AstroNova Inc (ALOT) 2013 Q2 法說會逐字稿

Welcome to the Astro-Med Inc.

second-quarter financial results conference call on the 22nd of August 2012.

Throughout today's recorded presentation, all participants will be in a listen-only mode.

After the presentation, there will be an opportunity to ask questions.

(Operator Instructions).

I will now have the conference over to Stan Berger.

Please go ahead.

Thank you, Julie.

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 2013 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 will make forward-looking statements within the meaning of the Securities Exchange Act of 1934.

The statements are based on the Company's present expectations and beliefs concerning future events 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 risks factors is included in the Company's filings with the Securities and Exchange Commission.

By now, you should have received a copy of the news release, which was issued yesterday.

If you have not received a copy, please go to our website at www.Astro-Med.com, where a copy of the press release can be downloaded from the investing section of the home page.

Hosting the call today are Everett Pizzuti, President and Chief Executive Officer, and Joe O'Connell, Senior Vice President, Treasurer and Chief Financial Officer.

At this time, I will turn the call over to Mr. Pizzuti.

Everett.

Thank you, Stan, and good morning, everyone, and thank you for joining our conference call.

With me, as Stan mentioned, this morning is Joe O'Connell, our CFO and Senior Vice President.

We are pleased to report on another successful quarter with strong earnings despite continued uncertainty in the general economy, especially in Europe.

Joe will provide a detailed review of our financials, but I would like to call your attention to our operating income, which was up by 37.2% over last year's second quarter.

This continues the improvements that we announced during our last call.

Also, I'd like to give you a reminder that when you look at our current financials, keep in mind that comparisons to last year include the business that we divested.

Last year's sales numbers include about $1 million per quarter from that divestiture.

Order bookings, a key indicator of the business, continue strong.

This quarter we booked $19,886,000, with our QuickLabel Systems group leading the way.

In fact, our new order bookings have been well over $19 million for the last six consecutive quarters, and we see this rate increasing in the second half.

On the sales front, QuickLabel Systems, which represents well over half of Astro-Med's business, was up on both the hardware side as well as for the consumables.

Last quarter, we announced a new color printer would be shipping in the second half.

Well, we are pleased to report that we successfully launched our new Kiaro!

color label printer in the second quarter, and actually made first production shipments in the last weeks of July.

The Kiaro!

is a major new addition to the QuickLabel Systems product line.

It uses inkjet technology and prints up to eight inches per second at 1200 DPI resolution.

It is one of the fastest printers in the industry and produces incredibly beautiful color labels.

Dave's Marketplace, a local market chain -- it resembles a Whole Foods -- was one of our beta sites for the Kiaro!.

In the short time they printed over 100,000 labels with the Kiaro!.

The graphic designer who used the printer was amazed at the ease of use, speed and print quality.

He said he definitely did not want to give up using the Kiaro!, and all he had was a prototype.

He was one of the first to buy a Kiaro!.

We had similar results at our other beta sites.

The Kiaro!

does not replace any of our existing color label printers, but rather fills another market niche which was not available to us with our other products.

Every sales demonstration of the Kiaro!

by our field sales force is another positive and exciting experience.

The Kiaro!

will be a strong contributor to the future of QuickLabel Systems and carries with it lucrative consumable sales of ink and label material.

With the Kiaro!, we now have a leading-edge inkjet label printer in addition to our Vivo!

Touch electrophotographic printer and our several models of thermal transfer color printers.

Orders for our ruggedized products were stronger than the first quarter and were also ahead of last year and on budget.

We received new orders not only from existing contracts, but we also received contracts from new customers in the US, as well as in Europe.

As is the case for most contracts these days, we are precluded from identifying the customers and other details.

We can say, however, that our new customer contracts are bringing us to new categories of aircraft, including helicopters.

Now turning to Grass Technologies, we are very pleased with the increase of sales in the second quarter.

You may remember that during our first quarter's call, we mentioned that we were disappointed that hospital spending was pushed out and that we expected purchases to take place in the future quarters.

Well, some of those orders indeed came in the second quarter.

In the quarter, we also announced a new electrode product, a disposable electrode for EEG and PSG applications.

The new disposable has some unique features that set it apart from other disposables.

It represents Grass's first entry into the disposable electrode market.

We were somewhat disappointed with our Test & Measurement sales during the quarter due to some vendor-related issues relating to our new Dash MX portable eight-channel recorder.

Those issues are nearly behind us, setting the stage for stronger sales of the product going forward.

With respect to our TMX series recorders, however, sales were up, as our improved distribution network was able to bring in more orders for these instruments.

The TMX features innovations such as high-speed video recording synchronized with wave form data, high channel count and high response data capture to disk.

And now, we will present the detailed financials, after which I will provide guidance for the balance of the year.

Joe.

Thanks, Everett.

Good morning, everyone.

I am very pleased to share with you Astro-Med's financial results for the second quarter, as well as for the six months' financial results for our current fiscal year FY 2013.

Net sales in the quarter, as you saw in the press release, were $19,572,000.

That represents a 6.2% increase over the Company's first-quarter sales of $18,425,000, however, some 3.8% behind the prior year's second-quarter sales of $20,336,000.

However, if we do exclude a sales of the Astro North Carolina label business that the Company divested itself of back in January, the current year's second-quarter sales are slightly ahead of the restated prior year's sales in the second quarter.

Sales through our domestic channels were $14,013,000.

That is 10% better than the first quarter's sales, however, approximately some 2% behind last year's second-quarter sales volume for domestic business.

Again, if we exclude the divested North Carolina label business to prior year's sales volume, the current year's domestic sales are up 5.4% over the previous year.

International shipments were $5,550,000 in the second quarter, being down some 8.3% from the prior year's second quarter.

Excluding the negative impact from foreign exchange, the current year's international shipments were virtually flat with the prior year.

However, relative to the channels of our international business, our branch business were off normally from the previous year due to the unfavorable foreign exchange, whereas our international dealer volume reported a double-digit decline, as Everett mentioned earlier.

Profiling Astro-Med's second-quarter sales by product group has the QuickLabel Systems of color and monochrome printing systems at $10,807,000 in sales for the second quarter.

That is being up 4.3% over the first-quarter sales volume and at some 4% behind the prior-year label sales volume in the second quarter.

Again, on a restated basis, excluding the divested business, actually QuickLabel Systems is up 5.4% from last year.

Sales, as you heard from Grass Technologies product group representing our clinical and research neurophysiological diagnostic systems and related electrodes and creams consumables were $4,909,000 in the second quarter.

That is a 20.1% increase from the first-quarter sales volume, as well as a 6.2% better than the Grass Technologies' sales volume in the second quarter of the previous year.

As Everett mentioned earlier, although our new orders for the Company's Test & Measurement product lines recorded in ruggedized products reached [$4.7 million] in the quarter, sales in the second quarter were $3,856,000, being approximately 3% lower than the first-quarter sales volumes and a double-digit decline from the previous year's second-quarter Test & Measurement sales volume, the lower sales volume being really traceable to order timing, as well as delays in the new product introduction.

The Company's backlog at the end of the quarter rose 18.9% to $7.4 million at the end of the second quarter.

Our gross profits in the quarter were $8,299,000, reflecting a 5% increase over the prior year's gross profit dollars for the second quarter as well as a margin of 42.4%.

That is up from the first quarter's margin of 40.0%, as well as the prior year's margin of 38.9%.

Our expense levels in the combined secondary operations of selling, R&D and G&A were behind last year's dollars at $6,621,000.

The reduced spending levels were combined for the selling and marketing functions, where lower tradeshows, commissions and advertising expenses were much lower than previous years.

Operating income, as Everett mentioned earlier, in the second quarter was $1,678,000.

That is some 37.2% over the prior year's operating income, and achieves an operating margin of 8.6% against the first quarter's operating margin of 4.8% and the prior year's operating margin in the second quarter of 6%.

Other income and expense was an expense of $89,000 in the quarter.

That compares against last year's operating -- other profit of $297,000.

This year's expense was related to unfavorable foreign exchange.

The profit last year was related to the insurance proceeds the Company realized in the second quarter.

Our federal, state, foreign taxes were $602,000 in the quarter, reflecting an effective tax rate of 37.9%.

That compares against the prior-year effective tax rate of [31%] for the same timeframe.

The Company's second-quarter results produced a net income of $987,000.

That is a 5% return on sales and on a GAAP-based earnings per diluted share of $0.13.

This result compares with the prior year's second-quarter net income of $1,046,000 and a related earnings per diluted share of $0.14.

However, the prior year's net income does include $300,000 or $0.04 of earnings per share related to the income from the proceeds of the life insurance policy.

Hence, on a non-GAAP basis, our GAAP earnings per share for the current quarter of $0.13 is up some 30% over the restated non-GAAP EPS of last year of $0.10.

Prior to reviewing Astro-Med's balance sheet at the end of the second quarter, a recap of the Company's six-month results are as follows.

Our net sales for the six months ended July 28, 2012 was $37,997,000, representing a 3.1% decrease in sales revenues from the previous year's first six months.

However, again excluding the prior-year divested business, our actual sales are up 2.5% over the prior year.

Sales to our domestic customers were $26,752,000, representing 70% of the Company's total sales, and was virtually flat with the prior year's domestic sales volume.

International shipments at $11,246,000 for the six-month period were down some 9% from last year, with the unfavorable foreign exchange of $668,000 accounting for half of the decrease.

The sales distribution by product group has QuickLabel Systems at $21,171,000, representing 56% of the Company's total revenues.

Grass Technologies was next at $8,997,000, representing 24% of the total revenues.

And Test & Measurement, including the ruggedized products at $7,829,000, representing 20% of Astro-Med's total sales revenues.

Our gross profits for the first six months were $15,670,000.

That is a 2% increment over last year and reflects a margin of 41.2%.

That is up 190 basis points from the prior year's margin of 39.3%.

Astro-Med continues to report improvements in its operating margins as well.

Operating income for the first six months of this fiscal year was $2,565,000.

That is a 44% increase in the operating income from last year's first six months, and reflects an operating margin of 6.8% as [appears] to the prior-year margin of 4.5%.

The Company has earned $1,824,000 in net income for the first half of fiscal 2013, representing a GAAP-based $0.24 in earnings per diluted share and a return on sales of 4.8%.

In the previous year's six-month results, the Company earned $1,477,000 in net income, equal to $0.20 per diluted share and a return on sales of 3.8%.

In reviewing the Company's balance sheet at the halfway mark of fiscal 2013, our assets stand at $65,804,000.

Our net equity balance is $56,354,000.

We had a slight increase in our book value to $7.57.

Our cash and marketable securities declined slightly from year-end to $22,516,000.

Our working capital investments of accounts receivables also declined slightly to $11,578,000.

However, our days sales outstanding improved nicely from the year-end's 55 days sales outstanding to 50 days sales outstanding.

Inventories also declined during the first six months to $13,946,000.

However, our days on hand did rise from 105 at year end to 112 at the end of the second quarter.

We spent some $319,000 in capital expenditures during the first six months, mostly related to machinery and equipment, information technology, tools, dies and fixtures.

We've paid dividends for the first two quarters at the rate of $0.07 per share per quarter and dispersed $1,041,000 in cash dividends.

Our employee population declined by nine employees from year-end to 363 currently at the end of the second quarter, and we improved on our sales per employee by 11% to $207,000 per employee from $187,000 in the prior timeframe.

That concludes the review of the financial results for the second quarter and for the six months.

Everett.

Okay.

Thank you, Joe.

Now with reference to our guidance, for the balance of the year, our guidance remains at $78 million to $82 million in revenues, and earnings per share from $0.49 to $0.53.

And now, Julie, we are ready for questions.

(Operator Instructions) [Tim Saltzman], private investor.

Thank you, both of you, for a really great quarter.

Could you give us a sense of how large the market for Kiaro!

could be?

The market for the Kiaro!

is the market for our color label printers in general, which is a huge market that we are addressing piece by piece with our various new printer products.

The market is the commercial label market, which is being fulfilled nowadays by commercial printers.

But what we bring to the table is the ability for a user -- a user being a manufacturing facility or a distributor of products -- the ability for a user of products -- manufacturer of products to print the labels they need when they need them, instead of investing in buying labels from a commercial source, where they have to pay high tooling charges and commit to hundreds of thousands of labels that they may not need right away and that may go stale before the product is shipped.

So that is what we bring to the table.

It is hard to put a number on the size of our market, except to say that we are pioneers in bringing table -- in-house printing to our customers.

And so we have a big market to address, and the Kiaro!

gets us more of that market.

Thank you.

Steve Busch, Southpaw Investments.

Good morning, Everett and Joe.

Good quarter.

I'm just kind of looking at the Test & Measurement division, which you know is down sequentially.

In terms of your -- I guess I was expecting it to be a little higher in terms of the ruggedized (inaudible) players.

Could you just comment on the status of that and our backlogs there and how fast it is flowing through or not flowing through?

Yes, sure.

As you know, the Test & Measurement consists of two major products.

One is the data recorders, and I spoke to why those were down, because of some vendor issues with one of our Dash products.

But the ruggedized shipments were also down a little, and that was due to the fact that there were just some timing differences from our existing contracts.

So since we have visibility on those contracts for a minimum of six months ahead of us, we know that the next two quarters are going to be good for ruggedized products because we have the contracts in hand and the releases in hand.

So that, we have excellent visibility on.

So that little decline in ruggedized products in the second quarter was strictly a timing issue, and they will be right back stronger in the third and fourth quarters.

And with respect to our orders, as Joe pointed out, orders for ruggedized products were up.

They were up over the second quarter.

They were up over last year.

They are even up over our budget expectations, so that is the good news.

Right.

But do you expect to be able to -- I guess the last couple of calls we've been discussing whether or not those (inaudible) printers would be increasing in their rate of increase (multiple speakers).

Their rate of shipment.

Shipment, yes.

Shipment.

Yes, the pace of releases against contracts has really increased.

We saw a little -- there was just a timing issue for one or two aircraft, this reason.

It was just a blip you might say that is not going to repeat.

And going forward, you're definitely going to see more ruggedized product shipments each quarter.

Okay.

Again, we handle that (multiple speakers)

Are you able to quantify the rate of increase?

Is it going to be 5% a quarter, 10%?

Are we ever going to get to like a 30% increase quarterly, or is that just not that fast of a --?

I guess I'm not in a position to give you those statistics right now.

But all I can assure you is that because we have visibility on these releases, we know it is going to be more in the third and fourth quarters.

We essentially have always been double-digits, so we can say at least we expect to see the double-digit growth.

Okay.

That's fair enough.

Thank you.

Kind of a quick general economy system, since QuickLabels is broadly diversified, right?

Are you seeing any kind of a slowdown?

Are you seeing customers just being steady?

Are you seeing people looking forward and buying inventory in advance?

Or is everything just kind of smooth, old (inaudible)?

What we see is -- one of the key indicators on the QuickLabel side is the media business that we get, the label business that we get.

And that usually goes up or down before the hardware does.

And so far for the last two quarters, the media business has been on a steady rise, which in our mind points to -- based on past history, points to it is not too sensitive to the economy.

It is growing.

And so with respect to the hardware, we had a very good quarter in the second quarter in spite of the economic conditions.

Most of the softness is in the international market.

In the domestic market, we haven't seen the effects of the economy too much.

But we are certainly sensitive to it, and trying to be conservative in our numbers.

Sure.

I appreciate that.

And I will hop off and let someone else answer the question.

But I appreciate a good quarter.

Thank you.

Thank you, Steve.

Thank you, Steve.

Joe Furst, Furst Associates.

Good morning, gentlemen.

(multiple speakers) acquisitions.

Last quarter you mentioned you thought you might be fairly close to making some acquisitions and using that cash that you have.

Any progress on that?

We've made progress, but we are not close enough to anything to say anything.

But I can only -- we can only say that we are still working in that area with some specific targets.

Okay, thank you.

Good quarter.

Thank you, Joe.

(Operator Instructions) [Charlie Doe], private investor.

Good morning.

Just wondering if you could comment on when the foreign exchange issue will be dampened.

Do you expect this foreign exchange issue in terms of dampened revenues to be there for two to three years?

Good question, Charlie.

I think we have -- we are taking a hard look at that, actually.

We took a look at some possibilities of doing some contracts to hedge on some of these going forward.

But we are trying to mitigate, if you will, the impact on the foreign exchange.

We think it would be less of an impact in the third and the fourth quarter, but obviously there will be some impact on the Company's -- on the sales.

Right, but in terms of sort of looking out to next year and two, do you see that as an issue that won't be as much of an impact?

We think so.

We have some ideas as to how we are going to, as a strategy, to be able to hedge on some of those -- the impact of the foreign exchange, especially in Europe.

Yes, certainly it would deliver more to the bottom line.

You're absolutely right.

In terms of the outstanding RFPs on the ruggedized printers, what is the current magnitude of that?

Well, outstanding contracts in hand is about $180 million.

Those are contracts on hand.

We don't -- as I mentioned on previous calls, we don't book those contracts.

We book the releases as they come in daily and weekly and so forth.

And in addition to that, we have probably another $100 million in various stages of negotiation.

I guess that is the RFP that you referred to.

Correct.

Yes.

We have a number of very active negotiations that our team is working on as we speak in a number of different areas and with different contractors as well as aircraft manufacturers.

So there continues to be a great deal of activity in that ruggedized product area.

Very good.

Thank you very much.

(Operator Instructions) Thank you.

We have no more questions at this time.

Please continue.

Okay, we want to thank you for joining the conference call, and we will be speaking to you again in mid-November.

Thank you very much, and bye-bye now.

Bye now.

Thank you.

This concludes the conference call.

Thank you for participating.

You may now disconnect.