IEC Electronics Corp. ( IEC)

Q3 2011 Earnings Call

August 8, 2011 10:00 AM ET

Executives

John Nesbett – IMS, IR

Barry Gilbert – Chairman and CEO

Susan Topel-Samek – Vice President and CFO

Analysts

Mark Jordan – Noble Financial

Jay Kumar – Midsouth Investment Fund

Jennifer Wolfertz – Comstock Partners

Alan Leons – Private Investor

Steve Shaw – Sidoti & Company

Presentation

Operator

Greetings. And welcome to the IEC Electronics Fiscal 2011 Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, John Nesbett of IMS. Thank you, Mr. Nesbett. You may now begin.

John Nesbett

Good morning and thank you for calling in. On the call this morning, we have Barry Gilbert, Chairman and Chief Executive Officer, as well as Susan Topel-Samek, Vice President and Chief Financial Officer.

Before we get started, I’d like to take a moment to read the Safe Harbor statement. This conference call contains certain forward-looking statements that involve risks and uncertainties including uncertainties associated with economic conditions in the electronics industry, particularly in the principal industry sectors served by the company; changes in the customer requirements and in the volume of sales to principal customers; competition and technological change; the ability of the company to control manufacturing and operating costs; and satisfactory relationships that matters.

The company’s actual results of operations may differ significantly from those contemplated by any forward-looking statements as a result of those and other factors, including factors set forth in the company’s 2010 annual report on Form 10-K and other filings with the Securities and Exchange Commission.

I will now turn the call over to Barry Gilbert. Please go ahead, Barry.

Barry Gilbert

Good morning and thank you for joining us on our call. Despite a number of challenges facing the industry as a whole, we had another solid quarter. Overall revenue increased by 32% and our organic revenue growth was 14%. We are building a stronger company and have grown our technological capabilities over the past few years. Our expanded customer base has been reacting positively and we are seeing additional business from new customers and cross-selling activity.

We are a bigger company and we may occasionally be prone to having some quarter below our own expectation that was the case this quarter. As mentioned on a number of occasions our growth is not linear. We try to manage the company on a year-to-year basis and perspective. Revenue was $3 million below our plan, brought that by three unrelated events.

First, the delay in finalizing the federal defense budget cause the number of our programs to be delayed, while we ultimately got them all and expect to be on more platforms they were nonetheless delay. We have some unplanned downtime in certain equipment late in the quarter, early in the quarter we can catch up, late in the quarter we do the best we can.

We had an unusual number of late quarter customer change orders, some of these delayed revenue which will capture next quarter. The vast majority will be absorbed in future quarters. Our operating profit increased 15.7% compared to prior year, below our plan but still a solid quarter. In some industry and for many companies in our industry this level of growth would be viewed as excellent, but we are not satisfied.

At the same time, we are now in the mix of executing our plan to digest Southern California Braiding, a process mentioned during our January call would take fully 12 months and would not be an inexpensive process. This plan includes communication tool, information system and reengineering aspects of the business process to fully enable us to deliver the value we expect from this transaction. We are taking a private company and transforming it to meet public company standards.

Let me now turn the call over to Sue Topel, who will go over the numbers, after that I will give you a bit more operational texture before opening up the line for questions. Sue?

Susan Topel-Samek

Thank you, Barry, and good morning, everyone. As you have seen by now, we issued our press release this morning detailing our [second] quarter results. We will also issue our full 10-Q before August 15th. As Barry mentioned, we have overcome industry-wide and company challenges to deliver another quarter of strong topline growth.

Overall revenue increased 32% from the prior year quarter. The two businesses acquired since the end of last year’s third quarter accounted for 59% of this increase, while our continuing operations produced 41% of the growth that translate to organic growth of 14%, which was principally driven by execution of our diversification strategy.

We increase penetration into the medical, other, and industrial and communication sectors with sales into both growing faster than new era of quarter-over-quarter. Gross profit while up $1.5 million on sales volume remained steady year-over-year as a percentage of sales at 17.8% that was however up from 18, I’m sorry, up from 16.8% for the full year 2010.

I would like to address for you, why these impressive increases were not reflected in our results on a net income line and what we are doing about it. While decreasing of this sequentially, SG&A increased approximately $1.2 million over the prior year quarter that is 100 basis points from 9.2% to 10.2% of revenues.

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