Q4 2021 LGL Group Inc Earnings Call

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Please standby we're about to begin.

Good day and welcome to the L. G. L Group incorporated annual earnings Conference call Today's conference is being recorded.

At this time I would like to turn the conference over to Mike bearing Tino. Please go ahead Sir.

Thank you.

Good morning, and thank you for attending today's call covering our financial results for the three months and 12 months ended December 31 2021.

Hopefully you have had a chance to review our 10-K, which was released pre market opening yesterday, if not it is available on our website.

James to be our CFO will review our financial results at this time James.

Yes, good morning, everyone and thanks for joining our full year 2021 earnings call.

Please note that this call will be recorded and we anticipate making the recording available on our website sometime after the call.

We have issued our 10-K yesterday before the market opened reporting results for our fourth fiscal quarter and full year of 2021 before.

Before getting underway, we're required to advise you and all participants should note that the following discussion should be taken in conjunction with the most recent financial statements and notes thereto contained within our 2021 and 10-K, which has been filed with the SEC.

Discussion may contain forward looking statements within the meaning of section 27 or eight of the Securities Act of 1933 and section 21 E of the Securities Act, sorry of the Securities and Exchange Act of $19 34.

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

Although the company believes that its forward looking statements are based upon reasonable assumptions regarding its business and future market conditions. There can be no assurances that the company's actual results will not differ materially from any results expressed or implied by the companys forward looking statements.

The company undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information future events or otherwise.

Any forward looking statements are not guarantees of future performance.

Let me now summarize for you where L. G. L stands for the fourth quarter and for the full year of 2021.

Our fourth quarter revenues of $7 2 million was point 2 million or two 6% below 2020 revenues of $7 4 million.

Operating loss for the quarter was 596000 compared to 138000 in the fourth quarter of 2020.

Character of inflationary pressures lower shipments and the $200000 of Amtrust P. T I spinoffs costs reduced fourth quarter profitability.

Order backlog was $29 8 million versus $19 8 million at the beginning of the year and 21 8 million as of the third quarter of 2021.

One was from the recovering avionics market and strong defense orders, including a 2021 fourth quarter order for $6 3 million related to a major missile defense program, most of which is expected to ship subsequent to 2022.

For the full year, our revenues were $28 1 million versus $31 2 million for 2020.

Which was $3 1 million or nine 7% below the prior year.

Our lower annual revenue reflects pre COVID-19 conditions during the first quarter of 2020, and it's a good they prevent decline in shipments to the avionics market.

Gross margins improved to 35, 8% compared to 35, 1% last year.

So the 2021 year, the company reported $8 8 million operating loss.

Excluding the $1 3 million noncash charitable donation of iron that common stock operating income was <unk> 5 million compared to $1 4 million for 2020.

Lower sales and inflationary pressures and spinoff costs offset the benefit from cost reductions, including the elimination of certain previously required costs to preserve manufacturing capabilities in response to the COVID-19 impacts on our business.

And there were also benefits from a favorable product mix.

Net income was $14 6 million compared to 1 million last year, largely as a result of our stack related investment.

Alluded earnings per share was $2.74 compared to <unk> 19 per share in 2020.

The significant increase reflects the favorable results of the company's stock related investment triggered by the iron that business combination.

Our year end 2021 net cash position, including marketable securities was $45 8 million, which is more than eight and a half dollars a share.

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

Thank you James.

As you've heard we have ended the year with a strong and growing backlog margins are improving in the balance sheet is strong I am proud of the entire L. G. L team success and dedication while facing the challenge of inflation supply chain disruption and workforce headwinds.

We have released several new products in 2021 in both our spectrum control and frequency control product areas. These products extend our reach into the military and aerospace market and have contributed to our backlog growth.

The Amtrust Pgi spinoff plan is progressing with solicitation of shareholder approval targeted for the second quarter of this year.

We believe that the spinoff will enable shareholders to more clearly evaluate the performance and future potential of each entity on a standalone basis.

Allowing each to pursue its own distinct strategic plans and growth opportunities.

I'll now open the floor to questions. Operator, please open the call to any questions. Thank you to signal for a question. Please press star one on your telephone keypad also if you are using a speaker phone. Please make sure that your mute button is turned off to allow your signal to reach our equipment. Once again. It is star one at this time for <unk>.

Questions of a pause to give everyone the opportunity to signal.

And our first question will come from Anja Soderstrom, what's Sidoti.

Hi, Thank you for taking my questions.

First the backlog at a very nice growth. There can you quantify how much that is related to new business versus how much may be related to our supply chain challenges.

Sure in terms of new business.

Roughly 10% of that is related to new products that where it had been introduced in the past 12 to 18 months or so.

There is some amount related to our advanced orders from supply chain related issues, but it's relatively small.

Okay. Thank you and and then in your customers.

Mainly expansion with current customers.

There is some new customer penetration.

However, a large part of that backlog is with existing customers.

Okay. Thank you and you also alluded to the margin for the fourth quarter was due to raw material, but you'd been able to pass some of that you still room for more of that can be passed on them.

What is the lag there in terms of being able to pass that onto your customers. If you can.

Sure there there is some room to pass on.

It increases as our costs supply costs go up the lag generally is tied to the.

The lead time on the orders.

Which vary from.

Really from eight to 12 weeks to slightly.

Slightly beyond that.

Okay. Thank you.

And you're also talking about Theyre recovering in the avionics market, you're seeing benefits from that or where do you think we are in the innings of that.

I think that the where we're in the early stages of that recovery and there's still a long way to go.

Okay. So there's more potential for you to increase that.

In the coming quarters.

That is correct.

Okay. Thank you and then.

Is there anything else you can pocket and in terms of how you R. R.

Our combating the inflationary pressures and sort of labor shortages. If you. If you are affected by that.

So in terms of the inflationary pressures. We are we are constantly looking at our sources and working with them as well as identifying additional sources.

On the labor front, we've done a pretty good job of maintaining our workforce and we will continue to do that.

Okay. Thank you and then very last at Amtrust.

In terms of the spin off of the Amtrust Pizza I business, you'll have the shareholder vote in the second quarter right.

Yeah, that's correct that is what we're targeting.

And what's the time frame then for Tom in terms of actually going through with the spin off then.

I would assume you set up a management team are ready for that.

To be sure to Madison that entity.

Yes that is correct that the management team that's been identified for that and as far as the timing of that is there is a a process that will go through but we would expect that to be completed in the third quarter.

Okay, and the management team will be.

Presenting today and before that no it's not something that's gonna be revealed after her.

It will be it would be within the proxy.

And within the proxy okay. Thank you that was all for me.

Thank you Andrea.

And once again it is star one for questions moving on we'll go to Vishal Mishra with Miss Rock capital.

Hi, Mike.

James.

Clarification on the backlog what 30 million.

6 million from the new order.

Most of them will be shipped in 2022.

With more than seasonal.

I'm just trying to wonder what does the backlog for.

The next 12 months like convertible into the next 12 months. If there is a number you provide that or you can give us more clarity on that.

Sure.

Yeah, I I think what we've seen is a obviously, there's a big $6 million order, which we don't expect to ship until 2022 .

Until after 2022.

It's it's really just been you know it'd be Alex is coming back and we're having a pretty good success with our existing customers.

Okay.

That's all thank you.

Yeah.

And once again star one for any questions moving on well go to Greg Greenberg Investor.

Hi, gentlemen, I'm wondering if you can give us a little bit more color on how we should think of L. Gel group, but the remain co shall we think about it that it's going to be investing in public companies or more like a stacking for a merger partner to bring our management and cashed to it.

So post the spinoff of Amtrust P. G. I L. G. I will still have its operating entity P. T F. But it will also be focusing on profitable growth.

Through it through acquisition.

Okay, and then on the spin.

Is there any outside valuation or outside of the future that may help us kind of a reference for.

Now what that business may be at work.

We have not conducted an outside evaluation at this point.

Okay and then finally can you just go over how the warrants will be affected that assuming that the spin occurs.

Yeah, Greg just on.

On the on the warrants, there's a formula and it was disclosed in the most recent pre proxy preliminary proxy we send out it's approximately related to the percentage of each of the two companies subsequent to going subsequent to the spin off measuring there.

Rice is a really a over a short period.

So if if for example, the Amtrust is 30% of the value of the two numbers. The two trading companies. After the spin then the prices of the L. G L warrants will be reduced by 30%.

And the strike prices also adjusted.

Okay. Thank you very much.

Okay.

And as a final reminder, star one at this time for questions.

And moving on we'll go to Eddie Riley with E F Hutton.

Yeah.

Hey, guys. Thanks for taking my question I was just wondering if you could maybe unpack maybe the types of companies you're looking at.

To acquire within the remain co after the spinoff.

I think post spin.

There'll be a wide variety of companies that would fit the criteria that we're looking for that.

Not really much to say at this time.

Okay, great, but it's really a perfect. Thank you guys.

And next we'll go to Mark Fonder, well with Bonder well family practice.

Hello, I'm wondering if you could comment on what effect the war in Ukraine is having or where you expect you might have on your defense business.

Yeah.

Sure I think there's a couple of potential effects, obviously any increased spending in the defense budget, what would be a potential benefit for the company.

Also where we are looking at are there opportunities where.

Through some of the sanctions being put on Russia as their opportunities created through that where we're evaluating that now.

Sanctions being put on them would actually benefit you.

Potentially there is supply that might come out of Russia that would be harder for certain countries to acquire that we might be able to capitalize on it.

You never would've anticipated that thank you very much.

And gentlemen, there are no further questions in the queue at this time I'd like to turn it back to you for any additional or closing comments.

Sure. Thank you well if there are no more questions. This concludes our call I would again like to thank you for joining our stock quote for joining and our stockholders for their continued support of the company have a great day.

Thank you and that does conclude today's call we'd like to thank everyone for their participation you may now disconnect.