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Technitrol, Inc. Q2 2010 Earnings Call Transcript

Technitrol, Inc. Q2 2010 Earnings Call Transcript

Technitrol, Inc. (TNL)

Q2 2010 Earnings Call Transcript

August 2, 2010 5:00 pm ET

Executives

David Stakun – VP, Corporate Communications

John Burrows – Lead Director

Drew Moyer – Interim CEO and CFO

Alan Benjamin – SVP and President, Electronics Business

Analysts

Shawn Harrison – Longbow Research

Michael Gallo – CL King

Fred Buonocore – CJS Securities

Sean Hannan – Needham & Company

Sanjay Shetty – BOE Securities

Rick D'Auteuil – Columbia Management

Presentation

Operator

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Good afternoon, and welcome to the Technitrol Incorporated second quarter 2010 results conference call. All participants will be in listen-only mode. (Operator instructions)

I would now like to turn the conference over to David Stakun, Vice President of Corporate Communications. Mr. Stakun.

David Stakun

Thank you. Good afternoon everyone. Welcome to Technitrol's conference call to discuss the second quarter of 2010. With me are John Burrows, Lead Director of our Board; Drew Moyer, interim Chief Executive Officer and our CFO; Alan Benjamin, President of our Electronics Business; and Mike Ginnetti, our Chief Accounting Officer.

After opening remarks from John, Drew and Alan, we will take questions. This conference is being recorded to provide replay service. Instructions for getting the replay by phone and Internet are in the press release. Finally, keep in mind that today we will make forward-looking statements as defined in the 1995 Safe Harbor Law. These statements are based on our best knowledge on August 2, 2010. Actual results may turn out to be materially different because they are subject to risks. The risk factors were discussed most recently in our 10-Q for the March quarter of 2010.

Now, let me turn it over to John.

John Burrows

Thanks Dave, and thank you all for joining us. Today I have the pleasure to announce that Drew Moyer, our Chief Financial Officer is being appointed interim CEO. Drew succeeds Dan Moloney, who is leaving his post as Technitrol’s CEO to pursue a unique opportunity at his former company, Motorola. He remains on Technitrol’s board. I would like to congratulate Dan on this great opportunity, and thank him for his leadership and contributions to Technitrol’s success during his time with the company. I would also like to officially welcome Drew as interim CEO. The board has the utmost confidence in Drew’s ability and that of the rest of the management team to run the company and continue to execute the strategy already in place.

The search for a new CEO is underway and we are confident that the process will be seamless through all of our Technitrol’s stakeholders, including customers, shareholders and employees.

Now let me turn it over to Drew, who will talk about the sale of AMI Doduco, provide you with an overview of the second quarter of 2010, and take you through the financial results. Drew.

Drew Moyer

Okay. Thank you, John. Today we are pleased to announce that Technitrol has entered into a definitive agreement to sell the remaining operations of AMI Doduco to Tinicum Capital Partners. The sale price is approximately 33 million euros in cash, subject to normal working capital and other financial adjustments. The sale is part of Technitrol’s overall plan to exit the electricals contract business and transition to a company focused solely on its core business, the design, manufacture and sale of electronic components.

With the divestiture of AMI Doduco, we’re better positioned to take full advantage of high growth opportunities in network and wireless communications, allowing us to focus solely on these businesses. We will apply the net sales proceeds from the Tinicum transaction to pay down debt and our obligations under precious metal leases will be eliminated with the sale.

With that, I will now turn to the second quarter of 2010. We are very pleased with the progress that we have made during the past several months. In addition to announcing the sale of AMI Doduco and the beginning of Technitrol as a pure electronics company, the second quarter proved to be a key turning point in the company’s operating performance.

During the quarter, we executed on our plan to add low-cost production capacity in China to meet strong demand for our network and power products. This effort is part of a comprehensive labor strategy, not only to fix the problem we faced in the past few quarters, but to adjust to the new realities of labor in China. Alan will have more specifics on this a bit later.

Also in the second quarter we began executing on our strategy to streamline and simplify our business. We examined each of our product lines to determine the appropriate level of investment. From that evaluation we concluded that perspective returns from our audio product line will likely be less than optimal and below our target. At one time, it made strategic sense to offer audio products to our handset customers, who were designing integrated modules containing antennas, receivers and speakers. Recently, however, these OEMs have retreated from this practice, instead opting to source discrete components.

Our speaker and receiver business is not large enough to stand alone. It is far smaller than its primary competitors and it lacks global scale. Based on this conclusion, we determined that we should examine alternatives for our audio business. Strategic options for audio’s intellectual property and other assets are being explored. Meanwhile, we will continue building existing products as long as there is demand for them.

The decision to streamline our product portfolio will allow us to direct additional resources towards core product lines such as antennas and magnetics. In the second quarter, we continued making headway in the effort to win new antenna business from handset OEMs, vertical integrator companies and wireless device manufacturers. Alan is going to review our progress in this area in a few minutes.

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