AstroNova, Inc. (ALOT) on Q2 2022 Results - Earnings Call Transcript
Operator: Good day and welcome to AstroNova's Second Quarter Fiscal 2022 Financial Results Conference Call. Today's conference is being recorded. I would now like to turn the conference over to David Calusdian of the company's Investor Relations firm, Sharon Merrill Associates. Please go ahead sir.
David Calusdian: Thank you, Keith. Good morning, everyone and thanks for joining us. Hosting this morning's call are Greg Woods, AstroNova's President and CEO; and David Smith, the company's Chief Financial Officer. Greg will discuss the company's operating results, David will comment on the financials, Greg will make concluding comments and then management will be happy to take your questions. By now, you should have received a copy of the earnings release that we've issued today. If you do not have a copy, please go to the Investors page of the AstroNova website, www.astronovainc.com. Please note that statements made during today's call that are not statements of historical facts are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1934. These forward-looking statements are based on a number of assumptions that could involve risks and uncertainties. Accordingly, actual results could differ materially, except as required by law. Any forward-looking statements speak only as of today, September 14, 2021. The company undertakes no obligation to update these forward-looking statements. For further information regarding the forward-looking statements and the factors that may cause differences, please see the risk factors in AstroNova's Annual Report on Form 10-K and the other filings the company makes with the Securities and Exchange Commission. On today's call, management will be referring to non-GAAP financial measures including non-GAAP net income and non-GAAP net income per diluted share, non-GAAP gross profit, non-GAAP operating expenses, non-GAAP segment operating income, earnings before interest, taxes, depreciation and amortization or EBITDA, EBITDA excluding the CARES Act benefits and adjusted EBITDA and adjusted EBITDA excluding the CARES Act benefits. AstroNova believes that the inclusion of these measures helps investors gain a meaningful understanding of the changes in the company's core operating results and also can help investors who wish to make comparisons between AstroNova and other companies on both a GAAP and non-GAAP basis. A reconciliation of this non-GAAP measure to its most directly comparable GAAP measures is available in today's earnings release. And with that, I'll turn the call over to Greg.
Greg Woods: Thank you, David. Good morning, everyone and thank you for joining us. We reported year-over-year and sequential revenue growth in the second quarter in both the Test & Measurement and Product Identification segments, as we capitalized on our positive demand picture across the business. Overall revenue of $29.8 million was up 8% from a year ago quarter and up 3% from the sequential first quarter of this fiscal year. Our sales performance is even more impressive when you consider the various global supply chain constraints and COVID-19 headwinds. While supply chain issues did not have a major effect on our second quarter, we were nonetheless unable to fulfill all the demand we would have . Addressing these supply chain issues has our logistic teams working overtime to ensure that we get the required items needed into our manufacturing facilities in a timely and efficient manner. Since we expect these conditions to persist on and off throughout the year, we are increasing certain inventory levels as a precaution. I'm proud of the dedication and commitment of our team to operate as effectively as possible within this dynamic environment to get out product to our customers. Turning to our Q2 performance by segment, Product Identification revenue was up 9% to $23.1 with solid contributions across the product line. We saw sales increases in the hardware, supply, and service categories. Our T3-OPX wide-format durable direct-to-package printing system continues to receive positive customer reviews and is performing well in markets around the world. Brand owners, commercial printers, and their customers have seen the product's benefits in terms of greater efficiency and a higher return on investments. From a geographic standpoint, we saw continued improvements in summer markets from the realignment programs and additions that we have made to our global salesforce in various regions. During the second quarter we began to attend smaller regional trade shows again. And our sales teams have also begun meeting customers face to face when possible. We're sure to be attending in person two major trade shows later this month; PACK EXPO in Las Vegas and the FachPack European packaging show in Germany. As we're able to increase our face to face meetings with customers and attend more trade shows, these high quality interactions are an excellent addition to our standard digital marketing lead generation programs that we deployed last year. As we've discussed on prior calls, we made major improvements in the digital area since the beginning of the pandemic. We continue to invest in expanding our e-books, case studies, support videos and other digital tools to enhance both our sales and customer support activities. Our product introduction plans in the segments have historically included more and more new products per year and we're currently on track to meet that schedule. Looking at our Test & Measurement segment, second quarter revenue was up 5% from the same period in fiscal 2021 and up 6% from a sequential first quarter. Within our aerospace business the market has been recovering a bit faster than we had originally expected, especially in some of the larger domestic markets of the U.S., Europe and China. However international traveler is still far behind its pre-pandemic peak due to travel restrictions in various countries. During the quarter, sales of printers, supplies, parts and repairs, all increased. Orders for our ToughWriter 640 flight deck printer continued to increase demonstrating the progress we've gained in the marketplace with our newest printer. With this compact design and the lowest weight and power consumption industry the ToughWriter 640 is a great example of the innovative sustainability solutions we are bringing to market. Another innovative sustainability solution was launched in the data acquisition side of our business, where we have begun to provide a solution to enhance the efficiency of solar farms. Our data acquisition products are able to analyze the cells that are not working up to capacity enabling operators to more quickly make repairs or replacements in order to improve the energy efficiency and yield of the solar farm. In the aerospace and defense market, our sales team landed a new government program featuring some of our most advanced data acquisition equipment. This is a significant multiyear program with initial shipments starting already in the third quarter. Looking at the second half of year, we're anticipating a good revenue trajectory for the Test & Measurement segment. We expect to report increased revenue on a sequential and year-over-year basis in the second half. Now let me turn the call over to David for the financial review.
David Smith: Thanks Greg and good morning everyone. In addition to the revenue Greg discussed, we reported another solid quarter on the operating and net income lines as we continue to effectively manage costs while prudently investing to grow the business. In the press release we issued this morning, we've discussed both our GAAP and non-GAAP financial results and I'll take a few minutes to make some comments on this distinction so that you can understand the results a little bit better. This quarter, we recorded a benefit of two CARES Act programs. These were the Payroll Protection Program loan forgiveness and the impact of the Employee Retention Tax Credit or ERC program. To remind you, last year we applied for and received the PPP loan. The cash in that loan has been on our balance sheet since we received it, but this quarter that loan, both principal and interest was forgiven under the terms of the program. Therefore we eliminated the loan and the interest accrual amounts on our balance sheet and recorded the benefit of that forgiveness in our income statement as other income. In addition this quarter, as a result of some enabling legislation after the CARES Act we have qualified for the Employee Retention Credit and we report that in the second quarter. We get it because our revenues decline more than 20% from the calendar 2019 first three months to the calendar 2021 first three months, and we expect to see those cash benefits through our payroll tax filings, where we put the impact of this credit now under the rules the tax refund is pending. It's a receivable on the balance sheet and will revert to cash at some point before the end of the year. Later on today we'll file our second quarter 10-Q which will provide more detail about the impact of all these items as disclosed in the press release. So read the SEC filings as Mr. Calusdian suggested. That said, in summary, we've carefully and intentionally differentiated between the income statement impact of the benefits we've recorded in our GAAP financial results which have those two CARES Act programs in them, and the results that we would have reported had those items not been there and we've done this to help you focus attention on the underlying operating results of the business, and we called that pre-CARES Act or non-GAAP in our press release disclosure. Then start to minimize the favorable impact that those items had on our GAAP income and more importantly in our balance sheet, both our cash position and our equity accounts. With all that in mind, and because the results that Greg's already mentioned, they are very solid, I'll just make comments about the results on a pre-CARES Act basis. Those results are pretty strong. Bookings are $30.6 million or up 21% from last year. Backlog of $24.4 million is up 3% last year and it would have been higher but for some of the bookings that came in just after the end of the quarter. As Greg said, revenues are up in total 8% to $29.8 million. Of that revenue was up 5.4% to $6.4 million. Product Identification revenue is up 8.6% to $23.5 million. Gross profit was $11.1 million, up 13% and 37.1% was up 170 basis points from last year. Operating income of $1.322 million was 6.5% last year's results. Net income of $978,000 or $0.13 per diluted share was up from essentially break-even last year. EBITDA was $2.1 million or 7.2% of revenue and adjusted EBITDA which adds back stock-based compensation was $2.6 million or 8.6% of revenue. PI operating income was an $188,000 lower than the prior year, it was 12.7% of revenues down from last year when we had curtailed spending sharply, but was up from the first quarter of this year by more than 90 basis points. Operating spending was up sequentially from the first quarter by $255,000 as we continue to invest in sales growth and new product development. T&M segment operating profit of $907,000 was up $1.3 million from last year's loss and the segment operating margin was 14.3%. This quarter we completed the Airbus contract for which we incurred some cost in getting it completed which were capitalized. We took a look at that, we amortized, we've decided to amortize those costs over the life of the A320 program of an estimated 20 years. And so, at that time we re-evaluated the amortization of the rest of the aerospace intangibles and changed the estimate of the period we should amortize them over the 20 years as well. This change in intangible amortization accounting does not impact cash flow of course, but it does impact segment profit favourably. With or without that impact though, segment profit margins were higher than they've been at any point since the second half of fiscal 2020 when revenues were considerably higher. We do think that this accounting change provides you with a much more realistic informative perspective on the performance of business. Moving on, looking at total revenue by type, hardware revenue in the quarter was $7.9 million compared in the prior year. And the fact that in aerospace revenue was still strong last year. Supplies revenue was $8.7 million, up 9.4% from $17.1 million in the same period of fiscal 2021. Service and other revenue was $3.3 million, up $2.1 million from a year earlier. Domestic revenue was 57.7% of total revenue and international was 42.3%. As Greg mentioned, we have challenges from a supply chain perspective. Obtaining raw materials and components has resulted in some additional costs for expedited and express shipping and things like this. While it has not made a major disruptive impact on our results, it has been a slight headwind for revenue and it's also put a slight drag on margins. We're addressing potential supply shortages proactively through long range planning and supplementing inventories as needed and the strategies have resulted us -- resulting in us carrying more inventory than we normally would and certainly more than we had planned. While we still expect to manage through what we think are temporary dislocations, we certainly expect that inventory will increase in the third quarter as lead times continue to be extended. Turning to our balance sheet, our cash and debt positions continue to improve. Cash equivalents at the end of the quarter stood at $11.4 million, essentially flat, but debt continues to decline and at the end of the quarter was $9.5 million, that's down about $3 million from year end. We really are in a wonderful position relative to our covenant structure and we have ample unused committed bank credit capacity to support our growth and capitalize on future opportunities. With all that, I'll turn it back to Greg for closing comments.
Greg Woods: Thanks David. And we did this in a quarter to bring great innovative products to market, adapt to a new selling environment. Looking at the remainder of the year, we expect to report continue to improve demand in the Product Identification segment. We’re well positioned to capitalize on many growth . We continue to focus on our core strategic talents. Now Dave and I would be happy to take your questions.
Operator: I'm going to take our first question; it comes from Dick Ryan of Colliers. Please go ahead.
Dick Ryan: Thank you. So Greg, I don’t know was on my end or you, but when Dave threw the commentary back to you, you pretty much cut out, so that could be me or I don't know if that was the whole of the conference call. I can circle back with your closing comments, but how much on the supply chain issues? How much of revenue would you say was kind of pushed from those challenges?
Greg Woods: Yes, it was not a significant amount, but it was, yes it would have made a little bit of a difference there, it wasn't like a huge delta there, but there were things that we had planned to move out, and just in the kind of final weeks of the quarter weren’t able to pull up everything together to move it out, but we have since done so.
Dick Ryan: Okay, and Dave I'm not sure I heard, what was the supply number sort of recurring revenue aspect for Q2?
David Smith: Keep going with your questions while I look up the answer to your question okay?
Dick Ryan: You know Greg, Boeing just came out with their updated commercial transport outlook, obviously still calling for very strong multiyear growth in single aisle. What are you seeing with your Max and the A320 business may be on a more shorter-term level? Are they getting through any inventory issues that were out there or how does the rebounding airline delivery demand look for you?
Greg Woods: Yes, so for us it's, again we have mentioned on previous calls, deliveries don't matter so much. I mean, they do matter from an operating point of view, because we get MRO benefits from that, but as far as new printers, so that's a function of their build rate. We do see good pull through on that, obviously the Airbus aircraft is ahead still. But Boeing seems to be hitting the marks that they've told us and what they have in their forecast. So, we seem to be tracking pretty close to what they're estimating right now. The bigger impact Dick, is the actual air travel, right? So the single aircrafts that are used in the domestic travel, which is kind of dominant traffic pattern right now.
Dick Ryan: Yes, can you give some more details on the new win on the A&D side?
Greg Woods: Yes. It’s in our Test & Measurement segment, of course. And that we make a range of data acquisition equipment and we have some, you can take a look at our website. I want to kind of recall the exact product, but it would be in the higher range of those products, a bit more sophisticated data acquisition equipment that can handle a huge number of channels and data and present that in a bigger screen format as well as printed format. So it's something that we've been working on for a couple of years now, and like I mentioned, it's a multiyear program, so we should kind of enjoy the benefits of that hard work that the guys have put in over the past couple of years now, for I'd say at least a couple of years going forward and it’s a multi-location type of situation as well.
Dick Ryan: Okay.
David Smith: And Dick, I was just going to jump in and answer your earlier question. The supplies revenue in the quarter was $18.7 million. It was up 9% from the prior year. And service and other was $3.3 million, up from $2.1 million in the same period last year.
Dick Ryan: Okay. And on your guidance for sequential and year-over-year second half performance, are you going to be seeing that in both segments?
Greg Woods: We didn't call it out specifically, but yes at this point they both look good for the second half .
Dick Ryan: Okay great, thank you.
Operator: It appears we have no further questions at this time. I'd now like to hand the call back to Greg Woods for any additional comments or closing remarks.
Greg Woods: Great, thank you. Well, thank you everyone for joining us here today. We look forward to speaking with you at our next call and enjoy the rest of the day.
Operator: This concludes today's call. Thank you for your participation. You may now disconnect.
