AstroNova, Inc.

Good morning and welcome to the Astranova fiscal second quarter 2025 financial results conference call. Today's call is being recorded. I would now like to turn the conference call over to Scott Solomon, the companies, investor relations firm, Sharon Merrill, advisors. Please go ahead, sir.

Thank you. Thank you, Candace, and good morning, everyone. If you've not received a copy of this morning's earnings release, please go to the investors page of the AstroNova website, www.astronovainc.com. We are under the events and presentation section. You will also find a slide presentation accompanying management's prepared remarks. Turning to slide two, 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 risks that could and a number of assumptions that could involve risks and certainties. Accordingly, actual results could differ materially, except as required by law. Any forward looking statements speak only as of today, September 16, 2024. Astonova undertakes no obligation to update these forward looking statements. For other information regarding the forward looking statements and the factors that may cause differences, We see the risk factors in Astronova's annual report on Form 10-K and other filings that the company makes with these securities and exchange commissions. 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 helps investors who wish to make comparisons between Astronova and other companies on both a GAAP and a non-GAAP basis. The non-GAAP financial measures are reconciled to the most directly comparable gap measures in today's earnings release. Turning to slide three, hosting this morning's call are Greg Woods, Astronova's president and chief executive officer, and Tom DeBile, vice president and chief financial officer. Greg will discuss the company's second quarter operating highlights, and Tom 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. I'm pleased to turn to slide four as I turn the call over to Greg.

Thank you, Scott. Good morning, everyone, and thank you for joining the call. This morning, I'm speaking with you from France, where later today I'll be meeting with our regional sales team as part of a broader visit to several locations across the EMEA region, focusing on our MTEX integration plans. We see significant growth opportunities here, particularly with the addition of MTEX, the newest member of the Astronova family. Turning to our results, We delivered solid top-line growth in the second quarter, driven primarily by our test and measurement segment. With the supply chain shortages that impacted Q1 now mostly resolved, the T&M segment bounced back in the second quarter, posting 37% revenue growth. T&M segment's operating profit margin of 28.7% was up 900 basis points from the same period last year, and up 1100 basis points from Q1 of this year. Within the aerospace product line, we're seeing robust demand for printers and supplies, as well as for our maintenance, repair, and overhaul services. This strong demand is fueled by the sustained post-COVID recovery of the global aviation market. In the quarter, we continue to gain traction in the converting of our aerospace customers to our Tuffrider branded printers. These printers offer upgraded technology, providing customers a more streamlined parts and service experience. For us, The benefit is reduced manufacturing costs, which in turn supports durable margins. In addition, Astronova Aerospace has recently been awarded several new military contracts, including a follow-on agreement for a large U.S. Air Force program. Negotiations are in process for other military platforms as well. In our privatization segment, the highlight of the quarter was our acquisition of MTEX in May. This business complements our PI portfolio with advanced printing technologies tailored to key market segments, including packaging, labeling, textiles, and industrial applications. Prior to the acquisition, Emtex was an entrepreneurial private company that lacked many of the processes necessary to be quickly integrated into the Astronova company. Integration projects have been consuming more resources than anticipated, and Emtex got off to a slow start in the quarter. generating revenue of less than $0.8 million with an operating loss of $1.4 million. We expect it to take through the remainder of fiscal 2025 to transition EmTech's systems, processes, and business tools to those of the AstraNova operating system. It's important to point out that we remain very excited about EmTech's core strengths, including its engineering and manufacturing capabilities, and especially its game-changing ink and printhead technologies. In the coming months, we will be devoting additional resources towards integrating that technology into more of our product identification products. On the positive side, the integration process has revealed many strong synergies, particularly in their vertically integrated engineering and manufacturing operations, which have proven to be highly efficient. This operational efficiency reduces reliance on outside suppliers and enables greater control over the production schedules and costs. We've attended several large trade shows since the acquisition, showcasing the breadth of the MTEX product line, and as a result, we have built a strong MTEX product backlog. We expect to begin shipping that backlog in the third and fourth quarters, which will enable the business to meet our targeted revenue contribution of $8 to $10 million for fiscal 2025. I'd like to quickly touch on guidance. Based on results from the first half of fiscal 2025, and the current business environment, AstraNova today reaffirmed its full-year fiscal 2025 expectations for mid-single-digit percent organic revenue growth. However, we are lowering our full-year adjusted EBITDA margin guidance to a range of 9 to 10 percent, reflecting the slower startup of EmTech's acquisition. After the full integration, we expect our consolidated adjusted EBITDA margin to be in the initial target range of 13 to 14 percent and FY26. Moving to our product identification segment on slide five, Q2 revenue increased by more than 5% year over year, driven by the MTEX acquisition, supplies, and a nice bounce back in the QuickLabel and TrojanLabel hardware. Excluding the MTEX acquisition, revenue was up 2.4% and non-GAAP operating profit was up 26.5%. Our next generation flat pack and mail related printing solutions have been well received in the market, and we anticipate further momentum in the second half of the year as we begin volume shipments of these new products. Turning to our T&M segment on slide six, as I mentioned, our aerospace product line is performing well, driven by the increasing global demand for air travel. In our T&M product line, order flow remains a bit lumpy, as expected due to the unpredictable timing of military orders in that area. That said, We've seen a steady demand for non-military data recorders, primarily for power and transportation applications. Stay tuned for some updates on exciting new generation of T&M product platforms that are in the works. Moving to slide seven, supplies accounted for 55.1% of revenue in the second quarter versus 55.5% in Q2 of last year. Hardware accounted for 30.5% of revenue compared with 31.7% last year. And the service and other category made up 14.4% of revenue in the quarter compared with 12.8% last year. Geographically, sales to the United States accounted for 65.4% of total revenue in Q2 FY25 compared with 63.1% in FY24. Sales to Europe were at 25.2% compared with 28% last year. And rest of the world accounted for 9.4% compared with 8.9% in Q2 of FY24. Turning to slide eight, last week we exhibited at two of the year's big trade shows, Label Expo in Chicago and Printing United Expo in Las Vegas. At Label Expo, we demonstrated the latest version of our T2 Pro for high-speed labeling applications, as well as the EmTech's Atom 3, our wide format A3 width high-speed label printer. At last week's Printing United Expo, we showcased several groundbreaking Emtex products, including the Multi 800, a versatile direct-to-package printing system capable of printing on a wide array of materials, and two of the state-of-the-art direct-to-film printers, including a UV ink model and the first-of-its-kind game-changing powderless model that got a lot of attention at the show. In addition to MTEX's impressive lineup, Estranova also highlighted its latest innovations, including the Quick Label QL1200S for professional quality inkjet sheet labels and the Trojan Label T3OPX, which addresses the growing demand for short run sustainable packaging solutions. Now it's my pleasure to introduce our new Chief Financial Officer, Tom DeBile, who joined Estranova as Vice President, Treasurer, and CFO in June. Tom brings more than 25 years of experience in financial leadership roles, including his time as CFO for several industrial manufacturing companies. His deep expertise in financial strategy and operations and his service on the boards of prominent organizations make him an invaluable addition to our leadership team. We're excited to have Tom on board, and I'm confident that his insights and leadership will help guide Astronova to continued financial success. Tom?