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Anaren, Inc. (ANEN)

Jefferies Global Industrial and A&D Conference Transcript

August 9, 2012 10:30 AM ET


Larry Sala - Chairman, President and CEO


Howard Rubel - Jefferies


Howard Rubel - Jefferies

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Good afternoon or good morning. This is one of those days where you think good morning or good afternoon, so I apologize. Good morning. I’m Howard Rubel, and I’m a Managing Director in the Equity Research Department at Jefferies. I cover the aerospace and defense industry, and its great pleasure today to have with us Larry Sala, who is President, CEO and Chairman of Anaren. Thank you very much.

Larry Sala

Thanks you.

Howard Rubel - Jefferies

Thank you, Larry.

Larry Sala

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I appreciate you’re taking time today. So quick caution relative to any forward-looking statements we may make today.

Anaren is a 40 plus year old company. We’ve been focused in microwave electronics for more than 40 years. We’ve been a subsystem supplier in the Space & Defense industry since our founding for more than 10 years. We’ve been also supplying components into the wireless infrastructure market, where we supply base station manufacturers with microwave componentry.

Our fiscal year just ended, we just reported a couple days ago. Our fiscal ’12, we did a little under $50 million, that’s down a bit from the year before, I’ll talk about why that is, but we definitely have seen things turnaround in the last couple of quarters and we have expectations for growth and improved profitability in our fiscal ’13.

We are about 60% Space & Defense, and about 40% wireless. We got little under 1000 folks in five different locations, four here in the U.S., we also have our facility in Suzhou, China.

Our real core competency is our engineering expertise. We have over a 150 practicing engineers and about a third of those folks are microwave engineers, and we think the depths and breath of microwave talent stacks up with even a capability within our customer base.

We use those engineers to develop design to spec subsystems for the Space & Defense industries, as well as to do our own organic development of products for our wireless customers.

We can perform over a broad frequency range, which gives us a fairly large addressable market. And we use a couple of unique manufacturing technologies that we think give us some differentiation and integration, the amount of microwave circuit density that we can achieve any given package, and its often that size and performance that differentiates us in capturing an opportunity.

So we call that technology multilayer stripline, it's a multilayer high performance printed circuit board type of manufacturing technology. We use it for not only integration platform for complex, $0.5 million subsystems, but we also use it as a sub-straight technology for our wireless business, where we dice it up like a semiconductor products into tens of thousands of components that we may sale for less than a dollar. So it’s our ability to maintain tolerances to get integration control the microwave performance in this packaging technology that really differentiates us.

We also have some ceramic capabilities. We build thick film, ceramic substrates for medical applications and also military applications, and also do some multilayer ceramic for very advanced microwave circuit packaging for high performance radar applications and other types of optical receiver applications.

And then we integrate active devices typically from outside sources into multifunction assemblies and we do that for space applications, where we have space rate assembly capabilities and also for high performance military applications.

We’ve had a good steady growth. We typically focused our investment organically, developing technologies and products, and entering into new applications. We’ve also made some acquisitions, which I'll talk about, not too many recently, but we still look at acquisitions as way to expand our technology portfolio and be a bigger integrator.

So we had focus on customers where microwave signal performance matters. We to develop long-term technical relationships engineering, engineer relationships, and gain increasing dollar content in new generation of platform, and that's been true in the military space, well, I’ll talk about our subsystem technology. But also in the microwave components space and wireless where we gain increasing content on each new generation of base station platform.

So on the Space & Defense side, as I said, we are subsystem manufacturers. So we compete to win development contracts. Once we can capture development contract it typically turns into a long-term sole-source revenue stream.

We build subsystems for radars, receivers, jammers and satellite applications. We’d say the ASP of a product for us is something on the order of $100,000 or more. But we really look at programs and we are typically pursuing programs where we can capture content of $1 million to $10 million in opportunity a year on a program and those programs typically have five to 10-year life cycles.

So we compete with other subsystem manufacturers, people like car bomb or crane, those types of folks. And those development contracts we -- often times investing a long side OEM partnering, in order to capture those opportunities. But we once we capture the opportunities, they said we end up in the long-term supply arrangement.

Our business is quite diverse, as I said we play in receivers, in jammers on the EW side, electronic warfare side. We play extensively in the modernization of radars and I’ll talk more about, our technology fit in continuing trend of moving to electronically scanned array radars as opposed to the historical mechanically steered types of radars, as well as significantly in space applications. And our real focus is U.S. OEM suppliers, the Raytheon’s, Lockheed’s, Northrop Grumman’s of the world.

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