Q4 2020 Earnings Call
Actual results conference call. Today's conference is being recorded at this time I would now like turn the call over to Mr. David. Please Dan. Please go ahead Sir.
Thank you Karen good morning, everyone and thank you for joining us hosting this mornings call or Greg was asked Nova's, President and CEO and David Smith, The company's Chief Financial Officer, Greg will discuss the company's operating results David will take you through the financials, Greg will make some concluding comments and then management will be happy to take your questions, but now you should have risk.
He is a copy of the earnings release that was issued today.
Do not have a copy please go to the Investor section of the Astronova website Www Dot Astronova Inc. Dot com. Please note. The statements made during today's call that are not historic statements of historical facts are considered forward looking statements within the meaning of the private Securities Litigation Reform Act of 1934.
These forward looking statements are based on a number of assumptions that could involve risks and uncertainties.
Actual results could differ materially except as required by law any forward looking statements speak only as of today March 12, 2020. The company undertakes no obligation to update these forward looking statements for further information regarding the forward looking statements and the factors that may cause differences. Please see the risk factors and after Novas annual report on form.
10-K, and the other filings the company makes with the Securities and Exchange Commission I'll now turn the call over to Greg.
Thank you David.
Good morning, everyone and thank you for joining us today.
During the fourth quarter, the seven to seven backstabbing situation worsened as Boeing announced a complete production halt in December.
This combined with a publicly notification softness in Asia continued do affect our revenue and margins to a greater extent and we had expected entering the quarter.
As a result, the revenue shortfall and particularly the impact of the uncertainty outlook.
Seven three stepping back we have taken several actions to bring our costs more in line with near term demand I'll talk more about that and just a moment.
The first on the positive side.
Please to see the continued acceleration in bookings from our part of the patient segments. This quarter.
This.
Led the way you car overall bookings to close to double digit quarter over quarter growth for the second quarter I Roe.
The favorable response to our present application products. That's several trade shows in the fall was a key contributor to this bookings for lunch and we expect that momentum to continue barring further short term impacts on demand in the wake up the Cobiz 19 virus situation.
In addition to these positive demand trends the secular trend towards digital label printing and the market growth for onsite color label printing position us well for long term growth and profitability.
Similarly.
It was that the long term trend for the global commercial aircraft market remains very strong. Despite the short term backs issues and the potential cobot 19 short term impacts on air travel.
As we streamline our operations and continue our focus on improving operational efficiencies throughout the company. We also continue to invest in new technologies and strengthen our global talent to achieve a long term strategic objectives.
We see significant growth opportunities in the future for both segments of our business.
In the short term lower sales volume necessitated that we take action to improve the profitability of the business as a result, we implemented a 5% head count reduction and other cost reduction initiatives that we expect to save in the range of one of the half the $2 million on an annualized basis.
I'd like to emphasize that these cost reductions do not affect our investments in our key strategic initiatives. We continue to focus on those strategic initiatives that we believe will drive growth and profitability for astronova and generate value for our shareholders.
Taking a closer look at our segments.
As I mentioned test and measurement continues to be impacted by the grounding of the 737 dots. This is affected us folks in terms of new installs as well as deferrals, an optional maintenance and retrofit printer appraised aircraft that are needed just fill the void until a seventh yourself in backs returns to service.
Following the sticking to a prediction about midyear returned to service, but he doesn't have clear visibility into the actual timing of the returned to service.
Nor.
Post ramp up schedule.
Therefore expect this will likely be a continued significant drag on results throughout the current fiscal year.
Our past few calls Ive discussed the delay of a multiyear upgrade contract for military avionics unrelated networking gear.
Well, we did not ship any product related to this contract in Q4, we have already made shipments in Q1 and expect to ship additional believes it's on that contract later in the year.
Despite the near term industry challenges, we believe the strong secular trends in aerospace will drive long term growth when Boeing situations.
It's finally resolved.
We have the right products and are making their rightship investments to be prepared to capitalize on these trends when the market returns.
Yesterday, it was latest tougher their products in particular.
For the highest level performance and functionality and the cockpit printer market.
And our product identification segment.
Sales continue to be affected by the softness in Asia as a result, a weaker demand from a few customers in that region.
During the quarter, we completed the transition of our sales organization from a regional structure.
Integrated Global management organization dedicated leaders for global hardware.
Mobile supplies and global service.
No it greatly improved ability to provide a more effective and rapid response to our customers across the globe.
Oh products in the segment are performing quite well and this has been a big health and driving improved bookings.
Our new Trojan labeled Q3, OPX is off to a great start with strong initial demand and very positive feedback.
In fact, we sold out of our initial production run in January.
You will be acts as a next generation over printing system. The teachers highly durable Inc. It allows customers to digitally print high resolution color images directly on a broad range of products, including cardboard boxes, postcards paper bags fabric bags or even wouldn't place.
I encourage you to visit our website to view the video demonstration of this new breakthrough technology, that's applications, taking his feet on the labeling market and into direct packaging product identification space.
Oh, the new products, such as the Quicklabel Kewill 300 killed 120 ex chosen Liberal teachers teach you see and the T. side did you just getting traction in the marketplace.
The end of the fourth quarter, we announced the launch of get labels on new product identification brand that provides blank label and thermal transfer Robbins for resellers and brand owners.
Sure. Good labels, we have developed hundreds of unique label materials engineered to cover the aesthetics functionality and durability requirements of a broad range of applications.
This enables customers to produce their own labels and tags in house to their specifications, but just in time flexibility.
Watching get labels in Standalone brand it gives us a platform to future all of the lately options available to our customers.
Before I turn the call over to David to review, our financial results I'd like to provide an update on our global I.T. upgrade program.
We are on track with the hardware upgrade phase of this and we expect to complete the company wide updating endpoint hardware software and celebrity.
And.
And related to.
Hardware products near the end of this quarter.
We're also making good progress on our ERP conversion to cloud based net suite software and expect this to be completed domestically in the middle of the current fiscal year.
Were excited by the potential of these initiatives, which we expect will result in a global unified stated the our IP infrastructure designed to significantly improve our competitiveness reaction time productivity in the fiscal year of 2021 and beyond.
Now, let me turn the call over to David for his financial review.
Thanks, Craig and good morning, everybody.
Revenue for the quarter came in at 30.5 million versus 37.2 million for the same period last year.
3.9 of the decline was in the test and measurement segment.
Ah reasons that Greg mentioned on the Boy 737 next product identification was down 2.7 million, primarily because our Asian revenues were strong last fourth quarter and luxury weaker this fourth quarter.
For the full your.
2020 revenue was 133.4 million compared with 136.7 million 2019 test and measurement segment was down four and a half million.
Do again because of the situation with Boeing product identification, though was up 1.3 million or 1.5%.
It's Greg indicated this fourth quarter result was disappointing has caused us to reduce cost as I mentioned in a minute.
Domestic revenue was 19.2 million in the fourth quarter or 63% of total revenue International revenue was 11.3 million or 37% of total revenue year to date domestic revenue was 83.7 million also 63% of total revenue well international.
Revenue was.
Was 49.7 million.
Hardware revenue in the quarter was 11.4 million compared to 15.2 million.
The decline due to the aerospace printer and Asian issues again.
Supplies revenue was 16.4 million compared with 18.5 million, primarily as result of the decline in Asian supply shipments service and other revenue was 2.7 million compared with 3.5 million due to the lower aerospace rather this.
The gross margin decline of 560 basis points from last year's fourth quarter, 233.6%. It is a function of lower sales in aerospace and adverse mix dynamics in both segments.
We reported a fourth quarter operating loss of 1.6 million compared to operating income of 2.9 billion a year ago.
Full year 2020, operating profit was 2.6 million versus 8.7 million in 2019.
Net loss for the fourth quarter was 19 cents per share versus net income of 23% 23 cents per diluted share a year ago.
Please note that our net loss for the quarter includes about $100000 in severance cost related to the reduction enforce the Greg mentioned earlier. In addition, we had about 450000 costs from unusual nonrecurring expenses relating to the settlement of a certain customer related disputes and.
Expenses for a product reconfiguration for aerospace customer disaster vocal would ship operating expenses.
We expect we will have incurred about 100000 additional severance charges in the current first quarter a this this fiscal year.
Full year net income was 1.8 million for 24 cents per diluted share compared with 5.7 million, where 83 cents per diluted share a year ago.
This quarter Dummies, depreciation and amortization was 1.6 million well stock based compensation was 199000.
Full year normal Capex was 1.4 with another 1.5 million spent other that sweet ERP implementation, we expected full year.
2021 capital expenditures, including the infrastructure upgrades and ERP implementation to be in the range of two to two and a half million.
The cost reductions that Greg mentioned are primarily wage related across the income statement or both cost and sales and operating expenses, but they also include the decision to delay certain very long term product development expenses reduction in a number of specific outside service and consulting arrangement.
And a large variety of other small items are current plan as a reduction in expenses in the range of 1.5 to 2 million.
Year over here with roughly half those reductions.
Favorably impacting gross margins and roughly half and lower operating expenses.
Before I turn the call back to Greg I'd like to touch on the Cobot 19 virus situation.
As we mentioned in this mornings press release, we're closely monitoring this viral out break for potential impacts on our workforce customer demand on our supply chain. At this time, we do not have any reported cases, among our teammates that we've not identified any clear supply chain or customer impacts locally we've taken action.
Just to further enhance the self health and safety of our people as a result of the state of emergency that's been declared in Rhode Island, and we'll continue to monitor the situation.
Closely.
Now I'll turn the call back to Greg for closing comments.
Thanks, David.
Looking ahead, we are encouraged by the excellent customer reception to our new product in education offerings, and the resulting positive bookings performance in the fourth quarter.
We're also optimistic that our new sales structure will result in a more efficient and effective global sales process.
At the same time, our cost reduction measures have enabled us to reduce our breakeven level and position us for improved profitability as you move forward into fiscal 2021.
Longer term [noise], we're even more bullish about the opportunity is made possible by secular trends on both sides of our business.
As we focus on cost containment across the business.
We're also investing wisely in order to capitalize on these opportunities.
I'll be happy to take your questions operator.
Thank you if he would like to ask a question. Please signaled by pressing star one on your telephone keypad, if you're using a speakerphone. Please make sure. Your mute function has turned off to allow your signal to reach our equipment again that is star one to ask an audio question well pause for just a moment to allow everyone the opportunity to signal for cross.
And.
[laughter].
All right. Our first question I mean from Samir Patel.
[laughter] hi, guys. Congrats on the nice launch in product I'd.
Thanks.
Yeah. So I've got three questions here. The first is in aerospace I know that Boeing and spirit and some others have talked about kind of their expectation for Max builds over 2020, I understand your lack of visibility, but in general can you provide some color on the cadence of how newbuilds of Seventhirty Sevens would translate into revenue would your Max related revenues.
Kind of ramp I had a production along with correction behind production et cetera, just some timing if you can get that.
[laughter] [noise].
It's a.
A little bit difficult to predict of course, I mean, we've seen I think probably half a dozen different estimates on that.
The most likely there would be some advance a need for the printers, it's a function of what's coming down the production line. If you remember the the Boeing 737. This is DFI or buyer furnished equipment. So correct when used to make sure that a the right tales have the right printers associated with it so.
So typically at any I'd say I'd emphasize typically because you don't know exactly how that's gotten this case.
Those would have to lead the productions not just in time thing it's typically a.
Months, if not several months in advance that or some of these things started writing but.
Again, it's it all up in your at this point.
Okay. Thanks.
Also in aerospace you guys talked here and you've previously talked about the Max related supply constraints, making airlines unwilling to take claims offline, which impacted your kind of spares and upgrades business. A you know with the Corona virus curbing drop in passenger demand have you seen additional opportunities here or airlines deferring maintenance and focus.
Just on conserving cash.
Yeah, we haven't seen anything yet I mean that the airline it other than flex to China, and whatnot or within China Ah, that's probably the biggest impact we've seen in airline travel, but you know Europe.
Yesterday, it looks like that's going to a ticket right. So it's tough to estimate that exactly.
I would guess you know I didn't talk directly do any airline. She goes so that was that the chamber of commerce Ah Ah aerospace and that last weekend D.C. and no one mentioning about a changing their mode of operation with respect to Ah ticking aircraft out of service one thing it does impact us kind of on the supply side of our business I think all though.
But if you're flying the plane plus you know there printing less paper, if they've got better because the planes are on the ground different.
That does it probably have some you know impact a that way.
Okay understood.
And then the final question you guys Pride yourself on your capital allocation. So can you maybe talk about the decision to maintain the dividend versus using that cash to pay down debt buyback stock or acquire something.
Yeah, Yeah. The dividend a question somebody's always reviewed at the board of Directors Ah you know meeting we just had one this week of course, and its debated back and forth and Oh like can't comment on exactly what she has said in the <unk> board of directors meeting, but Oh.
At this point, a they felt comfortable with Ah being able to meet our capital needs are and also pay the dividend.
Gotcha, Okay, Thanks, I'll step back into queue.
Okay. Thanks.
Thank you and again that is star one to ask an audio question now.
[laughter] [noise].
Oh, we do have a question coming from Dick Ryan with Dougherty.
Thank you.
Greg I wasn't sure on your head count and cost reductions is that across both segments or.
More into one or the other.
Oh, Yeah. It was basically a mix we kind of took a look at Ah I mean, you never like to have to do these things, but we took a look at go where could we trim costs did not affect or are your long term programs or customer support to so it did affect both sides, but you're not equally so really is.
Based on the functionality of the different individuals involved.
Okay, and you talked about this lowering break even more or would you kind of ballpark your breakeven level out now.
Ah you don't actually disclose that.
Oh, I know if David wants to comment on that but Oh, we normally don't we don't publish that integration.
Yeah, Okay [laughter].
[music].
And Dave onto your I wasn't sure on the $450000 costs, how that was a split or could you just kind of run through that one again.
Yeah, the the split that I talked about was as between.
You know sort of where it hit on the income statement the bulk of it was in the.
Fences, there was a little bit in the cost to sales, but primarily in.
And the operating expenses and I Didnt go any further than that okay. Great. Thank you.
Correct.
[laughter] next question will be from Samir Patel.
Hey, I had a couple others on product I'd since it doesn't seem like there's anyone else. So one is you know how quickly could those bookings typically translate to revenue is that more of a long term thing over the course, the irrs that more kind of quarter to quarter.
What do you what exactly about product I'd, rather than new products be you get your son trying to you talked about the strong bookings for you know just in general, but specifically related to that and you Trojan products.
Yeah on the <unk> you know it typically is a couple of things I can tell you about that so I knew when new products come out a typically you know that they turned pretty quickly.
But then the supplies will lag behind that so some I'll get into printer typically our biggest competitors our commercial printers. So they have a stock of in house labels. So as their learning to use the new product, they're kind of you know wearing a fairly low production bode really burned through their existing supply they'd be two supplies ramp up you know three to six months after that in terms of.
I need to full production level, that's a typical curve of someone buying undue pressure from us and wrapping it up to full production.
So the hardware okay. It's relatively quickly and then the splice followed them.
That's helpful until I guess in bookings, you're only really reporting hardware, because they're probably not ordering them supply six months out.
[noise] doesn't know that we report boasting the bookings so and they got a whole market. You know we're talking about the complete bookings being ramped up and that just means you're more people coming back on line well essentially what happened since you were kind of making up for that deficit due to Asian customers that dropped off significantly.
Just the general kind of across the globe people cringing borrowing cost, placing more units out there on regular basis, and then they generate more supplies that they ramp up.
Do you have I I, just maybe a just maybe something you're not only did disclose but do you kind of haven't number in terms of like how your hardware you know some sometimes like for softer you'll have like a 20% maintenance or 3% maintenance relative to your initial license fee or whatever it may be you did you guys have kind of a number like that with regards to how much supplies you typically pick up for a hardware.
Unit or does it just depends on kind of the unit and like the size of it.
Yeah, we don't get that granular with it I mean, we typically around about Ah, yes, the 10% to 8% to 10% on service side of things.
Okay got it. Thank you guys appreciate it.
Okay sure have a good day.
[laughter].
[laughter].
Yeah. Once again that is star one to African audio question now.
[noise].
[laughter].
Thank you would you have a question coming from George Melas.
Are you.
Can you talk a little bit about you Cogen product line you quite date.
In February.
<unk>, so you've had it for.
[noise] tool they have to use now can you sort of give us a little bit doesn't and I think when you purchase did behaviors.
<unk> BT good products that almost no maybe you can you give us they does oh.
The story of how that has evolved and ER.
When do you.
Ownership.
[laughter].
<unk>.
Oh, yeah surcharge.
Well, yes, yet you've got you've got that correctly. It was the beginning of 2017, we acquired it or we went through the integration phase. We ran at the first southern air seven or eight months, just kind of the standalone operation into parallel track and then or.
It wasn't in fact, it was made a lot of people kind of cross selling between the Quicklabel Trojan label. So later in that year, we actually fully integrated it with the after it over product identification team. So it's really one teams out there selling it [noise] you know since that point, we've seen a nice steady ramp up in their placement of products as well as new product to generate so the key to.
Happened after that of course, the one I just mentioned today the T. Three guilty exercise that they've got a fantastic design team out there and does it feel lot of things that are they're working on right now for the future as well. So those products are well received in the market and we put it through our full channel on a global basis.
It doesn't matter fact, Ah the founder of that organization or.
Mckell was actually the person who know heads up our global hardware. So he's telling all of you know in charge of selling all the products that we have an apartment application space and I would say.
Okay.
And.
I I guess, you won't sort of see what's the revenue Gordon.
I've got some of that product, but can you give us a sense of where they're sort of it.
You've met expectations from the <unk> product development perspective that couldn't Misiones perspective.
And maybe some hurdles to adoption.
Mike has those being.
[noise] [noise] yeah. It was mainly like is it you know that kind of you know sales team getting them focused and get it unified with her overall channel attitude channels. So.
So.
Let me say you know probably best way to characterize it is you after a slow start in the first year, it's ramped up and then beating our expectations separate sense.
We're very pleased with it.
Okay and have you extended there's sort of either boot markets to the product introductions or it's still very much focused in on sort of that.
I think youve really focusing on sort of smaller commercial creatures right.
Well, yeah that was a quicklabel brand or is it you know tabletop printers and the Trojan label bridges that they have a very high end, but you can kind of hybrid if you could call. It a table top it's really a small production press and then it takes us into the commercial printing market.
So that's where children label really you know there probably little brand is really more for that a higher and you know very large brand owners you kind of global companies, but also a large commercial printers that that's a new space for us and the two three OPX for example, yeah, there's not even a label involved with print directly on the box around the package.
Sure flexible packages a wooden a boxes, so that's a whole new market for us.
Okay.
And just maybe a question on the global on the sales we already.
I'm just doing very high levels help us understand how that's going to benefit you guys.
But the biggest thing as I said.
Yeah. The biggest thing is getting better coordination.
I mean.
Say that again.
Kind of trying to understand whether the pluses and minuses of the Lucille structure.
Yeah.
On Sealy, a really minus isn't it a so the advantages of doing it. This way is instead of having go up a leader in Asia leader in Latin America, Oh, My God satellite sales literature, So lets sales leader and ER Asia, and Europe, and each one running their own show and making that you have completed their own goals, but Joe. This is not fully coordinated now.
So when you have one person in charge of it on a global basis, whether it's the supply side of the business or the hardware. The service we can make sure we get much faster communications, and then better consistency and as we've evolved as a company we have no or very large customers. You know like fortune 100 type customers that have operations over the world, we can make sure they're treat.
It properly internal to the same type of service and.
Supports that they expect a global basis. So it's really that it's it's little things to service issue might notice it in Oh, Bangladesh and then you say hey, let's get make sure around the world people are aware of this year instead of waiting for it to escalate, we can get a follow up on that.
Oh, okay.
And just kind of follow up on that or are there was very large customers that purchase.
In multiple geography that a big part of the business or is that something that is not so big but you're trying to expand.
So it's it's a more and more a significant part of our business. So every year and we have a number of those types of customers Oh. They have production facilities customers have nothing like a medical products company are they making those medical products or chemicals or whatever it is on a global basis and they want consistency not only in the product but the.
Labeling that goes on to those products and they need to know exactly what was printed language printed and Ah. So they've got a excellent tries to building.
Okay, great. Thanks, a lot for the entity.
Church good day.
Thank you I'm showing no further questions in the queue at this time I'd like to turn the call back over to our speakers for closing comments.
Oh, Thank you operator, and thank all of you for a joining us here today. We look forward you seeing you on the road or speaking with you again at our next quarterly meeting.
Good day.
Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.
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