AstroNova Inc (ALOT) 2024 Q4 法說會逐字稿

Thank you for your patience, everyone.

The AstroNova fiscal fourth quarter and full year 2024 financial results conference call will begin shortly.

(Operator Instructions) (Music playing)

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 turn the conference over to David Calusdian 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.

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 follows 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 2.

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.

Any forward-looking statements speak only as of today, March 22, 2024, as Nova 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 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 3.

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 earning release, please go to the Investors page of the AstroNova website at astronovainc.com.

Now please turn to slide 4, as I turn the call over to Greg.

Thank you, David.

And good morning, everyone. [Pleasure to] begin by recognizing the excellent work of the AstroNova team.

Every one of our more than a 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 to achievements actually stand out.

First, the strategic realignment of our Product Identification segment, 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 second, the resurgence of our Test and Measurement segments, 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. [Cnn] is well on its way to returning to its pre-COVID highs.

And third, the launching of new PI products in fiscal 2024 in each of our QuickLabel, TrojanLabel and Astro Machine brands.

These include the QuickLabel-900, the TrojanLabel T2 Pro and T3 Pro as well as Astro Machines two new flat-panel printing solutions.

All of these new products future improved performance and expanded printing with capability.

The initial deliveries of these products have been well received by our customers, and we expect to gain full production momentum in the second half of this fiscal year.

Turning to our full-year results, on slide 5, 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 work through the previously discussed retrofit of certain printers affected by the quality 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 disciplined cost management.

Compared with fiscal 2023, gross margin improved by 110 basis points on a GAAP basis and 290 points on a non-GAAP basis, we posted record operating profit for the full-year.

Operating margin increased 210 points and 380 points on a GAAP and non-GAAP basis, respectively.

For the full-year, adjusted EBITDA, excluding 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, $0.63 per diluted share on a GAAP basis in fiscal 2023.

Slide 4, we are up 75% from a year earlier, while 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 operating activities, the majority of which was used to pay down debt.

David will discuss our balance sheet and cash flow highlights in more detail in his financial review.

Looking at our full-year segment performance on slide 6, product [ID] segment revenue was $104 million, just under $1 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.

T&M revenue increased to $44 million compared to $39.4 million in fiscal 2023, primarily on 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 2023.

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.

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 targets.

Turning now to slide 7.

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 enhancements.

For fiscal 2025, AstroNova expects to achieve full-year organic revenue percentage 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?

Thanks, Greg, and good morning, everybody.

Greg acknowledge the tremendous AstroNova team effort, and I will say that I'm 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 Greg's enthusiasm about the future.

The initiatives he outlined do put us in what I believe is a clear path to execute on our longer term financial objectives.

A key metric, we generated strong cash flow for the year with cash from operating activities at $12.4 million from which we paid down $7 million of debt on our revolving credit facility.

Debt reduction is our current primary use of cash after the working capital and modest capital expenditures inherent in supporting the business.

We have ample unused capacity committed in the credit facility with the bank.

Turning to slide 8.

And our fourth quarter results, the $39.6 million of Q4 revenue was in line with the comparable period in fiscal '23 with a 10% increase in T&M, largely offsetting a 5% decline in PI.

GAAP 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.

Operating expenses for the quarter were down [$634,000] or approximately 6% year-over-year to $10.8 million.

The key driver was the 10% decline in selling and marketing expense, which reflected the benefit of our strategic realignment of the PI segments.

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 an 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 in [Kim] and 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 with 5.3% in the fourth quarter of last year.

As disclosed in the tables in Q4, we took back [$210,000 of the $852,000] provision reserve 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 are available in the release.

Adjusted EBITDA 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 remained strong, Q4 bookings were a record $39.8 million, 9.7% above the same period in fiscal 2023.

Turning to slide 9.

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, Greg has 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.

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 [ink] 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.

The repair and paper supplies, part of the aerospace product lines is a major focus of the team and it's helping both revenue and margins.

Geographically, we saw a pickup of nearly $1 million in revenue in the US as well as higher revenue in Asia, and those gains 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.

Cash and equivalents at the end of the fiscal year were at $4.5 million, up slightly from the end of the year last year.

And that ranges where we're currently comfortable in 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.

And our total debt to trailing 12 months EBITDA on a bank basis was 1.3 times.

Our financial condition is strong.

It can certainly report support our operations and strategy, I believe the responsible and effective way that the AstroNova team managed through the now historical 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.

So now let me turn the call back to Greg for closing comments.

Thanks, David.

Somers now on slide 12.

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 setup a nice position for us to capitalize on strong secular trends in both our Product Identification 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.

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 actively seeking 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.

Operator?

Thank you, Greg.

(Operator Instructions)

[Sandra Koh Mei Lin, Data Analytics].

Good morning, Greg.

Good morning, guys.

Congratulations on the

--

Good morning.

Good morning.

Congratulations on the wonderful earnings accomplishments this year.

I think it's Magnolia some really impressive.

I just wanted to ask you one question regarding Boeing and Airbus.

I understand that if I'm correct, during the past year, you also began to put in your printers and Airbus, is that correct?

Well, we've always had our -- I say I always tell our printers on Airbus aircraft for quite a while for this to (inaudible) structure, you have different brands on different aircraft that we have.

What, but I wanted to ask you also was with the with all the detrimental news on Bali and a lot of companies delaying are acquisitions of the different planes from Boeing and [Bali] was saying they were strapped for cash and other related items to this [incidence] and how do you think that will affect you will with or will that be taken up by the increase and the Airbus orders?

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 pretty much any aircraft that you might be flying on probably has our products on it.

So in general, we're pretty well diversified there.

As far as Boeing, I'm sure that they'll have these items to deal with.

But if I could get it from our standpoint from a forecast and talking to their supply management people, our forecasts and projections from them have not changed.

So we're still shipping on schedule, and I expect that to increase, the increase rate might be a bit less than what we anticipated last year going into this year.

But hopefully, we'll see that pickup as we go later into the year.

And are you -- about my final question, and I wish you all a great weekend and Happy Easter, is are there upgrades coming in these printers or UM upgrades at all or are the same like newer products and upgrades in the printers?

Yes, was as we mentioned in our press [direct] unless the investor deck that we posted, we have a big encouragement to program going on with airlines and aircraft manufacturers to transition to our ToughWriter 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 to have within that three-year period for the majority of our shipments transitioned to the ToughWriter brand, which is a newer, more up-to-date printer.

Thank you, guys, and keep up the good work.

Great.

Thanks for your

[color].

Samir Patel, Askeladden Capital Management.

Hey, guys, congrats again on the great quarter and thanks for initiating guidance.

I know we've been talking about that for a while.

I'm on that topic.

I wanted to dive into that guidance.

So it seems like there's some level of conservatism embedded in that, obviously year-on-year growth seems more flattish the last couple of quarters of the year, is that attributable seasonality services of all the macro given like the previous caller referenced some of the issues at Boeing and maybe you could just expound on that a little bit.

Yeah.

Hi, Sameer.

Yeah, it's -- we would really like to 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 working and when you 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 of things if we get ahead of ourselves, I will adjust it at that point,

[Samir].

Okay.

So it's 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 you're comfortable that in the face of whatever things you anticipate might happen that you're not going to come in below that

[instead of].

Is that fair way of interpreting it?

Yeah, that's a good way to think about it.

Okay.

The second question was I know we've had this ongoing conversation on Product ID margin, they were obviously quite strong in Q3 and Q4 gets back to that Q2 level, (inaudible) despite similar revenues?

I know you mentioned in your script about the retrofit program.

Can you 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] release exactly on that, but there was an adjustment that gave us to maybe talk about there in Q4.

But setting that aside, what we're looking at as we go into this year, is that should also those margins should be increasing.

Because we're looking at more of those [T2C] and the other children related products coming back online as you move through this year.

And that's what helps drive the supplies revenue, which obviously helps growth, but also help us on the margin side of things.

David, do you want to add anything to that?

Yeah, we did have some inventory adjustments at Astro achieved in the fourth quarter that set on the margins there a little bit, obviously it was.

That's not something that's going to recur.

So we think that the margins, the mix of moving forward certainly will scale should improve from what happened in the fourth quarter.

George Melas, MKH Management.

Thank you, operator, and hi, Greg and David.

A previous caller asked exactly my question.

So I don't have any other I'm sorry, thank you.

Okay.

All right.

Good catching up with you.

Okay.

Dennis Scannell, Rutabaga Capital.

Yeah, good morning, Greg and David.

And just [encouraging] what everybody else said, really nice quarter and nice end to the end of the year and nice to see this rebound.

So my question is also the similar to the previous two questioners.

So but maybe to get a little granular or frame it a little differently.

So QuickLabel in the third quarter by my numbers did I'm sorry, -- Product Identification did 18.1% operating margins, I think the highest I've ever seen and then were 12% in the fourth quarter.

And David, you said that maybe there were some inventory adjustments at Astro Machining, I know historically the group has been as high as I think, 14%.

So on a go forward basis, can we look more at the high [teens] for this business, like what we showed in the third quarter.

Were there some unusual things going on in the third quarter that make that an unrealistic expectation?

So I'll answer in general, maybe [David], give more specific about it.

But yes, the inventory adjustment that you mentioned had a big impact on it.

When you average that out, you get more into the longer term trend that we're talking about getting back into the -- yeah, I think we're in the 14% range before.

So guiding more towards the that mid-teens, I think is a more realistic thing to think about as we go forward.

Got it.

(multiple speakers) Yes, go ahead, please David.

I agree with that.

That's the way [what it frames] It would have said that it's take a look at the average there.

(multiple speakers)

Absolutely.

No, that sounds great.

Thank you for the further clarity.

That's great.

Thank you.

Thanks, Dennis.

(Operator Instructions)

Samir Patel, Askeladden Capital Management.

Yeah.

Hey, I think we got cut off or sorry about that.

I just wanted to follow up if you have any comments on the M&A pipeline.

Yeah.

Well, it's similar as we've talked about before, we've got some interesting opportunities in both T&M and the PI segment.

And I will see if we can finish any of those up, typically, it's about a 1% or 2% of the things that we look at that we end up closing, but we're actively looking at it.

As David mentioned, we're in great shape from a financial position to be able to pursue acquisitions in the size of the last one we did or even larger.

So we're out there and hopefully we do something this year.

And if not, that means we didn't find a good one here.

So we're prudent about that as well to make sure it's a good strategic fit and also that we don't overpay, of course.

Makes sense.

And again, sorry, if you guys, I'm not sure if you've referenced this in the script, but David, we've talked about your inventory levels, cash flow. [You] gave guidance on EBITDA.

But maybe if we could talk a little bit about cash flow dynamics that you expect this year, if you expect inventories stay flattish at these levels to continue coming down from any other working capital for you now other items we call out?

Inventory continues to be a focus of and it needs to be a we do see what I like to call areas of opportunity for improvement.

We have had to make still some commitments to bring in inventory to support the supplies business in PI and primarily [Inc] which is drawn off a lot of cash.

We would have otherwise been able to pay down more debt more recently, and we continue to have [some commitment] that would say we need to make on the T&M side of the business.

I think as we move through the year, that combination of improvement on the inventory side.

And obviously the benefit of the higher margins are 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, we'll have taken out very large [beta] what remains there and have the dry powder us to love to do some things on the acquisition side.

That will probably be the pathway has been the pattern for a while, and we hope that continues, pay down the debt and [redeploy] it first to support the home operations them to do the acquisitions.

Makes sense.

Thanks.

We currently have no further questions.

So I will hand back over to Greg Woods to conclude.

Thank you, operator.

So thanks, everyone, for joining us here this morning.

In June, we will be presenting at the East Coast Ideas conference in New York City.

We hope to see many of you there in person as well and have a great weekend, everyone.

Bye now.

This concludes today's call and thank you for joining You may now disconnect your lines.