astronova, inc. (alot) ceo greg woods on q3 2019 results - earnings call transcript
AstroNova, Inc. (NASDAQ:ALOT) Third quarter 2019 results conference call at 9: 00 a. m. on November 21, 2018 Investor Relations, Sharon Merrill Lynch- President and Smith- CFOAnalystsDick Ryan- Steve Busch-Doherty Hillary-Everglades A good day for the capital opera house in Lubawa. Welcome to the conference call for the third quarter of 2019 financial year of astoniva. Today\'s meeting is being recorded. At this time, I would like to transfer the call to Mr. David Calusdian is an investment consultant from the company, Merrill Lynch staff salon. Sir, please continue. Calusdian. Thank you, Erica. Good Morning, everyone. thank you for joining us. This morning\'s meeting was chaired by Greg Woods, President and CEO of astoniva, and David Smith, chief financial officer. Greg will discuss the results of the company\'s operations. David will show you the finances. Greg will make some summary and then the management will be happy to answer your question. So far, you should have received a copy of the earnings release released today. If you do not have a copy, please go to the investor section of the astadeva website, www. astronovainc. com. Please note that statements made at today\'s conference call that are not statements of historical facts are considered forward -- Outlook statement in the Private Securities Litigation Reform Act of 1934. These forward- Forward-looking statements are based on some assumptions that may involve risk and uncertainty. Therefore, there may be significant differences in actual results, except as required by law. Any forward- As of today, the look statement will only speak on November 21, 2018. The company has no obligation to update these forwarding- Look at the report. More information about forwarding- Looking at the report and the factors that may lead to the difference, see risk factors in astiniva\'s annual report on table 10 K and other documents submitted by the company to the Securities and Exchange Commission. I\'m transferring the call to Greg now. Greg Wood, Thanks, David. Good Morning, everyone. thank you for joining us. This morning, we announced strong results for the third quarter of fiscal 2019, mainly reflecting the continued strong demand from the aerospace industry for our cockpit printers and related supplies. In particular, the new contracts for Honeywell printer product line and ToughWriter brand printers are excellent. The business\'s performance in fiscal 2019 highlighted our success in leveraging the elements of the astiniva operating system to drive long-term growth Deliver long-term value to customers, shareholders and team members through innovative product development, superior quality and lean business processes. We generated a record $34 revenue this quarter. 2 million, an increase of about 19% over the same period last year. Our operating margin is 6. 9% of revenue, up 120 basis points from the third quarter of last year. We report a diluted earnings per share of $0. 20. David will provide more details on our financial results in a later call. But first, let me start with product identification and provide some context around our results for the third quarter. Geographically, we see a good acceleration of orders from the Americas and Asia, and we have added several new distributors in all regions to further strengthen our global channel building. Revenue grew by 6% over the same period last year, with both QuickLabel and TrojanLabel platforms growing. In this quarter, we launched some new products and technical improvements at the Labelexpo Americas and pack expo international trade show in Chicago this year. These exhibitions were very successful for us, had a strong Booth Attendance and recorded the clues that led us forward. It\'s worth noting that we premiered Kiaro! QL- 120 The new narrow format desktop color label printer we announced earlier in the third quarter. We also present the features of our latest TrojanLabel products T4 and T2C at these shows. The top of Trojan T4 integrates advanced digital printing technology and a powerful label finishing system, enabling small and medium-sized enterprises in the business field to enter the professional high-output digital label printing market. T2C is also a particularly popular large brand owner who recognizes the benefits of our compact, efficient, professional label printing machine and has a high return on investment. Three customer groups were considered in the design of the system; Brand owners and manufacturers who want to bring in label production requirements-house; Label converter, seeking flexible solutions to meet the requirements of short label operation; And professional printing companies, see T2C as a valuable tool to attract new customers and improve profitability. Perhaps the innovation we are most interested in is our new food. The safe flexible packaging materials we introduced at the packaging Expo. The material is designed for the entire range of TrojanLabel printers. This breakthrough technology uses the unique ultra-thin polyester film specially developed to accept our waterbased ink. The reason why this technology is so notable is because it is used in a wide range of packaging applications for our TrojanLabel printer, especially in fast- The growing market for food, medicine and medicine. More and more industries are transforming into flexible packaging to reduce material costs, reduce waste, increase consumer convenience and enhance brand difference. Our TrojanLabel team is excited and we now have the way to get into this dynamic market. When it comes to testing and measurement, third-quarter revenue grew by 51% over the same period in fiscal 2018. Our aerospace business is the main driver of this growth, reflecting the contribution of our cockpit printers, supplies and network systems. Our data collection products have also experienced strong growth, especially the new Daxus and DDX product lines. During the second quarter conference call in August, we continued to make steady progress on Honeywell\'s integration of the aviation printer product line. As I mentioned, with production now fully integrated in West Warwick, the final clean-up part of the transition relates to the direct transfer of many individual and client contracts to astoniva. At the end of October, we managed to transition several larger contracts. As more and more contracts are transferred to us, we are able to improve our responsiveness and profitability. However, at the current pace, it is still expected to take several quarters to complete all tasks. Let me make some comments on our data collection product line to close the section discussion. The third quarter is a prominent quarter, including the addition of new dealers and the release of several product improvements. Sales are performing well, many of our new products are attractive in both existing and new market areas, and we are satisfied with the progress of this business. Before concluding, I would like to take this opportunity to publicly welcome Jean Bua, executive vice president and chief financial officer of NetScout Systems, a Nasdaq-listed company, as our fifth independent director. We announced Jean\'s appointment yesterday and we are pleased that she has joined the board. Jean has extensive experience in accounting policy, internal control and risk management. She is the third independent director we have appointed in the past year, following the appointment of Dick valzara and Yvonne schlepi. We look forward to benefiting from Jean\'s Financial Wisdom, corporate governance experience and technical background. Now, let me transfer the call to David for more details of our financial results. Thank you, Greg. good morning, everyone. As Greg pointed out, third quarter revenue grew by 19% over the previous year, mainly reflecting another strong quarter of testing and measurement. We also continue to show leverage on the operating expense line. Domestic income is $21. 5 million, an increase of 19%, accounting for 63% of total income. International income is $12. 7 million, an increase of 19% year-on-year, accounting for 37% of total sales. By Product Category, consolidated supply revenue grew by 19% in the third quarter compared with the previous year, hardware revenue increased by 39%, and services and other revenue increased by 8. 5%. Gross profit for the third quarter was $13. 9 million, an increase of 18% over $11. The third quarter 8 million of 2018. Gross margin fell by 30 basis points to 40 basis points. 7%. Operating costs $11. 5 million rose by 13. It was up 6% from the third quarter of last year. However, as a reminder, the customer-related intangible assets obtained from Honeywell are amortized in sales expenses, which accounts for most of the year-round --over-year increase. Operating expenses in the third quarter as a percentage of revenue fell 150 basis points from the same period last year. In terms of revenue from market segments, due to increased sales of printer hardware and supplies, product identification increased by 6% over the previous year. Testing and measurement increased by 51% over the same period last year. The division operating profit margin with product identification of 9 has generated operating income of US $2 million. Compared with $2, 3%. The third quarter of last year was 7 million or 13%. This difference is mainly related to investment in new products and growth plans this year. Operating income from testing and measurement is $3. Operating profit margin of 2 million or segment 25. Compared to $1, 4%. 6 million or 18 Thanks to the benefits of Honeywell trading and better results in testing and measuring product lines, the previous year was 9%. For the investors who made the request, we added a form in the press release with the details of this section. Our other expenditures for the quarter were around $540,000, mainly related to interest payments and foreign exchange losses. The income tax reserve for the third quarter was $407,000 and the effective tax rate was 22. 3%. We expect the tax rate to be around 25% in the fourth quarter and around 27% for the whole year. When it comes to the balance sheet, we pulled out of the third quarter at about $19. 2 million of the debt, $7. Cash accounted for 8 million per cent, and the net ratio of debt to capital was about 22% per cent. Normal operating capital expenditure for the third quarter was $99,000, bringing the total annual amount to $882,000date. This year, we expect a total of approximately $2 million, in line with our normal annual business-related capital expenditures of $2 million to $2. 5 million ranges per year. In addition, with the implementation of our new ERP system, we expect to complete it early next year, and we will spend another $2 this year. 3 million. About $1 million of that has already been spent-date. Before we go online early next year, ERP related expenses will appear in the construction and progress. The total capital investment this year is actually $4 million to $4. Scope 5 million. For non- Disclosure of Cash expenses; Depreciation for the quarter was $456,000; Amortization is $1. 1 million; The stock is paid 510,000. We believe that the increase in profit margins, the increase in return on equity and the increase in income per teammate increased by $386,000 after 12 months, all of which confirm, as we seek to increase shareholder value, we are moving in the right direction. Before I transfer the call back to Greg, please note that we plan to attend and host a meeting at the LD Micro Main event in the Los Angeles area next month. The date and time of our presentation will be posted in the investor section of our website under Events and Presentations. Now I\'m going to turn it back to Greg for his closing remarks. Greg Wood, Thanks, David. All in all, we started the fourth quarter of fiscal 2019 with good momentum. With the contributions of aerospace product lines such as Honeywell and ToughWriter, our testing and measurement business performed well. New products and enhancements in our product identification field extend our capabilities and expand our business to new markets. We continue to anticipate that revenue in product identification and test measurement will exceed that in the second half of this fiscal year. The future of asturiva is bright. Now, we are happy to answer your question. Question-and- [Answer] Operation instructions] Let\'s answer the first question now. please continue. Mr. Ryan, you can start. Dick RyanGreg, you mentioned the acceleration of orders in America and Europe in terms of product ID. Can give us more perspective, it\'s yours-- Is the investment in the new technology center helping to drive orders here? I\'m talking about America and Asia because they\'re- These two areas But as you know, we have added some innovative technology centers. In the first quarter, we opened a store in the city of Mexico, which of course helped in this area, in Asia, this has more to do with the ongoing business we are developing and starting to accelerate Order levels and larger orders in that part of the world. Dick Ryan any tariff issues have any adverse effects on you guys at this point? Greg WoodsIt is not a big factor for our business as we do not manufacture and import heavily from airlines hit by tariffs. So that\'s something we \'ve been focusing on, but it doesn\'t make sense at this point, and we don\'t expect it to have a big impact on the future. Dick Ryan in testing and measurement, are you shipping directly to any end customer or are you working on this at Honeywell? Greg WoodsNo, we\'re doing this, and that\'s what I mean about the contract transfer. For those of you who don\'t know before we actually transfer it to the direct shipping mode, we are actually still shipping through Honeywell and of course they will charge us for the service. So at the end of October, we had some pretty good agreements that were actually transferred to direct shipping, so we got a little bit of benefit in the last few weeks of October. But of course, these will continue, and we will continue to add more as we move forward. Is there a way to quantify what kind of resistance Dick Ryan has at this point? We can\'t-- We are not allowed to do so under the terms of the agreement, but when we can avoid double shipping and service time per printer, this is a reasonable increase in profitability. Dick Ryan, how far have you gone in the process, and I may have missed the next few quarters, right? But I mean, do you have a lot of big customers right now? Or . . . . . . It\'s hard for Greg woodsett to quantify it accurately. What I want to say is that we have more than three now. But there are small ones and big ones. So in terms of dollar value, it\'s hard to know exactly where this is going. But some of them will-- Some people like to be in China and they tend to take longer to get contracts for actual transfers. But we will keep working. So as more and more of these things get into our columns, we should see a steady increase in profitability. Dick Ryan OK, great, congratulate you again for a good quarter, thanks. Thank you very much, sir. Ryan. The next question comes from Steve bussch of Everglades resources. Steve BuschSo is just a few questions, what is the realistic addressable market size of the new flexible food label packaging product? Can you reveal some size? Greg WoodsIt is hard to quantify our products, I mean only know the general statistics of the packaging market, flexible packaging is still over $30 billion, but it includes all the equipment that makes these plastic bags. It\'s something-- Think about your snacks or things that have flexible packaging so that there are no labels on those flexible bags, however, this is printed on the movie, into a bag of food, medical products, or anything else. So it\'s a whole new area for us. So this is a technical breakthrough because we can\'t print on this type of material because you will heat seal these packages. So we can\'t even get into this market until this big breakthrough. So we will know more as we move forward, but I can say that there is a lot of interest at the show this fall. People haven\'t seen it yet. - Previously, we actually had a TrojanLabel machine that went straight into the vertical table filling and sealing machine and made plastic bags, which was very impressive for those who came to the booth. Steve Busch. I mean, do you have a goal in your first year? Greg WoodsYes, it\'s too early to know. I mean, the main thing is a breakthrough in R & D technology, trying to find a way. We \'ve been looking for about a year and a half to work out how to actually do this and the material- In fact, it\'s chemistry, material science. So now we have this problem-- Meet with packaging companies and brand owners to enter the market. But yes, we expect it to have a good impact on such a large market, but these things take time. We have had some good growth in hardware sales. Do you expect our consumables to grow at a higher rate? This is of course our goal. We still have-as we mentioned on some of the previous calls, our toner products are still decreasing, which is a bit of a hassle. Whether it\'s a label or an ink, we still see a steady increase in inkjet. So this is still a very good upward trend. Based on toner products, we stopped production about four years ago. It is therefore not too surprising to see this continue to decrease. Good luck to Steve Booth. You guys did a good job. Operator[ Operation instructions] The next question comes from Christopher Hillary, the capital of luberwa. Christopher HillaryI just wanted to ask if you would like to share some comments on how you see the results today related to your long-term goals, especially your operating profit margin? As you can see, profit margins have indeed increased this yearover- A year or even a quarterover-quarter. So we are moving steadily in this direction. We already have some initiatives, things that are on the gross margin side of both, and the operating expense leverage we expect should continue to push us forward towards that goal. Christopher Hilary, and then maybe just-- Do you have any color on how you see the M & A pipeline? Because there have been some changes in the background over the past period of time, I don\'t know, a few months? Greg Wood what do you mean, or what do you mean by the background? Christopher hillary, do you feel that the opportunity set has improved, or remains the same, or . . . . . . ? As you might guess, the name of Greg Wood will change. But each of the three companies, we have a fair amount of goods. Obviously, we don\'t have much to discuss in detail, but we actually see many additional opportunities in the aerospace field, but there are usually 20 product identification, testing and data collection, we are looking for 25 opportunities at any given time, and three or four of them are usually relatively serious. But you might think- If you look at it-- It starts at 100 at the beginning of the year, and most people never reach the level of serious consideration, whether it\'s due diligence or price, or other issues we find in due diligence. Thank you. This is the end of today\'s problem. and-answer session. Mr. Gregory Woods, at this point in time, I would like to turn the meeting back to your concluding remarks. Thanks, Greg woodsokai. Thank you all for your attendance and for your time and interest in astadeva today. We look forward to keeping you up to date with our progress and see you now and everyone out there has a wonderful Thanksgiving Day. This is the end of today\'s call. Thank you for your participation. Happy Thanksgiving to you and now you can disconnect.