Q2 2024 AstroNova Inc Earnings Call

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Good day and welcome to the <unk> fiscal second quarter 2023 financial results Conference call. Today's conference is being recorded I would now like to turn the conference over to Scott Solomon of the company's Investor Relations plan Sharon Merrill Associates. Please go ahead Sir.

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Thank you Carlos good morning, everyone and thanks for joining us on our fiscal second quarter 2024 earnings call.

Hosting this morning's call are Greg Woods, Astro <unk>, President and Chief Executive Officer, 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 don't have a copy please go to the investors page of the <unk> website.

E W. W astronauts.

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Please note that statements made on 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 acceptance.

Wired by law.

These forward looking statements speak only as of today September six 2023.

Passenger Novo 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 and asking all of its annual report on Form 10-K.

Other filings the company makes with the Securities and Exchange Commission.

On today's call management will be referring to non-GAAP financial measures.

Astronauts, who 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 helps investors, who wish to make comparisons between Astro, Nova and other companies on both a GAAP and non-GAAP basis.

Conciliation 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.

Thank you for joining us.

At the beginning of August we announced the strategic realignment of our product identification segment.

And in initiatives designed to further capitalize on the synergies at last year's acquisition of Astral machine.

That restructuring is reflected in our second quarter financial results that we reported this morning.

As a reminder.

The specific actions we have taken to realign this segment include.

First.

Transitioning more of our pie printer manufacturing from Asia, and our headquarters in West Warwick, Rhode Island for Astro machine plant in Elk Grove village, Illinois.

Second.

Rationalizing, our combined Astro, Nova and Astra machine Ti product portfolios by exiting certain lower margin or low volume label printers, the concentrate on higher margin product lines with advanced functionality and greater demand.

And third.

Consolidating our international sales and distribution facilities and streamlining our global channel partner network.

These actions enable us to concentrate this segment's manufacturing marketing and sales resources on the highest return opportunities.

This in turn will provide the best products and services to our customers.

Although the realignment had a negative effect on our GAAP performance in the second quarter. It puts us in a position to achieve an anticipated annualized cost savings of $2 $4 million and create a stronger more resilient business in the quarters to come.

Beyond the restructuring impact.

During the second quarter, we continue to make operating efficiency improvements and we posted double digit year over year topline growth.

The key growth drivers or Astro machine, which we acquired in the fiscal Q3 of last year and the continued momentum of the commercial aviation industry, which is served by our aerospace product line within our test and measurement segment.

Looking at our performance by segment.

Product identification revenue was up 10% in the quarter.

And excluding the restructuring charges segment operating profit improved by 80%.

Over the past several quarters the performance of the segment has been Tamped down as we worked through our program to retrofit a large number of high volume printers guidelines due to our suppliers and quality issue.

As an integral part of our restructuring effort to improve the Pi segment, we established a reserve to account for the cost of an accelerated effort.

Rapidly repair or replace effective printers in the field. So they can more quickly be returned to full service we.

We expect to complete this retrofit program by the end of the current fiscal year.

Product development continues to be and represent an important part of our growth engine for the business.

Enabling us to increase the breadth of our solutions for brand owners Oems and commercial printers.

This quarter, we plan to introduce for innovative new products to the market for applications, including labeling directed package over printing and high speed mailing and addressing.

Earlier this year, we introduced the QL 900.

Our high speed high performance label printer.

At speeds of up to 12 inches per second the QL 900 prints vibrant and wide format color labels that a resolution of six 500 dots per inch making it a robust solution for the most demanding applications.

Unknown Attendee: Good day, and welcome to the AstroNova's fiscal second quarter, 2023 Financial Results Conference Code. Today's conference is being recorded.

Scott Solomon: I would now like to turn the conference over to Scott Solomon, of the company's Investor Relations Fund, Sharon Merrill, associate. Please go ahead, sir. Thank you, Carla.

Our customers will have the opportunity to Cvs and other products in action at several major industry events, taking place in the coming weeks.

Gregory Woods: Good morning, everyone, and thanks for joining us on our fiscal second quarter, 2024, earnings call.

These events include pack Expo in Las Vegas.

<unk> Expo Europe and Brussels.

Scott Solomon: Hosting this morning's call, our Greg Woods, AstroNova's president, and chief executive officer, and David Smith, vice president, and then chief financial officer. Greg will discuss the company's operating highlights. David will take it through the financials at a high level.

And the printing United Expo in Atlanta.

Turning to our test and measurement segment.

Revenue also increased 10% year over year in the second quarter, reflecting the continued strong performance of the aerospace market.

Gregory Woods: Greg will make some concluded comments and then management will be happy to take your questions.

Robust airline passenger traffic and increased aircraft deliveries are driving stronger demand trends for our aerospace printers.

Scott Solomon: By now, you should have received a copy of the earnings release that was issued this morning. If you don't have a copy, please go to the investor's page of the AstroNova website, www.astronovaink.com.

Supplies and services.

Segment operating profit was down year over year, however, due primarily to a higher than normal adverse mix of older generation product shipments in the quarter.

Scott Solomon: Please note that statements made on today's call that are not statements of the struggle fact are considered forward-looking statements within the meaning of the Private Security's Reformation Reform Act of 1995. These forward-looking statements are based on the 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, September 6, 2023. 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.

We continue to focus on upgrading and transitioning aerospace customers from these older generation products through our newer more advanced tough router family of printers.

As we gradually consolidate our product offerings into fewer high volume Skus, we expect the resulting manufacturing efficiencies will positively impact segment margins.

And with that I'll hand, it over to David for the financial review.

Thank you, Greg and good morning, everybody.

I'll start with an overview of the impact of the restructuring charges.

Scott Solomon: Please see the risk factors in AstroNova's annual report on the form 10K and other filings the company makes with the Securities and Exchange Commission.

On our GAAP and non-GAAP results in the quarter.

Restructuring expenses restructuring expenses totaled $2 7 million in this quarter.

Scott Solomon: 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 also helps investors who wish to make comparisons between AstroNova and other companies on both a GAAP and a non-GAAP basis.

It consisted of about $2 million for the write off of certain.

Inventory.

611000 in severance cost spread across our geographic footprint with concentrated primarily in the U S and EMEA.

Scott Solomon: A reconciliation of the non-GAAP financial measures that they're most directly comparable GAAP measures is available in today's and with that, I'll turn the call over to Greg. Thank you, Scott.

And 48000 and lease abandonment expenses.

The inventory written off was for low volume lower margin products.

Gregory Woods: Good morning, everyone, and thank you for joining us. At the beginning of August, we announced the strategic re-alignment of our product identification segment, an initiative designed to further capitalize on the synergies of last year's acquisition of AstroMachine. That restructuring is reflected in second quarter financial results that were reported this morning. As a reminder, the specific actions we have taken to realign the segment include first, transitioning more of our PI printer manufacturing from Asia and our headquarters in Westboro, Rhode Island for our AstroMachine plant in Elk Grove, Bill, Illinois.

This action allows us to concentrate more efficiently on a small set.

Of higher margin products that cover all of the expected applications that our customers have.

We closed a product showroom that was not being used.

And the closely related.

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We recognized a liability for 852000 expenses.

In connection with the printer retrofit program that Greg described.

The programs supported by a very detailed schedule of by customer action steps.

And we're on track to complete it during this fiscal year.

Gregory Woods: Second, rationalizing our combined AstroNova and AstroMachine PI product portfolios by exiting certain lower margin or low volume label printers to concentrate on higher margin product lines with advanced functionality and greater demand. And third, consolidating our international PI sales and distribution facilities and streamlining our global channel partner network. These actions enable us to concentrate the segments, manufacturing, marketing, and sales resources on the highest return opportunities. This in turn will provide the best products and services to our customers.

Okay.

We back out both of these charges from our GAAP financials to give you a clearer picture of the business on a non-GAAP basis as presented in.

In detail in the tables included in the pressure release.

All of these details will be further.

First in our 10-Q, when it's filed tomorrow.

Yes.

In sum, we delivered net income after tax of $1 1 million.

Or 15 cents per diluted.

Sure in the second quarter on a non-GAAP basis.

Gregory Woods: Although the realignment had a negative effect on our gap performance in the second quarter, it puts us in a position to achieve an anticipated annualized cost savings of $2.4 million and create a stronger, more resilient business in the quarters to come. Beyond the restructuring, impact. During the second quarter, we continue to make operating efficiency improvements and we post a double-digit, year-to-year top-line growth. The key growth drivers or aster machine, which we acquired in the fiscal Q3 of last year and the continued momentum of the commercial aviation industry, which is served by our aerospace product line within our testing measurements segment.

As Greg said revenue in the quarter was up 10% to $35 million driven.

Driven by gains in both segments and the PCI gains were attributable to the act was the Astro machine acquisition.

Compared to last year operating expenses on a non-GAAP basis, excluding the structuring charges on the retrofit program cost.

We're up only about 200000 or 2% in the quarter from last year.

And that was prior to the addition of Astro machine.

Just over just a year ago Master machine operating expenses exceeded that amount.

Gregory Woods: Looking at our performance by segment, product identification revenue was up 10% in the quarter and excluding the restructuring charges, segment operating profit improved by 80%. Over the past several quarters, the performance of the PI segment has been tamped down as we work through our program to retrofit a large number of high-volume printers sidelined due to a supplier's inequality issue. As an integral part of our restructuring effort to improve the PI segment, we established a reserve to account for the cost of an accelerated effort to rapidly repair or replace effective printers in the field so they can more quickly be returned to full service.

Also when excluding the non-GAAP charges in the quarter adjusted EBITDA increased to $3 7 million.

Were 10, 3% of revenue.

From $2 2 million or six 7% of revenue in the same period last year.

Looking at revenue by type.

Hardware revenue grew by 31% to $11 3 million.

Supplies revenue increased 3% to $19 7 million.

While the service of other category increased 2% to $4 6 million.

Gregory Woods: We expect to complete this retrofit program by the end of the current fiscal year. Product development continues to be and represent an important part of the growth engine for the PI business, enabling us to increase the breadth of our solutions for brand owners, OEMs, and commercial printers. This quarter, we plan to introduce four innovative new products to the market for applications including labeling, direct-to-package over printing, and high-speed mailing and addressing. Earlier this year, we introduced the QL900, a high-speed, high-performance label printer, printing at speeds of 12 inches per second, the QL900 prints vibrant wide-format color labels at a resolution of 1,600 dots per inch, making it a robust solution for the most demanding applications.

In total.

Hardware revenue accounted for 32% of total revenue in the second quarter up from 26%.

Last year supplies made up 55% of total revenue compared with 59% last year and.

And service and other comprised the remaining 13% versus 15% in Q2 of fiscal 'twenty three.

From a geographic perspective.

Domestic revenue accounted for nearly 63% of total revenue.

From 59% in the second quarter last year.

In international revenue.

The other 37% compared with 41% last year.

In dollars, we saw double digit revenue growth in the U S.

While Europe and Asia were down low single digits.

Gregory Woods: Our customers will have the opportunity to see these and other products in action at several major industry events taking place in the coming weeks. These events include pack-expo in Las Vegas, label-expo in Europe in Brussels, and the printing-united expo in Atlanta. Turning to our testing measurement segment, revenue also increased 10% year-over-year in the second quarter, reflecting the continued strong performance of the aerospace market. Robust airline passenger traffic and increased aircraft deliveries are driving stronger demand trends for our aerospace printers, supplies, and services.

Yeah.

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At the end of.

In the quarter.

Cash was $4 $5 million.

600000 from the end of the fiscal year that ended on January 31.

Total debt at the end of Q2 was $27 3 million down $2 seven from the end of the year.

We are in compliance with all our debt covenants and we have sufficient capacity to support all the operating needs of our business.

We still plan to invest about $1 7 million.

In new capital equipment that will upgrade our hardware and supplies manufacturing equipment to improve efficiency and keep up with demand.

Gregory Woods: Segment operating profit was down year-over-year, however, due primarily to a higher than normal adverse mix of older generation product shipments in the quarter. We continue to focus on upgrading and transitioning aerospace customers from these older generation products to our newer, more advanced, Tupperator family of printers. As we gradually consolidate our product offerings into fewer high-volume skews, we expect the resulting manufacturing efficiencies will positively impact segment margins.

And we will finance that through our bank.

Outside of the capacity of our existing credit facilities.

Inventory investment declined modestly in the quarter before the effect of the inventory write off for the products were getting out of.

We're still expecting some.

Still experiencing <unk>.

Some supply chain struggles primarily electronic components used in PNM products.

David Smith: With that, I'll hand over to David for the thank you Greg and good morning everybody. I'll start with an overview of the impact of the restructuring charges on our gap and non-gap results in the quarter. Restructuring expenses total 2.7 million in this quarter. It consisted of about 2 million for the right off of certain PIM inventory. 611,000 in severance cost spread across our geographic footprint but concentrated primarily in the US and the Mia and 48,000 in lease abandonment expenses.

And in a few instances, we are still needing to maintain extra buffer stocks.

However, there are clear signs that those supply chain issues in aggregate are abating.

And we still believe that our inventory levels will decline as we move through the year.

Our current plan is to use any free cash flow to reduce debt.

So now I'll turn the call back to Greg for closing comments.

Thanks, David.

With the strategic realignment of the Ti business behind us.

We entered the second half of 2024, well positioned for accelerated revenue growth and margin improvement.

We are very excited about the four new Ci products to be unveiled in the coming weeks and expect our TNF segment to continue benefiting from the strong demand environment. We are seeing in the commercial aviation market.

David Smith: The inventory written up was for low-volume lower-market products. This action allows us to concentrate more efficiently on a small set of higher margin products that cover all of the expected applications that our customers have. We closed a product showroom that was not being used. In a closely related action, we recognized the liability for 852,000 in expenses. In connection with the printer Retrofit program that Greg described. The program's supported by a very detailed schedule of by-customer action steps and we're on track to complete it during this fiscal year. We've backed out both of these charges from our gap financials to give you a clearer picture of the business on a non-gap basis as is presented in detail in the tables included in the pressure lease.

With that David and I will be happy to take your questions operator.

Thank you.

You'd like to ask a question on today's call you may do so by pressing star one.

One on your telephone keypad.

Your question. Please press star followed by chance.

Remember paying for your question. Please ensure your phone is on mute it lately.

We will now take our first question.

Where it comes from Pete.

From today's Eni.

Your line is now open. Please go ahead.

Good morning, gentlemen, just a quick question can you talk about your capital spending for this year and next.

With these adjustments can you talk about the free cash flow youll be freeing up.

Sure well, let David and Peter.

Yes, Peter.

We're going to spend.

Right around $2 million this year, which traditionally would've been.

David Smith: All of these details will be further discussed in our 10Q when it is filed tomorrow. In sum, we delivered net income after tax of 1.1 million or 15 cents per diluted chair in the second quarter on a non-gap basis. As Greg said, revenue in the quarter was up 10 percent to 35.5 million driven by gains in both segments and the PI gains were attributable to the aster machine acquisition. Compared to last year, operating expenses on a non-gap basis, excluding the re-structuring charges on the Retrofit program costs, we're up only about 200,000 or 2 percent in the quarter from last year.

Pretty consistent we had a period, where we're spending a little bit more on <unk>.

Business systems.

No.

That's behind Us now.

Traditionally we've said that we'd spend about $2 million a year is maintenance Capex I don't think it's probably quite that high.

It's probably more like a $1 billion to me that I have in maintenance Capex.

But about $2 million this year as we make those investments.

I think the critical issue on the free cash flow side is working capital management.

Mentioned that a little bit on during my remarks, where focus is on.

Reducing inventory and improving terms converting more of our earnings to free cash flow and utilizing the balance sheet more efficiently and clearly.

David Smith: And that was prior to the addition of aster machine just over a year ago. Aster machine operating expenses exceeded that amount. Also, when excluding the non-gap charges in the quarter, adjusted the EBITDA increased to 3.7 million or 10.3% of revenue, up from 2.2 million or 6.7% of revenue in the same period last year. Looking at revenue by type, hardware revenue grew by 31% to 11.3 million, supplies revenue increased 3% to 19.7 million, while the service and other category increased 2% to 4.6 million.

Streamlining our product line.

This should help us in that direction, but we don't have any specific guidance.

Okay. Thank you gentlemen.

Thanks Peter.

Our next question comes from Matt <unk>.

Ask the Aladdin capital demand.

Line is now open. Please go ahead.

Hi, Greg Hey, David.

First question is on the restructuring benefits you quoted $2 4 million and <unk>.

Cost savings I wanted to understand are those just direct costs such as leases manufacturing costs labor.

Or does that include any of the benefit from getting these printers retrofitted more quickly and kind of getting those recurring.

David Smith: In total, hardware revenue accounted for 32% of total revenue in the second quarter, up from 26%. Last year, supplies made up 55% of total revenue compared with 59% last year and service and other comprised the remaining 13% versus 15% in Q2 of fiscal 23. From a geographic perspective, domestic revenue accounted for nearly 63% of total revenue, up from 59% in the second quarter last year and international revenue, the other 37%, compared with 41% last year.

With supply or is that or would that be incremental restructuring benefits.

That would be incremental.

Okay.

That makes sense and then the second question is I notice that the bookings were down fairly significantly I think you've talked about kind of strong demand is that just related to some of that product realignment or some of the printer issues or maybe you could help me understand what's going on there.

Yes.

Yeah.

Yes, I can.

So.

It's a combination of two different factors really so it's when we get blanket orders that tends to boost it up and then we kind of work those down that happens more from the test and measurement.

David Smith: In dollars, we saw double-digit revenue growth in the US, while Europe and Asia were down low single digits. At the end of the quarter, cash was $4.5 million, up 600,000 from the end of the fiscal year that ended on January 31. Total debt at the end of Q2 was 27.3 million, down 2.7 from the end of the year. We're in compliance with all our debt covenants and we have sufficient capacity to support all the operating needs of our business.

Side of the business, where we get kind of large blanket to come in.

It's kind of a bulk.

Quarter over quarter over quarter just services.

Yes.

AI business tends to be fairly steady, although as I kind of mentioned in my notes there with some of these printers offline.

Bank demand for the printers that are offline does decrease in the effective printers. Unfortunately tend to be our higher highest volume machine.

But it's nothing like the Trojan label right out of the ordinary.

Pardon.

I said, it's mostly on the Trojan label side.

David Smith: We still plan to invest about 1.7 million in new capital equipment that will upgrade our hardware and supplies manufacturing equipment to improve efficiency and keep up with demand, and we'll finance that through our bank outside of the capacity of our existing credit facilities. Inventory investment declined modestly in the quarter before the effect of the inventory right off for the products we're getting out of. We're still expecting some, we're still experiencing some supply change struggles.

On the <unk>.

For the bookings.

For the fact that they want the accurate retrofits.

Okay, Yeah the effectiveness.

<unk> drove the machine.

Got you. So your summary, you'd say that it's not any sort of a there's not really a structural demand issue its markets.

Kind of a timing of some of the Lumpier orders.

Correct, yes, keeping keep in mind that keep in mind that the.

Backlog in the aerospace business is very lumpy and.

David Smith: Primarily, electronic components used in T&M products, and in a few instances, we are still needing to maintain extra buffer stocks. However, there are clear signs that those supply change issues in aggregate are abating, and we still believe that our inventory levels will decline as we move through the year. Our current plan is to use any free cash flow to reduce debt.

It is not necessarily a great indicator of.

Revenues in the short term.

<unk> business is a little bit more short cycle, although as Greg discussed we.

We do get quite a few blanket orders for labels on that side of the business as well so it's an interesting.

Metric, but it can't be used effectively I don't think to predict.

Gregory Woods: So now I'll turn the call back to Greg for closing comments. Thanks, David. With a strategic realignment of the PI business behind us, we enter the second half of 2024, well-positioned for accelerated revenue growth and margin improvement. We are very excited about the four new PI products to be unveiled at the coming weeks and expect our T&M segment to continue benefiting from the strong demand environment we are seeing in the commercial aviation market.

Short term revenues.

It's important obviously to have a lot of bookings but.

Yeah.

It will fluctuate.

Alright, understood I'll turn it back over thanks.

Thanks, Matt.

Thanks, Tim and as a reminder, if you'd like to ask a question. Please press star followed by one on your telephone keypad.

Our next question is from Tom Fireeye Fireeye capital Tom Your.

Your line is now open. Please go ahead.

Unknown Attendee: With that, David and I will be happy to take your questions. Operator? Thank you. If you'd like to ask a question on stage call, you may do so by pressing start followed by one on your telephone keypad. To vote for your question, please press start followed by two and when preparing for your question, please ensure your phone is unmuted locally.

Good morning, Greg Good morning, Dave.

Hey, Tom.

Hey.

First on the restructuring and retrofit initiatives.

Respect to retro fit the.

Charge actually is 852000 and my recollection is that a month or so ago, you folks estimated that 600000, if if I'm recalling correctly.

And the difference.

Peter Sidoti: We will now take our first question which comes from Peter Sidoti from Sidoti NCO. Peter, your line is now open. Please go ahead.

Yes, I can give it.

Kind of at a high level on that is that as I mentioned in my comments, we wanted to get this done make sure we get it done as fast as possible.

David Smith: Good morning, gentlemen. Just a quick question. Can you talk about your capital spending for this year and next? And with these adjustments, can you talk about the free cash flow? You will be freeing up. We are going to spend probably right around $2 million this year, which traditionally would have been pretty consistent. We had a period where we are spending a little bit more on business systems and that is behind us now.

So that involves more direct travel to customer sites as opposed to.

If any of the unit in.

Checking it and validating and then updating it and sending it back out so for certain customers.

More of the high volume ones, we're actually going to go on site and do it that way so that's more expensive, but it gets it done quicker.

And this process will be complete by the end of the fiscal year.

Yeah.

Yes, we've got a very systematic process on that I mean, there could be a few stragglers, but by and large scale well over 90% and we expect if it follows our plan will be over a 100% at 100 per sensor.

David Smith: Traditionally, we have said that we spend about $2 million a year in maintenance gap X. I don't think it's probably quite that high. I think it's probably more like a million to a million and a half in maintenance gap X, but about $2 million this year as we make those adjustments. I think the critical issue on the free cash flow side is working capital management. I mentioned that a little bit during my remarks where focus is on reducing inventory and improving terms, converting more of our earnings to free cash and utilizing the balance sheet more efficiently and clearly stringlining the product line. We should help us in that direction, but we don't have any specific guidance.

I see okay. That's very helpful. Thanks very much.

Unknown Attendee: Thank you, Joe.

Peter Sidoti: Thanks, Peter.

There are some low volume and low margin products that we are withdrawing from streamlining channel partners.

Tetra.

Roughly speaking how much by way of sales will be will be we'd be.

Walking away from some of these initiatives.

It's very little on the sales front and part of it really is some overlap in products between.

The Astra and other products pre Astro Mustain acquisition and post.

And we kind of did a lineup.

In some cases the <unk>.

If a product is going to win out or has one out and in other cases, it's gastro machine product.

So we're kind of.

That's the bulk of what we're doing is kind of consolidating and rationalizing those product lines between the two but it's no point, having two kind of products that are very similar just with different brand names on the box and there are some.

Samir Patel: Our next question comes from Samir Pateau from Astralad and Capital. Can you align us now, please go ahead. First question is on the restructuring benefits. You know, you quoted $2.4 million in cost savings. I wanted to understand are those just direct costs such as leases, manufacturing costs, labor, or does that include any of the benefits from getting these printers retrofitted more quickly and kind of getting those units returning to human supplies? Would that be instrumental to those retrofitting assets?

Other products that.

They were decreasing and fairly low.

Revenue anyway, and just to streamline operations.

End of life of those products. So we can eliminate those manufacturing processes associated with those units.

Thanks, and on the streamlining of channel partners or reducing channel partners.

We're doing that domestically.

Is that where that's occurring is that overseas or is it both.

No no globally. So it's in all regions and it's really to get more focus.

Okay.

Some forever.

We're keeping the best of the breed out there and making sure that we have channel partners that are totally aligned with our strategy and also where we have overlap again between Astro machine.

Gregory Woods: That would be incremental. Okay, that makes sense. And then the second question is, you know, I noticed that the bookings were down kind of fairly defensively, but you talked about kind of strong demand. Is that just related to some of that product realignment or some of the printer issues, or maybe you could help me understand what's going on there? Yeah, it's. So it's a combination of a few different factors, really. So it's when we get blanket orders that tends to boost it up, and then we kind of work those down that happens more from the test and measurement side of the business.

Distributors and after Nova distributors sorry.

Seeing that out as well so it's really just to make sure that within any given geographic region.

We have a strong partner who is dedicated to <unk>.

I see and on Astro machine as I recall, when we acquired it it sales were running something like 'twenty, one 'twenty two 'twenty 3 million a year and then I believe last quarter, it seemed kind of a little weak.

Quarterly basis, it still wondering if at the annual rate of 21 to three has it changed much.

Yeah.

Gregory Woods: We get kind of large blankets that come in a kind of a bulk way quarter quarter quarter disturbances. You know, the CI business tends to be fairly steady, although, you know, as I kind of mentioned in my notes there, with some of these printers offline, the, you know, ink demand for the printers that are offline does decrease. And the effective printers, unfortunately, tend to be our highest volume machine. But, you know, it's nothing wrong.

It's off a bit from where it was running.

But I don't know if we've disclosed that.

<unk> David.

The amount of the current quarter was and will be in the queue.

And it's still running in the same range slight.

Slightly lower but I think by the end of the year.

Be in the range that you talked about.

I see I see some product.

Gregory Woods: Now that chart in a label by right out of the ordinary. Pardon? I said it's mostly on a chart in label five. And the fact that this is booking for the fact that the one that we went for it. Okay, you know, the second. Got to see your summary. You say that it's not any sort of a, you know, there's not really structural demand issue. It's more just kind of a timing of some of the lumpier orders.

Sorry did I cut you off.

Just Greg I, just highlight something I said last quarter as well as at the from what we've seen in historical information from Astra machine. The second half of the year tends to be stronger than the first half.

I see so if I were to look at the Ti sales for the quarter of just under 26 and back out five years.

<unk> is running.

Well under where it was last year.

Gregory Woods: Correct. Yeah, keep in mind that keep in mind that the. Backlog in the aerospace business is very lumpy and is not necessarily a great indicator of. Revenues in the short term, the PI business is a little bit more short cycle, although it's great discussed. We do get quite a few blanket orders for labels on that side of the business as well. So it's an interesting metric, but it can't be used effectively.

It is running last.

Last year, Thats behind where it was.

Okay. Alright. This is most helpful. Thank you very much and good luck.

Thanks, Tom.

Thanks, Tom Our next question comes from John J shop from Pinnacle. John Your line is now open. Please go ahead.

Good morning, just a quick question on the retrofit expense.

852000.

That seems to be a supplier related issue and I'm just curious.

Are they sharing in any of the cost of retrofitting.

Gregory Woods: I don't think to predict, you know, short term revenues. It's important to obviously have a lot of bookings, but it will fluctuate. All right, understood. I'll turn it back over. Thanks. Thanks, Ben. As a reminder, if you would like to ask a question, please press start followed by one on your telephone keypad.

Machines, and do we have any recourse against them.

Alright.

Yes, and yes, and it's something that we.

We actually announced that earlier so there was a financial restructuring there is also a.

Some pricing concessions.

Well.

Sorry, I must have missed that where was that disclosed.

Tom Spiro: Our next question is from Tom Spyro from Spyro Capital. Tom, your line is now open. Please go ahead.

That was it was a year and a half David two years ago, I forget exactly what quarter that came out of it.

Gregory Woods: Good morning, Greg. Good morning, Dave. Hey, Tom. Hey, first on the restructuring and retrofit initiatives. With respect to retrofit, the charge I see is 852,000. My recollection is that a month or so ago you folks estimated that at 600,000 if I'm recalling correctly, can you explain the difference? Yeah, I can give it kind of the high level on that, is that as I mentioned in my comments, we wanted to get this done and make sure we get it done as fast as possible.

Congrats on the quarter.

Recognized.

What that was in.

Theres a limitation of liability per event in that particular.

Suppliers contract.

Oh limitation of liability okay.

Yes.

Payouts on that already.

Go ahead.

Okay I was just going to say so there's really no recourse at this point.

Against the supplier.

No not for the amount that we've reserved.

Gregory Woods: So that involves more direct travel to customer sites as opposed to sending the unit in, you know, you know, checking it and validating and updating it and sending it back out. So for certain customers, you know, more of the high volume ones, we're actually going to go on site and do it that way. So that's more expensive, but it gets it done quicker. And this process will be complete by the end of the year.

Yeah.

Separate from that and they are sharing longer term pricing.

Sorry.

The amount that we just.

The amount that we have on the income statement as we reported this is the amount that will get us.

Gregory Woods: Yeah, we've got a very systematic process on that. I mean, there could be a few stragglers, but, you know, by and large, you know, well over, you know, 90% and we expect, you know, if it follows our plan will be over 100% let me add 100% I see.

Alright, okay.

That's helpful. That's helpful.

Yeah.

Well I guess, what I'm trying to understand it is the supplier.

That obligation or who is on the hook primarily here you are the supplier.

Gregory Woods: Okay, that's very helpful. Thanks very much. There's some low volume and low margin products that we're withdrawing from. We're green mining channel partners, et cetera, et cetera. Roughly speaking, how much by way of sales will be, we'll be, we'll be, we'll be walking away from through these initiatives. It's very little on the sales front part of it. It's really some overlap in products between, you know, the astronaut products pre-aster machine acquisition and post.

Well, it's a fair demand, but were not because of the negotiations we don't release the exact dollar amount.

Between the two of us.

Okay.

Alright, and disclosing what we're reserving client.

Alright.

Thanks very much.

Yes.

Thanks, John Our next question comes from Dennis Donald.

Gregory Woods: And we kind of did a line up. And in some cases, the extra product is going to win out or has one out. And other cases is the extra machine product. So we're kind of that's the bulk of what we're doing is kind of consolidating and rationalizing those product lines between the two. There's no point having two kind of products that are very similar, just with different brand names on the box.

Yeah.

<unk> has two management Dennis Your line is now open. Please go ahead.

Yeah.

Yes. Good morning, most of my questions have been answered just real quick though.

Maybe could you talk a little bit about the timing of the of the $2 4 million in savings.

Kind of how that will lag in over the next few quarters and kind of when you when you expect to be.

Gregory Woods: And there are some, you know, other products that they were decreasing in fairly low revenue anyway. And just a streamline operations, we've, you know, end of life, those products so we can eliminate the manufacturing processes associated with those units.

Realizing the full benefit of the realignment actions.

Yeah, so as far as the $2 $4 million. So we expect to get on annualized basis.

But it will take a little bit of time to ramp up so.

Gregory Woods: Thanks. And on the screenlining of channel partners or reducing channel partners, are we doing that domestically primarily? Is that where that's occurring? Is that overseas? Is it both? No, no, it's globally. So it's, it's in all regions. And it's really to get more focused. You know, there's some, whatever, you know, we're keeping the best of the breed out there and making sure that we have, you know, channel partners that are totally aligned with our strategy and also where we have overlap again between after machine distributors and after Nova distributors, you know, kind of sorting that out as well. So it's really just to make sure that, you know, within each given geographic region, we have a strong partner who's dedicated to astronauta.

It will ramp but it's not.

Really backend loaded is just that there's kind of a start up in Q3 and Q4 to get to.

Hello.

We fully expect to hit within the 12 month period for quarter.

And then it's an ongoing benefit of course.

Right, yes, so annualized so.

We'll benefit in fiscal 'twenty five.

Your January 25 fiscal year.

Certainly oh, yes.

Export orders.

Yes.

Yeah, Okay, great. Thank you.

Sure.

Thanks, Dennis we now have a follow up question from Amit <unk>.

Tom Spiro: I see. And on ask from machine, as I recall when we acquired it, it sales were running something like 21, 22, 23 million a year. And then I believe last quarter, it seemed kind of a little weak on a quarter week basis. Is it still running at that annual rate of 2123? Has it changed much? It's off a bit from where it was running, but I don't know if we just go that that in a queue data.

Alex on capital market. Please go ahead, when you're ready.

Hey, a couple of follow ups. One is you didn't talk unless I missed it about the E. Commerce site, just kind of any any early reads there.

Sure Yeah. So we continue to add customers there so that's.

<unk> been on and off but theres more and more things getting added to it and linked into it.

So.

That's growing we'd like to see it grow a bit faster but.

Tom Spiro: The amount of the current quarter will be in the queue. And it's still running from in the same range, slightly lower, but I think by the end of the year will be in the range that you talked about. I see, I see. So, product, I'm sorry, I did I cut you off. No, it's just great. I was going to highlight something I said last quarter as well, is that the from what we've seen in the historical information from AstroMachine, there's second half of the year tends to be stronger than the first half.

It's more of an uptake and we've got our customer service people whenever they are talking to our customers to encourage them to use it.

But we also picked up.

A fair number of third party.

Third party customers, where they bought a printer from somebody else, but they are buying a label material from us.

We are the e-commerce site.

The other benefit Samir from that is we're seeing a nice uptick in our internet.

Marketing results being higher up in the search.

And the number of inquiries.

Tom Spiro: I see. So, if I were to look at the PI sales for the quarter of just under 26 and back out five age. The PI is running well under where it was last year. It is running. It's behind where it was. Yeah. Okay.

Got it and then I know we've talked about this before is there.

With where you are right now with the retrofits I mean do you have any sort of sizing around how much of an impact.

Those issues are to your revenue and the Pgi segment or put differently like you did 26 million.

This quarter give or take I mean, where would you see that figure.

Tom Spiro: All right. This is most helpful. Thanks very much. Good luck. Thanks, Tom.

11, you get those retrofits done kind of based on the.

Supply the printers that are offline in the slides that you are not selling.

John Desha: Our next question comes from John Desha from Pinnacle. John, your line is now open. Please go ahead. Good morning, just a quick question on the retrofit expense, 852,000. That seems to be a supplier related issue. And I'm just curious, are they sharing in any of the costs of retrofitting the machines? And do we have any recourse against them? Yes, and yes, and it's something that we actually announced that earlier. So, there was a financial restructuring, and there's also some pricing concessions as well.

Yeah, we haven't given guidance on that I mean, what I can tell you is that Q2 sees that.

Primarily the ones that have the highest volume that are impacted by that.

We generate.

Neighborhood of $20000 a year in revenue.

And there.

Roughly I think we're about halfway through that upgrade program. So.

And as far as units that are touched.

So one thing to keep in mind too is 11, the upgraded its need to use the.

Zinc supplies <unk> label suppliers that they have in house.

Before they buy more so there's a bit of a ramp up in that process.

Yes, Sameer its David I'll just.

<unk>.

Comment that.

Obviously to take a step like this where we are moving rapidly to spend all this money.

John Desha: Sorry, I must have missed that. Where was that disclosed? That was a year and a half, David, two years ago, I heard exactly what quarter that came out in. You can recognize what that was, and there's a limitation of liability per event in that particular supplier's contract. A limitation of liability, okay. Yeah, your next might pay out from that already. Go ahead. Okay, I'm just going to say so there's really no recourse at this point against the supplier.

We are expecting a return on that.

Good economic decision to do it.

Faster, we do it faster we will get the money back.

So.

It's pretty high we think it's a pretty high return in Denver.

From a cash flow perspective.

Okay that makes sense.

Helpful. Thanks.

Right.

Thanks demand at this time, we have no further questions registered and with that I'll hand back to Greg Woods for final remarks.

John Desha: No, we in this not for the amount that we've reserved. Yeah. Okay, separate from that. Sorry, the amount that we discussed. Go ahead. The amount that we have on the income statement is certainly recorded. This is the amount that will hit us. Right. Okay. If that's helpful, if that's helpful. Well, I guess what I'm trying to understand is the supplier matching that obligation or who's on the hook primarily here? Well, it's a shared amount, but we're not, you know, because in the negotiations, we don't release the exact dollar amounts between the two of us. Okay, well, we're going to probably try and disclose what we're reserving point. Alright, thanks very much. Thanks, John.

Great well. Thank you everyone for joining US here. This morning, and we look forward to keeping you updated on our progress.

A good rest of the day.

This concludes today's call. Thank you for your participation you may now disconnect your lines.

[music].

Okay.

Okay.

Dennis Scannell: Our next question comes from Dennis, Daniel, from router by guard capital management. Dennis, your line is now open. Please go ahead. Yes, good morning. Most of my questions have been answered just real quick, though. So maybe could you talk a little bit about the timing of the of the 2.4 million and savings, kind of how that'll leg in over the next few quarters. And kind of when you when you expect to be realizing the full benefit of the realignment action.

Dennis Scannell: Yeah, so as far as the 2.4 million, that's what we expect to get on annualized basis, but it will take a little bit of time to ramp up. So, you know, it'll ramp, but it's not really back unloaded. It's just that there's kind of a startup in Q3 and Q4 to get to the, you know, cool amount. But we fully expect to hit it, you know, within the 12 month period, you know, the score quarter.

Dennis Scannell: And then it's it's an ongoing benefit, of course. Right. Yeah. So, and so and full benefit in fiscal 25, then is that the your January 25 fiscal year? Certainly, but don't go in the next four quarters. Yeah. Okay. Great. Thank you. Thanks, Dennis.

Samir Patel: We now have a follow-up question from Smith, Patel, from Alksan, tattoo market. Please go ahead when you're ready. Hey, a couple follow-ups. One is you didn't talk unless I missed it about the e-commerce site, just kind of any, any early reading there. Sure. Yeah. So we continue at customers there. So that's, you know, if you've been on it, there's more and more things getting added to it and linked into it. That's growing.

Samir Patel: We'd like to see grow a bit faster, but, you know, it's more an uptake and we've got our customer service people whenever they're talking to our customers, you know, encourage names to use it. But we also picked up, you know, a fair number of third party, come third party customers where they bought a printer from somebody else, but they're buying label material from us via the e-commerce site. The other benefit to mirror from that is we're seeing a nice uptick in our internet marketing results, you know, getting higher up and searched enough higher number of inquiries.

Samir Patel: Got it. And then I know we talked about this before. Is there, you know, with where you are right now with the retrofits? I mean, do you have any sort of sizing around how much of an impact those issues are to your revenue and the GI segment, you know, we put differently like, you know, you did 26 million, this quarter give or take, I mean where would you see that figure once you get those retrofits done kind of based on the you know supply, the printers that are offline and the supplies that you're not selling.

Samir Patel: Yeah, we haven't given guidance on that, I mean what I can tell you is the two two seeds that are primarily, you know, the ones that have the highest volume that are impacted by that, they typically generate in the neighborhood of $20,000 to a year in revenue. And there's roughly, I think about halfway through that upgrade program so as far as units that are touched, you know, so one thing to keep in mind too is once we upgrade it and then it needs to use the you know, think supplies and or label supplies that they have in house, yeah, before they buy more so there's a bit of a ramp up in that process.

Samir Patel: Yeah, and Samaritan, it's David, I'll just comment that obviously to take a step like this where we are moving rapidly to spend all this money, we are expecting a return on that. I mean it's a good economic decision to do it. The faster we do it, we'll faster we'll get the money back. So, you know, and I think it's pretty high, we think it's a pretty high return endeavor from a cash flow perspective. Okay, that's what's helpful. Thanks. Thanks, Samar. At this time, we have no further questions registered.

Gregory Woods: So with that, I will hand back to Greg Woods for final remarks. Great. Well, thank you everyone for joining us through this morning and we look forward to keeping you updated on our progress.

Unknown Attendee: Have a good rest of the day. I know.

Unknown Attendee: This concludes today's call. Thank you for your participation. You may now disconnect your lines. Music