Planar Systems Inc. (NASDAQ:PLNR)
Q2 2011 Earnings Call
May 3, 2011 5:00 PM ET
Gerry Perkel – President and CEO
Scott Hildebrandt – Chief Financial Officer
Good day, ladies and gentlemen. And welcome to the Second Quarter 2011 Planar Systems Incorporated Earnings Conference Call. My name is [Francine], and I’m your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions)
I’d now like to turn the presentation over to your host for today, Mr. Gerry Perkel. Sir, you may proceed.
Good afternoon. And thank you for joining us for Planar’s second quarter earnings conference call. With me this afternoon is Scott Hildebrandt, Planar’s Chief Financial Officer.
Before I begin, I do need to say that the press release we issued today contained 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 other 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 our earnings 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 say, we are pleased with our financial results this quarter. Both revenue and non-GAAP earnings per share exceeded our guidance by significant amounts as we experienced stronger than anticipated demand for our products.
Sales growth for quarter was 21%, compared to the second quarter a year ago, which is the highest level of organic growth we’ve experienced in almost eight years.
In addition, we saw sales growth in all three of our geographic regions. Based on that strong sales performance and a favorable mix of the products sold, non-GAAP gross profit margins were also at their highest level in almost eight years at 29.2%.
The combination of our stronger sales and strong non-GAAP gross profits enabled us to deliver $0.07 of non-GAAP earnings per share, which is well above our zero to $0.02 guidance. It’s great to see all of the hard work of our dedicated employees begin to pay some dividends in the form of growth and profit improvements.
Let me now talk a bit about the various product lines in our business. First, as you may recall, we have spoken about our focus on opportunities for Digital Signage products for some time now. We believe that the market dynamics are such that we can over time create some significant growth for our products in this space and in the second quarter, our Digital Signage products had a very strong showing.
Sales of our Digital Signage products grew 68%, compared to the second quarter a year ago and represented 24% of our total sales. Both custom and standard Digital Signage products grew in the second quarter, compared with the same quarter last year.
The largest contributor to our Digital Signage product sales growth in the second quarter was our Clarity Matrix LCD Video Wall products. In the second quarter, sales of this product category more than doubled when compared with the second quarter last year.
The Clarity Matrix LCD Video Wall family of products is a highly versatile display system with applications in retail, airports, sports arenas, malls, museum and other public venues. Inspired by the capabilities of these display systems, we are seeing both large-scale and small-scale adoption of Clarity Matrix with large scale opportunities representing multi-million dollar projects with rollout that could span several years.
In addition to the strong sales growth, we also launched a number of new products aimed at the Digital Signage market including a 55-inch version of our Clarity Matrix LCD Video Wall system, which features full 1080p resolution LED backlighting, 5.7 millimeter image-to-image gap and continues the Matrix product line’s industry leading design including an ADA compliant thin profile with a mere 3.6-inch depth.
We also announced the LC32 and LC46 series outdoor Digital Signage modules, an ultra-thin indoor signage display, a zero bezel multi-touch LCD monitor and an 82-inch slim large format LCD display.
These and other signage offerings to come will complement additions in our sales and marketing resources that we are making and also highlight our capabilities as an innovative unique supplier of Digital Signage products as we look to grow in this category in the future.
In addition to the Digital Signage product activity, I’ve already mentioned, we also announced earlier today that we have formed a strategic alliance with UniStructures Incorporated to pursue the emerging display opportunity within the Quick Serve Restaurant or QSR market and other commercial drive-through opportunities.
As drive-through operators look to improve efficiency, reduce costs, provide revenue uplift and promote overall brand and image, more and more they are looking to Digital Signage as a compelling offering. Planar and UniStructures are partnering to provide a complete solution with rugged display – Digital Signage displays for the drive-through.
We’re excited about the opportunity in the QSR display market with over 75,000 drive-throughs is North America alone, the opportunity is large and while we want to be well positioned to serve in the future.
In addition, some other areas of our business performed well outside the Digital Signage areas I’ve mentioned. We saw nice growth in our rear projection cube products linked to the move by our customers to adopt our new LED-based cube products. We saw particularly high levels of growth in some of our international markets for these products as well.
We also launched a new Megapixel Wall product family that offers us some new opportunities to participate in the collaboration -- in the simulation application spaces by providing an ultra-high resolution display system with a seamless appearance and a compact footprint.
Moving to some of our other product offerings, we also saw some growth in our core IT product lines, including touch monitors, as well as our core custom and embedded product lines in the quarter.
The one product line that did not deliver growth in second quarter was our high-end home product line, continued challenges in the housing market limited growth for this line of products. We do expect to see some short-term improvement however, as we’ve begun shipping our new flagship D73, a 3D LED home cinema projector that utilizes passive glasses to deliver a crystal clear 3D image without the fatigue or eye strains sometimes experienced in 3D systems that use active glasses.
In summary, while we are pleased with the quarter, we are even more excited about the opportunities in front of us.
With that, let me turn the call over to Scott to discuss our financial performance in a bit more detail.
Thanks, Gerry. Let me start with the income statement. As you are aware, we reported approximately breakeven GAAP income per share and non-GAAP income per share of $0.07 earlier today for second quarter of fiscal 2011.
Non-GAAP results exclude non-cash GAAP items such as intangible, amortization expense, foreign exchange gains or losses resulting from foreign based translation of U.S. denominated assets, share-based compensation expense and some tax items. As a reminder, a reconciliation of these items is included in the supplementary tables within our press release.
Regarding our non-GAAP results, gross margin as a percent of sales increased to 29.2%. This compared to 23.7% reported in the second quarter of 2010. The increase in gross margin percentage was primarily due to a more favorable product mix and from reduced inventory excess and obsolescence charges compared with the second quarter a year ago. In addition, better absorption of fix labor and overhead spending contributed to the improvement in gross margin rate.
Non-GAAP operating expenses for the second quarter of fiscal 2011 increased approximately $500,000 to $12.7 million, compared with the same period a year ago, primarily driven by an increased sales and marketing expenses.
As discussed previously, we’ve been adding sales and marketing resources over the past five to six quarters to build on the momentum of some of our products and to increase our overall go-to-market capabilities as we look to drive sales growth in the future, specifically in Digital Signage product areas.
Our non-GAAP effective tax rate was approximately 10% for the second quarter of fiscal 2011, 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 declined approximately $4.2 million to $27.6 million compared with the end of last quarter, mostly due to changes in working capital. We continue to have no borrowings outstanding on our existing line of credit.
We saw receivables increase over $6 million from the end of the first quarter driven by strong sequential sales of almost 15%. We also experienced growth in inventory during the quarter to support upcoming product launches and increased revenue opportunities. These two uses of cash were partially offset by an increase in accounts payable.
Looking forward, we believe we can continue to increase year-over-year revenues over the next several years with most of the growth expected from a variety of Digital Signage opportunities. While many of these Digital Signage opportunities represents multi-million dollar projects, predicting the timing of the initial rollout and the timeframe to complete the projects will be difficult and could cause our revenue growth rates and profitability to fluctuate from quarter-to-quarter.
As it relates to our shorter term guidance, we currently expect to see annual revenue growth in excess of 10% for next fiscal year, fiscal 2012, with an increasing percent of total revenue derived from sales of Digital Signage products.
However, profitability is more difficult to predict in fiscal 2012 as we ramp our spending directed to fueling these higher levels of revenue growth. In addition, we expect to use $5 to $7 million of our current cash balance to fund working capital requirements associated with projected revenue growth over the course of the next year.
For the third quarter of 2011, we currently anticipate revenue in the range of $46 to $48 million and non-GAAP income between breakeven and $0.02 per share.
Just shifting to some additional forward-looking information, we expect non-GAAP gross margins as a percentage of sales to decline by approximately 100 to 150 basis points from the second quarter of 2011 due in part to a less favorable mix of products.
Regarding operating expenses, we expect spending to increase $300 to $500,000 in the third quarter and again in the fourth quarter of fiscal 2011 mostly in sales and marketing related to both headcount and in program spending to help drive continued topline growth.
As a reference, we have added 16 net fulltime equivalent employees over the last year and half and it driving revenue growth for the company. And looking forward we plan to add another 25 or so positions again concentrated in sales and marketing to position us for the next wave of sales growth.
Shifting to some other forward-looking estimates, we believe average diluted shares outstanding will be approximately $19.9 million for the third quarter of 2011 and finally, we are projecting capital expense of $750,000 and $500,000 of depreciation expense in the third quarter of 2011.
With that, I’ll turn it back over to you, Gerry.
Thank you, Scott. As we move forward, we are focusing much of our energy on driving topline growth that we believe will create significant profit improvement and enhance the value of Planar. This last quarter was a nice demonstration of the profit improvement that is possible if we can drive up revenues with a good mix of our products.
In order to pursue the various growth opportunities in front of us and to transform Planar into a consistent double-digit annual growth company, we are committed to continue to add resources in several key areas. Specifically, we need to become a stronger sales and marketing company.
As Scott mentioned, we are adding resources to enable us to strengthen both of these functions as we move forward. For example, we plan to increase our spending on marketing programs aimed at increasing the awareness of our company and our offerings with the key audiences that purchased the kind of products we make and those that advice and influence such decisions. We also need to continue to innovate on the product development front as new and innovative products are key to our success.
Our goal is to continue to grow revenues and with that to become a much more profitable company longer term. As Scott mentioned, we expect to be able to deliver sales growth in excess of 10% in fiscal 2012.
Initially, we expect that the increases in expenses required to create the growth will likely limit much increase in profitability. However, over time as our revenues grow we feel confident that we will be able to markedly enhance our profitability and the value of Planar.
In summary, we are pleased with the second quarter results, as well as the opportunities ahead of us to drive additional sales growth in the future and improve overall shareholder value.
Now, with that, let me open up the call to questions. [Francine], can you come back on and take on the question-and-answer period please.
Yeah, sir. (Operator Instructions) And sir, you have no questions.
All right. Well, let me just close the call by saying thank you for joining us. We are very pleased with the results that we created and we look forward to next quarter and talk to you about the further progress we can make at the company. Thanks very much.
Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. And have a great day.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: firstname.lastname@example.org. Thank you!