Q4 2024 AstroNova Inc Earnings Call
Operator: Thank you. Thank you for your patience, everyone.
Thank you for your patience, everybody us turned over fiscal fourth quarter and full year 2024 financial results conference call will begin shortly during the presentation you will have the opportunity to ask questions by pressing star followed by one on your telephone keypad.
Operator: The AstroNova fiscal fourth quarter and full year 2024 financial results conference call will begin shortly. During the presentation, you will have the opportunity to ask questions by pressing a star followed by one on your telephone keypad. Thank you. Thank you. Thank you.
[music].
Operator: Good morning, and welcome to the AstroNova Fiscal Fourth Quarter and Full Year 2024 Financial Results Conference call. Today's conference is being recorded. I would now like to return the call to David Kalazian of the company's investor relations firm, Sharon Merrill Advisors. Please go ahead, sir.
Speaker Change: Good morning, and welcome to the Astro knows our fiscal fourth quarter and full year 2024 financial results Conference call. Today's conference is being recorded.
David S. Smith: Thank you, Carla, and good morning, everyone. By now, you should have received a copy of the earnings release issued this morning. If you've not received a copy, please go to the Investors page of the AstroNova website, www.astronovainc.com. Please note that beginning this quarter, we will be using an earnings slide deck that goes along with our prepared remarks. You may access the deck on the Investors section of our website at astronovainc.com under Events and Presentations, turning to slide two in that deck. 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, except as required by law.
David: And I'll, let you turn the conference over to David call at the end of the company's Investor Relations firm Sharon Merrill Advisors. Please go ahead Sir.
Thank you Carla and good morning, everyone.
By now you should have received a copy of the earnings release issued this morning.
David S. Smith: If you've not received a copy please go to the investors page of the Astra <unk> Web site Www Dot after Nova Inc. Dot com.
David S. Smith: Please note that beginning this quarter, we will be using an earnings slide deck that follows along with our prepared remarks.
David S. Smith: You may access the deck on the investors section of our website at Astro <unk>, Inc. Dot com under events and presentations.
David S. Smith: Yes.
David S. Smith: Turning to slide two in that deck.
David S. Smith: 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 1095.
David S. Smith: These forward looking statements are based on a number of assumptions that could involve risks and uncertainties occur.
David S. Smith: Accordingly, actual results could differ materially except as required by law any forward looking statements speak only as of today March 22 2024.
David S. Smith: Any forward-looking statements speak only as of today, March 22, 2024, and AstroNova undertakes no obligation to update these forward-looking statements. For other 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 other filings that the company makes with the Securities and Exchange Commission. On today's call, management will refer 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 and also helps investors who wish to make comparisons between AstroNova and other companies on both a GAAP and 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, turning to slide three.
David S. Smith: <unk> undertakes no obligation to update these forward looking statements further information regarding the forward looking statements and the factors that may cause differences. Please see the risk factors and Astra <unk> annual report on Form 10-K, and other filings that the company makes with the Securities and Exchange Commission.
David S. Smith: On today's call management will refer to non-GAAP financial measures Astra Novo believes that the inclusion of these financial measures helps investors gain a meaningful understanding of the changes in the company's core operating results and also helps investors who wish to make comparisons between Astro Nova and other companies on both a GAAP and non.
David S. Smith: GAAP basis.
David S. Smith: A reconciliation of the non-GAAP financial measures to their most directly comparable GAAP measures is available in today's earnings release.
David S. Smith: Turning to slide three joining.
David S. Smith: Joining me on this call this morning are Greg Woods, AstroNova's President and Chief Executive Officer, and David Smith, Vice President and Chief Financial Officer. Greg will discuss segment operating highlights and share the company's fiscal 2025 financial targets and outlook. 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. If you've not received a copy of this morning's earnings release, please go to the investors page of the AstroNova website at astronovainc.com. Now please turn to slide four as I turn the call over to Greg. Thank you, David. And good morning, everyone.
David S. Smith: Joining me on this call. This morning are Greg Woods, Astro <unk>, as President and Chief Executive Officer, and David Smith, Vice President and Chief Financial Officer.
Gregory A. Woods: Greg will discuss segment operating highlights and share the company's fiscal 2020 financial targets and outlook, 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. If you have not received a copy of this morning's earning release. Please go to the investors page of the astronauts website.
Gregory A. Woods: I would ask for Nova in Dot com.
Gregory A. Woods: Now please turn to slide four as I turn the call over to Greg.
Gregory A. Woods: Thank you David.
Gregory A. Woods: And good morning, everyone.
Gregory A. Woods: I'd like to begin by recognizing the excellent work of AstroNova. Every one of our more than 360 team members contributed to our solid performance in fiscal 2024. Their skills, dedication, and hard work are the driving force behind what we accomplished this year, moving AstroNova to a stronger and more profitable financial trajectory. As I reflect on fiscal 2024, three key achievements actually stand out. First,
Gregory A. Woods: I'd like to begin by recognizing the excellent work of the Astra Noga team.
Gregory A. Woods: Every one of our more than 360 team members contributed to our solid performance in fiscal 2024.
Gregory A. Woods: Their skills dedication and hard work are the driving force behind what we accomplished this year moving astronauts to a stronger and more profitable financial trajectory.
Gregory A. Woods: As I reflect on fiscal 2020 for three key achievements actually stand out.
Gregory A. Woods: First.
Gregory A. Woods: The Strategic Realignment of our Product Identification, which we completed last summer. By consolidating PI, we have created a far leaner and more efficient business. Our strategic focus is on delivering the best engineered solutions for our customers and the highest return opportunities for the company. The simplification of our PI segment enables us to do just that.
Gregory A. Woods: The strategic realignment of our product identification segment, which we completed last summer.
By consolidating Ti, we have created a far leaner and more efficient business.
Gregory A. Woods: Our strategic focus is on delivering the best engineered solutions for our customers and the highest return opportunities for the company.
Gregory A. Woods: The simplification of our PFS segment enables us to do just that.
Gregory A. Woods: Second.
Gregory A. Woods: Second, the resurgence of our test and measurement segment, which in fiscal 2024 posted its highest revenue in four years. Our portfolio of aerospace products and MRO services is the primary driver powering the T&M segment, fueled largely by the rebound in commercial air travel and aircraft build rates. DNM is well on its way to returning to its pre-COVID highs, and third, The launch of new PI products in fiscal 2024 in each of our Quick Label, Trojan Label, and Astro Machine brands. These include the Quick Label 900, the Trojan Label T2 Pro and T3 Pro, as well as Astro Machines' two new flat pack printing solutions.
Gregory A. Woods: The resurgence of our test and measurement segment.
In fiscal 2024 posted its highest revenue in four years.
Gregory A. Woods: Our portfolio of aerospace products and MRO services is the primary driver powering the Tms segment.
Gregory A. Woods: Fueled largely by the rebound in commercial air travel and aircraft build rates Dnm is well on its way to returning to its pre COVID-19 highs.
Gregory A. Woods: And third.
The launching of new products in fiscal 2024, and each of our quick label Trojan label and Astro machine brands.
Gregory A. Woods: These include the quick label 900, the Trojan label, <unk> Pro and <unk> Pro as.
Gregory A. Woods: As well at Astro machines to new flat pack printing solutions.
Gregory A. Woods: All of these new products feature improved performance and expanded printing width capability. The initial deliveries of these products have been well received by our customers, and we expect them to gain full production momentum in the second half of this fiscal year. Turn to our full year results on slide five. We reported fiscal 2024 revenue of more than $148 million, the most in our history. Our 4% top line growth was primarily driven by the T&M segment, which posted a revenue increase of nearly 12%. PI segment revenue was up slightly year over year as we worked through the previously discussed retrofit of certain printers affected by the inequality and reliability issues related to a large supplier. Our full-year consolidated margin results reflected an easing of supply chain pressures, the benefit of the PI realignment, Improving pricing in T&M, and Discipline Cost Management compared with fiscal 2023. Gross margin improved by 110 basis points on a gap basis and 290 points on a non-GAAP basis. We posted record operating profit for the full year.
Gregory A. Woods: All of these new products future improved performance and expanded printing with capability.
Gregory A. Woods: The initial deliveries of these products have been well received by our customers and we expect them to gain full production momentum in the second half of this fiscal year.
Gregory A. Woods: Turning to our full year results on slide five.
Gregory A. Woods: We reported fiscal 2020 for revenue of more than 148 million the most in our history.
Gregory A. Woods: Our 4% top line growth was primarily driven by the <unk> segment, which posted a revenue increase of nearly 12%.
Gregory A. Woods: <unk> segment revenue was up slightly year over year as we worked through the previously discussed retrofit of certain printers effected by the quality and reliability issues related to a large supplier.
Gregory A. Woods: Our full year consolidated margin results reflected an easing of supply chain pressures the benefit of the realignment.
Gregory A. Woods: Improving pricing and TM.
Gregory A. Woods: And disciplined cost management.
Gregory A. Woods: Compared with fiscal 2023.
Gregory A. Woods: Gross margin improved by 110 basis points on a GAAP basis, and 290 points on a non-GAAP basis.
Gregory A. Woods: We posted record operating profit for the full year.
Gregory A. Woods: Operating margin increased 210 points and 380 points on a GAAP and non-GAAP basis, respectively, for the full year. Adjusted EBITDA, including restructuring and retrofit items, increased 60% to 17.6 million. Adjusted EBITDA margin was 11.9% in fiscal 2024. 420 basis points ahead of fiscal 2023 on the bottom line. Astro Machine earned 63 cents per diluted share on a gap basis in fiscal 2023.
Gregory A. Woods: Operating margin increased 210 points and 380 points on a GAAP and non-GAAP basis, respectively.
Gregory A. Woods: For the full year adjusted.
Gregory A. Woods: Adjusted EBITDA, excluding restructuring and retrofit items increased 60% to $17 6 million.
Gregory A. Woods: Adjusted EBITDA margin was 11, 9% in fiscal 2024.
420 basis points ahead of fiscal 2023.
Gregory A. Woods: On the bottom line.
Gregory A. Woods: Astro machine or <unk> 63 per diluted share on a GAAP basis in fiscal 2023.
Gregory A. Woods: 475% from a year earlier, while non-GAAP diluted EPS was <unk> 97.
Gregory A. Woods: All right, up 75% from the year earlier. Non-GAAP diluted EPS was $0.97, more than double the $0.43 earned in fiscal 2023. During the year, we generated $12.4 million in cash from operations, the majority of which was used to pay down debt.
More than double the 43 earned in fiscal 2023.
Gregory A. Woods: During the year, we generated $12 $4 million in cash from operating activities. The majority of which was used to pay down debt.
Gregory A. Woods: David will discuss our balance sheet and cash flow highlights in more detail in his financial review, while looking at our full year segment performance on slide six. Product ID, and the last segment, revenue was $104 million, just under a million ahead of fiscal 2023; increases in revenue from hardware and the service and other category offset lower revenue in PI supplies that was attributed primarily to the retrofit program. PI Segment Operating Profit was $2.2 million in fiscal 2024 on a GAAP basis and $5.3 million on a non-GAAP basis.
Gregory A. Woods: Dave will discuss our balance sheet and cash flow highlights in more detail in his financial review.
Gregory A. Woods: Looking at our full year segment performance on slide six.
Gregory A. Woods: Product I D.
Gregory A. Woods: <unk> revenue was 104 million just under $1 million ahead of fiscal 2023.
Increases in revenue from hardware as a service and other category offset lower revenue in Ti supplies. There was attributed primarily to the retrofit program.
Gregory A. Woods: Segment operating profit was $2 2 million in fiscal 2024 on a GAAP basis, and $5 3 million on a non-GAAP basis.
Gregory A. Woods: CNS revenue increased to 44 million compared to $39 4 million in fiscal 2023.
Gregory A. Woods: T&M revenue increased to $44 million compared to $39.4 million in fiscal 2023, primarily due to strong hardware revenue growth. The supplies and service categories also posted gains year over year. T&M Segment Operating Profit increased $1.2 million from fiscal 2023.
Gregory A. Woods: Primarily on strong hardware revenue growth.
Gregory A. Woods: The suppliers and service categories also posted gains year over year.
Gregory A. Woods: <unk> segment operating profit increased $1 2 million from 2023.
Gregory A. Woods: The rebound in airline passenger traffic towards pre pandemic levels, the increasing number of daily flights and favorable commercial aircraft order and delivery trends provide a favorable growth runway for our aerospace product line.
Gregory A. Woods: The rebound in airline passenger traffic toward pre-pandemic levels, the increasing number of daily flights, and favorable commercial aircraft order and delivery trends provide a favorable growth runway for our aerospace product line. The data acquisition product line within our T&M segment gained traction as we went through the year and performed well in the second half of fiscal 2024, highlighted by strong order volume in end markets such as energy and defense. I'd like to conclude by taking you through our fiscal 2025 target, turning now to slide seven. Our global teams are committed to continuous improvement and applying the tools of the AstroNova operating system to drive sustained product innovation, operating efficiencies, and margin-enhanced. For fiscal 2025, AstroNova expects to achieve full-year organic revenue growth in the mid-single digits. Additionally, as we continue to drive operational improvements throughout the business, we expect our full-year adjusted EBITDA margin to be 13 to 14% this year and to further improve by 100 basis points per year over the following two fiscal years. Now, I'll turn the call over to David for his financial review. David?
Gregory A. Woods: The data acquisition product line within our T&D segment gained traction as we went through the year and performed well in the second half of fiscal 2024 pilot.
Gregory A. Woods: Highlighted by strong order volume in end markets, such as energy and defense.
Speaker Change: I'd like to conclude by taking you through our fiscal 'twenty 'twenty five targets.
Speaker Change: Turning now to slide seven.
Speaker Change: Our global teams are committed to continuous improvement and applying the tools that the astronauts the operating system to drive sustained product innovations operating efficiencies and margin enhancement.
Speaker Change: For fiscal 2025 astronauts expects to achieve full year organic revenue percentage growth in the mid single digits. Additionally.
Speaker Change: As we continue to drive operational improvements throughout the business, we expect our full year adjusted EBITDA margin to be 13% to 14% this year and to further improve by 100 basis points per year over the following two fiscal years.
Speaker Change: Now I'll turn the call over to David for his financial review David.
David S. Smith: Thanks, Greg, and good morning, everybody. Greg mentioned the tremendous AstroNova team effort, and I'll say that I'm happy and proud to be part of it. We've made great strides in focusing our investments and streamlining our costs, and we all share Greg's enthusiasm about the future. The initiatives he outlined do put us on what I believe is a clear path to execute on our longer-term financial objectives, are key metrics. We generated strong cash flow for the year with cash from operating activities at $12.4 million, from which we paid down $7 million, and others. Debt reduction is our current primary use of cash after working capital and modest capital expenditures inherent in supporting the business.
David: Thanks, Greg and good morning, everybody.
David: Greg acknowledge the tremendous Australia the team effort.
David: And I'll say that I am happy and proud to be part of it we've made great strides in focusing our investments in streamlining our cost structure and we all share great enthusiasm about the future.
David: The initiatives.
David: Clyde do put us in what I believe is a clear path to exit.
David: Over the longer term financial objectives a.
David: A key metric.
David: We generated strong cash flow for the year with cash from operating activities at $12 4 million.
David: From which we paid down $7 million.
David: Dollars of debt on our revolving credit facility.
David: Debt reduction is our primary use of cash after the working capital and modest capital expenditures inherit in supporting the business.
David S. Smith: We have ample unused capacity committed in the credit facility with the bank. Turning to slide eight, and our fourth-quarter results. The $39.6 million of Q4 revenue is in line with the comparable period in fiscal 23, with a 10% increase in TNM, largely offsetting a 5% decline in PI, and David Spiro. The gap gross margin of 37.2% in the fourth quarter increased by 320 basis points from the same period in fiscal 23, reflecting a more favorable mix in PI in the 2024 period. However, operating expenses for the quarter were down.
David: We have ample unused capacity.
David: Committed credit.
Credit facility with the bank.
David: Turning to slide eight.
David: And our fourth quarter results.
The $39 $6 million of Q4 revenue was in line with the comparable period.
David: In fiscal 'twenty three.
David: With a 10% increase in PNM.
David: Largely offsetting a 5% decline in.
David: <unk>.
David: Yes.
GAAP gross margin of 37.
David: 2% in the fourth quarter increased by 320 basis points from the same period in.
David: Fiscal 'twenty, three reflecting a more favorable mix in <unk>.
David: In the 2024 period.
David: Operating expenses for the quarter were down.
David S. Smith: 634,000, or approximately 6% year-over-year to 10.8 million. The key driver was a 10% decline in selling and marketing expense, which reflected the benefit of our strategic realignment of the PI segment. It is also overall a function of a broad-based commitment to efficient use of our resources throughout the organization in keeping with the AstroNova operating system. When we announced the restructuring last August, we projected annualized cost savings of more than $2.4 million. All of the elements of that restructuring are in place, and we now see that the run rate is in line, and this can be seen in our results. The strength of the higher gross margin and lower operating expenses led to operating margin increasing 460 basis points in the quarter to 9.9% compared to 5.3% in the fourth quarter of last year.
David: 634000, or approximately 6% year over year to $10 8 million.
David: The key driver was a 10% decline in selling and marketing expense, which reflected the benefit of our strategic realignment.
David: By segment.
David: It is also overall a function of a broad based commitment to efficient use of our resources throughout the organization and keeping with the <unk> operating system.
David: Yes.
David: When we announced the restructuring last August we projected.
David: And annualized cost savings of more than $2 4 million.
David: All of the elements of that restructuring are in place that we now see that the run rate is in line.
David: And it can be seen in our results.
David: The strength of the higher gross margin and lower operating expenses.
David: Led to operating margin, increasing 460 basis points in the quarter.
David: Nine 9% compared with five 3%.
In the fourth quarter of last year.
David: As disclosed in the tables in Q4, we took back 210000.
David S. Smith: As disclosed in the tables in Q4, we took back $210,000 of the $852,000 provision reserved for the product retrofit program as the costs were not as high as projected, as some planned retrofits were not needed or wanted by some customers, and the program is complete. Again, take a look at the reconciliation of non-GAAP results to the most directly comparable GAAP results that's available in the release. Adjusted EVIT DA improved 4% in the fourth quarter to $5.5 million, or nearly 14% of revenue from $3.9 million, or 10% of revenue a year earlier. Order volume remains strong. Q4 bookings were a record 39.8 million, 9.7% above the same period in fiscal 2023. Turning to slide nine.
David: 852000 provision reserve for the product retrofit program.
David: The costs were not as high as projected.
David: As some planned retrofits were not needed or wanted by some customers.
David: <unk> is complete.
David: Again take a look at the reconciliation of non-GAAP results to the most directly comparable GAAP results is available in the release.
David: Adjusted EBITDA improved 4% in the fourth quarter to $5 5 million or nearly 14% of revenue.
David: From $3 9 million or 10% of revenue a year earlier order volume remains strong.
David: Q4 bookings were a record $39 8 million nine 7% above the same period in fiscal 2023.
David: Turning to slide nine.
David: In the Q4 segment performance <unk> revenue declined 5% year over year to $26 6 million in large measure due to the market impact of the suppliers quality and reliability issues.
David S. Smith: In the Q4 segment performance, PI revenue declined 5% year over year to $26.6 million, in large measure due to the market impact of the supplier's quality and reliability issues. PI segment operating margin increased by 560 basis points to 12.2%, driven by the strategically driven activities Craig's already explained and, frankly, the effect of a whole host of improvements by the AstroNova team that are starting to show real results in aggregate. T&M segment revenue increased 10% to $13 million with contributions from both the aerospace and data acquisition product lines, and segment operating profit was up 14% to $3.7 million, and there was a 90 basis point improvement in the segment operating margin. Moving to slide 10.
David: Segment operating margin increased by 560 basis points to 12, 2%.
David: Driven by this strategically.
David: Activities Greg's already exploited.
David: Frankly, the effect of a whole host of improvements by the Astral drove it team that are starting to show real results in aggregate.
David: CNS segment revenue increased 10% to $13 million with contributions from both the aerospace and data acquisition product lines.
David: Operating profit was up 14% to $3 7 million.
David: And there was a 90 basis point improvement.
David: Segment operating margin.
David: Moving to slide 10.
David: Hardware accounted for about 34% of revenue in the fourth quarter three points higher than the year earlier period, driven by the <unk> segment.
David S. Smith: Hardware accounted for about 34% of revenue in the fourth quarter, three points higher than the year earlier period, driven by the T&M segment. Although supplies revenue declined year over year again largely due to the same Inc. issues, our businesses continue to generate a high-returning revenue stream that averages about 50% and sometimes higher. Service and other revenue accounted for about 14% in the quarter versus 13% in the same period last year. David Spiro Geographically, we saw a pickup of nearly a million dollars in revenue in the US, as well as higher revenue in Asia, and though those games were offset elsewhere, mostly in Europe. I'll finish up by summarizing the balance sheet and cash flow highlights, and you'll find those on slide 11.
David: Although supplies revenue declines year over year again, largely the same.
David: Ink issues, our business businesses continue to generate.
David: A high returning.
David: Revenue stream that averages about 50% sometimes higher.
David: Service and other revenue accounted for about 14%.
David: Quarter versus 13% in the same period last year.
The repair and paper supplies part of the aerospace product lines as a major major focus of the team and it is helping both revenue and margins.
David: Geographically, we saw a pickup of nearly $1 billion in revenue in the U S as well as higher revenue in Asia.
David: Those gains were offset elsewhere, mostly in Europe.
David: I'll finish up my summary, summarizing the balance sheet and cash flow highlights youll find those on slide 11.
Cash and equivalents at the end of.
David S. Smith: Cash and Equivalence at the end of the fiscal year were four and a half million, up slightly from the end of the previous year, and that range is where we're currently comfortable operating our global operations safely, consistently, and efficiently. We generated strong cash from operations, the 12.4 million I mentioned before, and we used 7 million of that to pay down our revolving credit debt. Total debt was $21.8 million at the end of the year.
David: This fiscal year were $4 5 million up slightly from the end of the.
David: Year last year and that range is where we are currently comfortable.
David: In operating our global operations safely consistently and efficiently.
David: We generated strong cash from operations to $12 4 million I mentioned before.
David: We used $7 million of debt to pay down our revolving credit debt.
David: Total debt was $21 8 million at the end of the year and our.
David S. Smith: And our total debt to trailing 12-month EVA DA on a bank basis was 1.3 times. Our financial condition is strong and can certainly support our operations and strategies. I believe the responsible and effective way that the AstroNova team managed through the now-historic crises of the Max crash and COVID impacts on our business, plus the results delivered by our debt-funded acquisitions, have enhanced our credibility and access to the capital market as we seek to grow organically and through further acquisitions. Now, let me turn the call back to Greg for closing comments. Thanks, David. The summary's now on slide 12.
David: Total debt to trailing 12 months EBITDA on a bank basis was one three times.
David: Our financial condition is strong.
David: Certainly report support our operations and strategy.
David: I believe the responsible and effective way that the Astra another team that assure that now historical crises of the Macs crash in Covid impacts on our business plus the results.
David: Liberate by our debt funded acquisitions.
David: <unk> credibility.
David: Access to the capital market.
David: As we seek to grow organically and through further acquisition.
David: So now let me turn the call back to Greg for closing comments.
Gregory A. Woods: Thanks, David.
Gregory A. Woods: Summarize now on slide 12.
Gregory A. Woods: AstroNova is well positioned as we move forward in fiscal 2025. We have well-respected brands across our businesses. We continue to launch innovative products that satisfy our customers' most challenging needs and strengthen our leading market positions. This sets up David Spiro.
Gregory A. Woods: As you know there is well positioned as we move forward in fiscal 2025.
Gregory A. Woods: We are well respected brands across our businesses.
Gregory A. Woods: Continue to launch innovative products that satisfy our customers' most challenging needs and strengthen our leading market positions.
Gregory A. Woods: This setup.
Gregory A. Woods: Nice.
Gregory A. Woods: <unk> for us to capitalize on strong secular trends in both our product and application and test and measurement segments, including the increasing demand for a wide range of printing solutions to satisfy mass customization of packaging for consumer goods as well as the resurgent airline industry.
Gregory A. Woods: We also continue to benefit from the high recurring revenue contribution from our supplies business and expect that to increase as we continue to place more hardware in the hands of our customers. And finally, we have a strong track record of value-generating M&A, and we continue to actively seek complementary strategic acquisitions that broaden our presence and capabilities in our growth markets. We start the new year in a strong financial position and are committed to achieving our 2025 and long-term financial objectives. With that, David and I would be happy to take your questions. Thank you Greg. If you would like to ask a question, please press star followed by 1 on your telephone keypad now. If you change your mind, please press star followed by 2. When preparing to ask your question, please ensure your device is unmuted locally.
Gregory A. Woods: We also continued to benefit from the high recurring revenue contribution from our supplies business and expect that to increase as we continue to place more hardware in the hands of our customers.
Gregory A. Woods: And finally.
Gregory A. Woods: We have a strong track record of value generating M&A and we continue actively seeking complementary strategic acquisitions that broaden our presence and capabilities in our growth markets.
Gregory A. Woods: We start the new year in a strong financial position and are committed to achieving our 2025 and long term financial objectives.
Speaker Change: With that David and I would be happy to take your questions operator.
Speaker Change: Yes.
Speaker Change: Thank you, Greg if you'd like to ask a question. Please press star followed by one on your telephone keypad now.
Speaker Change: If you change your mind, Please press star followed by Q1.
Speaker Change: So in Japan to ask your question. Please ensure your devices and you get locally.
Speaker Change: We have a question from Samuel coining from Delta analytics.
Operator: We have a question from Samuel Koining from Delta Analytics. Good morning, Greg. Good morning, guys. First of all, congratulations on the... Good morning. Congratulations on the wonderful accomplishments this year. I think it's magnum opus and really, impressive.
Samuel: Good morning, Greg Good morning, guys.
Samuel: First of all congratulate good morning.
Samuel: Good morning, congratulations on the wonderful.
Samuel: Accomplishments this year I think it's the Magnum Ods and really is.
Samuel: Impressive.
Gregory A. Woods: I just wanted to ask you one question regarding Boeing and Airbus. I understand, if I'm correct, that during the past year, you also began to put your printers on Airbus aircraft. Is that correct? Well, we've always had our printers on Airbus aircraft for quite a while, so that's true. Do we have different brands on the different types of aircraft that we have?
Speaker Change: I just wanted to ask you.
Speaker Change: One question Rick.
Speaker Change: Regarding Boeing Airbus.
Speaker Change: And if I'm correct.
Speaker Change: Last year.
Speaker Change: Also began converting new printers and Airbus is that correct.
Rick: Well, we've always had our Oh, I say always who's head of our printers on the Airbus aircraft for quite a while.
Rick: So thats.
Rick: Sure.
Rick: We have different brands.
Rick: Current aircraft that we have.
Speaker Change: Well, what I wanted to ask you also was.
Gregory A. Woods: Well, what I wanted to ask you also was, Wow. With all the detrimental news on Boeing and a lot of companies delaying their acquisitions of the different planes from Boeing, and Boeing also saying they were strapped for cash and other related items. Incidents.
Speaker Change:
Speaker Change: With the with all the <unk>.
Speaker Change: Detrimental news on Boeing and a lot of companies delayed there.
Speaker Change: Acquisitions of the different planes from Boeing and while you also saying they're strapped for cash.
Speaker Change: Other related items to this.
Speaker Change: Incidents.
Gregory A. Woods: How do you think that that will affect you, or will that be taken up by the increase in the Airbus audit? Yeah, as I mentioned earlier, the overall industry is growing. So we're on a wide range of aircraft. I've seen that Boeing and Airbus are the biggest, but pretty much any aircraft that you might be flying on probably has our products. So, in general, we're pretty well diversified there.
Speaker Change: How do you think that that will affect you or will that be taken up by this by the increase in the Airbus orders.
Speaker Change: Yes, as I mentioned earlier the overall industry is growing so we're on a wide range of aircraft types in commercial Boeing and Airbus are the biggest but.
Speaker Change: Pretty much any aircraft that you might be flying on probably has our products on it.
Speaker Change: So in general, we're pretty well diversified there.
Gregory A. Woods: As far as Boeing is concerned, I'm sure that they'll have these items to deal with. But if you're looking at it from our standpoint, from a forecast and talking to their supply management people, our forecasts and projections for them have not changed. So we're still shipping on schedule and expect that to increase. The increase rate might be a little bit less than what we anticipated last year going into this year, but hopefully, we'll see that pick up as we go later into the year. And my final question, and wishing you all a great weekend and happy Easter, is are there upgrades coming for these printers? Are you having any upgrades at all?
As far as Boeing I'm sure that.
Speaker Change: Have to.
Speaker Change: They have these items to deal with but if you're looking at it from our standpoint from a forecast and talking to their supply management people are forecasts and <unk>.
Speaker Change: Projections from them have not changed so.
Speaker Change: We're still shipping on schedule and.
Speaker Change: I expect that to increase the increase rate might be a bit less than what we anticipated last year going into this year, but.
Speaker Change: Hopefully, we'll see that pick up as we go later into the year.
Speaker Change: And our final question and wishing you all a great weekend and happy Easter is are.
Speaker Change: Are there upgrades coming in the in these printers are you, adding upgrades at all or are all.
Speaker Change: These are the same.
Speaker Change: Newer products and upgrades and the printers.
Gregory A. Woods: Ali Zayman, and newer products and upgrades in the printers. Well, as we mentioned in our press deck, the last investor deck that we posted, we have a big encouragement program going on with airlines and aircraft manufacturers to transition to our Tough Rider brand, which is a more modern printer. So we have a number of airlines as well as OEMs taking us up on that, and we expect that within the three-year period, the majority of our shipments will transition to the Tough Rider brand, which is a newer, more up-to-date printer.
Speaker Change: Yes, as we mentioned in our <unk>.
Speaker Change: The last of the Investor deck that we posted we have a big.
Speaker Change: Encouragement program going on with the airlines and aircraft manufacturers to transition to our tough writer brand, which has a more modern printer.
Speaker Change: So we have a number of.
Speaker Change: Airlines as well as Oems are taking us up on that and we expect to have within the three year period. So the majority of our shipments transitioned to the tougher interbrand, which is a newer more up to date the printer.
Speaker Change: Thank you guys and keep up the good work.
Operator: Thank you guys, and keep up the good work. Great, thanks for your call. As a reminder, to ask any further questions, please press star 1 on your telephone keypad now. Our next question today comes from Samir Patel from Asplodin Capital Management. Please go ahead.
Speaker Change: Great. Thanks for your call.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: As a reminder to ask any further questions. Please press star one on your telephone keypad now.
Speaker Change: Our next question today comes from <unk> from <unk> Capital Management. Please go ahead.
<unk>: Hey, guys. Congrats again on a great quarter and thanks for initiated guidance I know, we've been talking about that for a while.
Samir Patel: Hey guys, congrats again on the great quarter and thanks for initiating guidance. I know we've been talking about that for a while. On that topic, I wanted to kind of dive into that guidance. So it seems like there's some level of conservatism embedded in that.
<unk>: On that topic I wanted to kind of dive into that guidance. So it seems like there is some level of conservatism embedded in that.
Gregory A. Woods: You know, obviously year-on-year growth, but it kind of seems more flattish the last couple quarters of the year. Is that attributable to seasonality, conservatism on the macro, kind of given, you know, like the previous caller referenced some of the issues at Boeing? Maybe you could just kind of expound on that a little bit. Yeah, hi Samir.
Speaker Change: Obviously year on year growth, so kind of teens more flattish the last couple of quarters of the year.
Speaker Change: Is that attributable to seasonality conservatism on the macro kind of given like the previous caller referenced some of the issues at Boeing maybe.
Speaker Change: Maybe you could just kind of expound on that a little bit.
Speaker Change: Yeah, Hi singer.
Speaker Change: Yes.
Gregory A. Woods: Yeah, it's We like to kind of be in the lane there, and not everything is predictable. So we don't see any huge headwinds with respect to that. And there are some things, obviously, that could move it higher as well. But that's what – when we take a look at it right now, we're comfortable with what we said. And if we need to revise that later in the year, if things – if we get ahead of ourselves, we'll adjust it at that point. Okay, so it's kind of that you're starting with, and then it's more, I guess the bias would be more towards upward revisions if things go well, but you're comfortable that kind of in the face of whatever, you know, things you anticipate might happen, that Is that a fair way of interpreting it?
Speaker Change: We will be willing to kind of be in the lane there.
Speaker Change: Not everything is predictable so yes.
Speaker Change: We don't see any.
Speaker Change: Huge headwinds with respect to that.
Speaker Change: And there are some things, obviously that could move it higher as well, but yes.
Speaker Change: That's what when you take a look at it right now we're comfortable with what we said and yes.
Speaker Change: If we need to revise that later in the year if things.
Speaker Change: If we get ahead of ourselves will adjusted at that point.
Speaker Change: Okay. So it's kind of it's kind of that's what you're starting with and then it's more I guess the bias would be more towards upward revisions, if things go well, but youre comfortable but kind of in the face of whatever.
Speaker Change: Do you anticipate might happen that youre not that kind of coming in below that is that a fair way of interpreting it.
Speaker Change: Yes, that's a good way to think about it.
Gregory A. Woods: Yeah, that's a good way to think about it. Okay, okay. The second question was, you know, I know we've had this ongoing conversation about product ID margins. You know, they were obviously quite strong in Q3.
Speaker Change: Okay. Okay. The second question was I know we've had this ongoing conversation on product margin.
Speaker Change: They were obviously quite strong in Q3 Q4 kind of gets back to that Q2 level.
David S. Smith: Q4 kind of dips back to that Q2 level, you know, despite similar revenues. I know you mentioned in your script about the retrofit program. You know, can you kind of explain what was going on there and what we should think about for margins in that segment as we head into next year? Yeah, well, you don't really have, didn't have a release exactly on that, but there was an adjustment that David could maybe talk about in Q4. But setting that aside, you know, what we're looking at as we go into this year is that those margins should also be increasing because we're looking at more of those T2C and other children's related products coming back online as we move through this year, and that helps drive the supplies revenue, which obviously helps growth but also helps on the margin side of things. David, do you want to add anything to that?
Speaker Change: White similar revenues I know you mentioned in your script about the retrofit program.
Speaker Change: Can you kind of explain what was going on there and what we should think about or margins in that segment as we head into next year.
Speaker Change: Yes.
Speaker Change: It really didn't have a reserve release exactly on that but.
Speaker Change: There was an adjustment.
Speaker Change: David you can maybe talk about there.
David: In Q4, but setting that aside what we're looking at as you go into this year as that should all those margins should be increasing.
David: Because we're looking at more of those <unk> and other children related products coming back online as you move through this year.
David: And that's what helps drive the supplies revenue, which obviously helps growth, but also help us on the margin side of things.
David: David do you want to add anything to that.
David: Yes.
David S. Smith: Yeah, we did have some inventory adjustments at Astro Machine in the fourth quarter that sat on the margins there a little bit, and obviously, that's not something that's going to recur, so we think that the margins and the mix moving forward certainly should improve from what happened in the fourth quarter. The next question is from George Melas from MKH Management. Please go ahead. Thank you, operator. Hi, Greg and David. The previous caller asked exactly my question, so I don't have any other questions. I'm sorry.
David: Did have some.
David: Inventory adjustments at Astro machine in the fourth quarter that.
David: On the margins there a little bit.
David: Obviously it was.
David: Yes.
David: That's not something that's going to recur. So we think that the margins the mix.
David: Moving forward.
David: Certainly we will should improve.
David: What happened in the fourth quarter.
David: The next question is from Josh <unk>.
Josh: <unk> management. Please go ahead.
Josh: Okay.
Josh: Okay.
Josh: Thank you operator.
Josh: Hi, Greg and David.
Josh: Previous quarter asked exactly my question so.
Speaker Change: I don't have any other I'm sorry, thank you.
George Melas: Thank you. Okay, all right, good catching up with you. Okay. The next question is from Dennis Scannell from Rotterburger Capital. Please go ahead.
Speaker Change: Okay, alright, good catching up with you.
Speaker Change: Okay.
Speaker Change: The next question is from Dennis Scannell, what's.
Dennis J. Scannell: That's a bad guy.
Dennis J. Scannell: Please go ahead.
Operator: Yeah, good morning, Greg and David, and just echoing what everybody else has said, really nice quarter and nice end to the year, nice to see this rebound. So my question is also similar to the previous two questioners, but maybe to get a little granular or frame it a little differently. So Quick Label in the third quarter, by my numbers, did, I'm sorry, product identification had 18.1% operating margins, you know, I think the highest I've ever seen. And then we were 12% in the fourth quarter. And David, you said that maybe there were some inventory adjustments by Astro Machining. I know historically, the group has been as high as, I think, 14%.
Dennis J. Scannell: Yes, good morning, Greg and David and just echoing what everybody else has said really nice quarter and nice end to the end of the year and nice to see this rebound.
Dennis J. Scannell: So my question is also.
Speaker Change: Similar to the previous two.
Speaker Change: Questioners.
But maybe you could get a little granular or frame it a little differently.
Speaker Change: So quick label in the third quarter by my numbers did.
Speaker Change: I'm, sorry product identification did 18, 1% operating margin I think the highest I've ever seen.
Speaker Change: And then were 12% in the fourth quarter and David You said that maybe there were some inventory adjustments at Astro machining.
Speaker Change: I know historically the group has been as high as I think 14% so kind of on a go forward basis.
Gregory A. Woods: So, kind of on a go-forward basis. But can we can, can we look more at the high teams for this business, like what we showed in the third quarter, where there were some unusual things going on in the third quarter that made that kind of an unrealistic expectation. So I'll just answer in general, and maybe David can be more specific about it. But yeah, the inventory adjustment that he mentioned had a big impact on it, and, you know, when you average that out, you get more into the longer-term trend that we're talking about getting back into. I think we were kind of in the 14% range before. So, you know, driving more towards, you know, kind of that midteens is, I think, a more realistic thing to think about as we go forward.
Speaker Change: Can we get can.
Speaker Change: Can we look more at the high teens for this business like what we showed in the third quarter, where there is some unusual things going on in the third quarter that make that.
Speaker Change: Kind of an unrealistic expectation.
So I'll just answer in general and maybe David can be more specific about it but yes.
David: The inventory adjustment that you mentioned had a big impact on it.
David: When you average that out you get more into the longer term trend that we're talking about getting back into the.
David: Yes, I think we're kind of in the 14% range before.
David: So getting more towards kind of that mid teens I think is a more realistic thing to think about as we go forward.
David S. Smith: Got it. Excellent. Well, that's great. Yeah, go ahead, please, David. Yeah, I agree with that. That's the way I would have framed it, too.
Speaker Change: Got it.
Speaker Change: Yes go ahead, please David Yes, I'd agree with that that's the way I would frame that.
David: You got to take a look at the.
David: Average there.
Speaker Change: Absolutely no that sounds great. Thank you. Thank you for the further clarity.
David S. Smith: Would have said that, you know, it's kind of take a look at the average there. Absolutely. No, that sounds great. Thank you. Thank you for the further clarification. That's great.
Speaker Change: That's great. Thank you.
David: Alright, Thanks Dennis.
Speaker Change: As a reminder to ask a question. Please press star followed by one on your telephone keypad.
Speaker Change: Our next question is from San Luis Potosi.
Speaker Change: Kevin Capital management.
Operator: Thank you. All right, thanks, Dennis. As a reminder, to ask a question, please press star followed by one on your telephone keypad. Our next question is from Samir Patel for Ask Helen Capital Management. Your line is now open. Hey, I think we got cut off before. Sorry about that.
Speaker Change: Your line is now open yes.
Speaker Change: Hey, I think I think we got cut off before sorry about that.
Speaker Change: I just wanted to follow up if you had any comments on the M&A pipeline.
Speaker Change: Yeah, well, it's similar as we've talked about before.
Speaker Change: We've got some interesting opportunities in both PNM and.
Speaker Change: <unk> segment.
Speaker Change: Yes, we will see if we can finish any of those up.
Yeah typically.
Gregory A. Woods: I just wanted to follow up and see if you had any comments on the M&A pipelines. Yeah, well, it's similar to what we talked about before. You know, we've got some interesting opportunities in both TNM and David Spiro. And, you know, if not, that means we didn't find a good one here.
Speaker Change: It's about one or 2% of the things that we look at that we ended up closing but.
Speaker Change: We're actively looking at it as David mentioned, we're in great shape.
Speaker Change: From a financial position to be able to.
Speaker Change: Pursue.
Speaker Change: Acquisitions and the size of the last one we did or even larger so.
We're out there and hopefully we do something this year.
Gregory A. Woods: So we're kind of prudent about that as well to make sure it's a good strategic fit and also that we don't overpay, of course, and David Smith. Talk a little bit about the sort of cash flow dynamics that you expect this year. I mean, do you expect inventories to kind of stay flattish at these levels and continue coming down? Any other kind of working capital or, you know, other items you call out? Yeah, and inventory continues to be a focus, and it needs to be, and what I like to call areas of opportunity for improvement. We have still had to make some commitments to bring in inventory to support the supplies business. NPI on primarily Inc, which has drawn off a lot of cash, would have otherwise been able to pay down more debt more recently.
Speaker Change: If not it means we didn't find a good one here. So we're kind of prudent about that as well to make sure. It's a good strategic fit and also that we don't overpay of course.
Speaker Change: Makes sense and again, sorry, if you guys I'm not sure. If you referenced this in the script that David we've talked about your inventory levels and kind of cash flow.
Speaker Change: Gave you guidance on EBITDA, but maybe if you could.
David: Talk a little bit about some of the cash flow dynamics that you expect this year I mean do you expect inventories kind of stay flattish at these levels to continue coming down.
David: The other kind of working capital for.
David: Other items to call out.
David: Yeah.
David: Yes.
David: Inventory.
David: <unk> to be a focus and it needs to be.
David: We do see.
David: What I like to call areas of opportunity for improvement, we have had delayed still some submit.
David: Commitments.
David: To bring it in inventory to support.
David: The supplies business NPI.
David: Primarily Inc.
David: Which has drawn an awful lot of cash would've otherwise been able to pay down more debt more recently.
David S. Smith: And we continue to have some commitments that we need to make on the T&M side of the business. I think as we move through the year, the combination of improvement on the inventory side and obviously the benefit of higher margins is going to give us the ability to really go after the remaining portion of the revolving credit debt, barring acquisitions, of course, which would cause us to take on more debt and, I think, by the end of the year, take a very large bite out of what remains there. And, you know, have the dry powder to do some things on the acquisition side.
David: And we continue to have.
David: Something that we need to make.
David: At PNM side of the business I think as we move through the year the combination of improvements on the inventory side.
David: And obviously the benefit of.
David: The higher margins.
David: Very good that gives us the ability to.
David: Really go after the remaining.
David: A portion of the.
David: Revolving credit debt barring acquisitions of course, which.
David: It caused us to.
David: Take on more debt.
David: And.
David: I think by the end of the year.
David: Jacob.
David: Very large bite of what remains there.
David: And.
David: The dry powder to work.
David: To do some things on the acquisition side.
David S. Smith: And then that'll probably be the pattern. It has been the pattern for a while, and we hope that continues. Pay Down the Debt and redeploy it first to support operations and then to make acquisitions. Makes sense. Thanks. We currently have no further questions, so I will hand back over to Greg Woods to conclude.
David: That will probably be the path it's been.
David: <unk> been the pattern for a while.
David: That continues.
David: Pay down the debt.
David: And read.
David: Redeploy it.
David: First to support.
David: Operations.
David: Through the acquisitions.
Speaker Change: Makes sense. Thanks.
Speaker Change: Yes.
Speaker Change: We currently have no further questions. So I'll hand back over to Greg Woods to conclude.
Gregory A. Woods: Alright, Thank you operator.
Gregory A. Woods: Thank you, operator. So, thank you everyone for joining us here this morning. In June, we'll be presenting at the East Coast Ideas Conference in New York City. We hope to see many of you there in person as well.
Gregory A. Woods: Thanks, everyone for joining us here. This morning in June we will be presenting at the East Coast ideas Conference in New York City, and we hope to see many of you there in person as well and have a great weekend everyone by now.
Operator: And have a great weekend, everyone. Bye now. This concludes today's call. Thank you for joining us. You may now disconnect your lines. Thank you for watching!
Speaker Change: This concludes today's call. Thank you for joining you may now disconnect your lines.
[music].
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Okay.