Mity-Lite Q1
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Mity-Lite Q1
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(FOOL CONFERENCE CALL
SYNOPSIS)* By Debora Tidwell (MF Debit)
Mity-Lite, Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MITY)") else Response.Write("(NASDAQ: MITY)") end if %> UNION CITY, Ca., August 2, 1996/FOOLWIRE/ --- Mity-Lite Inc. reported Q1 1996 earnings after the market close yesterday. The company's net sales for the quarter were a record $4.6 million. Prior to that, their record was $4 million -- so they smashed the old record by more than 17% or $650,000. Comparing this quarter with last year's Q1 at $3.8 million shows an increase of more than 21%. Net income was $585,000 versus $478,000 in Q1 last year. That represents $0.18 per share, a 20% increase over the $0.15 per share reported last year -- beating analyst consensus estimates of $0.17 per share by a penny.
The strong sales in the quarter were primarily related to increases in both domestic table sales and chair sales in almost every one of their market segments. Chair sales this quarter represented 5.3% of sales compared to 3.1% for last year.
Gross profit margins were also extremely high, at a record 43.2% compared to last year's 41.4%. The increase is due to two factors. First, they realized a higher unit sales price on their table products during the quarter. Secondly, they experienced lower plastic and wood costs. They think the 40% range is a more reasonable expectation on gross margins going forward. They think the profit margin for Q1 was partially the result of the sales compensation changeover. They noted that the unusually high average sales prices were mainly caused by unusual average order sizes in the last quarter. Normally they will have many orders over $75,000, but in Q1 there were no orders over that amount -- they offer a volume discount to customers.
Selling expenses increased to $812,000 for Q1 versus $514,000 for Q1 last year. Selling expenses as a percentage of net sales increased to 17.5% from 13.4% in Q1 last year. The increase was primarily related to the increase in international selling expenses and personnel costs related to hiring 8 additional sales people at the beginning of the quarter and one-time transition costs related to their new sales incentive program. They expect, in the future, that sales expenses as a percentage of net sales will decrease from current levels by approximately 2-3%.
G&A expenses increased to $236,000 in Q1 from $180,000 in Q1 1995. G&A expenses as a percentage of net sales increased to 5.1% from 4.7%. This increase was mainly due to increased personnel-related costs and certain reserves.
R&D expenses decreased to $120,000 for Q1 compared to $186,000 in Q1 last year. As a percentage of sales, they decreased to 2.6% from 4.9%. Last year, Mity-Lite's R&D expenses were extremely high due to one-time development costs related to their Mity-Lite Elite table, Mity-Lite Aluminum table, and the Tesla product line which they were getting ready for an industry trade show in June of last year.
Other income increased in Q1 to $84,000 from $58,000 mainly due to interest earned on excess cash reserves. The company had a record pre-tax profit of $922,000 for Q1 1996 versus $764,000 for Q1 1995. That also represents an increase of 21%.
BALANCE SHEET HIGHLIGHTS
As of June 30th, Mity-Lite has working capital of over $9.4 million, most of which is cash and cash equivalents of $7.9 million. That represents more than $2.43 per share in cash.
Trade accounts receivable continue to increase as a result of their increased sales. However, their Days Outstanding remains at 46 days.
Inventory levels have increased since the beginning of the year as a result of increased sales, but inventory turns continue at a healthy 17 times. They have no significant investments in fixed assets, so they have only gone up slightly from $1.3 million to $1.4 million at the beginning of the year.
On the liability side, they have $1.5 million in current liabilities, the majority of which are trade payables and no bank debt.
That leaves them with shareholders' equity of $10.8 million.
The company is now an EDGAR filer, so all of their filings will now be available on the Internet and through the SEC's EDGAR system.
DEVELOPMENTS WITHIN THE COMPANY
The company has been actively developing foreign markets. In Singapore in the last quarter the company booked their latest follow-on order from that country accompanied with a large order pending from Malaysia. They have orders from Hong Kong pending in the queue right now; and also orders from Spain, Central America, and from South America. The impact of last year's appointment of an international sales person is beginning to show in strong international orders, so they are very pleased with those efforts. International sales were about 4% of the total. In Q2, already for the orders they have booked, they are ahead of their own budgets and should be way ahead of their international budgets by the end of the quarter.
The pricing in the international channels leaves them well-positioned from a gross margin standpoint. The problem is that the volume is still relatively low, so their sales costs are eating up all the gross margin. Their focus internationally has really been on the hospitality market. They have several hospitality market distributors in place in Asia and are starting to see some come online in South America and Central America. Marriott, Hilton, more and more of the Holiday Inns, and Sheraton continue to do business with them. Two large, multi-property, multi-country, international hotel chains have given them test orders.
The Latter Day Saints church has fallen out of the top 3 customer segments for them. The top 3 currently are hospitality, education, and churches (all churches together). While churches are in there, they now sell more product to non-Mormon churches than they do to the Mormon church. Because the Mormon church historically has been such a large customer of theirs, they had it in its own customer/market category separate from other churches.
Their new sales system, domestically, is beginning to kick in. Under their old sales system, their sales people were resisting the growth of the company. Their new system was designed to stimulate growth. That attempt to stimulate growth has had a short-term cost to them that they didn't anticipate in sales expenses. But, going forward, they think the risk/reward of this move is in their favor. The 2-3% swing in sales expenses isn't going to make or break the company and, if the program is wildly successful, the opportunities will be worth the short-term expense surprise.
They altered their sales system to compensate their sales people for growth in the company as opposed to resisting growth as territories were being divided. Historically, 50% of their sales were from new customers and 50% were reorders from existing accounts. The new sales system offers a better incentive for the sales person to get new business rather than repeat business. So, they are incenting sales people to grow the customer base. That seems to also be paying off so far. Their new product lines in aluminum, their new chair lines, and now five specific markets being attacked by chairs they are buying from outside sources, as well as their Elite table lines are beginning to show improved results. Although those results have been slower in coming than they hoped, nonetheless they are beginning to happen.
They recently increased their production from 450 tables per day to 500 tables per day and are still operating with a backlog above 20 days. The 20 days is a target number for them -- where they try to keep their days outstanding in terms of turnaround time on an order.
An analyst on the conference call asked if the company was looking into developing and selling their own line of chairs since they have seen momentum selling chairs into the same channel that they are selling tables -- or would they continue to OEM and sell chairs. The company responded that the experiment is moving slower than they hoped and is still early on in terms of developing results. While the last quarter gives them lots of encouragement, still the numbers are not appropriate for them to make the decision to throw large amounts of resources at developing their own chairs. They do have the Tesla chair. They put a substantial amount of money into that chair last year already and are a long way down the development path. What they are still proving to themselves is that they can successfully sell those chairs through their sales system. Once again, this quarter looks encouraging and yet, statistically, they are not ready to make a major capital investment commitment with shareholder's funds to that project yet. Two months ago they called all the sales management people together. They set a six month goal process for themselves. At the end of that six months they said that they will completely evaluate and will look and see where they are on five very specific areas of success measurements for their chair selling program. They are now two months into that experiment. At the end of the six months, the company will answer the question with more specifics in terms of how they plan to proceed.
They chose this year, for their annual report, to give themselves a report card. They went back to the time of the IPO. They took apart the offering document and said "Here's what we said we were going to do." Then for a format, they reported on each one of the claims they made during the IPO, telling what has happened, and evaluated their progress. They were really pleased with what they saw as they looked at what they claimed versus where they are versus where they are going. They found that they have planned well and have been appropriately reactionary to opportunities as they presented themselves. They also found that they seem to have a vision for the future that should carry them to continuing to be a good company.
They were asked whether their plans for their cash included any capital expense requirements or acquisition possibilities. They indicated that they don't have any major capital investments coming and don't see big uses for the cash, so it is there for a rainy day or for acquisition opportunities but have nothing hot pending at this time. If they didn't have to worry about float, they would view a stock buyback as a wise investment.
They see themselves as a fine, well-managed company. They emphasized that they are working hard to develop a good vision for the future that keeps them that way. Their annual meeting is being held on August 29th in Salt Lake City. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. |
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Copyright 1996, The Motley Fool |