The LGL Group, Inc.
Q1 2013 Earnings Call Transcript

Published: 14 May 2013

[Operator:]

Good morning, everyone and welcome to the LGL Group Q1 2013 earnings report. 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) This call also has a visual PowerPoint component in addition to the conference call. To view the PowerPoint, please click on the Join the Meeting link you received in your invitation and included in the press release announcing today’s call. (Operator Instructions) I will be standing by if you should need assistance. It is now my pleasure to turn the conference over to the company’s Chief Financial Officer, Mr. LaDuane Clifton.

[R. LaDuane Clifton:]

Good morning and thank you for joining the call today. With me is our President and CEO, Mr. Greg Anderson. 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 reference for today’s call. This call will be recorded and available for playback later today on our website. Other financial information and recent press releases are posted there as well. Please note that our comments are covered by the Safe Harbor statement. (Operator Instructions) At this time I will turn it over to Greg Anderson.

[Greg Anderson:]

Thank you, LaDuane, and good morning. I’ll give just a quick brief overview of LGL. We are publicly traded on the AMEX. We’ve been around long time and we currently have one operating subsidiary that goes by the brand of MtronPTI. Our trailing 12 revenues are right at $30 million, it’s a good mix between in and outside of the United States. Today’s stock price is very near $5. Our market cap is just under $13 million, just over $9 million in cash and we are a niche player in a very large market. Our investment highlights; this subsidiary MtronPTI, we’re really a large B2B specialty electronics firm. And to speak clearly, we provide what are called frequency control solutions primarily to the Internet Communications Technology market as well as the Aerospace and Defense markets. We have a balanced demand. Currently we estimate that we are 65% Aerospace and Defense and about 35% what we call ICT, that tends to be a bit of a dynamic situation depend on the puts and takes of order flows. But today that’s what we estimate our market balance to be. We choose to, I’ll say, focus where our strengths in IP provides us some differentiations. So oftentimes that ends up around what we call the crystal technology for very precise applications that help us create these very special signals in these communication systems. Along with that we tend to focus on where very low noise and very few signals can provide some differentiation and add some value to our clients. And along with that, besides creating these signals, we have a very nice line of filter technology that really helps clean up these signals, if you will, for a both radio and up into the microwave frequency ranges. We do have an enabling platform, it’s global. We have multiple U.S. sites. We’ve got international sales and support. And we have our own manufacturing facility in the low cost labor market in India. And we have the ability also in that site to produce some even the high performance products really in a very low-cost way and that is the differentiator for us as well. We tend to focus where we have a very custom nature to our – I’ll call it the specific applications and that helps us protect our margins. Again, sort of the higher performance, high value, high rail kinds of applications where it actually protects us, it really provides real value to our clients. When we do that, these product life cycles tend to have long revenue streams. It’s not uncommon in our business to see these particular applications run for five and sometimes, even 10 years. We also have a very experienced supplier management team that can help drive cost in the business, a long time experts, long relationship and know it well. Our growth opportunities really, we focused on having deep relationship with our OEMs. we believe if we choose these large B2Bs and attach ourselves to sort of these industry leaders, that’s our best chance to grow as they grow. We do have share gain opportunities either with new product development we invest continually in R&D and as this market matures and has over time in sort of a consistent consolidation to the OEM supply base, and we believe that we are in a position to take advantage of that as well. The first quarter results themselves, revenues were right at $7.4 million, that’s up 3% as compared to a year ago, down just slightly as compared to the fourth quarter. gross margins were strong, up over 10% as compared to a year ago and up sequentially almost 2%. essentially, we operated well. We had some new product contracts and we had strong shipments in the first quarter that also contributed. Frankly, it was just a good quarter for us from a margin perspective and it just demonstrates that this business does have the ability to operate effectively. Our share loss was $0.03 that’s compared to $0.20 a year ago, an improvement and really again it’s sort of a favorable mix by the Aero/Defense market. Backlogs were down slightly at the end of the first quarter about 4% as compared to year-end 2012. And our new orders, they’re just not where we want them to be for either one of our target markets. We have a high new product introduction percentage and it’s just repeat orders on (inaudible) previous designs continues to be sluggish. EBITDA for the first quarter was just under about minus 0.5%, really on par to what we have done in the fourth quarter. A year-ago, our EBITDA was minus 9%. The economic environment itself remains a challenge for us. Frankly speaking, we don’t see any notable structural recovery in our target markets. We’ve got these compounding macro factors that are really started to hitting us almost two years ago. We had the Japanese natural disaster and that really had a large disruption in the electronic supply chain, all the talk have laid again around U.S. budgets and the uncertainty and sequestration and the euro crisis. And so we believe sort of those compounding factors are really having an impact on us. We still believe there is cautious infrastructure spending as well, and companies are just not spending at the rate and for all the reasons mentioned right before that. Newer technology is not (inaudible) things like 4G and LTE and Internet backhaul kinds of applications, again, just we don’t see it being spent and we believe that those delays are having a direct impact on us as well. Probably of note, in a soft market, there is plenty of price pressure. And it really is in both of our markets, probably more than we’ve seen in these past several years. And so that’s actually happening in effect as well. And if you were to look and read about our comps, you’d see that our key competitors, they have been impacted as well during this down cycle. If we take a look at a financial snapshot of these past 12 quarters, again the green line on the top is gross margin. The line graph towards the middle is our EBITDA percentage, the bars are revenue themselves. And you can see where we ticked up again for a couple of quarters in row on gross margin. We remain sort of breakeven on an EBITDA basis at these kinds of revenue levels right around that $7.5 million. Couple of notes down below just to the right of the table, we’ve got cash and cash equivalents of just around $3.60 a share. We’ve got a cash adjusted working capital number of $3.16 and a book value of $9.50. Why do we think we can grow? While we’d like to think that we are investing our capital wisely, we continue to make organic investments either to add additional resources to help service our clients. We most recently implemented a worldwide ERP system and frankly we are beginning to see some of the efficiencies of that investment. We are soon to launch in the next weeks ahead a new website and really that’s against our client service kinds of things where our clients can really have ease of use and really access to the kinds of information and really some of our company experts as well. We continue to look where we can make capacity and capability in investments and really all that surround either new products or frankly efficiencies around the products that we have today. We spent some time looking at joint ventures or M&A, it’s not a consuming amount of our time, but we do spend some. Our components are very sticky for the most part. Once we are on a platform, we tend to be on a platform. So when business returns, we do reap the benefits of that. We’ve talked to you a number of times about what we are making our R&D investments. We are targeting some filtering modules and the software to find radio market. We continue to make investments in really noise signal quality maybe for some radar applications, again, place us where we think we’ll have some IP in a differentiated position. A number of our timing products go in to what we call harsh environment timing or high rail, high performance, creates value both for our client as well as ourselves. And we do have a strong position in commercial avionics and that’s been a good market for us in 2012 and we expect the same in 2013. Below the bar chart is really our 12 quarter roll of our backlog and we can see we are down just a few percent as I mentioned earlier. This page is a GAAP to a non-GAAP reconciliation of our past quarters, a little comment and let you take a look at that. So as we work towards growth, certainly the negatives are our major clients. They are just not reporting, I’ll call it a strong market for these kind of capital equipment purchases and that’s having a direct effect. Existing contracts, they’re frankly – they are sluggish and they are under price pressure, so that’s a tough on it. This past quarter was a tough one for cash and that’s requiring close management, close supervision to management by ourselves as we look ahead in these lean times. We continue to have strong new product revenue stream so that’s a reassuring thing to us as we look forward to frankly the future when we’ve got strong new product percentages as the percent of total revenue, and it says, at least we are building a good revenue stream for the future. We still have a strong working capital position in our margins and our operating efficiencies, they remain favorable to growth. Our growth drivers I’ve talked about, organic growth, repeat orders. We think there is an opportunity to make some investments in India both operationally as well as in sales. And we continue to make strong investments – IP investments in modules and subsystems as we look towards moving upstream in the technology ladder so to speak. Joint ventures and M&A are also an option for us as well. Our considerations, strong capital positions, experienced management team, joint venture or M&A opportunities at the subsidiary level, many years of experience, a wonderful client list, diverse markets, a worldwide platform, sort of high rail well known trusted supplier and really an industry leader for technology. So at this point, I would like to entertain any questions that our investors may have today.

[Operator:]

(Operator Instructions) Our first question comes from (inaudible). Please go ahead. Your line is open.

[Unidentified Analyst:]

Hi. You are talking a lot about a really rough macro environment out there and yet the economy has really been in what I would call a painfully slow growth mode for the last three years at least, not a contraction mode, maybe four years now almost. So and a lot of other companies are, they are not doing great, but they are doing like okay. So what’s unique about your problems and I guess as part of that, is it whatever these companies would be buying from you, they’ve been able to just put it off and put it off and put it off and at what point can they no longer put off upgrading buying things from – infrastructure that requires your products?

[Greg Anderson:]

Well, I’ll give you my professional opinion how is that one is.

[Unidentified Analyst:]

Okay.

[Greg Anderson:]

Yeah, because and it’s a good question, we ask ourselves that a lot frankly. So in some areas we are growing. So in our aero and defense business, we have grown and frankly we’ve struggled with growth in our ICT business. And some of that is really just some severe pricing pressures. So maybe we are getting some top line in one side of the business and maybe have to give it up in the other. And I’m not going to quantify that because there is lots of puts and takes there as new contracts come on and old ones go by the way side. So I think that would be some of the response. So we do see some of that growth what I would call in that single digit sort of slow that would be, I’ll say, similar to what a lot of companies are reporting. And a flipside of it, if you look at some, I was reading about a small semi company this week and they were down 30% year-on-year. So I mean there are spots where it’s just like us where they spend some really difficult frankly kinds of down swings and I think we generally feel that as well. So I view it as our problems are not in growth, I am going to use those words, our problems around growth are not related to our new product percentage, frankly, they are healthy. It tends to be these – they were sluggish on the repeat orders and either those platforms aren’t being bought, they are pushing off the spending or maybe we are not as competitive. And I wish I knew the answer to all that. It’s hard in a business like ours when you’ve got literally thousands of active part numbers in client systems. It’s hard to give us simple answer, but that’s my professional response to your questions, your thoughtful question.

[Unidentified Analyst:]

Okay. Couple of follow-ups if I could.

[Greg Anderson:]

Yeah.

[Unidentified Analyst:]

Did you speak to the use of cash last quarter because the GAAP loss appears to be a lot less than the cash that year?

[Greg Anderson:]

I’ll let LaDuane answer that question.

[R. LaDuane Clifton:]

Yeah, hi there, Mark. As we came at the year end, we were closely managing and you will see in our statements later there was a significant change in accounts payable. Frankly, as we came into Q1, we had to kind of touch those things up or whatever you’d say. So it has a sense of being a one-time event in terms of the magnitude at this point. But we’re carefully watching cash burns. Yeah, so that’s how I describe that.

[Unidentified Analyst:]

So you’re saying it was a one-time event and otherwise, the cash burn would have looked a lot closer to the GAAP loss?

[R. LaDuane Clifton:]

Yeah, it would have been better. I think that we’ve been managing inventory, it’s relatively flat. AR is relatively flat. The working capital items outside of that AP were sort of neutral. It’s very much sort of around how AP was managed coming out of Q4 and into Q1. Some of that was related to our ERP conversion frankly. And so those are all contributing factors.

[Greg Anderson:]

And if I could add, this management team, we consider today’s business level sort of the new norm so to speak and we’re challenging ourselves especially around cash. What can we do to find options and operate more effectively? We’re not just going to wait for the next strong cycle. We obviously want to be there and participate for it, but frankly, we’re going to continue to take this time to, I’ll say, get our business position to where we’re managing cash closely. I’ll just leave it with that. We’re not accepting today’s cash rate, if you will, and somewhere working on that.

[Unidentified Analyst:]

Okay. Two more quick questions. What are the restrictions around the restricted cash, because you’re including that as your cash balance, so how restricted is that?

[R. LaDuane Clifton:]

Well, so we used that, essentially our line of credit with Chase Bank is a 100% collateralized with our restricted cash. And so net-net, I mean, it basically offsets that long-term debt or that note payable. So on a net cash basis, I mean, we would simply use it to pay off the debt if we had to write away. So it’s like almost non-existent if – it’s a wash is all I am saying.

[Unidentified Analyst:]

Okay, understood. And last question, and I’ve been kind of following the company for probably two years now, in fact, I met LaDuane at a conference here in New York and I just kind of just been watching it right along. And you’ve probably been at this before, but I don’t think I’ve been on one of your calls before. The company is extremely cheap on an enterprise value to revenue basis. So at what point do you just sell the company? I mean, I would imagine that somebody would come along and say hey, I can pick up $30 million of revenue here and it would be a very nice premium to the current stock price and yet with the SG&A eliminations it would be probably instantly accretive for that.

[R. LaDuane Clifton:]

Well, I think it will be fair to say that right now, take a metric, we are trading it, the operating business is probably trading at a $1.50 after liquidation value, $1.80 whatever you want to calculate that as. I agree that there is a lot of value in this business that’s now priced in. As far as what you suggest, I would just say that if people bring those things forward, we would take a look at those things, share them with our Board and discuss them as appropriate. But I think you’re right. The value of this company is not adequately reflected in many ways in our current market price.

[Unidentified Analyst:]

Yeah, I mean, it’s kind of a call option at this point.

[R. LaDuane Clifton:]

Yeah, we have cash at $3.59 per share by itself and then liquidation value.

[Unidentified Analyst:]

Yeah, well, yeah, go ahead.

[Greg Anderson:]

One other comment, as the industry has gone through a lot of change, many companies are sort of faced with the changes, certain elements of the business become more competitive and than others. And it’s just sort of like how quickly can we get our company aligned to what I call the new normal, if you will. And so that’s a bit of a challenge and many companies in this industry face that I think we get there that certainly adds some intrinsic value certainly as compared to others.

[Unidentified Analyst:]

Okay, thank you very much for taking my questions. I really appreciate it.

[Operator:]

And we’ll take our next question from Hendi Susanto with Gabelli & Company. Please go ahead. Your line is open.

[Hendi Susanto:]

Good morning, Greg; good morning, LaDuane.

[Greg Anderson:]

Good morning, Hendi.

[Hendi Susanto:]

First question for LaDuane. How sustainable is the current gross margin?

[R. LaDuane Clifton:]

Well, so gross margin went up, we went to 32.7% on revenues that were slightly down compared sequentially to Q4. So that reflects two things, first of all, Greg mentioned our continuing work to operate more efficiently and so that’s reflected there. But to be honest, we had a favorable product mix particularly in aero and defense products that were being shipped during Q1 that contributed to that improvement. So I still think sort of around the 30% range is a number that you should model, 32.7%. We might keep some of that, but 30% is more likely what we’d expect in the next few quarters.

[Hendi Susanto:]

Okay. And then in terms of understanding your product mix, Greg, (inaudible) update about new product revenue stream. May I know how you define new product and what the split of new which was all products and what kind of transitions you have in terms of portion of new product versus like old products for the last several quarters?

[Greg Anderson:]

Okay. I’ll try and speak of that Hendi. So we define new product revenues as and it’s a bit arbitrary. But in our definition, we define that as a 36-month rolling. From the time that we ship in a prototype to one of our clients, it takes them the time to get them qualified and then usually their system has to get to market and then they turn around and place usually smaller orders to us and eventually it reaches production level orders. So internally, we’ve defined that time period as 36 months. And frankly, I think it’s probably reasonable across really multiples of our markets. In the past couple of quarters, we’ve hedged very strong percentages there and I’ll use numbers like more than 20%. And I think my experience in 25 years in tech where we’re running that kind of a new product percentage and it definitely means you’ve got a healthy company, at least, that’s giving some return on your new engineering investments. That’s not across all of our lines of business, but it frankly it’s across most of them. And so we are – with our new ERP system, we’re actually able to really keep some, I’ll call it, some better metrics like that and we are starting to get a good feel about some of the returns on our engineering investments. And frankly, right now, we are pleased with that.

[Hendi Susanto:]

Okay. If I want to touch a little bit on operating expenses, operating expenses are at the higher level in Q1 compared to the last, let’s say, four years. I would think that part of the reason is the higher R&D and investment you are making. So how should we see operating expenses for the rest of 2013?

[R. LaDuane Clifton:]

So you are right exactly right, Hendi, we’ve been investing in both our customer service and sales support staff as well as in engineering, where we are making these investments. The Q1 level typically is a little bit higher as we have audited and sort of year end type of expenses. So some sort of moderation of the Q1 might reflect a new level. We’re going to be very cautious on spending as we go forward through this year, as Greg has mentioned, but I hope that helps to drive a little bit. I think that level does reflect several of the investments we made, some of the engineering we brought in during Q4, and then actually a full rate in Q1 is reflected there.

[Greg Anderson:]

Probably the only thing I’d add there is, we have some strong potential R&D programs. And if they were to, I’ll say, maybe catch a little fire with our clients, I would not be afraid of increasing that as well, Hendi. And we’re probably not going to do that until we see some traction there, but that’s actually a possibility, probably wouldn’t see that until maybe the fourth quarter.

[Hendi Susanto:]

Okay. And, Greg, and then you highlighted investment opportunity in sales out of India. could you elaborate on that further and then when do you think that will take place, whether it’s like in 2013 or is it more reasonable to assume that it’s beyond 2013?

[Greg Anderson:]

Well, we actually do business today. With the Government of India, we actually just landed, I’ll call it a filtering prototype, just in the last few weeks. and I won’t be specific there. And then the other way we do business is indirectly through our large OEMs. so if there’s aircraft being sold, those kinds of things from either our – the Boeings and those kinds of folks that end up frankly with the Government of India. and so that’s we have both direct and indirect sales opportunities. The outlook for that, what I can say is, it’s probably late this year, if we see some notable expansion. We are looking at offsets in the kind of structure to really, I’ll say, enable our clients to participate more effectively from a business perspective with the Indian government. And we think that there’s potential in that. We are already positioned for it and we’re really pressing to execute. So I believe it would be more likely later this year and next year. And but it’s certainly an active part of management’s efforts at present.

[Hendi Susanto:]

Okay. Greg, you highlighted free area for new product growth opportunity, software defined radio for avionics? Could you talk one-by-one in terms of where they are in their product development cycle and when do you think you will see meaningful revenue streams?

[Greg Anderson:]

I’d say…

[Hendi Susanto:]

And I would also think that being like new products, it may take time between product development qualification and volume sales. so I’m wondering whether you have any confidence whether you may see that in the second half of the year whether (inaudible) like 2013 growth opportunity. So I would like to dig further on that?

[Greg Anderson:]

Okay. All right, in the software defined radio market, we participate in it today. we have contents in software defined radios, mostly in defense applications. And we have launched a new filtering module that actually, to be specific, it helps clean up signals when there is multiple antennas in a given local area. We provided samples to one of our major clients. We’re actually, within the next few days, shipping some prototypes that they will then fully test within their systems. That particular program has a chance for bookings and revenue in the back half of this year. and it could be notable. And at this point, I’d rather not comment on it, but these are the kinds of devices that would have sale prices in volume, probably $500 a unit and in low volume, maybe went into the thousand. So we are pretty excited about that program and that particular one could generate bookings and revenues in 2013. And we have other clients now that are receptive to working with us on that kind of technology. When I talk about low noise radar applications, we’ve got some specialty materials that we believe provide a benefit to performance in sort of these dynamic radar applications. And so we’ve actually shipped some prototypes throughout this year. We recently attended a conference by one of our large OEMs and we actually presented the technology to their technical staff and it was well received. So that one, I would say that the bookings and the revenue potential for this year is small and more likely more into next year, but we do believe that it’s a growth platform and worth investing in. The last reason is in the sort of harsh environment and an awful lot of that is avionics and so we are developing products. We’ve got some good offering there, but we believe that there is ways that we can extend that and provide more value to our clients maybe even getting in a bit into the guidance systems that could even end up being on missile systems. And so we’ve got some potential in that area as well and it’s a market we participate well in today, but we think we have more we can do there. And that technology we would be launching – some of it we’re bringing into market right now and actually shipping prototypes and we would have small bookings and revenue this year and actually more next year. In each of these three – they would have near-term revenue potential that could be $1 million to $3 million and how quickly we can materialize, that’s our challenge.

[Hendi Susanto:]

Okay. Greg, you have also talked about expiration of potential JV and M&A for a long time. Do you have updates on that newly joint venture M&A as a growth driver for 2013? Are you hopeful that you may finally see that happening this year?

[Greg Anderson:]

Hopeful, strong word. The answer is we continue to look, Hendi, and we’ve gotten close in the times we’ve chosen not to, we are going to be very cash conservative in this kind of a market and in our situation. And that’s the only comments that I’ll leave. So there are – we primarily look to at least where I’ve spent a lot of my time is really on smaller players with niche pieces of technology that we don’t have that would be enabling to us or additive to us. And we do have a couple of those that we continue to talk with. And at this time, I can’t share publically whether those will be done and brought forward or not, but it is active. And at present, we’re really not – I’m not spending a little time on larger ones and it’s just really around the whole cash position. We were really being cash conservative, it’s not cheap to buy companies, it’s not cheap to integrate them. And frankly, we’ve got some pretty good investments we think on the inside right now and we are trying to keep our balance sheets in tact as we build the business back.

[Hendi Susanto:]

Thank you, Greg. Thank you, LaDuane.

[Greg Anderson:]

Thank you, Hendi.

[Operator:]

And we’ll take our next question from (inaudible). Please go ahead your line is open.

[Unidentified Analyst:]

Good morning. We own about 2% of the company. Thanks for taking my call. There is a bit of a disconnect I’m getting here. and I want to make I understand where management is coming from. We got a lot of cash. We talk about investments on the inside, and we talked about conserving our cash. My question is, the disconnect is that you said that today’s business level are the new norm, so I guess what I’m wondering is well, frankly, do we have the business model problem, revenues are down from 2009.

[Greg Anderson:]

Yes, that’s a true statement. So the answer to that is, I would agree, I think we do have a business problem. and I can’t go into the specifics of what segments and what structure. But I think we’re taking a hard look at that. So that’s a fair statement, and I hope I am giving a fair response.

[Unidentified Analyst:]

It is a fair response, I appreciate that.

[Greg Anderson:]

Yeah.

[Unidentified Analyst:]

Let me follow up with, has management – and this kind of follows up on I think the first questioner of the call, has management seriously looked at whether we should still be independent?

[Greg Anderson:]

Well, Tim, I think over time, I think the reason our different folks, we acknowledge those things; do we take a serious look at that? Sure. Another option, and I don’t remember, should we remain as a public company, that’s the question we receive from time-to-time. I lastly addressed that in Annual Meeting. We’re always looking at those kinds of elements to see if it makes sense.

[Unidentified Analyst:]

So it’s a good time to think about doing strategic things. the independent question is a hard one; it really depends on how we would not be independent, right? We have part of our business that are very healthy and we have parts that aren’t. And I mean, obviously, that’s the mix that we’re in. The company evolve all the time, markets change, and that’s happened to us as well as a number of our competitors. And I’ve mentioned earlier sort of like can we adapt and make change to what I would call a new norm and part of that could be certainly a strategic consideration.

[Unidentified Analyst:]

Does the board listen to these conference calls generally?

[Greg Anderson:]

Generally, there is one, two or three. So I can tell you we have board meetings and these kinds of discussions take place there as well.

[Unidentified Analyst:]

If it’s about building shareholder value, can we accrete the most value by seeing the thing that’s right in front of our faces in my view, of course, which is buying back stock and that’s tender or something. And then it seem to be over capitalized. The book value is $9.50, I haven’t done a thorough analysis to the underlying asset values, but you’ve guys said in the call yourself that there is a lot of value that’s not priced in. Don’t we need to show that we have faced in the value of the assets and the value of the business by buying back stock, it’s almost like there is – the fear I have is that there is a attitude perception that management maybe fearful if we have to keep all this cash on the balance sheet when there is a bargain of our own stock out there?

[R. LaDuane Clifton:]

No, I think that you make the great point and actually there is an outstanding authorization from the board to repurchase shares. So we did not repurchase any during Q1, but that is something we continue to look at. And I expect that we will operate under that authorization as we go. We are actually looking at other ways we could return value. Another example, we discuss internally is a warrant dividend to return value back to shareholders and demonstrate our phase in the growth prospects of this business.

[Unidentified Analyst:]

What is a warrant dividend?

[R. LaDuane Clifton:]

A warrant dividend essentially is – it’s kind of operates like a stock option where you give shareholders the ability to – first of all, they are tradable in their own right. we would apply to the AMEX if we were to do that. So as they could be traded independent as of the underlying common. But they have an exercised price and then you can buy in at a profitable price as the business grows.

[Unidentified Analyst:]

Okay. Would you be surprised if you are sitting on the same amount of cash with the same amount of revenues or 10% higher revenues or whatever three or four years from now. Would that be disappointing and not the intention of management?

[R. LaDuane Clifton:]

I think that’s a fair statement. We’re investing to grow and we expect to create that.

[Greg Anderson:]

Yeah. I would expect this, if we have that amount of cash, I would expect that we would be better leveraged.

[Unidentified Analyst:]

Gotcha. Just a couple of those real quick here if I can, insiders were buying common stock back in mid-2011 as high as $10 to $11 per share twice the current price that I guess they’re under water on those purchases. What’s changed, I guess, there was just a sort of business that prior year, right?

[Greg Anderson:]

Well, we run the last market cycle, less than eight quarters for us, okay? And this current one is now at…

[R. LaDuane Clifton:]

About six.

[Greg Anderson:]

About six in the downturn. And really, we had a sharp turn in the third quarter of 2011. So not everything has to be engineered from the ground up so to speak, when market dynamics do improve and they will, this is a cyclical business. We’re going to get some high water movement, if you will, during that time. So I’m just articulating the most recent trend, but the last cycle was eight strong quarters that we’re now in frankly six, I’ll say, quarters that are softer than we lay.

[Unidentified Analyst:]

and so frankly, I mean, now may not be the time to sell the company. I mean, frankly, I mean…

[Greg Anderson:]

I would say…

[R. LaDuane Clifton:]

This is a low water mark…

[Greg Anderson:]

Extracting shareholder value by selling in the low is at a – we would say that, but not be returning shareholder value.

[Unidentified Analyst:]

and the finally, that’s helpful, thank you. And then finally, when does the window typically for insider open market buying open up, is it 48 hours after the earnings release or something?

[R. LaDuane Clifton:]

Yeah. We have a typical policy with similar other companies laying that regard. yes, so right, we have a black out, our typical trading black out several weeks prior to earnings being available. And then for a couple of full trading days after…

[Unidentified Analyst:]

And you could have insiders buying, and the company buying back stock. I mean the insiders get to do what they want privately and is that the way that works?

[R. LaDuane Clifton:]

Well, we have full policy around that your trades are have to be improved internally. We encourage insiders or other company even utilize 10b5-1 trading plans to sort of protect ourselves and stay under those rules as appropriate.

[Unidentified Analyst:]

Okay. Thank you for your open responses to my questions and I know we haven’t met yet. I look forward to talking to you offline at some point here as well. So thank you very much.

[R. LaDuane Clifton:]

Okay. We’ll welcome your call. Thank you.

[Operator:]

And we have no further questions at this time.

[Greg Anderson:]

Okay. Well, in closing, just to remind our target markets do remain a challenge for us. We continue to operate effectively. We continue to have strong new product percentages by our – coming from our new R&D investments. Our cash position is strong and I think as we talked a lot during this call, management intends to be frugal on cash and understanding that this maybe the new norm and what kind of business structure changes options do we have as we look forward to, I’ll say, the balance of this year. So I do appreciate you attending our call this morning and look forward to our next quarterly call. Thank you.

[Operator:]

This ends the LGL Group’s Q1 2013 earnings report call. If you have any further questions, please send an email to Greg Anderson at [e-mail] or to LaDuane Clifton at [e-mail]. Thank you and you may disconnect at this time.