AstroNova, Inc. Q1 FY2027 Earnings Call

Greetings. Welcome to Astronova's first quarter fiscal year 2027 financial results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Deb Pulaski, Investor Relations. Thank you. You may begin.

Thank you, and good morning, everyone. We appreciate your interest in AstraNova. With me are Yorick Ipman, our President and Chief Executive Officer, and Tom DeBile, our Chief Financial Officer. You should have a copy of the earnings release that crossed the wire's aftermarket close, as well as the slide deck for today's call. If you do not, you can find both on the Investor Relations section of our website. Please turn to slide two for our cautionary statements. As a reminder, during this call, we may make forward-looking statements about our current plans, beliefs, and expectations. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. These risks and uncertainties are described in today's earnings release and in our FEC filings, which are available on our website and at FEC.gov. We do not undertake any obligation to update these forward-looking statements. We will also refer to certain non-GAAP financial measures. We believe these measures provide investors with additional insight into our core operating performance. However, they should not be considered in isolation or as a substitute for GAAP results. Reconciliations of non-GAAP to GAAP measures are included in the tables accompanying today's release and slide presentation. With that, please turn to slide three and I'll hand the call over to Yorick to discuss the quarter and our progress.

Yorick? Thank you, Debbie, and good morning, everyone. We had a solid start to fiscal 2027, continuing the momentum from the second half of last year as we drive greater sales, marketing, and operating discipline. First quarter revenue grew over 4%, primarily due to the strong aerospace performance, while margins also expanded nicely, resulting in an adjusted EBITDA margin of 10.5%. Our bookings grew 32.6%, also driven by Aerospace, and our product ID order rate is averaging up on a trailing 12-month basis. Aerospace was the primary driver of our first quarter results. The predominance of top rider shipments and storm industry tailwinds are delivering growth and profitability. Commercial aircraft build rates are projected to increase over the next few years, and we have captured a significant share of that opportunity with our Tough Rider printers. We're also working to improve our aftermarket service processes to increase throughput and capture more of that attractive business. In Product ID, we're making good progress. Although revenue was slightly down from the prior year period, operating income doubled. Higher and sustained sales of certain legacy products help offset the impact of the ongoing transition to our newer direct-to-packaging printer platform. This, along with improving productivity and better cost control, supported margin expansion. The comprehensive settlement agreement announced in May resolved the arbitration and related proceedings tied to the M-TAC's acquisition and mutually discharged all liabilities arising from related agreements this removes a source of uncertainty and distraction and allows us to stay focused on execution customer service and realizing the strategic value of the platform within product id we continue to make investments in the team to sustain our momentum we have recently added a global sales director who is reshaping our channels to market while we have strong channel partners, they are not aligned with the markets we are targeting. As discussed last quarter, the life sciences, chemical, and industrial markets value the technical capabilities and quality of our printers and labels. In these markets, we are a critical element to address regulatory requirements, safety, and longevity. We also have added a global operations director, adding much-needed talent to take a critical eye at our manufacturing processes and footprint. As you know, the Board is evaluating a range of potential strategic alternatives to maximize shareholder value. That process is ongoing. We will not speculate on potential outcomes, timing, or specific alternatives. We do not intend to comment further unless and until the board approves a specific course of action or disclosure is otherwise required. At the same time, remain fully focused on running the business, improving performance and executing the strategy that is driving better results across both segments. With that, please turn to slide four, and I will hand the call over to Tom to review the financials in more detail. Tom? Thank you, Yorick, and good morning, everyone.

As shown on the slide, consolidated revenue increased to $39.4 million in the quarter from $37.7 million a year ago and from $37.5 million in the fourth quarter. Tariff mitigation actions contributed approximately $0.7 million to revenue in the quarter, and foreign currency translation provided a point six million benefit aerospace was a clear driver with sales up sixteen point three percent year-over-year to thirteen point three million commercial aircraft sales increased forty six percent supported by increasing build rate we also had strength in regional and bizjet aircraft resulting in hardware revenue increasing two point five million or 38% year-over-year. In product ID, revenue was down modestly but underlying trends are encouraging. Desktop labeling revenue grew sequentially. Aftermarket revenue remained approximately 82% of segment sales and orders were up year-over-year. The direct-to-package business remains in transition from our legacy platform to newer products and while this transition affected our first quarter revenue, we believe it positions us better over the long term with a strong technology platform and a clearer roadmap for our customers. Please turn to slide five. Gross profit increased to $14.4 million from $12 million in the prior year quarter, and gross margin expanded 490 basis points to 36.6%. On an adjusted basis, gross margin was thirty six point nine percent up four hundred and ten basis points year-over-year reflecting aerospace volume better mix and ongoing operational improvements turning to slide six higher gross profit combined with cost containment initiatives result in an operating income increasing one million to 1.6 million while operating expenses included higher legal and professional fees we still delivered a substantial improvement in profitability. Non-GAAP operating income increased 70% to $2.6 million. Aerospace non-GAAP operating income was $3.4 million or 25.6% of revenue. And product ID non-GAAP operating income more than doubled year over year. Turning to slide 7, our progress has translated to an improving bottom line. Net income increased by $0.7 million, or $0.08 per diluted share, compared with the net loss in the prior year period. This also reflects lower interest expense, which decreased by $0.2 million year over year to $0.7 million as a result of lower outstanding debt. Non-GAAP net income was $1.4 million, or $0.19 per diluted share. Adjusted EBITDA increased to $4.1 million, and adjusted EBITDA margin improved to 10.5%, reflecting both stronger underlying performance and disciplined cost management. If you turn to slide 8, I'll review cash flow, debt reduction, and liquidity. We generated $3 million of cash from operations, reduced debt by $1.7 million to $36 million, ended the quarter with $17.4 million in liquidity, including $4.7 million in cash and cash equivalents, and $12.7 million of borrowing capacity on our revolver. Stronger cash earnings were partially offset by higher working capital requirements due to the timing of receivable and inventories needs to support growth. Capital expenditures were only $36,000 in the quarter, which resulted in a free cash flow of 3 million. Debt was 36 million at the end of the quarter, down from 37.7 million at fiscal year end and 44.8 million a year ago. Our net debt leverage ratio improved to 2.6 times, well inside our covenant threshold. Overall, we are pleased with the continued progress we are making in improving profitability, generating cash, and strengthening our balance sheet. Turning to slide nine, total orders in the quarter were $46.3 million, up 33% over the prior year period, producing a book-to-bill ratio of 118%. Total backlog ended the quarter at $32.4 million. Growth in orders was also driven by Aerospace, which had orders of $19.5 million and a book-to-bill ratio of 147%. Aerospace backlog at the end of the quarter was $18.2 million, more than double the prior year level. Product ID orders increased to $26.8 million. Backlog rose sequentially to $14.2 million, and our go-to-market strategy continues to gain traction in the verticals where our solutions are the most differentiated and the customer relationships tend to be the stickiest. Our orders and backlog trends, along with customer feedback, provide good visibility and support confidence in the direction of the business. With that, please turn to slide 10, and I'll hand the call back to York to conclude our comments.

Thank you, Tom. We are encouraged by the start to fiscal 2027 and believe the business is moving the right direction. In aerospace, we continue to see favorable demand trends and the benefit of the Tough Rider transition. In product ID, our focus remains on converting pipeline into revenue growth, improving operational consistency, and supporting the migration to our new technology platforms while building on the traction we are seeing in our target verticals. Looking ahead, our positive outlook is supported by strong aerospace demand, improving execution in product ID, growing backlog, and the anticipated expiration of a major royalty obligation in the third quarter of fiscal 2027. This will provide approximately $2 million of annualized gross profit benefit beginning in the fourth quarter. As we move through the year, we remain committed to creating value for shareholders. That includes continuing to execute our operating plan while the Board evaluates strategic alternatives. With improving margins, stronger backlog, and a continued debt reduction, Astronova is better positioned to deliver more consistent and resilient performance. With that operator, we're ready to open the line for questions.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. We will pause for a brief moment to see if there's any questions. If there are no questions at this time, I would like to turn the call back over to management for closing remarks.

Thank you, everyone. I mean, we truly appreciate your support going through this journey to all the employees. thank you for your hard work and dedication it is truly appreciated thank

you thank you this will conclude today's conference you may disconnect at this time and thank you for your participation