LGL Group Inc (LGL) 2009 Q2 法說會逐字稿

Good afternoon, and welcome to the LGL, Inc. second-quarter 2009 investor call. My name is Harold Castle, and I'm the Chief Financial Officer. Joining us today are Greg Anderson, our CEO and President; and [Ledwayne Clifton], 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.

Please note that our comments are covered by the Safe Harbor statement. At this time, Greg Anderson would like to provide a business update. Greg?

Thank you, Harold. Good afternoon, folks. For this afternoon's call, I would like to briefly comment on four general areas, the first one being revenue trends in this macroeconomic climate. I would then like to talk about the impact of spending reductions in cost savings programs; just a moment on the Company's gross margin; and last on the ongoing management direction and value creation.

With regard to revenue trends in this climate, we certainly felt the impact of today's macroeconomic changes. Routine reports released by our customers and from industry analysts reflect that our market segments have been affected. The kinds of reports we are hearing from our market segments, certainly the telecom segment has felt the largest impact we are seeing year-on-year, revenue declines of anywhere from minus 5% to minus 25%.

In the military segment, results are more favorable. The results we've seen have ranged from a positive 2 to a positive 7%. In the avionics market, it has been tough, as well. Reports are declines from minus 4% to minus 17% year-on-year revenues. For Test and Measurement, reports that we've seen anywhere from minus 21% to minus 27% year-on-year. And Distribution has a wide range, from plus 5% to minus 19%.

In the same context, our Company has seen a significant drop in consolidated revenue for the first six months of 2009, specifically minus 25.9%. First-half revenues totaled $14.778 million and were down $5.155 million for a comparable period of 2008.

While several of our customers are showing signs of stability and, in some cases, showing sequential quarterly growth, our management team clearly recognizes today's macroeconomic situation. As a result, we do not offer any guidance. And of course, we will closely monitor our markets and respond accordingly.

The second topic is related to impacts of spending reductions. Earlier this year, we made announcements with regard to spending reductions. Today, we are on track to exceed $3 million in annualized structural spending that was previously announced.

Additionally, our management team continues to identify and implement cost-savings programs, and we expect to further feel the benefits from these savings programs late this year and early next.

With regard to gross margins, it's a competitive business climate out there; we are experiencing pricing pressures, both from our customers and our competitors. During the second quarter we were able to make some additional cuts on our manufacturing overhead, which partially offset declines in revenue and selling prices. These changes were, however, insufficient to allow us to achieve suitable gross margins.

With regard to management direction and value creation, our sales and engineering teams have selectively identified several new markets where the Company's technology can enable new business. We believe these markets have good growth potential and are viable to penetrate with our existing engineering capabilities. Again, our focus is to design customized products for demanding applications.

We have begun to penetrate the electronic filter products market for Earth-orbiting satellite systems.

We continue to see our engineering capability as a key resource that will allow us to gain new business and improve margins, creating high-value products for our customers is critical to our future. Because of this, we will carefully manage our Company's structure and resources to ensure core skills and capabilities remain intact.

It is clear that in today's economic climate, the rest of 2009 will be very challenging. We believe we are taking the appropriate steps to reduce our spending and explore options for new business. As I mentioned earlier, we are monitoring the business situation closely and we will modify our plans as necessary.

At this time, I'm going to return it to Harold for a review of financial results.

Thanks, Greg. At this point, I would first like to cover our financial condition. Our cash and capital resources continue to be strong. The Company's cash and cash investments at June 30 were $4,374,000.

In addition, MtronPTI had unused borrowing capacity of $4,192,000 under its revolving line of credit at June 30, 2009.

As we discussed in our 10-Q on August 18, the Company's subsidiary, MtronPTI, entered into an amended and restated loan agreement for the revolving loan and the existing term loan with First National Bank of Omaha, with the changes in terms and financial covenant definitions effective as of June 30, 2009.

The amended First National Bank of Omaha loan agreement provides for a short-term credit facility of up to $4 million. The principal balance of the First National Bank of Omaha revolving loan bears an interest at 30-day LIBOR plus 4.75%, and a final payment of the principal and interest due June 30, 2010.

In addition, an additional unused commitment fee of 0.5% will be payable to First National Bank of Omaha on a quarterly basis on the difference between the revolver commitment and the average outstanding loan amount over the applicable quarter.

The amended First National Bank of Omaha term loan bears interest at national prime rate plus 50 basis points, or 4.5%, prior to the term loan termination due January 24, 2013. The amended loan agreements contain various affirmative and negative covenants. Our subsidiary, MtronPTI, was in compliance with our bank loan covenants at June 30, 2009.

At this point, I would like to make a couple of comments regarding our operations. As Greg mentioned, our consolidated revenues decreased by $5,155,000, or 25.9%, to $14,778,000 to the six-month period ended June 30 compared to 2008. The decrease is primarily due to general economic slowdown and the corresponding decrease in the demand for the electronic components for which our products are used.

Consolidated gross margins increased to 20.9% from (technical difficulty).

The moderator has disconnected. The conference will now end.

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