漢威聯合 (HON) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen.

Thank you for standing by.

Welcome to the Intermec Third Quarter 2012 Financial Results Conference Call.

During today's presentation, all parties will be in a listen-only mode.

Following the presentation, the conference will be open for questions.

(Operator Instructions).

This conference is being recorded today, Thursday, November 1 of 2012 and I would like to turn the conference over to Dan Evans at this time.

Please go ahead, sir.

Thank you, Britney.

Good afternoon, everyone, and welcome to Intermec's Third Quarter 2012 Earnings Conference Call.

With me on the call this afternoon are Intermec's Chairman and Chief Executive Officer, Allen J. Lauer and Chief Financial Officer, Robert Dreissnack.

Following our prepared remarks, we'll begin a question and answer session.

Today's call will include forward-looking statements.

These statements will include, for example, statements about Intermec's expected financial performance, as well as its strategic and operating plans.

A number of risks and uncertainties could cause Intermec's actual results to differ materially from those expressed in or implied by our forward-looking statements.

We include a more complete description of what we consider to be forward-looking statements in our Forms 10-K and 10-Q filed with the SEC.

Any forward-looking statements made today reflect our opinion as of November 1, 2012 and we undertake no obligation to revise or update them.

In addition, in today's call, we will describe certain non-GAAP financial measures or adjusted items.

These items should be considered in addition to and not in lieu of GAAP financial measures.

Please refer to our reconciliation from GAAP to non-GAAP items included in today's earnings release and Form 8-K.

And with that, I'd like to turn the call over to Al Lauer.

Thank you, Dan.

The third quarter was a much improved quarter for Intermec and provides a good foundation for our performance in the future.

Our focus has been on sequential quarterly improvement in profitability and cash flow and we achieved that when compared to the second quarter which marked the beginning of our turnaround.

The restructuring steps taken late in the second quarter lowered our break-even point and led to a much improved performance in Q3 in adjusted gross margins, operating profits, adjusted EBITDA and cash flow.

Adjusted gross margins, at 43.4% or about two percentage points, 2.2% above Q2 and 4.6% above Q1.

Adjusted operating profit improved to $12.2 million from $3.9 million in Q2 and a nearly $14 million dollar loss in Q1.

Adjusted EBITDA rose to $18.5 million.

All of this combined with good asset control led to improved cash flow.

Companywide revenues were down 4% from Q2 a year ago but we had a solid quarter in bookings and billed our mobile solutions backlog to a level not seen in nearly two years.

The tone of business in the Americas is improving for us.

We saw growth in Latin America, demand in Europe continues to be weak, but we did close some important deals.

Asia was also weak in the quarter but we expect that to recover in Q4.

Going forward, our focus now is on growing the revenue line.

It's no secret that our industry is facing headwinds in Europe and, perhaps, Asia too but we do see good opportunities in the Americas.

We are taking steps to strengthen our field organizations and we have a broad product line with very competitive products.

Our 70 series mobile computers had a record quarter across several deployment environments.

We mentioned in the press release the management and directors remain engaged in a review of the company's strategic direction and leadership.

Bank of America Merrill Lynch and Spencer Stuart are advising us in these matters and we will keep you informed of our progress the best we can as we move forward.

As for guidance, we are managing the business for continuous improvement.

I have found this to be a very effective way to manage a turnaround, at least for the first few quarters instead of focusing on specific numbers.

However, I mentioned in the Q2 call that I expected Q3 profitability to be better than Q2, and Q4 to be better than Q3.

That is my expectation for Q4.

I'd like to turn the call over to Bob.

Thank you, Al.

Let me briefly review our results and I'll cover several specific financial items for the quarter.

We again, reported a significant sequential improvement in our adjusted operating profit and net earnings during the quarter.

Our adjusted non-GAAP operating profit for the third quarter was $12.2 million compared to $3.9 million in the second quarter.

A sequential improvement of just over $8 million.

This carried through to adjusted EBITDA which was $18.5 million as compared to $10.2 million in the second quarter.

I won't repeat all the numbers that are in the press release but let me add some color on a few items from the financial statements.

Reported revenues were down 4% sequentially and 9% year-over-year.

On a constant currency basis, our revenues included a negative impact from currency of about 3% compared to the prior year, so overall revenues adjusted for currency for the third quarter were down about 6%.

In Europe, the currency impact was more significant with a $3.2 million or an almost 5% impact on revenue, primarily from the euro.

Therefore, on a constant currency basis, the reported decline in EMEA of 22.4% would be about 17.6%.

Clearly, the region remains under pressure.

Latin America and Asia-Pacific year-over-year revenues were up almost 16% and down about 31%, respectively.

Latin America delivered another strong quarter while we saw a slowdown in Asia related to the impact of the global economic pressures in that region.

North America reported a year-over-year decline of 2.9% but was up about 3%, sequentially, from the second quarter.

Our system and solutions and printer media businesses were down 9.3% and 14.4% respectively year-over-year, significantly impacted by the declines in EMEA and Asia, offset partially by stronger performance in Latin America.

Results for the Intermec branded services primarily reflect the lower hardware volumes for the year-to-date.

Turning to our voice solutions business, Vocollect revenues declined about 5% in the quarter which were impacted by the European economic pressures and delays in closing deals in the Americas.

However, through continuing cost reduction initiatives and tight management of expenses, Vocollect has maintained both its high gross margin profile and mid-double digit adjusted operating profitability ratio.

Moving to gross margin, our adjusted gross margins of 43.4% were down 20 basis points year-over-year, impacted by currency weakness and lower volumes but improved sequentially from the second quarter by an additional 220 basis points based on a more favorable product and programs mix.

Combined, our R&D and SG&A expenses declined in the quarter both sequentially and year-over-year.

These were favorably impacted by our previously-announced restructuring actions, management of discretionary costs, lower incentive-based compensation, and a gain of about $1.1 million from a company-owned life insurance claim.

We expect a seasonal increase in the fourth quarter related to volumes along with some specific product development costs related to future releases that, combined, will represent an incremental $5 million from the third quarter levels.

We recorded gains related to the sale of certain non-strategic patents and other intellectual property and one small real estate property that totaled a net $2.5 million in the quarter.

We do not expect these items will recur during the fourth quarter.

We reduced our accrual for restructuring costs by $1.1 million, primarily due to lower than previously expected payments for certain international employees.

The restructuring is substantially completed with, perhaps, up to $300,000 of costs remaining in the fourth quarter related to the previously-announced actions.

We recorded a small net favorable adjustment of about $200,000 to previously-recorded goodwill impairment estimates.

This was based on additional analysis during the quarter.

The company is currently completing its review of goodwill based on our third quarter results and future projections.

Our tax provision of $1.2 million in the quarter reflects, primarily, the provision for taxes in foreign jurisdictions.

I expect this provision for income taxes to be about $1.7 million for the fourth quarter.

Moving quickly to the balance sheet, our cash position at the end of the quarter increased to about $86 million.

Operating cash flow generated cash of almost $9 million during the quarter, driven primarily by net income along with strong collection of accounts receivable.

Our cash balance also benefitted from the receipt of cash on two corporate-owned life insurance claims, cash received from the sale of certain intellectual property and real estate, and cash collected in advance for a financing sale transaction.

The company used excess cash in the quarter to reduce its outstanding line of credit slightly, reducing that by $5 million to an ending balance of $80 million.

That concludes my financial comments and I'll turn it back over to Dan and Al for any wrap-up and questions.

Thanks, Bob.

Britney, if you could just give -- provide instructions to everyone to ask Q&A, that would be great.

(Operator Instructions)

Our first question comes from the line of Keith Housum with North Coast Research.

Please go ahead.

Thanks, gentlemen.

Dan, I wonder if you could give me some color on trends as you were exiting the quarter in terms of how sales were progressing.

Was it the same as you saw the rest of the quarter?

Are things improving?

I think, Keith, the trend through the quarter and, I think we always see a linearity increase where the third month of the quarter is sizably bigger than -- really, it's almost half in the first two months and as much as half in the third month of the quarter so I think the actual trajectory seemed good.

We were closing some good deals.

I think what we sensed throughout the quarter was pressure in Europe as my comments indicated and probably a little bit more pressure in Asia.

Might have finished a little bit slower in Asia than we had originally expected which I think you see reflected in the results there

And was the pressure that you saw throughout the quarter and the lower revenue that we saw, was that more attributed to a lack of large deals or was it more in the channel?

The channel was a little bit but the large deals were -- they were still there but the large deals were a little bit less than the year-ago quarter but I think we saw good activity there and I think, looking forward, believe that the pipelines and things would still support activity there.

Everybody has taken a close look at their spends, obviously though.

Right, right.

And if you don't mind, I just another follow up in terms of SG&A.

I may have missed your detail you provided in your script.

You said into the fourth quarter, expect $5 million more in incremental spend.

Yes, in the fourth quarter, due to seasonal volumes which the fourth quarter has, I think you know, is typically a seasonally higher revenue quarter, you'll have volume-related spending commissions and then, specifically, in product development or in R&D, we have some initiatives and products that are moving into critical phases that we've got a little bit more.

So the $5 million is those types of items higher than we would expect or than we saw in the third quarter.

Just want to call that out.

Okay, so if I look at fourth quarter and I know you guys have gone through the restructuring here so, excluding this $5 million, do you expect SG&A to stay roughly in line with what we saw in the third quarter?

With the exception of that $5 million, roughly, yes.

Okay, and that $1.1 million COLI payment that you mentioned as well, correct?

That's correct, and I had called that out as well.

Right.

Got it.

Okay.

I'll jump back in the queue.

Thank you.

Okay.

Thank you.

Thank you.

(Operator Instructions).

And we do have a follow-up question from the line of Keith Housum with North Coast Research.

Please go ahead.

Alright, guys.

I didn't want to dominate the call but I guess I might be the only one asking questions here.

Just one or two more then, I guess, we'll take later, perhaps.

Okay.

You guys had Vocollect now in the fold for almost a year now, or actually, probably longer than that.

Are you guys satisfied with the synergies you're getting from Vocollect or is there an opportunity to improve that?

We're pretty happy with the Vocollect acquisition.

There is some cross-selling going but not much yet.

It turns out that Vocollect is standing pretty much on its own.

Its margins are fine.

The European headwinds have pushed back in the order area a little bit but, going forward, I think Vocollect is going to do just fine.

Coming back to the SG&A and the restructuring, guys, is it safe to say you guys are done with the restructuring efforts and the cutting of costs?

I think the announced plans, as I commented, Keith, are pretty much implemented.

I think we have just a few transition and/or phased headcount that will still exit this year but, for the most part, all of those activities are completed and I think, as we finish some of those too, particularly international, that was the true-up -- the favorable true-up in the original estimate that was recorded this quarter.

Alright.

Appreciate it guys.

Thanks.

Thank you, ladies and gentlemen.

That does conclude the Intermec Third Quarter 2012 Financial Results Conference Call.

If you would like to listen to a replay of today's call, please dial 303-590-3030 or 1-800-406-7325 and enter the access code of 4570595 followed by the # sign.

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