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Planar Systems, Inc. (NASDAQ:PLNR)

F1Q13 Earnings Call

February 6, 2013 5:00 PM ET

Executives

Gerry Perkel – President and CEO

Ryan Gray – VP and CFO

Analysts

Bill Gordon – Gordon Capital

Operator

Good day ladies and gentlemen, and welcome to the First Quarter 2013 Planar Systems Earnings Conference Call. My name is Jack, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will facilitate a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Gerry Perkel, President and CEO. I move the floor sir.

Gerry Perkel

Good afternoon and thank you for joining us for Planar’s first quarter earnings conference call. With me this afternoon is Ryan Gray, Planar’s Chief Financial Officer.

Before I begin I do need to state that the press release we issued today contains forward-looking statements. On this conference call we will comment on our strategic business and financial outlook and make other forward-looking statements based on our current expectations, estimates, assumptions and projections. Words such as expects, anticipates, intends, plans, believes, sees, estimates and variations of such words and similar expressions are intended to identify such forward-looking statements.

All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. I refer you to the earning’s press release we issued earlier today and to our periodic filings with the SEC for a description of factors that could cause actual results to differ materially from the results described in the forward-looking statements. The forward-looking statements we make today speak only as of today and we do not undertake any obligation to update any such statements to reflect events or circumstances occurring after today.

With that behind us, let me move on and talk about our results for the quarter. We are very pleased with the results from Q1. We made good progress and continuing to transform our revenue mix towards product categories with higher growth potential. Our total revenue of $44.2 million was slightly above our expectations. We delivered the highest level of quarterly Digital Signage Product revenues ever at $16.9 million which represents 55% growth over Q1 last year.

We experienced that growth across multiple of our Digital Signage Product families. In particular our tiled LCD solutions grew over 45% and reached to a record quarterly level of over $13 million. Additionally, our Signage Monitor Products were more than double were they were a year ago. All in all it was a very strong quarter for us in Digital Signage Products.

Highlighting the quarter among our Commercial and Industrial product line is our Touch Monitor product line. Sales for the quarter of Touch Monitor were $4.9 million which represents 38% growth over the same period a year ago. We began shipping our new Helium Touch Monitor which is a 27-inch multi-touch display designed specifically for use with the new Windows 8 operating system during the quarter which helped contribute to the growth figures.

In total, our Commercial and Industrial product line sales were $27.3 million, just down 26% from the first quarter a year ago. Some of that decline is linked to our EL product line which as we announced was sold during the quarter and as a result was only part of the company for a portion of the quarter. When excluding our EL product line revenue, the remainder of the Commercial and Industrial product lines declined approximately 20%.

The strong growth in Touch Monitors I mentioned a moment ago was offset by declines in our desktop monitors, high-end home custom and rear-projection products. As we have discussed previously, we are focused on driving more and more of our revenue in our product category that represent higher growth potential. Digital Signage Products and Touch Monitors represent two such market opportunities and in Q1 their combined revenues represented just over 50% of our total revenue when excluding EL product revenue.

That is the highest percentage of contribution from our growth revenue categories that we’ve achieved so far and is far above the 34% level we saw a year ago in the first quarter. As these product categories become a larger portion of our overall business, we expect that the growth of these product lines will enable us to grow in total of the company which is the key part of our strategy.

We’re also pleased with the bottom line results for the quarter as well. We delivered $0.05 of non-GAAP earnings per share which was above our expected results. We have been continuing to work to drive down our breakeven point by reducing expense overtime and improving our gross margins through a stronger mix including higher sales of Digital Signage Products and better absorption of our non-EL manufacturing expenses.

We believe there is more potential to improve here as we continue to increase the total revenue for the company. We also made significant progress on a key customer win for our custom Commercial and Industrial product line. We now have a signed control and purchase orders for a new custom industrial product that will move into production in the second half of this fiscal year. The contract has revenue totaling approximately $10 million over two years and has some potential to increase from that level.

All in all, it was a good quarter from a revenue generation, growth in our new key product lines and profit generation point of view.

Let me turn it over to Ryan to give you some additional details of our financial performance and then I’ll return and make a few comments about the future. Ryan?

Ryan Gray

Thanks Gerry. Let me start with our income statement. As you are all aware, we reported a GAAP loss per share of $0.07 and non-GAAP income per share of $0.05 earlier today for our first quarter of fiscal 2013. Consistent with prior quarters, non-GAAP results excludes non-cash GAAP items such as intangible amortization expense, foreign exchange gains or losses resulting from foreign-based translations of US denominated assets, share-based compensation expense, some tax items and other non-reoccurring charges such as restructuring and impairment. This quarter non-GAAP results also excludes the loss recorded on the sales of the EL assets. For more details on these items, a reconciliation is included in the supplementary tables within our press release.

Focusing in on our non-GAAP results, gross profit as a percent of sales increased to 25.0%. This compared to 22.1% reported in the first quarter of fiscal 2012. Although we did see some better absorption of our fixed manufacturing cost in first quarter of 2013 compared with the prior year, the primary driver of the year-over-year change in gross profit was an inventory charge incorporated [ph] in the first quarter of 2012 which do not repeat in this quarter.

Non-GAAP operating expenses for the first quarter of fiscal 2013 declined $3.4 million or 25% to $10.1 million compared with the same period a year ago. Expenses declined in all functions as a result of cost reduction measures implemented in fiscal 2012, intended to lower the overall breakeven points for the company.

Our non-GAAP effective tax rate was approximately 10% for the first quarter of fiscal 2013. Consistent with previous quarters, we expect to have an effective tax rate of 10% in quarters where we have a non-GAAP profit before tax and 37.5% in quarters where we report a loss.

Turning to our balance sheet, cash increased to approximately $1.5 million to $19.3 million sequentially, compared with the end of last quarter, driven primarily by the proceeds received as a result of the EL product line asset sale and an increase in accounts payable, partially offset by increases in inventory and accounts receivable.

Looking forward, we remain committed to transforming our business to be more focused on markets that are growing such as Digital Signage and becoming profitable. We’ve taken action over the last 12 months to reduce overall expense level and thus lower our breakeven point, strengthen our strategic product line and generally focus more of our resources on growing products in markets.

Moving forward, we expect to see revenue growth in Digital Signage and Touch products more than offset declines in our more matured product lines. As a result, we expect overall revenue growth of 5% to 10% for fiscal year 2013 excluding EL product line revenues. Additionally, we expect to achieve non-GAAP profitability in the second half of fiscal 2013 as well as for the full fiscal year of 2013.

However in the near term, we expect to follow a normal seasonal pattern of lower sequential revenue in the second quarter of fiscal 2013. As a result, we currently anticipate revenue in the range of $34 million to $37 million and a non-GAAP loss of $0.09 to $0.04 in the second fiscal quarter of 2013. As a note, our revenue in the second quarter of fiscal 2012 excluding EL product line revenue was $32.4 million.

Shifting to some additional forward-looking estimates, we believe average shares outstanding will be approximately 20.5 million for the second quarter of 2013. In addition, as we have discussed during in our last few calls, capital expenses will trend higher over the next several quarters as we implement a new core business system to both improve efficiency as we grow and replace some of our ageing legacy systems. As such, we are projecting capital expense of $700,000 and $400,000 of depreciation expense in the second quarter of 2013.

With that I’ll now turn the call back over to you, Gerry.

Gerry Perkel

Thanks Ryan. As we look forward, we continue to see our revenue mix moving more and more towards our focus growth areas of Digital Signage Products and Touch Monitors. We’re continuing to launch new products to help propel our growth. As an example, in our Digital Signage Product portfolio, we recently launched our first 4K Ultra High-Definition LCD Monitor.

Our UltraRes line has been kicked off with an 84-inch display that shows stunning images by utilizing four times the resolution of traditional large program monitors. We see 4K being one more in a series of technological advancements that will continue to spur on growth in the Digital Signage Product space. We also have additional new models coming to address the Touch Monitor markets to continue to fuel our growth layer.

For the year we expect that the combination of our revenues from Digital Signage Products and Touch Monitor will be approximately half of our total revenue. As we move into fiscal year 2014, we would expect that number to continue to increase as we expect continued strong growth in these categories. As Ryan mentioned, we expect overall revenue growth to 5% to 10% this year excluding EL product revenues and to be profitable growth in fiscal year 2013.

We see that trend continuing in the fiscal 2014 as we expect to see our growth from our growth product line without face any decline we will see in our other more mature Commercial and Industrial product lines. We expect that we will be able to expand our profits in FY14 as a revenues growth and create opportunities to further improve our business model.

In summary, we are pleased with the progress we’ve made this quarter and the results we’ve delivered. We see lots of opportunity to continue our progress throughout fiscal 2013 and beyond. With that, let me open it up for questions. Operator, can you get back on the line please?

Question-and-Answer Session

Operator

Thank you very much. (Operator Instructions) Our first question comes from the line of Bill Gordon [ph] – Gordon Capital. Please proceed.

Bill Gordon – Gordon Capital

Good afternoon.

Gerry Perkel

Good afternoon.

Bill Gordon – Gordon Capital

Did we send some stocks over to Wal-Mart, I know we’ve worked with several restaurant chains in terms of the drive through, where are we holding some of that stuff?

Gerry Perkel

For the products that we have shifted to Wal-Mart, that deployment hasn’t – there hasn’t been much volume there for quite sometime and that’s continued. There is some potential opportunities to do some more stuff there but we haven’t seen much revenue there for quite some time and are building our plans, expecting much here in the future.

As far as the restaurant chains in some quick serve restaurants, we have still have opportunities there that we’re working. Unfortunately the adoption rate for outdoor displays has been a lot slower than what we had anticipated, but we still see some people doing trials and some initial rollouts but we’re being pretty cautious about our expectations there as we’ve seen these rollouts to be much slower than people have communicated to us their plans to be. So we’re being a little more – being pretty conservative than what we expect there.

Still see some good opportunities but just don’t know over what timeframe they will really materialize.

Bill Gordon – Gordon Capital

What some of the areas that are showing increasing growth in terms of the Signage or monitors?

Gerry Perkel

So on the Signage products, clearly the tiled LCDs are showing some tremendous growth. There it’s a wide variety of applications for our retail stores to museums to college campuses to airports, a wide number of applications. People are utilizing the products and we’ve seen some real good installations in this past quarter and we continue to see lots of opportunities and applications there.

And much the same for the Signage monitors, our new UltraLux products, we’re seeing some deployments in the airports, some into retail stores and those being the primary focus that are driving some of the adoption rate there. So retail we see a strong push, we see other public venue kinds of areas such as museums and airports and those sorts of areas.

Bill Gordon – Gordon Capital

We had a standstill with one of our Directors about a year and that’s just finished off anytime now I think (inaudible) is that right?

Gerry Perkel

I am not sure of the specific dates related to that to be honest with you.

Bill Gordon – Gordon Capital

But when is the Annual then because I remember the filing with SEC that stated that was one year and completed this year early part of when the Annual Meeting came through, do you have an idea?

Gerry Perkel

The Board will be setting the Annual Meeting date and there is a process going on to finalize that as well as the candidates for being put forward to be voted on as Board members. And exactly when that process will conclude, it is not clear but there is progress going on and meetings going on this week and next week to finalize that and as soon has the Board has finalized those dates, we’ll get them communicated.

Bill Gordon – Gordon Capital

Okay, thank you.

Operator

Ladies and gentlemen, that concludes the time we had for questions. I’d now like to turn the presentation to Mr. Gerry Perkel for closing remarks.

Gerry Perkel

We appreciate you joining us. I thought that was a pretty good quarter this quarter and we have lots of opportunity ahead and we think we’re well in our way towards the transformation that we’re trying to drive with our company, and we look forward to talking to you again at the end of this next quarter. Thanks very much. Bye.

Operator

Ladies and gentlemen that concludes today’s conference. Thank you for your participation. You may now disconnect. Have a wonderful day.

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