Q2 2023 AstroNova Inc Earnings Call
Good day ladies and gentlemen and welcome to Astronaut Four Second Quarter Fiscal Year 2023 Financial Results Conference Call. Today's conference is being recorded. I would now like to turn the conference over to Scott Sullivan of the company investor relations firm, Sharon Murill Associates. Please go ahead sir.
Thank you, Kyle. Good morning, everyone, and thanks for joining us.
Posting this morning's call are Greg Woods, Astronova's President and CEO , and David Smith, Vice President and Chief Financial Officer.
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 investor page of the AstroNova website, www.astronovainc.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 Security Litigation Reform Act of 1995.
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. Many forward-looking statements speak only as of today, September 7, 2022.
Astronova 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 Astronova's 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.
Astronova believes that the inclusion of these financial measures
helps investors gain a meaningful understanding of the changes in the company's core operating results. It can also help investors who wish to make comparisons between Astra Nova and other companies on both YAP and a non-YAP basis.
A reconciliation of non-GAAP financial measures, so the 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.
Strong secular trends, including increasing air travel and the growth of digital print for packaging.
Continue to drive demand for our products and services in the second quarter.
We delivered solid orders growth with bookings up year over year and sequentially.
For the first half of fiscal 2023, total bookings reached 67.3 million.
just shy of the previous first half high set back in fiscal 2020.
Revenue also grew nicely in the quarter, so less than expected as certain areas of our business continued to be affected by supply chain disruptions, higher component costs, and increased freight expenses.
We have taken several actions, including selective implementation of price increases.
to moderate the impact of those challenges.
Reflecting our demand drivers.
We generated 8% top-line growth in the second quarter.
while bookings increased 14% year over year and 7% from the first quarter of fiscal 2023.
These increases were primarily driven by our test and measurement segment.
with the continued production ramp up of Boeing aircraft, especially the 737 MAX.
an increase in military related orders, and in considerably higher demand for our repair and parts services associated with the rebound in commercial air travel.
Our Q2 service and other revenue was up about 1.2 million or 36% year-over-year to 4.5 million, a quarterly record for the company.
Demonstrating the importance of recurring revenue in this segment.
Turning to our product identification segment.
Q2 revenue was essentially flat year over year, but up almost 8% from Q1 of this year.
While we were pleased to see the accelerated pace of orders late in the quarter, the volume did exceed our manufacturing and shipping capacity, resulting in extended lead times, especially for some of our PI products and supplies.
Over the past several weeks, we have improved our production rate and we expect to catch up on the delayed shipments and return to our normal lead times as we move through the second half of the year.
We've also made good progress addressing the supplier quality issue that we discussed with you a couple of quarters ago that affected certain models of our label printers.
Having these printers offline at customer sites obviously impacts PI sales.
Our technical teams are aggressively working the process of retrofitting the affected printers to quickly return them to full operating condition for our customers.
Although taking these steps has resulted in some unplanned expense in the segment.
For us, quality is paramount.
Customer first is the foundation of the Astronova operating system.
Our priority is to make sure every customer has a great experience with our products.
within the PI segment.
One of the areas we are particularly excited about is the digital print for packaging market.
The growth of this market plays directly into the strength of products such as the T3 OPX.
Our direct-to-package solution for packaging houses and manufacturers.
The T3OPX is becoming the e-commerce printing system of choice for customers to create unique packaging using environmentally friendly materials to showcase their brand while eliminating waste.
The global growth of the e-commerce channel is another important megatrend shaping our PI business.
That's also one of the reasons we are thrilled about the recent acquisition of Astra Machine.
a leading manufacturer of printing solutions and automated equipment for applications including digital color labels,
promotional marketing materials, and branded mailers, a new market adjacent to for us.
As I noted on our acquisition call a few weeks ago,
Astra Machine has attractive operating margins and a favorable operating expense profile.
Culturally, it's a great fit for their company.
And the early weeks of the integration have proceeded smoothly and as planned.
From a valuation standpoint, at a purchase price multiple of less than one times revenue on a full year 2021 and trailing 12 month basis.
The transaction was also an effective and efficient use of our capital.
checking all the boxes of our M&A strategy.
Now, let me turn the call over to David for the financial review.
Thanks, Craig, and good morning, everybody.
Excuse me. I'll give you some comments on our financial performance through the
fiscal 2023.
Please note that our earnings release includes gap to non-gap reconciliation
primarily reflecting the CARES Act benefits that contributed to our results.
fiscal year 2022.
I'll be discussing our first half results excluding the CARES Act benefits we had in last year's second quarter.
We believe this lens provides a more appropriate perspective on our operating results.
But the GAP results and the comparisons as well to the GAP to non-GAP and the reconciliations are detailed in the press release and the related tables
At the midpoint of the year our revenue is up about 7.4% to 63.3 million driven by growth in the T&M segment.
T&M revenues up 47% through the first half of fiscal 2023 to 18.2 million, primarily attributable to the ramp of the 737 MAX and the return of commercial air travel as the pandemic continues to recede.
As Greg suggested, our aerospace repair overhaul and parts product lines were particularly robust.
this part of the business.
also has relatively higher margins than the average.
Product ID revenue came in at $45.3 million through the first six months of this fiscal year, down about 3% from the prior year due to the issues Greg discussed.
We'll get your revenue by type.
Hardware was up almost 16% to 17.9 million through the first six months of the year.
Service and other revenue climbed 26% to $8.2 million, while revenue from supplies was $37.1 million.
essentially unchanged from the prior year period.
Combined segment operating profit came at 7.1% or 11.3% of revenue compared to 7 million or 11.8% of revenue in the first half of last year.
Operating expenses remain under good control. Through the first six months of this year, they were 20.1 million, up about 200,000 over...
on a year-to-year basis through six months and up about $400,000 when comparing Q2 to the same quarter last year. Most of the increase is due to employee related costs.
as the business recovers.
as well as some broad catch up after two years of COVID-induced cost controls.
Our plan and expectation is that as revenue recovers...
We'll see operating leverage.
operating expenses grow more slowly than revenue.
So far this year that's been the case operating expenses of percentage of revenue are $200.
basis points, about 200 basis points lower than last year at 31.8%.
Operating income was $2.0 million or 53.2% of revenue.
through the first half of the fiscal year compared to 2.1 million or 3.5 percent of revenue in the same period last year.
As Greg highlighted.
Product demand remains strong with bookings through the first half of fiscal 23.
67.3 million of about 6% from last year.
Looking at revenue by region, at the midpoint of the fiscal year, US revenue accounted for 61% of our total business with international making up, the remainder 39%.
Turning to the balance sheet.
Inventory has grown substantially since last quarter, up almost five...
million since the end of Q1 and has grown 7.6 million since the end of last year.
At the end of the second quarter, the lack of about 330,000
in delayed T&M segment parts presented prevented shipments of about 2.4 million a product
with the associated inventory of about half of that.
Additionally, TNM segment inventory has also increased to support higher demand, part shortages, and the needs to build buffer stocks to be able to respond to the demand pulses.
In the PI segment, there's also been a significant inventory bill.
As we intentionally moved to increase buffer stocks by multiple months in response to the numerous supply chain disruptions we've experienced earlier this year to make absolutely certain we could provide our customers.
with timely and consistent delivery of their consumables.
Maintaining customer access to consumables is a critical part of our value proposition and the business strategy.
We've started to see some of those supply constraints ease somewhat recently.
and we've begun to unwind these inventories, but it'll take a couple of quarters to accomplish this fully.
As we discussed in the recent press release and conference call, we completed the Astro Machine acquisition after the quarter, and we'll talk about their income statement contribution and balance sheet impact in much more detail.
What are our next?
quarterly call. But to reiterate, we do expect this to be accretive to earnings in the second half of this year even after the effect of transaction expenses.
So I'll turn the call back over to Greg now.
to Greg now. Thanks, David.
Let me close with three key takeaways from today's call.
First.
Underlying demand is robust, with favorable secular trends creating tailwinds for growth.
Second.
We are confident in our long-term strategy as we continue to build on our track record of value-generated M&A and new product development.
And third,
We have added an important strategic component with Astro Machine.
which gives us expertise in automation and material handling, expands our color label printer offerings.
adds to our domestic manufacturing base.
and creates meaningful cross-selling opportunities with other areas of our PI business.
With that, David and I will be happy to take your questions.
your questions. Operator.
Thank you. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.
Again, press star 1 to enter the queue. This is just a moment to allow everyone an opportunity to say no.
As a reminder, that is Star 1 to ask a question, Star 1 to ask a question.
It looks like we have no questions in the queue, so we'll turn the call back to Mr. Woods for any closing comments.
All right then, well thank everyone for being with us here this morning and enjoy the remaining weeks of the summer and look forward to catching up with you at Q3 or at one of the fall packaging labeling shows, most notably the FOC POC end of September and the PAC Expo end of October . So long for now.
Thank you with that.
This concludes today's call. Thank you for your participation. You may now disconnect.
You
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Our Est Manu faction eight and crease meing Ross sell operort twent with other of our P busment that take questionions operatethank eight question pres one twent twent, four threement the one and two four 1, six thir one questionion 1: the ion have no question. two call two clo comment 1, morninging and jo the re the sum and the four C two 3, one of the F packaging labeing shows most and 10 and the Pact Act and of OCTO long Thank six call 4, nine
The the proved the compformation, the prov information. one prov information be on call compferen number and 8: one six two six one two three 8, eight company 8, eight the eight TE number two two nine six three six nine 7, two fr cour the cour the 20 twent two fr feren call conference cour to the conference cour. seven company Ning every one Thank joining ions morning call gr after proed pres financial office. Discuss the company operating high lights. eight the financi in high LE re including comments in the management will be happy eight questionions rece the compp, the Su today have comp please the in the Please statements. three call the state fact con? Ed statements in the priv? itigation four Act nine teen nineiny 5, four looking statements bas number suions the 30 courort Act ual results M ex requred by law four looking state only today tem seven 20 20, two after under take OB liglegation upd looking state inforation reard the cour looking statement to the facttor differenferen please the acttors court. four the other Fining the company. The sixsecur Exchange Commission call management will be re nine financial measers after believe the includion ancial measures V eight meaning four standing the changes in the compies cour operating Su also V make comparis between national other companes both and nine bas record two ation. nine financi measures the most re comparable measure.s the ailable Ning that the call rethe Ning se tren and including increase travel and the courth of digal PR packaging continue to ri demand for our products. Services in the second quarterwe orers bookings up year over year and twentci the the first fiscal two thousand and twent three booking three sixty seven point three million after threev first back fiscal two thousand Y revenue also the quarter expected the thir of our this continue to be fect? Ed by five change dis structions point co and increase three expenses. Have several actions including select the ation of Pring cre? Ate the Act of those challthereflecting mand driers generated 8% to line th in the second quarter. ings increase 14% year over year. 7% from the first courar fiscal two thousand. twent threethe creases priimarly reven by our the measion segment, the continue production AP lling the CI the seven 3, seven actsand increase it ated orers C? Ly mand. For our part services the re bound ercial trltheour 2, two service in other revenue up about one point two million 30, 6% year year four point five million court record for the company the ING cour curr revenue in the segment turning our pri ificcation segment two venue cent year year almost 8% from 2, one of this year ASE the the exseven case of orers eight the quarter the our Manu fact ship past resul ING tended times peci some our products six suppli the P several E we have pro our produion eight we expect catch up on the eight shipgments our normal times three the second half of the year. Also progress addressing the pri call Su that discuss couple courarters fected certain mode of our labeable proers pre? Ers all line cus V the acts P? I's teen our addressed woring the process of re? Ing fected preers the turn full operating condition for our customers TA resul plan exexpens in segment for call par first the foundation of aftertr of oper our prior the every customer and the gr peri our products. The segment of the ular C about the IG PR for paging marthe courth market place direct the stren products such the 2, three Act direct pack solion for packaging hous and Manu facts the three be coming the comer printing six twent custom three packaging ment M ary the case brand mining eight the glo proth the commerce an and the other cour eighting our P? I business also one of the reions trill about re quisition of after machteen ING Manu fact int solation and auto ated qument pliccation including digit labeesthe Motional MAR M ater and and maers new MAR AG for us Ed on acquisition call two wee a after machine thetract oper marg and favor operating exexpen profil the our company, the ly, the ation C and plan valuation point the pro price ulti one time revenue a full year two thousand and 20, one and TR we bases the transaction also and fected and officeation of our capital checing all the box of our and the eight stratenow call D the financi. Thank re C comments. Financial 4, three the first dis Cal twent 20, three Please Ning incl AP nine on re ation tab reim ly lect the Act ributed to results thisiscal year 20 20, two discusssing our first resul cluding peri had last year second courarter believe provid pro pri pect our operating results the AP results in the comppar well 2, the AP nine in the record ations in the presress and the rerelated AB included and the point the year revenue about seven point 4%. sixty, three point three million in se revenues 4, forty 7%, three the first fcal 20 20 three 8, teen two million imar able the the seven 30, seven Act the return commercial trre travel the continue C as gr just call cour CT L particular ly Bo the the business also courions the verage revenue 4, forty five point three mill the first six mon of this fiscal year, 3% the prior year ue the issu discus reven cour 16% seven teen point nine mill three the six mon of the year service other revenue one 20, 6% point two million revenue from supplies 30, seven point one million ill change pri or three bin operating pro point 1% point 3% revenue seven million point 8% of revenue in the first last year operating ens re three the first six mon of this year the 20 point one million two hundred thousand year year bases three 6, four hundred thousand, two the courar last year the increase twoue point eightated cour the bus co as well C after two year of two ES and that reven courers operating rever operating sentens the revenue year in the case operating ens percent revenue two hundred in of about hundred bas point the last year 30, one point 8% operating two point mill three point two per revenue the first after the fiscal year two point one ion three point 5% revenue in the same three last year gr high ated proct M re str bookings three the first fiscal 20 3, sixty seven point three million 6% last year revenue re ion the the point disiscal year revenue sixty 1% bus nationalcial 8, the remain 9% ING to the Val eight cour of six since courar almost five million since 2, one point six ion six of last year as the of the second cour Act about three hundred 30 thousand ller.s the eight seg cours perpresent revented shipments of two point four proct the associ ated in half that additionally gment in cre cour de M ES the eight to stocks to be able the of the DEM ES the Su. ific as we tentionally increase stocks ulti P the new dis structions thir ly this year AP thir re custo mers ion sixist the Li sues conto Act Su TS cour of our proposition and the business strategy started. Of those three recent, we beg eight couple courarters comp the discussedin the recent pres conferenress call includ the mach AC quition of the courarter talk thir state con ation B Act 4, two courarterly call the re pect be the second of this year after after the pect three action expenses. Turn the call re the clo three take from eight call first under line demand Bo favorable se? T creing cour sement con our long ter strate continue to Bill on our track record value generated and new product pmentand thir added cour strategic point after machteen auto ation and themater handing. Expand our able pre and our Est manufaction B and crease ING cross lling operort other of our P? I business that take questionions operthank eight questionion pres one twent four 2, three ment the one and the four to six one question one question have no question. two the call Act clo compment one ING and re the sum and the four cing up three or one of the F? Packaging lab show most and number and the Pact Act and of OCTO long Thank that six call 4, eight ninetwent.