Q3 2020 AstroNova Inc Earnings Call
[laughter] and welcome to the Astra and knows and third quarter fiscal 2021 financial results Conference call.
Today's conference is being recorded.
And now let's turn the conference over to David Calusdian, The company's Investor Relations firm Sharon Merrill Associates. Please go ahead Sir.
Thank you good morning, everyone and thank you for joining us hosting this mornings call are Greg Astronova, as president and CEO and David Smith, The Companys Chief Financial Officer, Gregg will discuss the company's operating results David will comment on the financials grades and make concluding comments and then management will be happy to take your questions.
By now and we should have received a copy of the earnings release that was issued today. If you do and I have a copy. Please go to the investors section of the Astronova website, Www Dot Astronova and Dot Com. Please note that statements made during today's call and are not statements of historical facts are considered forward looking statements within the meaning of the private securities net.
Based on the format of Nike and 34. These forward looking statements are based on a number of assumptions that could involve risks and uncertainties.
Accordingly, actual results could differ materially except as required by law and you forward looking statements speak only as of today December seven 2020 and.
Many undertakes no obligation to update these forward looking statements for further information regarding the forward looking statements and factors that may cause differences. Please see the risk factors and Astronova. Its annual report on form 10-K, and the other filings the company makes with the Securities and Exchange Commission.
On today's call manageable repurchase be referring to the non-GAAP financial measure earnings before interest taxes, depreciation and amortization or EBITDA Astronova believes that the inclusion of this measure helps investors gaining meaningful understanding of the changes and the company's core operating results and also can help investors.
As who wish to make comparisons between Astronova and other companies on both a GAAP and non-GAAP basis, a reconciliation of this non-GAAP measure to its most directly comparable GAAP measure is available on todays earnings release and with that I'll turn the call over to Greg.
Thank you David and.
And good morning, everyone. Thank you for joining us today.
We performed inline with our expectations for the third quarter.
Particularly in light of the ongoing effects and filled with 19.
And it's hard to education segment revenue and operating margin increased sequentially and year on year well.
Well and test and measurement and results continue to reflect the effects of depends on that on the commercial aerospace industry.
Let me touch on each of these segments.
On the product education side, we're seeing the benefits of our new and fully updated product offerings combined with the expanding emphasis on digital sales and marketing.
Our enhanced digital presence highlighted by our new website Astronova product I'd Dot com has been very well received.
Earlier this quarter, we launched the new sites globally, which integrates our quicklabel Trojan label and get label brands into one comprehensive sites with state of the art interactive capabilities.
This study includes digital educational content, such as online demonstrations E books, White papers, and blogs and help customers make informed decisions research.
A response from the user community to all of the newly added digital thought leadership content has been very positive across the board.
Well it did education revenue in the quarter of $22.9 million was up more than 5% year over year and nearly 6% on a sequential basis.
Okay, and operating profit increased by 87%.
$3.5 million due to the higher revenue as well as operating expense reductions.
These results were driven by strong demand for our printers and supplies food here, new color label printers, such as the QL 120, ex and the QL 850.
As well as our recent release wide format direct product and packaging printer. The T. Three OPX, which continues to exceed our expectations.
The rate of new customer acquisition was also favorable which contributed to the segment's strong performance in Q3.
Innovations and technology and applied marketing are cornerstones of our price it indication gross strategy.
At the recent hack ex spoke connects digital trade show, we demonstrated a range of advanced new products and enable customers to further increase productivity reduce waste and drive those efficiencies to the bottom line.
These new offerings include several new products that expand our reach into our customers' product identification automation processes.
Sample the L. up 102 hundred label finishers humpback, all and one desktop finishing systems that had inline legal emanation and die cutting saving production time, and lower and media expenses.
And the key to see based prints and apply solution.
A new downstream adjacency for us that combines our label printing technology with high speed automated robotic label placements.
And I spoke index was our first large scale virtual trade show we.
We hosted eight interactive seminars, there's always a broad range of video demo rooms overweight.
Oh, well received and well attended and our sales teams are now busy following up with those attendees.
Turning to test and measurement.
Not surprisingly the combination of COVID-19, and the seven to seven Maxs grounding continue to adversely affect commercial printer deliveries in Q3.
Segment revenue of $5.1 million was down about 6.4 million year over year and 900000 sequentially.
That being said.
In light of recent developments were hopeful that the third quarter will represent the low point for our GNM segment.
So we don't have a crystal ball and potential of approved krona virus vaccines in the coming days and the F. Phase November decision and clearing the seven to seven Baxter returned to service our positive signs for our commercial aerospace business as you move through fiscal 2022 and beyond.
The aviation industry works its way through what is expected to be a gradual recovery.
We have restructured the commercial aerospace portion of our business to more closely align our operations with the current reduced production levels.
Even at these reduced operating levels. However, we have made sure to keep our core technical and support teams in place. So that we can rapidly ramp up production because the current crises a beach.
In terms of recent highlights during the third quarter, we announced the receipt of and exclusive multi year commitment from a major north American carrier, which is deploying on narrow formats toughwriter printers, and its falling 77 aircraft.
As I noted on the Q2 call. This will likely result, and more than two and a printer orders during the term of debt agreements.
The defense portion of our T. test and measurement segment, well traditionally a much smaller component of revenues and commercial is growing and trending positively and when I.
And last fall and mentioned the receipt of a printer contract for military transport aircraft and.
And we continue to pursue similar airborne activities and opportunities.
Additionally, we have received initial orders for our new data acquisition recorders, and telemetry systems for evaluation and several U.S. and four and military ground facilities.
These early successes bode well for this next generation equipment.
Now, let me turn the call over to David for his financial review after which I'll make some concluding remarks and then we'll open the line for questions David.
Thank you Greg and.
And good morning, everybody.
Rather than repeating all the information on the earnings release I'll, just highlight a couple of key points about our PML and balance sheet.
In light of the ongoing economic impacts and co that 19, and the 737 net.
Ex impacts on us and Q3, we again remain focused on cost control initiatives.
As a result of actions that we've taken this year, including in the third quarter operating expenses declined by about 2.5 million and or 21% from the year earlier quarter.
Through the first nine months of fiscal year.
On the one on.
Operating expenses are down five point, threemillion or nearly 16%, which is about the same as a revenue percentage drop over that period.
As a reminder, and the second quarter, we reduced executive compensation and.
Post across the board freeze on all of their employee compensation and 2019 levels.
And were reduced a host of.
Expenses and professional and other services are traveling trade show expenses and so forth.
For fiscal 2021.
<unk>, we're still targeting and more than 7 million dollar reduction in operating expenses compared with fiscal 2020.
On a percentage basis were aiming to have the expense reduction exceeded the decrease in revenue.
One potential risks and targeted rate.
Good and reduction is an uptick and so that cases that does affect us over the past month and could result in higher personally ex personnel expenses in Q4.
The operating margin in the quarter was 1.5 per cent up 20 basis points from the same period last year.
As for non cash charges, depreciation and amortization were 1.4 million and share based compensation was 591000.
EBITDA in the quarter was 1.7 million or 6.1% and revenue.
Through the first nine months of the year.
EBITDA is 6.1 million or 7.1 per cent of revenue on.
The other but expense.
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Which primarily reflects interest expense and also some foreign exchange losses.
Turning to the balance sheet.
Cash and cash equivalents at the end of the quarter with nine point Sixmillion.
Debt was 17.9 million or 13.5 billion, excluding the 4.4 million they.
Hey, real protection program loans, which we still expect we'll be forgiven.
During the quarter, we paid down 2 million of revolving credit debt and amortized another 800000 and or term loans, thus, reducing our total debt by 2.8 million from the period ending August 1st.
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Available under our revolving credit facility.
Our debt structure challenges earlier this year after the two black Swan events of the 737, Max and co that had been resolved we are and expect to remain in compliance with all bank covenants and plan to refinance or restructure our debt facility at some point and becoming cash.
Orders.
We're comfortable with our liquidity position relative to our operating requirements.
In terms of working capital a quarter and the net inventory and payables and declined about 1.2 million compared to the end of the school.
Second quarter.
Receivables were up 800000 due to heavy shipments and the ended the quarter.
But day sales outstandings are constant and other quality metrics are good.
Another note because it comes up we continue to pay the guaranteed minimum royalties on Honeywell and or asset purchase and license agreement and that guaranteed liabilities shows up and current and long term liabilities on the balance sheet.
But.
As in the second quarter due to the client and aerospace volume we.
We had no access royalty payments and the third quarter.
With that I'll turn the call back over to Greg.
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Thanks, David.
Looking ahead, we're optimistic that the third quarter momentum and our product identification business will continue in Q4.
And by a growing base of new customers and the ongoing ramp up of new products and.
On the test and measurement side.
We're expecting fourth quarter revenue to be stronger than the third quarter based on anticipated contributions of shipments for defense applications.
No, David and I'd be happy to take your questions operator.
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Thank you. Our first question comes from Dick Ryan with called years.
Oh, thank you.
Hi, Greg you mentioned on the product diabetes died some on new customer acquisitions can you Guy and it can you are you know give us a sense of you know how many new customers have come in and or maybe just from a geographic standpoint, where are you seeing strength and weakness in the product I'd side with your new.
Marketing initiatives.
Sure.
It's really it's pretty widespread quite frankly, I mean, we still have some sectors like retail or not doing well, but a lot of our segments a marriage seem to be doing fairly well and a new customers you know North America, Europe and Asia, all have a good contribution of new customers.
It was partly driven by new products to get us into new market areas as I highlighted on.
For example, the Twothree OPX, which instead of printing labels, yeah wishes and apply to a product you can print directly on to packages bags or would a whole variety of things. So that's opening up opportunities with Ah for example, commercial printers as well as brand owners. So their new customer you know markets for us and then.
Even in the label business, we're getting more and more new customers as opposed to you know that we always track a percentage of upgrades, we have a very high loyalty with our customer base and so that stays pretty consistent but we keep a close eye on the actual new customers and new markets.
Yeah. One example, I could throw out there, which we pretty much see all across the North America is the CBD business. So we're getting quite a few new customers there and you know a variety of states and territories.
Any cold weather driven business or you.
You know creating opportunities for you.
Yeah, we're still seeing that in terms of the on the janitorial cleaning supplies or you know chemical products. So that is actually start you know still ramping up.
As well as medical problems and we said we have several kind of P type customers and actually a medical tests to companies to where or it can label business and recently, we got you know a few new customers and kind of the eye care area, which and if that's really cold and related or not but just a better penetration overall.
For our business within the medical industry.
Okay.
On the T. and M. side, the sequential increase anticipated for the Aero side is that pretty much driven by the the new military contract.
Yeah, maybe a bigger or perspective on the 737 maxs issue on.
Is there are the printers in in and inventory that has to be worked through as their production ramps kinda you know slowly improve or is that kind of a book and ship business with.
And with their level of production.
Yes, it was and we see a Boeing seven to seven back and it's a bit of a mix I mean, Boeing does keep some inventory, but they don't keep a lot. It's mainly a customer purchase printers, which we then are you know.
Directly shipped at Boeing for their aircraft Assembly and it's coming on the production line.
And as you know its you know and has restarted but it's kind of in the single digit type of numbers and as far as the Boeing aircraft production, but we are seeing increases and.
Yeah, I will mention the actual aircraft models, but are there some of them that are we went through a dry spell and you know very low to no orders for several months. We have started to see those orders come into a good chunk of those won't hit until next fiscal year, but it's a good sign that it's moving and the right direction. So you know what I'd say is it's a mix of a slow.
Low up tick in the commercial business.
Vs. It had been going the other way and and Yeah. We do have you know a few of these different Oh defense contracts that are due to ship the and you know actually December and January that should give us a bit of a bump here you know and the fourth quarter.
Okay.
What does the Honeywell hand off Oh.
And I mean, obviously, it's you know you've got the cobot issues, but.
How much longer do you anticipate that impacting margins.
Oh, we're hopeful to wrap that up this quarter I know you've been trying to get it done for a few quarters here, but yeah hope it did have some impacts in terms of restructuring is the other you know both Airbus and Honeywell ER as well as our own organization, so that a little bit of disruption to the contract negotiations but.
Yeah, we're certainly on the final stages right now I would say.
Very high probability that will have its on in Q4.
And then debt will you know that impact would start pretty much immediately from there yeah.
Okay. Okay, great. Thank you.
Good day thanks.
Thank you again as a reminder, please press star one now to join the queue and.
And we're holding for questions. Please press star one.
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At this time I am showing no further questions I would now like to turn the call back over to Mr., what's for closing remarks.
Great [noise].
Thank you all for joining US here this morning, and on behalf of everyone and Astronova have a wonderful safe and healthy holiday season.
And we look forward to keeping you informed and updated on our progress.
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Thank you ladies and gentlemen. This concludes today's call. Thank you for your participation you may now disconnect.
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