Astronova (NASDAQ:ALOT) Q4 2026 Earnings Call

0:00 Greetings. Welcome to AstroNova Fourth Quarter Fiscal Year twenty twenty six Financial Results Call. Please note this conference is being recorded. I will now turn the conference over to Deborah Pawlowski, Investor Relations for AstroNova. Thank you. You may begin. Thank you, and good morning, everyone. We appreciate your interest in AstroNova, and thank you for taking the time to join us today. With me on the call are Jorick Itmann, our President and Chief Executive Officer and Tom DeVille, our Chief Financial Officer. You should have a copy of the earnings release that crossed the wires after market closed yesterday, as well as the slide deck that will accompany our conversation today.

0:53 If you do not, you can find both documents on the Investor Relations section of our website at astronovainc.com. 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, expectations. These statements relate to future events and results and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied today. These risks and uncertainties are described in today's earnings release and in our filings with the Securities and Exchange Commission, which are available on our website and at sec.gov. We do not undertake any obligation to update these forward looking statements. We also will be referring to certain non GAAP financial measures. We believe these measures provide investors with additional insight into our core operating performance.

1:46 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 that accompany both today's release and the slide presentation. With that, please turn to slide three, and I'll hand the call over to Jorick to discuss the quarter and our progress. Jorick? Thank you, Debbie, and good morning, everyone. We appreciate you joining us today. As we said on my first conference call reporting the second quarter of fiscal twenty twenty six, we expected the second half to perform better than the first half of the year. The second half of fiscal twenty twenty six was a reset period for AstroNova, and our results reflect the early benefits of the changes we have made across the business.

2:34 We entered the year with a focus on stabilizing the company, improving cash generation, reducing debt, and raising accountability across both segments, and we delivered against those priorities. Operationally, the product identification turnaround is gaining momentum. In the product ID, we're executing against a clear go to market and operational strategy. By applying more robust analytics to understand our value proposition, and where we have the best opportunity to win, we have a clearer view of where we are the stickiest with our customers. Our products and full service capability are appreciated in these applications. We have focused our sales resources to better address these markets, which has entailed changes in talent and structure.

3:22 Operationally, we are addressing productivity and efficiencies to strengthen our competitive position, while also to support a stronger margin profile. Our aerospace business continues to perform well. We are benefiting from a favorable product mix and a strong demand for our ToughRider solutions. We had a very strong order quarter and have several tailwinds that should continue to benefit the business. Importantly, we exited the year with a solid backlog in both segments, providing a good visibility heading into fiscal twenty twenty seven. As you know, we announced that the board is evaluating a range of potential strategic alternatives, which may include, among other things, a sale of all or part of the company, a strategic investment, a merger, or other business combination, other strategic or financial options, or continuing to execute on our organic strategic plan.

4:23 We are early in the process, and as you would expect, we cannot speculate on the outcome. If you turn to slide four, I will walk you through our sales results. As shown on the slide, our performance picked up in the second half of the year, and we believe that momentum is carrying into the fiscal twenty twenty seven. Product ID second half sales were up 4.2% over the first half of the year, as our customer centric sales approach gained traction. Notably, Product ID orders were 27,500,000, up 2,900,000 year over year, resulting in a book to bill ratio of 104%, and backlog increased by 1,100,000 sequentially as our new go to market strategy continued to gain traction.

5:12 Our new sales and marketing strategy is focused on applications where we tend to win, and where customer relationships are the stickiest. This is often where our print solutions are part of a customer product in a highly regulated markets. Over the past several quarters, we have sharpened our focus on three key verticals of life science, industrial, chemical markets. In these verticals, our label and packaging solutions are directly embedded in customer products and workflows, making reliability, durability, and regulatory compliance critical for our customer outcomes. In these applications, labels can change frequently to address regulatory updates, must be durable to withstand heavy handling in harsh environments, and both the label and the ink must meet regulatory standards.

6:07 Turning to aerospace. Second half sales also improved over the first half. Orders in aerospace were 13,600,000, resulting in a book to bill ratio of a 122%, and year end backlog was $12,000,000, reflecting sustained demand from OEMs as aircraft build rates continue to recover. A key driver in aerospace is the ongoing transition to our TopRider product family. TopRider now represents more than 80% of total flight deck printers shipments, positioning as well as aircraft utilization and build rates increase. Looking ahead, a major royalty obligation will expire in the third quarter of fiscal twenty twenty seven, representing approximately a 2,000,000 annualized benefit to gross profit that will be fully realized beginning in the fourth quarter.

7:02 We're also making operational improvements in the business, driving greater efficiency and productivity in our service and repair operation. With that, I will turn it over to Tom to walk us through the financial details. Tom? Thank you, Jorick, and good morning, everyone. Fourth quarter revenue was $37,500,000 up $200,000 compared with the prior year period, as growth in our Product ID slightly more than offset our lower aerospace revenue. Tariff mitigation actions contributed approximately $600,000 to revenue in the quarter, and the foreign currency translation provided a $800,000 benefit. For the full year, revenue was $150,500,000 compared with $151,300,000 last year.

7:55 As Jorick noted, second half revenue grew nearly 4% over the first half, and the demand we are building from our sales efforts supports our expectation for mid single digit growth in our fiscal twenty twenty seven. Please turn to Slide five. Gross profit for the fourth quarter was $11,300,000 and gross margin was 30.2%, reflecting a contraction of two fifty to two sixty basis points year over year, primarily to lower volume and mix. On a non GAAP basis, gross profit was $11,900,000 and non GAAP gross margin was 31.7%. It is also worth noting that the second half gross profit increased 8% and margin expanded 130 basis points.

8:49 Given our size, quarter to quarter comparisons can sometimes mask the changes occurring in the business, and we believe the trailing periods since our second half reset provide a better view of the progress we are making with our strategy. Turning to slide six, last year's fourth quarter was impacted by a $13,400,000 goodwill impairment charge, which makes the year over year comparison less meaningful. Here too, the first half and second half comparison is more realistic. Under new leadership, we had $1,300,000 in operating profit in the second half of fiscal 'twenty six compared with a loss in the first half. On a non GAAP basis, operating profit grew by more than 90% and operating margin expanded two twenty basis points.

9:44 Turning to Slide seven, you can see our adjusted EBITDA performance. Starting with GAAP results, net loss for the quarter was $1,100,000 or zero one five dollars per diluted share versus a net loss of $15,600,000 or $2.07 per share in the prior year quarter, which again included the goodwill impairment charge. Non GAAP net loss was $300,000 or $04 per share. Adjusted EBITDA in the fourth quarter grew 18% to $3,300,000 while adjusted EBITDA margin expanded 130 basis points to 8.8%. For the full fiscal year 2026, adjusted EBITDA was 12,700,000 up 400,000 and adjusted EBITDA margin improved 20 basis points to 8.4%.

10:38 Comparing the second half with the first half, adjusted EBITDA grew 44% and margin expanded two seventy basis points, again demonstrating the progress resulting from the actions we have taken across the organization. If you turn to Slide eight, I'll review our improved cash generation, debt reduction and liquidity. Cash provided by operating activities in the fourth quarter was $3,700,000 compared with $2,500,000 in the prior year period, reflecting stronger cash earnings and lower working capital needs, particularly inventory. For the full year, cash from operation was $11,700,000 a meaningful improvement over fiscal twenty twenty five.

11:26 Capital expenditures were tightly controlled at $300,000 for the year compared with $1,200,000 in the prior year. This also highlights capital light nature of our business. We use a stronger cash generation to further deleverage the balance sheet. During the fourth quarter, we reduced debt by $2,700,000 bringing total debt to $37,600,000 as of 01/31/2026, down from the $46,700,000 at the end of fiscal twenty twenty five. We ended the year with $4,100,000 of cash and cash equivalents and total liquidity of $15,900,000 including $11,800,000 of borrowing capacity on our revolver.

12:14 Our net debt leverage ratio was 2.97 at year end, well inside our 4.5 covenant, and our fixed charge coverage ratio was 1.43 versus the 1.05 requirement. Overall, we are pleased with the progress we have made in strengthening the balance sheet and enhancing our financial flexibility. Turning to Slide nine, I'll briefly review orders and backlog. As most of you know, our orders can vary from period to period, especially in aerospace because of the size and timing of customer projects. So quarter to quarter order patterns do not necessarily reflect underlying demand. Total orders in the quarter of forty one point one million were up 6.5% over the prior year period, driven by over 12% growth in the product ID orders.

13:10 Demand for our label printing products has improved with renewed energy and focus of our sales and marketing organization. Aerospace demand, which is subject to customer project timing, reflects improved aircraft build by the major OEMs. At year end, backlog of $25,500,000 was down from $28,300,000 in the prior year. During the second half, we reduced our backlog in our mail in sheet flat pack printers that was long past overdue by improving productivity in the operation. As Jorick mentioned, we have added leadership talent in both the segment for both operations and sales that we expect to help further drive demand and production output while streamlining costs.

14:03 Aerospace backlog was up 17.6%, driven by increasing demand from our OEMs and the timing of deliveries. With that, please turn to slide 10, and I'll hand the call back to York to discuss our outlook. Thanks, Tom. Let me reiterate that fiscal twenty twenty six was a foundational reset year for AstroNova, particularly in the second half of the year. Across the organization, we've been driving culture change around customer centricity and transparency, disciplined, data driven decision making, at the time, we are simplifying operation, containing cost, and refining our organizational structure, to support continued improvement in execution.

14:49 We have spent the last six months positioning AstroNova for improved and more sustainable performance. Looking ahead, for fiscal twenty twenty seven, we expect mid single digit revenue growth and expansion in adjusted EBITDA margin. In aerospace, we anticipated measured top line growth, supported by rising aircraft utilization, and favorable shift in product mix, and the expiration of a major royalty obligation in the third quarter of fiscal twenty twenty seven, which will provide an approximate 2,000,000 annualized contribution to gross profit beginning in the fourth quarter. In Product ID, our focus is on converting our growing commercial pipeline into consistent revenue growth, while continuing to improve operational performance and profitability.

15:36 As we navigate this next phase, we remain committed to create value for our shareholders. This includes evaluating all strategic alternatives that can enhance that value, as I discussed earlier, With a more disciplined operating model, a stronger balance sheet, and attractive opportunities across both segments, we believe AstroNova is on the path to deliver stronger and more resilient performance over time. With that operator, we're ready to open the line for questions. Thank There are no questions at this time. I would like to turn the conference back over to management for closing remarks.

16:59 Thank you. This will conclude today's conference. You may disconnect at this time and thank you for your participation.