Meade Instruments, Inc. (MEAD)
F1Q09 Earnings Call
July 17, 2008 5:00 pm ET
Shelley Young – The Piacente Group, Inc.
Steven L. Muellner – President, Chief Executive Officer & Director
Paul E. Ross – Chief Financial Officer & Senior Vice President Finance
Previous Statements by MEAD
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Welcome to Meade’s first quarter fiscal 2009 earnings conference call. Earlier today we issued a press release announcing our financial results. This release is available on the investor relations section of our website. The conference call is being webcast live and also available on the investor relations section of Meade’s website. An archived audio of the webcast of the call will be posted on the website today.
Before we begin, as usual, we would like to remind everyone of the cautionary language regarding forward looking statements contained in today’s news release which also applies to any such statements made during this conference call. During the course of this call the company may make forward-looking statements regarding future events or the financial performance of the company.
We wish to caution you that such statements are just predictions and actual events or results may differ materially. For a list of risks and uncertainties that may affect future results, please refer to the company’s various reports filed with the US Securities and Exchange Commission. Investors should not place undue reliance on such forward-looking statements and the company undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.
Our management team members participating on the call today are Steven Muellner, President and Chief Executive Officer and Paul Ross, Chief Financial Officer. I would now like to turn the call over to Steve Muellner.
Steven L. Muellner
Thank you to everyone for joining us this afternoon. Before we discuss quarterly earnings, I’ll make a few comments on the progress we are making on the restructuring of the company as evidenced by the results we achieved this quarter. It is encouraging to see that the many changes that we made to the business are beginning to positively impact our operating results. The first quarter of fiscal 2009 was our first clean quarter of operations in Mexico. And though we are still ramping up to meet the market demand as evidenced by our $3 million backlog, we are already seeing positive results from the decision to move manufacturing to Mexico in terms of our gross margins which are up 11 points to 21.4% of net sales.
On top of the gross margin improvement, we also saw modest incremental improvements in operating expenses due to reduced overhead and controlled discretionary spending. Thanks to the sale of our sport optic assets, this is the first quarter in a long time that we have generated a net profit. Our net income was $1.8 million or $0.08 per share. Excluding the gain of the sale of our Weaver and Redfield optic brands, the company would have reported a net loss of $2.7 million or $0.12 per share which is a significant improvement over prior year quarter.
We were successful in amending our line of credit with Bank of America and consequently, we are now back in compliance with the covenants and have the liquidity to finance the remainder of the restructuring and invest in new products. Paul will talk in more detail about our operating results in a few minutes but, I wanted to make a few comments about our near term plan for new products. Now that we have taken most of the shrink and fixed steps to permanently take costs out of the business, we’re focusing on the top line and have many initiatives on that front. We are searching for a new VP of sales to help broaden distribution of our products. We have a backlog for high end product due to the transition to Mexico. We will be relaunching our MaxMount of products following that with the launch of the next generation ETX and mySKY. We are also in the position to ship our mass market goods complete and on time.
On a longer term basis, we intend to demonstrate a renewed dedication to product quality and user satisfaction, expand our big box relationships and our OEM business. These initiatives will benefit both fiscal 09 and 10 and better position us for profitability in fiscal 10. The work is not yet done but we’re making steady progress. We have set some long term performance goals for 2011 that are measurable and obtainable. First of all, we want to increase our gross margins to 30% plus by leveraging our Mexican manufacturing base. Secondly, we want to reduce SG&A to something closer to the 20% plus of sales through continued G&A reductions. My hitting these targets, we can improve the profitability of the company and generate net income.
I’d now like to turn the call over to Paul to review the financial results for the first quarter of fiscal 09.
Paul E. Ross
Net sales for the first quarter of fiscal 2009 were $12 million, down $5.6 million or 32% from the first quarter of fiscal 2008. Of the $5.6 million decline, close to half of that was driven by lower revenue for high end telescope products and accessories as a result of the transition of manufacturing from Irvine to Mexico. Our Mexico facilities have not yet ramped up production to levels that meet market demand and we currently have $3 million of backlog for high end telescope products and we expect that we’ll clear this backlog by the second half of the year. The sale of the sport optics brand during the quarter accounted for another piece of the revenue decline and lastly, there was overall weaker demand for our Simmons rifle scope product and therefore decreased shipments.