LGL Group Inc (LGL) 2008 Q4 法說會逐字稿

Good afternoon and welcome to LGL's 2008 year-end investor call. My name is Harold Castle and I'm the Chief Financial Officer.

Joining us today are Bob Zylstra, our CEO and President, and Neal Renuart, our Corporate Controller.

Please note that our financial statements can be obtained by accessing our website, www.LGLGroup.com, and/or you can obtain it on the Securities and Exchange website, which is www.SEC.gov.

During our presentation, your connections will be muted. After our presentations are completed, the phones will be open to handle your questions or comments. The comments that our management team are making today are covered by the Safe Harbor statement.

At this point in time, I'd like to introduce Bob Zylstra, who will provide us with a business update.

During my time this afternoon, I would like to cover four general areas for our Company. We'll comment on our business in this difficult economy, talk about some recent changes we have announced for the Company, progress on improving our Company's gross margins, and some ongoing management direction.

So beginning with our business in this difficult economy, we were happy that we were able to show a small amount of revenue growth in 2008, even in the face of this economic turmoil.

Our bookings and revenue are showing the impact of the economic problems. Our backlog at the end of 2008 was down over 30% compared to the end of 2007. This reduction is result of three contributors. First is the reduced level of business from our customers. Second is the impact of having a supply-chain contraction, as it reduces its inventory level, and third, we are seeing increased conservatism in the whole supply chain as orders -- or purchase orders are being placed at the last possible moment.

Our revenue dropped 2% from the third quarter 2008 and 5% from the fourth quarter 2007. So again, it's clear our customers are seeing the impact of this economic decline, and so are we.

The small amount of growth we saw in 2008 was led from our Asia operations. This is continuing a several-year trend where we see Asia as a growing part of the market we serve.

The growth we saw in 2008 -- there was a combination of emerging Asian OEM business, along with a continued migration of Western OEMs to use low-cost assembly factories in Asia. We continue to bring very focused work to the OEMs in our major market segments of telecommunications infrastructure, military, and aerospace, test and measurement.

In these market segments, we are probably the most optimistic about the performance of the military and aerospace markets for 2009. We also see selected opportunities in our other traditional segments, though primarily these opportunities are coming from emerging Asian OEMs.

We've seen the emergence of some new business for us and this is selling electronic filter products into Earth-orbiting satellites. These business products are going into both military and commercial satellites that are being used for communications and other applications. This business continues to be small for us, but it's an important new part of the business that we see going ahead.

So our management team clearly recognizes the economic situation we are in and its potential impact in our markets and on our business. We do not offer any guidance going forward, but we are closely monitoring the situation and responding as we believe is appropriate.

Moving on to some recent Company changes. Earlier this year, we made two announcements regarding changes. First, we announced the hiring of a new Chief Operating Officer for our Company, Hans Wunderl. Hans comes to us out of the semiconductor business, where he enjoyed a strong reputation as somebody who is able to bring rapid improvements to supply-chain operations and improving sales operations.

In the second announcement, we commented on the Company's response to this macroeconomic environment and turmoil that we are in. And its expected impact on our business. We announced that we were making significant spending reductions and these have already been implemented.

But we also engaged a high-level corporate team for ongoing review of our opportunities to rationalize and restructure our operation during this volatile period of business.

The spending reductions that we talked about were already having an impact in the fourth quarter. Aerial CR noncommissioned ESG&A expenses dropped 16% from the third quarter of 2008.

So talking on the topic of gross margins, in this business climate we are continuing to see increased pricing pressure, both from our customers and our competitors. During 2008, we were able to offset these decreases with improved efficiencies in our factories, but clearly our management team was disappointed in our inability to bring forward the improved gross margins and improved profitability we believe should be part of our business.

Driving this gross margin improvement process is a key focus of our new Chief Operating Officer. He's been on the job now for two months and is aggressively driving the changes (technical difficulty) have to improve our business.

Now moving into the final area of my comments, our operations and engineering teams have identified some good new opportunities where we think the Company's technology can enable us to achieve new businesses. There are markets that have good potential business that we can penetrate, using our engineering capabilities, to design customized products for demanding applications.

So we continue to see this engineering capability as a key resource as we move our business forward, both for obtaining new business and for improving margins by creating higher-value products. Because of this, as we consider restructuring needs and opportunities, it's a high priority for us to preserve this core capability of the Company.

So for 2009, we are expecting the economic climate is going to make it a very challenging year. We believe we are taking appropriate steps to reduce our spending and explore new options for business. We continue to monitor the situation closely, and we'll be making plant adjustments as necessary as the year continues to unfold.

With that, I'll turn it back to you, Harold.

I'd like to give a few comments regarding our performance for 2008. From a balance sheet perspective, our cash and capital resources continue to be strong. The Company's cash and cash investments at December 31 were $5.325 million.

And in addition, our subsidiary, MtronPTI, had an unused borrowing capacity of $2.751 million under its revolving line of credit.

Regarding our statement of operations, LGL Group's revenue increased by 1.6%, or $643,000, to $40.179 million for the year ended December 31.

As Bob had mentioned before, the increase is primarily with the growth of our foreign sales of $365,000, and an increase in our domestic sales of $278,000.

Our gross margins as a percentage of revenue for both years were 26% as we continue our efforts to improve upon our manufacturing and supply-chain efficiency. This is offset by the increasing selling price reduction pressures that we are receiving from the market.

Regarding our operating loss, our operating loss was $831,000 for 2008, or an improvement of $882,000, from the $1.713 million operating loss we had in 2007. This improvement was primarily due to an impairment loss on Lynch Systems' assets of $905,000 recognized in 2007.

A few things of note in our other income and expense category. We recognized the gain on the sale of equipment not related to the Company's frequency control and electronic filtering business of $255,000 in 2008. Also included in other expenses is $256,000 in expense related to foreign currency remeasurement losses in 2008, as compared to $20,000 in 2007.

This increase in the expense is primarily related to the decreased value of the U.S. dollar compared to the Indian rupee, which is the currency of one of the Company's subsidiaries.

At this point in time, we would like to open up the phones.

At this point, if there is no further questions, thank you very much for attending and have a great day.

I had a question. I was going to ask, you mentioned you will not be providing any guidance at all on forward (technical difficulty) sales or anything.

That is correct.

Thank you.

Can I ask one question? I was wondering -- you have a good balance sheet, you have plenty of cash, and your stock is trading at a price that is borderline absurd. I'm wondering why you don't go in and do some kind of stock buyback.

That's an excellent question. At this point in time, we are considering all options, but again at this point in time, we have not taken any (technical difficulty) in one way or another.

Thank you.

If there are no further questions, again, thank you for participating in this presentation.

Good-bye from me as well. Thank you all.