Sparton Corporation (SPA)

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Sparton Corp. (SPA)

F1Q12 (Qtr End 9/30/11) Earnings Call

November 9, 2011 12:00 am ET


Mike Osborne - SVP, Business Development

Cary Wood - President & CEO

Greg Slome - CFO


Sarkis Sherbetchyan - B. Riley & Co

Andrew Shapiro - Lawndale Capital Management



[Operator comments]

Mike Osborne

Thank you, operator. Good morning and thank you for participating in Sparton’s fiscal 2012 first quarter financial results conference call.

Before we begin the discussion, I will take a few minutes to read the forward-looking statement. Certain statements in this conference call constitute forward-looking statements within the meaning of the Securities Act of 1933, as amended and the Securities Exchange Act of 1934, as amended. When used in this conference call, words such as “believe,” “expect,” “anticipate,” “project,” “plan,” “estimate,” “will” or “intend” and similar words or expressions as they relate to the Company or its management constitute forward-looking statements. These forward-looking statements reflect our current views with respect to future events and are based on currently available financial, economic and competitive data and our current business plans. The Company is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements whether as a result of such changes, new information, subsequent events or otherwise. Actual results could vary materially depending on risks and uncertainties that may affect our operations, markets, prices and other factors. Important factors that could cause actual results to differ materially from those forward-looking statements include those contained under the heading of risk factors and in the management’s discussion and analysis contained from time-to-time in the Company’s filings with the Securities and Exchange Commission.

Adjusted operating income, adjusted net income and adjusted income per share – basic and diluted are non-GAAP financial measures that exclude or add the effect of certain gains and charges, including imputing taxes at a 36% effective rate. Sparton believes that the presentation of non-GAAP financial information provides useful supplemental information to management and investors regarding financial and business trends relating to the Company’s financial results. More detailed information, including period over period segment comparisons, non-GAAP reconciliation tables and the reasons management believes non-GAAP measures provide useful information to investors, is included in the Fiscal 2012 First Quarter Financial Results press release and Form 10-Q dated November 8, 2011.

Today, Cary Wood, our President and CEO, and Greg Slome, our CFO, will report our fiscal year 2012 first quarter financial results, provide an update on the status of our liquidity and capital resources, and provide a brief update on the outlook of fiscal 2012. At the end of the narrative, we will allow our investors and other interested parties to ask questions related to the Company’s financial performance and operations. In fairness to all participants, we will ask that one question be asked at a time with the call ending at approximately 11:00am CT.

I would now like to turn the call over to Cary.

Cary Wood

Thanks Mike. Good morning and welcome to our fiscal 2012 first quarter call. Today, we will begin by highlighting some of the key results and events that occurred in the first quarter.

The Company’s net sales were $51.8 million for the quarter, up 13% from the prior year and gross margins increased to 16% from 15% as compared to the same quarter last year. The adjusted net income for the first quarter, which is the same as our reported for fiscal 2012, was $1.5 million or $0.15 per share, up 36% from the prior year quarter adjusted income per share. In fiscal 2011, the new business development efforts started to take hold as 22 new customer programs were awarded to Sparton. This continued into the first quarter as nine new programs were awarded with a potential fiscal 2012 revenue impact in excess of $6.0 million. In August, the Navigation & Exploration group, a subset of the Defense & Security Systems business unit, successfully launched the GEDC-6, our new gyro-enhanced digital compass, and the PHOD-1, our newly commercialized hydrophone, at the AUVSI Unmanned Vehicle System trade show and symposium in Washington, D.C. In the few weeks since the launch, we have received more interest in these products than originally anticipated indicating to us that our products are very competitive and technically appealing to a broad range of customers. As of the end of the quarter, sales backlog across the entire Company grew for the seventh consecutive quarter to approximately $145 million, representing a 6% increase from the previous quarter and a 28% increase over a year ago. Lastly, over the last three years, we have been working towards divesting our interest in Cybernet Systems Corporation. In September, we reached an agreement to sell this non-performing investment for $1.75 million with the proceeds to be received in the second quarter of this fiscal year.

I would now like to review our first quarter consolidated performance.

We are pleased to report fiscal 2012 first quarter adjusted operating income of $2.4 million and adjusted net income of $1.5 million or $0.15 per share, versus an adjusted operating income of $1.8 million and adjusted net income of $1.1 million or $0.11 per share, for the first quarter of fiscal 2011. Included in the fiscal 2012 first quarter financials are the results of operations from the Delphi Medical Systems and Byers Peak acquisitions as compared to only having Delphi Medical Systems reporting from its acquisition date of August 6, 2011 onward in the first quarter of fiscal 2011.

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