Q3 2022 AstroNova Inc Earnings Call

Yes.

Yeah.

Good day and welcome to <unk> third quarter fiscal 2022 financial results Conference call Today's conference is being recorded.

I would like to turn the conference over to Scott Solomon of the Companys Investor Relations firm Sharon Merrill Associates. Please go ahead Sir.

Thank you John Good morning, everyone and thanks for joining us hosting this morning's call are Greg Woods, <unk>, President and CEO and David Smith, the company's Chief Financial Officer.

Greg will discuss the Companys operating results.

David will take you through the financials at a high level, Greg will make concluding comments and then management will be happy to take your questions.

By now 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 page of the <unk> website, Www Dot <unk> dot com.

Please note that statements made during today's call, but are not statements of historical fact are considered forward looking statements within the meaning of the private Securities Litigation Reform Act of $19 34.

These forward looking statements are based on a number of assumptions that could cause actual 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 December eight 2021 the.

The company undertakes no obligation to update these 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 and Astro was annual report on Form 10-K, and other filings the company makes with the Securities and Exchange Commission.

On today's call management will be referring to non-GAAP financial measures, including non-GAAP net income and non-GAAP net income per diluted share.

<unk> believes that the inclusion of these measures help 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 a non-GAAP basis. A reconciliation of these non-GAAP measures to their most directly comparable GAAP measures.

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

Thank you Scott.

Good morning, everyone and thank you for joining us.

As he mentioned in this morning's press release, we continue to see global demand growth for our products and services, but overall our teams performed well in the third quarter. Despite a number of supply chain constraints that affected our results.

Total revenue in the quarter increased 3% year over year to $28 9 million.

The continued rebound in the commercial aviation market helped us deliver sequential and year over year growth in our.

Test and measurement segment.

Revenue in the segment increased 35% in the third quarter to $6 $9 million, making it the best quarter since last year's first quarter.

This more than offset a slight decline in the product and application revenue, which was down 4% to $21 9 million.

Our strong third quarter bookings came in at a $32 3 million dollar rate up 16% year over year and up 6% sequentially from Q2.

The Big challenge for Us during the quarter was a difficult you're obtaining certain electronic components, which prevented us from making several late quarter shipments.

However.

Thanks to our materials teams, we have since received the majority of the delayed components and expect to ship those held up orders in the fourth quarter.

This includes revenue from the new multiyear government program I referenced on our last call.

Graham that involves applying advanced data acquisition equipment for an aerospace and defense applications.

Looking at revenue by type.

And hardware revenue remained roughly flat with the third quarter.

Fiscal 2021, well service and other revenue was up 35% from the same period last year.

The bulk of which was in C&I.

From a geographic perspective.

U S revenue accounted for approximately 60% of our total sales in Q3.

We continue to strengthen our product and education teams, both domestically and internationally.

For example, we recently hired a head of production responsible for our growing media business in Europe, Middle East and Africa.

And new initiatives, there are beginning to generate positive results already.

On our Q2 call.

We have begun to return to in person meetings and trade shows.

During the third quarter, we exhibited our latest printing and labeling products that a number of in person events.

These included two major trade shows.

Expo and health care packaging shows in Las Vegas, and Farc Park, the European trade fair for packaging in Nuremberg, Germany.

Attendees had the opportunity to demo our industry, leading technologies, including the QL 120 D. QL 850 <unk>.

300, and the two to see.

As well as our new T. Three O P X directed package printing system.

We also engaged in great discussions with our current and prospective customers.

Out how our product and application solutions play into global trends related to digital print for packaging and environmental sustainability.

Since the end of Q3, we've also participated in some smaller regional shows in North America, Europe and Asia.

Matter of fact, we have one going on right now in New York City.

While we are beginning being judicious about adding trade shows related to the expenses.

Early indications are that the quality of leads generated from these shows continues to be very high because the attendees are there for solid business reasons.

Going forward, we plan to pursue a hybrid marketing approach that combines both select high value in person events as well as continued growth in our digital marketing platforms.

On the digital front, we will continue to expand our ebooks case studies support videos and other cost effective digital tools that have proven successful in enhancing our sales and customer support activities.

Looking ahead, we expect revenue to increase on a sequential and year over year basis in the fourth quarter of fiscal 2022.

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

Thanks, Greg and good morning, everybody.

Rather than repeat the.

Number information in the press release or Greg's remarks, I'm going to briefly highlight a few key items.

In the P&L and balance sheet.

Yeah.

Our press release tables disclose.

And all of the required detail.

The GAAP and non-GAAP reconciliations.

To summarize the non-GAAP figures exclude the benefits we received from the cares Act.

Plus they include the write off in the third quarter of our old legacy domestic.

MRP system.

Yeah.

In the interest of efficiency and I'm going to comment primarily on the non-GAAP results, but please also refer to the reconciliation tables, we've provided which has the actual GAAP results.

Operating expenses in the third quarter, we're up about 8% from the same period.

In fiscal 'twenty one.

Okay.

Last year, we were still in a COVID-19 induced cost on cost constrained uncertainty posture posture.

We're now responding to visible growth opportunities.

The increase was concentrated in higher R&D expenses associated with new product development.

In our product identification segment, and we will continue to targeted investments in organic growth.

Yeah.

Year to date through the third quarter non-GAAP operating expenses are running about 70 basis points higher as a percentage of sales than last year.

And non-GAAP quarterly Opex is about 4% higher year over year.

In this current quarter in.

In line with revenue growth and consistent with our current outlook.

Yeah.

Looking at operating segment operating margins this quarter.

Product identification posted.

And operating margin.

Of $1 8 million or eight 3% of revenue.

Compared with $3 5 million or 15.

4% in the third quarter of fiscal 'twenty one.

The decrease is primarily attributable to lower revenue and mix effects.

Test and measurement segment operating margin in Q3 this year was.

$1 billion or about 16.8%.

Representing a positive swing of about a million and a half from the third quarter of last year.

Which saw an operating loss of almost 700000.

Were 14.

7%.

Year to date through Q3.

GAAP segment operating profit for product identification was $8 9 million or 13, 8%.

Excluding the cares act benefits and on a non-GAAP basis. The segment operating margin was seven 5 million or 11%.

Year to date for test and measurement.

GAAP segment operating profit was $2 9 million or 15, 1%.

And on a non-GAAP basis.

Excluding the cares act benefits.

The segment operating margin was $2 1 million or 10, 9%.

Yeah.

Q3 marked a major operational accomplishment for the company.

The initial go live of our new enterprise resource planning system.

The rollout of the new ERP system requires.

Significant resources for a company of any size.

Even more so given the economic <unk>.

Wins in the business disruptions associated with the Covid environment.

This implementation has been a long process and the large team that has accomplished this is.

<unk> put.

The company in a position to grow and prosper in the future.

Yeah.

As noted in the press release this morning.

GAAP basis, we reported a net loss of 425000 or six cents a share.

Which includes.

About 700000 in the other expense associated with the write down of our decades old.

Legacy ERP system.

On a non-GAAP basis, excluding that expense.

With 76000 or <unk>.

One cents per share.

Okay.

Turning to the balance sheet.

Cash and equivalents at the end of the quarter stood at $8 7 million down from about $11.4 million at the end of the year.

Total debt at the end of the quarter was $9 4 million.

<unk>.

From approximately seven.

$10 million at year end.

We're in a very strong position relative to our bank covenant structure and.

And we have ample capacity under the bank facility to fund future growth.

Tomorrow, we will be presenting and hosting one on ones at the Sidoti December virtual Microcap conference.

You'd like to schedule a meeting.

Please email.

US at a L O T at Investor Relations Dot com.

Now, let me turn the call back to Greg for <unk>.

A few closing comments.

Thanks, David.

In summary.

Our teams executed well in the third quarter in spite of the global supply chain challenges.

And while we remain mindful about the potential for continued economic uncertainty related to COVID-19 on our end markets with our strong bookings and a solid backlog. We feel we are well positioned for sequential and year over year growth in the fourth quarter.

No David that I'd be happy to take your questions operator.

Thank you, ladies and gentlemen, if you would like to ask the question. Please signal by pressing star followed by one that is star one to queue for a question, we'll pause for a brief moment hello, everyone an opportunity to signal for questions.

As a reminder, that is star one to queue for a question star one.

We will take our first question from <expletive> Ryan of Colliers. Please go ahead. Your line is now open.

Thank you.

Hey, Greg how much was the revenue impact in Q3 from the supply chain issues, it looks like youre going to make up.

Make that up in Q4, but what was the Q3 impact.

I don't think we disclose that but it was a it was a significant number.

Yeah I was.

Apparently large shipment I guess, so let me leave it at that.

But like I mentioned earlier, we fully built we have this stuff in hand, so I have no doubt that we'll ship that out this quarter, along with our normal business for the quarter.

Okay, and I may have missed but did you guys break out I was looking at the what the recurring revenue number was for the quarter supplies and then with service.

Is that a I know it's in our Q.

Is that on the air released there David.

It wasn't in the release.

Well look I don't think.

The number.

Right at the top of my head, but I'll.

Okay.

Pop back.

Before that rolls over and give it to you.

Sure No problem, Hey, Greg what when you look at the future growth.

Are you looking.

Oh from the M&A standpoint, as well and can you kind of give us a little color as to how that environment looks at the current time.

Sure Yeah as you know, it's part of it's been part of our strategic plan from the beginning.

When we first put that in place at probably seven years ago.

But we and probably as you also know we were kind of out of that arena for a little while during COVID-19 and the related bank are restrictions, but yeah that all kind of freed up.

As he mentioned earlier this year and we have been quite active in terms of screening potential deals.

You know obviously nothing to report but.

What I can report as the activity is up and that is part of our strategy and.

We're hopeful that are you know you never know you know sometime in the next several quarters, we can put something together, but that is a very active part of our strategy and actually both the ER.

Segments and test <unk> measurement segment as well as the P&I segment.

Okay.

And just on the test and measurement side. The AR was any of this a new arrow.

Aerospace and defense when did that contribute in Q3 or was the results pretty much commercial transport.

That was mostly it was almost all commercial yeah, so that order that I referenced in some of the other business.

Do you think that typically happens in the fourth quarter will happen plus this quarter that we couldn't get out the door.

We will come out in the fourth quarter.

Okay, great. Thank you.

Sure.

Yeah.

Okay.

And it appears there are no further questions I would like to hand, the call for closing remarks to Mr. Woods.

Okay.

Great well. Thank you all for joining US here. This morning, we look forward to keeping you updated on the progress and if you're able to you can join us at the Sidoti Conference that David mentioned Tomorrow.

Have a happy and healthy holiday bye for now.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

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