AstroNova Inc (ALOT) 2009 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 2010 earnings release 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 19, 2009.

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

Stanley Berger.

Please go ahead, sir.

Thank you, Brandy.

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 2010 second-quarter and first-half 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 necessarily based on certain assumptions, which are subject to risk and uncertainties.

Actual results may differ materially from those discussed here.

More information on these 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 turn the call over to Mr.

Ondis.

Mr.

Ondis?

Thank you, Stan.

Well, as Stan has said, here with me today are Everett Pizzuti, the President and Chief Operating Officer and Joseph O'Connell, the Senior Vice President and Chief Financial Officer.

And I'm going to make some brief comments, and then we will hear from them.

As you know from the press release which we issued yesterday that was referred to by Stanley, the strategy that we outlined in our May conference call to return Astro-Med to profitable operations, that strategy is working, and it will continue to work.

Let me spend a moment telling you -- reminding you of that strategy, which was to concentrate on the fundamentals of selling as hard as we could, while maintaining our customer support and service at the highest possible level, because our customers are our lifeblood.

And despite the fact that we recognized that business had slowed down, we were not going to relax with that vital component of our business, which was customer support.

And at the same time, we continued to maintain a very high level of research and development to keep the flow of new products going.

You are going to hear more about that when Everett Pizzuti makes his remarks.

Oh, we also cut expenses.

But preserving the essentials of the Company were our first objective, because the essentials are what will carry us to higher levels.

Well, to be sure, sales and new orders did decline from the second quarter of last year.

But we recorded a 16% increase in new orders and a 12% increase in sales over the first quarter of the year.

And we feel that those improvements bode very well for the immediate future.

Most importantly, we made a profit of $0.08 per share in the quarter and we erased the loss of the first quarter.

Additionally, we reduced inventories significantly and maintained our strong cash balances, which are positioning us very nicely for acquisitions.

Our business is heavily biased toward consumables, along with the products such as our printers and other devices which generate the consumables.

So we carefully watch consumable sales trends, as they are indicators of business conditions within the companies who purchase our products.

And we have noted a steady increase in consumable sales over the past several months, and we interpret that as a favorable sign that economic activity is increasing.

I want to say a word about our new three-year strategic business plan, which was mentioned and announced in our press release of yesterday.

The plan was developed by a team that involved more than 30 people from all parts and all levels of the Company.

And the development of that plan represents for the first time the active participation by people below the top levels in planning the future of Astro-Med.

The same people who developed the strategic plan will now execute the plan.

For obvious reasons, I can't go into the specifics of the plan, but it is a road map for growth in sales and profits, the same sales and profits that we have frequently spoken to you of.

And I want you to know there is a lot of enthusiasm at Astro-Med for the accomplishments of the past three months, and that included developing this strategic business plan, while at the same time turning our first-quarter losses into a profitable second quarter.

At this point, I will ask Everett Pizzuti, President and Chief Operating Officer, to continue this conference with his report.

And after his report, you will hear from Joseph O'Connell, our CFO.

Then we will take your questions.

Everett?

Thank you, Albert, and good morning, everyone.

During the quarter, we saw good signs towards recovery from most of our products and markets.

Of all of the products we market, those most sensitive to changes in the economy are the color label printers and the associated labels, since these products are typically sold to manufacturers of consumer type products.

And since customer demand for the products made by our customers is still down, the demand for our printers is impacted.

But, as stated earlier, we see a promising trend for the color printer labels and supplies, and expect the hardware sales to begin to increase as well in the second half of this year.

Our data acquisition products, which serve aerospace as well as industrial markets, rebounded from the low of last year's fourth quarter as well as the first quarter of this year.

These products include our Dash series portable units, as well as our big Everest models.

Current indications based on quote requests and direct customer feedback, point to improvements going forward.

And later this year, we will be announcing an exciting new data acquisition product which will have impact on next year's sales.

Our ruggedized products, including aircraft printers and switches, have been impacted both by the economy and the delays by both Boeing and Airbus in completing their new aircraft.

But we do sell these products for both commercial and military applications, and have booked important new orders during the second quarter and expect to book more in the third quarter, especially for the military air and ground vehicles.

We are making good progress with business jets and small commercial aircraft manufacturers to incorporate Astro-Med printers in new aircraft.

Additionally, we are in discussions and negotiations with aircraft manufacturers in Russia, China and Japan.

As you may have read, each of these countries are looking to introduce new midsize and large commercial aircraft, and we see excellent opportunities for Astro-Med to be the prime choice for printers and other ruggedized products.

During the second quarter, we increased our sales of our hardware and consumable products for neurology over the first quarter, as spending on capital equipment and hospitals began to open up a little.

Sales of the higher ticket items, such as our long-term epilepsy monitoring systems, were very strong, as we booked and delivered a record number of units during the quarter.

EEG system sales were also up domestically as well as internationally in countries such as Mexico, South Korea and Japan.

And our new requests for quotes for new and existing sleep labs are increasing daily, a sign of good things to come in our third and fourth quarters.

In the second quarter, you may have read that we announced an exciting new Grass product, a Cortical Stimulator intended to use an intra-operative cortical stimulation mapping.

This is what we call the Model S12X.

For years, the stimulator of choice for this application was an old Grass model S12, which went obsolete several years ago.

And the market has been demanding a modern replacement, and we are pleased to announce that we have received FDA clearance to market this product.

Its primary use will be in major hospitals doing long-term epilepsy monitoring and associated surgery.

In summary, we continue with our aggressive sales initiatives and new product development, while we continue to weather the economic storm that most of the world is encountering.

We are encouraged that we will see steady improvement in our second half.

And that is my report.

Albert?

Thank you, Everett.

And now we are going to hear from Joseph O'Connell, Senior Vice President and Chief Financial officer.

Joe?

Thank you, Albert.

Good morning, everyone.

I am very pleased to share with you the financial results of Astro-Med's fiscal second quarter ended August 1, 2009.

As you heard, our new customer orders in the second quarter were quite strong, at 16,400,000.

And as you also heard, that represents a 16.4% increase over the first quarter's orders received from our customers, although behind last year, which was really a record second-quarter bookings the Company experienced.

The Company's sales revenues in the quarter were also strong, reaching $16,416,000, and showing an improvement of 11.8% over the first quarter, although behind last year's level by about 17%.

Relative to the Company's channels of distribution, our domestic sales in the second quarter were $11,724,000, representing a 13% improvement over the first quarter's domestic sales.

However, again, because of the strong quarter we had last year, below last year's domestic sales.

Our international sales were also strong in the second quarter, increasing some 9% over the first quarter, notwithstanding some of the negative impact from the exchange of some $446,000 that was incurred, reducing the sales by about 9.5%.

Relative to the Company's three segments, all three product groups reported improvement in sales revenues during the second quarter.

Our color and monochrome printer product lines, along with the related media consumables, reported sales of $8,146,000 in the quarter.

This volume represents an 8.7% improvement over the first quarter QuickLabel sales.

Our Grass Technologies product group of neurophysiological clinical and research systems reported sales of $4,394,000 in the quarter, a 25% improvement over the first quarter's sales, but still somewhat behind last year's second-quarter record sales.

Lastly, the Test & Measurement product group of data acquisition and ruggedized products achieved sales of $3,877,000 in the second quarter.

Again, that is up 5.7% over the first quarter sales of this year.

Relative to the Company's backlog, at the end of the second quarter, our backlog stands at $5.5 million, which is basically flat with the first quarter backlog of $5.5 million, although down from the year-end backlog by about 13%.

Astro-Med achieved gross profit dollars in the second quarter of $6,951,000, representing a 20% improvement over the first-quarter gross profits, but behind last year's gross profits by some 20%.

This quarter's gross profit margin in sales was 42.3% against the first quarter's margin of 39.6% and the prior-year margin in the second quarter of 43.9%.

As you heard from Albert, we continued to control spending throughout the Company, as is evident in the reduced expense levels in our selling, R&D, and G&A accounts.

Operating expenses are down 10.2% from the prior year's second quarter, with all the factions contributing to the lower spending levels.

As a result, the Company reversed its operating loss in the first quarter with an operating income of $886,000.

The operating margin realized on this income was 5.4% in the quarter and compares against last year's 9.7% margin in the second quarter.

Other income in the quarter was $14,000, and the lower level reflects the reduced yields we are experiencing on the Company's portfolio.

The second quarter's provision for federal and state tax were $315,000, representing an effective tax rate of 35%.

This level is slightly below last year's second quarter effective tax rate of 42%.

The Company earned, as you heard, $585,000 in net income for the second quarter, representing a return on sales of 3.6% and an earnings per diluted share of $0.08.

During the prior year's second quarter, the Company earned $1,154,000, or $0.15 per diluted share.

Prior to reviewing the balance sheet at the end of the second quarter, a brief profile of Astro-Med's six months financial results are as follows.

Our six-month sales are $31,093,000.

That is somewhat behind last year's sales of $38,471,000.

Sales through our domestic channel for the six months is $22,099,000, while international shipments, accounting for 29% of total revenues, were $8,995,000.

Relative to the product lines, sales of the Company's consumable products represent approximately $15 million out of the $31 million, or a total of 47% of our total sales for the first six months.

Looking at these segments, QuickLabel systems, representing 50% of the Company's sales, were at $15,641,000.

Grass Technologies sales, which were next at $7,906,000 for the two quarters, and Test & Measurement slightly below at $7,546,000 for the same timeframe.

Gross profit margins for the six months were 41% against the prior-year margin of 43.8%.

The lower margin this year is an outgrowth of the lower sales volume and absorption in the factory.

Operating expenses, consistent with the second quarter, are down on a year-over-year basis by some 10%, with a spending level of $12,337,000.

Operating income, as a result, was $426,000 for the first six months, representing a return of 1.4% on sales dollars.

In the prior year, we earned $3,223,000, or representing a margin of 8.4%.

Our other income for the first six months is $119,000, again, with the lower level reflective of the lower yields.

Similar to the second quarter, our effective tax rate for the year will be 35%, somewhat below last year's effective tax rate of 41%.

As Albert mentioned, we have earned net income for the first six months of $354,000 for the first two quarters of fiscal 2010, representing some $0.05 per diluted share.

Just to quickly move on to the balance sheet, our total assets declined slightly to $61,678,000 at the end of the second quarter.

Our equity position rose slightly to $52 million, representing some $7.27 per share.

Our cash and marketable securities remained strong at $21,955,000.

Our Accounts Receivable rose during the quarter as a result of the increased sales to $10,262,000, representing some 54 days outstanding, slightly up from the year-end level of 50 days sales outstanding.

Inventory levels declined almost $1 million to $12,826,000 and improved our days on hand from 127 days at year-end to 115 at the end of the second quarter.

Our capital expenditures were small in the first six months at $384,000, mostly related to information technology and machinery and equipment.

We paid our shareholders dividends in the first six months of $854,000, representing $0.06 per share.

Our employee population declined from the beginning of the year by some 28 folks to 374 employees, and our sales per employee at the end of the six-month period is $174,000 per employee, down slightly from the year-end level of $190,000 per employee.

That concludes the review of the second-quarter and the six-month results, Albert.

Thank you, Joe.

And now, Brandy, I think we are ready to take questions, if there are any.

(Operator Instructions) [Joe First, First Associates].

Good morning, gentlemen.

Congratulations on the improvement this quarter over last quarter.

You've done a good job in a tough environment.

A couple of quick questions.

In your press release, you mentioned that you will soon announce some exciting new products, which will continue our growth.

And our search for a suitable acquisition is underway and we will make announcements as appropriate.

My question is, the new products, are these things that might be just a small add-on like others have been, or are they anything that would be significant to the sales of your Company?

Well, Everett announced one of those products, in the S12X, which is significant in that it not only represents a substantial -- it is about a $30,000 instrument.

Let me make that point clear.

But it can carry with it, because of its existence, a large order related to the general usage of it.

It could carry with it a $500,000 purchase order from a large hospital, who might be waiting for such a device in order to reequip a laboratory with long-term epilepsy-monitoring equipment.

And the other products that we will be launching very soon are, once again, a product that Everett mentioned, which is something like a Dash product.

That will have a positive effect on results next year, but it certainly is not like inventing a cure for rickets or anything like that.

Got you.

So the one could be reasonably significant; the other one is just a small add-on.

That's good.

And then you say your [pseudo buying position] is underway and you will make announcements as appropriate.

It seems to me you've been looking for acquisitions for the last several years and have never made any.

Why is this any different this time?

Not that you should have.

If you can't buy them at the right price, you don't buy them, but --.

That's part of the story.

And the other part of the story is that we have been sharpening our focus on exactly what it is that we want to be like next year and five years from now.

And that will help to -- so the acquisitions we make will shape the future.

And we are avoiding something that would be looked upon as a simply a layer, a simple lay-on type acquisition.

We want to make some small, but fundamentally important, acquisitions that will have an impact on the future of the Company.

I mean, do you see some potential candidates?

Yes, we have some potential candidates.

And we'll see how it goes.

I'll get back in the queue and let someone else ask a question.

Thank you.

Steve Busch, Southpaw Investments.

Hello, gentlemen.

Good morning.

Just as kind of a follow-up to the last question on acquisitions, are you going to be taking on any debt to make acquisitions?

Are there any good valuation buys available right now?

Or given the potential for even a worsening economy, as you say, on recession watch for the next couple years?

Does it make sense to make any acquisitions right now, or what is your expected return -- cash return on the investment that -- your criteria for that?

And would it be better just to buy back a stock or pay a large dividend?

Well, we think that making key moderate-sized acquisitions now is really the best use of our cash.

We have said many times, and we will repeat it again, that we will not make an acquisition which does not have an instantaneous payback.

It should be accretive to revenues and accretive, of course, to profits as well.

We are looking at types -- acquisitions that would be fundamental to the business of the Company and that will contribute to our overall business plan.

And we think that now is a good time to do it.

We have cash on hand.

We don't visualize having to use any external financing, at least for the first few acquisitions.

We are not opposed to it, however, if we have the right opportunity.

I was about to say if the right one comes along, but those things simply don't come along.

You have to go looking for them.

And so we are working very hard on operations, as well as on opportune acquisition possibilities.

Okay.

Well, let me ask you this question then.

Do you believe the increase in consumables this quarter was just a restocking of neglected consumer or customer inventories, or do you think it is more of a sustainable uptick now going forward?

You know, that's a terrific question, and it points out the fact that we should have addressed that.

No, we do not think it is restocking.

On the contrary.

The way that the purchasing has flowed is that people are buying small quantities.

We have a large -- much larger number of orders than one would expect for the amount of business we did.

And it's because people are holding their purchases to the smallest possible levels to continue their current operations.

So we think this is very sustainable for that reason.

Perfect.

That's what I wanted to hear.

Good luck, and I look forward to seeing the future here.

(Operator Instructions) [John Wathelson, Wathelson & Co.]

Good morning.

On the question of acquisitions, I was wondering whether the planning process, the three-year plan that you alluded to, plays into that and the decisions that you will make in terms of doing acquisitions, and kind of give me a little help in how that might work.

Yes, it definitely was -- the idea of the acquisition was more fully developed during the preparation of that plan than at any other time in the past.

We have spoken about acquisitions in the past, but the framers of the business plan put a lot of effort into describing the types of acquisitions that we should make.

And in fact, they even named a number of the candidates.

So we think that insofar as our acquisition plan is concerned, the three-year strategic plan was a key part of how we developed our acquisition strategy.

By the way, we are going to -- we believe we can carry it out pretty much on our own.

We do not think we will be engaging any investment banking firms at this point to help us.

We think we can handle this phase of it by ourselves.

Okay.

And I guess the follow-up question, without asking you to give away the store, I would guess that that process helps you to identify what skills Astro-Med has to bring to an acquisition to create some synergies.

Can you talk about what you've defined as your key skill sets?

Well, we have been successful in developing an engineering and research capability, which we think we can in part transplant to a new acquisition.

We have a well-developed advertising and marketing function, which is capable of handling additional challenges.

We have strong field sales organization.

We have good international distribution.

We have direct sales offices, as you may know, in Canada and in France and in Germany and in the UK.

And we have good representative sales organizations working for us in Asia and in Latin America and elsewhere.

So we think we have a machine that is capable of handling a much bigger load.

I should not overlook our excellent financial strengths in terms of accounting and other financial control functions.

So we think we have a good organization to apply to an acquisition candidate that may not be as fully developed in those areas as we are.

Okay, great.

That's very helpful.

Joe First, First Associates.

As far as Lockheed and Airbus are concerned and potential customers for your printers, what does the current schedule look like on that as far as how far back in time this has been pushed?

Well, it is important to know that -- maybe Everett can answer that one a little more accurately than I.

Yes, the main pushback has been, of course, with Boeing on the 787 program.

As you've read, they were originally going to do a first flight in June, and now that has been postponed and a new date has not been announced.

So our main pushback has been on the Boeing 787.

The Airbus 380 is progressing, though.

It's a little better than it was before.

So that is making headway.

We are having good activity, however, from some of our military programs, including the C-17, which is still rolling.

And we expect some new developments, hopefully in the third quarter, on the C-130J program.

So -- which is a Lockheed program.

So the pushback has definitely been felt by us, as I mentioned earlier, but we do see some offset of that, especially with the military programs, which are continuing.

Thank you.

(Operator Instructions) [George Milas, MKH Management.]

Good morning, gentlemen.

Question on the color printers and labels.

On your three different technologies, are you seeing slightly different trends there, and does that tell the story about sort of the recovery?

No, I would say there is no trend that is related to the printing technology we use.

As you know, and others may not, our label printers use three specific different technologies, one being thermal transfer, the other being inkjet and the other being a form of laser printing that involves a counter.

And all three work very well for specific purposes, and there is no particular trend that is developing that would favor or disfavor one or the other of those technologies.

Okay.

And on the consumables, I think you said that you were seeing an improving trend.

I think you, on the last call, you had said that in the first few weeks of June, you had started to see an improving trend.

Has that continued to improve or has it just stabilized at a slightly higher level?

I would that say it is continuing to improve, although of course the month of August is a slow month.

But it is continuing to improve, definitely.

Okay.

And then final question, on that side of the business, it seems that you were quite a bit -- still quite a bit below where you were at the peak.

Is there a time where you have to add some capacity, you think, because this really has been a growth business, a steady growth business over many years?

Well, we are adding capacity even as I speak.

We are putting an addition on to our primary consumables factory.

We are putting a 10,000 square foot addition on.

The construction began about a month ago, and they are expected to finish that construction and we will be able to occupy it in mid-January.

So the work is underway right now.

Okay, great.

Thank you very much.

Thank you, and at this time we have no further questions in the queue.

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

I thank you very much, ladies and gentlemen, for participating in this call and for your good questions.

And feel free to contact us at any time.

And if you don't hear from us sooner, we will see you, I'm sure, in person at one or another convention.

In any case, we'll have another conference call in early December on the third quarter, which we believe will be quite successful.

Thank you very much.

Ladies and gentlemen, this concludes the Astro-Med, Inc.

second-quarter fiscal 2010 earnings release conference call.

If you would like to listen to a replay of today's conference, please dial 303-590-3030 or 1-800-406-7325, followed by pass code of 411-6728.

ACT would like to thank your for your participation.

You may now disconnect.