AstroNova, Inc.
Q2 2015 Earnings Call Transcript
Published:
- Operator:
- Good day and welcome to the Astro-Med Second Quarter Fiscal 2016 Financial Results Conference Call. Today’s conference is being recorded. At this time, I would like to turn the call over to David Calusdian of Sharon Merrill Associates. Please go ahead, sir.
- David Calusdian:
- Thank you and good morning everyone. Hosting this morning’s call are Greg Woods, Astro-Med’s President and CEO, and Joe O’Connell, Senior Vice President and CFO. Greg will begin today’s call by reviewing the company’s operating highlights and business outlook. Joe will then take you through the financials. Greg will make some concluding comments and then management will then be happy to take your questions. By now, you should have received a copy of the news release, which was issued earlier today. If you have not received a copy, please go to the investor section of the company’s website, www.astro-medinc.com. Please note that statements made during this call that are not statements of historical fact are considered forward-looking statements within the meaning of the Securities and Exchange Act of 1934. These forward-looking statements are based on a number of assumptions that could involve risks and uncertainties. Act accordingly actual results could differ materially. Such forward-looking statements speak only as of the date made, except as required by law, the company undertakes no obligation to update these forward-looking statements. For further information regarding the forward-looking statements and the factors that may cause differences, please see the company’s risk factors in the company’s annual report on Form 10-K and other filings Astro-Med makes with the Securities and Exchange Commission. With that, I will turn the call over to Greg Woods.
- Gregory A. Woods:
- Thanks David and good morning everyone. Astro-Med reported a profitable second quarter highlighted by strong orders, a healthy backlog and our 12 consecutive quarter of year-on-year revenue growth. Net sales increased 7% to $23.9 million as we continued to execute on a multi pronged strategy built our new products, geographic expansion and the recurring revenue stream of our consumables business. Sales in our domestic channel increased by 14% year-on-year in the second quarter. In addition we are beginning to see the benefits of our expansion in the countries within Europe, Asia, Latin America also we are brought our sales reach in Canada branching out to more of the Western provinces. Joe will review our financial results in more detail shortly, but first let me give you a couple of additional data points and provide some perspective on our performance. Sales in our QuickLabel Systems segment grew 12% to more than $17 million for the second quarter a record for the company. QLS continues to perform as expected and new color inkjet label printers we launched in the recent quarters are beginning to be well received by customers around the globe. As our worldwide installed base of printers continues to ramp up, we are seeing very rapid raise in the demand for consumables for inkjet printers. This pushed our current two-shift production at our largest converting center here in West Warwick above its normal operating events and we therefore incurred a significant amount of over time to meet that customer requirement that we incurred in Q2. To accommodate the increased demand and reduce operating cost we will be moving to a three-shift production schedule this month. This is the first time in the company’s history that we will have a 24-hour operation. Moving to an around the clock production schedule provides improved asset utilization and efficiencies that will lead to margin improvements as we transition more of our operations to a three-shift schedule throughout the year. Going beyond three-shift utilization of our existing equipment, we are in the process of upgrading our presses and other aging equipments in order to meet the demands of the future requirements from our consumables business. Many of our machines are 20 to 30 years old; this process which will include the phased installation of state-of-the-art fully automated production equipment began about six months ago. Our first new press will go online in Q4 of this year and we expect this to continue roughly 18 to 24 months to rollout that whole program. In T&M, our Test & Measurement segment, second quarter T&M sales were all up slightly from the same period last year. And there were two factors that played, first was the timing of orders in our ruggedized product line, while bookings continue to come in at a good pace, some of our customers extended deliveries beyond Q2. The other issue affecting T&M sales in Q2 was that we are in the process of ramping up a couple of new products in our data acquisition line, both of which were introduced in the previous quarter. First is the Daxus which offers a unique combination of power and affordability for distributed networking environment, second we tribute the DMX-8000 a modular system that is ideal for engineers and technicians looking for intuitive set up and data capture in virtually any setting. These new products were not released until the end of July, which only allow us the small amount of time for selling during the quarter. In terms of the other segment highlights during the quarter, at this summer’s Paris Air Show we announced that our ToughWriter 5became the only flight deck printer to receive Apple’s coveted AirPrint certification. Using our new AirPrint printer’s pilots have the ability to print approach plates, weather maps and other graphical data wirelessly from their iPads or iOS devices. As I mentioned in our Q1 call in May, the growth strategy here at Astro-Med center is on continued development and application of our data digitalization technology within our business segments. We are building our technology portfolio internally as well as externally through joint ventures and acquisitions. Last year we acquired the ruggedized printer business from Miltope adding new printer models to our lineup. In addition, we significantly expanded our airline customer base both domestically and internationally. This past year, we further strengthened our market position with the acquisition of Ritec’s rugged printer product line for civil and commercial aircraft for approximately $7.4 million in cash. The transaction enhances our portfolio with addition of Ritec’s narrow format printer technology and further enhances our position with major air framers such as Airbus, Boeing and Embraer. In addition, we believe that the acquisition will enable us to build our ruggedized printer business at a faster rate going forward as the number of Ritec’s contracts move into production next year. Currently manufacturing of Ritec’s civil and commercial aircraft printers is taking place in their facility in Southern California pending regulatory approvals, this manufacture will be transitioned to our facility in West Warwick by the end of the year. Looking ahead, we expect to continue to specifically grow the business while making investments in new equipment and related infrastructure that will improve our competitive advantage, enable us to further optimize our processes and strengthen our margins. Now let me turn the call over to Joe for his financial review.
- Joseph P. O'Connell:
- Thank you, Greg. Good morning everyone. I’m pleased to be with you to discuss the Q2 fiscal 2016 financial results. As Greg noted, Q2 marked a 12th consecutive quarter of revenue growth on a year-over-year basis. Our net sales grew 7% to $23.9 million led by domestic sales channels, sales to domestic customers were up 14% over the prior year at $17.3 million. Sales to our international customers were down 7.8% to 6.6%. However, the lower international sales volume is due to fluctuations in foreign exchange rates with lower side revenue by $900,000 or 12.5%. Turning to the business segments, QuickLabel Systems reported sales of $17.1 million, another quarterly record that represents an increase of 12.1% from Q2 of fiscal 2015 primarily driven by the Kiaro! family of printer products. Sales in our Test & Measurement group which consists of ruggedized products and data acquisition systems totaled $6.8 million that’s down 3.8% from the prior year period. As Greg mentioned, the variances relates to some aerospace customers extending orders beyond the second quarter. Moving to the second quarter sales by product categories, our consumables totaled $13.3 million that’s up 22.1% from the second quarter of fiscal 2015. Hardware sales were down from year earlier to $8.6 million while our service parts and repairs contributed $2 million to the second quarter sales, an increase of 31.5% from the Q2 of last year. Second quarter 2016 sales generated gross profit of $9.8 million compared to $9.6 million in the prior year. Gross margin for the quarter was 41.1% compared to 42.9% in the second quarter of 2015 and was up from [14.7%] (Ph) in the first quarter of our current fiscal year. The 180 basis point change in the gross margin from Q2 of last year was primarily result of our product mix, some expedited production cost and related costs associated with the Ritec acquisition into our manufacturing operations. Turing to our operating expenses of selling, R&D and general administrative expenses were $8 million in the second quarter are approximately 33.5% of our sales. This compares to an operating expenses of $7.4 million are 33.2% of sales in the year-ago quarter. Operating income in the second quarter was $1.8 million or an operating margin of 7.7% compared to $2.2 million or a margin of 9.7% from the comparable period in 2015 and the 6.5% margin that we experienced in the first quarter of fiscal 2016. Looking at the segment operating profit for the quarter, QuickLabel Systems earned $2.7 million in segment operating profit with a record margin of 15.9% while the Test & Measurement segment had operating income of $900,000 on a corresponding margin of 13.1%. Our federal state and foreign tax provision in the quarter was $687,000 representing an effective rate of 37%. Second quarter net income was $1.2 million or $0.16 per diluted share as compared to $1.4 million or $0.18 per diluted share in the second quarter of fiscal 2015. Turing to the balance sheet, our total assets at the end of the second quarter were at $75.4 million. Our equity balance for that same timeframe was $65.4 million representing a book value of $8.98 a share. Our cash and marketable security position at the end of quarter was $18.3 million, keep in mind that during the quarter we used $7.4 million to complete the cash acquisition of Ritec. On the working capital front, our accounts receivable at the end of the quarter were $15.2 million, which represents some 54-day sales outstanding and compares to the 52-day sales outstanding at the end of fiscal 2015. Inventory levels at the end of the quarter were $13.9 million representing some 89 days that compares favorably with the inventories of $15.6 million at the end of the year representing 104 days. Our capital expenditures in the quarter was $637,000. Our spending was primarily related to information technology, building improvements, machinery equipment tools and dyes. Our dividends in the second quarter of fiscal 2016 were $512,000 represents $0.07 per share. Our employed population, at the end of the quarter with some 336 folks. Our sales per employee improved by 9% to $271,000 from $248,000 on a year-over-year basis. Astro-Med's EBITDA at the end of the quarter was $2.3 million that’s down some $400,000 from the prior year’s EBITDA for the same timeframe. Orders received in the second quarter were up almost 20% to $25.4 million, our backlog at the start of the third quarter of fiscal 2000 is a robust $16.4 million, that’s up 36.2% from the prior year-end and we generated $2.9 million in free cash flow during the quarter. Before handing it back to Greg, let me remind you that we will be participating in two upcoming conferences. On September 2nd, we will presenting up the Sidoti Emerging growth conference in New York City and on September 17th, we will be presenting the Singular Research’s is Best of the Uncovered 2015 Conference in Los Angeles. Web casting details for these events will be available on the investor section of our website. Now let me turn back the call to Greg for closing comments.
- Gregory A. Woods:
- Thank you, Joe. In summary, we move into the second half of the fiscal 2016 with a substantial backlog and continued strong demand for our products and services. Orders through the first six months of the fiscal year extended a robust $51.5 million, 15.4% ahead of the prior year. We are continuing to deploy our lean tools throughout the organization, we are taking the necessary steps to upgrade our infrastructure to support a long-term growth plans. The company is generating positive cash flow and based on current business environment we are well positioned to achieve our key operational and financial objectives including our full-year revenue guidance of $93 to $103 million within EPS of $0.70 to $0.75. With that, Joe and I would be happy to take your questions. [Operator instructions] And we will take our first question from Jeremy Hellman. Please go ahead.
- Jeremy Hellman:
- Hi, good morning guys.
- Gregory A. Woods:
- Good morning
- Joseph P. O’Connell:
- Good morning Jeremy.
- Jeremy Hellman:
- Thanks for the mention of our conference, look forward to seeing you guys in LA in September. I got a number of questions here, some kind of bits and piece on the financials and then some more largest strategy stuff, but on the bits and piece questions, you have mentioned CapEx in the quarter was 637,000.
- Gregory A. Woods:
- That’s right.
- Jeremy Hellman:
- Taking that in context of your comments about adding new equipment and such over to 18 to 24 months is that kind of 600,000 to 700,000 going to be a reasonable figure for each of the next six quarters or so.
- Gregory A. Woods:
- I don’t think so Jeremy, I think it will probably its 1.2 for the first six months of this year, the first quarter was comparable to the second quarter. I think we will probably end up around 2.4 for the year. A little higher than normal but I think we will drop back towards an annual probably of $2 million level after that. I think this year we had just some interesting a capital expenditure that position to the company for other future.
- Jeremy Hellman:
- Okay, sounds good and then tax rate was 37% in the quarter is that a reasonable number to use to model or should it come down at the bottom?
- Gregory A. Woods:
- Well, I think a good question. I think year-to-date were 33% with the first quarter we have some rollback of some FIN48 items probably, 36 I think would probably for modeling purposes for the next two quarter. I think is probably a reasonable expectation.
- Jeremy Hellman:
- Okay, thanks on that. And then going into the foreign exchange question, there is obviously the direct impact of 900,000 you have mentioned, but beyond that I was wondering how much the currency represented a headwind in sales opportunities that might have been differed or missed or otherwise where a company or customer or another country might have purchased, but otherwise found the pricing [indiscernible] against them and differed doing business with you if that happened at all.
- Gregory A. Woods:
- Yes, it’s tough, we don’t have a direct data that tracks that exactly and that’s the reason why people didn’t order or delayed in order. So I don’t see that things is a major impact. A lot of our business is it’s in local currency so there is not a direct impact on that. With the aviation business most of that business worldwide is done in U.S. dollars so that kind of helps mitigate it in that case. So in certain countries yes they are face in the bigger issues than other, but it really more would impact potentially margins from our branches, because they are priced in local currency.
- Jeremy Hellman:
- Okay, one last one from me now and then I’ll hop back into the queue. I just want to double check some of the numbers that you have mentioned Joe, did I get that right total consumables in the quarter were $13.3 million and thus about 55% of overall sales were occurring.
- Joseph P. O’Connell:
- That’s correct.
- Jeremy Hellman:
- Okay, great thanks. I’ll hop back into the queue guys.
- Gregory A. Woods:
- Okay.
- Operator:
- And we will take our next question from Joe Furst, Furst Associates. Please go ahead your line is open.
- Joe Furst:
- Good morning gentlemen.
- Gregory A. Woods:
- Hey Joe.
- Joe Furst:
- Could you just discussed a little bit about your multi-year backlog and aeroplane printer area.
- Gregory A. Woods:
- Yes, I’m not exactly sure of what you want to know about it, but it continues to build, we don’t give exact data on that but we've said in the past its well over $100 million, it continues to be in that range. Obviously, it is growing both from our existing accounts and certainly the Ritec acquisition as well as the Miltope acquisition last year added to that the number of contracts that we have which of course go out five to 15 years typically.
- Joe Furst:
- Fine, thank you.
- Gregory A. Woods:
- Sure.
- Operator:
- And the next question will come from Evan Greenberg, Legend Capital Management. Please go ahead.
- Evan Greenberg:
- How are you Joe and Greg?
- Joseph P. O’Connell:
- Good morning, Evan.
- Gregory A. Woods:
- Good morning, Evan.
- Evan Greenberg:
- Okay. So first question was kind of addressed by Jeremy, but I wanted to know where it fell on the revenue line, was just on in terms of the currency issue. Was it on the top line or…
- Joseph P. O’Connell:
- Yes absolutely right, it is exactly right, Evan.
- Evan Greenberg:
- So we could say that came right out of profits on that.
- Joseph P. O’Connell:
- Well of course, you get the impact on the expenses also with the foreign currency. So it’s somewhat - it represents the whole P&L but the $900,000 that I talked about really is the top line impact.
- Evan Greenberg:
- Okay. All right so the expenses - so needless to say that it does have an impact on us.
- Joseph P. O’Connell:
- Yes absolutely right.
- Evan Greenberg:
- And how much long did you think this will last, you think it is another quarter or two?
- Gregory A. Woods:
- Well it’s hard to say, I mean obviously the currencies are fluctuating significantly these days. It is all we are just obviously very closely paying attention to what’s happening but there is lot of uncertainties right now in the foreign currency markets.
- Evan Greenberg:
- Okay. It is hard to assess and the other question I had was on the acquisition cost for last quarter, were they significant, were they over a couple of hundred thousand dollars and did you find the acquisition yourself?
- Joseph P. O’Connell:
- We did, we certainly did and at little less than couple hundred thousand in the numbers, as you know Evan everything now gets expensed, so there is no deferral of the cost associated with those kinds of integration but it did not reached the level of $200,000.
- Evan Greenberg:
- Okay that is impressive Joe. You guys should have on an M&A shop, Gregory has done a lot of that before, but very, very efficient job also I wanted to know what the impact was in terms of the Oracle implementation was it an Oracle implementation you had?
- Gregory A. Woods:
- Yes it was. It was JD Edwards product, it is called an EnterpriseOne actually you guys know but Oracle purchase JD Edwards couple of years back but it is really their state-of-the-art platform I guess at this point is probably one of the more popular, if not the most popular ERP product that Oracle is marketing, but it does change the dynamics for us in terms of information that’s available to us on the platform that was not available through the old green screen world product that we had with JD Edwards. So the benefit for this of course is it will be in the years ahead because information now is available to people who will put together a number of different opportunities to tie it in with our CRM application as well as product lifestyle management program. So there is a number of completely integrated platforms that now, we will be able to provide information at the various functions in the organization. And then at some point we will try to bring in our branch operations. As you know our four branches on a Cloud based application that eventually will basically move the four operations into our EnterpriseOne platform. So that on a global basis we will, all be looking at the same information.
- Evan Greenberg:
- Okay. Terrific. So look forward to much more efficient faster growing Astra-Med, it’s a very exciting stuff.
- Joseph P. O’Connell:
- Thanks Evan.
- Operator:
- And next, we will go to Jeremy Hellman. Please go ahead.
- Jeremy Hellman:
- Hi guys. So you mentioned at the outset and I know there is not a lot of time in the saddle with Daxus yet, but I was curious for any early feedback you have gotten from your customers or potential new verticals that you are looking to get into on that?
- Joseph P. O’Connell:
- I’m sorry Taxes didn’t catch that Jeremy.
- Jeremy Hellman:
- Daxus, your new product line. I know it had better but curious for any kind of any early feedback you are getting on the marketplace.
- Joseph P. O’Connell:
- Yes, sure I can give you. And of course, like you said we didn’t have a lot of time in the open marketplace, although we did beta test and head it out with our dealers. So response has been extremely favorable, if you look at the products that we have out there and since I’ve been here which is about three years now, it’s the first major new release in that data acquisition marketplace for us and we started really over a couple of years ago. So it’s been a long time in development, but as based on internal technology that, it was 100% owned and developed by Astro-Med. And because of that, we have a very good control, we’re able to tweak it as we went and did voice of the customer over the past year and half or so. So in the initial run around they have already sold kind of the first batch of units that they had, we have orders for those and of course, we have to deliver those over the next coming months. It’s looking very favorable. The nice thing about it is it gets us back into the automotive area, where we’ve really didn’t have a product that we compete in that sector for the last probably six years or so. So it’s nice to be able to re enter that market with a strong product. And we can tend to be very strong in the other transportation markets so especially aerospace.
- Jeremy Hellman:
- Great. Good news. And then, just kind of switching gears little bit I think there is the overall takeaway it’s certainly positive things are continuing to move up into the right as very one likes to say, but kind of borrowing from consultant speak and the SWAT analysis sort of look, in terms of weaknesses and threats over the next couple of years, what do you see is your biggest worry points?
- Joseph P. O’Connell:
- Yes. On the weaknesses and threat side, you are asking about.
- Jeremy Hellman:
- Yes.
- Joseph P. O’Connell:
- Yes. I think it’s really just a matter of doing a good job with the integration of these acquisitions, actually our typical rule is the faster, the better, so we try to move those along very rapidly and then again its I don’t necessarily call it a threats so to speak, but it’s as we are growing organization, your are bringing in “the best and the bright.” So it’s getting the right people, quickly enough both from an internal training and moving up process as well going the outside because we certainly don’t have that far capacity inside. So that’s something that we are working at diligently, it takes a lot of guidance to make sure that we’re moving that in the right direction. Externally I mean there is always different competitors are going to be coming and going in the business to different segments, I think we are pretty well diversified so the aerospace business looks very strong, the airlines continue to have big backlogs so that looks good. And in our QLS business, it’s a very spectrum of customers. The thing on that horizon could be who has the unknown particular product that might be coming out in the future. And of course, to mitigate that threat, we have a very robust product development process as we’ve seen we’re releasing products at a much more frequent pace now than we have in the past. That’s kind of our defense against that is to try and be out in front of everyone else.
- Jeremy Hellman:
- Okay. Great. Appreciate that perspective. Keep up the good work. I look forward to seeing you guys in a month.
- Joseph P. O’Connell:
- Thank you.
- Gregory A. Woods:
- Thanks
- Operator:
- Our next question comes from Andrew Redding, Deutsche Bank. Please go ahead.
- Andrew Redding:
- Hi, Joe.
- Joseph P. O’Connell:
- Hi. Good morning, Andrew.
- Andrew Redding:
- I think some of my questions are already answered, but the G&A increased about 90 basis points over the second quarter of 2015 and I was wondering if they are one-time items, it sounds like there are at least almost $200,000 of acquisition cost, would that be included in there and are you expecting to go down to the same percentage in the future.
- Gregory A. Woods:
- I think we should, that’s good point. Yes, we did also little depreciation in there, also a result of the amortization on the investment we’ve made in the [E1] (Ph) products so, but yes, I think, as you say you are seeing some of that acquisitions costs resident in the G&A category.
- Andrew Redding:
- Okay. Great. Thanks. On the Ritec asset purchase, Greg, I think mentioned that their contracts, they into place next year, are you expecting to see much revenue impact in the second half of this year or really not anything until next year.
- Gregory A. Woods:
- The latter.
- Joseph P. O’Connell:
- Yes. They are just starting to ramp up now. So they have a number of our new - in past calls we have talked about kind of others works, when you win one of these deals, there is typically anywhere from one to maybe sometimes two years or more of certification qualification before the aircraft is in production. So we’ve got a series of contracts, we have a nice one that is in production right now but it’s just in the early stages but in fiscal 2017 and 2018, there is nice ramp on that one.
- Andrew Redding:
- Okay. So long runway so to speak and I think you are going to get royalty if there are products sold in the military side by the other company the seller
- Gregory A. Woods:
- Right.
- Andrew Redding:
- Is that expected in materials that pretty much a very minor items.
- Gregory A. Woods:
- I don’t expecting it’s a reasonable but it’s not material, right.
- Andrew Redding:
- Okay, great. Well that’s really all I have right now. So I appreciated have a good been a great quarter and have a great second half of the year.
- Gregory A. Woods:
- Thanks Andrew.
- Joseph P. O’Connell:
- Okay. Thank you.
- Operator:
- We will take the next question from, [Ronald Cohen] (Ph). Please go ahead.
- Unidentified Analyst:
- Good morning Greg. Good morning Joe.
- Gregory A. Woods:
- Good morning.
- Unidentified Analyst:
- How are you guys doing?
- Gregory A. Woods:
- Good.
- Unidentified Analyst:
- I would like to know our company’s estimates been around for since 1969 I believe and now we are getting away from the medical field, we out of the medical field for the most part I would like to know what have you guys had any discussions about changing the name of Astro-Med if you aware recently a Google change its name and a couple of other companies change their name and I would like to know where do we stand on changing the name of Astro-Med.
- Gregory A. Woods:
- Yes, so that those come up from time-to-time matter of fact again I go to some of these conferences I got sit with tables with the medical people they start asked me medical questions, I have to tell them we were on that business anymore, but yes, so good point we actually have retained a outside marketing consulting group to review that because we do get that quite a bit so we are hoping to have something that it’s takes a little while you know it’s a big move, but we are looking at that very seriously and we would likely make some type of change before the end of the year.
- Unidentified Analyst:
- Okay.
- Gregory A. Woods:
- We will get a good name and we got to get the URLs there is a lot involve with making these kinds of changes.
- Joseph P. O’Connell:
- Yes, you answer my question in a positive way, because I was suggested you hired outside firm to do because I think it’s a monument task, but I think it needs to be done. My second question to you is I will put it two ways, I will put a comment, you guys are doing excellent job with the company and reposition the company for future growth. My worry is that we’re get enough shareholder value, we are not increasing the shareholder value and I called and said Hey, look at, what we’re going to do about the dividend we have a lot of cash, obviously you made a comment that you are make the acquisition which you are doing so you answer my question several conference calls ago. But looking forward our stocks down I want to know how we are going to increase the dividend and also get more investors to buy estimate stock and I guess we answered one question changing the name could help, but I like to know what we are going to do to increase shareholder value, because at the end of the day here all these people that are calling in, they are calling about the progress of the company, but they really care about the shareholder value. And right now our shares are down so we need to take action and increase shareholder value and I would like to know more how you are going to do it other than we change the name and I have some suggestions too, but I would like to hear what you have to say.
- Gregory A. Woods:
- Well, let me start of by saying that, we are not focused on increasing short-term share price, so our belief is that continuing is to put the infrastructure in place into expand our markets and product lines to deliver increased revenue and operating income that’s really where our focus is and ultimately that will lead to higher share price we are very convenience of that, so on the ongoing basis the name, the name is [indiscernible] that’s not really done to increase share stock prices really that was done to better reflect our strategy and where we are going in the marketplace. So, I think it will happen it’s natural occurrence of improving our operations and we would expect that shareholders could be orders for that.
- Unidentified Analyst:
- Okay, so and my other concerned is that we have a board consisting I believe of five peoples is that correct?
- Gregory A. Woods:
- Pardon.
- Unidentified Analyst:
- We have a boarded estimate consisting five board members is that correct?
- Gregory A. Woods:
- There is six actually.
- Unidentified Analyst:
- Six board members, okay, what about some of those board members have been serving a long time and they are get up in age, I want to know if you will also hired a outside firm to look at the board the way the boards picked if we need to make some changes in the board maybe add board member because obviously some of the board members were get up in age and I have a concern that when Albert Ondis was CEO that we didn’t have enough recession plans in place and so, I would like to know if you have looked into maybe hiring another board member and making some changes in the board level of the company.
- Joseph P. O’Connell:
- Yes, that’s not up to me of course but we have a nomination in governance committee so they do review that at each of our board meeting. So on a quarterly basis that is reviewing to take a look at the members and also if you look at possible additions to the board.
- Unidentified Analyst:
- Okay. I guess you answered all my questions and I want to reach, I think you guys are doing a good job, I think you have positioned the company for growth and I have been a long-term shareholder probably over 20 years and have been affiliate with Astro-Med for over 30 years. So I’m glad you guys are doing good job and I’m glad to be a shareholder. Thank you.
- Joseph P. O’Connell:
- Thank you.
- Gregory A. Woods:
- Thanks Ron.
- Operator:
- And next, we will go back to Evan Greenberg. Please go ahead.
- Evan Greenberg:
- The question I had [indiscernible] I know everyone watch the cash position of this company or dividend or buyback stock which I think, you bought back stock from average reduced - help reduce share count which was fine. We don’t have enough flow as it is and in terms of dividend I think it is adequate for this company being that we are in a growth mode now, if you done an acquisition that was sizable that would increase the size of the company maybe even double the size of the company and it works significant [indiscernible] acquisition, do you have the credit lines already lined up in the bank lines that are adequate to make that acquisition is anything contemplated.
- Gregory A. Woods:
- It’s a good question Evan. We’ve actually talked to a number of banks in terms of as we say position the company because the possibility as you say of a significant acquisition being available to us. So we have had a number of folks who are expressing interest in being able to step up and help us if we were to kind of cross an opportunity that looks very attractive for the company’s growth.
- Evan Greenberg:
- Okay. Great.
- Operator:
- Okay. And we will go next to [Steve Bush] (Ph). Please go ahead.
- Unidentified Analyst:
- Good morning guys and thank you again for your hard work and continued execution on the operational front.
- Joseph P. O’Connell:
- Thanks Steve.
- Unidentified Analyst:
- So most of my questions have been answered, I do want to say, I’m glad to see you out there going to Road Shows or at least going to Investor conferences now, that is I think will help us stock certainly your execution and our earnings should be starting to show and our revenue growth should be starting to show Astro-Med as a growth company, but it sometimes it takes time for investors to see that. My main question revolves around our global I mean our Ruggedized printer business and our airline business in general. So we have about $100 million backlog over five, 15 years. What percentage is in the five-year range, do you think?
- Joseph P. O’Connell:
- It’s tough to break that out; we don’t actually have real disclosed I should say. Just to give you a - on how that works so is it really varies by airline manufacturer or OEM, we call them OEMs and then the Tier 1 suppliers to those OEMs. We have some of them that we will get order on Friday and they want to deliver it in five days because another ones we get an order it is a blanket for 12 months. So the actual releases of those kinds of contract orders is variable depending on the different customer.
- Unidentified Analyst:
- I guess trying to get as global airline orders as you stated are up nicely are strong, air traffic is increasing [indiscernible] precision cash parts because of that, is there any chance in the next two years that are more heavily weighted, orders will start to increase more rapidly or we still on kind of the steady trajectory for 15 years on that particular line?
- Joseph P. O’Connell:
- We expect again because of the work that we have done on the acquisition front in fiscal 2017 and 2018 you will start to see that ramp at a faster pace.
- Unidentified Analyst:
- All right. Okay. All right, well I’m pretty happy. So keep up the good work.
- Joseph P. O’Connell:
- Thanks Steve.
- Operator:
- And next, we will go to Tom Spiro, Spiro Capital. Please go ahead.
- Tom Spiro:
- Good morning.
- Joseph P. O’Connell:
- Good morning, Tom.
- Gregory A. Woods:
- Hi Tom.
- Tom Spiro:
- First on the subject of Ritec, if I understand this call for the sales at this point are negligible but we’re expecting a pretty significant increase in the next couple of years, am I right?
- Gregory A. Woods:
- That is right Tom.
- Tom Spiro:
- What was it about Ritec’s technology that enabled Ritec to win those significant contracts and in the phase of competition from us and Miltope and the other folks? So what did Ritec have that we didn’t?
- Gregory A. Woods:
- It is I don’t have all the details there but they had some nice manufacturing techniques in terms of some of the mechanisms that they use in the printer some of the firmware that they used in terms of the control act algorithms so there is nice feature set there and some print head control technology that we liked as well. So that gave them a viable product and then once you’ve got a viable product, it’s a matter of salesmanship and relationships and that type of thing. So we kind of inherit obviously all of those, both relationships and the technology they have.
- Tom Spiro:
- And other contracts that will kick in the next year or two, contracts with the OEMs or with the airlines or little of both.
- Gregory A. Woods:
- Yes. It’s really both.
- Tom Spiro:
- I see. Okay. Well, that’s exciting. Secondly on the ERP system, I know we began the implementation I guess a couple of quarters ago, I wondered if we now reached a point where you feel that it’s a perhaps it’s a net positive or it’s not too much of a drag, this is a learning curve in these things and it takes a while for an organization to adjust where do we stand in that adjustment process.
- Gregory A. Woods:
- No. You are absolutely right. It is a learning curve. And obviously, because we had a system that’s 20 years old, folks were very comfortable I guess with the application. I think each day I think people get more comfortable with it. I think certainly, we went live at the beginning of March and so I would think we will, - everyday I think there is an opportunity for people to get even more familiar and more comfortable with the product. I think the productivity aspects of it I think, evident as you talk to the - whether it be the data entry folks or the analyst to be able to go through and get information today that they more difficult to getting in from the old system. So it will continue improve each day.
- Tom Spiro:
- That’s helpful. Thank you. Next, R&D, Greg, I think you may have mentioned in the call or perhaps two calls ago that we are going to shoot this year for a R&D at percentage of sales of between 7% and 8%, we are little under that in Q2. I’m curious we sticking with that 7% to 8% figure for the full year.
- Gregory A. Woods:
- Yes. I mean, the last quarter too is we get some pulse work in there, like some of these aircraft certification programs we get some big bills for those things. We can’t really control that but we have more of those in the queue. So exactly in the timing, it’s target predict exactly on the quarter-by-quarter but I think if you look at it for the full year we are comfortable with 7% to 8% range.
- Tom Spiro:
- I see. When I see the cash sitting on our balance sheet I guess I come away with a sense that the company is certainly not capital constraints so I guess R&D we can spend the money we need on R&D or the upgrade of our equipment, CapEx of $2 million, $2.5 million, isn’t a whole lot if we were 20 year old equipment, is there an opportunity to accelerate any of that or where we will be going at the appropriate pace.
- Gregory A. Woods:
- Well, one of the things I mentioned are these new presses and just to give you kind of just one type of equipment that we use but just to give you an example, we go a little bit slower up front and then we’ll be more aggressive after the fact, but we’ve spent really a bulk of this year, probably first half of the year away selecting the proper type of equipment. It’s being built right now. We’ll get the first one in here, just before the end of the fourth quarter and sometime during the fourth quarter, we’ll go online. Assuming that those while we expect it to do, this is all [Servo] (ph) driven vision controls so it’s very automated piece of equipment, it’s productivity, it should be coming in almost at 3x what the current press does. So we just want to validate all that mixture that’s true and then we can go forward and bring on multiples after that. So if we wanted to take higher risk we could bring three or four of them at once but then of course, you run the risk of if it doesn’t do what you expect, you’ve got three or four machines to rework. So that’s kind of how we’re approaching it.
- Tom Spiro:
- I see. Okay. Okay. That’s helpful. I noticed G&A as a percentage of sales was up in the quarter I think we mentioned is a little bit of acquisition expense in there, sales as a percentage of sales, selling expense, as a percentage of sales down in the quarter, it seem to me those were friends we won’t want to continue G&A growing as a percent of selling is a percent declining.
- Gregory A. Woods:
- That’s a fair statement, Tom. I think that’s not our expectation. I think this quarter here did experience some little bit of spike in terms of the G&A.
- Tom Spiro:
- I see. Lastly on the subject of foreign currency obviously no one knows where it’s going to go, the dollar may stay here, may not, is there anything we can do or not in near term but sort of medium term year or two or three to shift some of our costs into the similar revenues on it moving assembly or distribution of those kinds of things to diminish our exposure somewhat.
- Gregory A. Woods:
- Good question, Tom. Look to December, a number of opportunities to realign the organization if you will to be able to mitigate some of those problems, so I think in the months ahead we will probably we have a lot more to talk about in terms of some those possibilities.
- Tom Spiro:
- Okay. Well, thanks very much and good luck.
- Gregory A. Woods:
- Okay. Thank you.
- Operator:
- [Operator Instructions]. We will go next to [indiscernible]. Please go ahead.
- Unidentified Analyst:
- Yes, good morning. The follow up question on the CapEx so, when do you look at beyond fiscal year 2017 it’s sounds like, you got a lot of money that will flow to the bottom line is that do you expect the CapEx to come down dramatically that point.
- Gregory A. Woods:
- I think Charlie, I think probably were for planning purposes we would put in a model of $2 million maybe up around between 10% perhaps higher than that but I think $2.2 million is worth our expectations is for the next couple of years.
- Unidentified Analyst:
- You are right, but after that, you should drill off dramatically.
- Gregory A. Woods:
- Well, historically we are probably average maybe a million and half if you will for just kind of maintenance type of things so I say it will drop up but I don’t think it will not drop up in a half I think as you say we have some programs that are going to be pretty ambitious to grow the business. So, I would say somewhere in the neighborhood $1.5 million to $2 million is probably we’ll think about for the next few years.
- Unidentified Analyst:
- Right, so in terms of the recognized printers, what’s the size of the contracts that has been responded to in terms of RSPs and the size of the RSPs in hand that haven’t yet been respond to.
- Gregory A. Woods:
- Yes, we don’t disclose that anything we kind of put out there is that backlog is over a $100 as we have said in the past and then, the quarterly quarter orders you will see those as they come in.
- Unidentified Analyst:
- Right, so that’s kind of change in policy over the last year in terms of information provided so, what’s the rational for, not providing the more specific information.
- Gregory A. Woods:
- What the details of the backlog?
- Unidentified Analyst:
- Right, so the last year you were indicating that you had a $192 billion of backlog information or contracts in hand so the company is decided you kind of not to release that information so I just curious is to what the rational is for that?
- Gregory A. Woods:
- Yes, it just for competitive reasons quite frankly, got some feedback from other people in the marketplace that they can kind of use that information against us.
- Unidentified Analyst:
- Yes, so what is the ratio of the expected consumable revenues to kind of the initial sales prices for the printing products, the data execution products in the ToughWrite printers?
- Gregory A. Woods:
- Yes, in general the growth we used is pretty well held over the last several years is that we looked to get, the really the purchase price of the printer in consumables may for at least three year period after the sale so, some people using for 4, 5, 6 years but for our modeling purposes we figure about 3xd printer sales price.
- Unidentified Analyst:
- I got you. And so it sounds like the research development cost kind of expected to be stable over the next couple of years in terms of percentage of revenues?
- Gregory A. Woods:
- Yes, percentage yes.
- Unidentified Analyst:
- Yes and what’s the outlook for new products for the rest of fiscal 2016 and 2017?
- Gregory A. Woods:
- Yes, so kind of seen the clip they have been coming at or trying to maintain that phase really going forward so, the whole idea is to get the vitality of products up there and like I said earlier in this call best way to stay out of the competition is just to be releasing things cannibalize your own products in sort of wining for the competitor and trying to copy them so, we kind of have three to five-year plans for each of our product line and say exactly what’s coming out. Some of those would be might enchantments and the some of them like [indiscernible] brand new product, that didn’t exist before, so we have got it really all of the three main product lines that we have in the marketplace right now all have 3 to 5 year roadmaps with the new products.
- Unidentified Analyst:
- Right and how would you describe the success for the outlook for the Asian market and how is that, have been developing?
- Gregory A. Woods:
- Yes, of course we are kind of relate to that party there so, we would have just established our operations over there, but I was just in a trade show in Shanghai last month and it’s amazing to see, all the same things we have saw in the states and in Europe same type of demands are there for a products just the matter of getting out there and getting things set up so. Set out, so we have got some nice initial sales but mainly right now we are looking at getting the dealer networks established if you take China for example, obviously it is a huge country and it is not a few sales people that cover, it is a big dealer network to put in place. But the good news is that dealers are excited about the products and we have been making some joint calls with some of the dealers that we have added and they’ve been successful already. So I wouldn’t expect a lot in this fiscal year, I think we will start to see that of course in 2017 and 2018 ramp up nicely.
- Unidentified Analyst:
- All right, well thanks for the information and keep up the good work.
- Gregory A. Woods:
- Thank you.
- Joseph P. O’Connell:
- Thank you. End of Q&A
- Operator:
- And it does appear we have no further questions. I will return the program back to you, Mr. Woods for closing remarks.
- Gregory A. Woods:
- Great, thank you. Well thank you everyone for joining us here this morning. We look forward to keeping you updated in our progress and we will be back to you on the next call. Have a good day.
- Operator:
- Okay. And this does conclude today’s program. Thanks for your participation. You may now disconnect.
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