LGL Group Inc (LGL) 2009 Q3 法說會逐字稿

Good day, everyone, and welcome to the LGL Group's third quarter 2009 investors call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. (Operator Instructions).

Please note that this call may be recorded. I will be standing by if you should need assistance.

It is now my pleasure to turn the conference over to the Company's President and CEO, Mr. Greg Anderson. Please go ahead, sir.

Thank you, and welcome to today's call. To begin with, I'd like to acknowledge that due to a family issue, Howard Castle, our Chief Financial Officer, will not be able to join us on today's call. However, joining us is, in his absence, LaDuane Clifton, our Corporate Controller. So, LaDuane.

Yes. Good afternoon and thank you for joining us. Please note that our financial information can be obtained by accessing our website at www.lglgroup.com. Also note that our comments are covered by the Safe Harbor statement.

During this call, we may include certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances.

Actual results may differ materially from these expectations due to changes in global, political, economic, business, competitive, market and regulatory factors. More detailed information about those factors is contained in the LGL Group's filings with the Securities and Exchange Commission.

At this time, Mr. Anderson would like to go ahead and provide a business update for everyone.

Thank you, LaDuane. I'm certain that you've all had a chance to read the results for the first nine months of this year, and we'll certainly provide a detailed analysis of those results. However, I do want to begin today's call with what we consider to be some genuinely positive news -- something we've been hard-pressed to deliver for some time now, given the economic climate and other factors.

Today, I can report that as of September 30, our backlog was $13.2 million -- that's more than $5 million better than our order backlogs at the end of December of last year. Those increases come from both existing and new customers, and represent orders from our target markets.

In addition, we are making good progress towards development of two new and proprietary oscillator and filter systems that will greatly improve communications with applications in both Homeland Security and military markets. Those new technically advanced products are expected to begin production within the next several months.

Overall, there are indications that the Company is beginning to see some improvement in several areas, including product offerings, operational results, cost containment, and overall positioning with our customers.

For this afternoon's call, I would like to focus on three areas, which include -- our business in this macroeconomic climate; ongoing cost reductions and related gross margins; and ongoing management direction.

With regard to the macroeconomic climate, the Company has certainly felt the impact in our revenues. However, routine reports from several of our customers and from industry analysts indicate that segments of our target markets are showing clear signs of recovery. Specifically, Cisco Systems, Raytheon, Honeywell, Rockwell, Agilent -- all have reported quarter-on-quarter sequential revenue growth.

Specific to our Company, consolidated revenues have declined by 26.8% for the first nine months of 2009, as compared to the same period in 2008. Revenues for the first nine months of 2009 were $22.1 million, which was $8.1 million less than the same period in 2008, which was $30.2 million. While indications are positive regarding new orders, our management team continues to recognize the risks in today's macroeconomic climate. As such, today, we do not offer any guidance.

With regard to spending reductions announced earlier this year, we continue to make progress and are on track to exceed $3 million in annualized structural spending. The full effect of these reductions will continue into the first quarter of 2010.

In addition, management remains vigilant to identify other opportunities to reduce costs wherever possible. Many of these reductions are expected to provide some benefit to gross margin, which will serve to offset pricing pressures in certain markets and overall increases in material costs.

With regard to management's direction, we have identified several new markets where the Company's technology can enable new business. We are focusing our resources on developing products for these markets, which are technically advanced and will provide future growth. We continue to see our engineering capability as a key competitive advantage that will allow us to gain new business and improve margins.

Creating high value products for our customers is critical for our future. Because of this, we will continue to carefully manage our Company's structure and resources to ensure that our core competencies remain intact.

In summary, 2009 to date has been a challenging time for our Company, as we've had to make some difficult decisions to combat the difficult economic situation. There's still work to be completed, but we feel we are making progress in a number of areas.

Before I close, I want to reiterate our strong backlog position at the end of third quarter -- $13.2 million. So this concludes our business update. And now, Mr. Clifton, will you review the Company's third quarter financials, please?

Okay, thank you, Greg. The Company's cash and capital resources remain strong. As of September 30, 2009, the Company had cash and equivalents of $4.6 million. In addition, our subsidiary MtronPTI has unused borrowing capacity against its revolving line of credit of $1.6 million. It is also noted that the Company was in compliance with its bank covenants as of September 30.

With regard to the results of operations, as Greg mentioned, consolidated revenues decreased by $8.1 million or 26.8% to $22.1 million for the first nine months of 2009. The decrease is primarily related to the general economic slowdown and the corresponding decrease in demand for the electronic components in which our products are used.

Similarly, gross margin as a percentage of revenues for the nine-month period ended September 30, 2009 decreased to 20.4% as compared to 26% for the comparable period in 2008. The decrease was driven primarily from higher fixed overhead as a percentage of sales due to decreases in volume, as well as pricing pressure and increased material costs.

As Mr. Anderson mentioned earlier, the Company is working to complete its announced cost reduction programs which, in part, will help to offset these trends in gross margin.

As a result of the revenue and gross margin trends, the Company had a net operating loss of $2.657 million for the nine months ended September 30, 2009 as compared to a net operating loss of $943,000 for the same period in 2008. This increased loss is directly related to the decline in revenues and to the 5.6% reduction in gross margin.

Although those were offset by a reduction in engineering, selling, and administrative expenses of $1.626 million for the first three quarters of 2009 as compared to the same period in 2008. The reductions in engineering, selling and administrative expenses are the result of reductions in headcount and a decrease in professional fees.

As Mr. Anderson mentioned earlier, the Company expects that its focus on new product development, new sales opportunities in our target markets, and continued effort to reduce costs where possible, will lead to improvement in our operating results in future quarters.

At this time, I will ask that the Operator open the phone lines for the question-and-answer portion of today's call.

(Operator Instructions). And it appears we have no questions at this time. I'll turn the program back over to our presenters.

Okay. Well, this is LaDuane Clifton again. I want to say thank you for joining our call today. If you have further questions, feel free to send an email or visit our website, and we will accommodate you as much as we can.

Pardon the interruption, Mr. Clifton. It looks like we do have a late question. Do you want me to go ahead and take that for you?

Oh, sure. Thank you.

John Evans, Evans Capital.

I have a question. You indicated that you had reduced costs by $1.6 million through downsizing and that you have additional cost reductions of $3 million planned through early 2010. And I'm trying to figure out how that coincides with your backlog being up $13.2 million.

So, were you basically overstaffed now and were you overstaffed based for the volume you currently had?

I think the previously announced cost savings and structural costs was a $3 million annualized rate. And that came across all fixed costs, both cost of sales as well as OpEx.

Well, yes, but you said you had another $3 million of cost reductions planned to early 2010.

No, I think we expect to feel those effects through 2010; it was not an additional $3 million. At least, that's not the way it was supposed to be represented.

Okay, that's fair. What were the new markets that you identified?

We've done a fair amount of work in the military area when it comes to anti-ID type work. And I just won't say any more than that. And we've done a fair amount of work in Homeland Security at present as well.

I have one other question. I just want clarification. You had indicated that markets seem to be improving because of Raytheon and Cisco, and all these other companies showing significant growth during the recent quarter. Is that correct?

Yes.

But yet -- did you guys miss it? Because apparently your volume was down. So you (multiple speakers) [didn't] participate in that growth? I mean, that's fair. It's just -- they have -- they're multinational, multi-product companies.

Right.

I just wanted to know (multiple speakers) --

I think what we've seen -- the company -- the list that grew, and I did the background work, Cisco had grown the most. And I can't give you a breakout of which products in there, but they had grown the most from the most recent quarter to the previous.

The other one's had very modest growth, I would say similar to ours. But nearly all were providing a more positive outlook for the next four quarters.

Do you see an increase in quote activity for your product lines?

I think it's -- to be frank, it's remained fairly strong along the way, so I'm not going to give you a judgment call on that one way or the other. With the kind of new orders that we did have and increased of our backlog, we had some pretty, I'll call it, active period for quoting.

Good. Okay, thank you.

(Operator Instructions). And it appears we have no further questions at this time.

Okay. Thank you again, everyone.

Thank you for joining.

This ends the LGL Group's third quarter 2009 investors call. If you have any further questions, please send an email to LaDuane Clifton at lclifton@lglgroup.com. Thank you and enjoy the rest of your day.