Q4 2022 AstroNova Inc Earnings Call
Good day and welcome to the Nova.
Fiscal fourth quarter and full year 2020 financial results Conference call Today's conference is being critical with it.
Can I ask a question on today's call Chris THAAD one.
I would now like to turn the conference over to Scott for all of them on the company's Investor Relations firm Sharon Merrill Associates. Please go ahead Sir.
Thank you Diana.
Good morning, everyone and thanks for joining us.
Hosting this morning's call are Greg Woods, <unk>, President and CEO , and David Smith, Vice President and Chief Financial Officer.
Greg will discuss the Companys operating highlights.
David will take you through the financials at a high level.
Greg will make some concluding 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 don't have a copy please go to the investors page of the Astra Nova website, Www Dot Astra, Nova 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 risks and uncertainties.
Accordingly, actual results could differ materially except as required by law.
Any forward looking statements speak only as of today April 14, 2022, 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.
Please see the risk factors, an astronaut Virginia 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.
But believes that the inclusion of these measures helps investors gain a meaningful understanding of changes in the company's core operating results. You can also help investors who wish to make comparisons between after Nov and other companies on both a GAAP and a non-GAAP basis.
A reconciliation of non-GAAP financial measures to their most directly comparable GAAP measures is available in today's earnings release with that I'll turn the call over to Greg.
Thank you Scott.
Good morning, everyone and thanks for joining us to review, our fiscal fourth quarter and full year 2020 financial results.
I want to start today by acknowledging the outstanding work of our more than 360 team members around the world.
And what was an extremely challenging year.
Worked tirelessly to keep themselves and those around them safe, while continuing to provide outstanding service to our customers.
COVID-19 is gradually receded into the background in certain regions over the past several months.
On the consequences of the pandemic, including supply chain disruptions price increases and rising transportation costs.
Do you need to have a pronounced effect on our business in the fourth quarter.
In round numbers, we estimate that we would have shipped an additional $2 million in products during the quarter, but for delays in receiving the parts necessary to fill those orders.
Backlog in our supplies business, which normally has about five days has recently been running in the neighborhood of 15% to 20 days.
And that's despite significantly beefing up our suppliers' inventory in an effort to help mitigate any potential delays.
We're also seeing steep increases in transportation costs.
But those increases into contact.
Freight in charges were up more than $600000 on a sequential basis in Q4.
And more than $700000 year over year.
We are taking steps to address these cost dynamics and a number of ways.
Including leveraging our pricing power to mitigate the impact of inflation and the increase in transportation costs.
We expect to begin realizing benefits of these actions as we move into the second half of our fiscal year.
With that as a backdrop, let me briefly review our results, which included higher total revenues for the quarter and full year periods. Despite the macroeconomic challenges.
Total revenue was up approximately 260000 for the fourth quarter to $29 7 million.
As a 20% increase in test and measurement revenue more than offset a 4% decline in price of the vacation.
Total revenue for the year increased 1% to $117 $5 million.
Increases in supplies and service revenue were key drivers in both periods.
In both the quarter and full year, we continued to deliver robust recurring revenue streams.
Supply has accounted for approximately 62% of revenue for the fourth quarter and the full year.
Hardware comprised 28, and 27% of revenue for the quarter and full year periods respectively.
While our service slash other accounted for 10% of revenue for the quarter and 11% for the year.
Bookings were strong at $32 9 million in the fourth quarter up 12, 4% from the fourth quarter of fiscal 2021.
Bookings for the fiscal 'twenty two.
In that one and $28 6 million up 13, 2% year over year.
Turning now to our segments.
Fiscal 2022 box the product identification segment ninth consecutive year of revenue growth.
We continue to be very pleased with the strong performance of our direct to packaged printing solutions such as the T. Three desk O P X.
Which had a record year in fiscal 2022.
Exponential growth of the E Commerce channel over the past two years plays directly into the strengths of the T. Three O P X.
With more and more goods being delivered to customers doorsteps. The demand has increased for the use of secondary packaging.
Both to protect the goods during transport and to provide another branding opportunity for the retailer.
The T. Three LPX is the best in class system designed for over printing or post printing on a wide variety of materials and packaging substrates.
Using renewable substrates. The Q3 <unk> also enables package printers to meet the customer at sustainable packaging preferences.
Sustainability is a mega trend that is driving a sea change in the packaging industry.
Trivium packaging 2021 buying Green report.
Found that 67% of consumers find recyclability of packaging important.
While 73% are actually willing to pay more for eco friendly packaging.
Our T. Three LPX system also plays directly into another mega trends influencing the director package printing market.
And that is brand experience.
West Rock's pulse packaging survey.
It shows that for a majority of consumers packaging influences product certification.
The survey also demonstrates the importance of key sustainability features such as environmentally friendly design and the ease of recycling.
So there's a clear link between sustainability and brand experience.
The third packaging megatrend that is relevant to our business is supply chain agility.
Manufacturers want a package design that is not only e-commerce friendly, but also cost effective and rapidly adaptable to the changing regulatory environment.
The rapid shifting consumer preferences.
Supply chain agility also requires packaging that is digitalization ready by enabling automation real time tracking and other benefits that boost consumer confidence.
We believe that the value proposition of our direct to package printing technology creates a sustainable competitive advantage for Astro nope.
Looking ahead in the <unk> segment, we expect to release two new products that build on our leadership in the label printing in direct to packaged printing markets in the next few months.
We believe that these new products will make it even easier for our customers to develop full color high quality labels and packaging that distinguishes their brands.
Stay tuned for more.
Switching now to our test and measurement segment.
With an ongoing rebound in the commercial air travel in the U S. Europe and other regions. The segment delivered improved results revenue increased 20% in the fourth quarter and 3% in the full year versus the same periods of fiscal 2020 one.
GM segment operating margins also were up nicely.
Particularly in light of the higher manufacturing and transportation costs that we've experienced.
One need only look at the daily TSA checkpoint travel numbers to see the significant improvement in passenger traffic from calendar 2021.
And while domestic passenger traffic has rebounded faster than other routes the airline industry expects to see a return to pre pandemic levels in 2023 and 2024.
Consistent with the ramp up in air traffic, we are seeing an increase in both printer supplies sales as well as repair services.
At the same time, the multiyear backlog was about for the Boeing 737, Max and Airbus <unk> hundred 20 aircrafts are growing.
Which both pretend well for the sales of our aerospace products in the future.
With that I'll turn the call over to David.
Thank you Greg.
Everybody.
Oh launch right in.
Our fourth quarter cost of goods sold and gross margins.
Were adversely affected by the supply chain and inflationary headwinds that have impacted us as well as so many other industries over the past year.
While total revenue was up slightly in the quarter gross margin in Q4 was down 450 basis points to 32, 8%.
From 37, 2% in the prior year quarter.
Gross margin was down 320 basis points from the third quarter of this year.
The decrease was due to both higher.
Cost of goods.
And to a lesser degree.
Unfavorable mix.
For the full year gross margin.
Improved 160 basis points to 37 point.
2%.
Driven primarily by our favorable gross margin comparisons to the prior year in the first nine months.
In the fourth quarter comparisons to the prior year.
Been hit by higher labor costs.
Higher material cost.
And significantly higher freight costs, which spiked significantly in the fourth quarter as we were forced to pay for expedited shipping to get parts on time.
Times, even by air Freighting them over the top of the same goods being shipped.
And the rates, we're paying are a lot higher as well.
In the quarterly comparisons to the third quarter of the FY 'twenty two year all of the same factors were apparent.
Given the freight cost spike was dramatically higher than the fourth quarter.
Looking at revenue by type we continue to have good.
Robust recurring revenue.
Hardware accounted for 28% of revenue in the quarter compared to 31% in the quarter last year supplies accounted for.
62% of revenue in the quarter versus 60% last year service and other revenue was 10% in the quarter.
Approximately flat in percentage terms split up about a quarter of a million dollars compared to the fourth quarter of fiscal 'twenty one.
For the full year hurt hardware accounted for 27% of total revenue compared with 29 <unk>.
In fiscal 'twenty one.
<unk> revenue was 62% of revenue for both.
Fiscal 'twenty, two and fiscal 'twenty, one that our service.
Business accounted for 11% of revenue in fiscal 'twenty, two versus 9% of revenue in the prior year.
As Greg suggested this reflects the rebound in the aerospace portion of our TNF segment.
Yeah.
Turning to revenue by geography domestic.
Revenue comprised.
57, 3% of the total for the quarter compared to 55 nine in the fourth quarter a year ago.
International revenue was 42, 7% for the quarter.
Down from 44, 1% a year earlier.
For the full year domestic revenue accounted for 58%.
For fiscal 'twenty, two versus 61% in fiscal 2021.
International revenue came in at 42% for the year up from 38 nine.
In fiscal 'twenty one.
Revenue from Europe , Canada, and Asia was up double digits.
While the U S revenue declined 4% for the year.
Operating expenses increased one 5%.
In the quarterly comparison or approximately 140.
$5000 to $10 million, reflecting.
Higher R&D expenses related to the new product development, the Greg mentioned, partly offset by modest reductions in the SG&A and selling and marketing areas.
On a full year basis, Opex was up one 4% or 557000 to $39 5 million.
Which again, primarily reflected our higher R&D.
This year operating expenses did increase from last year's Covid induced.
Sales and marketing expense cutback period.
But I should note not very much.
Adjusted EBITDA, which is earnings before interest taxes, depreciation amortization and share based comp.
Was <unk>.
773000 for.
For the fourth quarter this year and.
And $13 2 million for the full year periods this year.
This compares with $3 1 million.
10 nine.
For the same periods in fiscal 'twenty one.
Yeah.
On the bottom line this quarter we reported.
Net loss of 758000, or 10 cents, a share compared to net income of 837000 or 12%.
12 cents per diluted share in fiscal 'twenty one.
For full year on a GAAP basis 2022.
We generated net income of $6 4 million or <unk> 88.
Cents per diluted share compared with net income of $1 3 million or <unk> 18 per 18th.
Per diluted share.
In fiscal <unk>.
2021.
This years net income included about $4 4 million or 60 cents of diluted earnings per share from the PPP loan forgiveness.
Looking at segment results product identification reported a fourth quarter segment operating profit of $1 5 million or six 5% of revenue.
This compares to $3 1 million or 13, 2% of revenue.
The prior year fourth quarter.
Again, reflecting higher manufacturing and procurement costs.
On a full year basis product identification segment operating profit was $10 4 million or 11, 5% of revenue.
Versus $12 9 million or 14, 3%.
Fiscal 2021.
Test and measurement segment operating profit improved in the quarter.
Coming in at almost half a million dollars or six 8% of revenue compared with.
282000.
Compared with 282000 or four 6% of revenue a year earlier.
The improvement underscores the accelerating level of activity when they are within the aerospace business that Greg noted.
On a full year basis. The PNM segment had an operating profit of $3 4 million or 12, 8% of revenue.
In fiscal 2022 compared to an operating loss of $1 million in fiscal 2021.
As Greg noted the order momentum exiting fiscal 2022 is strong.
With full year bookings in the TNF segment running 50% ahead of fiscal 2021.
Turning to the balance sheet cash and equivalents at year end totaled $5 3 million compared to 11 4 million at the end of fiscal 'twenty one.
The decline is directly linked to uses to support operations.
In particular inventory.
Inventories up $4 $5 million over last year.
Largely to counteract shortages in procurement delays.
But our financial position remains very strong.
Before I hand, it back to Greg I'll, just mention that the newer ERP system for domestic operations went live successfully at the beginning of the fourth quarter.
This would be a major undertaking an accomplishment for a company of any size and particularly for us during the Covid area era.
The ERP investment is consumed substantial resources over the last two years, both people and capital.
It's working effectively though we've experienced some natural adjustment veins.
As with any ERP technology, it will take a bit of time.
For us to perfectly harmonize the entire system.
But certainly the heaviest lifting is out of the way.
We remain extremely enthusiastic this this will enable efficient growth as we scale the company over time.
Well I guess I'll turn the call back to you Greg for closing comments.
Great. Thanks, David.
So we enter fiscal 2023 in strong shape financially and operationally.
We continue to execute on our strategy to grow organically through the development of new products and through complementary M&A that enables us to build on our leadership positions.
Next month, we will be presenting and hosting one on ones at the Sidoti Microcap Virtual conference.
Please check the events and presentations section of our investors page for the presentation time.
Now, David and I'll be happy to take your questions.
Sure.
Yeah.
Thank you, ladies and gentlemen, if you would like to ask a question.
Preston.
On the telecom side.
Once again that's it.
One to ask a question.
And our first question from Simon.
From a capital.
Hey, good morning, guys.
Good morning.
So I guess, let's start on the inflation piece. So I think you mentioned in your prepared remarks that you were expecting too.
See some benefit from your actions there in the second half of.
The fiscal year I was curious I was curious kind of why you think it'll take that long is because of you're still using some of that expedited freight.
You mentioned kind of like fuel surcharges and things that some of your suppliers had put on them I guess I'm wondering why it's taking longer to pass those along to year end consumers.
So yeah, we're being a little conservative on that Samir, but a couple of things. So you know price increases it depends on what kind of agreements we have with our customers right. So sometimes there's blanket agreements. So it isn't like we can raise the price today and tomorrow, they pay a higher price.
That is true for a number of our products, but some of them are restricted that way. So we have to wait for time outs of those existing agreements.
So that's one part of it and the other is there's other operational things, we're doing that would mitigate that.
Yes.
We have things that are coming by C. But also in the meantime, we're flying them by Arab you just see is taking much longer than it used to.
So we expect to be mainly a <unk> delivery schedule for some of our heavier in larger purchases from different parts of the world.
By the end of Q2, so thats kind of all plays into that.
Okay that makes sense.
And I think you talked about $2 million worth of orders that you didnt manage to ship in the quarter did you break out where those where those most of the product identification of our test and measurement.
Oh, it was kind of a mix I, didnt breakout, which ones were which but it really affected both groups and.
Sometimes it's you know there were some minor things like solid state drives that we expected a month before the end of the quarter and they came in.
Basically a month after the end of the quarter. So affected P. I too. There's a you might be aware that in the in Finland, Theres, a strike, which a lot of the paper materials they're used for.
Our supplies.
So we've found alternate supplies for that but there's a lot of jumping around you have to do if the supply chain gets broken.
So if we do have alternatives for that now, but that did impact us as well.
Okay, Alright, well I've, a few more but I'll get back in the queue in Alaska with no one else has anything.
Okay great.
Once again to ask a question press star one.
We will now take the question John .
John Fraser from Sunoco.
Oh, good morning, I, just have a couple of quick questions.
Is there any inventory left on the 737 Max.
That has to be worked through before they can start producing new ones.
They're actually doing that in parallel so that the production line Oh with Boeing continues to ramp up for new aircraft and in parallel I don't know exactly where they are on the units that they had parked as far as those deliveries, but that is a kind of a parallel function.
I don't know if you want before the other or in other words.
Right, but do you know what the inventory is a.
Of the existing 737 Max at this point.
I don't know that exactly right now I know, it's been they've been ahead of their schedule on those but I don't know exactly what the remainder is okay fair enough, but then as we mentioned before those already have our printers out there and of course yeah.
Right I was just kind of hard to them.
Okay. The other question is I think a lot of.
Our plane manufacturers Boeing and Airbus, specifically rely on Russia for a fair amount of their titanium and I'm just wondering with the situation there whether there is any.
Talk of titanium shortages or bottlenecks or anything like that.
No I haven't heard that I was I'm actually in Europe , right now I was at Airbus yesterday and.
There was no concern that they had as a team I was with anyway. It was more of they really talking to US about you know can you ramp up fast enough to meet their schedule and they have pretty aggressive schedules.
So there wasn't any discussion at all about them, having issues with deliveries its more a matter of can you guys us being suppliers are delivered to us as fast as we want you to grow.
Okay.
Alright, that's my questions. Thank you.
Sure.
And once again as a reminder to ask a question press star one.
We will now take the next question, but you.
You know you don't have to tell.
Tom Spiro Spiro capital good morning.
Hi, John good to hear from you.
Good morning.
Ah, yes, indeed yesterday could be on the call on product identification and I see that for the year.
Sales were up $600000.
You mentioned that the T. Three O T X had a record year at wonderful news I wondered.
Even if he segment sales were modestly I wonder how the other printers youre doing well.
The other stuff we sell.
Yes, so it's a mix so they're all kind of moving in the right direction, but not fast enough.
We've had some a little bit of overlap in some of the products, we see a little bit faster movement in the tabletop given the last couple of quarters to be honest with you.
As opposed to some of the larger ones. So I think the and the Trojan line.
The <unk> is going to really run out there had a and we've got more people interested in that and placing multiple orders were.
Also landed a number of nice OEM deals for the T. Three O PX, which helps accelerate those sales as well.
One of the thing Thats kind of still slowing down a bit of a drag on the Pi business in general is still is the.
In Asia, obviously, theres a lot of issues in terms of just getting out and doing any kind of sales activities much less trade shows, but just you know near the end of the year, we got well there was an uptick and then they shut down their back up again in terms of the trade shows so that's.
That's one of our biggest sources relief so that did impact a good chunk of the year, but they seem to be back pretty well right now the last several months we've done a number of shows all with good results could turn out and.
The one thing I would say about those is that the people that are attending the shows now are really more active buyers people are really have strong interest as opposed to dealers.
Dealers have looking around to see what's there so.
I see and I know from the press release, the unusually high warranty charges and what's that all about.
So we had a couple of issues with.
So I won't name that was players are but they had delivered poor quality product to us.
And Oh, it got into the supply chain and we had to essentially go back and.
Retrofit a repair or replace depending on what the item was.
To get those units back up and running in full production mode.
So it was certainly an unplanned event and it did take a fair amount of.
Time, and a bit of cost to actually address that but.
The solution has been put in place and.
Kind of putting that behind us there's a few maybe they've done 100% of the repairs out there but it.
It is a known solution, we did get to the bottom line there in terms of what the root cause was.
Trace it back and in some cases, we did a preemptive upgrades or replacements.
I, mainly wanted to do is make sure our customers always have a great product experience and yeah. It kind of jumped on that right away, but it's a bit.
Costly to do.
I see I see and when you say that $2 million and sales were pushed from Q4 into next year is that Oh hardware I would guess or is it sort of supplies or a little of everything.
Is that.
Yeah, it's hardware and supplies supplies, mainly on the media side I mean, there were some kind of you know something can toner bits to that some people want complete shipments you can't do one without the other but our our media group.
It was just that was the nice part obviously is the orders are ramping up but it's just a matter of keeping up with it and even in Q4, we did have some of these I.
I guess, we call it the Covid quarantine.
Lockouts, where one person in a work group for sample test positive.
Our rule internally is that you know anyone who has contact with that individual.
Rhode Island real if its mainly in Rhode Island.
Have to stay out for five days that'd be retested before they can come back.
So we had some manpower issues on the media side as well that's why I mentioned in my comments, we're kind of in that 15 to 20 day range right now.
And maybe linked to deliver immediate five days or less.
And when you speak of supply chain difficulties.
Is that principally on the hardware side or the supply side or again, it's enough.
It's actually but yeah its boat.
Yes, the transportation costs are killers.
Some of the toughest things, though that to get a quick replacement for would be ice's rates. So some of these complicated circuits.
FPGA is and things like that we really do is kind of go out too sometimes you know get the supplier doesn't habit of our main.
Wholesaler doesn't have it we have to go through third party sources.
In most cases, we're successful in getting those products, but not using the time, we want and usually we have to pay these guys, where we end up finding that parcel. It was rapidly was looking for and we have to pay a lot to get them.
I see and then like I say, a while back.
Relatively a lot yeah, I see I see.
And lastly, a while back you suspended the dividend your balance sheets in pretty good shape now and what are your thoughts about reinstating a dividend of jumpshot.
Somebody comes up at the board meetings, a matter of fact, we have a board meeting later on today. So it's always a topic that we cover and the board will take a look at that and decide what's the best allocation of capital.
So stay tuned if theres something like that a we had a preliminary board meeting already a bit of a follow up on that today.
Yeah, and then if they decided to do it it'll be up see our 8-K and we'll announce it.
Okay, well thanks much good luck.
Alright, Thanks, Tom.
And once again to ask a question the other one.
We will now take a follow up question from Thomas That's L. A squadron capital.
Hey, So I you know in the.
The close of your comments, you mentioned M&A and I was wondering if that was something you were closer to than you had been at any point over the past few years.
Ah well familiar yes, with respect to where kind of out of the ballgame because for banking reasons and whatnot.
So we did we did restart kind of filling the funnel.
Engaging in conversations again are really in the fourth quarter.
I mean, what I can say is that we have yes things are bundled subs look good you know.
Some we've already washed out I mean, I think I mentioned before is it really more than 90% of the things we take a close look at it we ended up.
Going forward for one reason or another.
But yes, the activity level is definitely up in terms of our groups.
Group that does take a look at these acquisition opportunities and Oh I can say, we have quite a few that look interesting yeah. So.
Ideally, we can close one or more of those this year.
And would you be focused more on product I D. R. A T M.
It really kind of defense, which one surfaces first with the right numbers to be honest with you.
We have.
Good opportunities with Bose.
It's a matter of you know what deal can we move first and.
Depending on the size, we may be able to do both depending on what the deals are and what the timing is in size and so forth.
But yes.
We can use there's things that we're looking at that would be great to add in both camps.
Understood that sounds fairly concrete so I guess, that's I guess it sounds like it's more a matter of price or you know diligence as opposed to whether or not it's an interesting acquisition.
Yeah. That's you know that's how we do it were relatively conservative about it. So yeah, we want to make sure that Oh, it's accretive relatively fast and that it's a good fit and that it gels well with what we're doing so.
It needs to be directly in one of those three product groups that we currently have or are you know kind of a close adjacency that using similar technology, we're not looking to go too far afield and when we get things over the transom from high bankers, all the time, but yeah.
We're not going to go very far afield from where we're already playing.
That makes sense and then following up on the previous callers.
Callers question about plane production. So obviously Max production is ramping up pretty pretty nicely as you mentioned with Airbus. That's also you know they have a pretty aggressive ramp schedule for the 320 Neo family.
And I know I've asked you this before but I just want to confirm kind of if anything's changed based on the current environment like the orders you shipped in Q4 like how does that relate to kind of Airbus or Boeing production rates in Q4 or are you kind of ahead of them behind them.
Trying to figure out kind of you know how we should think about those revenues ramping over the course of this fiscal year.
Yeah, so depending on that particular program and you know whether it's S. That'd be here be it be you know where the airlines purchase at and then ship it to the manufacturer.
It depends on which play and we're talking about but typically.
We're looking at three to six months ahead of time that we would be shipping product.
Yeah. This is gonna go onto a plane, obviously, you don't want to cut it to close so that's typically the range. So you can look at.
So probably like maybe on average three four months from if you look at the production numbers.
Sorry, you lag or lead those by three to four months.
We leave it in other words, the production numbers that come out.
Those are three months before probably maybe four months before.
Okay. So you should you should start to benefit.
Got too.
Oh go ahead sorry.
I was just going to say you should start to go down pretty materially over the next quarter or two from the ramp up that's going to happen kind of you know.
Towards the end of this year.
Yeah, It looks I mean from in both camps and those two aircrafts you mentioned, we do have their production schedules and.
They've been bumping them up and not back.
Like I said my Airbus meeting yesterday, it was a very.
Very aggressive, but you know we're a small part of the plane, but we get to enjoy that ramp up.
Got it okay I appreciate it that's all I had thank you.
Sure. Thanks.
There are no further questions at the moment I will turn the call back to Greg.
For closing comments.
Thank you alright, well thanks, everyone for joining US here. This morning, and we look forward to keeping you updated on our progress.
Have a good a weekend bye now.
Yeah.
This concludes today's call. Thank you for your participation you may now disconnect.