LGL Group Inc (LGL) 2008 Q3 法說會逐字稿

Good afternoon and sorry for the delay. Welcome to the LGL Group's Q3 2008 investor call. My name is Harold Castle and I am the Chief Financial Officer. Joining us today are Bob Zylstra, the Company's CEO and President; and Neil (inaudible) our Corporate Controller.

Please note that our financial information can be obtained by accessing our website, www.LGLGroup.com. During our presentation your connections will be muted. After our presentations are completed, the phones will be open to handle your questions or comments. Our comments are covered by the Safe Harbor Statement. At this time, Bob would like to provide a business update. Bob?

Thanks Harold. And Harold will be back in just a couple minutes again to talk about the specifics of our financial results for the third quarter of 2008. As I begin, I would like to remind our audience that the LGL Group is a holding company for MtronPTI.

MtronPTI manufactures and markets highly engineered electronic devices that are used to control the frequency or timing of signals in electronic circuits. These devices are used extensively in infrastructure equipment for telecommunications and network equipment industries and in electronic systems for military applications, avionics, earth orbiting satellites and other applications that require very precise timing devices and typically these are in smaller volumes and very engineering intensive kinds of devices.

So in my comments I plan to cover three general areas for our Company. First I will make some comments regarding the revenue in the context of the current global economic turmoil. Then I will move onto progress on the Company's gross margins. Finally I'll talk about some of our significant management initiatives before I turn the floor back to (inaudible).

Our revenue in the context of this current global economic turmoil. Our management team clearly recognizes that the current global economic turmoil and its potential impacts on our market. We do not offer guidance but we are closely monitoring the situation. We recognize the need to respond quickly to these changes as they impact our business while the same time not losing track of our longer-term objectives.

During the quarter we saw revenue grow to $10.2 million. This is up 7% over a year ago and up 1% sequentially. This growth occurred in our Asia regions as existing customers continued to shift their trend toward doing product manufacturing in Asia. During the quarter our international revenue accounted for 56% of our worldwide total and this is consistent with the activity level we have seen in international markets for the past couple of quarters.

We continue to bring very focused support to OEMs in our major market segments of telecommunications infrastructure, military and aerospace systems along with test and measurement devices. These were the market segments where we believe we can best create value by bringing a distinctive combination of highly engineered devices and an easy to do business with approach to our customers.

These highly engineered products are typically lower in unit volumes but they're designed very specifically for the customers applications. These application-specific design products are most often used in primary markets of telecommunications and military and aerospace.

Our customers are sensitive to these improvements in supply chain flexibility and responsiveness that our factories bring to the equation. It also helps our customers be more responsive to their customers and this is an important aspect of winning new business.

For our business we have also seen the emergence of the new business selling electronic filter products into earth orbiting satellites. These products are going both into military and commercial satellites that are being used for communications and other applications.

At this time these opportunities are small for our Company but they are an important new part of our business. At the end of the quarter our backlog was $11.3 million. This is down $200,000 from the end of last quarter, but it is up almost $800,000 from one year ago. MtronPTI backlog may not be indicative of future revenue because of our customers ability to cancel orders.

Then moving on to the Company's gross margins. Our gross margin for the quarter was 25.6% compared to 23.5% for the same quarter a year ago. While this is an improvement, we're clearly not satisfied with this level of progress. This improvement represents progress in our factories but it is not adequate to achieve the value potential of our business.

Our focus on improvements in general supply chain and manufacturing efficiency remains intense. We are committed to achieve both short-term and longer-term goals for improvement in gross margin, profitability and free cash flow.

Finally just an update on the management initiatives that we announced earlier this year. We announced that we're expanding our operations in India to better serve the emerging Asian markets.

During the quarter we continued to execute the steps for this expansion and our production level of both frequency control products and electronic filters is expanding in our India operation as we continue to move products out of our US facilities into India. We continue to believe this expansion and product transition is an important part of our ability both to serve the Asian markets and to provide efficient and cost-effective supply chains for support of that part of the world.

So (inaudible) at this point if you would pick up and provide our guests with more detailed insight into the financial performance.

Thanks Bob. In terms of our cash and cash resources, they do continue to be strong. The Company's cash position at September 30, 2008 was $5,604,000. In addition our subsidiary, MtronPTI, had an unused borrowing capacity of $3,426,000 under its revolving line of credit at September 30. Lastly MtronPTI had $2,074,000 outstanding in its revolving loan at September 30.

Whereas Bob's operational comments were geared primarily to the individual quarter, the comments I'm about to give regarding the statement of operations are geared for the nine-month period ending September 30. LGL Group's revenue increased by 4.1% or $1,178,000 to $30,181,000 for the nine-month period.

This increase is due primarily to the growth of our foreign sales of $2,683,000 offset by a decrease in our domestic sales of $1,505,000. This growth in foreign sales is driven by the Company's customers continued migration of manufacturing into low labor cost regions.

Our gross margin as a percent of revenue for the nine-month period increased to 26% from 23.3% in the prior year as we continue our efforts to improve upon manufacturing and supply chain efficiency. Our operating loss was $943,000 for the nine-month period or an improvement of $1,008,000 from the $1,951,000 loss we had in 2007.

A contributing factor was in the improvement in our margin of 2.7% offset by an increase in professional fees primarily due to the Company's restatement of its financial statements for 2007. In addition in 2007 we recognized an impairment loss on Lynch Systems assets of $905,000.

Our investment income decreased $1,526,000 for the nine-month period. This was due to the sale of marketable securities that were held for sale during the first quarter of 2007.

Our net interest expense for the nine-month period was $208,000 compared to $260,000 and the reduction is due to a reduction in debt as well as a reduction in the variable interest rates on MtronPTI's revolving loan. In addition, we recognized the gain on a sale of equipment not related to the Company's frequency control and electronic filter business of $255,000 in 2008 compared to a gain on a sale of land of $88,000 during last year.

At this point time we will open the phones to Q&A.

If anyone has any questions at this point in time we will gladly entertain them. I do want to thank everyone for joining us on our presentation and have a great day. Bye bye.