AstroNova Inc (ALOT) 2014 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Astro-Med fourth-quarter and fiscal year 2014 financial results conference call.

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

Following the presentation, we will conduct a question-and-answer session with instructions provided.

(Operator Instructions).

I would like to remind everyone that this conference is being recorded today and I will now turn the call over to Mr. Calusdian of Sharon Merrill.

Please go ahead.

Thank you, Luke, and good morning, everyone.

Hosting this morning's call are Astro-Med Chief Executive Officer Greg Woods and Chief Financial Officer Joe O'Connell.

Greg will begin this morning's call by reviewing the Company's operating highlights and business outlook.

Joe will take you through the financials, Greg will make some closing comments and then management will be happy to take your questions.

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

If you have not received a copy, please go to the investor section of the Company's website, www.astro-medinc.com.

Before we begin, please note that any statements during this call that are not statements of historical fact are forward-looking statements within the meaning of the Securities and Exchange Act of 1934.

These forward-looking statements are based on the number of assumptions that involve risks and uncertainties.

Accordingly, actual results could differ materially.

Such forward-looking statements speak only as of the date made.

Except as required by law, the Company undertakes no obligation to update these forward-looking statements.

For further information regarding the forward-looking statements and the factors that may cause differences, please see the Company's risk factors in the Company's Annual Report on Form 10-K and other filings Astro-Med makes with the Securities and Exchange Commission.

With that, I will turn the call over to Greg Woods.

Thank you, David, and welcome, everyone, to our fourth-quarter fiscal 2014 conference call.

Astro-Med capped the strong fiscal 2014 with a solid fourth-quarter highlighted by continued momentum across our portfolio of businesses.

Orders received in the fourth quarter came in at a healthy $20.6 million, representing a 40% increase over last year's fourth quarter with both the Tests & Measurements and QuickLabel Systems product segments reporting significant double-digit increases in the quarter.

For the year, new orders were up 19.2% to $73.4 million.

Astro-Med's backlog hit a record level of $14 million as of the end of 2014 fiscal year with the Miltope acquisition representing approximately $2.8 million in avionics customer orders.

Sales revenues in the fourth quarter were up 9.6% to $17.7 million with sales revenues for the year achieving double-digit growth of 12% to $68.6 million.

We achieved our annual guidance of revenues between $67 million and $70 million and our earnings-per-share guidance of between $0.28 and $0.32 per share.

Our balance sheet remains strong with cash and marketable securities of $27.1 million, zero debt and a book value of $8.81 per share.

Before going into more depth on our businesses, let me talk first about our strategic vision for Astro-Med.

Quite simply we are focused on continuing to profitably grow our business by leveraging our specialty printing and data acquisition technologies to deliver differentiated product with significant recurring revenue opportunities.

At the beginning of last year, we developed our three-year strategic plan in support of this vision.

The main priorities for year one was develop and deploy details strategic growth plans for each of our business groups and to launch our lean transformation initiative on a Companywide basis.

I am happy to report that our teams did a great job on their plan and we accomplished nearly all of our objectives for fiscal 2014.

In support of our Lean transformation program, we conducted a series of [kaizen] events that covered a broad range of operational and transactional activities within the Company.

These kaizen events continued in the fourth quarter of fiscal 2014 where we focused on the improvement of our processes related to the production of consumables used in our label and airborne printers.

With the success of our Kiaro!

family of printers, our consumables plant has been a significant -- has seen a significant increase in volume and is currently running a two shift production schedule.

By further leaning out the processes in this plant, we can expect to be able to handle the growing demand we are experiencing without the need for significant additional equipment or facilities expansion in fiscal 2015.

At the same time, we are improving our on-time delivery, reducing leadtime and improving inventory turn.

For example, during our most recent kaizen event, we were able to improve our overall equipment effectiveness to -- on our label process by 23%.

Similarly, through the success of our continuous improvement initiatives at our hardware plant, we have freed up capacity to integrate future acquisitions into our existing production facility without the need to significantly add to the fixed costs.

Our recent acquisition of VT Miltope's aerospace printer business and planned integration of production into our West Warwick facility was a perfect example of how we are able to leverage the additional capacity that we have created through continuous improvement initiatives.

I will provide an update on our integration of Miltope in just a few minutes.

Another important building block as we strive for improved efficiency is the planned completion this fiscal year of our new Information Technology system.

Our IT systems upgrade began early in fiscal 2014 with the kickoff of a program to introduce a product lifecycle management system into our operations.

This was followed later in the year with a phased rollout project to upgrade our ERP system to the latest Oracle EnterpriseOne platform.

Investing in a new IT system is a key step towards several broader strategic objectives.

First, ensuring outstanding customer service and a positive customer experience with Astro-Med's products.

Second, enhancing operational efficiencies by connecting our product development, engineering, manufacturing, and sales teams with real-time information.

And third, supporting our growth initiatives through a system that provides infrastructure support across all the countries in which we do business.

As I mentioned, the new system is on track to be finished in the current fiscal year.

But the real benefits to Astro-Med will start the following year when the system becomes fully functional, giving us a single integrated platform on which to pursue our growth strategy.

As we discussed with you in November, our product development programs are undergoing a transition to a formal stage gate process that is designed to evaluate new technologies, assess potential market opportunities, and build out our product roadmaps based on voice of the customer input.

Both our Tests & Measurements and QuickLabel Systems product groups have already benefited from new products developed using this approach.

We also made good progress in fiscal 2014 with our channel expansion effort, including broadening our product distribution efforts in North America, Latin America, Europe, and Asia.

We have added salespeople to our existing direct sales offices in the United States, Canada, France, Germany, and the UK.

Plus, during the fourth quarter, we opened a new direct sales office in Monterrey, Mexico.

In concert with our dealer network there, the Mexico office will also serve as a hub for distribution to countries further south.

Now let me share some recent operating highlights within each of our segments, starting with the QuickLabel Systems business.

Coming off of our busiest tradeshow period in the year, during Q3, we saw very strong demand in the fourth quarter for both the original Kiaro!

and the newly unveiled wide format Kiaro!

200 inkjet color label printer.

This increase in demand resulted in another record quarter for Kiaro!

shipments.

Moving on to our Tests & Measurements segment, we generated strong bookings in the quarter from data acquisition systems as well as ruggedized printers and associated products for the aerospace industry.

In the data acquisition market, our TMX and TMX-18 products continued to be well received by customers in the aerospace and defense market where our high-speed data acquisition platform is the de facto standard.

Orders in the fourth quarter were particularly strong from the satellite and missile subsegments.

The Astro-Med ToughWriter printers continue to be well received in the industry as we landed new contracts in the fourth quarter from both the tier 1 avionics firms as well as new airline direct business.

These orders, in addition to the acquisition of VT Miltope's line of ruggedized aerospace printers, provide us with a record backlog as we move into fiscal 2015.

With the add-on acquisition of Miltope's product line, Astro-Med is now the clear leader in the aerospace printer business.

When we discussed the transaction with you in mid-January, I noted Miltope's complementary strategic fit with our existing ruggedized printer business, both from a product and a customer standpoint.

The Miltope line, which has been an aviation industry standard for more than two decades, includes both wide and narrow format printers.

The narrow format printers designed for wide but narrowbody aircraft give Astro-Med access to a new segment of the market.

The acquisition also provides extensive direct airline business for Astro-Med, further strengthening our position in North America and Europe while extending our footprint to the Asia-Pacific region and South America.

At this point, we are continuing to manufacture the Miltope product line in Hopewell, Alabama, while we train our people and prepare facilities to take on the new business.

All of the production will be relocated to our manufacturing line here in West Warwick, and we expect that effort to be completed in the third quarter of fiscal 2015.

We certainly believe the integration will create manufacturing synergy and allow us to profitably grow this business.

And we continue to expect the transaction to be accretive to Astro-Med in the first quarter of this fiscal year.

With that, let me turn the call over to Joe for the financial review and then I will return to discuss our fiscal 2015 objectives.

Thank you, Greg.

Good morning, everyone.

I am very delighted to share with you Astro-Med's fourth-quarter and fiscal 2014 annual financial results.

Net sales in the quarter were $17.700 million.

That is a 9.6% increase from the fourth quarter of a year ago.

Sales to our domestic customers increased 10.6% from the prior year to $12.7 million while sales to our international customers grew 7.1% year over year to $5 million.

Turning to the business segments, the Company's QuickLabel Systems product group of color and monochrome printer systems reported sales of $13 million, achieving a new record in quarterly revenue and exceeded the prior year's fourth-quarter sales by 10.5%.

Our Tests & Measurements product group of ruggedized products and data acquisition systems had sales of $4.8 million in the quarter, a 7.2% increase from a year ago.

Profiling the fourth quarter by product, consumables were $8.8 million, up 2.8% from the fourth quarter of fiscal 2013.

Our hardware sales increased 17% from the year ago to $7.8 million and our service parts and repairs contributed $1.1 million in quarterly sales, up 17.6% from the previous years.

Fourth-quarter sales generated $7.6 million in gross profit.

That represents a 22.7% improvement from the prior year and earned a margin of 42.8% up from 38.2% of a year ago and 40.5% in the third quarter.

The increase in gross margin from a year ago was primarily attributable to a favorable product mix and the settlement of some [356,000] with the vendor associated with a product recall reserve.

Our selling, R&D and general and administrative expenses were $7.4 million in the quarter or 41.8% of our sales, an increase from the prior year's operating expenses.

This increase primarily was the result of a planned selling and marketing initiatives, including personnel, trade shows and promotion as well as increased R&D spending.

Operating income in the quarter was $185,000 compared to $733,000 in the prior year and the operating margins for the quarter were 1% as compared to the prior year's operating margin of 4.5%.

Regarding the segment operating profit during the quarter, QuickLabel Systems earned $1.2 million in segment operating profit with a margin of 9.2% while T&M's segment had operating income of $852,000 with a corresponding margin of 17.9%.

The federal, state, and foreign tax provision in the quarter was $507,000 representing an effective tax rate of 21.4%, the lower rate of course being traceable to [our some] FIN 48 adjustment and year end true-up of the tax provision.

Net income in the fourth quarter for fiscal 2014 was $1.9 million or $0.24 per diluted share.

That compares with net income of $7.6 million or $1.02 per diluted share in the year ago quarter.

Net income in the fourth quarter from continuing operations was $399,000 or $0.05 per diluted share, below the prior year's fourth-quarter net income from continuing operations of $442,000 or $0.06 per diluted share.

Net income from discontinued operations was $1.458 million in the quarter or $0.19 per diluted share compared with the previous year's net income from discontinued operations of $7.194 million or $0.96 per diluted share.

On a non-GAAP basis, the net income from continuing operations increased to $586,000 or $0.08 per diluted share for the fourth quarter of fiscal 2014 and compares with $442,000 or $0.06 per diluted share for the comparable quarter for the fiscal 2013.

For fiscal 2014, net sales were $68.600 million.

That is an increase of 12% from the prior year.

Sales in our domestic channels were $48.7 million representing a 9.1% increase from the prior year.

International shipments increased 19.9% from fiscal 2013 to $19.9 million and foreign exchange contributed another 100 -- $227,000 to this year's international sales growth.

Full-year sales were double digit in both of our segments.

QuickLabel Systems sales for the year were $49.1 million, that is up 12.6% from fiscal 2013, and the Tests & Measurements segment sales were $19.5 million.

That is up 10.7% over the prior year.

GAAP gross profit for the year was $27 million or 39.7% of sales compared to $23.7 million or 38.8% of sales in the prior year.

Non-GAAP gross profit dollars for fiscal 2014 were $27.3 million for an increase of 15.1% over the prior year.

Non-GAAP gross margin was 39.8% compared to 38.8% in fiscal 2013.

While fiscal 2014 GAAP net income was $3.2 million or $0.42 per diluted share compared to a net income of $10.8 million or $1.44 per diluted share, non-GAAP net income from continuing operations in fiscal 2014 was $1.9 million or $0.25 per diluted share and compares with $2 million or $0.27 per diluted share for fiscal 2013.

Now, for a quick review of the balance sheet.

Our assets as of January 31, 2014 were at $78.8 million.

Our equity balance was $66.6 million, representing a book value of $8.81 per share slightly up from fiscal year end 2013.

Our cash and marketable securities position was $27.1 million compared with $39.5 million as of January 31, 2013.

Accounts receivable from continuing operations was $11.4 million, representing some 54 days sales outstanding, up slightly from last year's 51 days sales outstanding.

Inventory levels at the end of the year were 15.2, representing 113 days on hand in comparison with the prior year's 82 days on hand for fiscal 2013.

Our capital expenditures for fiscal 2014 were $1.1 million with the spending primarily related to investments in information technology, machinery and equipment and building improvements.

Our dividends for fiscal 2014 were $2.1 million, representing $0.07 per share per quarter.

Our employee population at the end of the fourth quarter was 304 folks, representing an increase of three people from fiscal year end 2013.

And our sales per employee for fiscal 2014 was $226,000, compares nicely with the prior year sales per employee of $203,000.

With the solid backlog of orders to healthy customer demands for the product lines, Astro-Med is certainly well-positioned to continue the growth into fiscal 2015.

With that, I will turn it back to Greg before we take any questions.

Thank you, Joe.

To summarize this morning's call, in fiscal 2014, we made significant strides in laying many of the necessary foundation elements to support our growth strategy going forward.

But we developed detailed multi-year strategic plans for both of our product groups with the focus on accelerated profitable growth.

We initiated an aggressive Lean transformation program.

We strengthened the existing channels, and expanded it into new geographies.

We launched a comprehensive IT systems upgrade program and we completed the Miltope acquisition.

As we begin the second year of our strategic transition plan in fiscal 2015, we do so with strong momentum and a record backlog.

We are building our team and systems to be well-positioned to support continued growth across our product platforms -- color label printers, aerospace printers, and high-speed data acquisition systems.

Both organically and through add on acquisitions, we are developing a competitive advantage build on our core technologies, operational excellence, expanding our global distribution channel and revamping our IT systems.

Our performance goals for the year include double-digit growth in both revenue and earnings.

And for our normal convention I will be providing a more specific guidance on these metrics during our Q1 call.

With that we are happy to take your questions.

Operator?

(Operator Instructions).

Anya Shelekhin, Sidoti & Company.

Good morning.

I have a few questions here.

First is, over the next year, what plans do you have to expand internationally and are you focusing on any regions in particular?

Sure.

I will answer that one.

So, yes, as I mentioned we opened that new office in Monterrey, Mexico, so that was really leading us in South America.

We had a big push getting into that region last year.

We are going to continue that this year and we have a new emphasis on Asia-Pacific region now.

So we made a little bit of progress there last year, but in 2015 you will see us make quite a bit of progress in the Asia-Pacific region.

Okay.

And what efforts specifically have you made so far to integrate the VT Miltope's product line into your business and then what are your plans going forward?

As I have said before, this is a six- to nine-month effort.

We are moving right along pretty much according to plan.

So as you might guess, being an aerospace avionics project there are a number of regulatory i's and t's that we need to take care of, but that is moving fairly smoothly.

We have had probably 25, 30 people down at their plants that are training and we expect probably to start moving the lines up in terms of product by product.

That will start in the second quarter and certainly it will be done by our third quarter.

It is also multiple visits to customers and the response from the customers is very positive.

Yes, that is a good point, too, Joe, is that together with our business leader for the ABEC Group I have made visits to most of the top customers that Miltope has and we will try to cap the other ones this quarter, but the response has been very positive.

Again, many of them are the same customers that we are talking with, the Boeings and aerospace -- Airbuses of the world and they are happy with the business that we have done with them.

And they are glad to see that the Miltope printer line has found a nice home.

Okay and incomes around discontinued operations for Grass Technologies increased significantly this quarter.

Could you provide some color on why it was so high?

(multiple speakers) -- sales?

Good question.

Actually no, actually as you may recall from a year ago we -- actually we sold the Grass Technologies business in January of 2013.

And part of that sale was the withholding of an escrow of $1.8 million.

So that was realized, if you will, because there was no claim made by the buyer against that escrow account.

So that was represented or reported in the fourth quarter.

Okay and then, last question is what are -- are you looking into any acquisitions over this next fiscal year?

Is it possible you can make another acquisition?

Yes, it is certainly possible and again as I mentioned in the past, we have a fairly rigorous M&A process we put in place here.

Number one to bring a lot of targets into our funnel, but more importantly the filters in that funnel to make sure that the acquisitions fit our criteria, the most important of which is that any target that we are looking at needs to fit into one of our three product groups.

And we have got a number that we are talking to and, as you know, the timing is never certain until you get fairly deep into the process.

So, as soon as we have something to report on that we will certainly do that.

All right, great.

Thank you.

That is all for me.

(Operator Instructions).

Joe Furst, Furst Associates.

Good morning, gentlemen.

First of all I commend you on the progress that you are making.

But the bottom line is the percentage of income you get based on sales or return on equity is still very, very poor.

I mean, it is -- if you look at the fourth quarter it is slightly over 2% on both and if you look at the year in total it is less than 2% on total.

So what are your goals as far as trying to -- what's your goals for percentage of return on sales and your return on equity?

Well, I think the -- you know we are focused, Joe, on a couple of things.

Well, actually looking at the statement of operations we would like to get the gross profit margins up closer to 45% and the operating margins above 10%.

As you know, that has really been a goal for us.

We think the opportunity is there to be able to get the operating profit at 10%.

As you can see today, we are still a good distance from that realization.

But I think with the strategy and the initiatives we have in place that you heard Greg described, I think there's a real opportunity over the next couple of years to start for us to realize that goal of being able to get the operating margins at 10%.

Okay.

Do you have any goals as far as return on equity?

Well, we would certainly like to get it to a double-digit profile.

I think the part of the initiatives we have also is in terms of the working capital improving the turnover that we have with the working capital.

I think that is also going to help in terms with the improving on the return on net assets.

Okay.

Thank you.

(Operator Instructions).

Mr. Woods, there are no further questions at this time.

Please continue.

Okay.

With that, then, thank you, everyone, for joining us on today's call.

Joe and I look forward to keeping you updated as we move forward and we will keep you updated on Astro-Med's progress.

Have a good day.

See everybody in May.

And thank you.

Ladies and gentlemen, again we thank you for your participation.

You may now disconnect your lines.