Perceptron, Inc. (NASDAQ:PRCP)
F2Q13 Earnings Call
February 13, 2013 10:00 AM ET
Harry Rittenour – President and CEO
Jack Lowry – VP and CFO
Manish Maheshwari – THB
Eileen Segall – Tildenrow Partners
Good morning, ladies and gentlemen, and welcome to the Perceptron Incorporated Second Quarter Results for Fiscal Year 2013. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. There will be a digital rebroadcast of this call available beginning at 2:00 P.M. today. The rebroadcast can be accessed by dialing 888-203-1112 or 719-457-0820 with the passcode of 9644929.
At the request of the company, we will open the conference up for questions and answers after the presentation. (Operator Instructions) I will now turn the conference over to Mr. Harry Rittenour, President and Chief Executive Officer of Perceptron Incorporated. Please go ahead, sir.
Thank you. Good morning and thank you for joining us. With me today are Jack Lowry, our CFO; Sylvia Smith, Controller; Mark Hoefing, Senior Vice President; and Heribert Viehweber, Vice President of Operations and Quality. A copy of our press release outlining the results for the second quarter of our FY 2013 was distributed through Marketwire yesterday. If you do not have access to it, please call Jack after this conference call and he will provide you with a copy.
In accordance with SEC rules, we want to inform you that a number of the matters we discuss today may constitute forward-looking statements as defined by SEC regulations including those concerning the company’s future results and the company’s product development efforts, among others. Actual results may differ materially from those we discuss today and involve a number of uncertainties that are detailed in the press release announcing the operating results for the second quarter of FY 2013.
Jack will now provide an overview of our second quarter and year-to-date results. Jack?
Thanks, Harry, and good morning everyone. Speaking first on an overall basis, as I indicated in our press release, we’ve experienced a very different quarterly sales pattern in the first two quarters of this year compared to fiscal 2012. And we expect to experience a different pattern of sales in the third and fourth quarters this year as well.
In fiscal 2012, our first quarter sales were very soft followed by a very strong second and third quarter sales and then followed by fairly soft fourth quarter sales. This year, we’ve seen modest, but improving sales in the first two quarters and anticipate strengthening sales in each of the third and the fourth quarters on a sequential basis.
The shift in sales patterns from year-to-year is to be expected to some extent in our business, but what I think is significant, though, is that despite these very different quarterly sales patterns, our year-to-date financial results in fiscal 2013 are very comparable to the first six months of fiscal 2012.
Our year-to-date sales are flat compared with last year. While our gross margin is up at 42.5% compared to 40.8% last year. Income from continuing operations is down by $114,000 or approximately 12% from last year. The drop in income from continuing operations this year is due in part to our decision to increase our investment in engineering R&D for Helix over last year’s levels, and because foreign exchange rates for the euro throughout the first six months this year were below the exchange rates from last year.
For the second quarter, our net sales were $13.2 million, while net income of $184,000 or $0.02 per diluted share. In the second quarter of fiscal 2012, we had net sales of $16.2 million and net income of $1.7 million or $0.20 per diluted share. In the second quarter last year, we recorded a loss from discontinued operations, net of taxes, of $375,000 or $0.05 per diluted share, principally related to the commercial products business unit, also known as CBU, that we sold in August of 2012. Our sales were approximately 19% below the second quarter of last year due principally to the strength of the quarter last year. The decrease occurred in the Americas and Asia where sales in the second quarter of fiscal 2012 were particularly strong.
Bookings in the quarter were approximately $12.1 million or 27% lower than the $16.6 million booked in the second quarter last year. We had a $2.9 million increase in bookings in Europe and Asia this year that was offset by a $7.4 million reduction in bookings in the Americas. Bookings were soft in the Americas in the second quarter this year, while they were very strong in the second quarter last year at $11 million due to several orders we received for light truck projects in the United States.
Our softer sales and bookings in the Americas and stronger sales and bookings in Europe this year are running counter to what one may expect based on the reports we see in the media of a stronger U.S. automotive market and a soft market in Europe. Our automated systems orders are driven
primarily by automotive OEM tooling purchases to produce either new or updated models and are not directly dependent on the total sales of automotive – automobiles in any market or region.
Sub-tooling purchase order we received related to a new model may lead the introduction of the new model by one to two years. The size of the orders we received may also vary pretty widely depending on several variables, such as planned production volumes, the number of models produced on the line, and the number of plants that will produce the new model. Each OEM has their own cycle for refreshing models and introducing new models, which they need to do somewhat independent of the strength of the market for new cars.
While some automotive OEMs are cutting back on new model investments, others are investing more to try to capture market share. We have seen more European customers increasing or maintaining their investment levels than those that are decreasing investment, which has fueled our orders there. Since we received several large North American tooling projects over the last a couple of years, we have seen a decline this year as part of the normal investment cycle.
Turning to our backlog, on December 31, 2012, it was approximately $29.7 million or 11.6% lower than the record backlog that we had of $33.6 million on December 31, 2011. Despite the decline, our backlog remains very strong.
Gross margin increased by approximately – or excuse me, gross margin decreased by approximately $2.5 million or 32% compared to the second quarter last year. The gross margin was 39.3% of sales in the second quarter of this year compared to 47.2% last year. The decline in the gross margin percentage relates to the fact that we had lower sales this year. While certain of our labor base cost of goods sold are largely fixed and also from the timing of the recognition of certain labor-related expenses compared to the timing of revenue recognition, it is not unusual for us to see variation in our gross margin percentage from quarter-to-quarter.
SG&A expenses increased by approximately 1.4% over the second quarter last year and were primarily due to normal year-over-year cost increases. Engineering research and development expenses were approximately $284,000 or 22% higher in the second quarter this year compared to last year. The increase was primarily due to higher salary and salary-related costs from our decision to increase our R&D investment in Helix in fiscal 2013.
Turning briefly to our year-to-date results, our net sales were $25.4 million, with income from continuing operations of $813,000 or $0.10 per diluted share. That compares with net sales of $25.4 million and income from continuing operations with of $927,000 or $0.11 per diluted share in the first six months of last year.
In the first half this year, we recorded a $26,000 gain, net of taxes, from the discontinued operations of CBU. In the first half of last year, we recorded $1.4 million in losses from discontinued operations, net of taxes, or $0.17 per diluted share from the settlement of a lawsuit against the Forest Products business unit that we sold in 2002 and from the results of the discontinued operations of CBU, which we sold on August 30, 2012.
Year-to-date net income this year was $839,000 or $0.10 per diluted share compared to a net loss of $478,000 or a loss of $0.06 per diluted share last year. Our year-to-date bookings decreased by $10.2 million or 29% to $24.8 million this year compared to $35 million last year. The decline was primarily from lower automated systems orders in the Americas.
Our European bookings increased by $1.6 million or 14% primarily from increased orders for automated systems products and a favorable foreign currency revaluation effect. The increase in Asian bookings was primarily from – or excuse me, the decrease in Asian bookings was primarily from lower orders of automated systems products that were partially offset by higher bookings for technology component products.
Year-to-date gross profit was $10.8 million or 42.5% of sales compared to $10.4 million or 40.8% of sales in the first half last year. The increase in the gross margin percentage was partly the result of more revenue this year compared to last year that relates to final buy-off on completed projects where cost has been recorded in prior years. The effect of the weaker euro in the first half of fiscal 2013 compared to 2012 decreased gross margin by approximately $430,000. Operating expenses are up year-to-date for the same reasons that I mentioned for the second quarter.
Finally, we’re in the planning stages for hosting an Investor Day here at our Plymouth, Michigan headquarters on Wednesday May 22 of this year. We’ve spoken to a number of shareholders since our last earnings call about their level of interest in attending. We plan to demonstrate our systems and technology so attendees can see first-hand how our products work. We are scheduling the day so that those from the East Coast and the Midwest will be able to arrive the morning of the 22nd and leave on the same day. We’ll provide additional information about this event to shareholders and potential new investors very soon.
Harry, I’ll turn it back over to you.
Thanks, Jack. As Jack mentioned, we continue to see quarterly variability in our sales and bookings numbers throughout the fiscal year. This is not unexpected given the program history our OEM customers have demonstrated. We are encouraged to see that major independent sources continue to forecast growth in worldwide vehicle production and sales.
Most agree that the underlying factors for this projected growth will remain in place for the next few years. In response, we are implementing plans for increased global diversity with a focus on North America and China, where we expect to see the most opportunities for growth. For us, these opportunities are focused in three areas: expanding scope with existing applications, penetrating new automotive customers, and creating new applications for all of our customers.
In the second quarter, we released an enhanced version of the first of five sensors in the Helix family of sensors and an upgraded version of our core Vector software platform. At the end of January, we released the second sensor in the Helix family. By the end of FY 2013, we expect to release the remaining sensors in this enhanced version of Helix technology. These releases will increase the types of applications we can perform using our Helix technology and support the growth opportunities we see in the automotive market space.
In the past few months, we received new Helix orders in all three of the geographic regions where we operate. As we have stated in the past, we do not expect Helix to be a significant percentage of our revenue this fiscal year, but to ramp up further in FY 2014. The receipt of new orders in the second quarter in all three regions is encouraging because it suggests the market reception is positive for the Helix sensors that we have released thus far.
To date, most of our Helix installations have been relatively small, but are significant because most have involved measuring features that in the past we were either not able to measure or were not able to measure as accurately and effectively as we can with Helix. Two of these projects are new applications enabled by Helix functionality that was not available with our older technology.
While much of our efforts in Asia are focused on China. We recently received our first order in India for an automated system. Our orders to date had been for technology components, as is typically the case when we have opened an office in a new country. We believe the first order for an in-line gauging system is a positive sign for future growth in India.
In November 2012, the company paid its first ever dividend. At that time, our Board of Directors expressed their intent for an ongoing program of regular dividend payments. The board will discuss this during its upcoming board meetings.
Looking to the remainder of FY 2013, we expect stronger sales in the second half of the year compared to our sales in the first half. Based on customer projects that are scheduled to begin in the near term, we expect bookings to increase significantly in the second half of the year compared to the first half. We also expect that our backlog will increase in the second half of the year.
Considering our customers’ current schedules for delivery and installation of our systems, we expect revenue in FY 2013 to be in the same range as in FY 2012, and we expect to have similar income from continuing operations as in FY 2012. Our outlook for FY 2014 shows a resumption of sales growth as our customers continue to launch appealing new products. Based on what we see, I believe our outlook for the future continues to be positive with new opportunities ahead.
The U.S. automotive market has recovered quite well from the significant downturn that occurred in our FY 2009 and FY 2010. The breakeven point for U.S automotive OEM unit sales remains well below current unit sales levels. This should permit these OEMs to continue to be profitable if unit sales in calendar years 2013 and beyond are as forecasted by industry sources.
Our European backlog is strong, and there are several projects that are booking possibilities for us in the next year or so. Our business in China is continuing to grow. In addition, the automotive industry’s global forecast for growth in the number of new program launches is also encouraging for the next few calendar years. All of these conditions provide a positive environment for sales of our automated systems products. We are now happy to answer any questions you may have.
Thank you. (Operator Instructions) And I’m showing no questions at this time (Operator Instruction) And I am showing no questions at this time. (Operator Instructions) And in fact we do have a question, we’ll hear first from Manish Maheshwari with THB.
Manish Maheshwari – THB
Hi. What is your long-term outlook for the gross profit margins?
What we have said is that we expect our profit margins to be maintained. And with Helix, we see an opportunity as it ramps up for some improvement in our margins. But we are not looking at dramatic changes in our gross margins going forward nor do we see a decline in margins going forward.
Manish Maheshwari – THB
I mean – because your first quarter margin last year was 47%, this quarter, it was 39% – 37% something. So what is, in the long term, do we see somewhere in between or how do you see that?
Well, as we’ve stated in previous calls, we have considerable variability from quarter-to-quarter in our gross margin percentages. And so I would encourage that you not look at it on a quarterly basis. If you look at our gross margins over the course of a year when we tend to have some smoothing between the quarters of when orders are received, when they’re delivered, et cetera, I think what you’ll find is more stability with our margins.
We do have some variability in margins if, for example, our sales levels are down because of a certain element of fixed costs that affect it. But on the other hand, as our sales go up, because of that fixed cost component, our gross margin percentage goes up. But fundamentally, in terms of the gross profit that we earn on our products, we see that as being maintained or improving as we go forward through time.
Manish Maheshwari – THB
Okay. Thanks a lot.
I think a way to look at that is when you – we tend to like to look at a little bit bigger window like the first half of the year, the second half of the year, and when you look it at from that perspective, I think you see a little bit more blending of the margins.
Manish Maheshwari – THB
Thank you. And we’ll take our next question from Eileen Segall with Tildenrow Partners.
Eileen Segall – Tildenrow Partners
Hi. First question on the guidance, you mentioned you expect fiscal year sales to be similar to last year’s, is that on a pro forma basis or does that include CBU sales the previous year?
No, that’s strictly on a IBU basis, if you will, Eileen. CBU is completely accounted for and reported down in discontinued operations. So – and that’s why we stated it as we did that from continuing operations we expect the results to be in the same range.
Eileen Segall – Tildenrow Partners
Okay, got it. And also, I just wanted to thank you guys for the special dividend. I thought that was fantastic and encourage you guys to consider doing something similar in the future on a regular basis.
Okay, thank you.
Eileen Segall – Tildenrow Partners
(Operator Instructions). And at this time, I show there are no further questions, I’d like to turn the call back over to Mr. Rittenour for any final or closing remarks.
Thank you, everyone, for joining us today. We hope if you’re available to come to visit with us in May for our Investor Day, we would certainly be very happy to see you, and you’ll be able to get a first-hand look at what our technology provides to our customers. When I talk with you, I often say a picture is worth a thousand words, a visit is worth a thousand pictures. So have a good day. Thank you very much.
And this does conclude today’s conference. We thank you for your participation. You may now disconnect.
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