Anaren, Inc. (
F1Q2011 Earnings Conference Call
October 28, 2010 5 PM ET
Larry Sala – Chairman, President and CEO
George Blanton – CFO, SVP and Treasurer
Joe Porcello – VP of Accounting
Matt Ramsey – Canaccord Genuity
Stephen Zaconne – Needham
Chris McDonald – Kennedy Capital
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Good day, ladies and gentlemen, and welcome to the Anaren, Inc. Q1 Earnings Conference Call. (Operator Instructions). As a reminder today’s conference may be recorded. I would now like to turn the conference over to your host for today, Mr. Larry Sala, President and CEO. Sir, you may begin.
Thank you. Good afternoon and thank you for participating in the Anaren Fiscal 2011 Q1 conference call. I’m joined again today by George Blanton, our CFO, and Joe Porcello, our VP of Accounting. I’ll provide a brief overview of the results of the Q1, after which Joe will review the financial highlights. We will then take your questions.
Certain statements made during this conference call will be forward-looking statements. These statements involve risks and uncertainties that could cause actual results to differ materially from those discussed. You are encouraged to review our SEC reports and exhibits to those reports to learn more about the various risks and uncertainties facing our business, and the potential impact on our net sales, earnings, and our stock price.
Net sales for the Q1 were $44.5 million, up 10% from the Q1 of last year. Increased demand for Wireless standard components and the strong order backlog for the Space and Defense Group drove the overall increase in net sales from the Q1 of last year. Non-GAAP operating income for the quarter was a record $7.6 million, or 17% of net sales, up 45% from the Q1 of last year. The strong sales of Wireless standard components and an exceptionally favorable mix of shipments for the Space and Defense Group drove the record profitability for the Q1.
Wireless Group net sales for the quarter were $15.5 million, up 8% from the first quarter of last year. Continuing strong demand for standard infrastructure and consumer components drove the increase in net sales from last year’s Q1. Demand for standard component products remained robust throughout the quarter, and customer forecasts remain strong.
New product and technology development efforts remain focused on expanding our standard component product portfolio. During the quarter the Group continued to expand the Xinger-III High Power Resistor and Consumer Component product lines. In addition, the Group formally launched the new Anaren Integrated Radio, or AIR, product line of low power wireless modules, and announced several distribution agreements. The FCC-compliant transceivers utilize Texas Instruments’ low power RF transceiver ICs and offer industry-leading size and performance. Initial market reaction to the AIR product line has been very favorable. Customers that exceeded 10% Wireless Group net sales for the quarter were EG Components, Whaway, and Richardson.
For the Space and Defense Group, net sales for the quarter were $29 million, up 12% from the first quarter of last year. Profit margins for the Group continued to improve as a result of increased sales volume and production yields. Product and technology development initiatives for the Group remain focused on cost reduction of our LTCC technology, introduction of our (inaudible) hybrid electronic standard product line for space applications, RF manifold and hybrid electronic module opportunities for ground, air, and ship-board radar applications, and the development of integrated microwave assembly technology.
New orders for the quarter were $18.3 million and included contracts for couplements and assemblies used in ground-based and airborne radar, as well as airborne jamming applications. The relatively low order rate for the quarter was mainly the result of order timing and the strong flow of orders we experienced in the Q4 fiscal 2010. The Space and Defense Group’s opportunity environment remains robust, and the Group continues to benefit from the expanded technology base resulting from the acquisitions of Unicircuit and MS Kennedy.
The Space and Defense Group order backlog at September 30, 2010, was $79 million. Customers that generated greater than 10% of Space and Defense Group’s net sales for the quarter were Lockheed Martin, Northrop Grumman, and Raytheon. George will now review the financial highlights.
The highlights of the Q1 income statement and the balance sheet at September 30, 2010, are presented on a non-GAAP basis. These non-GAAP measures are each adjusted from GAAP results to exclude certain non-cash items including equity based compensation and acquisition-related inventory step up, and intangible amortization. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with accounting principles generally accepted in the United States. Please refer to our Q1 earnings release for a reconciliation of GAAP and non-GAAP measures.
Non-GAAP gross margin was $17.8 million, or 40.1%, for current quarter, compared to $14.8 million, or 36.6%, for the Q1 of last year. Gross profit as a percent of sales increased by 350 basis points from the Q1 of last year due to higher sales levels and a more favorable sales mix for both the Wireless and Space and Defense business segments. Wireless Group’s standard component sales increased 36% from the first quarter of last year and were partially offset by a decline in the sales of custom assembly products. Space and Defense shipments were 12% higher than the Q1 of last year and benefited from strong shipments of our counter-IED products. Manufacturing efficiencies improved manufacturing throughput as a result of our lean manufacturing efforts, and our cost reduction program contributed to the strong gross margin for the quarter. We expect non-GAAP gross margins to be between 37% and 41% for the Q2 of fiscal 2011.