AstroNova, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Overall third quarter performance was disappointing with significant decrease in consolidated margins and increase in operating expenses tied to MTEX integration. MTEX had an operating loss of $1.1 million on revenue of $1.7 million. They realigned MTEX's organizational reporting structure. Discovered inconsistencies with seller information during integration and are seeking remedies. Launched a comprehensive cost reduction and product line rationalization initiative. A large inkjet printer order in the PI segment began shipping, expected to contribute several million dollars to the top line over the next several quarters. Intend to integrate MTEX's technology into most product lines and retrofit models within the installed base. Financially, net revenue for the third quarter was up 7.7% to $40.4 million. Gross profit margin was 33.9% compared to 39.4% in the prior year period. Non-GAAP operating expenses were $12.1 million, up 19.3% from the prior year period. Non-GAAP operating income was $1.6 million compared to $4.6 million in the prior year period. Bookings were $37.6 million, backlog was $27.1 million as of November 2, 2024. Cash and cash equivalents were $4.4 million, funded debt increased to $48.9 million, and cash from operations through the first 9 months of fiscal '25 was $2.3 million.

Segment Performance

• Product Identification (PI) Segment: Revenue was $26.3 million, down 1% from the prior year period. Excluding the MTEX acquisition, sales in PI were down 7.2%, primarily due to lower hardware sales. PI segment operating profit in the third quarter of fiscal 2025 was $1.9 million or 7.2% of revenue, compared to $4.8 million or 18.1% of segment revenue in the prior year period. The decrease reflects higher costs in fiscal 2025 associated with the MTEX acquisition, product mix, lower sales volume in Europe, and a delayed product release.
• Test & Measurement (T&M) Segment: Revenue increased 28.2% from the prior year period to $14.1 million, driven by the Aerospace product line. Operating margins for Q3 fiscal '25 were $3.3 million, up from $2.6 million in the prior year, an increase of $0.7 million or 26.9%.

Guidance

• Given the extended integration timeline for MTEX, they no longer will be providing guidance for fiscal '25 and '26. Instead, they plan to provide longer-term targets and will present results of evaluations along with financial targets in March.

Risks

• Integration of MTEX has been more time-consuming and resource-intensive than anticipated. Inconsistencies with the information originally provided by the seller during the acquisition process were discovered. The extended integration timeline for MTEX poses challenges.

Question and Answer

• Q: Is the inkjet order related to legacy PI business or MTEX? A: It's a legacy business order. It's from a large customer who requested enhancements, and the order started shipping this month, not related to MTEX technology.
• Q: Details on MTEX's general and administrative expenses? A: MTEX's general and administrative expenses for the quarter were $273,000. Selling expenses for MTEX were $839,000, and research and development expenses were $209,000. Corporate paid $420,000 with a credit balance at MTEX reflected in their results.
• Q: Impact of delayed Boeing orders on margins? A: Delayed Boeing orders are typically higher margin orders, and their delay contributed to the sequential decline in margins.
• Q: Sequential PI margins? A: Sequential PI margins were primarily affected by a significant delayed order and mix factors in the legacy business.