Q1 2020 Earnings Call
Good day.
<unk> quite a 2020 results conference call today's conference is being recorded at this time.
The conference over to Dan Bernstein.
<unk>.
Go ahead.
Thank you sandy joining on the call today, it's Greg brochures.
[music].
<unk> cannot director of financial reporting going again, nickel, Oh, I guess going to go all the safe Harbor statement right.
Thank you Dan Good morning, everybody before we start I'd like to read the following safe Harbor statement.
Except for historical information contained on this call. The matters discussed on this call such as statements regarding cloud you get signed can build underlying business the weekly placement not replenishment orders.
The anticipated improvement in sales and financial results and the second quarter of 2020 as compared to the first quarter of 2020.
Forward looking statements I've described under the private Securities Litigation Reform Act at 1995.
Involve risks and uncertainties.
Actual results could differ materially candles projection.
Among the factors that could cause actual results to differ materially from such statements are market concerns chasing our customers.
A continuing viability of sectors that rely on narcotics the impact of public health crazy such as the governmental social and economic effects of Cobot 19, if that's something that's an economic condition.
Difficulties associated with integrating recently acquired company.
After the supply constraints or difficulties.
Product development commercialization for technological difficulties.
Regulatory and trade environment.
Until June of the foreign currency.
Uncertainties associated with legal proceedings.
Markets acceptance of the company's new products and competitive response each of those key product.
Impacted change, it's true you watch trade and tariff policy.
And the risk factors detailed from time to time and the companies as you see recalled.
Unlike up there, which uncertainties certainly no assurance that any forward looking statement will in fact proved to be correct. We undertake no obligation to update or revise any forward looking statements.
You May also discuss non-GAAP results during this call and reconciliations of our GAAP results to non-GAAP results have been included an already.
I would now like to turn the call back to Dan for General business update.
I like to thank everybody for joining our call today.
Thank you and your families are staying state during these difficult Gardner.
Before we begin all I'd take a moment.
Manufacturing associates, who on the follow on each then I would just.
I would keep he doesn't look like each of you Sochi eat your bells factories around the won't be gene you come to work each they would card you got a huge war pumping all customers.
Turning to our business often.
First quarter was a job you want as a result at Calder Nike.
As a supplier electronic components are usually the facts medical networking applications.
<unk> contribution structural todays business involvement.
<unk> pawn continues to be the safety all show, which is well on the wall of as you can do your blog.
These pottage walk cousins how's it today, we're pleased to report that all manufacturing sites operating the majority of them a near normal production right.
Excuse me a fluid situation.
First quarter sales Milwaukee, We pack you bought factory closures in China for two weeks early in the quarter do Kobe Nike.
As to maybe not all she also shortly or possibly 470 million due to these closures I'm a slowly Gerard gold production.
Yeah, the Chinese media.
Probably ourselves in the commercial aerospace applications.
We <unk> million compared to the first quarter last year due and watch the gravity of aircraft I want to White House <unk> Customs. These factors were partially offset by eight point June.
During the quarter from originally acquired she you aren't business and a one boy Kevin we increase in sales related to domestic military.
Application.
Our system.
Versus last quarter last year's first quarter.
Further we started this year rebound to.
Through our catalog mysteries during the quarter, which was encouraging the volume warriors precede the first quarter was strong at 132.6 million, which includes about 11 million she like booking.
Means to you I first quarter bookings are the same as a first quarter last year and well I appreciate it could get to the fourth quarter 2019.
Increasing the fourth quarter receipt of course walk power product line.
On that note solution says it all so could you good no increase in bookings, we use reassuring data point.
The junior Poovey jobs for the second quoted as compared to the first quarter.
We continue to implement corporate wide cost savings program, well get Warner is local launch a new ERP system implemented.
It will allow us to furnish.
Simply eliminate redundancies each organization.
At this time, we had very good visibility beyond the second quarter due to the who would call Nike situation.
With that I'll like to turn the call the Craig to go through the financial updates.
Thank you Dan.
Sure caught up segment first quarter a point.
Good luck TV solution sales were 39.1.
They declined to 12%.
Our solutions are protection sales were 46.1 million.
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Last year's first quarter.
Got it solutions were 20.8.
25.
The last years first quarter.
On a consolidated basis gross profit margin, excluding R&D expense.
Well I, just slightly to 24.2% into first quarter.
That's compared with 24.5 <unk> first quarter.
I want you didn't talk at lower shields and operational efficiencies.
Were largely offset by a 2.2 million dollar.
Before we see from the Chinese government during the first quarter.
A portion of the reduction in children weighted to anticipated lower demand from certain Navajo customers I discussed on last quarter's call.
We are able to mitigate the impact will be lower revenues by proactively reducing labor and overhead expenses accordingly.
Research and development costs were $6.1 billion during the first quarter 2020.
And at 1.1 billion.
First quarter 20, like GE as result of restructuring efforts implemented during the latter part.
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Selling general and administrative expenses were $22.1 billion or 21.2% of sales as compared with $19.2 million were 15.3.
First quarter.
<unk>.
The 2.9 billion dollar increase.
Hey, primarily related to with 2 billion dollar on favorable fluctuation.
Cash surrender value over company owned life insurance policies.
The last years first quarter.
Incremental west unit cost associated with the inclusion notes Oh Gee why in the first quarter 2020 were partially offset by lower ERP costs. This year.
On a go forward basis, we would expect that's unique to run between 20.5 $21.5 million per quarter given your chart.
These factors resolving a loss from operations at $2.1 million first quarter point, just wondering as compared to income from operations $3.4 million in the first quarter.
Other income and expense that was an extensive $80000 for the first quarter 2020, that's compared to expense so $779000 during first quarter.
<unk>.
The expense in the first quarter 20, Nike largely related to $573000 foreign exchange losses.
Interest expense was $1.4 million in the first quarter 2020 down slightly from the same quarter last year to be lower interest rate.
During the 2020 quarter, coupled with a reduction the average get the ALJ Rob first.
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You have a benefit.
Patches of $772000 in the first quarter or 2020 compared to producing $39000 during last years first quarter.
Benefit first quarter 2020, plus reduction in guilty tax and tax benefits associated with.
Peers.
Earnings per share for class eight problems years was a loss of 40 cents per share the first quarter 20 twond.
Very good morning, it makes sense for sure the first quarter.
Okay.
Once per share called class B common shares was a loss of 41 cents per share in the first quarter 20, 20-F secure earnings by two cents per share in the first quarter 20 gene.
On a non-GAAP basis, which excludes certain unusual other nonrecurring items you'd see us for class eight years was a loss of 28 cents per share in the first quarter or 2020, that's compared with earnings of 20 cents per share.
First quarter of 29.
On a non-GAAP basis, you P. S. Four class B shares was a loss of 29 cents for sure first quarter of 2020.
That's compared with earnings of 22 cents for sure and before school.
James.
Now I'd like to go through some balance sheet cash flow items or cash cash equivalents balance at March 31st 2020, $68.4 million a decrease of $3.9 million from December 31st 29th Street.
During the first quarter 2020, we generated cash flows from operating activities $8.2 million.
We make net pay against a weak point $2 million towards are outstanding debt balance and you asked for capital expenditures of 1.8 million dividends dividend payments of $806000.
It was damaged a $1.3 billion.
South receivable were $69.1 million at March 31st 2020.
As compared with $76.1 billion at December 31st 20 about King.
Days sales outstanding decreased slightly to 60 days at March 31st 2020, that's compared to 61 days at December 31st 20 <unk>.
The reduction in our accounts receivable balance is largely due to lower sales volume first quarter 2020, that's impaired.
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Inventories were $104.3 million at March 31st 2020.
Down $3 million from December 31st 20, <unk> gene.
The decline to see finished goods, partially offset by increases in raw materials and balances.
The chipper interruption over manufacturing processes in China earlier in the quarter slowed the rate at which you can brogan raw materials to finished goods during the quarter.
Accounts payable with $38.8 million at March 31st 2020 down 5.4 million from its level at December 31st 20 banking, primarily due to the payment of key lot past due accounts payable.
Post acquisition.
Addition to lower overhead costs in China during the first quarter.
Related to the separate facility.
Well its total outstanding debt balance was one of them bring $5.1 million as of March 31st 20 Twond.
Net of deferred financing costs decreased $8.6 million seems to 20 like.
It's probably reflects a voluntary prepayment of $8.2 million made during the first quarter 2020 in connection with an amendment to work.
Book value per share, which is calculated at stockholders' equity Debord fire combined a and b classes. It's common stock outstanding was $13 a 19 cents per share at March 31st 2020, as compared to $13.69 for sure.
First one on King.
I'll turn the call back over to gain.
Hi, Thank you Craig at this time, she and it could be open up the call for questions.
Absolutely if people like to ask a question. Please no, but I think stuff on your telephone keypad you get your thing to speakerphone. Please make sure. Your mute function is turned off to a larger signal to reach only quick. Thanks again faster I want ask a question.
So just a moment chilled everyone kind of opportunity to signal for questions.
Just first question comes from pseudo Aneel I, just shield hills, we shakes.
Thanks very much.
Just a couple of questions here can you give some color on customer inventory levels. It you mentioned bookings at the beginning in the prepared remarks, I Wonder if you could give us more color on that as well.
How all this customer you know all our cost me all current customers. Besides the aerospace customer Oh, we think there and good situation, where we are seeing a lot of bookings.
Come in remark that every day.
And it looks like our bookings are still holding holding strong shall we I assuming that that's the case of customer leads our parts and they want to come in.
Greg you want to answer the next question.
The second bought.
Yeah, I mean, <unk> kind of follow along with that.
But that said I think you're.
You are not see.
Lot of evidence that we're saying that there's a build up going on that's Gibbs.
That's true do bad.
The channel right now.
But again, our visibility you somewhat limited.
Or lead times.
Okay. That's helpful. Thanks very much.
As always I would add to that currently we see probably you can we get 100 calls and I, probably 95, refracs, but I'd and maybe only five or for push backs. So.
So we still see that that to demand out there.
Okay, that's great. Thanks.
[noise] if you find that your question hedging and said you may begin whose yourself from the Q by pressing star chip.
The next question comes from Chief <unk> at Needham and company.
Alright. Thank you good morning, I just wanted to follow up on the the commentary that you're making a doubt the the level of business activity I'm wondering if we put aside the commercial aerospace customer we look at the military medical and maybe the networking gear. It can you give us a little bit more color on on which of those vertical.
You have perhaps more visibility or where you're seeing more order strength.
You know it up so networking is easy because networking works quarter to quarter.
We have seen no good orders coming from no some key networking customers like osisko like and Nokia.
Tom with military is that come it yeah. They these programs are 10 15 year programs. So in the the orders come in you might get an aura, you'll see the other ought to be that ought to old you for like a year year and a half that's why we know we don't see anybody pushed backing we don't do you like canceling orders, but we have a lot more.
Visibility when networking business short timeframes.
In addition, with medical you know, there's a big push yeah, we're probably working with five companies I'm all looking to go but no ventilators and support medical equipment that you live today, So that's a big rush, but I get all companies or Facebook.
We set a how much of a benefit was that I should probably is relatively small benefit or get into what you. Just mentioned in late March quarter, you're seeing the expectations that will be more about a benefit of the June quarter, but I wouldn't call. So that's more of a temporary thing right.
I think I was a lot of course, you know is to get product in the second quarter and still.
If you look at what NGL came out with T. IMAX, Oh people that a lot bigger.
This is concerned about you know what's going to happen in the third quarter.
At their concern I definitely should be concerned.
But oh Wow. This is no hopefully I can get it out in the second quarter.
Okay.
Hi, I'm looks like it kinda.
Nice quarter here.
During the contribution of age.
Just because of our experience with that is fairly limited is is there anything other than usual I'd love to see why business, there where where's the strength that their share and is that something like we can continue to look for.
I think you a strange goes they really addressed the second tier third kit to your customers very well they know how to use the catalog distributors very well so they have a very strong diversified customer base.
And I think what happened you know I'm never going to last year. Most of the watch distributors were working down the inventory.
And that's no I didn't get the percentage of sales go through catalog distributors. So a lot of bookings a good portion that bookings came from there also I think they go a lot bigger jobs with medical companies the second to get their care American companies, because they have such a broad away array of products.
So they get to see a lot larger market than we.
Probably have.
Got it after two final questions I'll jump back in the Q <unk> looking at the.
Pulling out or see why lifted the self standalone margins, we're pretty healthy and I'm wondering what's that.
A mix issue.
Issues that benefited the margins will maybe a little more than we thought considering the environment.
Okay, I'll, let Craig and then catch that.
Yes, we got a favorable benefit.
Mentioned that we are that we received.
Some subsidies from the from the Chinese government that basically kind of refunds of.
Social security taxes.
Earlier in <unk>.
For previous years.
So that helped to offset a lot of the a a lot of these additional costs, but we thought we incurred when you know because of the ways that we talked about.
Reopening our factories and so on.
Oh I.
Thank you did have a favorable sales mix yeah. We did you know the power group there were certain some business that.
Prior years quarter, which was more can challenge that's not the early in this current quarter. So that also helped.
For all margin picture.
And Craig good today benefit you saw from the Chinese government to try to we've started what did that represents terms or did you say oh standpoint at the margin improvement every basis point too.
[noise] ER.
It's probably maybe they wanted to have percentage point impact.
Overall margin for the cool.
Got it.
Thank you all I'll jump back in the indication or Jim do you feel bad though to add no. We are making a concerted effort with our power group I'm really trying to focus on baby again, not the high volume data set of customers have we get in the past when we had no substantial sales get very little margin, but I think we're doing a a much better job.
Focusing on the industrial markets.
And where you get to the margins up substantially better also utilizing no.
R&D better and try to streamline power that's been a major focus of US since we bought Powell was had a really capitalize on that I'm back group and I think we'll get to report now that I think we should such a good improvements over the next three or four corners.
Got it thank you.
Your next question comes from Hendi, Susanto get though he sense.
Good morning, Bad like and then.
Right.
Oh, yes.
Oh I was up about China, what does China market look like and what production rates audio facilities in China lodging has.
Okay, just so China looks very very strong at this point in time for US there are driving then Jim.
The only concern that we have a somewhat logistics standpoint.
Getting product then it out no shipments as chip mentioned a lot of the commercial airlines I've cutback substantially all but for a manufacturing standpoint, and a good portion of what we'd go been trying to goals in China.
To the subcontractors like the Fox Todd.
Or Jay will.
Flextronics. So we've been very very fortunate. That's you know try it was only shut down for two or two weeks and then they roughly took them about four weeks to get back to you know roughly 19, 95% production.
Hopefully the gap, we can make up that overtime.
So I want to if I may clarify so 95%.
95% to run rate prior to August 19.
Well I think they got to qualify that a little bit Hanby you know we've got.
We've got about 90% all of our workforce back for 90, plus if you want to know but because of the.
The actions, we got a tree too.
To facilitate the changes or for health and safety and so long related to cope with my team to work because she sees art back to that prior covert level. So.
Even though we've got 90% of employees back we're not quite at 90% in terms of physicians.
Got it.
And it's quite how should we think about cost by again and Opex in Q2, and the remainder of the year I know that for the second half a year.
There are uncertainties, but I'm wondering because like kind of flexibility to have one better numbers.
Yeah, I mean, I mean, we can you can look out for the second quarter.
What Dan said earlier, we don't have a lot of visibility out that that.
And you know this problem and it just use assuming that you know.
Drugs that are currently operating today, we'll continue to operate but that changes can change on a daily basis.
I would think that our margins would be.
Comparable maybe slightly down Q1, because we did have yeah. We did have that benefit from the Chinese government in fact, our margins in Q1. So I don't think for Q2, you should be flat to slightly down.
And then how about Opex so Craig.
Lets people on Opex like old it does have a good baseline.
Yeah, I believe the dogs I mean, we did have.
The the 2 million dollar items.
Related to our.
Insurance policy the value of capturing the value on insurance policy, we had that.
Adjustment based on the market values of the underlying securities, we don't expect that you'd be recurring.
Every quarter. So we believe that you know but 20.
I have to 21 half as.
Okay.
Okay.
That said I think instead of getting more about networking bucket you indicated that order. So good I'm wondering like what type and Paul about dive a those orders.
When the thing about that looking I'm wondering what the desktop, but let's say like a temporary we benefit off of like higher bandwidth requirement because all through multiple if and when that school.
I think the depth.
The other more strength beyond that.
You know I could you know again, no she's ballparks orange and so many different.
The same talks are going to so many different products that Cisco, it's very difficult, yes. It trimmer when the end market there, but he takes everything again looking at Cisco and Lucky had enough yeah, you know addressing big markets out there.
That's all I can say I don't know specifically.
How does it affect the person that's working from home is that where that business is coming com or you're going to horizon I don't have that granular detail.
Got it and then and he and his point person or how felt directionally a with me.
Like in Q2.
Well connected to be in that kind of big our and why.
And it puts and takes.
When you want a drug that one.
Yeah, I'm, sorry can you can someone repeat that question Green <unk>.
Thanks very much.
Uh huh.
I looked at over there they are.
Insights into what they expect they can't afford them beckman connected to be back a bit and power and also thanks to you I. When it comes to Q2, whether you expect directionally or some of them, where they were flat out of Dallas.
Oh sure sure. So you know I think for Magnetics, that's probably the so Bonnie area that we anticipate seeing some growth in Q2, our demand orders received throughout 2019 had been.
So from a particular and customer as they had and the over inventoried situation and that had been worked real only been seen replenishment orders there.
So that does look strong.
See you why booking a in Q1 were out you want it there their strongest bookings quarters that they on the had in the and their history a they had over 11 million in bookings for Q1, So we do expect.
Them to have a a strong Q2 coming up here on the rest of the power side. It. It does look I'm a bit challenging there was a one customer that we had last year and me in the cloud space. That's out there was some.
Some challenges with the tariffs and Ah. So we do expect some pre sits here versus last year related to that customer and then on that kind of activity side, Oh, we do see strength in and military.
We you know continue gets me challenges on the commercial aerospace sites and also our structure cable inside our city where products are those are our areas. The challenges that we have some some offsets they've been conductivity.
Yes, just more broadly distribution impacts.
All of our product groups, including the recently acquired the rights and we do expect that to start picking up a week, we did see thumb rebounding in catalog district here in Q1, which is always a good sign so and that doesn't impact all three of our product groups. So we we'd hope to see.
Some growth there.
Yeah, No anyway is our circuit protection why didn't we would add on to power, we have our circuit protection group and they almost doubled their backlog. So that's a strong side because our circuit protection. Good does have a diversified customer base.
Thank you Ben Thank you quick and thinking there.
Welcome.
The next question comes from Jim Ricchiuti at Needham and company.
Thanks, I just had a follow up with respect to the ship that said had been deferred Uh huh.
For Q2 that that 14 to 710 billion do you anticipate that all shipping in Q2.
I think where all were also yes, we should be able to ship all those products though.
Got it and but again just scared that.
No no. They go ahead Sir.
Just wondering.
Challenges you experienced a.
In the quarter in China.
Was there any.
A shift from potentially two competitors that had.
Manufacturing capabilities outside of the affected areas, where you might have temporarily lost some share you feel that all things considered you're able to hang onto share.
I think you ought to be honest I think the shift can do for this like education tariffs.
So I have wanted to keep customers or do they want to be in China because of the tower situation and we lost them, but not because oh corvair Nike more importantly, though now when the whole was being affected if you look at Malaysia, Thailand, the Philippines, we do see opportunities out there where people coming.
Oh I get back to the circuit protection.
You know all competitors are not building in China that nothing outside of China, and they have a better because these parts no four to six weeks or reducing some upside now because we're at war based in China.
Got it that that's potential upside that that Dennis it's you do a at least in Q2, you will see if it helps the second half.
Obviously know Jim the way, we try to do it all possible.
Gosh I've come to us they haven't been do us before.
And they want us to fill that void Oh, we would start up there would have to sort out for a six month agreement.
They would have to take a price increase.
Probably just for you know who want except one all orders.
Got it okay. Thank you. Thanks, Thanks a lot.
Once again, if you would like to ask a question. Please press star one.
The next question comes from the then you done I missed your Trust company of America.
Good morning.
But of course.
Uh huh.
First I remember senior.
Okay.
Number of times.
Her show continent.
[laughter] go tell my wife.
[laughter].
Yeah.
Other thing goes this is kind of.
So the question.
Yeah, obviously see.
Seems to.
Right.
Oh yeah.
It's helping you.
Okay.
I was wondering you realize that they do anything else.
Payments on receivables casinos.
In your release discuss.
And obviously you don't do that.
Hey.
Are you aware, but at the time of the purchase.
Correct.
Yeah. We were we were aware of that are really wrong in the discussions I think let's take what happened was as we as we got through.
Good.
Greed prior to closing or three you've got a little a little worse than what we'd expected book.
In our purchase agreement, we did give me an adjustment for for working capital. So so that.
But did not really hurt us at all.
Yeah.
[laughter] that out.
I'm sure going forward.
No problem bigger.
Very good about.
Right.
Maybe maybe to good use the topic [laughter] well you know.
You establish a good relationship.
Good.
Service.
[noise] I understand because no one really knows what the evercore.
Well.
[laughter].
There's doesn't work out.
Yes first manner.
I'm in Congress.
Good.
For sure.
Would you say that you think that business will be.
Reasonably norm.
Third quarter.
[laughter].
So that's why such I want.
Yeah, I mean, I think we don't run obviously it all depends on how quickly you know the global economy recovers.
Yeah, either you know, we're not we're not anticipating that that's short the recovery but.
People talked about earlier.
We think it's going to be.
More gradual.
Well most of the major step back somewhere.
So.
Yeah, We think we're now we're at a pretty strong position.
What are your cost structure is set up and.
Our customer base, and so I think there and it's a position due to prosper.
I think the other key point, yeah, maybe historically, we might have been were overly focused on the topline.
And you know now no. We are trying on many drafted that we're all week complete.
You know take as maybe because of the moving parts around that we really want to look at you know the bottom line and focus on growing our margins is going on profit.
And if that means you know well lose some top line growth I think at this point, we're willing to accept that fact.
So I think there you know you know whenever they said and I think we'd be a lot stronger company with the moves that we're putting in place now and the actions were taken today.
And it works that way, where it looks like this.
Different picture.
And the last conference call.
I'm very pleased.
[laughter].
Yes.
Okay.
[laughter].
Okay.
Oh.
Probably questionable.
Good.
Just work with.
Okay.
Great and or.
Well anyway.
Is that the plan.
I do I think Weve, Josh. So you are and we don't look at as a strategic synergistic acquisition at all I.
I think you know they have a really good now a model that we like a diversified customer base.
I addressed a overall market I think what we're trying to do is how do we know we don't think we want to comply things and take cost out at all but we are trying to do is if we do have a <unk> companies that have broader based god products like signal transformer like the circuit protection and how can we capitalized on.
The creativity and see you are and how they go to market and the margins. They bring back we don't have and really have a good no model of see you I.
Oh, yeah, because they work because they have no. That's a marketing company. They have no manufacturing. So we think that somebody that can be an important player bell as raw or so again, we're we're looking is to grow that business I'd model.
Okay, Yeah, how do we do maybe more private labeling or more joint ventures with companies.
And not be overly focused if we don't manufacturer we don't salad.
And you know look at you know look and see you Ais a viable model that we can apply to other companies.
Yeah, no further questions I'd like to tend to call back over to guenter skin. So now for closing remarks.
Hi, once again, we're very appreciative for everybody on the call. During this difficult time I want to say given your attention you give dallas and hopefully we can deliver going forward.
And please be safe.
This concludes today's call. Thank you for your participation you may now disconnect.
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