LGL Group Inc (LGL) 2010 Q1 法說會逐字稿

Good day, everyone and welcome to LGL Group's quarter four 2009 investors call. This call also has a visual PowerPoint component, in addition to the conference call. To use the PowerPoint, please click on the "join meetings" link you received in your invitation. (Operator Instructions) Later, you will have the opportunity to ask questions during the question and answer session. Please, not this call may be recorded. It is now my pleasure to turn the conference over to Mr. LaDuane Clifton, Chief Accounting Officer. Please go ahead.

Good morning and thank you, everyone for participating in today's call. Just to make sure it's clear, we'll actually be discussing first quarter earnings report today. And joining me today, as well, is our President and CEO, Mr. Greg Anderson. Just a few notes before we get started. We have prepared a slide presentation for your reference that may be viewed as part of today's Web conference. The presentation materials are also available from our Website at www.lglgroup.com. We ask that you locate these and use them as a guide for today's call. This call will be recorded and will be available for playback later today on our Website. Other financial information and recent press releases are posted on our Website as well.

Please note, that our comments are covered by the Safe Harbor Statement. During this call, we may include certain forward-looking statements within the meeting of the Private Securities Litigation Reform Act of 1995. In addition, non-GAAP financial measures may be presented. These statements are based on management's current expectations and are subject 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 are contained in the LGL Group's filings with the Securities and Exchange Commission. (Operator Instructions) At this time, I'd like to introduce our President and CEO, Greg Anderson.

Good morning. Thank you, LaDuane. I'd also like to welcome you to this morning's call. The first quarter was an exciting quarter for LGL and I'm delighted to share those results with you today. In our presentation, we will cover business highlights, financial highlights. We'll again talk about our investment considerations. And have taken a number of calls this past week regarding questions and I've asked that several of you hold those for this morning's discussions, as we begin to share the LGL story. The first -- slides four, five and six are really for those of you that may be new listeners today and really, they are introductory and provide a brief Company overview. And I'll walk through those quickly.

We've been in business for over 40 years. Currently, our revenues would annualize at approximately $40 million. The stock is trading at about $11.50 today. We go to market under the brand name of MtronPTI. We design, manufacture and market high end electronic components. We have strong engineering expertise. We're a B2B business with very strong blue chip customers. And we really are in some very fast and growing segments.

Our mission statement is really to be a leader of design of custom frequency control, built to products for what we call the MISA or military instrumentation, space and avionics, as well as the telecom sector. Our headquarters are located in Orlando, Florida. We have a small facility in Yankton, South Dakota, a manufacturing facility in Noida, India and a sales presence worldwide. We are focused on organic growth and profitability.

First quarter highlights. We did carry forward the solid performance, that we demonstrated in Q4 of last year, into 2010. We continued to have strong revenues and bookings. We have two new product offerings for the MISA segment that went into production, with primary impacts to revenue, really, we're going to see and feel those in the second quarter of this year. It is our second sequential quarter of positive earnings, with diluted and basic EPS of $0.48 a share. And we have a strong backlog with adequate capital to fulfill those orders. Our overall market and customer positions remain strong.

Again, another strong quarter for orders in both telecom and MISA. Backlogs, at the end of the end of first quarter 2010, we're $14.3 million. That's an increase of 2.2% as compared to the end of fourth quarter 2009. Revenues for the first quarter of 2010 were $10.7 million. That's a 16% increase over fourth quarter and a 42% increase over the same comparable period of 2009. Operating efficiencies were the best that we've achieved thus far and they resulted in gross margins of 34%.

As we look ahead to the second quarter, our backlog is strong and we're positioned for a strong second quarter. I mentioned that these new product launches on the MISA sector, were going to come to production and turn into revenue this quarter and they will have a positive impact on revenues. As we look ahead to the second half of this year, we do expect the MISA backlogs to lighten. Those contracts that we won in the back half of 2009 will be shipping and be recorded as revenue in the first half or really, the second quarter of this year. On the other side of it, telecom backlogs are expected to grow as that market continues to expand. Our major customers are reporting improved cash flows, strong new orders, their own rising backlogs and positive earnings. And in the semiconductor industry, which we consider a leading indicator for the telecom market segment, it continues to report strong sales and extended lead times.

The financial outlook, if we take a look at the consolidated revenues, we can look at the last five years, the trailing 12 months is now at just under $34 million. The income statement, again, revenues of about $34 million on the trailing 12 months and slightly positive EBITDA. Earnings per share is still negative on a trailing 12 months. Probably, the most notable is slide 14. In here, we have listed the last nine quarters of individual performance. Things of note. Q1 of 2010 does represent the strongest revenue quarter, in the past nine. It has the strongest gross profit, strongest EBITDA and certainly, the strongest income and earnings per share. We continue to feel the benefits of the hard work that we did in 2009, as we took some strong action against our cost base.

If we take a look at our order backlogs. First quarter 2010, our ending backlog was $14.260 million. Again, that was a small increase of 2% over fourth quarter, which indicates that we had a positive book-to-bill quarter, which is exciting for us and it's a nice sign of a growing business. Capital position, assets of just under $21 million, working capital at $6.6 million, cash and short term at $3.9 million, and long term debt at $3.2 million, and our available line of credit at $2 million. And we continue to look and evaluate our measures to improve the Company's overall capital structure. Looking for the flexibility to respond to these opportunities as we anticipate these growing markets.

Again, our key investment considerations. We've right-sized the Company. We're clearly watching our cash and cash preservation. We've realigned our manufacturing resources. We've talked a lot about that this past year. We've had an intense focus on improving margins. I believe we're realizing those and those are sustaining. We continue to have and preserve our engineering expertise, especially with the new product offerings that we're bringing to market this quarter. Our OEM relationships remain strong. We are continuing to push our presence and our position in China and Asia. And we continue to offer and fill in our product offerings.

Our key attributes. We have a strong reputation for both quality innovation in the marketplace. We have a global footprint for both manufacturing and sales, a new management team. And the last slide is what we call our circle chart and it really highlights these various aspects that we've been talking about. A streamlined Company structure, a path to organic growth, blue chip customer base, improved investor relations, markets where engineered products can grow and bring value, and improved focus on performance. So at this time, we'd like to entertain your questions.

(Operator Instructions) And we'll take our first question from Ken Nagy with Zacks Investment Research. Please go ahead.

Hi, guys, congratulations on a great quarter. My first question, can you speak a little more on the backlog and specifically, why you think the MISA portions have lightened during the second half of 2010? And if you think that the telecom segment will be enough to overtake it?

Good morning, Ken. This is, Greg. We had some very strong bookings in the back half of 2009 related to these new contracts that we mentioned in the presentation. We do expect to ship the majority of those in the first half of this year and primarily, in the second quarter. So, when we speak about the lightening of the MISA backlog, that's probably where that -- the tone of that discussion is. We are experiencing some strong bookings in the telecom segment. I think, at this point, it's too early to tell whether backlogs are going to shrink or just where they'll be. We're just not through this quarter yet.

Okay. Just a quick question in regards to the strategic options. What would a typical joint venture or partnership look like and how would that help margins? And is there anything in the works that you can tell us about?

Well, there are no pending transactions, we'll start with that statement. The answer is, there are a number of, I'll call it, options that are in the discussion. We often find ourselves engaged in opportunities with companies that have enabling technology for both of our market spaces. And a joint venture might be, for instance, codeveloping an ASIC, for instance, with a particular company. That then, would provide really a precision and precise timing devices, really, that could go into both of our market segments. We'd really like to take the steps towards more of the module and subsystem kinds of products that allow us to penetrate deeper into our core customer base and core markets. And we have some alliances there that we're actually working on. At present, there are no impending transactions. How would they help margins? They would help both revenue and margins.

Okay, great.

Really, through new products.

Okay. A final question and then, I'll get off and let somebody else on. Now, with the second sequential quarter of positive earnings, it looks like the cost reductions are taking hold. I was wondering, are they permanent? And when the Company begins to add revenue growth, how will the cost be added in?

Okay. Well, we are delighted with the cost structure and the margin performance. We do believe they are sustaining. We've made some improvements, both in the effectiveness aspect of how we put products together and we're they're built, as well as the structure around that within the Company. Are they sustaining at this business level? We certainly believe so. We always continue to look at our resource base and align that to where its needs really are. If we do grow, are we going to have to add structure? And I think that's possible. At present, we believe the structure that we have in place will support the revenues that we are sharing.

Great, thanks a lot and congratulations on a great quarter.

Thank you. (Operator Instructions) And we'll take our next question from [Zindy Jesanto] with Gabelli & Company. Please go ahead.

Hi, thank you for taking my questions. My first question, would you quantify how much primary impact LGL may have from the two new product offerings and MISA segment?

We knew that question was coming. Unfortunately, this morning, we're probably not going to quantify that for you. I will use the words, it will have a significant impact, for a couple of reasons. One, we're right in the middle of shipping those contracts. So, the net result is, obviously, not done yet but it will have a significant impact.

Okay. And then second question, could you provide how much revenue comes from telecom and how much from MISA respectively?

I can speak that, over time, that does shift but primarily, the two segments are about 50% and 50%. Obviously, I would expect, as we mentioned with these contracts, in the second quarter, that's going to swing to the MISA sector. But overall and in the long term, it's been about a 50% and 50% between the two segments.

Okay. And what is your average lead time and how is it compared your normal historical lead time?

Well, the lead time is very dependent upon the products that we're talking about. So, we have some products that are really just a matter of three to four weeks, and we have some that are three to four months, and some even longer than that. So, that's a wide range in our product offering. Historically, I would say, that we're probably slightly extended now. Maybe, if we want to use the word of 20% and an awful lot of that is just the load that's on -- really, the supply chain, as well as the factories themselves.

Okay. And would you elaborate more on what your visibility for second half 2010? For example, do you expect strong Q3 and then, a probably slight decline in Q4?

We, historically, have not given any guidance we're not ready to do that today. All I can tell you is that business remains brisk and backlogs remain strong.

Okay. I'll get back to the queue. Thank you.

Okay.

(Operator Instructions) It appears we have no further questions at this time. My apologies, we do have a question from David [Eagle]. He's a private investor. Please go ahead.

My question was, can you discuss new products that you've already developed and haven't released yet, say something along those lines?

Well, I could speak to two of them. And we'll start with that. One of them is filter product that goes on the transmission side of, we'll call it, radio systems. And that product has actually been developed and in test. Good probability that could come to market in the back half of this year. We've also done and launched a --.

Excuse me, and which area is that?

That would be in filters and MISA.

MISA, okay.

Yes.

And the other one.

And the other one that we've launched, just within the last two months, is a down hole drilling or a high temp timing device that would go for energy exploration. And at this point, we're just in the sampling position, where customers are entertaining samples for test. That would be, probably, if I was going to guess, we could see some revenues from that in the fourth quarter. And that really doesn't fit in either one of those sectors but it probably fits mostly on that MISA site. Okay.

Thanks very much. Congratulations on your quarter.

Thank you.

And it appears we have no further questions at this time.

Okay. Thanks for joining everyone.