AstroNova, Inc. (NASDAQ:ALOT) Q4 2024 Earnings Call Transcript

AstroNova, Inc. (NASDAQ:ALOT) Q4 2024 Earnings Call Transcript March 22, 2024

AstroNova, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

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 turn the conference over to David Calusdian of the company’s Investor Relations firm, Sharon Merrill Advisors. Please go ahead, sir.

David Calusdian: 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 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. Any forward-looking statements speak only as of today, March 22, 2024. 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, 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.

Greg Woods: Thank you, David. And good morning, everyone. I’d like to begin by recognizing the excellent work of the AstroNova team. 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, 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.

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Q&A Session

The simplification of our PI segment enables us to do just that. 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 rebounding commercial air travel and aircraft build rates, T&M 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 Machine’s two new flat pack printing solutions. 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. Turning 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 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 earned $0.63 per diluted share on a GAAP basis in fiscal 2023 — ’24 sorry, up 75% from the 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 six, Product ID 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. 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 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 targets, 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 enhancement.

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?

David Smith: Thanks, Greg, and good morning, everybody. Greg acknowledged the tremendous AstroNova team effort and I’ll say that I’m happy and proud that we’re proud of it. We’ve made great strides in focusing our investments and streamlining our cost structure and we all share our great 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 eight 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 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.