AstroNova Inc (ALOT) 2013 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by.

Welcome to the Astro-Med Inc.

third-quarter financial conference call.

At this time, all participants are in a listen-only mode.

Later we will conduct a question-and-answer session, and instructions will be given at that time.

(Operator Instructions).

As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Stan Berger.

Please go ahead, Sir.

Thank you, John.

On behalf of the management of Astro-Med, we are generally 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 third-quarter and nine-month financial results and business outlook.

Before I introduce management, I would like to remind everyone that certain statements 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 risks and uncertainties.

Actual results may differ materially from those discussed here.

More information on the 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 homepage.

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

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

Everett?

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

As Stan mentioned in addition to Joe O'Connell, Greg Woods is with us for the first time, and he will join us in responding to your questions.

First, I would like to briefly summarize some of the many highlights of the successful third quarter that we announced yesterday in our press release.

Records were set on many fronts, including sales, new order bookings, gross profit margins, operating income and backlog.

As you know, last year our financials included our North Carolina operations, which have since been divested.

Nonetheless, when comparing new orders against last year's third quarter, we experienced double-digit growth of over 10% with and over 17% without the North Carolina operations in the numbers.

And on the sales side, our growth was over 5% with and over 10% without the North Carolina operation as a comparison.

Another point that we would like to express is that our record third quarter does not represent a one-time spike.

As you will have seen, each quarter of this fiscal year has been progressively better than the previous one, and we see this continuing into the fourth quarter.

Looking at the sources of our growth, I will begin with QuickLabel Systems where sales of both hardware and consumables were up over the prior year's quarter.

Our color label printer sales were up substantially led by the new Kiaro!

As a reminder, we introduced the Kiaro!

at the tail end of Q2 and have gone on to sell a record number in the third quarter.

The Kiaro!

is the best high-speed inkjet color label printer on the market.

It produces beautiful color labels up to 4 inches wide at a speed of 8 inches per second and with unmatched clarity and reliability.

And, of course, every sale of a Kiaro!

brings along ink and label consumable sales.

In addition to the Kiaro!, sales of our other color label printers were also up.

These printers include the Vivo!

Touch, which prints labels up to 8 inches wide using electro-photographic technology and the QLS 4100 series thermal transfer of color printers.

Another important driver of our sales, orders and backlog is our ruggedized products.

During the quarter, we received notice of additional new contracts for both commercial and military type aircraft, including large commercial planes, as well as business type jet aircraft.

As we mentioned in previous calls, these contracts are not entered into our backlog until we receive release orders with scheduled shipments.

Now, in the third quarter, we received release orders for existing contracts that increased our credit backlog over 58% from year-end.

Our Grass orders and sales were affected somewhat by timing as we received an expected order for $500,000 worth of EEG machines right after the third quarter ended.

Our sales of routine EEG products, as well as long-term epilepsy monitors, are increasing now more than our sleep systems as we take more and more market share from our competitors.

Sleep monitoring systems sales are somewhat stalled and delayed as the healthcare's insurers impose tighter controls requiring preapprovals of all in-lab sleep testing.

The insurers are moving toward the lower costs of home sleep studies.

To the manufacturers such as Grass, this means selling lower-cost sleep screeners for the home as opposed to the high price systems normally sold in hospitals and clinics.

Our consumable sales of Grass, however, were up by high double digits with new order bookings up over 40% from the previous quarter.

Finally, I'll say a few words about the data acquisition products that fall under test and measurement, along with our ruggedized products.

We are quite pleased with the sales of our TMX series recorders with growth in both orders and sales.

Sales of our new Dash MX product have slowed due to continued problems with our supplier for this particular model.

Now, domestic sales, as well as international, are up over the prior year.

As you know, we sell internationally through our branch offices in Europe and Canada and through independent dealers in the rest of the world.

Our international sales from the branches were up over 12%, even though our third quarter includes August, a month when most of Europe is shut down for vacations.

Our improved gross profit margins are a reflection of our continuous improvement process and manufacturing.

We have ongoing programs to improve efficiencies in-house, as well as to reduce costs with outside vendors.

Manufacturing and engineering work hand-in-hand to make changes to reduce both the labor, as well as the material content of existing as well as new products.

And now Joe will present the detailed financial results, after which I will provide guidance on the balance of the year.

Joe?

Thanks, Everett.

Good morning everyone.

I'm very pleased to share with you Astro-Med's financial results for the third quarter and for the nine months ended October 27, 2012.

As you've heard from Everett and perhaps maybe saw in yesterday's press release, Astro-Med did experience a record quarter in its new orders and its shipments.

Our net sales in the quarter reached $20,562,000, which represents a 5.1% increment over the prior year's third-quarter revenues, as well as a 5% increase over the current fiscal year's second-quarter sales.

If we do exclude the sales volume from the divested North Carolina label business from the prior year sales, the year-over-year growth rate is greater than 10%.

Sales through Astro-Med's domestic channels was $14,642,000, representing 73% of our total sales and posted an increase of approximately 4% over the previous year's third-quarter domestic sales.

This growth rate more than doubled when you exclude the divested North Carolina business from the prior year numbers.

International shipments were $5,920,000 in the quarter and was approximately 9% ahead of the prior year's third-quarter international sales and almost 13% better if you exclude the unfavorable foreign exchange impact that we experienced in the third quarter.

The Company experienced healthy growth from its test and measurement segment where sales of $5,359,000 were reported and a growth rate of approximately 24% was realized.

The prime contributors here was the Company's product lines of ruggedized products and the recorder line of PMX products.

QuickLabel Systems reported sales in the quarter of $10,679,000.

That is a year-over-year increase of 3%.

And, however, if you exclude the prior-year North Carolina divested business, the growth is greater than 13% year over year.

The prime drivers, as you heard in terms of the growth of the QuickLabel Systems, is really the volume of color printer shipments that we have made during the quarter in both our domestic and our international channels.

Grass Technologies product group of neurophysiological recording instruments, including their consumable product lines, posted sales of $4,524,000 in the third quarter.

This sales volume is below the prior year by approximately 7%.

The Company's gross profits in the quarter were $8,830,000.

It's a very healthy improvement over the prior year by some 10% and reflects a gross profit margin of 43% against the prior year's 41%.

Operating expenses were lower in the current fiscal third quarter than last year at $6,745,000 as our selling, marketing and R&D spending ran behind the prior year's expense level.

And outgrowth of the record sales and the related profitability was Astro-Med's operating income in the third quarter, which reached $2,094,000.

This result reflects an operating margin of 10.2% against the prior year's operating margin of 6.1%.

Other income in the quarter was $46,000 in comparison against the operating other expense of $69,000 experienced in the prior year.

The improvement is traceable to favorable foreign exchange in the third quarter.

Income taxes in the quarter were $832,000, projecting an effective tax rate of 39% and compares to the prior year's effective tax rate of 29%.

The prior-year rate does reflect a tax benefit of $113,000 from favorable adjustment in the filing of the prior year tax returns.

Astro-Med earned $1,308,000 in net income for the third quarter and improving over the previous year's net income by approximately 64%.

This quarter's earnings translates into a per-share EPS of $0.18 per diluted share and compares to the prior year's EPS of $0.11 per diluted share.

Prior to reviewing the Company's balance sheet at the end of the third quarter, commenting on Astro-Med's nine-month results are as follows.

The Company has realized net sales of $58,559,000 through the first three quarters of fiscal 2013.

This level of revenue is slightly behind the prior year's level of sales of $58,764,000 on a comparable period.

Unfavorable foreign exchange lowered this year's volume by approximately $872,000 or 1.5%.

If we exclude the divested label business from the prior year numbers, this year's growth is approximately 5% year over year.

This year's domestic sales volume was $41,394,000 and up over the prior year and representing 71% of our total sales.

International shipments were $17,165,000 and were behind the prior year's volume by approximately 4%.

The composition of this year sales by segment has QuickLabel Systems at $31,851,000, representing 54% of our total sales.

Grass Technologies at $13,521,000 and the Test & Measurement Product Group at $13,187,000 each represent approximately 23% of our total sales for this year.

Astro-Med has achieved gross profit dollars for the nine months of $24,508,000.

It's a 5% improvement over the previous year and reflects a margin of 41.9%, representing a 210 basis point increase over the prior year's gross profit margin of 39.8%.

This year's operating income reached $4,658,000, a 57% increase over the prior year's operating income and reporting an operating margin of 8% against the prior year's operating margin of 5%.

This year's effective tax rate is 32% and matches the prior year's effective tax rate of 32%.

Astro-Med has earned in net income $3,131,000 year-to-date this current fiscal year.

This result compares favorably to the prior year's net income by improving by approximately 38% and translates into an earnings per diluted share of $0.42 versus the $0.31 per diluted share reported in the prior period.

On a non-GAAP basis, this year's net income on an EPS basis reflects an EPS of $0.38 per diluted share against the comparable number for the prior year of $0.25 per diluted share.

Just quickly commenting on the balance sheet, our assets at the end of the third quarter were $66,937,000.

Our equity position was $56,757,000 as we've improved nicely in terms of the book value per share from $7.37 at the end of the year to $7.74 at the end of the quarter.

Cash and marketable securities were just below $23 million.

During the quarter, we did buy back 110,000 shares as part of our buyback program for $770,000, but the Company still has authorization to purchase another 390,000 shares in the open market.

Accounts receivables at the end of the quarter were $11,804,000, representing some 46 days outstanding, a nice improvement from the 50 day sales outstanding that we experienced at the end of the year.

Our inventory levels were $14,487,000, a slight increase from the year-end, but improvement in the days onhand to 111 days comparing to 124 days that we've experienced at year end.

Capital expenditures for the current year were $527,000 and primarily were confined information technology tools, dies, building improvements and machinery and equipment.

In dividends, we paid $1,559,000 at $0.07 per share per quarter.

These payment -- the current quarter payment will take place on December 27 shareholders of record of December 7. The employee population at the end of the third quarter was 365 employees.

That's down from seven folks from the year-end balances, and our sales per employee has improved nicely to 216,000 in comparison against the prior reference of 187,000 per employee.

Overall, it's a very fine quarter for the Company.

That's my financial report, Everett.

Okay.

Thank you, Joe.

Okay.

Our guidance for the balance of the year remains at $78 million to $82 million for revenues.

For earnings-per-share, however, we see an improvement.

We had last reported guidance of $0.49 to $0.53.

Our new guidance for the year is $0.56 to $0.60 per share.

Of course, we remain cautious as we are sensitive to the continued uncertainty in the general economy, especially in Europe.

And before we take your questions and Joe Greg and I will participate in the questions, we just -- Joe might want to just clarify the fact that we are paying the dividend in December of this year instead of January (multiple speakers) as a token of recognition to our shareholders.

Exactly right.

With the uncertainties in terms of the changes from the tax law, we thought it would be most appropriate to make the payment -- normally we would make the payment usually about 3 January, so we've moved it up to 27 December.

I think that's a prudent position for the Company to take.

Okay.

And now John will open the microphone to questions.

(Operator Instructions) Mark Lanier, Pegasus Capital.

Congratulations to the executive team and the entire employee group for a very nice quarter.

Thank you, Mark.

Thanks, Mark.

I have two questions, one has to do with the evolution of sleep studies and the fact that that appears to be an increasingly interesting markets, even though there is a product shift and reimbursement shift going on.

But would you describe that more and how you see an evolution of the market?

And the second question has to do with international expansion and number of distributors and some more color on your thoughts about how that may progress over the next year or so.

Thank you so much, and also congratulations on buying back your stock.

I'm very pleased to see that.

Thanks, again, Mark.

I'll take a stab first at your sleep question.

What has happened is the healthcare providers, you know people like United Health and Kaiser and the like are all now telling the sleep labs that before you can start a sleep study in a patient, you must get our preapprovals, and at that point, unless there's some serious issue, they are telling the sleep lab to use a home sleep screening device where the reimbursement is about $120 versus doing an in-lab screening or an in-lab complete test where the price is $1000 to $1200 or more.

So the insurers are really clamping down.

Now and of, course, the sleep labs are trying to contain the business and keep it in their house.

But the move now to sleep screeners means that if something such as Astro-Med and our competitors for that matter, instead of selling a $15,000 to $20,000 system to use in a hospital lab, we are now selling $2500 sleep screeners for use in the home.

Now it's true we may sell a few more sleep screeners than we do the full lab systems, but still this means probably reduced revenues for a while on the sleep side of things, although our margins on screeners are probably almost as good as on the big systems.

So we're working -- we have a couple of models of sleep screener already in our line, but we're working on another model to add some additional features to get better performance, and so we'll continue to do that going forward.

Your second question has to do with international expansion, and we don't have any plans right now to add additional branches.

But we are looking very seriously at adding additional dealers, especially in some of the countries where we're not covered and especially in South America where there are opportunities and we haven't done too much there yet.

And this is one of the things that Greg Woods will be focusing on going forward, and that is adding additional distribution in some of these areas (technical difficulty).

Everett, I might just add one point on that.

In the short-term, what we actually have already kicked off is Everett mentioned the Kiaro!

is the best ink jet printer out there in its market niche, and we want to take advantage of that immediately.

So we've actually added to our dealer network, as well as our direct sales force.

So we are trying to bring on additional people in that area right away because we're taking down a record number of orders for a new printer launch with the Kiaro!.

I hope that answers your questions, Mark.

Yes, I appreciate it.

Steve Busch, Southpaw.

Hello, Everett and Joe.

Great quarter.

Thank you, Steve.

Thank you.

So I've got a bunch of questions.

First of all, on the stock buyback, which I'm glad to see as well, was that from the (inaudible) or somewhere else (multiple speakers)?

No, it was from a shareholder who passed -- a long-term investor, in fact, who passed away in June, and his wife had to liquidate the estate, and that's how it came to pass.

Okay.

And what was the average costs per share, do you know?

We bought it back at $7.

$7, well, that's great.

Okay, in terms of these release of Cockpit Printer contracts into the backlog?

Yes?

What portion of the backlog is Cockpit Printer related, and do you have any kind of guess or view as to the next year how much more the contracts might be released?

Well, you know, the ruggedized printers that we shipped this quarter and continue to ship this year have been more and more every month and every quarter because we are getting additional releases against all of those contracts.

You know, we've got contracts at different over the years in 2006, 2007, 2008, and as those planes go into production, we get releases that pile upon the existing ones.

So it's only going to increase -- continue to increase going forward.

So this 58% increase in backlog, those are all program shippable orders, you know, well into next year.

And every day not a day goes by that we don't get a release order from one of our contracts for shipment in February, March, April May and so forth.

So that will continue, and it is really on a nice growth path.

What percentages is organized printers of the actual backlog -- can you break that out or not?

(multiple speakers) -- of the total backlog that we have right now?

Well, the 58% of -- all of the backlog that is shippable, all of the ruggedized backlog that we speak of is shippable.

It's all released in the shipment right.

I understand that.

No, I'm just saying of your overall backlog number?

Oh, of our overall of all products -- Joe, do you have that number?

Yes, it's actually more than 50%, Steve.

(multiple speakers) normally our backlog turns quickly.

That's really -- this is really -- it is kind of a new phenomenon for us because we do have now opportunities for future more than just the next month, if you will, in terms of demand.

So it will continue to be and and we think it will continue to be a significant piece of the backlog that we report.

Right.

That's what I was getting at.

Thank you.

That's much clearer.

So in terms -- so the real thing, though, is you sell the consumable paper.

So, as we get more of these organized printers in the air, we are selling a lot more paper.

Are you seeing -- or what does the average turnaround for a roll of paper cost right now?

We're still studying that, and we are getting more and more paper, let's put it that way.

And we're also looking at selling paper for other brands of Cockpit Printer that have been out there for us, so we have a greater opportunity.

It's hard to put a handle on how much per aircraft or preflight.

We've got a number of estimates here and there.

All we can say is we're increasing that business gradually, and you know, it's not a significant number now, but we expect it to be later.

Okay.

That's great.

Now in terms of Grass, so we have these new more home-focused systems.

Do we still sell the consumables that attach to those or --?

Yes, the main consumables that we sell for Grass -- the sensors and, in particular, the gold cup electrodes, and when I mentioned that the Grass consumable orders went up 40% over last year, that's primarily our electrodes that we make in-house and the special crane that we sell that goes along with those electrodes.

Those are our products, and they are increasing very nicely.

And we sell them, Steve, not only for use with Grass, our own EEG in the fleet machines, but we also sell them to our competitors.

Because they love -- because the Grass consumables, their electrodes are so good, they buy them and resell them with the Grass name on them, and so it's a very nice business.

Right.

So I guess what I am trying to drive at is, if the reimbursement is driving towards home health, you maybe have more people at any given time utilizing these marketing devices.

Will they be using those Grass electrodes at home and, therefore, maybe we will see an uptick in that?

Maybe, but there aren't as many electrodes used in the home sleep studies because the home sleep studies are screeners where they may use just three to six channels or maybe even as many as nine channels, whereas in a lab, they use at least 20 to 25 channels.

So each channel represents a sensor or an electorate, so it may not be as great as you think.

Okay.

That's good.

That's more color.

And then I'll hop back so others can ask some questions.

Then on the dividend, great that you're doing it early this year.

If the tax rates change materially on the dividend side, do you have any plan in place or what is the board's plan to either change the way the dividend is distributed as a stock dividend or just more buyback or just continue on?

And thank you, again.

It was a great quarter.

Well, we have a discussion about the dividend at every board meeting.

We had one this week.

And so you know the Board, first and foremost, is the welfare of our shareholders.

So we will do whatever is necessary whenever we can to satisfy and be fair to our shareholders.

And so we don't have anything specific now, but I can assure you that we talk about the dividend at every board meeting.

Great.

Thank you, again, and I look forward to more.

Sam Rebotsky, SER Asset Management.

Good morning, Everett and Joe.

Congratulations on a wonderful quarter.

Does it appear to be something new that's happening the way you're doing your business so that the significant improvement currently will continue on a regular basis?

Well, we are just applying the good principles that we've always done, Sam.

But, as I tried to mention in my brief remarks, this has not been a one-quarter spike.

If you look at every quarter this year and the last quarter of last year, the last couple of quarters of last year, everyone has been a little bit better.

So we're making good progress every single quarter, and we expect that to continue, unless this economy goes down someplace.

That's wonderful.

Now was there anything in this current quarter that was deferred from the previous quarter?

I don't think so, Sam.

Specifically, Sam?

Yes, were there any sales that we would have gotten into the last quarter but we couldn't and it went into this quarter?

(multiple speakers) No, I mean we ship everything we can every quarter.

So no, there is no such thing as the deferral.

Okay.

Now as far as the dividend, even though you had a Board discussion, I would suggest you have a another discussion relative to possibly giving a little more of a dividend based on your cash, etc.

unless you had a significant use for it whether it's $0.50 to $1.00 in the current year based on the expectation that the tax rate will go up.

Definitely it's up 4% and maybe go up more so that -- something should be discussed, as Steve mentioned, possibly a stock dividend next year instead of cash, if that's appropriate.

We understand.

We understand that.

And we don't have to wait for the next Board meeting to do that.

If something should arise, we'll just call a special Board meeting to discuss that subject only, Sam.

Okay.

Now the other thing, as far as your pipeline, what is your pipeline compared to the pipeline at the previous quarter in the same time last year?

Is it much more significantly increased?

When you refer to the pipeline, do you mean in existing orders or (multiple speakers)?

No, orders that have not become orders that you need commitments on whether it's the federal government or (multiple speakers).

Oh, you mean, okay, negotiations in progress --

Right.

Exactly.

Yes, well, I can say we have a lot more ruggedized contracts that are in process.

Although I mentioned we did get some this quarter, we have several significant ruggedized contracts that are in negotiation, and the rest of our business is kind of like daily, weekly business.

They are not big contract.

So the main thing we can put our finger on is the ruggedized business.

Everything else is more or less onesie/twosie business, although we do have a few OEM accounts.

We have a very nice -- we make special printers for a medical device company.

It is an OEM account, and we've been doing business with them for over 10 years.

This is a large medical device company.

Well, I can tell you it Beckman Coulter division of Danaher, and we've been selling to them for years, and we expect to get additional contracts from them as well.

So those are the things, the specifics we can put our hands on.

Everything else, sales of color printers, those are all onesie/twosie daily affairs.

And similarly with Grass, there are a few large Grass contracts that are in negotiation.

When I say large, they are on a order of $0.5 million or more.

Those are typically the big epilepsy centers, and we have a number of those that are in negotiation as we speak too.

So, in general, the pipeline always has a pretty good feel.

Sounds very good.

It is a good way to start Thanksgiving.

(laughter) Thanks.

(Operator Instructions) Steve Busch, Southpaw.

Hi, I know I ask this question every time, so I might as well ask it again.

In the label business, are you seeing a broad-based purchasers of your labels from the general economy standpoint?

Yes, I can jump in on that one a little bit.

This is Greg speaking.

Really, in the label business, as I mentioned, Kiaro!

is taking off, and that's really an all-market area.

So we are seeing that broad-spectrum from the [Sangen] market, the nutraceuticals, consumer products, so pretty much any flavor, and really we're seeing it both domestically and internationally.

So I can't point to any one specific industry that I'd say, hey, this one is taking off, but we also don't see any pullback, if that is part of your question.

So I see it as increasing (multiple speakers) (laughter) Yes, no, we see it increasing in each of the market segments that we track.

Well, that's great.

Okay.

So maybe, Everett, you kind of mentioned you are cautiously optimistic and then also kind of upped the guidance.

Can you kind of add any more color as to what your concern on the cautious part is that supposed to be optimistic?

The concern on which part?

I missed that.

On the cautious part versus the optimistic part (multiple speakers), what gives you caution and what makes you optimistic?

Yes, well, in general, right now the orders and contracts we have in hand that are bringing us through this quarter and into the next year are solid and in hand and look good.

As I say, the rest of our business is basically comes in daily, and if the economy holds, we should be okay, just like everyone else, and we will continue with increased -- a bigger quarter in the fourth quarter here, as well as next year.

The caution is mainly with respect to the economy, not any products that we have, not that we have any problems anywhere.

It's primarily the economy.

Okay.

Perfect.

Have a safe and happy Thanksgiving.

Thank you, Steve.

(multiple speakers)

And we seem to have no further questions at this time.

Please continue.

Okay.

Then we want to thank you for everything, and I guess our next conversation will be in March when we discuss our year-end.

Thank you very much, and happy Thanksgiving to all.

Happy Thanksgiving, folks.

Happy Thanksgiving.

Bye now.

Bye now.

Ladies and gentlemen, that does conclude our conference call for today.

Thank you for your participation.

You may now disconnect your lines.