Advanced Environmental Recycling Technologies' CEO Discusses Q2 2013 Results - Earnings Call Transcript
Aug 11 2013, 00:53
Too bad no one was there to ask about new customers.
Executives
Joe Brooks – Chairman and CEO
Tim Morrison – President
Brian Hanna – CFO
Advanced Environmental Recycling Technologies, Inc. (AERT.OB) Q2 2013 Earnings Call August 8, 2013 2:00 PM ET
Operator
Good afternoon, ladies and gentlemen and welcome to the Advanced Environmental Recycling Technologies Conference Call to discuss AERT’s recently filed 2013 second quarter 10-Q report.
Joining us from AERT is Joe Brooks, Chairman and CEO. Also on the call is Tim Morrison, Company’s President; and Brian Hanna, Chief Financial officer. Mr. Brooks will analyze results from the past year as well as discuss the outlook for the year going forward.
Before we get started, let me read a brief note concerning forward-looking statements within this conference call. Certain statements in this discussion regarding projected results of operations or projected results of financial plans or future strategies and initiatives including, but not limited to projections of revenue, projections of profitability, any and all future expectations, and plans for future activities may and should be regarded as forward-looking statements within the meaning of the Securities Litigation Reform Act.
These statements involve among other things known and unknown risks, uncertainties, and other factors that may cause AERT Inc.’s actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. AERT currently is considering, but may or may not in the future implement any or all of the items and initiatives discussed today due to, among other things, known and unknown risks, uncertainties, and other factors.
AERT Inc. undertakes no obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events, change in strategy, or otherwise. The above mentioned listing of risks and uncertainties is not inclusive.
For a more detailed discussion of some, but not all, of the risks and uncertainties that may affect AERT Inc., see AERT Incorporated’s filings with the Securities and Exchange Commission including its Annual Report on Form 10-K for the fiscal year ended December 31, 2012. We’ll begin the discussion with opening comments from CEO Joe Brooks. We’ll then open up the discussion for questions from our audience. Mr. Brooks, please begin.
Joe Brooks - Chairman and CEO
Thank you and good afternoon. We will once again start with turning it over to Brian Hanna, our Chief Financial Officer for a review of the quarter and the financials. Brian?
Brian Hanna - CFO
Thanks, Joe, good afternoon. Earlier this week we filed our 10-Q for the quarter-ended June 30, 2013 and our remarks are qualified by the complete financial statements, footnotes, and risk factors in our 10-K and other SEC filings.
Our sales for the second quarter of 2013 increased 2.5% from $23.6 million in 2012 to $24.1 million. The growth reflects the continuing improvements in the economy. 2013 first half sales were 42.9 million or 5.4% off from the first six months of 2012. A strong 2012 fourth quarter Winter Buy program depressed first quarter MoistureShield sales.
Our gross margin improved in the second quarter of this year to 25.3% of sales from 24.3% last year. The first half gross margin was 25.4% versus 20.7% six months ended June 30, 2012. The margin increase resulted primarily from plant efficiencies together with some raw material cost reductions.
Selling and administrative costs were down 0.4 million for the quarter and down 0.3 million for the first half. Lower employee costs and reduced professional fees contributed to this reduction. Operating income for the second quarter of 3.1 million was 0.8 million increase over that of three months ended June 30, 2012. For the first half of this year, operating income grew by 1.8 million to 4.8 million from 3 million last year.
The second quarter’s net income was a 0.8 million improvement over 2012 while the net income for the first six months of this year of 2.7 million was 1.8 million increase over the first half of 2012. At June 30 of this year, the company had a 1.2 million cash balance and no borrowing on a $8 million asset-based loan with AloStar.
If you have any questions after the call, you can reach our investor relations line at 479-203-5084, you can also visit us on the web at aert.com. Back to you, Joe. Thank you.
Joe Brooks - Chairman and CEO
Thank you, Brian. At this time, I’d like to turn things over to Tim Morrison. Tim?
Tim Morrison - President
Thank you, Joe. The second quarter results were consistent with overall economic conditions and our expectations. Sales for the second quarter grew 2.5% over 2012. While the strong 2012 Winter Buy mostly impacted this year’s first quarter sales, it had some impact on our second quarter. Quarterly the trends improved largely as plant efficiencies, raw material cost reductions and more efficient SG&A spending continued in the second quarter. This contributed to a 36% improvement to operating income for the quarter and a 68% increase in net income. [On the percentage], we have to adjust change on a regular basis.
During the second quarter, our ChoiceDek distributor announced their intent to exit most of the market west of Denver. Lowe’s (inaudible) to develop a variety of options investing over that exit and we are confident we are implementing that solution that will serve our customers well. We anticipate the changeover will be relative things to our customers.
Let me now take a moment to discuss the accidents at our Springdale North at Lowell facility. We are deeply sad that Springdale accident resulted in the death of one of our associates and the two of our other associates sustained injuries. Our thoughts and prayers remain with those involved and their friends. Safety of our employees, facilities and neighbors is of the utmost importance at AERT. That’s why we are working closely with outside agencies as they review this accident to determine the real causes. The company and the Board of Directors have retained independent nationally recognized experts to review and advise on our processes and procedures. We will return the plant to full operation next week.
Thank you, Joe.
Joe Brooks - Chairman and CEO
Thank you, Tim. The period ended June 30, the second quarter saw a lot of progress moving forward with AERT, especially in regard to innovation. And we are pleased that our customers and others are starting to take note of some of those accomplishments. A highlight of the quarter was the Wal-Mart Sam’s Club Sustainability Award presented to company associates in May.
AERT has recycled substantial amounts of warehouse and packaging films for over a decade and was invited to participate at the 2013 event held at the Hammons Center in Rogers. AERT demonstrated the future of recycling and sustainable plastics with displays inside the convention center and in the parking lot during the multi-day event.
One of the first products to hit the market is the construction barrier film sniper block made with recycled packaging films and manufactured by Raven Industries. As construction revives and cement slabs and walkways come back, this green barrier film has a bright sustainable future and we perhaps have been involved and provided materials for its development.
Composite building materials were also displayed and additional projects are underway in commercial and consumer items from [truck] flaps to construction liner and boards to consumer items such as dog and cat pet features. And then a line about door furniture is also under development for introduction next year.
The AERT Watts facility is nearing completion of installation of additional front-end pre-cleaning equipment as well as additional box storage and blending capacity. This is a unique opportunity for AERT to dig further into the plastic waste training by further commercializing low-end plastic compounds for internal and external sales of recycled resins as well as formulated compounds for other vendor partners. As vendor sustainability audits continue to increase in the future, this will be a timely addition to our business in coming months, currently targeted for October 2013.
As has been noted in much of the trade media, China has restricted imports of many plastic materials. So we look forward to our expanded investment in plastic recycling infrastructure providing growth opportunities in future quarters. So in addition to increased plastic recycling products and opportunities, AERT will continue to focus on innovation as we introduce the regeneration of decking products, allowing the company to shift more away from traditional role as a seasonal products company.
We remain confident that these changes coupled with an ever improving economy will position AERT for a bright future and as a global leader in sustainability. Although the company was underway in efforts to better improve safety and environment of our Springdale plant, as Tim mentioned, we recently experienced the horrible accident. Our hearts and prayers remain focused on those involved and their families.
A silo rupture at the company’s Lowell, Arkansas facility also occurred approximately one week later. The two incidents are unrelated and we are working closely with our insurance carriers, investigators and authorities to determine the cause of these incidents. We have and always will continue to remain committed to the safety of our associates, neighbors and customers.
With that, I will open the floor up for customers and questions.
Question-and-Answer Session
Operator
(Operator Instructions) At this time I am not showing any questions from the phone lines.
Joe Brooks - Chairman and CEO
Okay. Thank you. As Brian mentioned, we are available to contact our investor relations line if anyone has questions or comments. I would now like to give an update in regard to our recent board reorganization and some updated changes coming here at AERT in addition to some new management members joining. I would like to a read statement here and we will be filing an 8-K later today.
25 years ago, in 1998 a small group of family members and close associates started AERT focused on advancing state-of-the-art reclamation of plastic scrap and related manufacturing processes. So AERT has been [doing] since its inception. AERT has gone from an idea to at one point generating sales over $100 annually. Along the way the ChoiceDek and MoistureShield brands were built around durable long-lasting composite decking products and accessories.
Longstanding customer relationships have been built with many of the premier builders, distributors and companies in North America and around the world. For these we are thankful and we appreciate these longstanding relationships that have endured. As everyone knows, in 2008 things got very rough and continued for several years. The combination of the depression in home building combined with satisfying customer obligations involving class-action allegations were an extreme handicap on AERT.
In 2011, AERT was joining its efforts to buy H.I.G. Capital, which re-capitalized the company and has provided much needed capital and operational support. Since that time AERT has strengthened and attempted to diversify its product mix, especially in regard to recycled plastics.
So for 25 years we’ve worked hard to move AERT forward through both good times and bad. We’ve also strived to build a top-notch management team along the way. I first met Tim Morrison in October 2007 in Dallas. Tim was recruited to join AERT as its resident and came on board in March of 2008. At that time, our intent was to bring Tim on board and ultimately succeed me as CEO. It started off rough as his first day on the job was when AERT was served with legal papers and notice of the class action lawsuit in regard to ChoiceDek. Since that time, Tim and his family have moved to Northwest Arkansas and reside in Rogers.
Brian Hanna joined the company as CFO in November 2008 and brought a wealth of experience to AERT. Brian and his family reside in [Bethany]. Tim and Brian have both invaluable members of the AERT management team and has been focused on streamlining and improving operations. At the recent of Board of Directors meeting, Tim was elected as CEO of AERT. In addition, [Randy Godlove] has also joined the AERT team to further strengthen the company in the role of president. Randy joins Richard Shields who also recently joined AERT in April as the head of manufacturing operations.
I will remain as Chairman of the Board and founder and focus on assisting these gentlemen on innovation, new products and sustainability. In particular, I want to see the Watts plastic recycling and reformulation project up to its full potential over the next year and the recycled plastic segment take off and achieve commercial sustainable and profitable viability.
Looking forward today AERT is on strong ground and poised for a strong sustained growth in multiple sectors as the US economy recovers and home building comes back to life. A fresh management team brings positive change and with most of the past challenges behind at AERT the new relationships emerging will provide a big dose of innovation to boost AERT into 2014 and beyond. Please join me in welcoming these men into the exciting roles for AERT. So Tim, congratulations and good luck. With that – again if you have any questions feel free to contact us. Thank you.
Operator
Ladies and gentlemen thank you for participating in today’s conference. This does conclude today’s program. You may all disconnect. Everyone have a wonderful day.
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