AstroNova Inc (ALOT) 2009 Q3 法說會逐字稿

Good morning, ladies and gentlemen.

Thank you for standing by.

Welcome to the Astro-Med Incorporated third 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 opened for questions.

(Operator Instructions) This conference is being recorded today, November 18th, 2009.

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

Please go ahead, sir.

Thank you, Sierra.

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 third quarter and nine month 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 will 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 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, Senior Vice President, Treasurer and Chief Financial Officer.

At this time, I will introduce Mr Ondis.

Mr Ondis?

Thank you, Stan.

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

I'm going to make some introductory comments and then you are going to hear from both of them and then we will take your questions.

As Stanley said, and as you know from the earnings release that we made yesterday after the market closed, we resumed our profitable growth after an interruption of just one quarter caused by the current recession.

That one quarterly loss was the first after 28 consecutive profitable quarters.

Now, we quickly made some adjustments to deal with the reception and we promptly returned to profitable growth in the second quarter and now the third.

We are very confident that the measured revenue and profit growth that we are currently reporting will continue well into the future.

We are confident because we have the leading products, the most advanced products, as a matter of fact, in several important markets including color label printing, airborne cockpit and cabin printers for commercial and military airplanes made by the big names like Airbus, Boeing, Lockheed, Bombardier and others.

We have the leading products in the field of Test & Measurement instruments used by major electrical utility companies, airplane manufacturers, government agencies such as NASA, auto companies, railroads, primary metals manufacturers, and all of these products that we make and sell to these wonderful companies provide recurring consumable sales to us, such as label materials, inks, toners and et cetera.

Additionally, we are a major factor, although not yet the leader in the field of neurological instrumentation through our Grass Technologies division.

Grass is rapidly moving to become the leader and is launching a string of new products and I can promise you, we will become the leader in this field also.

We are confident that our revenue and profit growth will increase because we have the best products and seals where we have chosen to operate and that there's a demand for those products and because we are developing and introducing new products at an increasing rate.

We are confident because we are prepared for growth with an outstanding workforce, top flight engineering and manufacturing facilities, and considerable financial strength.

In the quarter that just ended, I believe we demonstrated the qualities that I have just enumerated for you.

At this point I'm going to ask Everett Pizzuti to give you some of the highlights of the quarter, and to provide additional sound reasons for our optimism.

Everett?

Thank you, Albert and good morning everyone.

As you have heard, in the third quarter we continued our sequential improvement in sales and earnings over the first and second quarters as we continue to see signs of improvement in many of our product areas.

Our best improvements were in consumables, especially for our color label printer products.

Overall, consumables are close to 50% of our total revenues.

Our ruggedized products, as you know, cover military as well as commercial applications and airborne as well as ground and ocean vehicles.

The military side of our business is doing well, as it's not impacted by the recession.

The commercial applications for our ruggedized products, however, have been impacted by both the recession and the delays with new aircraft introductions by both Boeing and Airbus.

However, it looks promising that Boeing 787 will have its first test flight by year's end, and in fact, yesterday we learned that the Airbus A400N will have its first flight test by the end of this calendar year as well.

As a reminder, you may recall that we have over $140 million in existing contracts covering these two new airplanes as well as for the Boeing C17, the C130, the Bombardier M145, as well as cabin printers for the 747, 767, and 777.

We expect that our deliveries of printers for these aircraft will have positive impact on sales as we enter the new year as these new planes are rolled out.

We were very active in the quarter in all of our product groups as we worked toward implementing the directions for growth outlined in our three-year strategic plan.

On the acquisition front, we are targeting companies in all of our present markets, color printers, Test & Measurement, ruggedized products and medical products related to EEG and sleep.

We hasten to point out that our targets are in the very same markets that we play in and are intended to complement and expand our existing business.

On the organic growth side, we are using our strong financial resources to add more new products, more quickly, to our development schedules.

During the quarter, we announced some exciting new products.

One is a data acquisition system that we call the TMX.

It is a multi-channel recording system offering high speed frequency capture along with synchronized video, universal signal conditioning, analysis and touch screen user interface.

It is intended for a wide range of applications including power monitoring, telemetry recording in the aerospace field, field troubleshooting in steel, aluminum and paper mills, automotive testing and more.

The TMX has an average selling price of $25,000, and first limited shipments will take place in January.

Another new product introduced during the quarter is the ToughWriter 5.

This new ruggedized printer is the smallest, lightest and fastest printer of its type in the world.

Size and weight are important, not only in smaller business jets, but also in large commercial aircraft where weight is an important factor in reducing fuel consumption.

Not only is smaller and lighter, but it packs in more technology and functionality than the larger competitive brands.

Our salespeople are already in negotiation with several aircraft manufacturers who have been captured by the advanced features of this new product.

The ToughWriter 5 has a list price of $16,000.

The newly announced Grass model S12X, quote unquote stimulator will be introduced at the American Epilepsy Society meeting which opens on Sunday, December 6th in Boston.

This is the major meeting of the year where top physicians from important epilepsy centers around the world attend.

The S12X is specifically designed to work with Grass long-term epilepsy monitoring systems.

We expect to sell the S12X not only to existing owners of Grass LTM equipment, but also to be able to convert uses of competitive brands to Grass based on the powerful features of the S12X.

This new product has an average selling price of around $27,000, and will strongly influence orders for complete long-term epilepsy systems that range from $100,000 and up.

Also at the meeting in Boston, we expect to announce still another exciting new product, an ambulatory EEG recorder that is without rival based upon its combined small size, high channel count and 72 hour recording capability on one set of batteries.

We will be announcing full date details of this new product at the show in Boston.

On the QuickLabel systems front, we expect to introduce exciting new products in the second half of our new fiscal year.

In addition, more new products from all of our main product groups will be coming out at a faster rate.

In summary, our opportunities for growth will be realized sooner as we apply our strong financial resources to both acquisitions and new product development.

That's my report, Albert.

Thank you, Everett.

We will next hear a report from our Chief Financial Officer, Joseph O'Connell, and following his report we will open the phone to questions.

So with that, Joe?

Thank you very much, Albert.

Good morning everyone.

I'm very pleased to review Astro-Med's financial results for the third quarter ended October 31st 2009 and this year's nine month results as well as the status of the Company's balance sheet and cash flow at the end of the third quarter.

Our sales revenue as you heard in the quarter was $16.658 million, that represents a sequential improvement over the second quarter's revenues of $16.416 million.

However, these sales are still 6% behind the prior year's sales in the same quarter of $17.681 million.

Our sales through our domestic channels were $11.427 million in the quarter, that's down 10% from the prior year's third quarter domestic sales.

However, our export shipments at $5.231 million in the quarter, were up 4% over the previous year's third quarter as well as 11% ahead of the second quarter export sales.

Profiling the third quarter revenues by product group has QuickLabel systems, our product line of color and mono chrome printing systems, with sales of $8.736 million, representing 52% of the Company's total sales and reflecting an increase of 7% from the second quarter sales of QuickLabel systems.

Our Grass Technologies product group of neurological diagnostic systems reported sales of $4.255 million in the quarter, which continued our improvement from the first quarter actually up 21%, against the first quarter sales, but ran slightly behind the second quarter sales of $4.394 million.

The Test and Measurement product group including ruggedized product line of printers and switches reported sales of $3.666 million in the third quarter.

These results were lower by 5% from the second quarter sales volume, as our Dash line of portable recorders was lower than expectations.

However, sales of our ruggedized product line were ahead of the prior year sales volume by some 19%.

Gross profits in the quarter were $7.059 million, a slight improvement over the second quarter gross profits as well as a nominal improvement in the gross profit margins of 42.4%.

On a comparative basis the prior year's gross profit margin was 43.3%.

We continue to manage our spending levels tightly with the third quarter expenses at $6.098 million.

Approximately flat with the second quarter, and 7% below the prior year's expenses for the third quarter.

Selling and marketing expenses of $3.84 million were lower by some 8%, while R&D funding at $1.163 million, or representing 7% of our sales, were lower by 7%.

Our general and administrative expenses at $1.095 million ran lower by 4% from the previous year's G&A spending.

The Company earned $961,000 in the quarter, that's an 8% improvement over the second quarter's operating income and achieved a margin of 5.8% on sales.

Notwithstanding this improvement over the second quarter, our third quarter operating income was lower than the prior year's third quarter income of $1.089 million reflecting a margin of 6.2%.

Other income in the quarter was $75,000, that's an outgrowth of dividend and interest income as well as foreign exchange gains.

This result is a sharp improvement over the other expense of $237,000 reported in the prior year, primarily due to currency exchange losses.

The Company's tax provision in the quarter was $353,000, representing an effective tax rate of 34%.

On a comparative basis the prior year's tax provision was $203,000, representing an effective tax rate of 24%.

Astro-Med earned $683,000 in net income during the third quarter.

This result is a 17% improvement over the second quarter's income of $585,000, and a 5% improvement over the prior year's net income in the third quarter.

On an earnings per share basis, the third quarter net income per share diluted was $0.09 and matched the net income per share diluted of the prior year and bettered our net income per share diluted of $0.08 reported in the second quarter.

Our backlog at the end of the third quarter was $4.965 million , down 10% from the second quarter backlog of $5.543 million .

Final review of the Company's balance sheet position at the end of the third quarter, recap of the Astro-Med's nine month results are as follows.

Our sales revenues for the first nine months of fiscal 2010 are $47.751 million .

That's approximately 15% behind the prior year's sales revenues for the same time frame.

70% of our revenues are sold through our domestic channels at $33.525 million.

Which were off the previous year's domestic sales by some 14%.

International shipments at $14.226 million were lower than the prior year by some 16%.

However, approximately 40% of that shortfall is traceable to negative exchange currency problems.

The composition of this year's sales by product group has QuickLabel systems at $24.377 million, representing 51% of our total revenues.

Grass Technologies sales of $12.16 million account for 25% of our total revenues.

And the Test & Measurement product group at $11.213 million represents the balance, or 23% of the Company's total revenues.

Relative to Astro-Med's product lines our consumable sales revenues at $22.925 million, account for 48% of our total revenues and as a percentage of total revenues increased form last years 45% of total revenues.

Gross profit dollars for the year are $19.822 million, reflecting a margin of 41.5% and below the previous year's gross margin of 43.7%.

Operating expenses for the nine month period are $18.435 million, being 9% below the prior year's spending and reflect the austerity program established early in fiscal 2010 to better manage the uncertainties in markets as well as the economy.

The Company's achieved operating income of $1.387 million for the nine months ended October 31st, 2009 with a corresponding margin of 2.9% on sales revenues.

All of this year's operating income were earned in the second and third quarter of fiscal 2010, as you heard, the first quarter we had an operating loss.

Other income for the year was $194,000, and reflects a sharp improvement from the break even level recorded in the prior year for the same time frame.

Our federal and state tax provisions for the current year is $544,000, and reflects an effective tax rate of 34% being down from the prior year's effective tax rate of 37%.

Astro-Med has earned net income of $1.037 million for the first nine months of fiscal 2010.

With a corresponding net income per share diluted of $0.14.

This result is below the previous year's net income of $2.701 million with a related net income per share diluted of 36%.

The Company has strengthened its financial position in a number of ways during fiscal 2010.

We have increased our cash and investment balances by 8% to $23.944 million from the previous year-end balance.

We've improved our working capital efficiency by lowering the accounts receivable turnover cycle to 49 days, likewise, on the inventory investment, by reducing inventory dollars by 12% and lowering the days on hand from 127 days at the end of the year to 106 days at the end of the third quarter.

On a cash flow basis, we have funded capital expenditures of $780,000 this year with the dollars distributed among our plant expansion of $218,000, machinery and equipment of $235,000, and information technology of $327,000, including an investment in a new i-Series hardware system.

We have paid quarterly dividends at that time rate of $0.06 per share per quarter for the three quarters totaling $1.283 million.

We have reduced our employed population by some 28 persons down to 374 individuals at the end of the third quarter and finally, we are currently sustaining a sales per employee of $166,000 per employee.

That concludes the

Thank you, Joe.

Sierra, we are now ready to open the phones for questions, so if you would please make an appropriate announcement, we will continue.

Thank you.

We will now begin the question-and-answer session.

(Operator Instructions) One moment, please.

And our first question comes from the line of Bob [Shawber] with First Associates.

Please go ahead.

Good morning, gentlemen.

Congratulations on getting back on track.

That's always great to hear.

You made mention about the acquisition front, but I didn't hear anything positive that you were getting into so I'm just wondering what do you do with all the cash that you have?

How do you invest it?

Well, primarily it's obviously it's in very conservative investments which are primarily municipal bonds for the most part, some money markets but very, very highly AAA rated investments.

Okay.

Considering your stock is at this level and you have so much cash, have you ever considered purchasing back some of your own stock?

We have done that in the past, yes, we have.

We've had programs where we have acquired the stock in the past.

We still have authorization to be able to buy back additional shares of stock.

Okay.

Would you consider that if you don't have any acquisitions coming up in the short term?

We expect to make some acquisitions, though, over the next few months.

Okay.

So stay tuned, as the old saying goes.

Okay.

Thank you very much, gentlemen.

Continue the good work.

Thank you, Bob.

Thank you.

Thank you.

(Operator Instructions) One moment, please.

And our next question comes from the line of George Melas with MKH Management.

Please go ahead.

Good morning everybody.

How are you?

Good morning, George.

Good morning, George.

Question on QuickLabel.

You've had a nice sequential pickup.

Do you see that continuing into the coming quarter?

We, we do.

We definitely expect that it will continue beyond the next quarter.

The next quarter and beyond.

Okay.

And so you're seeing a sort of resumption of consumable growth?

Yes, we do.

Okay.

Great.

And --

Excuse me for interrupting, but we also see an improvement in capital equipment purchases.

One of the things that we observed that we did not call to the attention of our investors is that it definitely has been a decline in the rate of purchases of capital equipment.

The concentration has been on the consumables because people are slow to make investments in capital equipment.

But we see signs that that may be changing, so that we expect and believe that we will see an increase in revenues, not only from consumables, but from capital equipment as well, our printers and other higher priced products.

Great.

Would that be that the market is expanding as more people are adopting the short-run printers or is it sort of a share gain?

How would you look at that?

Well, I think mainly, yes, the market is growing for short-run printing, but in addition, there seems to be a general relaxation of the confinement that people have felt toward banking large capital equipment purchases.

They have tended to hold back from doing that and now we believe we see some evidence that there is increasing confidence on the part of our potential customers.

Okay.

Great.

That's good to hear.

On the inventory side, I see that you did some very nice progress there, days going from 127 to 106.

Is this a sustainable or -- and too, is there sort of room to further reduce inventory?

I think -- George, I think there is.

I think we continue to focus on the opportunities to improve the cycle of the inventories.

I think we've done -- I think we've made some great progress with the whole fulfillment process of being able to get forecast in line with demand, ensuring that our purchase is consistent with the expectations and I think operations has really committed to be able to move the inventory cycle -- continue to accelerate the inventory cycle itself and reduce the dollar values of investments.

Is that inventory primarily on the QuickLabel side and a big part of that is consumable?

Can you sort of help define it?

It's distributed.

All three businesses have inventory investments.

It is, interesting enough, it is distributed among all three groups and as you said, both in terms of hardware as well as media.

We have not actually broken out the specifics associated with the media relative to the hardware but I can tell you that the dollars are distributed among all three product groups.

Okay.

And where you're making progress, is it primarily in one product group or sort of across the board as you assist them as you have better forecast.

Good news is I think we are making progress in each of the areas, some a little bit more than others, but certainly we are pleased that everybody has embraced the notion of try to improve.

We've set expectations for each of the operating folks to be able to reduce their inventory investments.

Okay.

Great.

Thank you very much.

Thank you.

(Operator Instructions) One moment, please.

I show no further questions at this time.

I would like to turn the conference -- pardon me.

We have a follow-up question from George Melas.

Please go ahead.

I have one more question.

That's okay.

I think Everett it's for you.

You talked about the ToughWriter 5 and would that be a product -- clearly you have been speced into the Dreamliner and the A380s but would that be a product that these -- that would fit that plane as well and they might be interested in that or your current printer's just going to stay on those aircraft?

I would say that our current printer is going to stay on those aircrafts because it's a very long qualifying process to get one of our printers qualified for a new aircraft and so we don't see any reason right now why any of these people would make any changes in the Dreamliner or in the A380.

We see the big opportunities for the ToughWriter 5 going forward in the newer aircraft, both in the business jet market, as well as in the newer commercial jets that will be coming down the pike in the future.

So we don't see it replacing the contracts we have and that's kind of good because I think as we've mentioned before, once we're designed into an aircraft, we're designed in for the life of that aircraft unless we falter badly.

So it's good that we're locked in.

Okay.

Great.

Thank you very much.

Thank you.

I show no further questions at this time.

I would like to turn the conference back to management for any closing statements.

Please go ahead.

Well, thank you very much, one and all, for attending our conference and stay tuned.

We will be talking to you again, I would say in March.

Take care, thank you.

Bye-bye.

Thank you.

Ladies and gentlemen, this concludes the Astro-Med Incorporation third 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, with access code 4169655-pound.

AT&T would like to thank you for your participation.

You may now disconnect.