AstroNova, Inc. (ALOT) Q1 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Astro-Med, Inc. First Quarter Financial Results Conference Call. [Operator Instructions] This conference is being recorded today, Wednesday, May 16, 2012. I'd now like to turn the conference over to our host, Mr. Stan Berger. Please go ahead.

Thank you, Kelly. On behalf of the management of Astro-Med, we are extremely pleased that you've taken the time to participate in our conference call. Thank you for joining us to discuss the company's fiscal 2013 first quarter financial results and business outlook. Before I introduce management, I would like to remind everyone that certain statements made during the course of this conference call, especially those that state management's intentions, hopes, beliefs, expectations or predictions for the future are forward-looking statements. During this conference call we will make forward-looking statements within the meaning of the Securities Exchange Act of 1934. These statements are based on the company's present expectations and beliefs concerning future events and are necessarily based on certain assumptions, which are subject to risks and uncertainties. Actual results may differ materially from those discussed here. More information on the risks factors is included in the company's filings with the Securities and Exchange Commission. By now, you should have received a copy of the news release, which was issued yesterday. If you have not received a copy, please go to our website at www.astro-medinc.com, where a copy of the press release can be downloaded from the Investing section of our home page. Hosting the call today are Everett Pizzuti, President and Chief Executive Officer; and Joe O'Connell, Senior Vice President, Treasurer and Chief Financial Officer. At this time, I will turn the call over to Mr. Pizzuti.

Okay. Thank you, Stan, and good morning, everyone, and thank you for joining our call. As Stan mentioned, with me here is Joseph O'Connell, our CFO and Senior Vice President. As we announced in our press release yesterday, we are happy to report another successful quarter with strong earnings and increased sales over last year's first quarter, which concluded about $1 million of sales attributable to the operation in North Carolina that we have since divested. A further indication of the growth is evident in our new orders for the quarter, which were at $19,468,000. This is comparable to the amount we averaged last year. The difference is we achieved this quarter volume without the roughly $1 million per quarter that came from the discontinued North Carolina operation. During the quarter, we continued our objective of decreasing operating expenses in order to improve our operating income. This is reflected in the financials that we reported to you. This will continue throughout the year under our program of transition and change. Early in the quarter, we announced the number of staff changes and promotions. This is all part of the strategic planning that we've been doing to strengthen our organization, as well as set new directions for growth. Also, you may have seen the press release we issued this morning announcing the election of Harold Schofield to our board. This took place yesterday at our annual shareholders' meeting. We will continue to invest heavily in research and development to provide leading-edge products that are the lifeblood of Astro-Med. It takes about 2 years to bring a new product from concept to production, and so we are constantly planting new ideas for new products, ideas that come from customers, from sales and from R&D. For example, about 2 years ago, R&D conceived of a new aircraft printer that would be smaller, lighter and yet more powerful than any other type in the industry. The result of that concept is the commercialization of our ToughWriter 5 ruggedized printer. We are pleased to report that in the quarter, we were awarded several new contracts for the TW 5, both for cockpit and cabin applications. One of the unique features of the TW 5 is the ability to receive data wirelessly. And as a matter of fact, we are working on adding a driver so as to print wirelessly from an Apple iPad. As you have read, many of the airlines are providing the Apple iPad to their pilots for use in the cockpit. This new wireless printing feature will be available from us later this year. Other new products that will add to the growth of the company this year include a new color printer that we'll be shipping in the second half, the Dash MX recorder that began shipping in January of this year and the new portable video EEG system that began shipping late last year. Additionally, there are a couple of yet to be announced new products that will have a positive impact in our second half. The outlook for this year is a continuation of progressively stronger quarters in both sales and earnings as a result of these new products. I will provide guidance for the balance of the year after Joe's presentation of the financials. Joe?

Thank you, Everett. Good morning, everyone. I'm delighted to share with you this morning Astro-Med's financial results for the first quarter of fiscal 2013. Perhaps you've seen the press release where the company sales in the first quarter were $18,425,000, which is approximately 2% lower than the prior year's first quarter sales of $18,860,000. However, on a non-GAAP basis, if we exclude the divested sales from the Asheboro, North Carolina plant from the prior year sales, the current year sales first quarter sales are up 3.4% over the restated prior year first quarter sales. Sales volume through our domestic channels was $12,739,000, up nominally over the previous year's domestic sales of $12,574,000. However, again, excluding the Asheboro sales from the prior year's domestic volume, the current quarter's domestic sales are up 10.5%. First quarter sales through the international channels was $5,686,000, representing a 31% of our total sales in the quarter. The first quarter sales volume, however, was approximately 9.5% below the previous year's international shipments in the first quarter. Foreign exchange cost us about $200,000 in terms of the top line. If we profile the sales by segment, the QuickLabel Systems product lines of color and monochrome printers, along with the consumable products, reported sales of $10,364,000 in the quarter, which is 3.8% lower than the prior year's sales for QuickLabel Systems of $10,774,000. However, again, excluding the Asheboro sales component for the prior year's volume of QuickLabel sales, this year's QuickLabel sales are up 6.5%. The Test & Measurement product group of recorders and ruggedized products achieved sales of approximately $4 million in the quarter, representing a 6% volume increase from last year. The Grass Technologies segment of neurophysiological recording instruments and related consumable products reported sales of $4.1 million in the first quarter, which ran behind the prior year sales by some 5.7%. The company achieved gross profit dollars of $7.4 million in the quarter, approximately 1.7% lower than the previous year's. However, the current year's sales realized an improvement in the gross profit margin of 40.0%, up over the prior year's 39.8% margin. As Everett mentioned, operating expenses in the quarter were down at $6.5 million, reflecting a 6.6% decrease in the spending from the prior year's operating expenses of $6.9 million. The lower level of expenses were confined to selling, marketing and R&D activities. As a result, operating income in the quarter was $887,000. That represents a 59% improvement over last year and reflects an operating margin of 4.8% against the prior year's operating margin of 3%. In the other income and expense category, we incurred a net expense of $14,000, which was traceable to some currency exchange losses. Astro-Med's tax provision in the quarter was $36,000, representing an effective tax rate of 4%. The lower effective tax rate is due to a discrete item of $285,000 related to a tax benefit of a FIN 48 reserve for which the statute of limitations has expired. As a result, net income in the first quarter was $837,000. That's a nearly doubling from last year's net income in the first quarter of $431,000. On a non-GAAP basis, by excluding the tax benefit in the first quarter, the net income was still up 28% over the previous year's first quarter net income. And on an earnings-per-share basis, the first quarter's earnings result in $0.11 per diluted share compares favorably to the prior year's $0.06 per diluted share for that time frame. Relative to the balance sheet, at the end of the first quarter, the company's total assets declined slightly by 1.5% from the previous year to $65.9 million. The decrease was confined to our current assets and specifically to accounts receivable and inventories. The company's cash and marketable securities position was up nominally from year end to $23,148,000. We improved the turnover of our accounts receivable to 47 days sales outstanding from 51 days sales outstanding at the end of the prior year. Inventory turnover slowed slightly to 113 days on hand from 105 days at the prior year end. During the first quarter, the company spent $191,000 in capital expenditures, investing in machinery and equipment, information technology, tools, dies and fixtures and some building improvements. Astro-Med distributed $520,000 in cash dividends to our shareholders of record during the first quarter, added roughly at $0.07 per share. The company's book value at the end of the first quarter rose slightly to $7.54. And our employee population declined at the end of the first quarter by 6 persons to 366 employees, and the company improved and reached a new threshold in terms of productivity and our sales per employee to $203,000 per employee, up from the previous year's year end of $174,000 per employee. That concludes the financial report for the first quarter, Everett.

Thank you, Joe. Okay. Now our guidance for the year is revenues from $78 million to $82 million and earnings per share from $0.49 to $0.53 per diluted share And now, Kelly, we're open for questions.

[Operator Instructions] Our first question comes from the line of Joe Furst with Furst Associates.

I guess my question is this. I mean, we've got to start growing this company faster than we are, and you've got all this cash. How can you plan to use this cash to get a better return than the, I'm sure, next to nothing you're probably getting in a money mark fund? I don't know how you invested, but I assume it's something very safe. But you've got 20 -- 20 -- what was it, $20 million or something like that.

Yes, over $20 million.

$23 million.

Right. And it seems to me that we could invest that in some way with an acquisition or something to get a better return than you're getting now and grow the company. Can you comment on that?

Well, in general, I can tell you, Joe, that we have a couple of things that we're targeting. First of all, we're investing more organically in new -- in some exciting new products that we'll be introducing later. Secondly, we have identified 2 or 3 targets that would fit in very nicely with our plans and our current product expertise. And it's very possible that one of these targets could become a reality this summer. So we're very active on that front. We want to make use of this capital that we have and grow the company faster, as you say.

That's good. I know you've be looking at this, and you've had the cash for a while without doing anything. And that's fine because you don't want to overpay for things and I understand that. But I hope you can keep working at that and come up with something that will help grow the company.

Mr. Furst, you may proceed with any additional questions that you may have.

Okay. In the ruggedized printer area in the airplanes, is that backlog over the next several years still many millions of dollars? What's the status on that?

Yes. It actually grew from the number I gave you at the end of the year. I think the number I gave you was $131 million. It has since grown because we added a couple of more -- 2 or 3 more contracts this quarter. So it's at least that, and it's growing more. And we have some other very exciting negotiations in the works, things, obviously, we can't mention now. But there's some very nice contracts on the horizon.

Good. And are some of these things starting to come to fruition, with the Boeing and Airbus planes being completed. Are you starting to realize some of these things?

No question about it. The sales of ruggedized products have ramped up very, very nicely, high double digits. And that's going to continue. Because the production is rolling on those aircraft and they need printers.

[Operator Instructions] Our next question comes from the line of Sam Rebotsky with SER Asset Management.

The question is, I guess your new board member, Harold Schofield. To what extent is he participating in helping you find new acquisitions based on his experience in the industry, et cetera?

Well, Harold, of course, is brand new. He was on the ballot for the annual shareholders' meeting yesterday and was elected. And he's brand new on the board. So certainly, we'll use his great background and experience in all areas, both on organic growth where he has great expertise on the technological side, as well as his -- the networking capabilities that he will be able to offer to lead us to some possible opportunities. So you're right, Sam, it's -- we're very happy to have Harry on board, and we look forward to some good results going forward.

And you indicated with this projection, $78 million to $82 million and $0.49 to $0.53, is it fair to assume that each quarter going forward will perform better than the previous quarters last year? Or is it their lumpiness?

No. The expectation is exactly right, Sam, that we will improve on the last year's performance and improve on this year's as well. The expectation is that our plans would call for us to improve performance with each quarter.

And -- okay. It is -- I guess, I'm sort of trying to get my arms around anything new because there has been -- I guess, with the various airlines, there have been some problems with some planes, I think -- whether it's in the -- are you involved in the military or just in the commercial end of the...

No. We've, for a long time, been involved in the military, Sam. We have contracts for the C-17, the C-130 and with the, I'm afraid to say, the troubled A400M, which is the first military aircraft for Europe in some time. So we're on all of those programs plus a couple of others. We're also -- excuse me, I was just going to say, we're also on some military ground-based vehicle programs as well.

Does the printer in any way, shape -- help them understand when there are problems, what goes on or anything? Or is that...

Yes. No, the printer is not used for operation of the aircraft and diagnosing problems. It's used for informational purposes only for the benefit of the pilot and the crew.

And do you see any problem with the government holdbacks as far as your backlog or anything, what's going on?

No. Our backlog has not been affected so far by any government interventions. So -- and our backlog is pretty specific, at least, on the ruggedized products. And that's how we're able to forecast very nicely going forward.

Well, all right. It sounds good. Hopefully, you could find a good acquisition to utilize the cash and I guess, by the same token, not overpay, and hopefully, that the skills of your board members will help you find something along with your long-time skills and knowledge of what you're doing.

[Operator Instructions] And there are no further questions in the queue. I'd now like to turn the conference back over to management for closing remarks.

Okay. Well, thank you very much, everyone, for tuning in. And we'll be talking to you again in August at the end of our second quarter. Thank you and have a good day.

Bye now.

Ladies and gentlemen, that concludes the Astro-Med Inc.'s First Quarter Financial Results Conference Call. ACT would like to thank you for your participation. You may now disconnect.