Q1 2023 AstroNova Inc Earnings Call
Good day, ladies and gentlemen, and welcome to <unk> first quarter fiscal 2023 financial results Conference call.
Today's conference is being recorded.
Now I'd like to turn the conference over to David <unk>, The company's Investor Relations firm Sharon Merrill Associates. Please go ahead Sir.
Thank you Tom Good morning, everyone and thanks for joining us hosting this morning's call are Greg Woods, Astro Who's President and CEO , and David Smith, Vice President and Chief Financial Officer, Greg.
Greg will discuss the company's 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 have 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 pass.
<unk> 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 1034. These forward looking statements are based on a number of assumptions that could involve risks and uncertainties.
<unk> actual results could differ materially except as required by law.
Any forward looking statements speak only as of today June eight 2022 Astral.
<unk> 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> 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 non-GAAP financial measures astronomical believes that the inclusion of these measures helps investors gain a meaningful understanding of changes in the Companys core operating results and can also help investors who wish to make comparisons between Astro Nova and other companies on both a GAAP and 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 now turn the call over to Greg.
Thanks, David and good morning, everyone.
Despite the ongoing supply chain constraints and cost increases we face during the first quarter, we were able to post modest increases in both revenue and operating income compared to last year's first quarter.
Revenue was up six 6% to $31 million.
And operating income was up 4% to $764000.
Those supply chain impacts affected both segments of our business.
In our product identification segment.
This quarter several orders could not be fulfilled resulting in lower segment revenue.
Product identification revenues declined 6% in the quarter to $21 7 billion.
Operating income was $1 4 million or six 5% of product revenue compared to $2 7 million or 11, 8% of product revenue in the same period last year.
On the innovation front.
Especially in this morning's press release.
We're about to further extend the breadth of our industry, leading quick label product line by launching our first printer specifically designed for the entry level segment of the onsite digital color label printing market.
We've kept this new printer with a large seven inch color touch screen a unique feature for this category.
Ample internal image storage, making it extremely easy to use it.
It's also a highly affordable solution for smaller businesses as well as larger enterprises, they need to deploy multiple on demand label printers that distributed locations throughout their facilities.
This product significantly expands our addressable market to a new large classes of customers.
Looking for a sub 5000 dollar printer solution.
Turning to our test and measurement segment.
First quarter revenue increased to $9 3 million up 55% from the same period of fiscal 2022.
Segment operating income also increased substantially climbing to $1 9 billion or 26% of revenue from 350000 or five 9% in the year ago period.
Our results continued to be bolstered by the ongoing gradual recovery in the commercial aviation market.
Most of the rebound so far has occurred with the domestic single aisle aircrafts.
Go to the ongoing recovery of the 737 Max production rate.
We're also starting to see encouraging signs of growth in the long haul dual aisle aircrafts segment.
In addition to the increased production rates on commercial and business aircraft.
The overall air traffic growth benefits, our aerospace parts and repair businesses, which continued to increase during the quarter.
One area that is still lagging however is Asia.
In particular, China.
Hopefully this region two will start ramping up later this year.
And the test and measurement segment data acquisition product lines. We're also seeing stronger demand in particular, we are benefiting from some of last year's program wins in the defense sector.
Especially in demand or high end EV 5000 systems that are being deployed at several U S installations. This year.
In addition to the defense segment, we are also making inroads with our data acquisition offerings in the power industry.
Wherever you are scored design wins in various applications ranging from solar to battery to nuclear power monitoring and troubleshooting.
In closing despite.
Despite the current macro environmental challenges, we are making headway in addressing supply chain and cost issues in both segments of our business, including sourcing alternative components and materials as well as boosting inventories to buffer disruptions.
Additionally, we are increasing prices in areas that have seen higher input costs, where we have the opportunity to do so.
We believe these and other countermeasures underway.
Better position us in the future.
Although it will take time for the increases to be fully reflected in our results.
We expect to begin seeing those in the second half of this year.
Now, let me turn the call over to David for the financial review.
Thanks, Greg and good morning, everyone.
I'm just going to emphasize a couple of key items and metrics from the income statement balance sheet we.
We do plan to file our first quarter 10-Q later today.
For segment revenue product identification accounted for.
71% of revenue in the first quarter down from 79, 4% a year earlier.
Test and measurement was 29, 9% of revenue compared with 26% in the same period of fiscal 'twenty to 'twenty two.
Gross profit was $10 6 million in the quarter down one 5% from the first quarter fiscal.
2022 last year.
The gross profit margin decline of two 8% to 30 <unk>.
Four 6% was primarily due to increased input cost related to supply chain disruptions.
Affecting the T N M segment, particularly the aerospace business unit.
While volume has trended higher in the aerospace industry is the aerospace industry has recovered.
Challenging.
Cost and supply chain environment is expected to persist in the near term.
Hardware revenue was up $1.7 million.
<unk> was one 7 billion up 21, 6%.
$9 3 million largely due to aircraft printer sale increases, but also the data acquisition products Greg talked about.
Supplies revenue was $17 9 million or.
Overall, showing typical resilience.
A modest one 5% from Q1 of last year due to lower revenues for certain specialized consumables.
In the <unk> segment.
Supply revenues were also impacted by certain supplier product shortages.
Service and other revenue grew almost 17% in the quarter to $3 8 million.
Driven by increased parts and revenue activity on our aerospace business.
Domestic revenue accounted for 63% of total revenue up from 57% your early earlier.
Conversely International revenue totaled 37% of revenue down 40 from 43% last year.
Operating expenses in the current quarter with 10.0 million.
Down a modest one point.
9% year over year.
Selling and marketing expenses were down three 4% from the prior year to five nine.
<unk> 9 million.
This is primarily due to a decrease in the amortization expense in last year's second quarter, we changed the amortization period for aerospace and tangibles.
It's also due to decreases in certain third party contract services and commission expenses.
Currently offset by employee wages and benefits and increased travel expenses as the pandemic restrictions of Wayne.
General and administrative expenses were $2 5 billion up nine 2% compared with last year's first quarter.
Primarily due to increased payments to outside service providers.
R&D expenses were $1 5 million.
While this might seem like a notable 11, 3% decline in the core in the quarter year over year comparisons, it's primarily due to modest decreases in supplies and rare.
<unk> expenses and.
And shouldnt be interpreted as a change in philosophy or approach are indicative of full year trend.
R&D spending as a percentage of revenue was four 9% in the first quarter of the year compared with five 9%.
Last year.
Turning to the balance sheet.
Cash and cash equivalents as of April 30th totaled.
11, 4 million during the first quarter, we borrowed $3 million on our revolving credit to support domestic working capital and had $19 5 million available for borrowing under that facility at quarter end, and we think that's going to be sufficient to support our operating requirements, including <unk>.
Capital expenditure commitments.
Supply chain factors, obviously affected both segments and the challenging cost in.
Supply chain environment is expected to persist in the near term.
As Greg mentioned part of our responses.
Given inventories higher and as of quarter end.
$36 9 million.
Six 5% or $2 $65 million from year end.
Capital expenditures are down as we completed the large part of the.
Net sweetie ERP implementation on November one.
Well, we continue to devote some of our operating spending to optimize the ERP system. The heavy lifting is over and we expect capex to be significantly lower this year than last year or the prior two years for that matter.
Before handing the call back to Greg I want to let you know that in two weeks, we will be presenting and hosting one on one meetings at the east coast ideas Virtual conference. If you are participating we look forward to the opportunity to meet with you there.
So now I'll turn the call back to Greg for closing comments.
Thanks, David.
While the near term macroeconomic environment remains challenging we are taking several measures to diminish those headwinds.
The underlying fundamentals of our business remain strong and we are encouraged by the momentum we are seeing in the test and measurement segment is the commercial aviation market continues its recovery as well as the strong new product pipeline in a product and education segment.
So with that David and I will be happy to take your questions operator.
Thank you, ladies and gentlemen, if you would like to ask a question. Please email by pressing star one on your telephone keypad.
If youre using a speakerphone. Please make sure your mute function Houston after a low you'll see net to reach our equipment.
Press Star one to ask a question we pause just for a moment to allow everyone an opportunity to signal.
Once again.
Want to ask the question that is star one to ask a question.
We took off with a question from Tom Spiro with Spiro capital. Your line is open. Please go ahead.
Good morning.
Good morning, Tom.
On the test and measurement side of the company the revenues were quite strong in the quarter.
Strong as they've been in a while where there sort of one time transactions inflating that do you see that as kind of a sustainable level for the next several quarters, what does that portend.
No like I mentioned, Tom, it's mainly driven by a kind of increases across the board in test and measurement are really go the data acquisition piece.
Contributing to that but.
It's primarily aerospace recoveries are boosting that up and yeah, we're not back to where we were but it's.
It's coming back a little pretty nice fashion, so far it looks like it's going to continue doing that.
And the margins in that section.
That segment of Russia quite strong I think roughly 20%.
Question is that inflated by some perhaps unusually profitable transaction or two or is that broadly speaking sustainable.
I think it's generally a pretty good mix.
Really a function of better.
Better absorption as the volume increases.
Oh, that's great. That's great. Thanks, much of the inventory is running high as you mentioned because of the supply chain issues do you see any inventory inventory to growing from here or do you now have the inventory levels for these levels of sales that are in it are sufficient.
Yes, there's still some remaining.
And then Tom.
Yeah. So when we can get things, we tend to buy quite a bit of it just because we have a lot of things that we still can't get our hands on it so.
Probably for the next a couple of quarters, that's going to be on that kind of trend, where we're going to get what we can get a.
Maybe you're looking out at.
Four or five months worth of.
Inventory, if we can lock it up.
So.
Hey, you got a comment David.
Yes, I don't think it's I think we're probably in a.
Heavy inventory period for a little while yet.
I don't think it's going to get dramatically better in the near term.
But.
I think it'll trend consistent with.
Revenue in cost of goods trends.
Okay. That's helpful. Thanks, and on the product identification side, you've mentioned in the last several quarters that some sales in each of those quarters were lost because of supply chain that last heard.
Imply chain issues and push into the succeeding quarter and as I try to think through it seemed to me that.
Unless the amount of deferrals is increasing that impacts should sort of wash in succeeding quarters that is to say what.
This quarter, what we couldnt ship for supply chain issues might have been offset by what was brought into this quarter from the prior quarter.
Thinking about this right or the deferrals, the increasing what's what's going on there.
Yeah, Yeah that's.
Basically correct I mean, we have.
Kind of across the board in one big thing that.
Is abating now as there was a major paper supplier, which means and do a lot of our media.
You might remember part of Densification media is actually a bigger piece of the supplies.
<unk>, then Kingston tellers and such.
So they were on strike for a while the strike is over plus we've been sourcing from different companies.
It takes a while to we have to produce that so let me just take.
<unk> taken ink tank and ship it and sell my first for production process. So.
We're hopeful that we'll start chipping away at that starting probably the end of this quarter and then into Q3.
Oh, that's great that's great.
Let's see I'll I'll get back in line. Thank you.
Okay.
Yeah.
Thank you.
Just a reminder that is star one to ask a question star one to ask a question. We'll take our next question from George Melas with <unk> management.
Yes, hi, good morning, guys.
Hi, Jordan.
Hi, a follow up on John's question about the margins at <unk>.
In test and measurement, David I think you said that.
Gross margin was affected a little bit primarily.
On the Tms segment.
So is that not the case the margin would be even slightly higher is that correct.
Well, yes.
If we hadn't ahead.
So margin difficulties.
On the gross margin it would have been more profitable but.
It's primarily a function of the supply chain stuff that we've been talking about.
To a lesser extent mix, but.
And.
As those unwind.
Which hopefully they will.
As as supply chain conditions improve.
We'd hope to be able to take advantage of some of that.
Okay, but.
The major impact on the.
On the supply chain issue is on the gross margin where on the <unk> segment.
Well they impacted both segments.
We didn't.
We did not.
Break those we didn't break those out all of the impacts out by segment.
Which is.
A challenge in any of that.
Okay. Okay.
And on the revenue.
The PNM side. It seems like is there a way to break down the printer with the data acquisition I know usually you don't do that but I'm. Just curious if you would do that this time because data acquisition seem to have had a nice rebound.
Yeah, Yeah, we don't break out specific product lines in either segment also.
Okay, but we are seeing that.
It's nice to see it improving in the majority of that segment that remains in the aerospace area.
Yeah, Yeah. So the aerospace is really driven by aircraft sort of production on the on the data acquisition side, it's maybe a little bit more project oriented right.
Yeah, that's correct.
It's a bit more predictable in terms of tying it to aircraft production and actually Youll aircrafts usage.
Which that those numbers are pretty well known birds and data acquisition, that's a lot of different projects.
Yes, okay.
And then just one question on <unk>.
On the P&I segment, the new products that you have.
<unk> 100.
Seems like it seems youre seeing how it sort of bolus.
Catches sort of SMB segment, but also large companies that may have multiple facilities.
Do you see that more as a.
Our defensive more secure at the entry level category or do you think that there is.
A great deal of growth potential in that space.
Yeah from our market research, it's a much higher unit volumes of space and we've seen that with our own.
You know our sales force been clamoring for something like this and.
We looked at a number of me too type products, there's a lot of them out there to look the same.
But our R&D folks are really puts the emphasis on kind of a differentiator.
We would've liked to have had this is probably a couple of years ago, but yeah. We.
We don't but we think are the wait was well worth it.
And to answer your other question, yes. It did both spaces like sometimes you find customers that we'd really love to get one of our let's say QL 120 products that they can't really afford it yet for a variety of reasons.
That's one part of the market that we can address the other one.
These are production facilities.
Where they may want to replace the zebra youll black and white printer with a colored printer at the end of our production line, but they have 20 production lines and they are building.
Each one would need a printer and they don't necessarily want to put a $10000 primarily to each of those spots. So that's kind of the other big market that we see for it with our own internal demand.
Okay, great great that sounds great. Okay. Thank you very much.
Sure George.
Thank you.
We have follow up question from Tom Spiro Spiro capital. Your line is open. Please go ahead.
Yeah on the new product on P&I are do you see much potential for cannibal cannibalization of your existing products.
Not likely.
It's really more of a kind of the entry level product like I mentioned in.
Well, we really expect would happen is some of these businesses, maybe you can't afford a 121 of our higher end printers are higher volume printers as their business grows they could step up to it in a while.
And the nice futures I didn't mention.
Is that the same media that runs in this primary we've designed it such that you could take that role of media out of the little printer and put it into the Q1 'twenty and just carry out at a higher resolution faster production rate.
So it's really designed to be part of a family of products.
And how many new products and P&I do you anticipate rolling out this year.
Well like I mentioned in the beginning of the year, we're looking to do at least two so this is kind of one and Oh it looks like two and you know it depends on production cycles and whatnot, maybe there'll be another one beyond that but at least to this year.
Okay. Thanks, much and good luck.
Thanks, Tom I have a good day.
It appears we have no additional questions in the queue. At this time I would like to turn the callback to diminishment for any additional or closing comments.
Okay I just like to thank everyone for joining US here. This morning, and we'll look forward to keeping you updated on our progress and look forward to seeing some of you at the ideas conference.
Have a good day.
Thank you and that concludes today's call. Thank you for your participation you may now disconnect.
Thank you.
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