Q4 2020 AstroNova Inc Earnings Call
1534 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 any forward-looking statements. Only as of today, March 25th, 2021 the company undertakes no obligation to update update these forward-looking statements for further information regarding the forward-looking statements in the factors that may cause different choices. Please see the risk factors and ask Nova's annual report on form 10-K and the other filings the company makes with the Securities and Exchange Commission on today's call management will be referring to the non-gaap financial measure adjusted earnings before interest taxes depreciation amortization and share-based compensation or adjusted ebitda astranova believes that the inclusion of this measure helps investors just a meaningful understanding of the changes in the company's core operating results and also can help investors who wish to make comparisons between astranova and other companies on both a gaap and non-gaap basis or reconciliation wage.
Of this non-gaap measure to his most directly comparable gaap measure is available in today's earnings release and with that. I'll turn the call over to Greg.
Thank you, David. Good morning, everyone and thank you for joining us.
Overall, yes, you have a team perform. Well, it's just the 20 21 in spite of the significant challenges created by COVID-19 and the grounding of the Boeing 737 Max 8 aircraft.
Amid, these unprecedented challenges. We remain focused on the areas within our control. We move quickly to realign our Workforce reduce costs and increase liquidity to ensure that we continue to make progress on our long-term strategic objectives.
And our product identification segment we adapted rapidly and launched a comprehensive digital marketing initiative with new interactive content and other tools to accommodate the New Jersey virtual environment in which our customers suddenly found themselves.
The pandemic and the max grounding cause the nearly twenty million dollar Revenue drop in our strong gross margin test and measurement business. However through a combination of Baptist expense reduction and increase efficiencies on a total company basis astranova was able to post full year operating income of a 2.4 million dollars, which is actually level 20 20, despite the 13% or 17.4 million overall decrease in revenue on a year-over-year basis.
On the bottom line reported full year net income of 1.3 million dollars down $475,000 from a year earlier. However adjusted ebitda wage increase by $825,000 year-over-year.
Now turning to the signal result.
Product identification turn it another strong quarter with Revenue increasing more than 13% to 23.4 million dollars and double-digit percentage growth across the board and hardware supplies and our services compared to last year's Q4.
Full-year see mental Revenue came in at 90.3 million marking eight straight years of year-over-year growth.
Identification Hardware Revenue Nash record highs for both the fourth quarter and fiscal year and we shipped the highest number of color printers in over 2 years driven in part by continued strong demand for the T3 opx printer.
We just lost last year the T3 opx opened up the adjacent product identification Market known as directed product printing its ability to print in full color on Surface from folded boxes the paper bag to wooden planks and many others. The T3 opx is the ideal product to meet the demand for a high-performance over printing solution for bragging and other customers across a range of end markets.
A printer sales driver supplies business. So the record Hardware Sales we saw in fiscal 2021 for 10 as well for our supplies business moving forward.
The combination of higher revenue and cost efficiencies translated to games in the p i segment operating profit margin for both the fourth quarter and the full name.
Product margin for the fourth quarter was 13.2% compared with 2.5% in the fourth quarter of 2020.
It's worth noting that for the year the segment posted an operating profit of 14.3% which is a record for this segment.
Turning now to our tests and measurement.
Revenue in the fourth quarter dropped to 6.1 million compared to nine point eight million in the same period of fiscal 2020 due to the adverse impacts of the continued grounding of the 737 Max 8 and the Aerospace industry demand Paula due to the COVID-19 pandemic.
However in Q4 GM Revenue did increase 19% sequentially quarter-over-quarter.
That increase was in part due to a military Aerospace shipment what we are now seeing early signs of a pick-up in the commercial Aerospace business as well, especially in our repairs and supplies off of that business.
There are two main drivers to this recovery one factor is the max has returned to service and all major markets, except China and we're hopeful that China will come on board soon.
And Boeing's Max production rates are forecast to ramp up from the current 10 per month to $30 per month in the next year.
Literally demand is moving in. The right direction. Number of carriers placing Max orders has been increasing in recent weeks and are now at least 13 airlines flying the Mac.
The other factor is the increasing number of passengers returning to the skies due to the rollout of several vaccines for instance in the US over 20% of the population is already received at least one vaccine dose according to health officials.
Well airlines are nowhere near returning to the pre COVID-19 levels yet recent reports indicate that the u.s. Air travel has reached its highest level since the pandemic the end.
Dell looking at Geographic mix domestic Revenue accounted for approximately 56% of total revenue in the fourth quarter compared with 63% compared with 63,000 for the same period in twenty20 International Revenue increased to 44% of total revenue in the fourth quarter of fiscal 2021 up from 37% a year earlier.
We saw particular strength in a Mia where we recently enhanced our marketing team on a related note. We are also expanding our presence in China by opening an office in the southern Port City of Guangzhou complementing our location in shanghai's Pilot free-trade Zone.
Before handing the call to David. I want to first thank our team members around the globe for their dedication and commitment and Pistol 2021.
Because of the critical role we play for the Aerospace and medical Industries astranova was deemed in the central business. All of our Global facilities have remained fully operational throughout the pandemic wage operating all of the necessary health and safety precautions.
From the outside we've had no severe COVID-19 related incidents.
That is a credit to our entire team which over the past year has worked vigilantly to keep themselves and one another safe allowing us to continue to meet the demands and requirements of our customers.
Now, let me turn the call over to David for the financial review.
Good morning, everyone. Thanks, Greg. Greg provided a comprehensive review of our performance. So I'm just going to highlight a few key points from the p&l and balance sheet to provide a context about the results and to reinforce Greg smart remarks the test and measurement segment revenue is off nearly twenty million dollars. It's strong growth margin life.
fortunately, all of that is
Directly attributable to the two Black Swan events of the max grounding and the pandemic the impact of a significant drop like that is very difficult to make up for on the operating income line. But we did it through a Workforce realignment production and outside services and other expenses and through what I would call a digitization of the selling process that our product identification business as long with a number of other operational initiatives consistent with the goals that we indicated on prior calls for the year. We'd ruse reduced operating expenses by seven point four million or 16% from fiscal 2020.
On a percentage basis the expense reduction exceeded the decrease in Revenue by three points.
Your other cost reductions that improved results that are seen at the gross profit line for the full year because of adverse mix standard Bargains were down about three hundred basis points, but gross margins were only down ninety, but the trend within the year was better and then the fourth course quarter comparisons well-mixed was still a factor at standard margins. It was less so and gross margins were up and 70 basis points from the prior-year. We expect a significant portion of the cost reduction initiatives to remain visible in the income statement in fiscal 2020.
Others for example trade show expenses and travel will likely increase in the future as the ability to travel returns depending on the degree of our customers acceptance of a transition that we've made together with them to remote or virtual interaction as opposed to in person.
Beginning with this fourth quarter of fiscal 2021 we're reporting adjusted ebitda, which is further adjusted only off for sure base compensation.
As we said at the outset of the call here a Reconciliation of adjusted even the net income is included in the press release and it differs only very slightly from the options that are used in our debt covenants adjusted ebitda was 3.2 million in the fourth quarter of fiscal 21 or 10.7% of Revenue wage to $42,000 in the same period of fiscal 20, 20 20 for the full year adjusted ebitda a was 10.9 million or 9.4% of Revenue.
compared with 10.1 million or 7.6% of Revenue in fiscal twenty
turning to the balance sheet. Our liquidity profile is improved dramatically cash and equivalents at your end. Twenty Twenty-One were eleven point four million cash and equivalents at the end of the prior-year totaled only four point two million that at the end of the fourth quarter excluding. The PPP loan was 12.4 Million page is down from 19.8 million at the end of fiscal 2020 and 24.8 million at the end of the first quarter of fiscal 2021.
As We Know
In this morning's earnings release and which appears in the 8K filing this morning with more of the details. We just entered into an amendment to our bank a degree but it significantly increases our creditability availability and improves the term.
The agreement which runs four and half years through September twenty twenty-five provides for a $10 Term Loan in addition to a twenty two point five million dollar.
revolving credit facility
It also provides for substantially reduced amortization payments and fewer better structure covenants and other restrictions.
And some other structural improvements.
A closing our bank term Ladette was 10 million down 2.4 million from the end of fiscal 2021 and we have nothing outstanding on the revolving credit facility. The facility also includes a $10 so-called increase or accordion function built within it which while uncommitted in a streamlined and accelerated access to additional bank financing should such an ease need arise.
With that, let me turn the call back to Greg for closing comments.
Thanks, David. We navigating the challenging fiscal 2021 by focusing on the things within our control.
The external headwinds of the past year have not disrupted our investment and Innovation the growth engine of our business remain on Pace to launch at least one major new product for a year-long coupled with a range of Technology Innovations. And ancillary products.
Now David, and I'll be happy to take your questions operator. Thank you, sir. If you would like to ask a question about if you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment again, please press star one to ask a question. We will pause for just a moment to allow everyone the opportunity to signal for questions.
Thank you. Our first question comes from Samir Patel with escalating Capital. Hey guys, congrats on a great year all things considered. Yep. So I guess the first question I didn't see the actual credit agreement inmate came. Maybe it'll be filed. But once you get the PPP loan paid off or there any remaining restrictions on your ability to Allegheny,
Nothing significant. Okay, and so with that, I mean that's a pretty big it seems like you've built in some pretty big capacity there. So you're looking at m&a opportunities or kind of what are you? What are you thinking as you come out the other side of Chicago?
I'll take a crack at that and then Greg can chime in as well. Sure, you know clearly clearly. The first thing we want to do is make sure that we have enough capacity to support ongoing operations. Um at some point we're going to start to grow again will need working capital support the business. That's the number one number one requirement and there is a level of capital needs to be reinvested in the business and that that will also be critical then beyond that of course if there are other external growth opportunities will have some capacity to to handle those Greg.
Yeah may just answer a little in the simpler matter. You know, we take a look at you know Capital allocation. And where's the best return-on-investment going to be looking at? You know, there's a short-term things but typically looking at a medium to long-term Horizon for that. And as you know, you know in our past due we have done the number of Acquisitions. We do have an active pipeline that offer you application to go Acquisitions. And uh that is part of our growth strategy along with, you know, product development and the you know organic growth of the business, so it'll be a combination and we're always looking for jobs best place to invest that Capital but the the great thing about this agreement, you know, it's with our existing Bank we're able to renegotiate uh this agreement and I think it gives us plenty of Firepower if we find a good acquisition or a good investment opportunity to further accelerate the growth in the business.
Great, and then on the cost reductions, I mean you actually kind of discussed a little bit saying that some of it's going to stick and obviously some of it may come back kind of any more any more color there something for example, mom has talked about being able to get back to sort of Prior margins, you know, a trade 42 on the max, you know as opposed to where where Max rates were before and so I'm just kind of curious like when you guys think that you'll wage, you know how your profits will Falls kind of as as they are space part ramps back up.
Yeah, so the Aerospace part of it that doesn't drive a big part of the cost, you know, we had to keep a kind of a critical mass of people in place, you know, and it's a very specialized business office. So more of the cost reductions happen kind of in the general business as well as probably benefit inside of it. So I think what you will see is since you know, probably not in the first half very much but you know, the trade shows will open up again travel opportunities will open up again. Just hope those two spending categories have been you know, dramatically reduced for us, you know for obvious reasons, um on the Aerospace side, you know, it is a high-margin business in some areas some places, you know, it depends on which product in which opportunities but in general, you know, we're kind of under utilizing our own resources right now with respect to the facilities. Um, so as that ramps up, we'll see some nice margin improvements in that segment of our business as well. And I think it's pretty dead.
Known, you know what that curve is. It looks like a little more hopeful than what people predicted back at the end of last year. So we'll keep a close eye on it, but the
Fact that you know in the US to posting, you know higher and higher records of Passenger travel, that's a good sign with respect to the max. They've now got I think it's about 15 Airlines around the world that are flying that plane and Boeing is building back their backlog again, which is good to see yeah congrats and then the last question you mentioned the major you walk ins usually talk about those little bit more anything specific you want to call out per twenty Twenty-One or you going to keep us posted probably going to keep you a little bit in the dark for right now, but if it works anything like it has in the past years, we typically have one of those, you know, I should say product identification releases in the fall trade Chef season. So I'd say keep a lookout for that, you know, maybe at pack Expo maybe a little bit later, but that's you know, there's things like that in the works.
Understood. Thanks. Appreciate it. Thanks.
Thank you or next question comes from dick Ryan with Colliers.
Thank You by Greg you mentioned military shipment for Arrow into for can you give us a kind of an order of magnitude of that and is it still ongoing or was it completed off?
Yes far as the order of magnitude. I don't want to comment on that specifically. I mean, you know, it's a good-sized order but you know certainly wasn't lying sure what shipped off it is part of an ongoing contract that we have. It's a multi-year contract. I think I mentioned earlier calls week new picked up some of these during the course of the year last year and there are multi-year agreements. It's a little bit unpredictable exactly when they give us the releases. So it's hard to you know call you know, which quarter they're going to hit in about an annual basis. We have a fairly good idea of how that's going to drop in an working on some other ones as well. So you hopefully we can add to that.
Okay. Yeah just spend a little bit more time on the Arrow side. Obviously with the Airbus, you know, your standard offering there the max it's kind of an airline decision any sense of if Boeing had inventory of your printers or are you starting to ship with with kind of a clean inventory Slate from them?
Yeah, typically don't they don't keep a lot of inventory of our printers because let's say, you know buyer furnished equipment. So the airlines actually purchased the printers for us for their particular aircraft of you know going into production and we ship those two Boeing so that can be installed on you know, that, you know Airlines production tail. So, you know, we are starting to see the orders come back in from the airlines for us to ship to Boeing. We don't get visibility on what they have for imagery obviously keeps them for you know, last-minute emergencies and things like that, but they don't typically keep a lot of inventory of our printers.
has COVID-19 impact
How airlines are viewing either, you know new printers or upgrading old printers that are you know already installed any any sense of Airlines making kind of different decisions post coded.
We're not hundred percent post COVID-19 yet. But yeah where we'll see the impact there. I mean, we had a couple of announcements last year of Airlines actually adopting our newer printers, We do expect that that kind of upgrade program would continue and our toughwriter brand has a number of superior features and functions compared to some of the other brands that we acquire. So I think we'll see the, you know more of a migration to our toughwriter, you know, it's it's a multi-year process right? Because in the airline industry things tend to move fairly slow, but we will see you Thursday. The other thing we can re-engage with a number of these Airlines we had several potential deals in the works prior to Cove it, you know for people to upgrade their old printers to the our newer printers and it one of the biggest things off the wait is about half the weight of a typical competitive model. So we're re-engaging with some of those Airlines now, you know as they get on better Financial footing they're able to make those kind of decisions.
We're seeing that that was a few Airlines already.
Okay on the on the supply chain side for both ends of the business, you know, we hear of obviously electronic shortages you hear of plastics. You've got some supply issues, you know up and down the line how has that impacted you guys I didn't see any boost in inventory. So you're building kind of you know, some some stuck there. But how are you seeing your supply chain?
We're seeing things like that out in a certain areas, you know because of the you know, the our supply chain is fairly long right there some Aerospace products, especially our young age six to twelve months delivery. The only good thing about that is things dropped off so quickly that we had, you know, a huge Surplus. So this place is actually in this case the kind of a good thing because it's cushioning some of these disruptions. We're seeing, you know with you know, transit times things we Ship by see, you know, you know, I think you know all the stories right ships are sitting out there trying to get into docks or stuck in a canal somewhere. Do those things haven't been critical for us because we have a a pretty big buffer and we do that on purpose to we don't do not have it quite as high as it was because of the downturn in this year. It's actually turning out to be a good thing cuz we haven't really seen things that are disrupting our operations in any significant way.
Okay. Thank you.
Sir, thanks dick. Thank you. Our next question comes from good morning Greg and David congrats a good year. It's an interesting year have sort of a a follow-up question on a space. I think you guys know that that it was down $17 Seventeen million year-over-year. Is there anything that makes you doubt whether you can go back whether that business can go back to the revenue level of fiscal nineteen of the school twenty.
Just one no one quick correction that we went through a lot of numbers quickly there. But so the test and measurement segment, which of course is largely Aerospace decreased by 19.6 million month. So that was the Aerospace related hit our overall astranova. No Revenue was down 17.4 year-over-year just kind of clarifying that they your question there. You know, we do expect that. It's going to grow back, you know, but it it depends who you listen to you, right? You know, some people are saying two years, you know between two and four years is what people are predicting to get back to those kind of levels. The one thing that we do know from a couple points of view does people switching to the toughwriter? Like I talked about our brand tends to be a higher volume product for this our main brand and the margins there for a little bit better on that. So the more people switch to that brand that's an overall Improvement to our, you know bottom line off.
So the other thing that's going to help us is you know, having to you know reduce costs and be more efficient and things just past year. So we've learned a few things as well. So as we Grant back up fairly confident that you're going to see higher margins on the way back up as we get back to that level. So, you know, whenever we get there it's hard to predict but getting back to the office of Revenue numbers. You'll see higher margins, you know, if we can, you know stick to the plan that we have in place right now.
Okay, and from a revenue perspective from a market share perspective with with the airlines with with Airbus. Is there any meaningful change in the office to or three years?
You know, we picked up a little bit of market share. So we have a substantial market share already. So we kind of you know, add it to that a little bit, you know, I don't expect it to decrease, you know, but, you know, you never know what's going to happen up there and um, you know going forward, you know, really our game plan and we've talked about this before is like our networking products adding other products to the mix since birth supplier right now to all of the major oems some some 200 Airlines were a direct supplier to and a lot of the tier one companies, you know, like the Honeywell isn't Alice's in the wage, for example, so our Focus really not always kind of on the upgrades and adding more products to the mix.
Okay, great. And then the question for David David the cost came down quite significantly this coming Thursday here. I think sort of sequentially that they're picking back a little bit. What do you what do you expect in the coming year from in Opex perspective? We're not going to give any specific guidance on our topics expectations. You know, what we have said and I'll just reiterate is that you know, we do expect a fair portion of the operating expense reductions that we've been able to obtain to to to stick and to be available to Thursday is coming here. You know, we've we've been a little bit cautious and letting people know that there are some expenses that probably will take back up. So it's going to be you know, yep.
100% of what we
Been able to reduce will get the keep but it'll be a substantial portion of it.
Okay. Thank you very much.
Thank you. Next we have a follow-up from Samir Patel with Escalade capital.
Hey, I just wanted to follow up on the Arrow side. I don't know if he's still disclose the breakdown of Supplies and Hardware in that business, but I was just curious, you know, kind of independent. You have two drivers right you the production ramped isn't Max and then other aircraft back to us over the next two to four years as you said and then you hopefully have sort of the shorter-term you talked about the pickup and US domestic travel for example on the supply side. So I was curious if you had any thoughts there.
Yeah, we don't disclose it down at the site mental level but what you see first is the more the more the planes fly. I think I make this comment before and then one of the planes flying the more they use our supplies in the more they you know, they'll break printers or a cup of coffee get something or whatever happens to them right now over, you know, twenty years or ten years. They you know, some they can wear out so our mro parts in the business we've seen that pick up faster than you know, the new printer orders. That would think that would be the case. Maybe that'll tend to level off and get back. It's not back where it was but it's that particular part of the business is probably about 40% back and as the OEM picks up and more printers are out there that kind of helps support that Faith as well. But it it's a smaller part of the overall, uh, Aerospace contribution, you know, so it's helped it's great to see that coming back and that's driven wage.
Basically my passenger Revenue model for more than they fly the more we see that business pick up but on the the new equipment, it's really based on, you know aircraft production. What kind of supplemented by TJ upgrades?
Understood sorry to be nitpicky David but you mentioned rpks just now wouldn't it be more driven just by flights? Like is it actually, you know, I would assume the amount of paper used during a flight is going to constant whether the load factors like, you know home or 95% So is it more is it more than number of flights or actually the rpks?
Yeah, that was good. Yeah, it's it's flight but it's also the distance of the flights too. So it's a maybe a better on it.
Okay, understood. Thanks. That's all I have. Sure.
View this concludes. Today's Q&A. I would now like to turn the call back over to mister Woods for closing remarks.
Right. So, thank you everyone for joining us this morning, and we look forward to keeping you updated on our progress in the future. Have a good day. Bye now.
Thank you. Ladies and gentlemen, this concludes today's teleconference. You may now disconnect dead dead dead dead dead.
Jeff