Q3 2023 AstroNova Inc Earnings Call

Okay.

Good day and welcome to ask your neighbors that quotes out fiscal year 2023 financial results Conference call.

Today's conference is being recorded.

You would like to ask a question during today's presentation. Please press star followed by one on your telephone keypad. If you change your mind. Please press star followed by Chi.

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

Yes.

Thank you drew.

Morning, everyone and thanks for joining us.

Hosting this morning's call are Greg Woods, Astro Nova'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've received a copy of the earnings release that was issued this morning.

You do not have a copy please go to the Investor page of the astronauts website www dot astronauts 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 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.

Any forward looking statements speak only as of today December seven 2022.

Astronauts 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 an astronaut 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 Gastrinoma believes that the inclusion of these financial measures helps investors gain a meaningful understanding of the changes in the Companys core operating results.

It also helps investors, who wish to make comparisons between national and other companies on both a GAAP and a non-GAAP basis.

A reconciliation of the 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 thank you for joining us.

Let me begin by saying that we're pleased with our Q3 performance, particularly considering the still challenging macroeconomic environment.

On the top line, we delivered record revenue of $39 $4 million a year over year increase of 37% was primarily driven by our August acquisition of Astro machine.

Coupled with another strong quarter in test and measurement and mid single digit growth in our base product and application business.

Inflation supply chain shortages and geopolitical volatility has continued to make things tough for businesses in many industries, including ours.

I'm extremely proud of the way our team has continued to navigate those challenges to deliver for our customers.

Turning to our segment results.

For identification revenue grew 36% in the quarter to $29 million largely reflecting the addition of Astro machine.

To give you some perspective on our acquisition call in August we noted that Astro machines revenue for the trailing 12 months ended June 30 was.

It was about $22 million.

We are tracking slightly ahead of that run rate.

Asher machine is a perfect fit for our product and application segment in two specific ways.

First it is a great complement to our label printer business label.

The label printers currently represent about a third of Astro machines revenue and we can scale that portion of the business by expanding the distribution of those products through a much broader distribution channel.

There are also cross selling opportunities between our business faces as well as product development and acceleration advantages and our R&D efforts with the combined teams.

Second.

Astra machine expands our addressable market into the high speed over printing space as well as mail and package printing applications.

This market accounts for the other two thirds of Astro machines revenue.

And is benefiting from the rapid expansion of E Commerce.

Well technologically similar it is new customers and channels as well as the opportunity to expand business with existing customers.

And of course, the recurring revenue stream that runs through both the label printer and mail handling sides of the business is significant.

Our engineering and product development teams are working well together.

And we have already identified several exciting opportunities for product synergies.

It is also advantageous to be adding a second engineering and manufacturing center based here in the U S located near Chicago's O'hare International Airport.

Of course, it's still early in the process as we are now just four months into the acquisition.

So far the integration is right on plan and the business synergies are exceeding our expectations.

Elsewhere in our product Edification segment, we continue to maintain a steady pace of new product innovation.

Delighted by the launch of our entry level <unk> E 100, full color tabletop label printer.

As well as several additional technology innovations.

The QL 100, which we introduced to great customer response at pack Expo International in October is purpose built for customers just beginning to capitalize on the benefits of in house label printing.

As well as larger organizations that need multi unit widespread distribution of their label printing.

Turning to our test and measurement segment.

The segment posted another solid quarter as revenue increased about 38% year over year to $9 5 million.

Topline would have been even stronger but for supply shortages.

This resulted in about a $2 million of unfilled orders most of which we expect to ship in the current fourth quarter.

The aerospace component of our TNF segment posted its highest quarterly revenue since the first quarter of our fiscal 2021 year.

That milestone is certainly consistent with the rebound of the commercial aviation market, which continues to ramp back up from the depths of the pandemic.

Segment hardware and service revenue also grew nicely in the quarter.

The growth in hardware relates cheaply to the higher production rate of key programs such as the Boeing 737, Max and the Airbus <unk> hundred 20.

The increase in service revenue is indicative of the greater number of planes in the sky and the increased demand for our aviation paper as well as maintenance repair and overhaul services.

The data acquisition portion of our TNF segment also performed well in the quarter.

As we continue to see demand grow for our technology in areas, such as rocket and missile telemetry and other defense related applications.

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

Thanks, Greg and good morning, everybody.

I'll provide a couple of brief comments on the quarter's financial results.

Including the impact of Astro machine.

Comparing the third quarter of this year to last year as we saw revenue growth in all areas.

Reflecting both the acquisition of Greg highlighted in his remarks as well as the ongoing business hardware sales were up 57% for the quarter to $11 9 million year to date hardware is tracking 29% ahead of fiscal 2022.

At about $30 million.

Supplies revenue of $23 million was.

27%.

Ahead of last year's third quarter and through nine months of the year revenue from supplies.

Is that just over 9% $57 8 million.

Third quarter revenue from service and other was up 42% year over year to four and $4 5 million.

Year to date. This category is 31% ahead of last year's pace coming in at $12 7 million.

By geography year to date, the U S accounted for $65 5 billion in revenue or 63, 8% of total sales with the international side, making up the remainder 37 to 36, 2%.

Turning to expenses we win.

Excuse me we remained focused on.

Really diligently managing those areas of the business that are under our control.

Our GAAP results this quarter I want to note include.

$217 million in acquisition related expenses.

Relating obviously to the costs associated with getting the Astro machine transaction completed.

For a more useful comparison to 2022, we're going to talk about operating expenses, including the acquisition are highlighting the differences, but as always.

Please review the tables in the earnings release for a reconciliation to GAAP to the non-GAAP .

Results.

On a total basis operating expenses in the third quarter were $10 4 million.

343% higher than the comparable period last year, but they would have been slightly lower without Astro machine.

Operating expenses on a non-GAAP basis have been really very stable for the last several quarters.

non-GAAP operating income in the quarter grew to $2 1 million or five 2% of revenue.

From 300000 or 1% of revenue in the same period.

Last fiscal year.

The increases were driven in part by higher revenue in the.

2000, 22023 period as well as an improvement from the acquisition.

Astro machines OEM business model has a lower gross margin profile.

But much lower operating expenses supporting higher operating margins.

Overall, the Astro performance is in line with perhaps even a little better than planned at the time of the transaction as Greg noted.

In the segments product <unk> operating profit was up 63% in the third quarter to nearly $3 million, which translated to an operating margin of nine 9% up 160 basis points year over year.

Test and measurement segment operating profits more than doubled to $1 7 million in the quarter, yielding an 18.0% operating margin up 580 basis points.

Compared to the same period last year.

Turning to the bottom line non-GAAP op <unk>.

non-GAAP net income for the quarter was.

830000, or <unk> 11 per diluted share compared to 103000 or <unk> <unk> per share in the year earlier period acquisition related expenses impacted GAAP EPS by <unk> <unk>.

Per diluted share.

Bookings in the third quarter increased more than 8% year over year to $35 million the highest quarterly total since the first quarter of fiscal 2020.

Backlog at the end of the quarter.

Our backlog as of the end of the quarter increased 46, 6% to $39 3 million.

$26 8 million.

At the same period last year.

In early August we funded.

$17 1 million acquisition with debt under an amendment to our credit facility and the <unk>.

Terms are all explained in the filings we did at that time and are summarized in the footnotes to the third quarter 10-Q that we're going to file very shortly now.

Also the elements of the Astro machine balance sheet.

Alright, and the consolidation.

And disclosed in the 10-Q.

Along with a discussion of the items that are preliminary estimated and subject to change.

Well, we're very cleanly and full compliance with our covenants the inventory balance has grown this year because of our responses to supply chain challenges and then the other reason for the growth in the debt balance.

We're taking a number of careful and measured actions to reduce inventory levels.

And thus allow us to reduce our drawings under our revolving credit.

Leave those steps will begin to show effect beginning in the fourth quarter.

With that I'll turn the call back to Greg.

Yeah.

Thanks, David.

In closing.

We posted a strong quarter and are confident in the underlying fundamentals and secular trends shaping our business.

The integration of Astro machine is on track.

We are excited about the future potential from this transaction.

With a record backlog and a healthy order demand exiting Q3, we are well positioned to continue executing on our growth strategy as we move through the fourth quarter and into fiscal 2024.

Now, David and I'll be happy to take your questions operator.

Thank you we will now start today's Q&A session. If you would like to ask a question. Please press star followed by one on your telephone keypad now if you change your mind. Please press star followed by T.

So it looks like we have no questions. Currently in so I will turn you back over to Mr. Woods.

Yeah.

Great. Thank you.

Thank you all for joining US here. This morning as always we look forward to keeping you updated on our progress.

And have a wonderful holiday everyone.

Okay.

That concludes today's Aster, Nova Inc. Fiscal second quarter 2023 financial results you may now disconnect your line.

Uh huh.