Here is my synopsis of the conference call held on Tuesday with
Aryeh Trabelsi , CEO of Orbit/FR (I could not record it, so this is
from my notes. If you listened to the call, and heard something I
didn't, please comment):
Irene Honeycutt, director of Investor Relations, first read the press
release that was distributed Tuesday, AM. Then she introduced Mr.
Trabelsi, who, in his prepared statement, discussed the Asian slow-
down and the pending purchase of RDL.
Regarding the impact of Asia, he said that this was felt in the last Q
in 2 ways:
First, there was a direct decrease in revenue for the Q - Asian
revenues were 30 % of the first Q's total, and this fell to 6% (2%?) in
the Dec Q. Second, there was provision made for "potential un-
completed contracts from Asia -- Altho there are none".[?] Without this provision, the gross margin would have been 41% rather than the 37% achieved. Further, there was a large contract with a high proportion of 3rd party equipment delivered, which further lowered the gross margin from 44%-45% to the 41% ex Asia. G&A were controlled well, and y over y, there was a reduction both in absolute terms and as a %. The increase in marketing costs translated directly into more proposal activity.
They are continuing their due diligence investigation of RDL, and he is"even more excited than earlier." from a synergy, quality, technology, and eps point of view. There were great synergies with the purchase of AEMI, and they hope to achieve the same with RDL.
They expect to expand more into compact ranges, and also expect the DASAagreement to create more opportunities.
They are looking toward entering the market in EMC [AMC?, DNC?].
They will be back on a solid growth path in 2nd 1/2 of '98.
The 1st questioner was Charles Robbins of Penn. Merchant Group - He asked the provision for uncompleted contracts in the 4th q. Aryeh said they took it,but they " don't have any uncompleted contracts".
Q: Can the 2 combined companies achieve the expectations for 98?
A: Asia will fall from 30% of rev for 1997 to 2% in 1st Q. However, this was and will be offset by Europe& US There will be a slow comeback in 2nd Q;
RDL will contribute to revenue beginning in April [if purchase is completed].
The ans to the above question was yes; the analyst then pursued this further, eliciting the comment that full year '98 results would equal "expectations";
Q: "then the second half would be strong" A: "correct"
the 2nd analyst was from Unterberg Towbin (I didn't catch the name):
Q: How many employees did you end the year with? A: 100
Q: Why is RDL synergy important?
A: They have a good product line of microwave test equipmnt.
They have heavily invested in R&D in switching from defense to commercial apps, and derive 50% of revenue in commercial apps mainly wireless and cable TV.
1) Their products fit with our usage
2) There is a need for a much faster measurement system, which is provided by RDL
3) Their equipment has the potential for use in field test systems (need very high-quality low-noise tone generation for wireles phone)
Q: As a private co, RDL has on the order of 20% gross margin - can you raise that to be commensurate with yours?
A: They are a local company, and so there will be huge savings in G&A also in production and in marketing - here and overseas. Overall margins can be similar to AEMI. -- the same savings occurred with AEMI -- now its part of our system. We can get margins from 20% to similar to ours.
Q: What is your competition?
A: Scientific Atlanta sold their microwave division, which is now their major competitor and is now an independent co; Aeroflex is also a competitor, and RDL will help with that in wireless and cable TV; also IFR
" RDL has the best potential is in the deployment market"
Q:Do you have a quantified feel for growth in Europe and US? Aryeh basically reiterated the fact that Asian revs dropped in % terms to 6% and 2% in 4th and 2nd Q, from 30% and 36% in Q1 and Q2. This shows how other markets have expanded to take up the slack. " now there are a lot of proposals -- ther is a big increase in proposals"
Charles Robbins asked about the DASA relationship:
A: this was entered into about 4, 5 months ago; now it is helping us a lot in satellite measurement, and we are now in a good position. We are getting technology for our own mfg in Europe. We are working together in satellite msmnt systems
Q: what is the magnitude of the ultimate [DASA-related] business?
A: These are large satellite programs with 3, 4, or 5-million amounts. Each can have a very big effect The arrangement has already paid off -- We have already gotten help in a $1.? program [by using the licensed technology in our own mfg in Europe]
Q: Is the best yet to come? [from DASA]; are you at a steady state in this business, or are you ramping up?
A: We are beginning to ramp - this is a very sell long cycle. ... "we are very close to where we will see a huge advantage out of it". We have a very good relationship with them. Better than when we started. Our office in Europe is 10 miles away from them
hope this helps
regards, Robert Schwartz |
