at the rate of incoming orders, we realized we had to make some reductions in our workforce and we did.

Additionally, we froze wages and salaries and made some other expense reductions in order to drop our breakeven point.

Several groups within our workforce were put on a four day work week and that continues to this very day.

And we decided that while we would adjust production to match our incoming orders, we decided we would not reduce our sales force, we would not reduce advertising and marketing activities.

Our customer support program would not be reduced and also, fundamentally we decided we would not reduce our R&D activities.

On the contrary, we ramped up our sales and marketing by increasing our promotional activities and we redoubled our determination to bring out advanced new products as quickly as possible.

You see, our strong, debt-free capital structure in the years of accumulating cash make it possible and we will continue the increased pace of our selling, marketing, customer support and new product development until the recession is over.

And when it ends, we will be poised for a fast recovery.

Let me give you a brief summary of our major product and market activities.

QuickLabel Systems, which is our color label printer and consumables group, felt the recession rather sharply and quickly, even though QuickLabel's customers range widely and include a wide range of customers -- food and beverage, medical device producers, manufacturers of industrial products and so on.

And by the way, QuickLabel represents nearly one-half of the business of Astro-Med and has been growing quite rapidly.

A big part of the business of QuickLabel is from the sale of consumables, which include labels, inks and so on and currently we are experiencing a modest upturn in orders for these consumables, and this could be a sign that the recovery has begun.

For example, for the first 11 days of the second quarter, orders are 11% ahead of both our budget and last year's first quarter.

I realize that statistically speaking, this may be meaningless, but it is encouraging, nonetheless.

Our Test & Measurement business is concentrated heavily within the industrial and aerospace sectors and these sectors turned down very quickly, as customers and companies decided not to purchase capital equipment in order to preserve cash.

The products of the T&M group are data acquisition systems and recorders which are priced on average above $8,000 each.

There's a very small consumables component of the business associated with the T&M products.

Our ruggedized products, namely our line of airborne ToughWriter printers and ethernet switches are almost entirely associated with the production of new airplanes.

As you probably know, we have major contracts to supply these printers for the new Boeing 787, the Airbus A380, the Airbus 400M, the Bombardier, Global explorer and the Global 5000 as well as to supply printers to the major military transport planes such as the C-17 and the C-130.

Of course, the widely publicized delays with the Boeing 787, and the Airbus A380 and especially the Airbus A400M have slowed the rapid growth of our this part of our business.

We have also seen a sharp slowdown in the business jet market, which although it has slowed down, it does promise to be a very important future market to us.

And we have some new and very promising business initiatives which may appear to be fairly long-term with aircraft manufacturers in China, Europe, Russia and South America and of course those discussions and initiatives are in the early stages.

But they do bode well for the future.

Our Grass Technologies brand of neurological instrumentation and consumables made far greater progress in penetrating its markets during the year than will be shown by the revenues from Grass during that period.

We continue to advance that product line and we have a number of major purchases by Grass customers which are waiting in the wings for the recession to moderate.

Here's an example of where the recession has reduced the value of portfolios and the yields of various trusts and institutions who are funding hospitals and our other customers.

As the recession abates, we believe that that business will continue.

As you know from our news release, the sales in the first quarter receded to about $14.7 million from $18.7 million in the first quarter of the prior year and we experienced a loss of $237,000, our first loss in many years.

And that loss included losses from foreign currency translations and if you compare the results of the first quarter of this year, which as I said, resulted in a loss, to the profit that we had in the previous year, which was $900,000, so we made quite a swing.

As I noted earlier, we are experiencing the effects of the recession in all geographic markets and in all product lines.

Now, what do we see ahead?

We continue to believe that the economy is still too unsettled for us to forecast results for the current year.

However, we are guided by the following principles.

Number one, we're committed to growth, both organically and growth by acquisition.

In regard to acquisitions, at present we are deeply involved in discussions with several acquisition targets and we hope to conclude one or more acquisitions this year.

For the most part, the targets that we have in mind are smaller companies with revenues of under $10 million, but they would fit in well with our present lines of business.

I'll repeat again what I've said many times, which is that we will not enter any new and unknown businesses.

Number two, we believe that our strategy to employ our strong capital structure, both to fund acquisitions, as well as to continue our aggressive sales and marketing programs, to support our equally aggressive Research and Development programs, and to continue to pay our regular dividend -- we believe that those are the right things to do.

Number three, we know the recession will end, ultimately.

And when it does, we will make a fast start.

Meanwhile, we will leave no stone unturned to return to profitable operations, even before the recession ends.

Long-term, we know that our prospects for growth and profitability are quite outstanding.

After having made these comments, I'm going to turn the phone over to our Chief Financial Officer, Joe O'Connell, for his brief report and then we'll take your questions.

Joe?

Thank you, Albert.

Good morning everyone.

Well, as you've heard from Albert, the first quarter was a disappointment in terms of our sales volume, our operating loss and certainly the eventual net loss that we incurred during the period.

But profile the composition of the first quarter results are as follows.

The Company sales in the quarter were $14.677 million.

That ran behind last year's sales by about 22%.

However, only 6% behind the fourth quarter sales that we had for the previous year.

The soft dollar also relative to the Euro, the British pound and the Canadian dollar impacted negatively our sales in the quarter by approximately $743,000, or roughly 5% against prior year's first quarter.

Our sales through our domestic channels were $10.375 million being about 20% below the previous year's first quarter domestic sales, but comparable to the fourth quarter domestic sales, about $10.783 million.

International shipments in the quarter were $4.302 million as compared to $5.651 million in the international sales reported in the first quarter of the prior year.

As I mentioned, the unfavorable foreign exchange rate account for about one-half of the shortfall against the prior year numbers.

Profiling the quarter sales by product group has our Test & Measurement segment, including the line of organized products, with sales of $3.669 million in the quarter, that's roughly 7% behind the prior year's first quarter sales, although 13% ahead of the fourth quarter sales of Test & Measurement sales in the previous year.

This quarter's lower sales were primarily traceable to the dash line as we did quite well with respect to the Avionic [prinic] in our ruggedized line.

QuickLabel systems in the quarter were $7.495 million lower than the prior year's first quarter by approximately 23%.

However, only slightly behind the QLS sales in the fourth quarter of the previous year of $7.786 million.

Grass Technologies sales in the quarter were $3.513 million as compared to $4.979 million in Grass Technologies sales reported in the first quarter of the previous year.

Our gross profit dollars in the quarter were $5.813 million which due to the lower sales volume, generated a lower margin of 39.6%.

This compares against the prior year margin of 43.8%.

Operating expenses in the quarter reached $6.273 million.

That represents a 9% or $620,000 spending reduction from the prior year operating expenses reported in the previous first quarter.

As a consequence of the lower sales gross profits, we were incurred an operating loss of $460,000 in the first quarter.

This result compares to an operating profit of $1.295 million realized in the first quarter of our prior year.

Other income in the quarter, which is primarily due to interest and dividend income, was $104,000.

Down from the prior year's other income of $176,000.

The lower level of other income in this particular quarter is due to lower interest rates available from the munis and the treasuries as well as some higher foreign exchange gains realized in the previous first quarter.

We are using an effective tax rate in the quarter of 35% which generated a tax credit of $124,000.

The prior year our effective tax rate in the first quarter was 39%.

As a consequence, as you heard from Albert, we reported a net loss of $231,000 in the first quarter which translates into $0.03 per share.

Again, on a comparative basis, last year for the first quarter we reported net income of $897,000, or translated that into a $0.12 earnings per share basis.

Quickly looking at the balance sheet, relative to the balance sheet at the end of the first quarter, we present a very strong financial profile.

Our cash and investment balance rose $370,000 during the quarter, to $22.475 million.

Our accounts receivable balances declined by about 12% in the quarter to $8.136 million and this translates into some 46 days outstanding.

I think it's probably the lowest we have achieved our DSO level in recent history.

And down from the year end balance of 50 days sales outstanding.

Inventory balances rose slightly in the quarter, by 3% to $13.188 million and translates into 134 days, up slightly from the year end metric of 127 days of inventory on hand.

The Company spent $121,000 in capital expenditures during the quarter, primarily funding expenses or capital related to machinery and equipment as well as information technology.

However, the capital expenditures was well below the Company's depreciation and amortization charge that we took in the quarter of $352,000.

We paid some $425,000 in cash dividends in the quarter at the rate of $0.06 per share.

Our employee population declined during the quarter by some 21 individuals.

Down to a population of 375 employees at the end of the first quarter.

And on the Company's sales per employee declined by 7% from the year end to $173,000 per employee.

That's a quick review of the financials for the first quarter, Albert.

Well, Joe, I thank you very much.

And now I guess we're ready, ladies and gentlemen, to take your questions.

Thank you, sir.

(Operator Instructions).

Thank you.

The first question comes from Joe First from First Associates.

Please go ahead with your question.

Good morning, gentlemen.

You've done a good job under trying circumstances I'm sure.

I was just curious in the Grass Technologies area, you have a couple of these blanket contracts with a couple of distributors for some of your products.

What do you see in that?

Are some of these hospitals and centers buying some of the products?

Are they deferring that also?

What are you seeing from that?

Yes, Joe, this is Everett Pizzuti speaking.

Yes, we do have at least two GPO contracts with major hospital groups.

The latest one was with Broadlane and we are indeed getting some new business as a result of these contracts.

In fact, we got a very good one in the first quarter of this year for something like -- from one hospital alone, we got an order for 21 sleep systems.

So that's a very good indication of the value of these contracts.

Good.

And how about in the Airbus and Boeing, how much longer are these delays supposed to be, do you think?

Well, we're still waiting for Boeing to fly the 787 for the first time.

They promised that will take place before July and I think once that takes place and they're conducting a multi-plane qualification test.

I believe there are going to be seven Boeing 787s involved in this introduction test.

Shipments, probably if they're successful, should begin, I would think in the fall.

Just one other question.

You have over $3 a share in cash so basically people are paying $2.75 for your entire business which is awfully cheap.

Might it be a good use of cash to start buying back some stock down at these levels, if you can?

We think that what we should really be investing in is ways of continuing to expand and grow the Company and paying dividends.

But we'll watch the situation carefully to see whether it would make sense to repurchase stock.

At the present time, we do have the authority to do that if we wish but we don't think it's the wisest course, even though the stock is desperately undervalued in our opinion.

Okay.

Thank you.

Thank you, sir.

(Operator Instructions).

Thank you.

(Operator Instructions).

Thank you.

We have a follow-up question from Joe First from First Associates.

Please go ahead with your question.

No one else seems to want to ask a question.

I'll try one more.

What are you doing to try to get the Company known to the investment community and so people become more aware of the Company and especially at these cheap prices?

Well, one of the main things that we're doing is through our consultants -- Stan Berger and his Company -- we are being introduced to groups of individuals and institutions who have an interest in purchasing stocks over the type represented by Astro-Med.

We're also appearing in -- making presentations -- various investor groups and financial organizations to which we are frequently invited and of course most importantly of all, we have got to continue to deliver the results that will justify confidence in the minds of potential buyers and we're working very hard to that end, Joe.

But on balance, we do feel that we're under-recognized and certainly under-valued.

Okay.

Thank you.

Thank you, sir.

The next question comes from Steve Busch.

Please go ahead with your question.

Hi, gentlemen.

I'm Steve Busch with Southpaw Investments.

I'm a new investor in your Company.

Welcome aboard.

A couple questions.

I apologize I got on the call a little bit late.

Regarding cash flow from operations, what was your cash flow this quarter?

Cash flow this quarter, Joe?

Yes, we had a strong cash position as a result of the receivables.

Basically from operations was $478,000.

Okay.

And do you expect that to be positive going forward even if you have losses?

We're hoping we won't have losses but we tend to be pretty good with that.

I think the expectations are reasonable.

We should see a positive flow from operations.

Beautiful.

Now, on your balance sheet and in one of your presentations I saw on your website, you talk about your properties in Rhode Island and Massachusetts and being wholly owned.

I think they're on the balance sheet around $11 million or so, is that correct?

No, the properties, the real estate properties, no.

Do you have a value of those?

I mean, have you done a recent appraisal?

We have not done those.

We have only speculation as to what the market value would be.

I think we speculated that someplace in the neighborhood between $5 million and $10 million is probably what the market value --

The real estate.

The real estate.

Okay, so the building and the 14 acres and whatever.

Right.

Exactly.

We have locations as I say, as you point out in Rhode Island and in Massachusetts.

We have approximately 14 acres here and we have one facility, a two acre facility in Rockland, Massachusetts.

And, we also own a small building in the UK.

Okay.

That's probably down a lot from your last two years ago?

Well, we actually sold a facility in Braintree, Massachusetts, which in fact three years ago was quite successful.

We had 25 acres in a three building facility there that we sold and reduced it to a one structure facility located in Rockcliff.

Okay.

Beautiful.

In your last conference call and in this conference call you were discussing acquisitions and I believe mostly you're looking at accretive acquisitions and do you expect -- when you say accretive acquisitions, are you looking for them to be accretive from a day one scenario or Q1 scenario or over the course of a year?

No, we would look, Steve, at acquisitions that's would be accretive immediately.

Okay.

That's beautiful.

Now, you just said -- one of my questions you answered for me was what are the size of your current acquisition targets -- and you're implying around $10 million or less, is that -- ?

Yes, that's correct.

Is that for one, two, three four of them or -- ?

We're looking at a handful right now and we're prepared to take on all of them, but I'm not so sure that we're going to be able to get the term sheet that we would find acceptable.

Right.

We are hoping that during the current fiscal year, we can close a couple.

Okay.

And we'll continue to look as we conclude those acquisitions.

Now, are these -- would these be considered competitors of yours?

In a couple of cases, they are competitors.

In other cases, they are companies that make complementary products, some of which we may be purchasing from them and in other cases it will give us better geographic distribution.

There are a couple of instances, Steve, where the consideration we're seeking is better geographic distribution.

Some of our products are relatively bulky and the costs of the freight can be problematic to customers, as well as the time for delivery.

So in those instances, finding opportunities to geographically produce closer to where our customers are is the principle driver.

Okay.

How do you expect to pay for the acquisitions?

Are you looking at stock?

Cash?

Combination of stock?

Are you looking to raise debt if you do ten -- if you do five companies at $10 million, that's more than your cash.

I think initially we're going to start out with cash or some kind of an earn-out situation and we're prepared to use stock, but at these price levels, the stock will have to be -- price would have to be appropriately discounted.

We're of course possible to use debt but we're fundamentally opposed to --

I'm fundamentally opposed to it as well.

We like to be in strong cash position with everything paid for.

That's what we like.

That's why I'm looking at your Company.

All right.

Well, I thank you for answering my questions.

I look forward to your future calls.

Good.

Thank you very much and maybe you can visit us sometime and kick the tires and take a closer look as us.

Look forward to it.

We appreciate it.

Thank you.

Thank you, sir.

The next question comes from [James Fanning] from Jefferies Capital Partners.

Please go ahead with your question.

Good morning, gentlemen.

Good morning.

Good morning, Jim.

I'm just getting -- trying to get at the answer to the race between the sales decline and the cost cutting and maybe the easiest way to ask the question is -- if we were to posit that your next quarter, the one that just we began, was exactly the same on the top line, would you be close to breakeven?

I think it would be tough, Jim, at this point, unless we would continue to lower -- make some additional cost cuts.

I think the breakeven's got to be a little higher than the $14.7 million.

Okay.

Thank you, sir.

The next question comes from Sam Rebotsky from SER Asset Management.

Please go ahead with your question.

Hi, good morning, Albert and Joe.

Tell me, as far as the acquisitions, are they in both areas or just the medical area?

No, they're in all three areas, interestingly.

We've got candidates in all three areas.

And are you finding, because of at this point in time the costs are cheaper and would you expect not to have any goodwill on a transaction?

Well, we may get some goodwill but not a great deal.

Okay.

Because we're really looking to acquire companies that will be accretive to both revenue and profits from day one.

That sounds good, Albert.

And as far as even though we're not making any -- do you expect -- is there -- can you visualize when you expect to make some kind of projections and would it appear to say if you had a nominal loss in the next quarter, that that would be the bottom?

You know, we're looking -- we will be looking as much at the trend line as we will at the actual results and I'm moderately hopeful that when we report the second quarter, that we may be in a position to make a forecast for the balance of the year.

As I indicated in my presentation, we are seeing some modestly encouraging signs and if they were to continue, we would certainly be willing and honestly able to give a forecast for the balance of the year.

And is there -- do we have a number as far as the backlog relative to the airline business?

Sam, this is Everett Pizzuti speaking.

We have a pretty good backlog in the ruggedized products which we sell primarily to airlines but also to other military and commercial applications.

We have several contracts that are in place and we are shipping printers and other ruggedized products every month and a substantial portion of our sales in the Q1 were indeed from ruggedized products and we have backlog -- similar backlog to ship each quarter of this year.

And it should grow as these delayed contracts come online.

As we mentioned, we expect the 787 to begin releasing product, say, in the fall of this year, for shipments later on in this winter.

And that will certainly be in addition to the backlog we already have that's shippable.

So the ruggedized products continue to be a good backbone, a good base for our sales.

Do we have a dollar number on the products that we're not able to ship right now because we're waiting for them to give us the okay?

Could you express it in a dollar number or is that not possible?

Well, it's kind of hard to do that.

I think we mentioned that we have about $100 million in contracts in hand and how much of that we can ship each month will be determined as we go forward, as these contracts are released.

I'm just basically trying to figure out when they finally start, that will be sales that would have occurred earlier that would increase the sales more significantly at the back end of the year.

Right, and I think we'll begin to see some of these products go into production in the third and fourth quarters of this year.

So there will be a ramp-up in ruggedized products in the third and fourth quarter of this year.

All right.

That sounds good.

Well, Albert and your team, you're always there building up your cash, watching everything and hopefully you'll see some you fruition with some cheap acquisitions.

Great.

Thank you very much for your time.

Appreciate it.

Thank you, sir.

We have a follow-up question from Joe First from First Associates.

Please go ahead with your question.

One of the earlier questioners asked you about the value of real estate and you said maybe between $5 million and $10 million on this real estate.

What's it on the book for?

I think we're probably closer to about $2 million , maybe $2.5 million to $3 million tops,

Okay, so that means it's anywhere from $2 million to $8 million more than the real book value.

We have not ever done an appraisal on the properties but certainly it's significantly higher than what we carry it on the books.

Fine.

Thank you.

Thank you, sir.

(Operator Instructions).

Well, if there's no further questions, we will sign off by simply saying that we -- in view of the difficult -- despite the difficult quarter, we survived.

We think we executed it pretty well.

We minimized our losses and we are seeing some shining lights ahead of us and so I look forward to giving you some interesting news when we next meet, which will be in August.

Thanks again for participating.

Bye.