AstroNova Inc (ALOT) 2011 Q3 法說會逐字稿

Good morning, ladies and gentlemen.

Thank you for standing by.

Welcome to the Astro-Med, Inc third quarter fiscal 2011 earnings release conference call.

Following the presentation, the conference will be open for questions.

(Operator Instructions).

This conference is being recorded today, Wednesday, November 17, 2010.

(Operator Instructions).

I would now like to turn the conference over to Andrew 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 2011 third 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 meanings of the Securities and 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 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.

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.

Well, thank you, Andy.

And as Andy had said, ladies and gentlemen, with me are Everett Pizzuti and Joe O'Connell.

And after I make some preliminary remarks, they will make some comments, and then we'll take your questions.

Well, as it will come as no surprise to you, we are very pleased with the results of our third quarter.

In the quarter, we had sales of $18.3 million, up more than 10% from last year, and earnings of $792,000, which translates to $0.11 per common share, which is an increase of 22% over last year.

For the prior year, we reported sales of $16,658,000 with earnings of $683,000, which translates to $0.09 per common share.

We are particularly pleased with the results of the third quarter, because you may recall at the end of the second quarter, we predicted that sales for our QuickLabel brand might taper off because we were going through an important printer model change.

And we would be missing the sales of the Vivo printer, which was going through a model change.

But during the quarter, while we did not record the sales of Vivo because we were going through the model change, the missing sales from Vivo were entirely offset by very strong sales of the other color printer models that we make, along with the associated and valuable consumables.

The replacement model of the Vivo was launched at a rather spectacular unveiling of the new product, which we call the Vivo!

Touch, and that unveiling took place at the Pack Expo Exhibition on October 31, in Chicago, where we received an unprecedented number of inquiries and requests for price quotations.

Shipments of this very advanced printer will begin in December, 2010, so next month.

The Vivo!

Touch is one of the several products whose development we accelerated as the recession struck in late fall 2008.

When the recession struck, we instituted wage freezes, layoffs and other cost reduction measures.

But we accelerated R&D, and we accelerated sales and marketing, so as to be ready with exciting new products, plus a strong sales and marketing organization as the recession moderated.

And we knew, of course, that sooner or later, it would moderate, and we are now going through that period of moderation.

We're going to be reaping the benefits of this strategy, with significant and growing sales of the TMX, which is our leading, new test and measurement product; the S12X stimulator, and the TREA, our new ambulatory EEG from our Grass brand, as well as the soon to be released ToughWriter 5 cockpit printer, and several other new products still in development.

And of course, the fourth quarter will reflect beginning sales of the Vivo!

Touch color label printer.

For additional details on how our successful third quarter came about, I'm going to ask Everett Pizzuti now for his comments, and those comments will be followed by some brief remarks from CFO, Joe O'Connell, and then I will provide guidance for the year, and lastly, we'll take your questions.

So Everett, the floor is yours.

Thank you, Albert, and good morning, everyone.

As you have heard, we achieved record sales in the third quarter, continuing our positive trend as the Company moves out from under the effects of the recession.

Our second quarter was better than our first.

Our third quarter was better than the second.

And we look forward to a strong fourth quarter, as well.

Year to date, our sales are over 10% greater than last year.

Looking into some of the details of the third quarter, we are pleased to note increases in sales contributions from each of the three product groups, with both QuickLabel Systems and Test and Measurement up over 12%.

You may recall that during last quarter's conference call, we mentioned that both T&M and Grass sales were down from prior year, as customers continued to be cautious about capital spending.

We went on to tell you that on a positive note, requests for quotations and demonstrations of these products were strong, thereby filling our pipeline of pending negotiations and other order prospects that would ultimately result in orders, as money became available.

Well, that forecast became a reality in the quarter, as our orders increased nearly 13% above the prior year.

As Albert mentioned, a major event of the quarter was the official introduction of our brand-new color label printer, called the Vivo!

Touch.

We brought all of our field sales people to Chicago for a sales meeting, during which the new Vivo was introduced to them for the very first time.

This was followed by the introduction to industry at Pack Expo, a huge show held at McCormick Place in downtown Chicago.

Now, the reception of this new product by our sales people, as well as visitors to the show, was nothing short of spectacular.

We already have a backlog of orders for the Vivo!

Touch, and expect to make first shipments by the end of this year.

The domestic factory list price of the Vivo!

Touch is just under $18,000, but prices charged by our European branches, as well as dealers in other parts of the world, is higher.

Meanwhile, during the quarter, we had healthy contributions to fuel our sales growth, both from our hardware and medium.

We shipped the last of our prior-generation Vivo systems, and delivered more of our thermal transfer color label printers to customers around the world for the GHS application that we told you about during our last conference call.

For those of you who may have missed it, GHS is a new mandate that goes into effect on December 1 of this year.

It requires manufacturers of chemical products to apply a special two-color label, identifying the relative safety of the contents.

QuickLabel Systems is one of the few companies in the world with a printer that is ready-made for this application.

On the test and measurement front, both orders and sales were up by double digits over the prior year.

Orders and sales of the new TMX data acquisition system, along with our ruggedized products, highlighted the growth of the Test & Measurement product group.

The TMX is used in a wide variety of applications in aerospace, industry, and research.

We will continue to add new features and options to the TMX to increase its usefulness in more and more applications around the world.

We received new contracts for ruggedized products, including cockpit printers and ethernet switches, and made substantial shipments against existing contracts.

Even though some new aircraft programs, such as the Boeing 787, have suffered continued delays, we were able to ship more printers for existing aircraft for both the cockpit and the cabin applications.

We have a good backlog of ruggedized products ready for shipment in the fourth quarter, and of course, for many quarters to come.

As we mentioned earlier, sales for the quarter for Grass products were up, and contributed to the sales growth of Astro-Med.

Grass continues to be a stable Astro-Med asset that provides healthy contributions to income, quarter after quarter after quarter.

And during the third quarter, we made the first shipments of our advanced new amplifier system that is used in both our Comet EEG and Comet PSG systems.

The new amplifier system, which has been in development for about a year, adds more channels, more capabilities to meet the latest standards published by the American Academy of Sleep Medicine.

Also during the quarter, we shipped more of our new model S12X particle stimulators, and we took orders for a new TREA ambulatory EEG system.

Now, as you've heard threaded throughout our commentary here, new products are the backbone of our growth, and so far this year, we have introduced the following new products.

The TMX Data Acquisition System, the Vivo!

Touch color label printer, the S12X particle stimulator, the Comet plus amplifier system, the TREA ambulatory EEG, the TW5 compact lightweight cockpit printer, and finally, Grass application software featuring SQL database and HL7 interface.

Although we will continue to develop an abundance of new products to grow organically, we are still looking to make very selective acquisitions within our fields of expertise to grow Astro-Med even faster.

And that's my report, Albert.

Well, thank you.

Very good.

Joe?

Thank you, Albert.

Good morning, everyone.

I'm very pleased to report Astro-Med's financial results for the third quarter ended October 30, 2010, as well as the year-to-date results for the nine-month period for our current fiscal year, fiscal year 2011.

As you heard, our sales revenues in the quarter reached $18,329,000.

That does represent the 10% increase over the prior year sales for the same period, as well as the 3% improvement over the second quarter sales of $17,753,000.

Our sales growth, as you also heard, was shared among all the product groups, with QuickLabel Systems at $9,851,000, up 12.8% from the previous year.

Test & Measurement at $4,137,000, was also up 12.8% from the prior year, and Grass Technologies at $4,341,000, was up 2% over the prior year.

Relative to the Company's channels, our domestic sales grew especially strong in the third quarter at $13.3 million.

That's up 16.7% from last year, whereas our international shipments, at $5 million, were virtually flat over last year, while given the effect of the unfavorable foreign exchange currency rates, which lowered our third quarter international sales by $207,000.

The third quarter growth was also shared equally among our hardware products and our consumable products, both of which were up 10%.

Our gross profit dollars in the quarter were $7,401,000, reflecting a 5% improvement over the prior year, with a margin of 40.4% against the previous year's margin of 42.4%.

This year's lower margin is really traceable to product mix, as well as factory absorption.

Operating expenses in the quarter reached $6,694,000.

That's a 10% increase in our spending from the previous year, and is primarily related to initiatives in our selling and marketing, as well as our R&D projects.

The Company earned $707,000 in operating income during the third quarter.

This result is lower than the prior year's by some 26%, and reflects an operating margin of 3.9%.

Astro-Med reported a tax benefit of $61,000 in the third quarter, due to favorable resolution of the previously uncertain tax position, and a favorable adjustment in the filing of the prior year's tax return.

On a GAAP basis, the Company earned $792,000 in net income, or on an earnings per share basis, $0.11 per diluted share.

Net income in the quarter includes a tax benefit of approximately $400,000, or $0.05 per diluted share due to the aforementioned favorable resolution of uncertain tax position, as well as the favorable adjustments in the filings of the prior year's tax return.

Prior to commenting on the Company's balance sheet at the end of the third quarter, I'll offer some remarks on Astro-Med's operating results after nine months of fiscal 2011.

The Company sales revenues year to date are $53,159,000, representing an 11% increase over the prior year.

The composition of this year's sales revenues has QuickLabel Systems at $30.1 million.

That's up 23.5% from last year.

Grass Technologies, at $12.1 million, is approximately flat with the prior year, and test and measurement product group at $11 million, ran behind last year by some 2%.

Gross profit margins for the year are at 40%, down slightly from last year's margins of 41.5%.

Operating income for the nine-month period was $1,877,000.

That's an increase of 35% over the prior year's operating income, and reflects an operating margin of 3.5%.

On a GAAP basis, the Company earned net income of $1,545,000, or $0.21 per diluted share, given the effect of the favorable tax benefit reported in the third quarter of $0.05.

During the prior year, the Company earned $1,037,000, or $0.14 per diluted share, for the same nine-month period.

Moving from the operations to the balance sheet, the Company's financial position remains strong at the end of the quarter.

Our cash and marketable securities balance stands at $21,279,000, slightly down from the second quarter balance.

Accounts receivables rose 7% during the quarter to $10,800,000, reflecting some 50 days sales outstanding, and comparable to the year-end balance of 49 days sales outstanding.

Inventories also rose during the quarter slightly to $13,965,000, and translates into 115 days inventory on hand, one day higher than our year end balance of 114 days.

We spent in capital expenditures $1.9 million during the first nine months.

The majority of the funds were spent on machinery and equipment, which relate to our expanding our manufacturing capabilities in Germany and Canada.

And finally, the Company paid cash dividends of $1.5 million for the first three quarters at the rate of $0.07 per share per quarter.

Albert, that concludes the financial review.

Thank you, Joe.

I would like to make a comment now on what relates -- with relationship to guidance for the year, and we are currently anticipating that our sales for the 12 months will range between $69.8 million and $71 million.

And our earnings per share will range between $0.31 and $0.34, $0.31 to $0.34 for the 12 months.

Well, with those comments, I think, Brandy, we're ready to take questions.

Thank you, sir.

(Operator Instructions).

And we do have a question from the line of George Melas with MKH Management.

Please go ahead.

Good morning, guys.

How are you?

Good morning, George.

Let me start with a question on the Vivo.

Everett, I think you mentioned that the recommended price of the Vivo was $18,000.

And then you said, I think that the price charged in Europe or by distribution would be slightly higher.

Yes.

I thought that it was going to be a $12,000 product to try to broaden the available markets for the product, but then I was probably under the wrong impression.

So, how does that price compare to the previous price of the Vivo, and also for some of the other technology that you have?

Well, that price of just under $18,000 domestic, is exactly the same price as the present Vivo.

But the big difference is we're offering many more features in this new Vivo!

Touch that were not available in the original machine, including an onboard touch computer system that enables a customer to operate the system independent of a separate computer.

And then the other major features of the system are the fact that it prints faster, and it prints more beautiful labels, that is higher resolution labels.

So the label quality and the speed, are two big improvements, changes and additions over what we had in the original model.

So in spite of all these additional features, we've been able to maintain the same list price domestically.

Got it, okay.

And it seems like that you've had great reception by both your sales people and potential customers.

What is it that they are most excited about in the Vivo!

Touch, as opposed to the previous version?

The first thing is seeing the beautiful label quality come out, so quickly, so fast.

And then secondly, the ease of operation of the machine, and then finally, the general appearance of the machine is quite nice, quite attractive, and we know it will be very useful to a wide range of customers.

Okay.

And do you think that then there will be people who previously did not -- were not interested in the Vivo, or even in QuickLabel technology in general, that will be interested in the new Vivo?

No question about it.

The main event is print quality, and the higher resolution of the new Vivo!

Touch has the quality that is going to reach people who could not use our prior model.

So this definitely is going to reach a greater share of the market than we've been able to reach with the previous model, which is very good in itself.

So we're definitely going to have a greater market share because of the better print quality of the Vivo!

Touch.

I would like to add that the standard high quality label is printed by what's commonly called a flexo system, and a flexo printed label is pretty much the standard by which all other color labels are measured.

And although the previous version of the Vivo did turn out very attractive labels, they truly did not match the quality of flexo printing.

Whereas the new Vivo!

Touch, we can defy you to distinguish the difference between a flexo printed label and one printed by the Vivo!

Touch.

So we definitely will be opening new markets that were previously unavailable to us, simply because of the very high standards for high quality that our customers and our potential customers are insisting on.

Great, that's interesting.

So there's maybe a step function there in terms of comparing to the standard, as you mentioned.

Yes, exactly.

Is the flexo, the flexo is not something that most of your customers would have.

It would be done by printing house, is that right?

That's correct.

Okay.

The flexo, of course, has the advantage of being the very lowest cost, but it requires a large capital investment, and the availability of labels printed by the flexo system are not as instantaneous.

With the Vivo!

Touch, you can acquire labels literally in a matter of moments, because all of the formats that you might want to print would be stored in the onboard computer that Everett mentioned.

And when you need a large supply or a small supply of any of those pre-stored formats, you can print them within a matter of moments.

So it's a great advantage of availability.

Great, super.

And in the quarter, on the QuickLabel side, most of the -- so you didn't sell a lot of the -- you are selling your old Vivo inventory, but you had a nice pick-up in the thermal transfer product.

Correct.

Okay, and is that going to continue, or is that just driven by the mandate that comes into effect in early December?

No, we see that continuing for quite a while, because not everyone is going to be able to meet that mandate in December.

And people are continuing to place orders for color printers for that GHS application.

We see that continuing on into next year.

And of course, we're continuing to sell thermal transfer printers for other niche applications, including the apparel industry.

We're still selling quite a few thermal transfer printers for the apparel industry, mainly overseas, now of course, there's nothing much left in the US.

Okay, great.

Thanks a lot.

I'll go back into the queue.

Okay.

Thank you.

(Operator Instructions).

And at this time, we have no further questions in queue.

Okay.

Well, thank you once again, ladies and gentlemen, for attending our conference call, and if at any time you have any questions, please don't hesitate to write us or call us or e-mail us.

We're always at your service.

Thank you very much.

Thank you.

Ladies and gentlemen, this concludes the Astro-Med, Inc third quarter fiscal 2011 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 a pass code of 4374732.

ACT would like to thank you for your participation.

You may now disconnect.