AstroNova (NASDAQ:ALOT) released first-quarter financial results and hosted an earnings call on Monday. Read the complete transcript below.

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Summary

AstroNova reported a 4% increase in first-quarter revenue, primarily driven by strong aerospace performance, leading to an adjusted EBITDA margin of 10.5%.

The company's aerospace segment saw a significant 16.3% increase in sales year-over-year, bolstered by a 46% rise in commercial aircraft sales.

Product ID revenue declined slightly, but operating income doubled, supported by legacy product sales and a transition to newer Direct to Packaging platforms.

Management highlighted a comprehensive settlement of arbitration issues, improving focus on customer service and strategic value realization.

The company is actively evaluating strategic alternatives to maximize shareholder value, while remaining focused on operational execution.

AstroNova improved its bottom line with a net income increase of $0.7 million and reduced debt to $36 million, strengthening its balance sheet.

Total orders increased by 33%, driven by aerospace demand, with a backlog of $32.4 million, providing strong business visibility.

Future outlook remains positive with anticipated benefits from aerospace demand and a major royalty obligation expiration expected to enhance gross profit.

Full Transcript

OPERATOR

Greetings and 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 Star0 on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Deb Polowski, Investor Relations.

Thank you. You may begin. Thank you and good morning everyone. We appreciate your interest in Astronova. With me are Yorick Itman, our President and Chief Executive Officer, and Tom DeByle, 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 statement.

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 SEC filings, which are available on our website and at SEC.gov we do not undertake any obligation to update these forward looking statements.

We will also refer to certain non-GAAP financial measures including 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 3 and I'll hand the call over to Yorick to discuss the quarter and our progress.

Yorick Itman (President and Chief Executive Officer)

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 twelve month basis.

Aerospace was the primary driver of our first quarter results. The predominance of TopRider shipments and strong 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 toprider 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 helped offset the increased 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 resolve the arbitration and related proceedings tied to the Emteq's acquisition and mutually discharge 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 DeByle

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 0.6 million benefit. Aerospace was a clear driver with sales up 16.3% year over year to 13.3 million. Commercial aircraft sales increased 46%, supported by increasing build rates.

We also had strength in regional and business jet aircraft resulting in hardware revenue increasing 2.5 million or 38% year over year. In Product ID, revenue was down modestly, but underlying trends are encouraging. desktop labeling revenue grew sequentially after market 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 5 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 36.9%, up 410 basis points year over year reflecting aerospace volume, better mix and ongoing operational improvements. Turning to slide 6 higher gross profit combined with cost containment initiatives resulted in operating income increasing 1 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 and 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 is 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 9 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 Yorick to conclude our comments.

Yorick Itman (President and Chief Executive Officer)

Yorick 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 TopRider 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.

OPERATOR

Thank you. If you would like to ask a question, please press Star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star two 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. There are no questions at this time.

I would like to turn the call back over to management for closing remarks.

Thank you everyone. 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.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.