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Executives

Peter Mathewson – Chairman, Chief Executive Officer

Robert Cierzan – Chief Financial Officer

Michael Rossi – Vice President, Sales and Marketing

Analysts

Matt Sherwood - ZS Fund

Tim McDowell – Group G Capital

KC Alexander – Gilbert Securities

Victor Solis - Private investor

Aldila Inc. (OTCQB:ALDA) Q4 2007 Earnings Call March 5, 2008 5:00 PM ET

Operator

Good afternoon ladies and gentlemen. Welcome to the Aldila announcement of results for fourth quarter 2007 conference call. I would now like to turn the meeting over to Mr. Peter Mathewson, Chairman and Chief Executive officer. Please go ahead Mr. Mathewson.

Peter Mathewson

Good afternoon. I’m Pete Mathewson, Chairman and CEO of Aldila Inc. Welcome to our review of Aldila’s 2007 fourth quarter and full year financial report. Also with me here today is Bob Cierzan, our Chief Financial Officer. Following my brief commentary, the line will be open for questions.

I want to remind you the content of today’s audiocast may contain time sensitive information that is accurate only as to the time and date of this live broadcast at 2 pm, Pacific Standard Time on March 5, 2008. Although this actual performance results are subject to risks and uncertainties that may differ from any forward looking statement that maybe included in this audiocast.

The public filings of our annual report on Form 10-K and Form 10-K quarterly reports contained detailed discussions of the principal risks and uncertainties related to our future operations and should be considered in conjunction with the content of today’s discussion.

This call is the property of Aldila, Inc. The redistribution, retransmission or rebroadcast of today’s call in any form without the expressed written consent of Aldila Inc. is strictly prohibited.

Aldila report a net sale to $17.7 million for the fourth quarter ended December 31, 2007 as compared to $17.9 million in the same quarter of 2006. The company report a net income of $10.9 million or $2.9 earnings per share fully diluted for the first fourth quarter of 2007 compared to the net income of $1.3 million or $0.24 earnings per share fully diluted in the same quarter of 2006.

In the 2007 fourth quarter, the company realized a pre-tax gain of $16.3 million from the sale of its 50% interest in Carbon Fiber Technology, LLC or CFT. Excluding this gain, the company’s net income would have been approximately $771,000 or $0.15 earnings per share fully diluted.

For the year ended December 31, 2007, net sales were $69.1 million as compared to $72.4 million for the year ended December 31, 2006. The company had a net income of $16 million or $ 2.91 earnings per share fully diluted. For 2007, as compared to the net income of $11.2 million or $2.01 earnings per share - fully diluted in 2006.

In the 2007 fiscal year the company benefited from a pre tax gain, $16.3 million from the sale of CFT. Excluding this gain, the company’s net income for 2007 would have been $5.7 million or $1.04 earnings per share fully diluted.

In the 2006 fiscal year, the company benefited from a pre-tax settlement of $2.2 million as a class member in a civil suit against certain carbon fiber producers. Excluding this benefit, the company’s net income for 2006 would have been $9.8 million or $1.75 earnings per share fully diluted.

The company’s aggregate cash and cash equivalents were $29.5 million as to December 31, 2007 after $3.3 million in dividend payment to shareholders, repurchasing $6.7 million in its common stock and spending $6.3 million for capital expenditures. The company repurchased approximately $403,000 shares of its common stocks during 2007 which represents approximately 7% of the company’s shares outstanding as to December 31, 2006.

The company’s backlog of sales orders as of December 31, 2007 was $10.2 million versus $12.5 million as to December 31, 2006. Sales for the fourth quarter of 2007 were $17.7 million versus sales of $17.9 million from the fourth quarter of 2006. Sales of the golf shafts were relatively flat and sales of composite materials were 13% higher. There were no sales of hockey products in the current quarter as to the exodus of the business during the second quarter of 2007 versus approximately $400,000 in hockey products sales during the fourth quarter of 2006.

Our consolidated sale was $69.1 million for 2007. We’re down 4% from 2006. Sales of golf shafts were $57.3 million in 2007 versus $61.4 million in 2006 representing a decline of 7%.

Average selling price to shafts sell 3% for the year versus 2006 and over-all unit decline 4% in 2007. Sales to composite pre prep materials and fiscal 2007 were $10 million and represented a 13% increase over last year.

On November 30, 2007, we closed on the sale over a 50% interest in CFT to our joint venture partner SGL Carbon Fiber Composites Inc. or SGL. The sale price was $17 million plus 50% of the working capital as of November 30, 2007 which amounted to $2.5 million. This sale allowed the company to realize the significant gain on our investment on CFT and at the same time provide a secure source of carbon fiber to a supply agreement with CFT over the next five years.

Additionally, it allows us to focus on our two core businesses of graphite golf shafts and compositeprepeg. The proceeds from the sale of CFT in a new $15 million credit facility recently put in place with key bank will be use to pay a $5 special dividend to shareholders on March 10, 2008.

Since 2004, Aldila has declared dividend of $46.2 million repurchased $8.2 million worth of the company common stock and spent $14.3 million for capital expenditures in support of its golf composite material businesses.

The year 2007 was a challenging year for shaft business. Sales and average selling price were down versus last year. We continue to see a competitive environment across all market segments and we expect this will continue foreseeable future.

On a positive note, we remained profitable every quarter in 2007, extending this run to over four years. Our Vietnam shaft factory is now ready to contribute to our earnings. Our new wide composite prepreg line is installed and will begin operations shortly and provide this the opportunity to enter new composite prepreg markets.

During 2007, we moved to simplify our business. The exit of our hockey business after five years of effort to build the growing profitable business. Unfortunately, the volume required to make this an attractive business never materialized. We also made a decision to sell our 50% interest in CFT. This leaves us with two complimentary core businesses, graphite golf shafts and composite prepreg materials.

Our new DBF shaft will be use in several OEM programs in 2008 in our VS Proto and NV family of shafts continue to be used as upgrade options that most major club company in its popular after market shafts in distribution market.

Aldila enjoyed tremendous success on tour on 2007. Players using all the shafts won 19th event on the PGA Tour and nearly 50% of all the events of the nationwide tour. The recently introduced DBF along with the VS proto and NV, continue to be among the leading wooden hybrid shaft during on the PGA and nationwide tours.

Aldila also won the Grand Slam of shaft on 2007 as the leading shaft for both woods and hybrid that won major championship from the PGA tour on 2007. At the season ending, PGA tour qualifying school, Aldila shafts were once again the most popular for players in both woods and hybrid shafts.

In the recently released aero consumer survey for 2007, Aldila was the leading shaft choice in total shaft usage for drivers, fairway woods and hybrid clubs. In fact, the usage of all of the shafts and hybrids out paced our nearest competitor by nearly a four to one margin. Our composite materials businesses continue to expand on 2007 with full support quarter in full year sales results up 13%.

As we enter 2008, we are optimistic that our decision to expand the capacity in product capability in this business represents sales full of opportunities based on expanding demand of composite applications.

Thank you for participating in this call, we will now open the line up for your questions, Mary.

Question-and-Answer Session

Operator

(Operator Instructions) The first question is from Matt Sherwood from ZS fund. Please go ahead.

Matt Sherwood – ZS Fund

Hi, just a couple of questions, are you, is it in your plans to maintain the $0.60 quarterly dividend?

Peter Mathewson

Yes at this time, that’s our intention.

Matt Sherwood – ZS Fund

Okay. And can you give a little bit of call on the break out from an earning’s perspective between composite materials in the golf shafts?

Peter Mathewson

You’ll be seeing that shortly when we file our 10-Q.

Matt Sherwood – ZS Fund

And then that of your comment on the new Vietnam lines position to contribute to earnings, is that going to be that is being a significant contribution or just be marginal?

Peter Mathewson

To speak in this year, it will be marginal. It won’t be a great contributor but we will go from a negative to a positive.

Matt Sherwood – ZS Fund

All right. Thank you.

Peter Mathewson

You’re welcome.

Operator

Thank you. The next question is from Tim McDowell from Group G Capitol. Please go ahead.

Tim McDowell – Group G Capital

Good afternoon gentlemen. First off, on the competitive landscape you talked about. It was becoming more competitive. Could you provide a little more color around? What it is your seeing at that new entrants? Is it pricing is getting tougher? What’s going on there?

Peter Mathewson

I think it’s a reflection of the material carbon fiber supply globally freeing up. I think we enjoyed some good period of time there. We had our own carbon fiber supply and that was a global type situation. All our competitors, all of us now are pretty equal and that we can get all the material we need. I think we helped put a focus on branded product with our huge success we had with the NV. So, all our competitors that have a brand are focused on that category. So, I think all that is putting price pressure cut off categories. Does that answer your questions?

Tim McDowell – Group G Capital

Yes and not to go back too far in history but I know in Q3 volumes were down caught 19%. It looks like they’re relatively flat in Q4. Can you talk a little bit about what happening Q3 in obviously for the year they were down. I mean there was something probably more said than just a lack of a wood and hybrid thing sold. Did you lose any particularly large programs to competitors or what else might have contributed to those declines?

Peter Mathewson

Are you talking about Q3?

Tim McDowell – Group G Capital

Q3 and well, and Q4 are for the year you were down a couple percentage as well.

Peter Mathewson

Yeah, I think as we said in the commentary it was a tough year for our shafts across the board. I think we didn’t lose programs but we didn’t do as well at some of the programs as we typically do. I think there have also been a lot of units for us in the value segment and there was a global supply shortage in carbon fiber. A lot of what we call the value category that shrunk because those guys are gone to composite shafts which should going to glass and graphite and stayed that way. So, I think some of the units we lost there are in the value segment. But we don’t anticipate that kind of decline to continue.

Tim McDowell – Group G Capital

Okay. In turn that you were saying, I don’t’ want to put words in your mouth. Did you say that you guys did not lose market share this year?

Peter Mathewson

I think we have lost market share in the branded side of things somewhat but it’s also something that is not, is something to be expected because we had a huge market share for a while with our NV and it is that kind of stock is going down in sales over time. We’ve lost some share there. But it also is not expected t hold on to believe that it was such a large share.

Tim McDowell – Group G Capital

And then just to, last question. On gross margin, there was a roughly 500 points declined, ’07 and ’06. Could you talk about some of the major drivers behind that decline? Given that carbon stuff like it was probably favorable. We are definitely not in negative in ’07.

Peter Mathewson

That is volume…?

Tim McDowell – Group G Capital

So, on your …

Peter Mathewson

Yes pricing pressure. Mix, ore iron or woods were open to contributors.

Tim McDowell – Group G Capital

Was there one, I mean, can you kind of connect of the fiber-based is going? Are those equally spread among mix, volume, under absorption in price or was one…

Peter Mathewson

I think it is probably all about equal.

Tim McDowell – Group G Capital

Okay. And then on SG&A, what drove… not only the dollar increase that the basis point increase $300?

Peter Mathewson

About the dollar increase in basis point increase the basis point increase is a, the function of lower sales for one thing in the dollar increases; we had some higher legal and professional fees. During the year, we did a Dutch tender offer that cost us money. We had a legal bill for the sale with CFT and some other SOX cost. We added the sales guy and there was a full year of the administrative expense in Vietnam this year versus approximately a half year last year…

Tim McDowell – Group G Capital

After…

Peter Mathewson

Excuse me, pardon?

Tim McDowell – Group G Capital

I’m sorry to interrupt. Go ahead.

Peter Mathewson

And there was, you know, little higher salaries this year and the last year.

Tim McDowell – Group G Capital

On the, what would I would term the one-time event that transaction related items. What would, you care to provide a rough estimate of that, that amount. I mean, we’re talking a half million or million dollars?

Peter Mathewson

Well, the professional fees were roughly a third of the increase. The increase on professional fees. And the rest…

Tim McDowell – Group G Capital

Excluding, excluding SOX or that also include SOX?

Peter Mathewson

That includes SOX.

Tim McDowell – Group G Capital

Okay, that is t for today..

Peter Mathewson

Okay, thanks.

Operator

(Operator Instructions) The next question is from a KC Alexander from Gilbert Securities. Please go ahead.

KC Alexander – Gilbert Securities

Hi. Can you kind of qualify, I mean, was it there any, any effect on margins from the Vietnam plant this year in long-term. What do you expect the effect on margins to pay?

Peter Mathewson

It wont be a great effect this year KC. I think, long-term part of it is the cost in China and elsewhere going up in Vietnam is kind of an offset. So right the exchange rate for our dollars to the Chinese renminbi is going against us, labor cost and all that arising very dramatically in China. So, it’s kind of an offset.

KC Alexander – Gilbert Securities

But you’re moving a capacity for Mexico to Vietnam, correct?

Peter Mathewson

We are going to do that this year. I mean that to the extent we move it a little be somewhat cheaper. I couldn’t tell you the over-all mix. Part of it going to be the mix and where we are KC with moving products into Vietnam is taking customers to the operation qualifying shaft programs.

KC Alexander – Gilbert Securities

Right.

Peter Mathewson

Ending on what those programs….

KC Alexander – Gilbert Securities

Also on the expanded prepreg capacity. Who is kind of the customer set for that expanded capacity and what type of incremental sales volume and could you potentially get out of that capacity?

Peter Mathewson

And we put in a roughly a third more tape line capacity. If you want to look it at that way, a wider aligned versus the normal tape line. It gives us the ability to run wider, unit direct…

KC Alexander – Gilbert Securities

Hello?

Peter Mathewson

Pardon?

KC Alexander – Gilbert Securities

I’m sorry, I can’t hear you.

Peter Mathewson

It gives us the ability to run wider material of which there is a subset of customers who only deal in wider material and also wider fabrics which is not a market we have participated in heavily to this point. So, I mean, it’s sort of expands our horizon in terms of product that we can now offer in the market place. Is it, it could expand our opportunities in the marine industry for one thing?

KC Alexander – Gilbert Securities

Right.

Peter Mathewson

This is in every fabric and also in certain other applications that are sporting good related? For instance, aero is used wider material than that 24-inch machine can produce, et cetera, et cetera.

KC Alexander – Gilbert Securities

Okay. And I may not have been able to hear. What type of sales volume, can you get out of this expanding capacity?

Peter Mathewson

We’re not going to give a forward statement on what additional sale can we et out of it. The capacity though likes Bob has mentioned is sizeable increase. What a new machine will be able to do so where we are now.

KC Alexander – Gilbert Securities

Okay. All right. That’s good enough. Thank you.

Peter Mathewson

Thank you.

Operator

Thank you. The following question is from Victor Solis, a private investor. Please go ahead.

Victor Solis

Good afternoon. I just have a quick question about interchangeable shafts. Are you going to participate in that and if you do, do you think that’s going to make a big impact on your sales per products? Thank you.

Peter Mathewson

Yes, we are participating already in the interchangeable shaft situation. There’s about three of them, there are three club manufacturers that have systems already to go out to the market place in the city early 2nd quarter of this year.

So, we just had a sale in of not too many shafts. Everybody is taking kind of a cautious approach to this thing and nobody really knows exactly how the, how the market to this and how big the market might be.

I don’t anticipate a big impact in sales for us in ’08. Since this thing is even going to hit the market sold, let’s say April or so this year. The good thing is that the rights kinds of shafts go into this interchangeable system serve a premium priced grand shafts.

So, if you don’t have a branded graphite shafts, you won’t participate in this. And certainly as one of the leading brands, we are in these precarious systems that are being offered.

So, I think probably the main impact in the real, it will be 2009 before we have a handle on what this means to our business and probably what it means to the golf business. But it is a big rule change and has good potential for graphite-shaft companies that have a brand.

Victor Solis

Okay, thank you.

Peter Mathewson

You’re welcome.

Operator

Thank you. There are no further questions registered at this time. I’m sorry, we now have a new question registered from David Schecker from Perspective Capital Management. Please go ahead.

David Schecker - Perspective Capital Management

Yes, I’m sorry, I came into the call like this question they have been asked. In the press release in your comment, you expressed the fair amount of optimism that the decision to expanding capacity which presents a growth sales opportunity. What’s the basis for that optimism?

Peter Mathewson

By increasing composite usage in the world.

David Schecker - Perspective Capital Management

Particular applications that you’re selling into… that are increasing in that you sell too. Is it blades for the windmills or is it a small parts for...

Peter Mathewson

we sell into marines sporting goods industrial market type of products and, I mean there were certain segments in even those applications that look for wider goods than we had the ability to produce. So, I mean, that open-closeddoors to further expand our sales.

David Schecker - Perspective Capital Management

That is super. So, you had a fair amount of orders and that you couldn’t fulfill because of these constraints that will be able to…

Peter Mathewson

We did not have the ability to even bid on those types of products. Now we have the ability whether we get them or not, the market will determine.

David Schecker - Perspective Capital Management

Generally speaking, are those opportunities relative to what you were doing a 10% as sort of increasing you market potential or…

Peter Mathewson

…to quantify that.

David Schecker - Perspective Capital Management

Uh-huh. Who were the competitors that would otherwise have been getting the business?

Peter Mathewson

Well, there are not too many prepreg manufacturers in this world. They’re typically the large carbon fiber producers. They are…

David Schecker - Perspective Capital Management

Like Soltec for instance?

Peter Mathewson

Soltec does not… Well he made prepreg but, I mean, we’re showing prepreg, and we’re which is fiber and resin.

David Schecker - Perspective Capital Management

Right.

Peter Mathewson

…combined. Soltec and fiber.

David Schecker - Perspective Capital Management

Okay.

Peter Mathewson

The Sightecs, the Excels of this world…

David Schecker - Perspective Capital Management

Newport.

Peter Mathewson

Newport which is Mitsubishi, are our competitors.

David Schecker - Perspective Capital Management

Big integrated company.

Peter Mathewson

Yes.

David Schecker - Perspective Capital Management

Alright, thank you very much.

Peter Mathewson

You’re welcome.

Operator

Thank you. There are no further questions registered at this time. I would now like turn the meeting back over to Mr. Mathewson.

Peter Mathewson

Thank you for participating in our fourth quarter 2007 conference call and we look forward in speaking with you during our first quarter 2008 call. Good bye.

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