AstroNova Inc (ALOT) 2013 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Astro-Med fourth quarter and annual financial results conference call.

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

During today's presentation, there will be a question and answer session with instructions provided.

(Operator instructions).

As a reminder, this conference is being recorded today, Wednesday, March 20, 2013.

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

Please go ahead.

Thank you, Luke.

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 fourth-quarter and fiscal year-end financial results and business outlook.

Before I introduce management, I would like to remind everyone that certain statements made during the course of this conference call, especially those that state management's intentions, hopes, beliefs, expectations or predictions for the future, are forward-looking statements.

During this conference call, we may make forward-looking statements within the meaning of the Securities Exchange Act of 1934.

These statements are based on the Company's present expectations and beliefs concerning future events and are necessarily based on certain assumptions which are subject to 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 after the market close.

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 Everett Pizzuti, President and Chief Executive Officer; Greg Woods, Executive Vice 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. Pizzuti.

Everett?

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

I will make some brief opening remarks, and then Joe O'Connell will provide financial results, Greg Woods will provide a recap of operations, and then I will provide guidance, after which we will open the door to take your questions.

Certainly the fourth quarter and the year were both very successful as well as decisive in setting the new direction of Astro-Med.

At $21.8 million for the quarter and $80.4 million for the year, we set new record highs for revenues, and we made improvements in gross profit margin, up 2%; operating income, up 49%; and net income, up 47%.

All of these references are non-GAAP to reflect the Company before the divestiture of Grass so as to facilitate comparisons to our guidance and our past performance.

The new Astro-Med without Grass will now concentrate its human and capital resources on getting the Company on track with solid double-digit sales growth.

The primary drivers of the business are our color label printers, consumables and our rugged products, such as the avionics printers.

Nearly three quarters of the new Astro-Med is our QuickLabel color label printer group, with the balance Ruggedized Products and data acquisition recording systems.

Many of you are asking what are we going to do with the additional cash we have on hand from the Grass divestiture as well as from our continued strong net income.

We plan to use the cash to hasten the growth of Astro-Med, and here are some of the specifics.

Number one, speed up the process for delivering, for developing and introducing new products by adding staff and other resources as needed.

This includes new color label printers, new consumables, new rugged products and, finally, new data acquisition products.

For example, we need to introduce another significant color printer in the second half of this fiscal year.

Number two, speed up the process of selling our products by placing more feet on the street.

This is especially important for our color label printer sales group since we have such a large and broad-based market covering all types of businesses.

Number three, speed up the process of making very select acquisitions that fit right in with one of our present product groups to take advantage of synergies and assure immediate accretion.

This may involve utilizing outside resources.

Number four, make improvements to our manufacturing process by utilizing the resources of outside consulting services for Lean/Sigma kaizen operations.

The objective here is improving gross profit margins.

All of these specifics are already in process as of the beginning of this fiscal year and we will provide updates in future conference call.

Right now, I'm going to turn it over to Joe for the financial results of the quarter and the year.

Joe?

Thank you, Everett, good morning, everyone.

I'm very pleased to share with you Astro-Med's financial results for the fourth quarter and for fiscal 2013.

As you heard from Everett, and as you know, the Company had a very busy fourth quarter and certainly for the whole year in terms of its growth in sales and earnings as well as the divestiture of the Company's Grass technologies business segment.

For this morning's presentation, I will report the financial results on a GAAP basis for the sales, net income and earnings per share for the fourth quarter and for the fiscal year.

In the GAAP-based reporting, Grass Technologies will be reported as a discontinued operation through the divestiture of Grass Technologies business segment.

However, I'll also present the Company's fourth quarter and the annual results on a non-GAAP basis, including the Grass Technologies business segment.

As Everett mentioned before, we believe such a non-GAAP presentation of these results to be a meaningful information and indicative of Astro-Med's operating results across reporting periods.

On a GAAP basis, Astro-Med reported sales in the fourth quarter of $16,186,000, representing a 2.4% increase against the sales of $15,810,000 in the fourth quarter of the previous year.

Net income in the fourth quarter was $7,489,000, equal to $1 per diluted share.

For the corresponding period of the previous year, the Company reported net income of $854,000 or $0.11 per diluted share.

Net income in the current fourth-quarter does include again on the sale of the Grass Technologies business segment of $6,216,000 on an after-tax basis, or $0.83 per diluted share.

Now to report the fourth quarter on a non-GAAP basis, the Company achieved record sales revenues of $21,860,000 in the fourth quarter against the sales revenues of $20,429,000 reported in the previous year.

The composition of the fourth-quarter sales has our QuickLabel Systems at $11,737,000, a record volume for QuickLabel Systems in the fourth quarter, and a 15.4% increase over the prior year's fourth quarter QLS sales after excluding the divested South Carolina label business.

Our Test & Measurement business segment, including the Company's line of Ruggedized Products, reported sales of $4,449,000 in the quarter, slightly down from the previous year's volume and primarily traceable to the recorder line as the Ruggedized Products continued to grow during the fourth quarter.

The Grass Technologies product group finished strong with sales of $5,674,000; that's a double-digit increase from the previous year.

Gross profits on a non-GAAP basis were $9,341,000; that's an 11.7% improvement from last year with a gross profit margin of 42.7% that is up from the previous year's 41%.

Non-GAAP operating income in the fourth quarter was $2,186,000.

That's a 34% increment over the previous year's operating income and earned a margin of 10%, again up from the previous year's margin of 8%.

Overall, it was very strong quarter for Astro-Med.

Prior to discussing the balance sheet accounts, a review of the Company's annual financial results are as follows.

As you may have seen in the Company's press release, Astro-Med reported GAAP-based sales for fiscal 2013 of $61,224,000.

That's an 8.1% increase from the GAAP-based sales of the previous year after excluding the divested North Carolina label business.

Net income on a GAAP basis for the 12-month period of fiscal 2013 was $10,620,000.

That's $1.42 per diluted share.

The Company reported net income of $3,132,000 or $0.42 per diluted share for the previous year.

Reporting Astro-Med's annual results on a non-GAAP basis is as follows.

Sales for the year were $80,419,000, a new level of revenues reached for the Company and a 7.1% increase over the prior year's comparable sales after excluding the divested North Carolina label business.

The profile of this year's annual sales is QuickLabel Systems reached $43,580,000.

That represents a 10.3% increase over last year excluding the North Carolina label business.

Test & Measurement sales were $17,636,000.

That's a single-digit increase over the prior year's T&M sales, although the Ruggedized Products within that component actually was up double digits.

Grass Technologies sales were $19,195,000 for fiscal 2013, again, representing a single-digit increase over the prior year.

On a non-GAAP basis, the Company earned $33,851,000 in gross profit for the year at a margin of 42.1%, again, a nice improvement over the previous year's margin of 40.1%.

Non-GAAP operating income was $6,845,000 for the year, again representing a 49% improvement over the previous year's operating income and reflecting an operating margin of 8.5% against the previous year's operating margin of 5.8%.

Commenting on the balance sheet at year's end, our cash and marketable security position was $39,508,000.

That represents a 71% increase over the prior year's cash position and obviously driven by the sale of the Grass Technologies business segment.

Accounts receivable balance at year end was $9,376,000, reflecting some 51 days sales outstanding and consistent with the prior year's day sales outstanding.

Inventory levels dropped slightly at the end of the year to $13,998,000, representing an improved turnover of 101 days on hand, and up -- I'm sorry -- down from last year's 105 days on hand.

Our capital expenditures during fiscal 2013 were $849,000, mostly related to the factory and equipment as well as some information technology investments.

We paid cash dividends during fiscal 2013 of $2,595,000 to shareholders for the year at $0.35 per share.

Estimated employee population at year end was 342 persons.

That's down some 31 people from the prior year end.

On sales per employee basis, we also improved to a $220,000 per employee.

That's up from the prior year's $199,000 per employee.

Finally, the Company's book value per share rose nicely to $8.64, up from the prior year's book value per share of $7.51.

That concludes the financial report for the fourth quarter and for the year, Everett.

Thank you, Joe.

Next

AUDIO GAP Greg will give us some color behind all those financial numbers.

Greg?

Certainly we are very pleased with the financial performance of the Company for both the fourth quarter as well as the full year.

Now that Joe has reviewed the numbers with you, I want to take a few minutes to give you a bit of color related to our financial performance as well as some of the key initiatives we have underway for fiscal 2014.

During our Q3 call in November, I mentioned that we were in the process of completing a strategic review of our businesses with the goal of rapidly transforming Astro-Med into a double-digit growth company with improving margins.

During our planning sessions, it became clear that the best way to achieve these goals was to focus on our two platforms with the greatest growth potential, namely digital color label printing and ruggedized airborne printing.

I'm pleased to report that those strategic plans were completed, put into action and are well underway at this point.

The essence of these growth strategies is to build out each platforms via focused product development, licensing agreements, channel expansion and add-on acquisitions.

On the acquisition front, we continue to build our deal funnel and we are in advanced discussions with several of these prospects.

In parallel, we are taking the whole Company through a Lean transformation that will yield both immediate and ongoing operational efficiencies.

In our digital color label printing business, we have a number of exciting developments to report on.

The Kiaro!

printer, launched in the second half of fiscal 2013, continues to enjoyed tremendous success in the marketplace.

Kiaro!

is the first of our next-generation digital color printers, and its sales are growing at a much faster rate than any of our previous models.

As an added bonus, it is finding strong acceptance in higher volume applications, which is providing an added boost to our consumables business.

During the year, we plan to bring out several enhancements and accessories to expand the capabilities of the Kiaro!

printer.

Our R&D team is also busy on the next model in the lineup, which is currently working its way through our stage gate development process, and we expect to have it ready by the end of the year.

In order to handle the increased demands we are seeing in the marketplace, we are rapidly expanding both our direct sales force as well as our channel network.

We are already well on the way to further expanding our newly restructured sales force in North America and in Europe.

In addition, we have kicked off new initiatives this year to grow our Latin American and Asian channels as well.

In our ruggedized airborne printer business, we are rapidly establishing Astro-Med as the clear market leader.

Our fifth-generation ToughWriter 5 printer offers many competitive advantages in performance as well as size and weight reduction that are highly valued in the aircraft industry.

Over the past few years, we have when the lion's share of awards and are currently under contract on 15 different programs for a wide range of commercial, business and military aircraft platforms around the world.

Astro-Med received four of these awards in fiscal 2013, the most recent of which just in the fourth quarter.

Since it typically takes 1 to 3 years for these programs to complete certification and reach full production, we do not expect to see a significant increase in our volume this year.

However, we should see a very nice ramp-up next year and beyond.

In addition to the 15 contracts that we have in hand, we are in active negotiations on over 10 new deals around the globe and we expect to close several of these this year.

While we do not disclose the details of these long-term contracts, I can give you an order of magnitude feel for the size of these programs.

Taking a look at the contracts we currently have in hand, the projected shipments over the next 15 years are approximately $150 million, and that figure would nearly double if we were to win all of the currently active negotiations.

To better serve this rapidly growing aviation business, we are expanding both our sales and technical support staff here domestically as well as abroad.

Finally, let me close with a couple of examples to give you some flavor on the types of improvements we are already seen from our Lean initiatives.

At our main manufacturing facility here in West Warwick, Rhode Island, we conducted a value stream mapping project to more efficiently utilize our existing floor space.

When this is completed later in the second quarter of this year, we will have freed up more than 30% of our manufacturing floor space for new programs.

In another example, we conducted a detailed analysis on one of our printers, looking for ways to reduce the labor content and overall assembly time.

Both were reduced by over 40%.

Thank you, and now I'll turn it back over to Everett to update you on our guidance for the year.

Thanks, Greg.

Before we take your questions, we have guidance for the year.

As you know, it has been our recent policy to provide only quarterly guidance.

But now, based upon the great experience with the color printer market along with our sizable backlog of Ruggedized Products, we are in a better position to forecast a longer range.

So, our guidance for fiscal 2014 is revenues of $67 million to $70 million and EPS of $0.28 to $0.32 per share.

And now, Luke, we are ready for questions.

(Operator instructions) Mark Lanier, Pegasus Capital.

Gentlemen, congratulations on the year.

Those are fine results and very nice to see.

My question has to do now with two issues.

Could you tell us approximately what percent of the business is related to consumables?

And also, would you talk about some of your operating margin goals over the next fiscal year and thereafter, and what you believe the operating margin of the revised business can become?

Thanks again.

On the consumables, as you know, we have always been saying that we are at least 50% of our business, of our total business, is consumables.

And that is still holding water even under the new arrangement with (multiple speakers) the divestiture of Grass, maybe a little higher than the 50%.

On the operating margin goals, Joe, do you want to comment on that?

Yes.

I think that, as you saw, we obviously had been -- under the old configuration, we were looking to do 10%.

I think we need to get back.

We will probably be initially in the single-digit realm for fiscal 2014, but the expectation is we really need to be back up around 10% to start and then to build it from there.

I think, as you heard from some of the programs that are in place here, we think we have an excellent shot of eventually being able to get the 10% operating margin business.

If I may ask a follow-up question, would you talk a little bit about the geographical penetration beyond the United States, particularly in Latin America and Asia and what some of your initiatives have been to extend the business in those developing parts of the world?

Well, we are really, Mark, making a new attack on those particular areas.

I assume you are talking about our QuickLabel products.

Yes.

That is the main focus and we are taking a hard look at some new initiatives on capturing -- on putting in better distributors in Latin America as well as perhaps even the possibility of putting in one of our direct people there to oversee the business in that area.

So -- and then same with Asia, we have done some business in China, Australia for some time, of course, and we have done a fair amount of business in Hong Kong.

But we want to expand that business also with better distribution, so that is one of the things in our specific plans, and again, along with the possibility of putting a direct person there who is native to the area.

So right now, the bulk of our QuickLabel business is North America and Europe, and with plans for expansion in those other areas.

Thank you.

Steve Busch, Southpaw Investments.

Good morning, gentlemen.

Excellent quarter.

Thank you, Steve.

So I guess I have a few questions.

The first one -- Everett, you said avionic printers versus Ruggedized Products cockpit printers -- is that kind of a change in where our products are going in planes, where we are getting more printers outside the cockpit?

Well, not really.

I said that more in a general term of avionics products, because certainly, the cockpit cabin printer is a part of that, and so are the Ethernet hubs that we manufacture.

But our plan calls for us to get other products that can be used on aircraft as well to leverage the great experience that Astro-Med has in being able to make products that can withstand the rigors of those applications and those regulations.

So I didn't mean to send to you any new directions, but just to convey the fact that it's a broader market than just printers.

Right, but that's kind of a new shift for us focusing on that, like the Ethernet product are -- you are selling in addition?

Yes.

We have been selling the Ethernet hubs for some time to both commercial and military applications, for that matter, and we expect to -- we are hoping to add some allied products as well.

Alright.

Can you discuss any of the other products that you are working on that will be going into airlines?

Not exactly.

We have done some specialized power supplies in the past for use in the cabin, and we still do some of that.

It's not a big portion of the business, but there are other parts that are used to typically in the cabin that we may get involved with.

As you know, we supply our printers not only for the cockpit but for the IFE, in-flight entertainment equipment, which is in the cabin, and we have excellent relationships with the major manufacturers of IFE equipment.

And so -- in fact, we have added a third IFE customer this past year.

And so we are hoping to get more products from these customers in addition to the printers.

Okay, and is that included or not included in the 2015 growth forecast?

It is not in 2014 because, as Greg mentioned, when we get those contracts, then there's a lot of the engineering work to do to qualify them for use in the aircraft.

So the results in those would be seen in future years.

Right, okay.

Now, Boeing and Airbus just had a bunch of new airline orders.

Is that going to trickle down to our 2015-2017 outlook, or is it included?

Yes.

Those are customers of ours, and certainly the more aircraft that they get orders for, the better it is for us.

So, without naming specific programs, that is good news for us.

Good, okay.

So on the earnings in general, it looks like excluding Grass for the quarter, we did $0.08 versus $0.01.

Is that correct?

That's correct.

That's a pretty big growth rate.

Obviously, I don't necessary think that's going to continue, but what would you say the growth rate on earnings could be quarterly without Grass?

Well, I think the guidance that Everett gave I think is probably more reflective of our expectations for 2014.

He said the $0.28 to the $0.32.

I think that's probably a reasonable expectation for what we will get in fiscal 2014.

And why was the jump so big year-over-year on the $0.08 versus $0.01?

What was that from?

Well, we had some losses last year.

If you remember, we had to divest ourselves of some business that cost us some money.

Right, okay, so that's included in there.

Exactly.

Right, okay.

Any chance to increase the dividend and all in lieu of acquisitions, and can you comment on the size range of acquisitions you're looking at?

Because you did say you might need external resources.

Right.

We're looking at acquisitions in the range of $10 million to $20 million.

Insofar as the dividend is concerned, we do discuss that at every one of our Board meetings, and we did cover that subject on this past Monday.

And as we said previously, we are trying to do whatever is in the best interests of our shareholders.

And right now, we think the best place for the money we have on hand is to invest in the growth of our business, to really move while we have the opportunity, some unique opportunities, in both the QuickLabel color printers as well as the Ruggedized Products.

We have the lead around the world against our competition, and we want to jump these even further ahead.

So, that is where we are going to concentrate our resources, at least in the short term.

Sure, Sounds good.

I look forward to seeing more.

Thanks.

(Operator instructions) Dennis Scannell, Rutabaga Capital.

Just a couple quick things -- in the guidance, if I heard it right, we are expecting that -- is it Test & Measurement, or just the ruggedized printers to be flattish year-over-year, and then the growth to be coming from QuickLabel Systems?

I think that's right, Dennis.

I think that's a fair assumption.

Greg had mentioned that he can expand on this with the expectation the numbers that were built in the guidance is that Ruggedized will be pretty flat.

We are hoping to see a nominal increase, if you will, in the recorder business.

But Greg can probably add a little more specifics than just the numbers.

We do see growth in the data acquisitions business in the single-digit, maybe high-single-digit range.

But the Ruggedized business, because of its nature, I commented a little bit about that, it typically takes us anywhere from 14 months to sometimes 36 months, from contract award until we actually get into full production.

That has to do with certification, maybe modification of the product before we have it certified for flight use.

So we saw a nice ramp in fiscal 2013.

But again, just in terms of the timing of programs we won't see the next bump until probably fiscal 2015 and beyond.

That's right.

You will see a little plateau here in 2014, maybe a little bit of increase but not much.

But then beginning in 2015 and beyond, every year after that as these other programs kick in, you're going to see quite a bit more.

One program kind of came to a close in fiscal 2013 and doesn't repeat itself in 2014, and that is a contract that we had with DRS for Ruggedized Ethernet switches for use in ground vehicles.

We had been furnishing them these devices for a number of years under a contract, and that contract just simply expired on their end, and it may come back in the future.

So that's one reason why there's a little bit of a plateau this year, but we have added so many new contracts this past year -- as Greg mentioned, there were four in fiscal 2013 -- and those will definitely be kicking in, along with others next year and beyond.

And that is very concrete.

Okay, yes, that's helpful.

And on the backlog that you mentioned, I just wanted to make sure I had their numbers right.

We said $150 million over the next 10 years?

That was over the next 15 years.

So some of these contracts are -- 10 years to 20 years is the typical contract period.

Okay, okay, got it.

Just a couple other quick things on the guidance -- so, Joe, what kind of tax rate are we assuming for -- within that guidance?

I am using 38% at the moment as the guidance for fiscal 2014.

Yes, okay, and then this is just a niggling thing -- I think you mentioned that the Grass impact was $0.83.

That's correct.

And yet, looking up the release the release, the net income from discontinued operations, the numbers was for the quarter, it was $0.92.

What is it (multiple speakers)

Right, well, it was a combination on -- the $0.83 is strictly the sale itself, Dennis.

I think on the release itself, it actually talks about a total -- about $1.15 for the year.

Yes.

In terms of -- at the other -- $0.92 is related to the normal operations of Grass Technologies.

Got it, so that's the income, ex the (multiple speakers).

Got it, I'm sorry.

That's alright.

It has been a nice contributor to the Company historically, as I mentioned.

No, absolutely, okay, thank you, that's all I had.

Joe Furst, Furst Associates.

I just have a question concerning these acquisitions.

You have talked about making acquisitions for the last several years, but it never happens.

And I wanted to ask -- what is the probability of making acquisitions now?

You say you are looking for $10 million to $20 million sized ones.

Am I correct in saying you are in advanced stages of a couple of these?

Well, we're deep into a couple of these.

We have been talking to these people for about a year, and now we are getting very, very specific and we are zeroing in.

And we will see them this year for sure.

I know we have been mentioning this in the past, but we have all of our efforts focused on this now.

As I mentioned, we are a new company now.

We are a printer company, and both color printers and ruggedized printers.

And so we have got our directions pretty well focused and you will see some action this year for sure.

And was I correct in hearing you say that you are working on more of the airplane orders and the amount of backlog could potentially double over the next year?

Yes, this is Greg speaking.

What I was talking about is the first number I gave, the $150 million, was existing contracts.

Right.

If we were to win everything that we have in play right now, we could basically double that (inaudible).

Thank you.

Good luck, keep up the good work.

Gentlemen, there are no further questions at this time.

Please continue.

Okay, if there are no further questions, then thank you very much and we will be talking to you again at the end of the first quarter, which is sometime in May.

Thank you very much.

And thank you.

Ladies and gentlemen, this does conclude the conference call for today.

We thank you for your participation and you may now disconnect your lines.