Q1 2021 AstroNova Inc Earnings Call

Good morning, and welcome to the Astronova first quarter fiscal 2021 financial Research Conference call.

I'll now turn the call over to David Calusdian, President of the company's Investor Relations firm Sharon Merrill.

Thank you good morning, everyone. Thanks for joining us.

Hosting this mornings call are great was asking nova's, president and CEO and David Smith, The company's Chief Financial Officer, Greg will discuss the company's operating results David will make a few comments on the financials, Greg will make concluding comments and then management will be happy to take your questions. I know you should have received a copy of the earnings release that was issued today.

If you do not have a copy. Please go to the investors section of the Astronova website, Www Dot Astronova Inc. dot com.

Please note that statements made during today's call that are not statements of historical facts are considered forward looking statements within the meaning of the private Securities Litigation Reform Act of 934.

These forward looking statements are based on a number of assumptions they could involve risks and uncertainties. Accordingly actual results could differ materially except as required by law any forward looking statements speak only as of today June 11, 2020. The company undertakes no obligation to update these forward looking statements for further information regarding the forward looking statement.

And the factors that may cause differences. Please see the risk factors and astronaut Buzz 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.

These are unprecedented in difficult times, particularly for those on the front lines of the Cobot 19 crisis.

Before we get into the details of the quarter.

Let me publicly acknowledge the doctors nurses and other health care first responders in our home state of Rhode Island, and around the world for their heroism and personal sacrificing badly independently.

It Astronova.

Health and wellbeing of our employees as a top priority.

Pleased to report.

The early actions, we took just shipped a significant number of our global team to offtake working while enhancing our cleaning and protection procedures in line with government and health agency requirements.

Production facilities has proven to be successful.

Water facilities around the world, we have maintained production, while keeping that health and safety for employees customers suppliers communities at the forefront of our attention.

I want to recognize the entire astronova team for their unyielding commitment during this unique curious.

And outstanding job supporting our customers and one another.

Your dedication makes it possible for us to continue providing our customers with the highest quality products and services every day.

Not surprisingly our first quarter results reflected the widespread economic disruption caused by Cobas 19.

Well just touched virtually every industry and nearly every geographic region.

In terms of our business.

That was most pronounced in the aerospace units of our test and measurement segment.

That's the measurement revenue was down about $4 million or 30% from the same period a year earlier.

You affected the virus on test and measurement in Q1 has only compounded the disruption created last year, but you extended grounding of the falling 737 backs aircrafts.

And the weight of the endemic.

Aerospace Oems have cut their production forecasts and airlines have dramatically scaled back to their flight schedules, which of course means fewer planes in service.

I know that everyone's interested in when we expect this downtrend.

Trends to stabilize.

And industry momentum to pick up obviously, it's a fluid situation with a lot of areas.

Based on the current environment.

The second results in the second quarter to be weaker than the first quarter.

Said.

We are seeing encouraging signs for gradual improvement beginning in the second half of the fiscal year.

Airlines are beginning to restore flights in response to improving demand for summer air travel.

And Boeing restarted the seven three southern Max production line at the end of May and its planning for the returned to service at the Max with delivery schedule to resume in their September quarter.

And well in general production rates have been revised downwards in response to the new market environment I think it's important to keep two things in mind.

First.

That's a recovery of the commercial aerospace industry from this downtrend will be paced by narrow body airplanes looked to seven to seven Max and the Airbus Athree 20.

Used aircraft are very fuel efficient and provide more mission flexibility to address the evolving needs of the global market than their wide body counterparts.

As a world leader in flight deck printers, we serve both segments.

The narrow body aircraft sales make up the majority of the market and they are growing at a faster rate.

That trend was a major driver our decision to acquire honeywell's narrow format printer business in 2017.

The second point.

Well it will undoubtedly takes time and the industry to be turns a pretty cold with levels. The fundamentals of the business, our strong which will drive air travel rebound and we are well positions to capitalize on the upturn.

Turning to product Densification segment.

Revenue was down about 1.2 million or 5%.

From the second from the record setting first quarter fiscal 2020.

He I segment relies heavily on trade show participation in person sales calls and product demos to generate demand.

Stay at home mandate, social distancing measures and bands on large gatherings severely restrict those marketing opportunities.

Well, we have just recently started to make sales cells again.

Trade shows and other key marketing events that have either been canceled or delayed until late in the year or changed to a virtual format.

These market realities that negatively impacted our new printer sales.

On the other hands.

We're very pleased with the performance of our supplies business in the quarter.

Companywide suppliers accounted for approximately 62% of revenue up from approximately 55% in the prior year quarter.

This increase decent parts the ramp up of our new higher throughput printers that we introduced last fall.

In addition.

We're seeing a strong uptake of labels and other consumable media from both new and existing customers and specific end markets, such as cleaning and sanitation.

Medical supplies and pharmaceuticals, where demand is especially robust.

I see domestication segment operating profit improved to 3.1 million or 14.1% of revenue versus 2.9 million were 12.2% in last year's first quarter.

Extending a recurring revenue stream is a key element of our overall growth strategy.

It's nice that grows we need to remain agile and continue to anticipate the needs of customers amid rapidly evolving market conditions.

Our team has continued to perform well in that regard.

In recent months, we've enhanced our E commerce initiatives with the creation of our get labels business unit and strengthened our digital engagement marketing with the just launch new product identification website astronova product I'd dotcom.

Well, we are working aggressively on these and many other top line improvement initiatives. We also continue to implement additional cost mitigation measures such as the reduction in executive compensation and other resource allocation adjustments to lessen the financial impact.

Over 19 on our business and enhance cash flow.

David will take you through more of the details and then I'll be back with some closing comments. So let me know turn the call over to David for his financial review.

Thank you, Greg and good morning, everybody.

Rather than repeating all the numbers in this morning's earnings release, let me highlight some of the cost control initiatives the Greg alluded to in his remarks.

As noted on our Q4 call in response to lower volume.

Lower sales volume related to the 737 Max grounding.

We began implementing a 5% head count reduction and other measures expected to generate savings.

Approximately a million and a half to 2 million on an annualized basis from the run rate towards the end of last year.

This quarter once the cobot 19 situation became clear.

We announced additional cost reductions it included an across the board freezing of executive employee compensation at 2019 levels.

We also applied for and received a 4.4 million dollar loan from the small business administrations Paycheck protection program.

Which has put us in a significantly better liquidity position and we expect to be able to comply with all the terms of that program.

With the aircraft Oems no, bringing down on their build forecasts.

We are as Greg said evaluating additional cost reductions given that the industry will take some time to recover once the pandemic is you'll find us.

From an expense perspective, it's worth noting that due to the decline in aerospace printer volume in the quarter.

The royalty payments to Honeywell and our asset purchase and license agreement were lower than last year's first quarter.

By 600000.

In addition by pushing out some projects, we've been able to reduce outside service and consulting arrangements the impact to bid on trade shows some related advertising expenses and lower companies travel along with lower incentive compensation.

Oh reduced variable expense spending.

All of this combined with the impact of the more permanent changes I referenced a minute ago resulted in an overall.

Operating profit reduction millions six in the current quarter compared to last quarter last year.

It's always important to note when reviewing our results.

The heavy noncash amortization related to acquisitions.

Which was 1.058 million in the quarter.

Other non cash charges were depreciation those 511000 and stock based compensation expense of 495000.

While reported E P S and operating margins so obviously.

Taking a negative trend and the current difficult environment.

I would like to point out that their EBITDA margin was still 6.7%.

As we will disclose an update and more detailed in our.

Whereas in the process of renegotiating renegotiating, our credit facility with their existing lender and believes it will read satisfactory arrangement.

Regarding our 10-Q due to the disruption clauses like so that night game, we're taking advantage of theirs as he sees filing deadline extensions and expect to file our 10-Q sometime probably on the 19th your 20 seconds, but certainly no later than the 26 as we said in the 8-K, we say.

This morning.

I think I T front, we continue to make good progress on our ERP conversion to the cloud based net suite software, albeit at a slower pace due to some of the remote working in efficiencies. We're working diligently to complete this project domestically as soon as we can.

With that I'll turn the call back to Greg.

Thanks, David.

In summary.

We continue to take steps to mitigate the financial impact of Cobot, 19, and our business, while preserving an improving liquidity.

We have accelerated some of those cost reduction measures in recent weeks to align with adjustments in certain customer forecast at the same time remain committed to supporting our key strategic objectives. So that we are well positioned to take advantage of future growth opportunities post cobot.

Based on the current environment.

We expect results in the second quarter of halfway 2021.

To be weaker than the first quarter, we anticipate gradually improving results beginning in the second half of the year contingent on the resumption of business investment and economic recovery in our end markets.

With that David I'd be happy to take your questions.

Thank you.

Ladies and gentlemen, if you will like to asking question. Please signaled by pressing star one on your telephone keypad.

Who use any speakerphone. Please make sure your mute function is turned off to a lot of your signal to reach our equipment.

Again press star one to asking question.

Just for just a moment and talk about every when an opportunity to signal for questions.

Well take our first question from Dick Ryan of Dougherty and company.

Thank you say, Greg on the outlook for Q2 sequentially weaker or is that for both segments or.

HM.

I was wondering to perform a little better than many other words.

Hi, it's again, particularly be driven by the aerospace or cuts reduction there.

Dick It's a you know as you know Boeing just announced on may 27th or restarted the Max So that's a pretty late in the game. It's a slow ramp up so it's a primarily driven by the aerospace or a drop off.

Okay, well pull a profitable product I'd look sequentially.

I guess, it's little bit hard to tell a that's on the hardware side and you know on the supplies as I mentioned in my comments are that seems to be a holding up fairly well I mean again ER and these kind of times, it's hard to predict everything exactly Oh right now it's a little you look at our variability band about her forecast it's.

Wider than I've seen it you know since I've kind of Astronova, but Ah yes. We're encouraged by the result, so far and know that continued into May yeah. We have no reason to think it's going to make a dramatic churn a one way or another we think it should to continue on the trend that is on.

Okay.

Oh, it's the art can you tell what the a inventory is like for the flight deck printers.

From borrowings perspective, I mean.

When they increase their production when you see it immediately or is there are printers in inventory that it makes you a little bit later.

As far as we know there you know Boeing is a fairly low inventory, especially with the Mac. So with regard to work printers or may be mainly because they are purchased by the airlines themselves. When their planes are coming down the production line. So we actually get the order from the airline itself because it's a buyer furnished equipment.

So a b C Airlines would to say you know we need by printers are they would place you heard on us and we would ship to Boeing so they're all everyone's well aware, but at this point those you know what the production rate as it falling so all of those forecasts have been adjusted as far as we know there shouldn't be much inventory buildup.

Oh, Okay. They gave I missed your comments I'm not on the credit facility or you're working on a new one and how are you sitting with your covenants.

Dick or my comment on the script was that you know we're in the process of working through that we expect to do so successfully.

You know, it's still in process and we'll have more to disclose when we filed the 10-Q.

You know shortly.

I don't want to get into the details of where we stand, but I do think it'll.

The result successfully.

Okay, great. Thank you.

Thanks, Nick.

Thank you.

This time I will like to turn the call over to Gregory Woods for closing remarks.

Okay. Thank you all for joining US here. This morning, we look forward to keeping you updated on our progress and Ah stay well.

I know.

This concludes today's conference you may now disconnect.