Q4 2019 Earnings Call

[music].

This conference call at this time, all participants are in a listen only mode.

Through the speaker presentation will be a question and answer session.

You asked the question during the session you will need to press star one on your telephone keypad.

Please be advised of todays conference is being recorded.

If you report any further systems. Please proceed.

Now, let me hand, the conference over to your first speaker today Mr. James Tybee. Thank you. Please go ahead Sir.

Hello, Good afternoon, everyone and thanks for joining our Q4 and annual results Conference call. Please note. This call will be recorded and we anticipate making the recording available on our website at Www Dot LDL group Dot com after the call.

We've issued a press release today before market opened.

<unk> results for our fourth fiscal quarter and full year of 2019.

Before getting underway, we are required to advise you at all participants should note that the following discussion should be taken in conjunction with the most recent financial statements and notes there to contained.

And our 2019 10-K.

To be filed with the FCC for this most recent period expected to be filed shortly.

Discussion may contain forward looking statements within the meaning of section 27 to eight of the Securities actor 1933.

And section 20, Onee of the Securities and Exchange Act of 1934.

These forward looking statements involve known and unknown risks and uncertainties, which are detailed in our filings with the FCC.

Although the company believes that its forward looking statements are based on reasonable assumptions regarding its business and future market conditions, there could be no assurances that the company's actual results will not differ materially from any results.

Expressed or implied by the company is forward looking statements.

The company undertakes no obligation to publicly update or revise any forward looking statements.

As a result of new information future events or otherwise.

Readers are cautioned that any forward looking statements are not guarantees of future performance.

Let me summarize where LTL stands as of the fourth quarter and full year of 2019.

As far as our results as of December 31st 2018 order backlog was 21.9 million compared to the backlog of 17.5 million as of December 31, 2018.

The increase reflects the company's stronger execution and delivering design wins.

And with favorable market conditions.

Revenues increased 37.5%.

Increase for the fourth quarter of 2019 is 8.8 million versus 6.4 million for the third quarter of 2019.

For the full year annual revenues increased 23% to 31.9 million as compared to 24.9 million reported for 2019, an increase of 7 million.

For the fourth quarter adjusted EBITDA grew to 1.2 million 7.4 million in the prior year well for the full year adjusted EBITDA was 4 million versus 1.9 million in the prior year.

Fourth quarter EPS rose to 19 cents per share from five cents per share on a diluted basis.

For the full year earnings per share rose to 141 per share from 29 cents per share on a diluted basis.

As of December 30, Onest 2019, our consolidated working capital was what 24.6 million with 18.1 billion in cash and marketable securities.

With that I'll now turn the call back over to Mark.

Right.

Thank you James and I. Thank all of you for being a available and attentive to a your company LG All group.

I'm joined today with two colleagues.

That many of you have spoken to in the past.

Even though diego, who joins us as our interim CEO and those graphs, who joined us in the fourth quarter as the president of them drawn P. T.

Both bring a long history in the respective areas, both with Ivan has a and investor as well as a manager and build drops as well as a manager in engineered Bill. We're proud to say comes from the Orlando area and he's been spending.

Significant amount of time with both our customers and the professionals that im trying to P.T.I. in headquarters.

We are having this call obviously tour in a period of great uncertainty.

The first and foremost.

Point that we want to underscore is that we're in business of course to provide.

Critical precision engineered products for our customers are.

Considering in the central business.

But.

We're very cognizant that we have to it here and ensure the state safety of all of our professionals.

Well Joe group broadly.

Both in New York, Lando, South Dakota, and Indian operations.

This this period is one where in throughput.

Maximizing throughput in the factory.

We are putting safety first.

Today Orlando still operates.

With.

Strong backlog.

Which you can see you know reported results.

However, as part of that backlog and what you've seen in today's press release.

Important part of our supply chain, which is owned and operated as our facility and Noida, India interest outside of Deli and.

Many of you will know.

India has instituted a national.

Locked down.

Which involves both transportation.

Manufacturing logistics throughout the country.

It's a great test for the country to.

Correct.

And at that same front, we are treated as an essential business in the United States into defense activities. However, in India defense activities are not considered in the central business.

We're working with local government authorities to reopen the facility.

Logistics have just been reopened in the country.

And.

It is our expectation that the facility will be back and running some point in the month of April. Although we can have no assurances that that can happen, but we're working hard with government officials both in the United States in India.

With that said.

You see that the quarter first quarter, we've also announced strengthening of our balance sheet.

Where we had a program working with the investment Bank Jefferies.

In raising a bit of capital.

That has since east.

That happened earlier in the first part of the quarter.

As a company with a strong balance sheet many of you know.

We believe that there is a great opportunity to continue to build the vertical.

In the defense sector.

With.

And around our.

A key attributes of precision engineered products in frequency timing.

However, we also are looking for acquisitions and merger opportunities outside of our core competency.

You know them drumbeat <unk>.

And that activity continues.

We take a conservative approach to the allocation of capital.

In a prudent approach.

This environment, we are very.

Very cautious.

To make sure that operations maintain the strike that they have entered the quarter with.

And Ah we will be.

Prudent.

That's a dog line will be prudent.

And analytical and focus on the fundamentals of businesses as we move forward.

So with that I have built drabs, and I've been arteaga, who along with James.

To be will help with Q1 day.

And before we enter into Q1 day I'm just going to allow if we can take a bit more of your time to allow bill drops to just quickly introduce himself and then operator, we will do is moved to Q1, a in about two to three minutes.

Well, if I can hand, the call over to you to just give a brief introduction and maybe.

You know give us the birds eye view since you started here in November and how the world has evolved and in both the <unk> you see in <unk> in the near a in the near term. Thank you Bill.

Thank you very much mark and like the thank you and the board for allowing me to join the team and what a great team. It is and it's been just a fantastic.

Yes almost.

Five months now.

Since I joined and I've had the chance that go across the country meet our top customers I want to South Dakota, I was actually booked on a flight to India. This Friday the third.

And of course that got canceled because of the issues you addressed.

But I can tell you that the opportunities for that company are great.

We differentiate our product with very high precision engineering and the customers really like what we're doing we're fortunate that weren't essential business and so we're helping design products and deliver them to help to fund the country and keep the airline industry going in the satellites and the sky and so on and so.

You know, we're all working through this and the challenges that we haven't.

I think it's been a agreed five months didn't see this coming at all but were are reacting very well and of course as you mentioned there are number one concerns for the safety and security of our staff in team and we've been booked all the CDC rules here locally.

And I'm very happy to report that today, no cases of the virus and these facilities and we're going to keep it that way by making sure that everything is clean and we're keeping our six feet or more distance and so on.

No because there is a loud and travel and so on.

I come to entropy CCI with about three years of engineering technology management leadership, but I've run three other companies before this and I can tell you I'm really enjoying this company because that it just has a great team great technology, and you know absolutely blue chip customers and so.

I'm really enjoying it and I don't want high everybody's time, but all I look forward to the acuity session. Thank.

Thank you make much bill and Kevin will take go we'll move and now into Q1 day.

If he would like to ask a question just press star one on your telephone keypad.

Again that is store one to ask a question.

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Your first question is from a line of Chris Saki.

Hi, everyone.

Someone new news to LDL, but I just.

Just had a question I guess on.

A year.

The operation.

You could help help me understand so.

Well this this will be.

Mainly affecting the second quarter it sounds.

EM and.

You know.

How.

How much could we potentially see of of the right I hate to revenue in the second quarter because today.

Thank you, Chris and Chris can you state your company or your affiliation please.

Oh, yes, I'm with singular research.

Thank you Chris that's an excellent question and where we're pleased to have you with us today on this call.

Chris I'll start out and then we can get into a few more details, but the India facility is part of a supply chain that helps.

Service part of the filter product line, primarily coming through Orlando.

Some of the key customers our department of defense customers.

And without getting into too much of the granular detail, we utilize courier services to be able to bring.

Effectively designs that were were organized in Orlando bring them to India for Assembly test and then they come back and Bill can certainly walk through that a bit more but that supply chain as you've seen in one of our press releases you.

He if we think about you know a lot of this depends on time and that's something that nobody can answer the folks in India or ready to go to work. We're in front of the magistrates in fact this weekend.

Was it myself and other director we were emailing in texting with the local authorities both at the federal level in India as well as in the local government of Noida, which is the.

It's a talk Pradesh, which is just outside of Deli near the airport.

And.

The authorities certainly instituted this ban in a very draconian way.

Have you may have seen in the television crowds of migrant workers that were stranded.

And the government is still adjusting.

With that said.

We've reached out to the staff.

And I've told them that we're working on initiatives to try to bring people back to work.

There is precedent in the local jurisdiction.

Another neighboring state where they've gone back to work. This is really a decision with the local authorities.

They've gone back to work. However, the employer is responsible for keeping them at the facility. So therefore sleeping and ultimately eating there.

We're organizing ourselves locally to see and determine if that is something that's feasible, but at the same time were subject to the local authorities.

The the edict within India and again my colleagues can get into further detail.

It was <unk> and as we've released March 2050 until April 15th.

I have backlog that may be affected should this continue post that period.

And we're organizing second source supplies.

Suppliers in that context. It is it is an evolving process.

The India facility.

Itself is an important part of what comes through Orlando.

But with that said there were also alternatives one of my past this to bill just to add to that slightly and and just for purposes of clarity James TV, who was helpful with putting together some of the public disclosures.

James Why don't you just walked through the public disclosure that we've offered well we will be offering in terms of actual granular detail as it relates to India's and two christys question sales.

Yeah, we've not done a full analysis. So we are on the back of the napkin figured out it's about one third of our consolidated revenues.

And maybe bill has a little better breakout, but but that was the level. We had reached before are all of our filings for do.

Yeah, and when when he says Chris in the back of a napkin, it's a little bit more than that and that we're looking at actually all the components into throughput that could be potentially effective.

Acted we're taking a conservative approach, we're trying to take a comprehensive approach and then the key an open question is timing to the extent as you know as an organization. We do have some inventory to help satisfy all backlog and we also can shift and reshift production into other.

Because of our backlog so as to produce the revenue.

Well, there's ah delays coming out of India. So there was some alternatives that can be taken based on the period of time, but much like all of us that are trying to understand the dynamics based on.

This on certain and evolving risk.

Cobot 19.

Time is you were planning around an unknown element, which is the time right right now we haven't <unk> edict from from the government, which says it will last until the 15th of April Bill do you want to add something to that please.

I think you both in a very good job of summarizing a it's a very dynamic situation. We are on the phone with our top customers and more reviewing the backlog and just like you said Mark we we do have inventory to ship in Q2 and southern zero impact there and then we can bring things back and we're investigating that and what kind of impacts.

That has as well we are blessed that we have lots of capacity in Orlando and so we don't have to knock down walls and expand the building so to absorb any capacity that we decided to bring back if we believe that India will go past April 15th for right now.

Now if April 15th is the date and any opens up then I.

I think the impact of Q2 will certainly manageable.

With that said, Chris we cannot give you estimates, but as James said back to the envelope one third roughly of our revenues.

As a touched by what comes through India, but how that impacts could possibly evolve in the second quarter is something we're still sharpening our pencils on and just for point of clarification when Bill says.

Bring back when he means is where we were on shoring to production and the testing the assembly that otherwise would be done in India No. A large part of what happens in India, we have clean rooms with.

Multiple employees.

Close to 50, plus which are operating with my magnifying glass is and doing a lot of manual in manual labor, which which you know gets expensive in the United States. So while we want to bring back business onshoring business and we certainly can organize the skills in the United States to do.

That there's a cost element involved and that's something that we're analyzing today. There is of course alternatives those alternatives of a learning curve. Those alternatives have occurred right now if we use the April 15th date, we're taking into this all into consideration in evaluating that but.

So we can't give you any hard numbers, but we know it will you will evolve and we hope to have a communication with all investors via.

Forms of press releases as things crystallize.

Okay.

Yes.

Yeah. Thanks, a that that helps or give me better idea I know.

The [laughter] than the main focus here, it's a timing of it all.

So.

Yeah that helps that's my question yeah. Thanks, Thanks to that thank you Chris.

Kevin operator.

Yes, all your next question is from Ian Castle.

Thanks, gentlemen, I appreciate.

The ability to ask a question I got on a little bit late so I apologize if you answered. This in your opening remarks, but I was wondering if you comment a little bit about why you decided to raise some capital during the quarter you know given your balance sheets pretty pretty good shape. Thank you.

Thank you good question.

Ian can you just state your company in your affiliation apologies.

Sure I'm, a private investor I also microcapclub dotcom.

Oh, Thank you and that's an excellent a forum, it's a pleasure to have you and all of your.

Colleagues that look and invest in LG all group.

The <unk> the question was related to the ability or the action taken by the board.

To update the shelf and also raised some capital in the quarter.

As we've outlined a for our investors over the P. S. A few quarters as the business of them Trump P.T. a it has shifted to a much more stable customer base under the Oversights of Michael Faerm Tino.

Our previous chief Executive and chairman.

The stickiness and the consistency of the overall economic structure the business became a improved.

And with that said the.

The company started to look at alternatives to grow and some of those alternatives, where organic so bringing on a new products investing in the business with new technologies, but also bringing on teams.

And then of course looking elsewhere at different opportunities and if we continue along the attributes of defense oriented investing.

We organized the LDL group to help become part of a sponsor group focused on larger acquisitions in the.

Department of defense oriented.

Arena and as a residual of that.

We're seeing let's call it deal flow and that deal flow is in a much smaller way then its investment in a the LTL systems.

Business or acquisition Corp.

And we believe that we are in a good position to be able to invest with a return and possibly a transformative.

Estimate.

Business, so the market correction in fact.

Puts us in a in a good position to be able to.

Think about.

Allocating capital in that sector, which for the most part is not exposed to the general consumer.

Now how valuations are changing is also still an evolving topic.

And we're sharpening our pencil.

But the ability and the opportunity to raise capital was what we thought was a good use of the platform of LG, though looking into the next two to three years to build value certainly the debt markets at one point in time, our open and had been opened and certainly if there was.

To be an acquisition, we would explore the full use of the capital structure, but this company being a micro cap is.

But also it's accessible to people like yourself being that focus on fundamentals and look for special situations in the market, but at the same time there were institutions that have an interest in the company and it is something that we would consider which is to try to broaden the.

Well the base for time, [laughter] be able to access and and grow the business. So I don't know if that helps in specific terms. We don't have a parameter that we can outline for you, but that's basically the general thesis.

I appreciate the color on that maybe just one follow up question then.

Relate to the bookings I think they've dropped a couple of quarters in a row when I think fair in Tino guided all of us to the fact that they were going to drop I think a quarter ago.

And so you know they dropped again Im just wondering if you could provide some color on that I know you did in the press release, you were talking about January and February bookings of you know pick back up but just wondering if the last two quarters were just sort of normal course of business fluctuations or if there you know lost any business or maybe you can just provide some commentary.

That's terrific again and thank you for that question because it's an important part of looking at the barometer of the business.

Bill I know that your new at this but bill why don't you talk about kind of al the evolution of quarters work within the industry and the areas, where you see traction and also where you see it slowing we can I think we could provide that guidance change that that's fair with you.

I believe that's fair, yes, absolutely. Thank you.

Ian.

Our business, it's not unusual for us to receive blanket orders and so our customers on defense industry will be building, a certain product and they want to secure the pricing and delivery and give us a good lead time, so that we can finish the qualification and such and so they're all mill products for the most parts.

And so to go quarter by quarter and look at our book to Bill ratio really is not a fair assessment of the business because it gets pretty lumpy and so we are expecting some.

Oh No reason for Q4 was one customer that we had planned on doing a larger order deferred it now we're negotiating that contract right now and we'll see that in the near future. None no two or three more others that are same thing. We're in negotiations so you'll see some pretty wild swings in book to Bill and that's just the nature of the business.

[music].

Yeah, just to take that a bit further would bill and his team are doing is also speaking that core.

Customer are set.

And core product set.

Working diligently with with new customers and Brazil, Bill brings a wealth of relationships as well in some new customer channels. So you know, they're very much working on trying to broaden a bit of the reach for some of the core product lines.

Bill would you like to talk about maybe just one product that might be getting some traction.

Oh sure.

At the well if we have the June IMAX show in Los Angeles will be not announcing a couple of products that are really industry, leading one addressing sat com, so satellites and communications, which is a big grooming industry you read about all the launches a satellite so every day.

And then the other product is a very stable.

Recent compensated on Cxo and on this last trip out West I met with a number of very large customers and.

I wish I could have bottled their excitement because it was really something and so a working with them to get them samples and get them designed into their products and so these are both industry, leading products with exceptional specifications really world, leading specifications and I think if you see our website, you'll see the press releases on both those.

Products.

Thank you Bill that's great. So you know in.

The team has chugging away today by video call in the best they can.

You know the elements of commerce, a changing every day.

And you know we're keeping added so thank you for the question on the backlog.

The profile of the backlog there is volatility to backlog historically also as the business has evolved into some of the more the major suppliers into defense industry, you can get some more lumpiness, but with that said, we're trying to grow the base and broadened the base.

Okay. Thank you.

Thank you for the question Kevin.

Oh.

If he would like to ask a question just for star one on your telephone keypad.

There are no further questions at this time.

Thank you very much in thank you everybody stay safe this is it.

You know I like to say this is Ed and invisible enemy.

Don't underestimate it.

So stay safe please for a for the safety of our nation. Thank you very much.

That does conclude todays conference. Thank you for your participation you may now disconnect.