IEC Electronics Corp. (IEC)

F4Q 2011 (09/30/11) Earnings Conference Call

December 8, 2011 10:00 AM EST


John Nesbett – IMS

Barry Gilbert – Chairman and CEO

Susan Topel-Samek – VP and CFO


Mark Jordan – Noble Financial

Scott Hodgson – MSI Fund

Steve Shaw – Sidoti & Company

Robert Littlehale – JPMorgan Chase



Greetings, and welcome to the IEC Electronics Fiscal 2011 Fourth Quarter and Year-End Earnings Call.

At this time, all participants are in a listen-only mode. A brief 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, Mr. 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 would 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 timing and volume of sales to principal customers; competition and technological change; the ability of the company to control manufacturing and operating costs; unforeseen product failures; and satisfactory relationships with vendors.

The company’s actual results of operations may differ significantly from those contemplated by any forward-looking statements as a result of these 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.

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

Barry Gilbert

Good morning and thank you for joining us this morning. We had another solid year. Revenue growth was up 38%, with half of that coming from organic growth, particularly in the medical sector. Our medical sector inroads in the past two years have resulted both in growth of sales, but also just as important of the diversification of our customer base.

Backlog at the end of fiscal 2011 was over a $121 million compared to $91 million at the end of fiscal 2010. We are pleased since 20% of the backlog growth was organic, the balance is attributable to the SCB acquisition, and this puts us in a decent position as we head into our new fiscal year.

Finally, a key goal in the back half of the year has been debt reduction. We’ve discussed this on previous calls. We’ve reduced our debt $10.2 million in the fourth quarter and by $12.2 million since acquiring SCB last December. Su will expand upon my statements in a moment.

Our operating margin for the year was 7.8%, slightly below what we’ve historically achieved, but still industry-leading margins. We have not yet achieved the earning power we envisioned, and I’ll discuss more about that a little later.

Our Southern California Braiding acquisition is strategically very important to us. With that said, their sales have been below what we expected. During negotiations of the acquisition agreement, we’ve protected ourselves upfront against sales shortfall. As such, we recognized a favorable adjustment of $1.1 million in our other income for both the fourth quarter and our year-end.

I’ll turn the call over to Su to review the numbers and then I’ll provide you a bit more operational color before we open up for questions. Su?

Susan Topel-Samek

Thank you, Barry, and good morning, everyone. This morning we issued a press release detailing our fourth quarter and year-end 2011 results, which I hope you’ve had a chance to review. We will issue the full 10-K within the next couple of weeks.

I’d like to begin this morning by providing a brief overview of fiscal 2011 results and then I’ll address the fourth quarter details.

Top-line growth for the year was strong, even allowing for the fact that acquisitions accounted for half of the 38% increase. 2011 revenues were $133.3 million compared to $96.7 million in prior year.

Organic growth was driven primarily by expansion of our participation in the medical segment and also by expanding our relationships with some existing customers.

Gross margins were approximately 8.2% in the year just ended compared to 16.8% in the prior year. Contributing to this improvement were changes in product mix, improved labor efficiencies due to training, investments in capital equipment, lien process improvements, and accretive acquisitions.

2011 net income after-tax was $6.8 million or $0.68 per diluted share compared to net income after-tax of $4.7 million or $0.48 per diluted share in fiscal 2010. You will also note that net income for the year just ended included an adjustment related to our acquisition of Southern California Braiding which Barry mentioned earlier.

As we’ve indicated in prior calls, IEC used bank borrowings to fund 98% of the purchase price of our two most recent acquisitions. As a result, 2011 interest expense increased to $1.6 million compared with $815,000 in the prior year. Having said that, we are also pleased to report that as indicated in our last quarterly call, aggressive attention to working capital management enabled us as Barry already mentioned to reduce our outstanding debt by $10.2 million. This was well ahead of our internal plan and brought our total indebtedness at September 30 th to $35.1 million from the high of more than $45 million, following our acquisition of Southern California Braiding. Through reduction in our leverage ratio, we have just achieved another 25-basis point reduction in our variable interest rate. This reduction was expected last month and reduces our effective borrowing rate to less than 3.5%.

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