Q1 2022 AstroNova Inc Earnings Call

Good day and welcome to as you know based on first quarter fiscal 2022 financial results Conference.

Conference call today's conference is being recorded I would like to now turn the conference over to David <unk>.

The company's Investor Relations firm Sharon Merrill Associates. Please go ahead.

Thank you good morning, everyone and thanks for joining us hosting this morning's call are Greg Woods <unk>.

As president and CEO.

And David Smith, the company's Chief Financial Officer, Greg will discuss the company's operating results David will comment on the financials, Greg will make to including a comments and then management will be happy to take your questions. By now you Should've received a copy of the earnings release that was issued today. If you do not have a copy. Please go to the investors page of the.

Astronomical website Www Dot Astronomic, Inc. Dot com. Please note that statements made during today's call that are not statements of historical fact 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.

And uncertainties accordingly, actual results could differ materially except as required by law any forward looking statements speak only as of today June 10, 2021. 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.

Risks please see the risk factors and Astra covers 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 review pairing to non-GAAP financial measures adjusted earnings before interest taxes, depreciation amortization and share based compensation or adjusted.

EBITDA Astro Nova believes that the inclusion on this measure helps investors gain a meaningful understanding of the changes in the company's core operating results and also can help investors, who wish to make comparisons between Astro Nova 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.

Alible in today's earnings release, and with that I'll turn the call over to Greg.

Thank you David.

Morning, everyone and thank you for joining us.

For the first quarter of fiscal 'twenty 'twenty 2 revenue.

You came in at $29.1 million down 6% from the prior year as topline growth and our product.

At vacation segment, partly offset continued softness in the aerospace portion of our test and measurement segment due to the effects of the pandemic and the slow recovery in the 787 Max shipments on.

All of the global economy is still challenged we're beginning to see signs of recovery in certain areas as economies begin to open up.

And air travel increases.

Our privacy on vacation segment posted record bookings for the quarter and bookings for the aerospace portion of our test and measurement segment were up 45% sequentially delivering the first aerospace positive book to bill quarter since fiscal 2020.

On the cost.

Side of our.

Our team members have done an excellent job over the past year, and bringing down our expenses as reflected in our higher margins and increased profitability in the quarter.

Operating expenses were essentially flat from the prior year's first quarter and operating profit was up nearly 11%.

Turning.

Q1 performance by segment.

For identification revenue was up 3% to $23.1 million.

With solid contributions across the product line.

The T..3 O P ex our wide format durable direct to packaged printing system.

Continues to surpass expectations.

To our owners Oems and commercial printers are profiting from their products many benefits in terms of greater efficiency and a high return on investment.

As a result, the T..3 O P ex continues to attract new customers and new markets around the world.

From a geographic standpoint, the reason.

<unk> 2 our EMEA sales organization paced a nice uptick in international revenue in Q1 the.

The international channel accounted for nearly 43% of total revenue.

From 36% in the first quarter of fiscal 2021.

Domestic sales accounted for 57% of total revenue in the quarter versus 64.

And hand in Q1 last year.

And our year end call I talked about our recent expansion in China with the addition of a new office in the southern Port City of Guangzhou.

Since then we have stepped up by hiring experienced sales and support team members for that location.

With sales locations down on both Shanghai.

<unk> hi in Guangzhou, we're in a much stronger position to grow our business in the Asia Pacific region.

We are reinforcing our APAC investment with a stronger trade show presence, having recently participated in 4 regional shows and niche industries, including food and cosmetics.

Looking ahead to the fall.

We will have.

Have a booth this year at the pack Expo Exposition in Las Vegas, where we will be demonstrating our latest product lineup.

And of course, we continue to invest in our digital marketing initiatives, expanding our ebooks case studies support videos and other tools to attract new customers and help our existing customers optimize our technology.

Looking at our test and measurement segment first.

First quarter revenue was down 30% from the same period in fiscal 2021 as the effects of the pandemic and the 737 Max slow restart continue to be felt across the commercial aerospace industry.

I've talked a moment ago about the positive indicators, we are seeing now.

<unk> was maybe improving a bit faster in certain areas overall industry analysts say it will still take many months for commercial aerospace to returning to the 2019 levels and correspondingly for us to see substantial benefits from that recovery since our products are designed engineered need a full range of commercial and business jet aircrafts used worldwide.

1 we recently entered into a tier 1 supply agreement with Airbus to ship <unk> manufactured printers for the <unk> hundred 20 family of passenger aircraft.

Tier 1 designation enables us to supply flight deck printers directly to Airbus rather than through a third party intermediary.

A third party supply agreement has.

While don't place since 2017, when we acquired an exclusive worldwide license from Honeywell International and manufacture the PTA 45 day narrow format cockpit printer.

For the Airbus <unk> hundred 20 portfolio.

This direct supplier status means that we have achieved all of airbus's rigorous qualification.

Suffocation standards across the areas of quality engineering manufacturing and global aftermarket support as well as program management.

We are honored to be part of the Airbus direct supplier network and look forward to expanding our relationship further in the future.

Now, let me turn the call over to David for the financial review.

Has been an ex Greg and good morning, everybody.

In the first quarter, we continued to manage our cost will while continuing to prudently invest in growing the business.

Meg gave a comprehensive segment review so I'll just mention a few more items from the P&L and balance sheet I'll also note that our.

Q1, 10-Q will be filed today.

Looking at revenue by type hardware revenue was $7.6 million into fiscal 2022 first quarter compared to $8.9 million in the prior year period, reflecting the decline in the test and measurement segment.

Supplies.

Revenue was $18.2 million.

Versus $19.1 million in the same period of fiscal 2021.

Service and other revenue was $3.2 million up from $2.9 million a year ago.

The year over year variance in supplies revenue reflected in <unk>.

Part weaker aerospace industry demand in the first quarter of this fiscal 2022 associated with COVID-19, as compared to last year as well as what we now think with some early pandemic supply stocking orders from some product identification customers.

<unk> in the fiscal 'twenty 'twenty 1 from her.

On the supply chain.

Throughout the pandemic, we've experienced some challenges in obtaining raw materials and components from our for our products and this continues so.

So far we've not really had shortages and have managed this from <unk>.

Additional costs for things like expedited shipping and express.

Shipping fees.

And we don't think that these challenges that materially affected our financial results or relationships with our customers and our current view is that these issues will remain manageable, but it probably will take a couple of quarters before.

They worked out of the system.

We've been addressing potential supply shortages proactively throughout with long range planning and supplementing inventories as needed.

To some extent these strategies resulted in us carrying more inventory than we normally would.

And it's a reason that inventories at quarter end were down.

Only modestly from the year end period and for the time being we plan to continue to err on the side of caution.

Bookings for the first quarter were up 5% year over year, and 12% sequentially to $32.8 million.

Beginning in the fiscal 'twenty 'twenty, 1 fourth quarter, we began.

When reporting adjusted EBIT da which is <unk>.

EBITDA further adjusted just for share based compensation.

And in Q1, adjusted adjusted EBITDA was $2.5 million or 8.6% of revenue compared to $2.6 million.

On or 8.3% in.

In the first quarter of fiscal 2021.

Turning to the balance sheet cash and equivalents at the end of the quarter stood at 11.4 million unchanged from year end.

But that at the end of the quarter was $9.6 million down from 12.

<unk> point $4 million at the end of the fiscal year.

Collecting the reductions in debt, we made when we closed the amended credit agreement this quarter that we talked about on our last call.

This excludes the P. P P loan of $4.4 million.

While our application for PPP loan forgiveness has been in for a while.

We just don't know when the government will process it.

Before I turn the call back to Greg I, just wanted to let you know that next week, we will be participating in the virtual east coast ideas conference or.

Our presentation is scheduled to be available on the Investor segment of our website beginning at 8 a M Wednesday June 16th.

And with all that I'll now turn the call back to Greg for closing comments.

Thanks, David.

We continue to focus on our core strategic tenants investing in innovation, expanding our global geographic footprint.

And delivering world class products that enable our customers to achieve greater efficiencies and profitability.

In test and measurement, while the lingering effects from the pandemic continues to create uncertainty for the commercial aerospace industry domestically the market seems to be gradually turning a corner.

The pace of recovery remains slow.

And probably identification our strategy of addressing adjacent market segments with unique solutions like the.

T 3 LPX is paying off.

And for directed package printing is growing across the industry and as a global player. We are well positioned to capitalize on that momentum in that segment.

Now, David and I'd be happy to take your questions operator.

Thank you if you'd like to ask a question please signal by pressing star.

On your telephone keypad, 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, you May press Star 1 to ask a question, we'll pause for just a moment to allow everyone to signal for questions.

Our first question comes from <expletive> Ryan with Colliers.

Thank you.

Say, Greg you talked about the tier 1 status with Airbus does that now mean youre not required to pay Honeywell anymore fees for their participation and how about on the Boeing side.

Yeah, the Boeing was.

Erica yes, there are no fees with respect to the Boeing because we already were a tier 1 supplier for Boeing.

With Airbus with the completion of this agreement we can now work to finalize that.

There's still some negotiations going on in terms of the exact timing of wrapping up everything with Honeywell.

3 people on that.

They met their us Honeywell and Airbus. So we've got the Airbus piece, which was the most difficult locked up and now we just need to wind down the.

Honeywell transition service agreement piece of that.

Which we're working on right now.

Okay.

737.

Backlog star.

On a grant to flow what are you seeing there.

Looks like obviously the bookings strength was it pretty much related to the 737 or was it across the spectrum.

No it was across the spectrum and its still a very small piece, that's coming from the Max but we.

Start seeing that just start to ramp up now.

It's still small numbers compared to where we were.

In 2019.

But we are seeing that tick up quarter by quarter.

The latest information we have from Boeing is in line with what they have said in the past is that.

They should be getting up.

We are you know kind of a low levels are at now to the 30% 31 kind of level as we get into the very beginning of 2022. So that's good to hear as they are on track with that.

And as of course, as they do that they'll need more and more printers to support that ramp up in their manufacturing.

Uh huh.

What does that what.

What is their inventory of printers look like and you can get a sense of how much inventory they're sitting on it.

Yes, we typically don't keep a lot they keep it and because again with the 737 the airlines actually purchased directly from SMB drop ship it to.

Boeing in time for the production so they do keep a.

Buffer obviously, they don't on a slow it down in case, an airline news flow on our delivery, but that's typically.

Typically you go into kind of the low tens kind of numbers that they keep on hand, there in Seattle.

Okay.

On the product I'd side, you mentioned.

Increased staffing in China.

Net.

The percentage of revenues is APAC now and whats the opportunity worked and worked on that grow.

Yes.

Breakout specific percentage, but yes.

It is a very large economy in.

In China and they bounce.

Bounce back a lot quicker than most.

On that depend on MC and Theyre kind of back to normal from what we can see in January.

So we just wanted to do we have a lot of business, but.

And business potential, but in the south we werent very well representing because it's hard to get there from Shanghai. So we.

We expect that.

We don't publish the actual numbers, but.

Second our China business to double year over year.

From kind of from this point.

Looking at next year, as we ramp up that office.

Because the business in net areas nearly equal to the business, we already have and the potential we have in the northern part of the country.

Okay.

Don't give a specific.

I mean, it seems but can you give us a sense of how you see fiscal 'twenty 'twenty 2 kind of flowing from.

First quarter as a base.

Yes, we don't give that but what I can say is yeah, maybe I'll just highlight the things that I already have said, which is we're seeing.

If a guy is a pickup in orders on our product identification side and while the orders are still behind where they were obviously.

On the pre pandemic level on the aerospace and test and measurement.

Portions of our test and measurement segment, and we're seeing that ramp up too. So we see that as a positive indication.

On.

A nice co drivers of.

The vaccines and the countries recovering in open up.

That's great for us.

The aerospace business.

As more and more planes are flying we're seeing increases in our MRO portion of our business.

But yes, all those things are driven by the international and international.

The mangle it depends on you had talked to you, but it's kind of down.

I saw this morning down 80% from April of last year to April this year, so we need that to bounce back to.

There's positive signs there.

Okay.

Okay, great. Thank you.

Perfect.

Again that is star 1 to ask a question.

There are no additional questions at this time I'd like to now turn it back to Mr. Woods for closing remarks.

Great well thanks, everyone for.

This morning, we look forward to keeping you updated on our progress and we'll talk to you next quarter Bye now.

Thank you ladies and gentlemen. This concludes today's presentation you may now disconnect.

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