Perceptron, Inc. (NASDAQ:PRCP)
F3Q13 Earnings Call
May 9, 2013 10:00 a.m. ET
Harry Rittenour – President and CEO
Jack Lowry – VP and CFO
Mark Hoefing – Senior Vice President
Arthur Winston – Pilot Advisors
George Melas – MKH Management
Good day everyone, and welcome to the Perceptron announces third quarter fiscal year 2013 financial results conference call. (Operator Instructions) I would now like to turn the conference over to the President and CEO Harry Rittenour. Please go ahead, sir.
Thanks April. Good morning and thank you for joining us today. With me on the call 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 third 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 forward a copy to you.
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 the SEC 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 third quarter of FY 2013.
On today’s call Jack will review our financial results and I will follow up with comments on our operations, plans and outlook. We will conclude the call with a question and answer session. Jack will now provide an overview of our results.
Thanks Harry and good morning everyone. Our gross margin and operating income were highlights for us in the third quarter this year, not only was our gross margin very strong at 49.7% but our operating income for the quarter represented 15.6% of sales.
As we have indicated in prior calls, we have seen improving sales in each of the first three quarters this year and we anticipate stronger sales again in the fourth quarter. We expect it to experience a very different quarterly sales pattern this year compared to fiscal 2012 and we have seen that play out. As you may recall, in fiscal 2012 we had cross sales in the first quarter, a very strong second quarter, record third quarter sales and modest sales in the fourth quarter.
While sales in the third quarter this year compared unfavorably with the third quarter of fiscal 2012, we see that as a result of the record level of sales last year and not an indication of any particular weakness in the third quarter this year.
Net sales in the third quarter this year were $14.8 million, while income from continuing operations was $1.3 million, or $0.16 per diluted share. In the third quarter of last year, we reported net sales of $19.2 million and income from continuing operations of $3.2 million, or $0.38 per diluted share.
In the third quarter this year we recorded a gain from discontinued operations of $31,000 net of taxes, compared to a loss from discontinued operations in the third quarter last year of $463,000 or $0.05 per diluted share that related to the Commercial Products Business Unit or CBU that we sold in August of 2012. Net income for the third quarter was $1.4 million, or $0.16 per diluted share, compared to net income of $2.8 million, or $0.33 per diluted share in the third quarter last year.
Our bookings were essentially at the same level of the sales in the quarter at $14.9 million and $14.8 million respectively. So overall backlog remained above the same as it was at the end of the second quarter this year at 29.8 million. Of note is the strength of our backlog in Asia. For the first time our quarter ending backlog in Asia is the largest of our three geographic regions at 10.9 million. The significant majority of Asia’s backlog is in China.
On the expenses side, our SG&A costs increased by $161,000 or 5% over the third quarter last year. The principal reasons for the increase were higher salary and salary related expenses this year primarily in sales and marketing. Engineering R&D cost increased by $226,000, or 16% over the same quarter last year. Engineering R&D cost has been higher than last year in each quarter this year due to our decision to add resources to engineering by the beginning of fiscal year 2013.
The increase in engineering cost was principally due to higher salary, taxes and benefit related expenses. We also had a $249,000 foreign currency loss in the third quarter this year that was due to the continuing weakness of the Japanese yen relative to the U.S. dollar.
Turning now to our year to date results, for the first nine months this year our net sales were $40.1 million and income from continuing operations was $2.1 million or $0.25 per diluted share. This compares with net sales of $44.6 million and income from continuing operations of $4.2 million or $0.48 per diluted share in the first nine months of last year.
In the first nine months of this year, we recorded a $57,000 gain, net of taxes, or $0.01 per diluted share from the discontinued operations of CBU. In the first nine months of last year, we recorded $1.9 million in losses from discontinued operations, net of taxes, or a loss of $0.22 per diluted share and that came from the settlement of a lawsuit against the company’s former Forest Products business unit and from the results of the discontinued operations of CBU.
Year-to-date net income in this year was $2.2 million or $0.26 per diluted share and compares to a net loss of $2.3 million or $0.26 per diluted share in the fiscal 2012. So while we are behind last year in sales and income from continuing operations through nine months, our third quarter last year was soft with sales of $12.8 million and our loss from continuing operations of $1.3 million or a loss of $0.16 per diluted share.
In the fourth quarter this year, we expect higher sales than last year and we expect to be profitable. Harry will comment a bit more on this during his remarks. Our year-to-date bookings were approximately $12.7 million below last year. The largest variance continues to be in the Americas where both Brazil and the US had particularly strong order volume last year.
Our gross profit was 45.2% of sales in the first nine months this year and compares to 45% of sales last year. Our margin percentage is slightly better this year despite having year to date sales being approximately $4.4 million below last year. Year to date our operating expenses are up by approximately $1.1 million or 7.7% from the first nine months of last year. The largest increase was in engineering R&D and for the same reasons that I cited for the third quarter.
Finally, I would like to invite everyone to attend our investor day that we are holding here at corporate headquarters in Plymouth, Michigan on Wednesday, May 22 of this year. We plan to conduct demonstrations of product applications that will provide attendees with an understanding of how our current and new systems provide value to our customers. We are also planning to hold a question and answer session and have one of our customers discuss how they use Perceptron systems in their assembly processes. The agenda is structured to allow investors from the East Coast and the Midwest to attend without requiring an overnight stay.
If you are interested in attending and have not notified us to date, please contact Jill Danford (ph) at 734-414-4810. Harry, I will turn it over to you.
Thanks Jack. Operationally we recently received several orders that are noteworthy for various reasons. In China, we received an additional order from another indigenous OEM for gauging systems. We are hopeful that this will be an increasing trend in orders from domestic manufacturers in China. Since many of our orders to date have largely been from joint venture companies that have an American or European OEM partner.
We obtained our first order from a Japanese OEM for systems to be installed in a UK assembly plant. We are also bidding on two additional projects in other regions for this manufacturer and believe we have a good chance of winning them as well. We also received a significant order in Spain that involves both Helix and our TriCam sensors. It is noteworthy because it represents the first project that is using Helix in a robotic guidance application.
We are also seeing growing interest in our new automated ScanWorks XYZ product particularly in Asia. ScanWorks XYZ offers an upgrade path to add scanning capability for customers who currently operate coordinate measurement machines or CMMs. The new version enhances functionality and value for our customers. It provides users with the ability to program the CMM for automated unattended scanning as opposed to having to manually drive the scanner over the part being scanned. We expect sales of automated ScanWorks XYZ to begin within our current FY’13.
Our Helix technology developments continue to be on schedule. We just released the third of five sensors with different stand-offs and expect to complete the two remaining sensors in the enhanced family by the end of FY1’3. The release of additional sensors will increase the types of applications we can perform using our Helix technology.
We are pleased with third quarter earnings of $0.16 per diluted share on sales of $14.8 million. As Jack mentioned, our gross margin and operating income were highlights for us in the third quarter. We expect our sales and operating income to be stronger in the fourth quarter this year compared to last year.
Our backlog remains strong at approximately $29.8 million and we expect a robust fourth quarter of bookings. Based on our customers' current schedules for delivery and installation of our systems, we continue to expect revenue in FY’13 to be in the same range as in FY’12 and we expect our fourth quarter to be profitable. We remain confident in our outlook for growth of sales in FY’14 as our customers continue to launch appealing new products and our Helix technology becomes a more significant component of our product portfolio.
Finally, as most of you are aware, yesterday, our Board of Directors declared an annual dividend for FY’13 of $0.15 per share payable on June 27, 2013 to shareholders of record on June 6, 2013. We are expecting a profitable year in FY’13 and with our strong cash position, are pleased to be able to provide an additional return to our shareholders.
We are now happy to answer any questions you may have.
(Operator Instructions) And we will first hear from Arthur Winston of Pilot Advisors.
Arthur Winston – Pilot Advisors
I was just curious why you think the orders from domestic manufacturers are trailing, what’s the explanation on that, is that a timing or what’s the story?
Well, I think that we are seeing a little bit of a cyclic operation, our operations tend to be a little cyclical. You may recall that there are a lot of launches going on this year and next year. And so those are orders that we have already really closed. So we are seeing a little bit of cycle there, and that cycle varies really regionally. So we may be down in one area and then up in another, that we don’t see based upon forecast launches beyond the next year, we don’t see this as a significant trend.
Arthur, I had one additional comment, this is Mark Hoefing. We also saw a very large program last year, that was our book last year for one of our North American customers and they stand multiple plans, so it was an unusual large program which caused kind of a bubble. So that added to the magnitude of the cycle.
I would add that Brazil had a very strong booking period last year as well compared to what they have done historically and so forth. So I think the combination of those three things probably explains it.
I would again emphasize we don’t see this as a major trend.
David Cameron of Aegis Capital.
In regards to Helix, could you give me sort of a rough timeline for when you expect it to be a meaningful contributor?
Dave, I will comment to that Dave, as we talked in the past, we are seeing the ramp up, we mentioned that the ramp up will begin in the last half of this – we would start in the last half of FY’13, we are starting to see that take place. I mentioned the order in Spain, we’ve also got an order here from a domestic OEM for an application that would be challenging for TriCam, but it fits very nicely into Helix. So we are starting to see that take place. We expect that to grow and start to become a double-digit contributor in FY’14 and then continuing to grow out over the next couple of years.
Next we will hear from George Melas of MKH Management.
George Melas – MKH Management
Could you give us a little bit of sort of a summary of how you are doing with the Japanese OE, it seems like you had a very nice order that you mentioned in the UK plant. Can you talk a little bit about your penetration both in the transplant in the US and elsewhere with those Japanese OE?
There’s two aspects or two answers to this question. One has to do with what’s going on in Japan itself and then what’s going on in our transplants. We’ve had a success, it would be initial penetration of Japanese OEMs here in the US. And we are seeing that – that’s been in particularly one plant, we’re seeing that now move to interest in other plants for this same Japanese OEM. I have actually visited one of those plants and can report for scan (ph), that they are very pleased with the results that they are receiving from our systems. So I expect just to grow over the next few quarters. The challenge of course you have in some cases is they don’t – they need to understand the value of the technology, we call that missionary work. So sometimes it takes a little bit augur and it does with our existing OEMs. So we are seeing to see some traction here in North America with regard to Japanese OEMs.
In Japan itself, it’s a little bit different. In the case of two OEMs that are there, they are particularly interested in Helix. And Helix has enabled us to knock on the door and have somebody answer and get invited in to discuss what our technology brings. As you may recall, one of the OEMs once they saw the demonstration of Helix actually bought the demo unit and they are now in phase two of investigating how that technology may be helpful to them in a near line, off-line application. So we are seeing definite progress. We have received orders and I would emphasize that’s very good news for us but only comment that it does require some additional missionary work. So that’s certainly on our plate and we have folks particularly looking at that. We are coordinating our efforts. One of the advantages of having operations in two regions is that we are able to closely coordinate our activities to make sure that we get the most out of every opportunity, every sales opportunity we have.
George Melas – MKH Management
Okay. A quick clarification, the order in Spain, is that with the same OE that you have business with in the US?
George Melas – MKH Management
Okay, it’s the second OE there.
To clarify that, we recently received an order from a Japanese OEM in the UK. That order were for European order.
And that’s –
George Melas – MKH Management
So the OE in the UK is different than the one in the US.
And it appears there are no further questions at this time.
Well, thanks very much April. And thank you for joining us today. We certainly appreciate your interest in the company. We value as shareholders and investors. We also look forward to seeing those of you who can’t attend our shareholder day or investor day on the 22nd. We look forward to being able to show you our technology first hand. If you have any questions about that, please get in touch with us and have a good day. Thank you.
And that does conclude today’s conference. Thank you all for your participation.
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