Q2 2022 AstroNova Inc Earnings Call

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Good day and welcome to Us for <unk> second quarter fiscal 2022 financial results Conference call.

Today's conference is being recorded.

I would now like to turn the conference over to David <unk> of the company's Investor Relations firm Sharon Merrill Associates. Please go ahead Sir.

Thank you Keith good morning, everyone and thanks for joining us hosting this morning's call are Greg Woods, Astro Nova's, 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 concluding comments and then management will be happy to take your <unk>.

By now you Should've received a copy of the earnings release that was issued today.

Do not have a copy please go to the investors page of the Astra and Novo website, Www Dot astronaut, 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 cause involve risks and uncertainties.

Accordingly, actual results could differ materially except as required by law any forward looking statements speak only as of today September 14, 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. Please see the risk factors in <unk>.

No, but its annual report on Form 10-K, and the other filings the company makes with the Securities and Exchange Commission.

On today's call.

Referring to non-GAAP financial measures, including non-GAAP net income non-GAAP net income per diluted share non-GAAP gross profit non-GAAP operating expenses non-GAAP segment operating income earnings before interest taxes, depreciation and amortization or EBITDA EBITDA, excluding the cares act benefits and.

Astronomical believes that the inclusion of these measures helps investors gain a meaningful understanding of the chart changes in the Companys core operating results and also can help investors, who wish to make comparisons between <unk> 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.

<unk> is available 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.

We reported year over year and sequential revenue growth in the second quarter in both the test and measurement and credits identification segments ASP.

We capitalized on a positive demand picture across the business.

Overall revenue of $37.0 million was up 8% from a year ago quarter.

3% from the sequential first quarter of this fiscal year.

Our sales performance is even more impressive when you consider the various global supply chain constraints and COVID-19 headwinds.

While supply chain issues did not have a major effect on our second quarter, we were nonetheless, unable to fulfill all the demand we would've liked to have shipped.

Addressing these supply chain issues as our logistics teams working overtime to ensure that we get the required items needed into our manufacturing facilities in a timely and efficient manner.

Yes, we expect these conditions to persist throughout.

Throughout the year, we are increasing certain inventory levels as a precaution.

I'm proud of the dedication and commitment of our team.

As effectively as possible within this dynamic environment to get our product to our customers.

Turning to our Q2 performance by segment.

Friday notification revenue was up 9% to $24.0 million with solid contributions across the product line.

We saw sales increases in the hardware supplies and service categories.

Our T. Three Oh PX wide format durable direct to packaged printing system continues to receive positive customer reviews and is performing well in markets around the world.

Brand owners commercial printers, and other customers are seeing the products' benefits in terms of greater efficiency and a high return on investment.

From a geographic standpoint, we.

We saw continued improvements in several markets from the realignment programs and additions that we've made to our global sales force in various regions.

During the second quarter, we began to attend smaller regional tradeshows.

And our sales teams have also begun meeting customers face to face when possible.

We're thrilled to be attending in person to a major trade show later this month.

Pack Expo in Las Vegas, and the thoughtful European packaging show in Germany.

As we were able to increase our face to face meetings with customers and they tend more trade shows.

High quality interactions are an excellent addition to our expanded digital marketing lead generation programs that we've deployed last year.

As we've discussed on prior calls we've made major improvements in the digital area since the beginning of the pandemic.

We continue to invest in expanding our ebooks case studies support videos and other digital tools to enhance both our sales and customer support activities.

Our product introduction plans in this segment has historically included one or more new products per year and we're currently on track to meet that schedule.

Looking at our test and measurement segment.

Second quarter revenue was up 5% from the same period in fiscal 2021 and up 6% from the sequential first quarter.

Within our aerospace business.

The market is recovering a bit faster than we had originally expected.

Especially in some of the larger domestic markets like the U S Europe and China.

However, international travel is still far behind its pre pandemic Jake.

Travel restrictions in various countries.

During the quarter sales of printers supplies parts and repairs all increased.

Orders for our top writers 640 flight deck printer continue to increase demonstrating the progress we have gained in the marketplace with our newest printer.

With its compact design and the lowest weight and power consumption industry. The.

The tougher it is 640 is a great example of the innovative sustainability solutions, we are bringing to market.

Another innovative sustainability solution was launched in the data acquisition side of our business, where we have begun to provide a solution to enhance the efficiency of solar farms.

Our data acquisition products are able to analyze the cells that are not working up to capacity, enabling operators to more quickly make repairs or replacements in order to improve the energy efficiency and yield of the solar farm.

In the aerospace and defense market, our sales team landed a new government program featuring some of our most advanced data acquisition equipment.

This is a significant multi year program with initial shipments starting already in the third quarter.

Looking at the second half of the year.

We're anticipating a good revenue trajectory for the test and measurement segment.

We expect to report increased revenue on a sequential and year over year basis in the second half.

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

Thanks, Greg and good morning, everyone.

In addition to the revenue growth as Greg discussed we reported another solid quarter on the operating and net income lines as we continue to effectively manage cost while prudently investing to grow the business.

In the press release, we issued this morning.

We've discussed both our GAAP and non-GAAP financial results and I'll take a few.

Minutes to make some comments on this distinction so that you can understand the results a little bit better.

This quarter, we recorded a benefit of two cares act programs.

These were the payroll protection program.

Loan forgiveness, and the impact of the employee retention tax.

Credit or ERC program.

To remind you last year, we applied for and received a PPP loan the cash from that loan has been on our balance sheet. Since we received it but this quarter that loan both principal and interest was forgiven under the terms of the program.

Therefore, we eliminated the loan and the interest accrual amounts on our balance sheet and recorded the benefit of that forgiveness hit our income statement as other income.

In addition, this quarter.

As a result of some enabling legislation after the cares act we have qualified for the employee retention credit.

And we report that in the second quarter.

We get it because our revenues declined more than 20% from the.

Calendar 2019 first three months.

Two the calendar 2021 first three months.

And we expect to see those cash benefits through our payroll tax filings.

Well, we've booked the impact of this credit now under the rules the tax refund is pending.

It's a receivable on the balance sheet and will convert to cash at some point before the end of the year.

Later on today, we will file our second quarter, 10-Q, which will provide more detail about the impact of all these items as disclosed in the pressure lids.

So read the SEC filings as Mister.

Mr. <unk> suggested.

That said in summary, we've carefully and intentionally.

<unk> differentiated between the income statement impact of the benefits we recorded in our GAAP financial results, which have those to cares act programs in them and the results that we would have reported had those items not been there.

And we've done this to help you focus.

Attention on the underlying operating results of the business and we call that <unk>.

Correct or non-GAAP.

And in our press release disclosure.

Doesn't that's not to minimize the favorable impact that those items have had on our GAAP income and more importantly in our balance sheet, both our cash position and our equity accounts.

All of that in mind.

And because the results that Greg has already mentioned are very solid I'll just.

Make comments about the results on a pre cares act basis.

But those results are pretty strong bookings of.

$36 million were up 41% from last year.

Backlog of $28.0 million is up 3% last year and it would have been higher but for some of the bookings that.

<unk> came in just after the end of the quarter.

As Greg said revenues up in total 8%.

$37.0 million.

Revenue was up five 4% to $10.0 million.

Product identification revenue is up eight 6% to $28.0 million.

Gross profit was $12.0 million up 13%.

At 37.1.

<unk> was up 170 basis points from last year.

Operating income of 1 million $25.0 was six five times last year's result.

Net income of.

978000 or 13.

Cents per diluted share was up from essentially breakeven last year.

EBITDA was $3.0 million or seven.

2% of revenue and adjusted EBITDA, which adds back stock based compensation was $8.0 million or eight 6% of revenue.

Operating income was.

188000 lower than the prior year it was 12 point.

7% of revenues down.

Down from last year, when we get curtailed spending sharply.

But was up from the first quarter.

Quarter of this year by more than 90 basis split operating spending was up sequentially from the first quarter by 255000, as we continue to invest in sales growth and new product development.

CNS segment operating profit of 907000 was up.

One 3 million from last year's loss in the segment operating margin was 14, 3%.

This quarter, we completed the Airbus contract for.

For which we incurred some cost.

Getting it completed.

Which were capitalized we took a look at that and we amortize we've decided to amortize those costs over the life of the <unk> hundred 20 program of an estimated 20 years.

And so at that time, we have reevaluated.

<unk> evaluated the amortization of the rest of the aerospace intangibles and change the estimate of the period, we should amortize them over the 20 years as well.

This change in intangible amortization accounting does not impact cash flow of course, but it does impact segment up segment profit favorably.

With or without that impact though segment.

<unk> margins were higher than they've been at any point since the second half of fiscal 2020, when revenues were considerably higher.

We do think that this account.

Accounting change provides you with a much more realistic informative perspective on the performance of this.

Moving on looking at.

Total revenue by type hardware revenue in the quarter was $7 nine.

<unk> 9 million.

Sorry.

Comparative.

And in the prior year.

And the fact that.

And then aerospace revenue was still strong.

Last year.

Supplies revenue was eight 7 million up nine 4% from $18.0 million in the same period.

Fiscal 2021 service and other revenue was $6.0 million up $3.0 million from a year earlier.

Domestic revenue was 57.

Four 7% of total revenue and international was 42, 3%.

As Greg mentioned, we have challenges from a supply chain perspective, obtaining raw materials and components.

Has resulted in some additional cost for expedited and express shipping and things like this.

While it has not made a made a major disruptive impact on our results. It has been a slight headwind for revenue and it's also put a slight drag on margins.

We're addressing potential supply shortages proactively through long range planning and supplementing inventories as needed.

And the strategies have resulted us resulting in us carrying more inventory than we normally would and certainly more than we had planned.

While we still expect to manage through what we what we think are temporary dislodged locations.

Well, we certainly expect that inventory will increase in the third quarter as lead times continue to be extended.

Turning to our balance sheet, our cash and debt positions continued to improve cash and equivalents at the end of the quarter stood at 11.4 million essentially flat, but that continues to decline and then at the end of the quarter was nine <unk>.

$5 million, that's down about 3 million from year end, we really are in a wonderful position relative to our covenant structure.

Amazon ample unused committed bank credit capacity to support our growth and capitalize on.

On future opportunities.

With all that I'll turn it back to Greg for closing comments.

Thanks, David.

Yeah.

Okay.

And we did this quarter.

Please bring great innovative products to market adapt to a new selling environment.

Okay.

Okay.

Looking at the remainder of the year.

To report.

Continued improved demand in the price of the education segment.

Thank you.

Okay.

We are well positioned to capitalize.

On many growth.

Okay.

We continue to focus on our core strategic tenants.

Okay.

Now, David and I will be happy to take your questions.

If you would like to ask a question. Please signal by pressing star one on your telephone keypad.

If you are using a speaker phone.

Please make sure your mute function is turned off to allow your signal to reach our equipment.

Again, Thats star one to ask a question.

We will pause for a moment to allow everyone an opportunity to signal for questions.

Once again, if you would like to ask a question. Please signal by pressing star one.

On your telephone keypad.

And we'll now take our first question. It comes from <expletive> Ryan of Colliers. Please go ahead.

Thank you.

Greg either in office was on my end are you Bowen, Dave through the commentary back to you pretty much cut out so that could be me or I don't know if that was the.

Hull of the conference call anyway, I can circle back with your closing comments, but how much on the supply chain issues. How much of revenue would you say was was kind of pushed.

Those challenges.

Yes, we got a significant amount, but it was it would have.

<unk> made a little bit of a difference there wasn't like a huge delta there, but there were things that we had planned to move out and just.

And a final weeks of the quarter weren't able to pull everything together to pull it out but we have since done Seth.

Okay, and David I'm not sure I heard what was the supply number so the recurring revenue aspect for Q2.

Hi.

Can you go into your questions look up the answer to your question Okay.

Greg Boeing just came out with their updated commercial transport outlook, obviously still calling for very strong.

Multi year growth and single aisle.

What are you seeing with your <unk>.

Max and then the <unk> hundred 20 business, maybe on a more shorter term level are they getting through any inventory issues that were out there or.

How how does the.

Rebounding.

Airline delivery.

Demand look for you.

Okay.

Yes, so for US it's again like I mentioned on previous calls deliveries don't matter so much.

They do matter from an operating point of view as we get MRO benefits from that but as far as new printers, that's a function of their build rate.

We do see.

Good pull through on that.

Obviously Europe has.

Airbus Aircrafts head still.

Boeing seems to be hitting the box that they have told us and what they have in their forecast. So we seem to be tracking pretty close to what they are estimating right now.

The bigger impact <expletive> is the.

Yes, the actual air travel right. So those single aisle aircrafts are used in the domestic travel with shell.

Kind of dominant.

Traffic pattern right now.

Yes can you give some more details on the new win.

The A&D side.

Yes.

Our test and measurement segment of course in that.

We make a range of data acquisition equipment and we have some you can take kind of take a look at our website I want to kind of follow up the exact product, but it would be in the higher range of those products.

More sophisticated data acquisition equipment that can handle.

A huge number of channels and data and.

Present that in a bigger screen format as well as printed format. So it's already been working on for a couple of years now.

And like I mentioned, it's a multiyear program. So we should kind of enjoy the benefits of that.

Hard work that the guys have put in over the past couple of years now for I would say at least a couple of years going forward.

Yeah, and it's a multi location type of situation as well.

Okay.

And <expletive> jump in and just to answer your.

I was just going to jump in and answer your earlier question.

The supplies revenue in the quarter was 18 point.

$7 million.

That was up 9% from the prior year.

And service and other was.

$6.0 million up from $3.0 million.

At the same period last year.

Okay. Okay. Okay.

And on your guidance for sequential and year over year second half performance or youre going to be seeing that in both segments.

Okay.

Okay.

Uh huh.

We didn't call it out specifically, but at this point they both look good for the second half so let's put it that way.

Okay, great. Thank you.

Perfect.

Okay.

Okay.

It appears we have no further questions at this time I would now like to hand, the call back to Greg Woods for any additional comments or closing remarks.

Great. Thank you.

Well. Thank you everyone for joining us here today, we look forward to speaking with you at our next call and enjoy the rest of the day.

This concludes today's call. Thank you for your participation you may now disconnect.

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