Breeze-Eastern's (BZC) CEO Brad Pedersen on Q1 2015 Results - Earnings Call Transcript

Breeze-Eastern Corporation (NYSEMKT:BZC)

Q1 2015 Results Earnings Conference Call

July 30, 2014, 10:00 AM ET

Executives

Jim Cashel - General Counsel and Corporate Secretary

Brad Pedersen - President, Chief Executive Officer

Serge Dupuis - Chief Financial Officer

Analysts

Tristan Thomas - Sidoti & Co.

Operator

Good day ladies and gentlemen and welcome to the Q1 2015 Breeze-Eastern Corporation Earnings Conference Call. My name is Laura and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder this call is being recorded for replay purposes.

I’d now like to turn the call over to Mr. Brad Pedersen. Please proceed, sir.

Brad Pedersen

Thank you very much and good morning. This is Brad Pedersen, President and CEO of Breeze-Eastern Corporation. I’d like to welcome you all for our fiscal 2015 first quarter earnings teleconference. I’d also like to thank you all for your continued interest in our company.

Joining me for today’s teleconference are our new CFO, Serge Dupuis and our General Counsel Jim Cashel.

Jim will now caution us with a reminder of our forward-looking statements before we address the fiscal first quarter results. Jim?

Jim Cashel

Thank you, Brad. Forward-looking statements made during this call are based on current beliefs, estimates and assumptions concerning the operations, future results and prospects of the company. Any statements made during this call that are not statements of historical fact are deemed to be forward-looking statements within the meanings of the Securities Act of 1933 and the Securities Exchange Act of 1934 both as amended and known collectively as the [indiscernible].

As actual operations and results may materially differ from those assumed in forward-looking statements, there is no assurance that forward-looking statements will prove to be accurate. Forward-looking statements are subject to the Safe Harbors created in the [indiscernible]. Any number of factors could affect future operations and results including but not limited to the various risks that are discussed in the company’s previously filed Form10-Ks and Form 10-Qs.

The company undertakes no obligation to update publicly any forward-looking statements whether as a result of new information or future events. Also in accordance with the requirements of financial accounting standard 128, all per share amounts reflected in the press release and in this discussion are expressed on a diluted basis unless otherwise noted.

Brad, back to you.

Brad Pedersen

Thanks Jim. This morning we reported our first quarter financial results for our 2015 fiscal year. Serge will now recap our financial results in more detail. Serge?

Serge Dupuis

Thanks Brad. Fiscal 2015 first quarter sales are $17.9 million, where $1.7 million or 8.4% below last fiscal first quarter sales of $19.6 million.

The new production sales of $10.4 million were $1.6 million or $17.6 million above last fiscal years first quarter sales.

The new production increase was offset by lower sales of overhaul and repair and spare parts. The new equipment sale increase was mainly due to hoists and winches volume sold to Airbus.

Spare part sales of $3.3 million decreased by $1.4 million or 30% compared to fiscal 2014 first quarter sales mainly due to lower volume of cargo sales to the U.S. Government.

Overall in repair sales of $3.7 million were lower by $1.5 million or 28% compared to same period last year mainly due to lower sales volume to the U.S. Government. Gross profit as a percentage of sale was 31% for the current quarter down from 34.8% in last year fiscal first quarter.

The gross profit percentage decline was mainly due to new equipment margins and lower volume of overhaul and repair and spare sales. The gross profit decrease for new equipment was due to a large volume of sales to Airbus.

Our operating expenses this quarter of $5.8 million or 32.3% of sales were $1.2 million higher than $4.6 million or 23% of sales in the first quarter of fiscal 2014.

Excluding our non-recurring environmental benefit of 400,000 and $1.2 million in the first quarters of fiscal 2015 and fiscal 2014 respectively, operating expenses were $6.2 million for 2015 or 34.6% of sales while they were $5.8 million for 2014 or 29% of sales.

The higher operating expenses were mainly due to the CFO transition costs. In the first quarter of fiscal 2015 we obtain approval for the final remedial action plan for the Fed Labs area 11 site in Saltzburg, Pennsylvania.

Accordingly, as mentioned earlier, we reduced the environmental reserve by 400,000. Selling, general and administrative expenses excluding the non-recurring benefit for both fiscal year, increased by $400,000 over the prior year quarter mainly due to the CFO transition cost. Engineering expenses of $1.8 million were at the same level as last year, fiscal year first quarter.

Operating loss for the fiscal 2015 first quarter was $200,000 or 1.2% of sales compared with an operating income of $2.2 million or 11.5% of sales in last year comparable quarter.

Excluding the environmental benefits for both fiscal years the decrease in operating income is mainly due to lower gross profit from the new production, lower sales volume of overhaul and repairs and spares and the impact of the CFO transition costs.

Our net loss for the first quarter fiscal 2015 was $200,000 or $0.02 per diluted share, a negative $0.02 per diluted share compared with a net income of $1.4 million or $0.14 per diluted share in the last year fiscal first quarter.

Excluding the non-recurring benefit for both fiscal years of the environmental reserve reduction, the net loss would have been $400,000 or negative $0.04 per diluted share for the first quarter of fiscal 2015 and $600,000 or $0.07 per diluted share for fiscal 2014 first quarter.

Adjusted EBITDA which represent earnings before interest taxes, depreciation, amortization and other income and expense is a non-GAAP financial measure explained in our earnings release as well as in our 10-Q and 10-K disclosure.

For the first quarter of fiscal 2015, our adjusted EBITDA was $400,000 or 2% of sales compared with $2.6 million or 13.5% of sales in the first fiscal quarter of last year.

Excluding the non-recurring benefit of the environmental reserve reduction, adjusted EBITDA would have been a negative $100,000 versus $1.4 million in the same period last year.

Our customer orders received in the current quarter of $18.5 million were 16% above last fiscal first quarter mainly due to new equipment orders for hoist and winch and cargo hooks spares.

Our book-to-bill ratio for fiscal 2015 first quarter was at one versus last fiscal first quarter of 0.8. Our backlog at the end of June was $120 million, higher by 7.6% above a year ago.

Now looking at our balance sheet, we continue to have a strong balance sheet. Our working capital increased by [$5.2] (ph) million to $40.6 million compared with a year ago. Cash of $8.9 million is $2.2 million ahead of a year ago and $2.9 million more than last fiscal year end.

Our inventory of $20 million is $900,000 lower compared with June of last year and is higher by $1.1 million versus last fiscal year end. Our inventory returns have improved to 2.6 turns as of June 30, 2014 versus 2.5 turns as of June 30, 2013.

Our accounts receivable of $18.3 million were higher by $4.6 million versus a year ago and $5.9 million lower than last fiscal year end due to strong sales in the fourth quarter of fiscal 2014 and resulting from collection during the current fiscal first quarter.

Our day sales in the accounts receivables were at 78 days this year versus 58 days last year first quarter. This increase as in days is due to customer sales mix and related payment terms.

Our accounts payable decreased by $1.3 million from a year ago and decreased by $1.6 million from last fiscal year end. We continue to have zero debt and we remain in compliance with our debt covenants. We still have a non-used revolver of $19.8 million.

Now, looking at our cash flow, our net cash provided by operating activities for the fiscal 2015 first quarter was $2.7 million which was $2.6 million higher than the fiscal first quarter last year. The difference was mainly due to the working capital increase this quarter partly offset by the net income variance. Brad, back to you.

Brad Pedersen

Thanks Serge. Q1 results were within the expected range giving normal fluctuations and timing variances of the business. Delivery of new production products have increased and sales in Q1 were up 18% as a result.

The new production increase is a result of the completion of a long standing development program and the resulting deliveries of serial production assemblies.

As Serge explained, first quarter sales were greater than our plan but less than the same period last year due to lower spare part sales and overhaul and repair activities.

Our bookings for the first quarter were 16% over the same period of last year. Profitability was lower than last years fiscal first quarter mainly as a result of lower margins on the new equipment sales, lower volume in the spare sales and higher SG&A expenses resulting from the CFO transition costs.

Development programs continue to be a key priority for Breeze-Eastern, significant progress has been made towards completion. The engineering spending on existing development programs continues to decline but is being replaced by the investment in new and innovative products. Breeze-Eastern expects to introduce several new products in the marketplace in the near future.

Our environmental liabilities are also being proactively addressed as again supported by the completion of the remediation activities. The financial reserve for each site has been examined and has been determined to be appropriate.

Our balance sheet and cash generating capability continue to be strong and our strategic assets that give us operating and strategic flexibility. Uncertainty in the U.S. Government spending levels continues to be a risk, although we have not seen any material impact from this in our financial performance and backlog this uncertainty is potentially impact in the fiscal 2015 remains uncertain and we can’t predict future revenues within a reasonable range.

We’re proud of our products which are used everyday around the world to save lives. We’re furthering this reputation by developing new and innovative products and support our customer’s missions.

We’re investing in people processes and inventory to improve all dimensions of our business. We’ll do everything possible to maintain customers confidence at Breeze-Eastern with delivery and support both for legacy products and new products that are in the development pipeline.

We will now open the call to questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And your first question comes from the line of Tristan Thomas from Sidoti & Company. Please proceed, sir.

Tristan Thomas - Sidoti & Co.

Hey guys. Good morning.

Brad Pedersen

Good morning.

Tristan Thomas - Sidoti & Co.

First question is regarding decline in spare parts and most of the overhaul because business, that’s what we do basically seasonality with government or is there something else there?

Brad Pedersen

It’s all seasonal. Our backlog of spares has been very strong in the last month or two. So, just a seasonal thing.

Tristan Thomas - Sidoti & Co.

Okay, so we should look for that to normalize moving forward at least for the next three quarters, right?

Brad Pedersen

Yeah, and some of the spares with lead times et cetera, we may not see it in the second quarter but it should materialize.

Tristan Thomas - Sidoti & Co.

Okay. Do you have any plan to maybe break out what Airbus accounted for in your new product itself?

Brad Pedersen

No, not at this time. We don’t – there are confidentiality issues with suppliers as well that some of them don’t like us doing that so.

Tristan Thomas - Sidoti & Co.

Okay, got you, no problem. Just, what do you expect moving forward, I know the production ramp for the Airbus finally seems to be taking place.

But are you early enough in the production process where that’s not really going to affect your supply?

Brad Pedersen

Can you ask the question again maybe differently, I am not sure?

Tristan Thomas - Sidoti & Co.

Okay, we’re afraid I know based on some of the end of production for the Airbus that production is really beginning to ramp, it seems like they are actually going to be able to achieve their goals of 30 planes a year.

Are you early enough in the process of supplying Airbus at that ramp shouldn’t really affect you too much or I am just trying to figure out the best way to look at, what you’re doing for installation where they are?......

Brad Pedersen

Yeah, there’s been enough delays in their program that our suppliers are already schooled up for at rate and we don’t see any issues with supporting them and when they’re at their rate for a production.

Tristan Thomas - Sidoti & Co.

Okay. Got you.

Brad Pedersen

That answers your question?

Tristan Thomas - Sidoti & Co.

Sorry for the confusing question. One final question regarding the new products, are these solely hoist and winch products that we kind of ventured to be maybe different vertical or something an accessory to one of our previous products?

Brad Pedersen

That’s a combination of both at the Farnborough Airshow, we introduced some new product which we call Mission View which is trademarked, which is a sensor system optical day camera, night camera, optical sensor to be used by the flight crew to improve situational awareness and improve safety.

So, yes we were moving into the system integration with electro optical sensors to help with the search and rescue mission.

Tristan Thomas - Sidoti & Co.

Okay, great. And there’s any time frame on that?

Brad Pedersen

Yeah, the timeframe is we expect to have it fully developed, qualified in taking orders in the first quarter of next calendar year.

Tristan Thomas - Sidoti & Co.

Okay, fantastic. Thank you.

Operator

Thank you for your questions. Your next question comes from the line of [Mark Harlem] (ph) an Individual Investor. Please proceed.

Unidentified Analyst

Good morning. I am very interested in the ongoing product development that you’re doing and particularly in terms of rescue hoists. But I haven’t been tracking the company as closely recently as I used to.

Have there been any new rescue hoists platforms that you won from different helicopter OEMs over the last say year or so. Is that part of the product development activity that you’re doing?

Brad Pedersen

Yes, we have over the last year and because I don’t know the details of each of the contracts so, some of them might be confidential but yes we have, we have won some new platforms in the last 12 months.

Unidentified Analyst

Okay. Thank you very much.

Operator

Thank you for your question. You have no further questions and I’d like to turn the call over to Brad Pedersen for closing remarks.

Brad Pedersen

Thank you for attention and participation in today’s teleconference. We expect to file our 10-Q for fiscal 2015 first quarter shortly which will also be available on our website at www.breeze-eastern.com in the company information section under SEC filings.

Till our next earnings teleconference, thank you and good bye.

Operator

Thank you for joining today’s conference. This concludes the presentation. You may now disconnect. Thank you.

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