AstroNova Inc (ALOT) 2015 Q4 法說會逐字稿

Good day and welcome to the Astro-Med Q4 fiscal year 2015 conference.

Today's conference is being recorded.

At this time, I would like to turn the conference over to David Calusdian.

Please go ahead.

Thank you and good morning, everyone.

Hosting this morning's call are Greg Woods, Astro-Med's President and CEO and Joe O'Connell, Senior Vice President and CFO.

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

Joe will take you through the financials.

Greg will make some concluding 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 earlier today.

If you have not received a copy, please go to the Investors section of the Company's website, www.Astro-MedInc.com.

Please note that statements made during this call are not statements of historical fact, are considered forward-looking statements within the meaning of the Securities and Exchange Act of 1934.

These forward-looking statements are based on a number of assumptions that could 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.

During this morning's call, management will make references to non-GAAP income from continuing operations and non-GAAP net income from continuing operations per diluted share.

The Company believes that the inclusion of these non-GAAP financial measures in this press release helps investors gain a meaningful understanding of changes in the Company's core operating results and can also help investors who wish to make comparisons between Astro-Med and other companies on both a GAAP and non-GAAP basis.

For more information, please see the GAAP to non-GAAP reconciliation table in this morning's news release.

The tables have more details about the GAAP financial measures that are most directly comparable to non-GAAP financial measures and related reconciliations between those financial measures.

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

Thank you, David.

Good morning, everyone.

This morning, we reported full-year fiscal 2015 revenue of $88.3 million, exceeding our guidance of the $80 million to $85 million and beating last year's revenue by 28.8%.

On the bottom line, the Company earned $0.60 per diluted share, coming in at the top end of our EPS forecast of $0.55 to $0.60.

Astro-Med continues to make significant strides in each of the themes we have discussed with you during the past year -- new products, geographic expansion and manufacturing efficiencies.

In addition, through focused investments in technology, marketing and personnel, we continue to build a solid foundation to generate sustained margin improvement and profitable growth.

I will discuss those investments in more detail shortly.

But, first, let's turn to the highlights of the fourth quarter, which saw net sales increase by 24.5% to $22.1 million on strong growth in both of our segments.

Looking first at our QuickLabel Systems segment, revenue increased approximately 15% from the fourth quarter of fiscal 2014 to $14.8 million, while, for the full year, sales were up 22% to $59.8 million.

The performance of our QLS segment was led by strong demand for our family of six high-performance digital inkjet color label printers.

Each of these products addresses a unique need for an on-demand label printing solution that is fast, efficient, affordable and delivers quality that rivals flexographic printing.

Customers in dozens of industries are increasingly relying on our color digital imaging solutions for their packaging needs.

For competitive reasons, we don't provide a breakout of unit sales.

What we can say is that for the fiscal year ended January 31, our overall printer unit volume is up a very healthy 68%.

There are a number of factors driving the growth at QLS.

One factor is certainly the introduction of new products.

We launched four new color inkjet label printers in fiscal Q4.

Our technology, combined with our sales and support people, have a great reputation in the industry and we are gratified to see the level of demand for these new products.

Another factor in the success of QLS is our highly targeted marketing strategy.

One aspect of this strategy is to focus on key verticals that manufacture a broad line of specialty products where the product's visual appearance is a key differentiator.

In support of this marketing initiative, in fiscal 2016, we will be participating in many more trade shows in a wide range of industries.

Our QLS business is fulfilling its mission to provide customers with high-quality color labels they need when they need them.

Using our printers, customers are able to instantly and more effectively convey the brand promise of their products whether it is tea, medical devices or prepared foods.

For our customers, that brand promise carries an enormous value.

In its recent Packaging Matters Study, MeadWestVaco Corporation found that 31% of global consumers consider packaging very important or extremely important to their overall satisfaction with consumer products.

The study also found that packaging directly influences the frequency with which customers use, buy and try products.

Beyond the flexibility and efficiency benefits, QuickLabel digital color label printers give our customers a superior on-site ability to significantly improve the appearance of their product and this is leading to higher sales for them and in turn for us as well.

Moving to our Test & Measurement segment, sales for the fourth quarter of fiscal 2015 grew 51%.

Sales for the fiscal year were up 46% to $28.6 million as both our data acquisition products and our ruggedized aerospace printers enjoyed a solid year.

We are seeing a steady increase in demand for our T&M products around the globe.

The increased demand has been enabled in part by our increased presence in new geographic regions.

In Q4, we continued our channel expansion initiatives adding sales personnel in the Americas, Asia and Europe.

As we move through the year, we will continue to make additional sales investments to support our growing business.

Another important investment during the last quarter was the opening of our Shanghai Technology Center, marking the first time we have had a direct presence in China.

You will recall that we gained a number of new aircraft customers in China through our Miltope acquisition in 2014.

This new technology center strengthens our ability to serve those customers and establish new relationships such as the agreement we signed in January with China's Donghai Airlines.

We are supplying our ruggedized printers for Donghai's fleet of Boeing 737 aircraft.

Donghai is among a number of emerging commercial carriers in China.

The airline is on a nice growth trajectory having recently expanded its domestic service and announced plans to begin international service to regional centers such as Hong Kong and Ho Chi Minh City.

In addition to the technology center, we recently opened a second office in Southeast Asia giving us a presence now in three countries in one of the world's fastest-growing regions.

Both the QLS and Test & Measurement segment continue to benefit from our lean operational excellence activities.

An important component of our operational excellence program has been last year's deployment of a stage gate methodology to rapidly develop and introduce new products to the market.

Our stage gate process evaluates new technologies and product ideas with respect to evolving market opportunities and is driven by voice of the customer.

Only the best ideas are systematically developed and brought to market.

This new approach has dramatically reduced our product development cycle.

A recent case in point was our ability to release not one, but four new color label printers in the fourth quarter of last year.

At our last call, I mentioned that during the fourth quarter we would be devoting a significant amount of time and effort to the upgrading of our IT system to a new platform.

As I'm sure you are aware, these types of conversions always require a significant effort and our process is especially complicated due to the age of our existing platform, which was a vintage 1994 system.

I am pleased to report that that process has now been completed and we are up and running on Oracle's latest EOne enterprise resource planning platform.

We expect to see a wide range of benefits from this system as it becomes more fully integrated into our operations throughout the year.

The system will strengthen our growth initiatives by providing infrastructure support across all the countries in which we do business.

We also see opportunities to significantly enhance operational efficiencies, more effectively manage inventories and to enhance the overall customer experience.

This new hardware and software installation will be able to support the growth of our Company on a global basis for many years to come.

Although we probably won't wait another 21 years for our next upgrade.

Now let me turn it over to Joe for the financial review.

Thank you, Greg.

Good morning, everyone.

Net sales in the fourth quarter were $22.1 million.

That is 24.5% greater than the fourth quarter of fiscal 2014.

Foreign exchange lowered our sales by approximately $500,000 in the fourth quarter.

Looking at our channel distribution, sales to our domestic customers increased 19.3% from the prior year to $15.2 million while our shipments to our international customers grew 37.5% year-over-year to $6.9 million.

International shipments represent approximately 31.3% of Astro-Med's total revenues in the fourth quarter compared with 28.3% in the same period of fiscal 2014.

Turning to the business segments, QuickLabel Systems reported sales of $14.8 million, ahead of the prior year's fourth quarter by approximately 15%.

Test & Measurement, which includes our ruggedized products and data acquisition systems, posted sales of $7.2 million.

This represents an increase of 51% from the fourth quarter of fiscal 2014.

Profiling the fourth quarter by product, our consumables were $10.8 million.

That is up 23.2% from the fourth quarter of fiscal 2014 while our hardware sales increased 22.7% from a year ago to $9.6 million.

Our service, parts, repair revenue contributed another $1.6 million in quarterly sales.

That result is up 46.5% from the prior year.

Fourth-quarter sales generated $8.6 million in gross profit dollars.

That is up 13% from the prior year.

Our gross profit margin of 39% was down from the 42.8% gross profit margin in the fourth quarter of fiscal 2014.

The decrease in gross margin from a year ago is primarily attributable to inventory valuations and promotional activities.

Also, gross margins for the fourth quarter of fiscal 2014 included a $450,000 settlement from a supplier-related product replacement program.

Our operating expenses totaled $7.8 million in the quarter or 35.4% of our net sales.

That represents approximately 650 basis points lower than the fourth quarter of fiscal 2014.

In dollars, the operating expenses were $400,000 higher than the prior year's fourth quarter.

This is attributable to an increase in selling and marketing activities, which were partially offset by lower R&D and G&A expenses.

Operating income of $793,000 for the fourth quarter of fiscal 2015 translate to an operating margin of 3.6%.

This compares to an operating income of $185,000 or 1% of revenue for the fourth quarter of fiscal 2014.

While the year-over-year increase is sizable, operating income would have been even stronger, but for a few discrete items that landed in the quarter.

Among those, the cost of the required fairness opinion associated with our share repurchase, our ERP implementation, inventory valuation and to a lesser extent the impact of foreign currency.

In terms of segment operating margins, QuickLabel Systems earned $854,000 in the operating income with a margin of 5.8% in the quarter while our Test & Measurement segment reported operating income of $1.6 million with a corresponding margin of 21.5%.

Our federal, state and foreign tax provision in the quarter was $36,000 representing an effective tax rate of 6.2%.

Fourth-quarter 2015 GAAP net income was $543,000 or $0.07 per diluted share, versus net income of $1.9 million or $0.24 per diluted share for the fourth quarter of fiscal 2014.

Keep in mind, however, that the results in the fiscal 2014 period do include $0.19 per diluted share from the discontinued operation.

Excluding the discontinued operations, income from continuing operations for the fourth quarter of fiscal 2014 was $399,000 or $0.05 per diluted share.

Turning to the balance sheet, our total assets at year-end fiscal 2015 were $74.3 million and our equity balance was $63.5 million representing a book value of $8.76 per share.

Accounts receivable at year-end were $14.1 million representing 52 days sales outstanding.

This compares with an accounts receivable balance of $11.4 million or 54 days sales outstanding at the end of fiscal 2014.

Inventory levels at the year-end were $15.6 million representing 106 days on hand and compares favorably with the prior year's inventories of $15.2 million representing 113 days of inventory on hand.

Our cash and cash equivalents position at year-end was $23.1 million compared with a balance of the prior year of 2014 of $27.1 million.

During the quarter, the Company purchased 500,000 shares of common stock from the estate of Albert W. Ondis for $6.2 million in December.

Capital expenditures in fiscal 2015 were $2.2 million primarily related to investments in information technology, machinery and equipment and building improvements while our cash dividends for the year were $2.1 million representing $0.07 per share per quarter.

Our employee population at fiscal year-end 2015 was approximately 341 persons.

That is an increase of 37 employees, approximately 12% from the end of the prior fiscal year.

Our sales per employee was $267,000 and compares favorably with the prior-year sales per employee of $216,000 or an improvement of approximately 24%.

At the end of 2015, orders received for the year were up 15.4%, higher than the prior year and our backlog stands at $12.1 million.

Now let me turn it back to Greg for his closing comments.

Thank you, Joe.

To summarize this morning's call, Astro-Med is putting the strategic pieces in place to generate sustained margin improvement and profitable growth.

As we did last year, Joe and I will provide revenue and earnings guidance for fiscal 2016 during our Q1 call in May.

With that, we are happy to take your questions.

Operator?

(Operator Instructions).

[Kevin Greenburg].

Yes, [Evan Greenburg] with (inaudible).

I wanted to know what (technical difficulty) because you didn't break that cost out on the ERP system and why you put that in the pro forma number?

A lot of that, Evan, is capitalized.

We have some expenses but it is more activity-related expenses.

As you know, most of those dollars related to the hardware or software product that we bought is capitalized and amortized over the life of the system.

All right, so it wasn't material for the quarter, the expense was material, but not in terms of the earnings report?

Right, it was material, but it was not relative to the earnings.

That is correct.

I will just chime in there for a second, Evan.

There is a lot of unquantifiable numbers in there too, right, so all the time we spend training all the employees and there is no way to really quantify that.

I have got to believe it was at least $250,000 to $300,000 at the bare minimum.

Just trying to get a handle on -- so let me ask you another question.

The gross margin numbers, you figure with the increased revenue that, even with mix improvement, you would probably pick up -- you might not pick up some gross margin points, but it would at least be somewhat stable.

Why was the gross margin down so much year-over-year?

We did incur some costs associated, as you say, with the relocation of activities to get ready for some of the lean initiatives.

We also had some promotional programs during the quarter, Evan, that actually lowered a little bit the ASP.

So a combination of factors I think were really the primary reasons behind the lower gross margins.

Okay, all right, thanks a lot.

Keep up the good work.

You guys are turning into a growth company.

Joe Furst, Furst Associates.

Good morning, gentlemen.

Congratulations, doing a good job.

I'm actually curious about, over the next year or two, from which segments of the business you expect the most growth.

The most growth is kind of a difficult question to ask because both areas are doing fairly well.

It is really based on timing and specific orders, so we think they are both double-digit growth potential businesses.

They have proven that so far and we expect that to continue, but exactly who is going to be in the lead, it is a bit of a horse race.

Okay, thank you.

One other question if I could ask.

Your printing business seems to be going very well.

Is it the fact that there just aren't good competitive printers out there or are you sort of alone in some of these areas or what is it that makes your printers seem to be selling so very well?

Well, I and I guess all our salespeople wish that was the case, but it is not.

It is fairly competitive to be honest with you, but we believe we deliver the best value.

So there are a number of competitors out there, but for the areas that we are targeting, certainly we believe and many of our customers do that we have the best solution for them.

Again, if we just had the best product and we could just sit on our laurels, we wouldn't have introduced four new products in Q4.

So it is the type of thing where you have to stay ahead of the pack.

We think we are doing that and not only from the product, but also from our customer support and service and the salespeople that we have out there.

We feel by far we have the best team out there, so that does give us an edge.

Good.

Are you still looking at potential acquisitions?

Yes, we are.

Nothing that we can talk about today, but it is an active part of our business.

Okay, thank you.

(Operator Instructions) Tom Spiro, Spiro Capital.

Good morning.

I am new to the story, so a couple of basic questions.

On the ruggedized printers, can you give me a sense either for your own business or perhaps for the industry if you are more comfortable how that business breaks down between the commercial, military and everybody else in terms of sales?

Yes, we really don't break that out, so we are in really three segments.

It is commercial.

We break it into three anyway -- commercial, military and business and regional jet.

We participate in all three of those segments.

I guess the only thing I would say is that the military is not growing nearly as fast as the other segments and it is not as big of a segment.

The majority is coming from the commercial and business and regional jets.

I see.

And as I look at the sales numbers reported for the year, that is a combination of both what I would call your core business and the Miltope, if I pronounced that correctly.

The Miltope business you picked up about a year ago.

In the quarter just ended, what were Miltope's sales roughly?

We don't actually break that out independently.

You actually have in the last several Qs.

Tom, the difficulty is that we are actually moving some of those products over to Astro-Med products, so it gets somewhat muddled, if you will, in terms of the revenue.

So I think the expectations for the year we have totaled in the past of roughly $8 million annually and I think we haven't been disappointed, but I think the difficulty would be to call that out in the future.

If I use -- I'm sorry?

I was just going to comment on that is that to amplify what Joe said is a lot of the customers -- I shouldn't say a lot -- many customers that we have from the Miltope acquisition have looked at some of the Astro-Med products and some of those are already converted over to Astro-Med products.

So it gets very hard to sort out which is a Miltope customer versus an Astro-Med customer.

I see.

If I use the eight as just kind of a ballpark number, that would suggest that, apart from Miltope, the Test & Measurement sales grew at a modest rate this past year, something in the 5% or 6% kind of a range if I'm doing my math right.

And I think you have described it as a double-digit grower.

Maybe my math is wrong and you could correct me or maybe there is something else we need to be thinking about.

No, that is just a matter of timing.

So the way the aircraft business works is you get contracts -- I can reference one that we got a few years ago for the Boeing 787.

So really what will happen is once you win the contract, you have got that business typically for the life of the airframe, but the actual orders are a bit erratic.

And if you look at the 787, for example, we had the issue with their lithium batteries where production almost stopped and then it ramped up again.

So the exact timing is a little bit difficult to predict, but we think overall it will certainly be in that range.

Within that, the T&M, you've also got I believe you call it your data acquisition products.

I don't really understand what is growing that and how you will continue to grow it?

Can you give me just a little bit of color on that?

Sure.

So the data acquisition products, they are used in a wide range of industries, but transportation is probably the dominant segment there, which includes aviation, rail and auto.

Really what happens is we have kind of a high-end product in that space, so more the high end users of those products and that is everything from airlines for like Airbus and Boeing, for example, to auto manufacturers are looking at exactly how they can enhance their products.

They use our products to validate their own testing.

It is also used in the energy business quite a bit, whether it is nuclear power plants or other types of power plants.

There are federal requirements; other countries have similar requirements where they have to take independent measurements of those operations, and that is what they use our equipment for.

It is traceable back to the National Bureau of Standards, so we have a very high reputation in the business.

I see.

And just a few of the macro variables; maybe you could comment on how they may be affecting you folks currency?

The dollar is up; what that portends for you overseas?

I would think those are challenges.

The sluggishness in Europe, number two.

And energy, I don't know that if you sell much into the energy sector.

It sounds like your data acquisition products really don't go there, so I am guessing it is not much of an issue.

But if you could just comment on those three variables.

In energy, you're fairly right; we do have energy components in there, but it is nothing significant.

For example, like the slowdown in drilling doesn't really affect us.

Europe does affect us in a couple of ways.

As far as the economies, we do fairly well in Europe.

We don't really focus much in southern Europe and most of our business is in northern Europe.

You may or may not be aware, but we have direct facilities in the UK, France, and Germany, and we have dealers in the rest of Europe.

So that northern European market for us is doing very well.

And we sell in local currencies so, yes, we are subject to the issues with the euro dropping.

I think Joe highlighted that in his comments.

And Canada also.

Canada is also an area for us that we have some currency impact.

And, lastly, on the new IT system you mentioned you went online a couple of weeks ago, but how long until you think the new IT system is sort of a net positive?

You have integrated it; everyone is used to it.

It is helpful rather than a hindrance.

Actually that is a good question, Tom.

It is not really so much a hindrance; it is a little bit of a learning curve right now, but I think -- I would say we are probably talking six months.

As Greg mentioned earlier, it is going to be a great platform for us to also integrate a lot of our other applications that we have.

We have a brand-new PLM application.

We also have a CRM application that will also be able to integrate it.

So probably this year will be an important transition year in terms of really bulking up the capabilities and really seeing some dramatic improvements in terms of the capabilities a system will bring us.

Thanks much.

That does conclude today's question-and-answer session.

At this time, I would like to turn the conference back over to Greg Woods for any closing remarks.

Thank you for joining us this morning, everyone.

We look forward to keeping you updated on our progress and have a great day.

Bye now.

That does conclude today's conference.

Again, thank you for your participation.