UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to __________
Commission file number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
(Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
☐ |
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☒ |
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Non-accelerated filer |
☐ |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
The number of shares of the registrant’s common stock, $.05 par value per share, outstanding as of September 6, 2024 was
ASTRONOVA, INC.
INDEX
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Page No. |
Part I. |
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Item 1. |
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Unaudited Condensed Consolidated Balance Sheets – August 3, 2024 and January 31, 2024 |
1 |
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2 |
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3 |
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4 |
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5 |
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Notes to the Condensed Consolidated Financial Statements (unaudited) |
6 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 |
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Item 3. |
29 |
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Item 4. |
29 |
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Part II. |
30 |
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Item 1. |
30 |
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Item 1A. |
30 |
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Item 2. |
31 |
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Item 6. |
32 |
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33 |
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
ASTRONOVA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
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August 3, 2024 |
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January 31, 2024 |
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(Unaudited) |
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ASSETS |
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CURRENT ASSETS |
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Cash and Cash Equivalents |
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$ |
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$ |
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Accounts Receivable, net |
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Inventories, net |
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Prepaid Expenses and Other Current Assets |
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Total Current Assets |
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Property, Plant and Equipment, net |
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Identifiable Intangibles, net |
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Goodwill |
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Deferred Tax Assets, net |
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Right of Use Asset |
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Other Assets |
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TOTAL ASSETS |
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$ |
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$ |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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CURRENT LIABILITIES |
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Accounts Payable |
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$ |
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$ |
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Accrued Compensation |
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Other Accrued Expenses |
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Revolving Line of Credit |
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Current Portion of Long-Term Debt |
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Short-Term Debt |
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— |
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Current Liability—Royalty Obligation |
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Current Liability—Excess Royalty Payment Due |
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Income Taxes Payable |
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Deferred Revenue |
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Total Current Liabilities |
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NON-CURRENT LIABILITIES |
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Long-Term Debt, net of current portion |
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Royalty Obligation, net of current portion |
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Lease Liabilities, net of current portion |
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Grant Deferred Revenue |
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Contingent Liability Earn Out |
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Income Taxes Payable |
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Deferred Tax Liabilities |
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TOTAL LIABILITIES |
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SHAREHOLDERS’ EQUITY |
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Preferred Stock, $ |
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Common Stock, $ |
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Additional Paid-in Capital |
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Retained Earnings |
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Treasury Stock, at Cost, |
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( |
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( |
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Accumulated Other Comprehensive Loss, net of tax |
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( |
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( |
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TOTAL SHAREHOLDERS’ EQUITY |
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TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
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$ |
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$ |
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See Notes to condensed consolidated financial statements (unaudited).
1
ASTRONOVA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(In Thousands, Except Per Share Data)
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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August 3, 2024 |
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July 29, 2023 |
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August 3, 2024 |
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July 29, 2023 |
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Revenue |
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$ |
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$ |
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$ |
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$ |
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Cost of Revenue |
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Gross Profit |
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Operating Expenses: |
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Selling and Marketing |
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Research and Development |
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General and Administrative |
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Operating Expenses |
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Operating Income |
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( |
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Other Income (Expense), net: |
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Interest Expense |
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( |
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( |
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( |
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( |
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Gain (Loss) on Foreign Currency Transactions |
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( |
) |
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( |
) |
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( |
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( |
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Other, net |
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Total Other Income (Expense) |
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( |
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( |
) |
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( |
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( |
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Income (Loss) Before Income Taxes |
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( |
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( |
) |
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( |
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Income Tax Provision (Benefit) |
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( |
) |
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( |
) |
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( |
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Net Income (Loss) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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Net Income (Loss) per Common Share—Basic |
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$ |
( |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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Net Income (Loss) per Common Share—Diluted |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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$ |
( |
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Weighted Average Number of Common Shares Outstanding: |
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Basic |
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Diluted |
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See Notes to condensed consolidated financial statements (unaudited).
2
ASTRONOVA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In Thousands)
(Unaudited)
|
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Three Months Ended |
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Six Months Ended |
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August 3, 2024 |
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July 29, 2023 |
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August 3, 2024 |
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July 29, 2023 |
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Net Income (Loss) |
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$ |
( |
) |
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$ |
( |
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$ |
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$ |
( |
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Other Comprehensive Income, net of taxes: |
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Foreign Currency Translation Adjustments |
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Other Comprehensive Income |
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Comprehensive Income (Loss) |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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See Notes to condensed consolidated financial statements (unaudited).
3
ASTRONOVA, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
($ In Thousands, Except per Share Data)
(Unaudited)
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Common Stock |
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Additional |
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Retained |
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Treasury |
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Accumulated |
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Total |
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Shares |
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Amount |
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Capital |
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Earnings |
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Stock |
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Income (Loss) |
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Equity |
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Balance January 31, 2024 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Share-Based Compensation |
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— |
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— |
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— |
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— |
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— |
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Employee Option Exercises |
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— |
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— |
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— |
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— |
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Restricted Stock Awards Vested |
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( |
) |
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— |
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( |
) |
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— |
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( |
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Net Income |
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— |
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— |
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— |
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— |
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— |
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Foreign Currency Translation Adjustment |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance April 27, 2024 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Share-Based Compensation |
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— |
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— |
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— |
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— |
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— |
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Employee Option Exercises |
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— |
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— |
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— |
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Restricted Stock Awards Vested |
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— |
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— |
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— |
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— |
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— |
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— |
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Net Loss |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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( |
) |
Foreign Currency Translation Adjustment |
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— |
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— |
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— |
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— |
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— |
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Balance August 3, 2024 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Balance January 31, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Share-Based Compensation |
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— |
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— |
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— |
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— |
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— |
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Employee Option Exercises |
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— |
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— |
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— |
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— |
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Restricted Stock Awards Vested |
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( |
) |
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— |
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( |
) |
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— |
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( |
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Net Income |
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— |
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— |
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— |
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— |
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— |
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Foreign Currency Translation Adjustment |
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— |
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— |
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— |
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— |
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— |
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Balance April 29, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Share-Based Compensation |
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— |
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— |
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— |
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— |
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— |
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Employee Option Exercises |
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— |
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— |
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— |
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Restricted Stock Awards Vested |
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( |
) |
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— |
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— |
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— |
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— |
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Net Loss |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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( |
) |
Foreign Currency Translation Adjustment |
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— |
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— |
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— |
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— |
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— |
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Balance July 29, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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See Notes to condensed consolidated financial statements (unaudited).
4
ASTRONOVA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
|
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Six Months Ended |
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August 3, 2024 |
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July 29, 2023 |
|
||
Cash Flows from Operating Activities: |
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Net Income (Loss) |
|
$ |
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$ |
( |
) |
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Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities: |
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Depreciation and Amortization |
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Amortization of Debt Issuance Costs |
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Share-Based Compensation |
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Restructuring - non-cash |
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— |
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Changes in Assets and Liabilities, net of impact of acquisition: |
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Accounts Receivable |
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Inventories |
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( |
) |
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Income Taxes |
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( |
) |
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( |
) |
Accounts Payable and Accrued Expenses |
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( |
) |
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Deferred Revenue |
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( |
) |
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Other |
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( |
) |
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Net Cash Provided by Operating Activities |
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Cash Flows from Investing Activities: |
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Purchases of Property, Plant and Equipment |
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( |
) |
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( |
) |
Cash Paid for MTEX Acquisition, net of cash acquired |
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( |
) |
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Net Cash Used for Investing Activities |
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( |
) |
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( |
) |
Cash Flows from Financing Activities: |
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Net Cash Proceeds from Employee Stock Option Plans |
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Net Cash Proceeds from Share Purchases under Employee Stock Purchase Plan |
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Net Cash Used for Payment of Taxes Related to Vested Restricted Stock |
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( |
) |
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( |
) |
Borrowings under Revolving Credit Facility, net |
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Repayment under Revolving Credit Facility, net |
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|
|
|
|
( |
) |
|
Proceeds from Long-Term Debt Borrowings |
|
|
|
|
|
|
||
Payment of Minimum Guarantee Royalty Obligation |
|
|
( |
) |
|
|
( |
) |
Principal Payments of Long-Term Debt |
|
|
( |
) |
|
|
( |
) |
Payments of Debt Issuance Costs |
|
|
( |
) |
|
|
|
|
Net Cash Provided by (Used for) Financing Activities |
|
|
|
|
|
( |
) |
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
|
|
|
|
|
|
||
Net Increase in Cash and Cash Equivalents |
|
|
|
|
|
|
||
Cash and Cash Equivalents, Beginning of Period |
|
|
|
|
|
|
||
Cash and Cash Equivalents, End of Period |
|
$ |
|
|
$ |
|
||
Supplemental Disclosures of Cash Flow Information: |
|
|
|
|
|
|
||
Cash Paid During the Period for: |
|
|
|
|
|
|
||
Cash Paid During the Period for Interest |
|
$ |
|
|
$ |
|
||
Cash Paid During the Period for Income Taxes, net of refunds |
|
$ |
|
|
$ |
|
||
Non-Cash Transactions: |
|
|
|
|
|
|
||
Operating Lease Obtained in Exchange for Operating Lease Liabilities |
|
$ |
|
|
$ |
|
||
See Notes to condensed consolidated financial statements (unaudited).
5
ASTRONOVA, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 – Business and Basis of Presentation
Overview
Headquartered in West Warwick, Rhode Island, AstroNova, Inc. leverages its expertise in data visualization technologies to design, develop, manufacture and distribute a broad range of specialty printers and data acquisition and analysis systems. Our products are employed around the world in a wide range of applications in the aerospace, apparel, automotive, avionics, chemical, computer peripherals, communications, distribution, food and beverage, general manufacturing, packaging and transportation industries.
Our business consists of
On May 4, 2024, we entered into an agreement to acquire MTEX New Solution, S.A., (“MTEX”), a Portugal-based manufacturer of digital printing equipment that addresses a wide variety of markets and applications including textiles, packaging, labeling, apparel, footwear and more. We reported MTEX as a part of our PI segment as of May 6, 2024, the closing date of this acquisition. Refer to Note 3, “Acquisition” for further details.
PI products sold under the QuickLabel, TrojanLabel and GetLabels brands are used in brand owner and commercial applications to provide product packaging, marketing, tracking, branding, and labeling solutions to a wide array of industries. The PI segment offers a variety of digital color label tabletop printers and light commercial label printers, direct-to-package printers, high-volume presses, and specialty original equipment manufacturer (“OEM”) printing systems, as well as a wide range of label, tag and other supplies, including ink and toner, allowing customers to mark, track, protect and enhance the appearance of their products. PI products sold under the Astro Machine brand also include a variety of label printers, envelope and packaging printing, and related processing and handling equipment.
In the T&M segment, we have a long history of using our technologies to provide networking systems and high-resolution flight deck and cabin printers for the aerospace market. In addition, the T&M segment includes data acquisition recorders, sold under the AstroNova brand, to enable our customers to acquire and record visual and electronic signal data from local and networked data streams and sensors. The recorded data is processed, analyzed, stored and presented in various visual output formats.
Our PI products are sold by direct field salespersons, OEMs and independent dealers and representatives, while our T&M products are sold predominantly through direct sales and independent representatives. In the United States, we have factory-trained direct field salespeople located throughout the country specializing in PI products. We also have direct field sales or service centers in Canada, China, Denmark, France, Germany, Malaysia, Mexico, Portugal, Singapore, and the United Kingdom staffed by our own employees and dedicated third party contractors. Additionally, we utilize over 100 independent dealers and representatives selling and marketing our products in over 60 countries.
Unless otherwise indicated, references to “AstroNova,” the “Company,” “we,” “our,” and “us” in this Quarterly Report on Form 10-Q refer to AstroNova, Inc. and its consolidated subsidiaries.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and reflect all adjustments consisting of normal recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the results of the interim periods included herein. These financial statements do not include all disclosures associated with annual financial statements and, accordingly, should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended January 31, 2024.
The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported and disclosed in the condensed consolidated financial statements and accompanying notes, including those that require consideration of forecasted financial information using information that is reasonably available to us at this time. Some of the more significant estimates relate to revenue recognition, allowances for doubtful accounts, inventory valuation, income taxes, valuation of long-lived assets, intangible assets and goodwill, share-based compensation, contingent consideration liability and warranty reserves. Management’s estimates are based on the facts and circumstances available at the time estimates are made, historical experience, risk of loss, general economic conditions and trends, and management’s assessments of the probable future outcome of these matters. Consequently, actual results could differ from those estimates.
6
Results of operations for the interim periods presented herein are not necessarily indicative of the results that may be expected for the full year.
Certain amounts in the prior year’s financial statements have been reclassified to conform to the current year’s presentation.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of AstroNova, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation.
Note 2 – Summary of Significant Accounting Policies Update
The accounting policies used in preparing the condensed consolidated financial statements in this Form 10-Q are the same as those used in preparing our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2024.
Recent Accounting Pronouncements Not Yet Adopted
On March 6, 2024, the SEC adopted the final rule under SEC Release No. 33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors. This rule will require registrants to disclose certain climate-related information in registration statements and annual reports on Form 10-K including, among other things, material climate-related risks and their impact; activities to mitigate or adapt to material climate-related risks; governance and oversight of climate-related risks; material climate-related targets or goals and their financial impact; and qualitative and quantitative disclosures regarding greenhouse gas emissions. The final rules follow a phase-in timeline and would begin to apply prospectively to our fiscal year beginning February 1, 2027. In April 2024, the SEC voluntarily stayed the effectiveness of the rules pending completion of judicial review of the consolidated challenges to the final rules. We are currently monitoring the legal challenges and evaluating the potential impact of these rules on our consolidated financial statements and disclosures.
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”) to enhance the transparency and decision usefulness of income tax disclosures primarily related to the rate reconciliation and income taxes paid information. ASU 2023-09 modifies the requirement for income tax disclosures to include (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. We will adopt this standard beginning with our fiscal year ending January 31, 2026. We are currently evaluating the potential impact of adopting this new guidance on our consolidated financial statements and related disclosures.
In November 2023, the FASB issued Accounting Standards Update No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires disclosures, on an annual and interim basis, of significant segment expenses that are regularly provided to the chief operating decision maker (CODM), as well as the aggregate amount of other segment items included in the reported measure of segment profit or loss. ASU 2023-07 also requires that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss. Public entities will be required to provide all annual disclosures currently required by ASU 2023-07 in interim periods. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, with early adoption permitted. We will adopt this standard beginning with our fiscal year ending January 31, 2025, and for interim periods beginning with our first quarter of fiscal 2026. We are currently evaluating the new disclosure requirements of ASU 2023-07 and do not expect the adoption of this guidance to have a material impact on our consolidated financial statements or disclosures.
No other new accounting pronouncements, issued or effective during the first six months of the current year, have had or are expected to have a material impact on our consolidated financial statements.
Note 3 – Acquisition
We account for our business combinations using the acquisition method as prescribed by Accounting Standard Codification 805, “Business Combinations” ("ASC 805"). ASC 805 requires the purchase price of the acquisition to be allocated to the tangible and intangible assets acquired and liabilities assumed based on their fair value as of the acquisition date as determined by widely accepted valuation techniques in accordance with ASC 820, “Fair Value Measurement.” Any excess of the purchase price over the fair value of the net identified assets acquired and liabilities assumed will be recorded as goodwill. ASC 805 establishes a measurement period to provide companies with a reasonable amount of time to obtain the information necessary to identify and measure various items in a
7
business combination and cannot extend beyond one year from the acquisition date. If the initial accounting for the business combination has not been completed by the end of the reporting period in which the business combination occurs, provisional amounts are reported to present information about facts and circumstances that existed as of the acquisition date. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the fair value of the tangible and intangible assets acquired and liabilities assumed with the corresponding offset to goodwill, to the extent such information was not available to us at the acquisition date to determine such amounts. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of income (loss). We expect to complete the final fair value determination of the assets acquired and liabilities assumed as soon as practicable within the measurement period and in any event not later than one year from the acquisition closing date.
Accounting for business combinations requires us to make significant estimates and assumptions at the acquisition date. Significant assumptions relevant to the determination of the fair value of the tangible and intangible assets acquired and liabilities assumed include, but are not limited to, expected future cash flows, discount rates, royalty rates, and other assumptions. Such estimates are inherently uncertain and may be subject to refinement.
All acquisition-related costs, other than the costs to issue debt or equity securities, are accounted for as expenses in the period in which they are incurred. Changes in the fair value of contingent consideration arrangements that are not measurement period adjustments are recognized in earnings. The results of operations of the acquired entity, including revenues and earnings, are included in our financial statements from the closing date of the acquisition.
MTEX
Background
On
In accordance with the terms and subject to the conditions set forth in the Purchase Agreement, the Purchaser acquired from the Seller,
The purchase price for this acquisition consists of EUR
Also on May 4, 2024, the Purchaser, the Seller, the Second Guarantor and MTEX entered into a Transitional Management Agreement (the “Transitional Management Agreement”) pursuant to which the Second Guarantor will serve as the MTEX’s Chief Executive Officer for a term of three years following the closing date. Under the terms of the Transitional Management Agreement, the Second Guarantor will receive a salary and grant of restricted stock units and will be entitled to participate in our incentive compensation programs on the same terms as our executive officers. The Transitional Management Agreement includes customary non-competition and confidentiality provisions.
Upon the closing of the transaction, MTEX became a wholly owned indirect subsidiary of AstroNova, Inc.
8
Purchase Price Allocation
A summary of the fair value of the consideration transferred as of the acquisition closing date is presented in the table below:
(In thousands) |
|
|
|
|
Cash Paid at Closing |
|
$ |
|
|
Holdback Amount (a) |
|
|
|
|
Fair Value of the Earnout |
|
|
|
|
Total Purchase Price |
|
$ |
|
|
|
|
|
|
|
The approach to valuing the initial contingent consideration relating to the earn-out requires the use of unobservable factors such as projected revenues over the term of the earn-out periods, discounted for the period over which the initial contingent consideration is measured, and relevant volatility rates. Based upon these assumptions, the initial earn-out contingent consideration is then valued using an option pricing model.
The following table sets forth the preliminary purchase price allocation of the MTEX acquisition for the estimated fair value of the net assets acquired and liabilities assumed as of May 6, 2024:
(In thousands) |
|
|
|
|
Cash |
|
$ |
|
|
Accounts Receivable |
|
|
|
|
Inventory |
|
|
|
|
Prepaid Expenses and Other Current Assets |
|
|
|
|
Property, Plant and Equipment |
|
|
|
|
Other Long-Term Assets |
|
|
|
|
Identifiable Intangible Assets |
|
|
|
|
Goodwill |
|
|
|
|
Accounts Payable and Other Current Liabilities |
|
|
( |
) |
Debt Assumed |
|
|
( |
) |
Other Long-Term Liabilities |
|
|
( |
) |
Total Purchase Price |
|
$ |
|
|
The amounts above are provisional and are based on information that is currently available. Management believes the information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed but is waiting for additional information necessary to finalize those fair values. Therefore, the provisional measurements of fair value reflected are subject to change and such changes could be significant. Management anticipates changes to the value of inventory, property, plant and equipment, deferred taxes and identifiable intangible assets as additional information is collected and analyzed and pending the completion of certain appraisals and a valuation report. We expect to complete the final fair value determination of the assets acquired and liabilities assumed, resolutions of working capital, and any other purchase price adjustments identified as soon as practicable within the measurement period and, in any event, not later than one year from the acquisition closing date.
The following table reflects the preliminary fair value of the acquired identifiable intangible asset and related estimated useful lives:
(In thousands) |
|
Fair |
|
|
Useful Life |
|
||
Customer Relations |
|
$ |
|
|
|
|
||
Trademarks/Tradenames |
|
|
|
|
|
|
||
Internally Developed Software |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
|
|
||
The Customer Relations intangible asset represents the relationships that will be maintained with certain historical customers of MTEX. The trademark/tradename intangible assets reflect the industry reputation of the MTEX name and the registered trademarks held by MTEX for the use of several marks and logos. The internally developed software intangible assets represent software used to monitor customer ink use and troubleshoot issues with customers.
The fair value of the customer relations intangible asset acquired was estimated by applying the income approach using the Multi-Period Excess Earning Method. This fair value measurement is based on significant inputs that are not observable in the market and therefore represents a Level 3 measurement as defined in ASC 820, “Fair Value Measurement”. The fair value determined under this approach is a function of (i) future revenues expected to be generated by these assets and the profitability of the assets, (ii)
9
identification of the contribution of other tangible and intangible assets to the cash flows generated by these asset to apply an appropriate capital charge against the cash flow, and (iii) a discount rate of
Goodwill of $
Total acquisition-related costs of $
The amounts of revenue and earnings before taxes attributable to MTEX and included in our consolidated statements of income (loss) for the three and six months ended August 3, 2024 were as follows:
|
|
Three Months Ended |
|
Six Months Ended |
||||||
(In thousands) |
|
August 3, |
|
|
|
August 3, |
|
|
||
Revenue |
|
$ |
|
|
|
$ |
|
|
||
Earnings (Loss) before Taxes |
|
$ |
( |
) |
|
|
$ |
( |
) |
|
MTEX results are reported as part of the PI segment. Pro forma results as if the acquisition was closed on February 1, 2024 are not provided, as disclosure of such amounts was impractical to determine
Note 4 – Revenue Recognition
We derive revenue from the sale of (i) hardware, including digital color label printers and specialty OEM printing systems, portable data acquisition systems, and airborne printers and networking hardware used in the flight deck and cabin of military, commercial and business aircraft, (ii) related supplies required in the operation of the hardware, (iii) repairs and maintenance of hardware and (iv) service agreements.
Revenues disaggregated by primary geographic markets and major product types are as follows:
Primary geographical markets
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
(In thousands) |
|
August 3, 2024 |
|
|
July 29, 2023* |
|
|
August 3, 2024 |
|
|
July 29, 2023* |
|
||||
United States |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Canada |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Central and South America |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asia |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
*Certain amounts have been reclassified to conform to the current year's presentation.
Major product types
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
(In thousands) |
|
August 3, 2024 |
|
|
July 29, 2023 |
|
|
August 3, 2024 |
|
|
July 29, 2023 |
|
||||
Hardware |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Supplies |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Service and Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
10
In December 2022, we entered into an amended contract with one of our T&M customers that provided for a total payment of $
Contract Assets and Liabilities
We normally do not have contract assets, which are primarily unbilled accounts receivable that are conditional on something other than the passage of time.
Our contract liabilities, which represent billings in excess of revenue recognized, are related to advanced billings for purchased service agreements and extended warranties. Contract liabilities were $
Contract Costs
We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We have determined that certain costs related to obtaining sales contracts for our aerospace printer products meet the requirement to be capitalized. These costs are deferred and amortized over the remaining useful life of these contracts, which we currently estimate to be approximately
Note 5 – Net Income (Loss) Per Common Share
Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares outstanding during the period. Diluted net income (loss) per share is calculated by dividing net income (loss) by the weighted average number of shares and, if dilutive, common equivalent shares, determined using the treasury stock method for stock options, restricted stock awards and restricted stock units outstanding during the period.
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
||||||||||
|
|
August 3, 2024 |
|
|
July 29, 2023 |
|
|
August 3, 2024 |
|
|
July 29, 2023 |
|
|
||||
Weighted Average Common Shares Outstanding – Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Effect of Dilutive Options, Restricted Stock Awards and |
|
|
— |
|
(1) |
|
— |
|
(2) |
|
|
|
|
— |
|
(2) |
|
Weighted Average Common Shares Outstanding – Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
(1)For the three months ended August 3, 2024, we had weighted average common stock equivalent shares outstanding of
(2)For the three and six months ended July 29, 2023, we had weighted average common stock equivalent shares outstanding of
For the three and six months ended August 3, 2024, the diluted per share amounts do not reflect weighted average common equivalent shares outstanding of
11
Note 6 – Intangible Assets
Intangible assets are as follows:
|
|
August 3, 2024 |
|
|
January 31, 2024 |
|
||||||||||||||||||||||||||
(In thousands) |
|
Gross |
|
|
Accumulated |
|
|
Currency |
|
|
Net |
|
|
Gross |
|
|
Accumulated |
|
|
Currency |
|
|
Net |
|
||||||||
RITEC: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Customer Contract |
|
$ |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
|
||||
TrojanLabel: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Distributor Relations |
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||||||
Honeywell: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Customer Contract |
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
||||
Astro Machine: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Customer Contract |
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
||||
Trademarks |
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
||||||
MTEX: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Customer Contract |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|||
Internally Developed Software |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Trademarks |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|||
Intangible Assets, net |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||||
There were
With respect to the acquired intangible assets included in the table above, amortization expense of $
Estimated amortization expense for the next five fiscal years is as follows:
(In thousands) |
|
Remaining |
|
|
2026 |
|
|
2027 |
|
|
2028 |
|
|
2029 |
|
|||||
Estimated amortization expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Note 7 – Inventories
Inventories are stated at the lower of cost (standard and average methods) or net realizable value and include material, labor and manufacturing overhead.
(In thousands) |
|
August 3, 2024 |
|
|
January 31, 2024 |
|
||
Materials and Supplies |
|
$ |
|
|
$ |
|
||
Work-In-Process |
|
|
|
|
|
|
||
Finished Goods |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Inventory Reserve |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
||
12
Note 8 – Property, Plant and Equipment
Property, plant and equipment consist of the following:
(In thousands) |
|
August 3, 2024 |
|
|
January 31, 2024 |
|
||
Land and Land Improvements |
|
$ |
|
|
$ |
|
||
Buildings and Leasehold Improvements |
|
|
|
|
|
|
||
Machinery and Equipment |
|
|
|
|
|
|
||
Computer Equipment and Software |
|
|
|
|
|
|
||
Gross Property, Plant and Equipment |
|
|
|
|
|
|
||
Accumulated Depreciation |
|
|
( |
) |
|
|
( |
) |
Net Property Plant and Equipment |
|
$ |
|
|
$ |
|
||
Depreciation expense on property, plant and equipment was $
Note 9 – Credit Agreement and Long-Term Debt
In connection with our purchase of MTEX, on May 6, 2024, we entered a Third Amendment to Amended and Restated Credit Agreement (the “Amendment”) with Bank of America, N.A., as lender (the “Lender”). The Amendment amended the Amended and Restated Credit Agreement dated as of July 30, 2020, as amended by the First Amendment to Amended and Restated Credit Agreement, dated as of March 24, 2021, the LIBOR Transition Amendment, dated as of December 14, 2021, and the Second Amendment to Amended and Restated Credit Agreement dated as of August 4, 2022, and the Joinder Agreement relating to our subsidiary Astro Machine Corporation (“Astro Machine”) dated as of August 26, 2022 (the “Existing Credit Agreement”; the Existing Credit Agreement as amended by the Amendment, the “Amended Credit Agreement”), between AstroNova, Inc. as the borrower, Astro Machine as a guarantor, and the Lender.
The Amended Credit Agreement provides for (i) a new term loan to AstroNova, Inc. in the principal amount of EUR
The Amended Credit Agreement requires that the Term A-2 Loan be paid in quarterly installments on the last day of each of our fiscal quarters through April 30, 2027 in the principal amount of EUR
The Term A-2 Loan bears interest at a rate per annum equal to the EURIBOR rate as defined in the Amended Credit Agreement, plus a margin that varies within a range of
13
The loans under the Amended Credit Agreement are subject to certain mandatory prepayments, subject to various exceptions, from (a) net cash proceeds from certain dispositions of property, (b) net cash proceeds from certain issuances of equity, (c) net cash proceeds from certain issuances of additional debt and (d) net cash proceeds from certain extraordinary receipts.
Amounts repaid under the revolving credit facility may be reborrowed, subject to our continued compliance with the Amended Credit Agreement. No amount of the Term A-2 Loan or the Existing Term Loan that is repaid may be reborrowed.
We must comply with various customary financial and non-financial covenants under the Amended Credit Agreement. The financial covenants under the Amended Credit Agreement consist of a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio, certain of the provisions of which were modified by the Amendment; the minimum consolidated asset coverage ratio under the Existing Credit Agreement was eliminated by the Amendment. The primary non-financial covenants limit our and our subsidiaries’ ability to incur future indebtedness, to place liens on assets, to pay dividends or distributions on our or our subsidiaries’ capital stock, to repurchase or acquire our or our subsidiaries’ capital stock, to conduct mergers or acquisitions, to sell assets, to alter our or our subsidiaries’ capital structure, to make investments and loans, to change the nature of our or our subsidiaries’ business, and to prepay subordinated indebtedness, in each case subject to certain exceptions and thresholds as set forth in the Amended Credit Agreement, certain of which provisions were modified by the Amendment. As of August 3, 2024, we believe we are in compliance with all of the covenants in the Amended Credit Agreement.
The Lender is entitled to accelerate repayment of the loans and to terminate its revolving credit commitment under the Amended Credit Agreement upon the occurrence of any of various customary events of default, which include, among other events, the following (which are subject, in some cases, to certain grace periods): failure to pay when due any principal, interest or other amounts in respect of the loans, breach of any of our covenants or representations under the loan documents, default under any other of our or our subsidiaries’ significant indebtedness agreements, a bankruptcy, insolvency or similar event with respect to us or any of our subsidiaries, a significant unsatisfied judgment against us or any of our subsidiaries, or a change of control.
Our obligations under the Amended Credit Agreement continue to be secured by substantially all of our personal property assets (including a pledge of the equity interests we hold in ANI Scandinavia ApS, AstroNova GmbH, AstroNova SAS and the Purchaser), subject to certain exceptions, and by a mortgage on our owned real property in West Warwick, Rhode Island, and are guaranteed by, and secured by substantially all of the personal property assets of Astro Machine.
Equipment Financing
In January 2024, we entered into a secured equipment loan facility agreement with Banc of America Leasing & Capital, LLC and borrowed a principal amount of $
Assumed Financing Obligations of MTEX
In connection with our acquisition of MTEX, on the May 6, 2024 closing date of this acquisition we assumed certain existing financing obligations of MTEX that remain outstanding as of August 3, 2024. The long-term debt obligations of MTEX that remain outstanding include a term loan ( the “MTEX Term Loan”) pursuant to the agreement dated December 22, 2023, (the “MTEX Term Loan Agreement”) between MTEX and Caixa Central de Crédito Agricola Mutuo. The MTEX Term Loan provides for a term loan in the principal amount of EUR
MTEX has also received government assistance in the form of interest-free loans from government agencies located in Portugal (the “MTEX Government Grant Term Loans”). The MTEX Government Grant Term Loans are to be repaid to the applicable government agencies and are classified as long-term debt. The current balance of the MTEX Government Grants Term Loans as of August 3, 2024 is EUR
Additionally, we assumed short-term financing obligations of MTEX that remain outstanding as of August 3, 2024, including letters of credit, maturing term loans, and financing arrangements for working capital classified as debt.
14
Summary of Outstanding Debt
Revolving Credit Facility
At August 3, 2024, we had an outstanding balance of $
Long-Term Debt
Long-term debt in the accompanying condensed consolidated balance sheets is as follows:
(In thousands) |
|
August 3, |
|
|
January 31, |
|
||
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
— |
|
|
Equipment Loan ( |
|
|
|
|
|
|
||
Total Debt |
|
|
|
|
|
|
||
Less: Debt Issuance Costs, net of accumulated amortization |
|
|
|
|
|
|
||
Current Portion of Debt |
|
|
|
|
|
|
||
Long-Term Debt |
|
$ |
|
|
$ |
|
||
During the three and six months ended August 3, 2024, we recognized interest expense on debt of $
The schedule of required principal payments remaining during the next five years on long-term debt outstanding as of August 3, 2024 is as follows:
(In thousands) |
|
|
|
|
Fiscal 2025, remainder |
|
$ |
|
|
Fiscal 2026 |
|
|
|
|
Fiscal 2027 |
|
|
|
|
Fiscal 2028 |
|
|
|
|
Fiscal 2029 |
|
|
|
|
|
|
$ |
|
|
Note 10 – Royalty Obligation
In fiscal 2018, we entered into an Asset Purchase and License Agreement with Honeywell International, Inc. (“Honeywell”) to acquire an exclusive, perpetual, world-wide license to manufacture Honeywell’s narrow-format flight deck printers for two aircraft families along with certain inventory used in the manufacturing of the licensed printers. The purchase price included a guaranteed minimum royalty payment of $
15
The guaranteed minimum royalty payment obligation was recorded at the present value of the minimum annual royalty payments. As of August 3, 2024, we had paid an aggregate of $
In fiscal 2023, we entered into an Asset Purchase and License Agreement with Honeywell International Inc. (“New HW Agreement”) to acquire an exclusive, perpetual, world-wide license to manufacture Honeywell’s flight deck printers for the Boeing 787 aircraft. The New HW Agreement provides for royalty payments to Honeywell based on gross revenues from the sales of the printers, paper and repair services of the licensed products in perpetuity. The royalty rates vary based on the year in which they are paid or earned and as products are sold or as services are provided and range from single-digit to mid-double-digit percentages of gross revenue. The New HW Agreement includes a provision for guaranteed minimum royalty payments to be paid in the event that the royalties earned by Honeywell do not meet the minimum for the preceding calendar year as follows: $
As of January 31, 2024, the total outstanding royalty obligation under the New HW Agreement was $
Note 11 – Leases
We enter into lease contracts for certain of our facilities at various locations worldwide. Our leases have remaining lease terms of one to ten years, some of which include options to extend the lease term for periods of up to five years when it is reasonably certain that we will exercise such options.
Balance sheet and other information related to our leases is as follows:
Operating Leases (In thousands) |
|
Balance Sheet Classification |
|
August 3, |
|
|
January 31, |
|
||
Lease Assets |
|
Right of Use Assets |
|
$ |
|
|
$ |
|
||
Lease Liabilities – Current |
|
Other Accrued Expenses |
|
$ |
|
|
$ |
|
||
Lease Liabilities – Long Term |
|
Lease Liabilities |
|
$ |
|
|
$ |
|
||
Lease cost information is as follows:
|
|
|
|
Three Months |
|
|||||
Operating Leases (In thousands) |
|
Statement of Income Classification |
|
August 3, |
|
|
July 29, |
|
||
Operating Lease Costs |
|
General and Administrative Expense |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
||
|
|
|
|
Six Months |
|
|||||
Operating Leases (In thousands) |
|
Statement of Income Classification |
|
August 3, |
|
|
July 29, |
|
||
Operating Lease Costs |
|
General and Administrative Expense |
|
$ |
|
|
$ |
|
||
16
Maturities of operating lease liabilities are as follows:
(In thousands) |
|
August 3, |
|
|
Fiscal 2025, remaining |
|
$ |
|
|
Fiscal 2026 |
|
|
|
|
Fiscal 2027 |
|
|
|
|
Fiscal 2028 |
|
|
|
|
Fiscal 2029 |
|
|
|
|
Thereafter |
|
|
|
|
Total Lease Payments |
|
|
|
|
Less: Imputed Interest |
|
|
( |
) |
Total Lease Liabilities |
|
$ |
|
|
As of August 3, 2024, the weighted-average remaining lease term and weighted-average discount rate for our operating leases are
Supplemental cash flow information related to leases is as follows:
|
|
Three Months |
|
|||||
(In thousands) |
|
August 3, |
|
|
July 29, |
|
||
Cash paid for operating lease liabilities |
|
$ |
|
|
$ |
|
||
|
|
Six Months |
|
|||||
(In thousands) |
|
August 3, |
|
|
July 29, |
|
||
Cash paid for operating lease liabilities |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Note 12 – Government Grants
Our recently acquired subsidiary, MTEX, receives grants from its local government in Portugal to support its operations and various capital projects. We account for these government grants by analogy to International Accounting Standards 20, Accounting for Government Grants and Disclosure of Government Assistance, which follows a grant accounting model. Under this accounting framework, government assistance is recognized when it is probable we will receive assistance and comply with the conditions attached to the assistance. Operational related assistance is recorded on a systematic basis over the periods in which the related cost or expenditures have occurred and is presented as a reduction in the expense for which it is intended to defray. Capital related assistance is recorded as long-term deferred revenue and is recognized in cost of revenue as an offset against depreciation expense over the applicable asset's useful life.
The grant programs have execution periods ending in May 2025 through November 2026. The government agencies may verify compliance with the conditions established in the contracts during the investment phase and upon completion and are entitled to propose adjustments and require reimbursement if the contracts do not meet the specifications. Historically, no significant corrections or returns have occurred. As of August 3, 2024, there are
The capital related government contracts between the Portuguese government and MTEX are defined on a grant-by-grant basis, with partial reimbursement of the assets acquired in connection with these grants. We have $
Under the operational related assistance grants, MTEX commits to research and development projects that the Portuguese government partially reimburses. We have recognized $
17
Note 13 – Share-Based Compensation
We have one equity incentive plan from which we are authorized to grant equity awards, the AstroNova, Inc. 2018 Equity Incentive Plan (the “2018 Plan”). The 2018 Plan provides for, among other things, the issuance of awards, including incentive stock options, non-qualified stock options, stock appreciation rights, time-based restricted stock units (“RSUs”), or performance-based restricted stock units (“PSUs”) and restricted stock awards (“RSAs”). At the June 6, 2023 annual meeting of shareholders, the 2018 Plan was amended to increase the number of shares of our common stock available for issuance by
In addition to the 2018 Plan, we previously granted equity awards under our 2015 Equity Incentive Plan (the “2015 Plan”) and our 2007 Equity Incentive Plan (the “2007 Plan”). No new awards may be issued under either the 2007 Plan or 2015 Plan, but outstanding awards will continue to be governed by those plans. As of August 3, 2024, options to purchase an aggregate of
We also have a Non-Employee Director Annual Compensation Program (the “Program”) under which each non-employee director receives an automatic grant of RSAs on the date of the regular full meeting of the Board of Directors held each fiscal quarter. Under the Program, the number of whole shares to be granted each quarter is equal to
Share-based compensation expense was recognized as follows:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
(In thousands) |
|
August 3, |
|
|
July 29, |
|
|
August 3, |
|
|
July 29, |
|
||||
Stock Options |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Restricted Stock Awards and Restricted Stock Units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Employee Stock Purchase Plan |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Stock Options
Aggregated information regarding stock option activity for the six months ended August 3, 2024, is summarized below:
|
|
Number of |
|
|
Weighted Average |
|
||
Outstanding at January 31, 2024 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Exercised |
|
|
( |
) |
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
Canceled |
|
|
( |
) |
|
|
|
|
Outstanding at August 3, 2024 |
|
|
|
|
$ |
|
||
Set forth below is a summary of options outstanding at August 3, 2024:
Outstanding |
|
|
Exercisable |
|
||||||||||||||||||||
Range of |
|
Number |
|
|
Weighted- |
|
|
Weighted- |
|
|
Number |
|
|
Weighted- |
|
|
Weighted |
|
||||||
$ |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
$ |
|
|
|
|
||||||
$ |
|
|
|
|
$ |
|
|
|
|
|
|
|
|
$ |
|
|
|
|
||||||
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
$ |
|
|
|
|
||||||
18
There were
Restricted Stock Units (RSUs), Performance-Based Stock Units (PSUs) and Restricted Stock Awards (RSAs)
Aggregated information regarding RSU, PSU and RSA activity for the six months ended August 3, 2024, is summarized below:
|
|
RSUs, PSUs & RSAs |
|
|
Weighted Average |
|
||
Outstanding at January 31, 2024 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
Outstanding at August 3, 2024 |
|
|
|
|
$ |
|
||
As of August 3, 2024, there was approximately $
Employee Stock Purchase Plan (ESPP)
Our ESPP allows eligible employees to purchase shares of common stock at a
Note 14 – Income Taxes
Our effective tax rates are as follows:
|
|
Three Months |
|
|
Six Months |
|
||
Fiscal 2025 |
|
|
( |
)% |
|
|
( |
)% |
Fiscal 2024 |
|
|
% |
|
|
% |
||
We determine our estimated annual effective tax rate at the end of each interim period based on full-year forecasted pre-tax income and facts known at that time. The estimated annual effective tax rate is applied to the year-to-date pre-tax income at the end of each interim period with the cumulative effect of any changes in the estimated annual effective tax rate being recorded in the fiscal quarter in which the change is determined. The tax effect of significant unusual items is reflected in the period in which they occur.
During the three months ended August 3, 2024, we recognized an income tax expense of $
During the six months ended August 3, 2024, we recognized an income tax benefit of $
19
Note 15 – Segment Information
We report two segments: PI and T&M. We evaluate segment performance based on the segment profit (loss) before corporate expenses.
Summarized below are the Revenue and Segment Operating Profit (Loss) for each reporting segment:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||||||||||||||||||
|
|
Revenue |
|
|
Segment Operating Profit (Loss) |
|
|
Revenue |
|
|
Segment Operating Profit (Loss) |
|
||||||||||||||||||||
(In thousands) |
|
August 3, |
|
|
July 29, |
|
|
August 3, |
|
|
July 29, |
|
|
August 3, |
|
|
July 29, |
|
|
August 3, |
|
|
July 29, |
|
||||||||
PI |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
T&M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Total |
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
||||||||
Corporate Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Operating Income (Expense) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Other Income (Expense), net |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||||
Income (Loss) Before Income Taxes |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||||
Income Tax Provision (Benefit) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|||||
Net Income (Loss) |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
$ |
|
|
$ |
( |
) |
|||||
Note 16 – Fair Value
Assets and Liabilities Not Recorded at Fair Value
Our long-term debt, including the current portion of long-term debt not reflected in the financial statements at fair value, is reflected in the table below:
|
|
August 3, 2024 |
|
|||||||||||||||||
|
|
Fair Value Measurement |
|
|
|
|
||||||||||||||
(In thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
Carrying Value |
|
|||||
Long-Term debt and related current maturities |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
January 31, 2024 |
|
|||||||||||||||||
|
|
Fair Value Measurement |
|
|
|
|
||||||||||||||
(In thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
Carrying Value |
|
|||||
Long-Term debt and related current maturities |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
The fair value of our long-term debt, including the current portion, is estimated by discounting the future cash flows using current interest rates at which similar loans with the same maturities would be made to borrowers with similar credit ratings and is classified as Level 3.
We are currently performing the analysis needed to finalize the determination of the fair values and useful lives of the intangible assets, and the final purchase price for our acquisition of MTEX, including the fair value of the contingent consideration. The fair value of the contingent consideration involves significant inputs not observable in the market and is therefore considered a Level 3 measurement. Refer to Note 3, “Acquisition,” for a discussion of fair value as it relates to our acquisition of MTEX.
20
Note 17 - Restructuring
On July 26, 2023, we adopted a restructuring plan for our Product Identification segment. As part of the restructuring plan, we transitioned a portion of the printer manufacturing within our Product Identification segment from our facilities in Rhode Island to our Astro Machine, Inc. facility located in Illinois. In addition, we ceased selling certain of our older, lower-margin or low-volume Product Identification segment products. As part of the restructuring plan, we consolidated certain of our international Product Identification sales and distribution facilities, streamlined our channel partner network, and also made targeted reductions to our workforce. As of January 31, 2024, we completed this plan.
As a result of the adoption and implementation of our Product Identification segment restructuring plan, in the second quarter of our fiscal year 2024 we recognized pre-tax restructuring charge of $
|
|
Restructuring |
|
|
Amounts paid in quarter ended |
|
|
Restructuring |
|
|||
Severance and Employee Related Costs |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Inventory Write-Off |
|
|
|
|
|
— |
|
|
|
— |
|
|
Facility Exit and Other Restructuring Costs |
|
|
|
|
— |
|
|
|
— |
|
||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
The restructuring liability was included in other accrued expenses in the condensed consolidated balance sheet as of July 29, 2023, and was paid by the end of fiscal 2024.
The following table summarizes restructuring costs included in the accompanying condensed consolidated statement of income (loss) for the three and six months ended July 29, 2023:
|
|
|
|
|
(in thousands) |
|
|
|
|
Cost of Revenue |
|
$ |
|
|
Operating Expenses: |
|
|
|
|
Selling & Marketing |
|
|
||
Research & Development |
|
|
||
General & Administrative |
|
|
||
Total |
|
$ |
|
|
Product Retrofit Program
In connection with our fiscal 2024 restructuring plan, we identified the need to address quality and reliability issues in certain models of our PI printers as a result of faulty ink provided by one of our larger suppliers. In order to remedy these issues and maintain solid customer relationships, during the second quarter of fiscal 2024, we initiated a program to retrofit all of the printers sold to our customers that were affected by the faulty ink.
Upon initiating this program, we identified approximately
(in thousands) |
|
|
|
Provision for Product Retrofit Program |
$ |
|
|
Cost of Repairs and Replacements incurred through July 29, 2023 |
|
( |
) |
Balance at July 29, 2023 |
$ |
|
|
This program was concluded by the end of fiscal 2024 and there was no balance in the related liability for this program at January 31, 2024.
21
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Business Overview
This section should be read in conjunction with our condensed consolidated financial statements included elsewhere herein and our Annual Report on Form 10-K for the fiscal year ended January 31, 2024.
We are a multinational enterprise that leverages our proprietary data visualization technologies to design, develop, manufacture, distribute and service a broad range of products that acquire, store, analyze and present data in multiple formats. We organize our structure around a core set of competencies, including research and development, manufacturing, service, marketing and distribution. We market and sell our products and services through the following two segments:
We market and sell our products and services globally through a diverse distribution structure of direct sales personnel, manufacturers’ representatives and authorized dealers that deliver a full complement of branded products and services to customers in our respective markets. Our growth strategy centers on organic growth through product innovation made possible by research and development initiatives, as well as strategic acquisitions that fit into or complement existing core businesses.
On May 4, 2024, we entered into an agreement to acquire MTEX New Solution, S.A., (“MTEX”), a Portugal-based manufacturer of digital printing equipment that address a wide variety of markets and application including textiles, packaging, labeling, apparel, footwear and more. We reported MTEX as a part of our PI segment as of the May 6, 2024 closing date. Refer to Note 3, “Acquisition” in our condensed consolidated financial statements located elsewhere in this report for further details.
Results of Operations
Three Months Ended August 3, 2024 vs. Three Months Ended July 29, 2023
Revenue by segment and current quarter percentage change over the prior year for the three months ended August 3, 2024 and July 29, 2023 were:
(Dollars in thousands) |
|
August 3, |
|
|
As a |
|
|
July 29, |
|
|
As a |
|
|
% Change |
|
|||||
PI |
|
$ |
27,165 |
|
|
|
67.0 |
% |
|
$ |
25,777 |
|
|
|
72.6 |
% |
|
|
5.4 |
% |
T&M |
|
|
13,374 |
|
|
|
33.0 |
% |
|
|
9,747 |
|
|
|
27.4 |
% |
|
|
37.2 |
% |
Total |
|
$ |
40,539 |
|
|
|
100.0 |
% |
|
$ |
35,524 |
|
|
|
100.0 |
% |
|
|
14.1 |
% |
Revenue for the second quarter of the current year was $40.5 million, representing a 14.1% increase compared to the previous year's second quarter revenue of $35.5 million. Revenue through domestic channels for the second quarter of the current year was $23.8 million, an increase of 18.2% from the prior year’s second quarter domestic revenue of $20.1 million. International revenue for the second quarter of the current year was $16.8 million, representing 41.3% of our second quarter revenue and reflects an 8.8% increase from the previous year's second quarter international revenue. International revenue for the second quarter of the current year reflected an unfavorable foreign exchange rate impact of $0.2 million.
Hardware revenue in the second quarter of the current year was $12.4 million, a 9.7% increase compared to the prior year’s second quarter hardware revenue of $11.3 million. The current quarter increase is attributable to hardware sales in the T&M segment which increased $2.1 million or 34.3% compared to the same period in the prior year. The increase in current quarter T&M hardware sales was primarily due to an increase in aerospace printer sales and to a lesser degree, an increase in the current quarter data recorder sales. The overall increase in hardware sales was partially offset by a $1.0 million or 18.3% decrease in hardware sales in our PI segment, primarily due to a delay in hardware sales shipments in the current quarter.
22
Supplies revenue in the second quarter of the current year was $22.3 million, a 13.4% increase compared to the prior year’s second quarter supplies revenue of $19.7 million. The current quarter increase in supplies revenue is primarily attributable to an increase in sales of Trojan Label supplies and, to a lesser degree, an increase in sales of ink jet supplies in our QuickLabel product line, both in the PI segment. Increased sales of paper supplies in T&M’s aerospace product line also contributed to the overall increase in supplies revenue for the current year.
Service and other revenues of $5.8 million in the current quarter increased 28.1% compared to service and other revenues of $4.6 million in the second quarter of the prior year. Current quarter service and other revenue increased in both the PI and T&M segments, but was primarily due to an increase in aerospace printer repairs and parts revenue in the T&M segment.
The current year's second quarter gross profit was $14.3 million, a 47.5% increase compared to the prior year’s second quarter gross profit of $9.7 million. Current quarter gross profit margin of 35.3% reflects an 8.0 percentage point increase from the prior year’s second quarter gross profit margin of 27.3%. The higher gross profit margin for the current quarter compared to the prior year’s second quarter is primarily attributable to the impact of $2.0 million of restructuring costs for second quarter of fiscal 2024, as well as higher sales and favorable pricing and product mix in the current quarter.
Operating expenses for the current quarter were $13.3 million, a 21.6% increase compared to the prior year’s second quarter operating expenses of $10.9 million. Current quarter selling and marketing expenses were $6.7 million, a 0.5% increase compared to the second quarter of the prior year. The increase for the current quarter was primarily due to increases in wages, benefits, travel and entertainment, commissions and advertising and trade show expenses, which were partially offset by the absence of prior restructuring fees that were incurred in the second quarter of the prior year. Current quarter general and administrative (“G&A”) expenses were $5.1 million, a 93.0% increase compared to the second quarter of the prior year, primarily due to an increase in outside services, which includes MTEX acquisition costs and the CFO transition costs. Also contributing to the increase in G&A expenses was an increase in employee wages, benefits and professional fees. Research and development (“R&D”) expenses were $1.4 million in the current quarter, a 9.3% decrease compared to the second quarter of the prior year, primarily due to decreases in employee wages. The decrease in R&D expense for the current quarter was partially offset by increases in supplies and repairs and outside services. R&D spending as a percentage of revenue for the current quarter was 3.5% as compared to 4.4% for the same period in the prior year.
Other expenses in the second quarter of the current year were $1.1 million, an increase of 37.3% compared to the same period in the prior year. Current quarter other expense includes interest expense on our term debt and revolving line of credit of $0.9 million, and $0.2 million of net foreign exchange loss. Other expense in the second quarter of the prior year of $0.8 million includes interest expense on our term debt and revolving line of credit of $0.7 million, and a net foreign exchange loss of $0.2 million, offset by other income of $0.1 million.
We recognized a federal, state and foreign income tax provision for the second quarter of the current year of $0.3 million resulting in an effective tax rate of (522.0)%. The effective tax rate in this period was directly impacted by the return to provision associated with our fiscal year 2023 amended federal tax return which resulted in a $447,000 increase to tax expense. Additional impacts on the effective tax rate included a $162,000 tax benefit related to foreign return to provision differences and a $13,000 tax benefit arising from windfall tax benefits related to our stock. During the three months ended July 29, 2023, we recognized a federal, state and foreign income tax benefit of $0.4 million resulting in an effective tax rate of 19.4%. The effective tax rate in this period was directly impacted by our jurisdictional mix of earnings, a $29,000 tax expense related to foreign return to provision differences and a $20,675 tax arising from windfall tax benefits related to our stock.
We reported net loss of $0.3 million or $0.04 per diluted share for the second quarter of the current year. Net income and net income per diluted share for the quarter ended August 3, 2024 were impacted by inventory step-up cost of $0.1 million ($0.1 million net of tax or $ 0.01 per diluted share) and transaction costs of $0.6 million ($0.5 million net of tax or $0.06 per diluted share), both related to the MTEX acquisition, and CFO transition charges of $0.4 million ($0.3 million net of tax or $0.05 million per diluted share). On a comparable basis, net loss for the prior year’s second quarter was $1.6 million or $0.22 per diluted share. The results for this period were impacted by an expense of $2.7 million ($2.0 million net of tax or $0.28 per diluted share) related to the restructuring plan and expense of $0.9 million ($0.7 million net of tax or $0.09 per diluted share) related to the product retrofit program.
23
Six Months Ended August 4, 2024 vs. Six Months Ended July 29, 2023
Revenue by segment and current period percentage change over the prior year for the six months ended August 3, 2024 and July 29, 2023 were:
(Dollars in thousands) |
|
August 3, |
|
|
As a |
|
|
July 29, |
|
|
As a |
|
|
% Change |
|
|||||
Product Identification |
|
$ |
50,350 |
|
|
|
68.5 |
% |
|
$ |
50,872 |
|
|
|
71.7 |
% |
|
|
(1.0 |
)% |
T&M |
|
|
23,150 |
|
|
|
31.5 |
% |
|
|
20,071 |
|
|
|
28.3 |
% |
|
|
15.3 |
% |
Total |
|
$ |
73,500 |
|
|
|
100.0 |
% |
|
$ |
70,943 |
|
|
|
100.0 |
% |
|
|
3.6 |
% |
Revenue for the first six months of the current year was $73.5 million, representing a 3.6% increase compared to the previous year’s first six months revenue. Revenue through domestic channels for the first half of the current year was $43.3 million, an increase of 6.2% from prior year’s domestic revenue of $40.8 million. International revenue for the first six months of the current year was $30.2 million, a 0.1% increase from the previous year’s international revenue of $30.1 million. International revenue for the first six months of the current year reflected an unfavorable foreign exchange rate impact of $0.2 million.
Hardware revenue in the first six months of the current year was $21.2 million, a 7.4% decrease compared to the prior year’s first six months hardware revenue of $22.9 million. The current year's decrease is primarily attributable to the decline in hardware sales in the PI segment, as current year hardware sales in the PI segment were $8.1 million, a decrease of 22.1% or $2.3 million compared to the previous year's PI hardware sales of $10.4 million. This decrease was the primarily the result of a delay in shipments of in the current year. T&M hardware sales for the current year were $13.1 million, a 4.8% increase from the prior year’s T&M hardware sales of $12.5 million, due to an increase in sales in both our aerospace printer and data recorder product lines.
Supplies revenue in the first half of the current year was $41.0 million, representing a 5.7% increase over the prior year’s six months supplies revenue of $38.8 million, as supplies revenue increased in both the PI and T&M segments in the current year. The increase was primarily due to an increase in supplies sales of our Trojan Label products. Also contributing to the increase in the current year’s supplies revenue was an increase in paper revenue for the aerospace printers product line in the T&M segment. The overall increase in supplies revenue for the current quarter was partially offset to a large degree due to a decline in QuickLabel supplies sales in the PI segment.
Service and other revenues were $11.3 million in the first six months of the current year, a 22.2% increase compared to the prior year’s first six months service and other revenues of $9.2 million. The increase is due primarily to a $1.8 million or 33.8% increase in parts and repairs revenue in the aerospace printer product line in the T&M segment.
Gross profit for the first six months of the current year was $26.3 million, a 19.0% increase compared to the prior year’s gross profit of $22.1 million. Our gross profit margin of 35.8% in the current year reflects a 4.7 percentage point increase from the prior year’s first six months gross profit margin of 31.1%. The increase in gross profit and related profit margin for the current year compared to the prior year is primarily attributable to higher sales and $2.1 million of restructuring costs and $0.9 million of product retrofit costs recognized in the prior year that did not repeat in the current year.
Operating expenses for the first six months of the current fiscal year were $23.9 million, a 9.4% increase compared to the prior year’s first six months operating expenses of $21.8 million. Selling and marketing expenses for the current year were $12.4 million, a decrease of 2.5% compared to the previous year’s $12.7 million. The decrease for the current year was primarily due a decline in to employee benefits expenses and the impact of the prior year’s restructuring costs. The decrease in Selling and Marketing was partially offset by increases in wages, benefits, travel and entertainment, commissions and advertising and trade show fees. G&A expenses increased 46.9% to $8.5 million in the first six months of the current year compared to $5.8 million in the first six months of the prior year, primarily due to an increase in outside services fees, which includes MTEX acquisition costs and CFO transition costs. Also contributing to the increase in G&A expenses was an increase in wages, employee fees and advertising and trade show fees. R&D spending in the first six months of the current year was $3.0 million, a 9.9% decrease compared to the prior year’s first six months spend of $3.3 million, as declines in employee wages were partially offset by increases in fees for outside services, testing and consulting. Current year spending on R&D represents 4.1% of revenue compared to the prior year’s first six months level of 4.7%.
Other expenses during the first six months of the current year were $1.7 million compared to $1.2 million in the first six months of the previous year. Current year other expense includes interest expense on our term debt and revolving line of credit of $1.4 million and foreign exchange losses of $0.3 million. Other expenses for the first six months of the prior year included interest expense on term debt and revolving line of credit of $1.3million, offset by other income of $0.1 million.
We recognized a $0.2 million income tax benefit for the first six months of the current fiscal year, resulting in an effective tax rate of (24.9)%. The effective tax rate was directly impacted by a $124,000 tax benefit related to a previously unrecorded reduction in our future income tax payable balance that should have been discretely recognized in the fourth quarter of fiscal year 2024, netted with the current quarter tax expense related to amending our fiscal year federal tax return. Additional impacts on the effective tax rate
24
include a $162,000 tax benefit related to foreign return to provision differences and an $88,000 tax benefit arising from windfall tax benefits related to our stock. We recognized $0.2 million of income tax benefit for the first six months of the prior fiscal year, resulting in an effective tax rate of 21.5%. The effective tax rate was directly impacted by our jurisdictional mix of earnings, a $77,000 tax benefit related to the expiration of the statute of limitations on a previously uncertain tax position, a $49,000 tax benefit arising from windfall tax benefits related to our stock, and a $29,000 tax expense related to foreign return to provision differences.
We reported net income of $0.9 million, or $0.11 per diluted share, for the first six months of the current year. Net income and net income per diluted share for the six months ended August 3, 2024 were impacted by inventory step up cost of $0.1 million ($0.1 million net of tax or $ 0.01 per diluted share) and transaction costs of $0.6 million ($0.5 million net of tax or $0.06 per diluted share), both related to the MTEX acquisition and CFO transition charges of $0.4 million ($0.3 million net of tax or $0.05 million per diluted share). On a comparable basis, we reported a net loss of $0.8 million, or $0.10 per diluted share, for the first six months of the prior year. The results for this period were impacted by expense of $2.7 million ($2.0 million net of tax or $0.28 per diluted share) related to the restructuring plan and expense of $0.9 million ($0.7 million net of tax or $0.09 per diluted share) related to the product retrofit program.
Segment Analysis
We report two segments: PI and T&M and evaluate segment performance based on the segment profit before corporate and financial administration expenses. Summarized below are the Revenue and Segment Operating Profit for each reporting segment:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||||||||||||||||||
|
|
Revenue |
|
|
Segment Operating Profit (Loss) |
|
|
Revenue |
|
|
Segment Operating Profit (Loss) |
|
||||||||||||||||||||
(In thousands) |
|
August 3, |
|
|
July 29, |
|
|
August 3, |
|
|
July 29, |
|
|
August 3, |
|
|
July 29, |
|
|
August 3, |
|
|
July 29, |
|
||||||||
PI |
|
$ |
27,165 |
|
|
$ |
25,777 |
|
|
$ |
2,348 |
|
|
$ |
(461 |
) |
|
$ |
50,350 |
|
|
$ |
50,872 |
|
|
$ |
5,340 |
|
|
$ |
2,055 |
|
T&M |
|
|
13,374 |
|
|
|
9,747 |
|
|
|
3,834 |
|
|
|
1,917 |
|
|
|
23,150 |
|
|
|
20,071 |
|
|
|
5,555 |
|
|
|
3,989 |
|
Total |
|
$ |
40,539 |
|
|
$ |
35,524 |
|
|
|
6,182 |
|
|
|
1,456 |
|
|
$ |
73,500 |
|
|
$ |
70,943 |
|
|
|
10,895 |
|
|
|
6,044 |
|
Corporate Expenses |
|
|
|
|
|
|
|
|
5,121 |
|
|
|
2,654 |
|
|
|
|
|
|
|
|
|
8,488 |
|
|
|
5,780 |
|
||||
Operating Income (Expense) |
|
|
|
|
|
|
|
|
1,061 |
|
|
|
(1,198 |
) |
|
|
|
|
|
|
|
|
2,407 |
|
|
|
264 |
|
||||
Other Income (Expense), net |
|
|
|
|
|
|
|
|
(1,111 |
) |
|
|
(809 |
) |
|
|
|
|
|
|
|
|
(1,711 |
) |
|
|
(1,244 |
) |
||||
Income (Loss) Before Income Taxes |
|
|
|
|
|
|
|
|
(50 |
) |
|
|
(2,007 |
) |
|
|
|
|
|
|
|
|
696 |
|
|
|
(980 |
) |
||||
Income Tax Provision (Benefit) |
|
|
|
|
|
|
|
|
261 |
|
|
|
(390 |
) |
|
|
|
|
|
|
|
|
(173 |
) |
|
|
(211 |
) |
||||
Net Income (Loss) |
|
|
|
|
|
|
|
$ |
(311 |
) |
|
$ |
(1,617 |
) |
|
|
|
|
|
|
|
$ |
869 |
|
|
$ |
(769 |
) |
||||
Product Identification-PI
Revenue from the PI segment increased $1.4 million or 5.4%, in the second quarter of the current year, with revenue of $27.2 million compared to $25.8 million in the same period of the prior year. The current quarter increase is primarily attributable to an increase in supplies sales in the Trojan Label and QuickLabel product lines and the contribution of sales from our newly acquired MTEX subsidiary. This increase was partially offset by declines in hardware sales due to a delay in shipments in the current quarter. We expect revenue growth will become positive going forward as the delayed shipments of hardware products will be made in the third quarter of the current year, along with the continuing contribution from the MTEX acquisition. The PI segment recognized a current quarter segment operating income of $2.3 million, reflecting a profit margin of 8.6%. This compares to the prior year’s second quarter segment loss of $0.5 million and related loss margin of 1.8%. The increase in the current year second quarter PI segment operating profit and margin is primarily due to higher sales, lower manufacturing expenses as a result of the fiscal 2024 restructuring and product retrofit program costs and a favorable product mix.
Revenue from the PI segment decreased by $0.5 million or 1.0% to $50.4 million in the first six months of the current year from $50.9 million in the same period of the prior year. The current year’s decrease is primarily due to the decline of hardware sales as a result of delayed shipments. The current year’s decrease in PI revenue was offset by an increase in revenue from Trojan Label supplies. The current year's first six months of PI segment operating profit was $5.3 million with a profit margin of 10.6%, compared to the first six months of the prior year’s segment operating profit of $2.1 million and related profit margin of 4.0% . The increase in current year's PI segment operating profit and margin is primarily due to the lower manufacturing expenses as a result of the fiscal 2024 restructuring plan and product retrofit program costs and a favorable product mix.
25
Test & Measurement—T&M
Revenue from the T&M segment was $13.4 million for the second quarter of the current fiscal year, representing a $3.6 million or 37.2% increase compared to revenue of $9.7 million for the same period in the prior year. The increase in revenue for the current quarter is primarily attributable to an increase in sales of certain of our new, more advanced Tough Writer-branded printers in the aerospace printer product line, as well as increases in supplies, parts and repairs revenue also in our aerospace product lines. T&M’s second quarter segment operating profit was $3.8 million, reflecting a profit margin of 28.7%, compared to the prior year second quarter segment operating profit of $1.9 million and related operating margin of 19.7%. The increase in T&M’s current year second quarter segment operating profit margin is due to $1.0 million in revenue and $1.3 million in operating profit related to non-recurring items.
Revenue from the T&M segment was $23.2 million for the first six months of the current fiscal year, a $3.1 million or 15.3% increase compared to sales of $20.1 million for the same period in the prior year. The increase in revenue for the current year was primarily attributable to strong hardware sales in our aerospace product lines as a result of increased aerospace printer product unit volume and to a lesser extent increased sales of our data recorder hardware. Demand for printers, especially for narrow-body aircraft, has increased due to the post-pandemic recovery in air travel demand, which has driven new orders of airplanes and a corresponding increase in production rates. Also contributing to the current year increase in T&M revenue was an increase in supplies, parts and repairs revenue in our aerospace product lines. T&M ’s first six months segment operating profit of $5.6 million resulted in a 24.0% operating margin compared to the prior year’s segment operating profit of $4.0 million and related operating margin of 19.9%. The increase in T&M’s current year segment operating margin is due to$1.0 million in revenue and $1.3 million in operating profit related to non-recurring items.
Liquidity and Capital Resources
Overview
Historically, our primary sources of liquidity have been cash generated from operating activities and borrowings under our revolving credit facility. These sources have also usually funded the majority of our capital expenditures and contractual contingent consideration obligations. We have funded acquisitions by borrowing under bank term loan facilities.
We believe cash flow generation from operations and available unused credit capacity under our credit facility will support our anticipated needs. Additionally, as discussed below, we entered into a revised credit agreement with our lender to finance our acquisition of MTEX. In fiscal 2025 (after required debt amortization and payment of minimum guaranteed royalty payments to Honeywell), we plan to focus on inventory reduction and reduction of debt outstanding under our credit agreement, to the degree practicable and as constrained by supply chain management challenges.
In connection with our acquisition of MTEX, on May 6, 2024, we entered a Third Amendment to Amended and Restated Credit Agreement (the “Amendment”) with Bank of America, N.A., as lender (the “Lender”). The Amendment amended the Amended and Restated Credit Agreement dated as of July 30, 2020, as amended by the First Amendment to Amended and Restated Credit Agreement, dated as of March 24, 2021, the LIBOR Transition Amendment, dated as of December 14, 2021, the Second Amendment to Amended and Restated Credit Agreement dated as of August 4, 2022, and the Joinder Agreement relating to Astro Machine dated as of August 26, 2022 (the “Existing Credit Agreement”; the Existing Credit Agreement as amended by the Amendment, the “Amended Credit Agreement”), between AstroNova, Inc. as the borrower, Astro Machine as a guarantor, and the Lender.
The Amended Credit Agreement provides for (i) a new term loan to AstroNova, Inc.in the principal amount of EUR 14.0 million (the “Term A-2 Loan”), which term loan is in addition to the existing term loan (the “Existing Term Loan”) outstanding under the Existing Credit Agreement in the principal amount of approximately $12.3 million as of the effective date of the Amendment, and (ii) an increase in the aggregate principal amount of the revolving credit facility available to AstroNova, Inc. from $25.0 million to $30.0 million until January 31, 2025, upon and after which the aggregate principal amount of the revolving credit facility will reduce to $25.0 million. At the closing of the Amendment, we borrowed the entire EUR 14.0 million Term A-2 Loan and EUR 3.0 million and a US dollar amount which was converted to Euros to satisfy the entire purchase price for MTEX payable on the closing date. The revolving credit facility may otherwise be used for general corporate purposes. The revolving credit loans may continue to be borrowed, at our option, in U.S. Dollars or, subject to certain conditions, Euros, British Pounds, Canadian Dollars or Danish Kroner.
At August 3, 2024 our cash and cash equivalents were $4.8 million. We have borrowed $13.0 million on our revolving line of credit and have $17.0 million available for borrowing under that facility as of August 3, 2024. Additionally, our recent MTEX acquisition has a EUR 0.5 million ($0.5 million) available line of credit with Caixa Central de Crédito Agricola Mutuo. This credit line was established in December 2023 and is renewable every six months. There was EUR 0.3 million ($0.4 million) outstanding on this line of credit as of August 3, 2024.
26
Indebtedness
Term Loan
The Amended Credit Agreement requires that the Term A-2 Loan be paid in quarterly installments on the last day of each of our fiscal quarters through April 30, 2027 in the principal amount of EUR 583,333 each, and the entire then-remaining principal balance of the Term A-2 Loan is required to be paid on August 4, 2027. The Amended Credit Agreement requires that the remaining balance of the Existing Term Loan be paid in quarterly installments on the last day of each of our fiscal quarters through April 30, 2027 in the principal amount of $675,000 each, and the entire then remaining principal balance of the term loan is required to be paid on August 4, 2027. We may voluntarily prepay the Term A-2 Term Loan or the Existing Term Loan, in whole or in part, from time to time without premium or penalty (other than customary breakage costs, if applicable). We may repay borrowings under the revolving credit facility at any time without premium or penalty (other than customary breakage costs, if applicable), but in any event no later than August 4, 2027, and any outstanding revolving loans thereunder will be due and payable in full, and the revolving credit facility will terminate, on such date. We may reduce or terminate the revolving line of credit at any time, subject to certain thresholds and conditions, without premium or penalty.
The loans under the Amended Credit Agreement are subject to certain mandatory prepayments, subject to various exceptions, from (a) net cash proceeds from certain dispositions of property, (b) net cash proceeds from certain issuances of equity, (c) net cash proceeds from certain issuances of additional debt and (d) net cash proceeds from certain extraordinary receipts.
Amounts repaid under the revolving credit facility may be reborrowed, subject to our continued compliance with the Amended Credit Agreement. No amount of the Term A-2 Loan or the Existing Term Loan that is repaid may be reborrowed.
The Term A-2 Loan bears interest at a rate per annum equal to the EURIBOR rate as defined in the Amended Credit Agreement, plus a margin that varies within a range of 1.60% to 2.50% based on our consolidated leverage ratio. The Existing Term Loan and revolving credit loans bear interest at a rate per annum equal to, at our option, either (a) the Term SOFR rate as defined in the Amended Credit Agreement (or, in the case of revolving credit loans denominated in Euros or another currency other than U.S. Dollars, the applicable quoted rate), plus a margin that varies within a range of 1.60% to 2.50% based on our consolidated leverage ratio, or (b) a fluctuating reference rate equal to the highest of (i) the federal fund rate plus 0.50%, (ii) Bank of America’s publicly announced prime rate, (iii) the Term SOFR Rate plus 1.00%, or (iv) 0.50%, plus a margin that varies within a range of 0.60% to 1.50% based on our consolidated leverage ratio. In addition to certain other fees and expenses that we are required to pay to the Lender, we are required to pay a commitment fee on the undrawn portion of the revolving credit facility that varies within a range of 0.15% and 0.35% based on our consolidated leverage ratio.
We must comply with various customary financial and non-financial covenants under the Amended Credit Agreement. The financial covenants under the Amended Credit Agreement consist of a maximum consolidated leverage ratio and a minimum consolidated fixed charge coverage ratio, certain of the provisions of which were modified by the Amendment; the minimum consolidated asset coverage ratio under the Existing Credit Agreement was eliminated by the Amendment. The primary non-financial covenants limit our and our subsidiaries’ ability to incur future indebtedness, to place liens on assets, to pay dividends or distributions on our or our subsidiaries’ capital stock, to repurchase or acquire our or our subsidiaries’ capital stock, to conduct mergers or acquisitions, to sell assets, to alter our or our subsidiaries’ capital structure, to make investments and loans, to change the nature of our or our subsidiaries’ business, and to prepay subordinated indebtedness, in each case subject to certain exceptions and thresholds as set forth in the Amended Credit Agreement, certain of which provisions were modified by the Amendment. As of August 3, 2024, we believe we are in compliance with all of the covenants in the Credit Agreement.
The Lender is entitled to accelerate repayment of the loans and to terminate its revolving credit commitment under the Amended Credit Agreement upon the occurrence of any of various customary events of default, which include, among other events, the following (which are subject, in some cases, to certain grace periods): failure to pay when due any principal, interest or other amounts in respect of the loans, breach of any of our covenants or representations under the loan documents, default under any other of our or our subsidiaries’ significant indebtedness agreements, a bankruptcy, insolvency or similar event with respect to us or any of our subsidiaries, a significant unsatisfied judgment against us or any of our subsidiaries, or a change of control.
Our obligations under the Amended Credit Agreement continue to be secured by substantially all of our personal property assets (including a pledge of the equity interests we hold in ANI Scandinavia ApS, AstroNova GmbH, AstroNova SAS and the Purchaser), subject to certain exceptions, and by a mortgage on our owned real property in West Warwick, Rhode Island, and are guaranteed by, and secured by substantially all of the personal property assets of Astro Machine.
Equipment Loan
In January 2024, we entered into a secured equipment loan facility agreement with Banc of America Leasing & Capital, LLC and borrowed the principal amount of $0.8 million thereunder for the financing of our purchase of production equipment. The loan matures on January 23, 2029, and bears interest at a fixed rate of 7.06%.
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Assumed Financing Obligations of MTEX
In connection with the purchase of MTEX, on the May 6, 2024 closing date of this acquisition we assumed certain existing financing obligations of MTEX that remain outstanding as of August 3, 2024. The long-term debt obligations of MTEX that remain outstanding include a term loan ( the “MTEX Term Loan”) pursuant to the agreement dated December 22, 2023, (the “MTEX Term Loan Agreement”) between MTEX and Caixa Central de Crédito Agricola Mutuo. The MTEX Term Loan provides for a term loan in the principal amount of EUR 1.5 million ($1.6 million) and requires monthly principal and interest payments totaling EUR 17,402 ($18,795) commencing in October 2024 continuing through maturity on December 21, 2033, and bears interest at a fixed rate of 6.022% per annum.
MTEX has also received government assistance in the form of interest-free loans from government agencies located in Portugal (the “MTEX Government Grant Term Loans”). The MTEX Government Grant Term Loans are to be repaid to the applicable government agencies and are classified as long-term debt. The current balance of the MTEX Government Grants Term Loans as of August 3, 2024 is EUR 1.3 million ($1.5 million). The MTEX Government Grant Term Loans provide interest free financing to the extent monthly principal payments are made. In the event that MTEX and the applicable government agency renegotiate the payment dates, interest will be calculated according to a rate determined by the government agency as of the date of renegotiation and added to the outstanding principal payments. The MTEX Government Grants Term Loans mature between December 2024 and January 2027.
Additionally, we assumed short-term financing obligations of MTEX that remain outstanding as of August 3, 2024, including letters of credit, maturing term loans, and financing arrangements for working capital classified as debt.
Cash Flow
Our statements of cash flows for the six months ended August 3, 2024 and July 29, 2023 are included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Net cash provided by operating activities was $7.1 million for the first six months of fiscal 2025 compared to $4.7 million for the same period of the previous year. The increase in net cash provided by operations for the first six months of the current year is primarily due to an increase in cash provided by working capital. The combination of changes in accounts receivable, inventory, income taxes payable, accounts payable and accrued expenses increased cash by $4.9 million for the first six months of fiscal 2025, compared to an increase of $0.2 million for the same period in fiscal 2024. Cash provided by operating activities for the first six months of fiscal 2024 was impacted by $2.0 million of non-cash restructuring costs.
Our accounts receivable balance increased to $23.5 million at the end of the second quarter of fiscal 2025 compared to $23.1 million at year end. Excluding the impact of the MTEX acquisition, accounts receivable decreased $3.6 million from year end. Days sales outstanding for the second quarter of the current year remained at 49 days, consistent with prior year end. Our inventory balance was $50.6 million at the end of the second quarter of fiscal 2025, an increase compared to $46.4 million at year end. Excluding the impact of the MTEX acquisition, inventories increased $0.4 million from year end. Inventory days on hand increased to 174 days at the end of the current quarter from 168 days at the prior year end.
Our cash position at August 3, 2024, was $4.8 million compared to $4.5 million at year end. The increase in cash during the current quarter was primarily a result of cash inflows during the current year including proceeds from our long-term debt of $15.1 million, borrowings on our revolving line of credit of $3.9 million and cash from operations as discussed above. These inflows were offset by cash paid for our acquisition of $20.7 million, principal payments on our long-term debt of $3.3 million, payment of our guaranteed royalty obligation of $0.8 million, and cash used for capital expenditures of $0.8 million.
Contractual Obligations, Commitments and Contingencies
There have been no material changes to our contractual obligations as disclosed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2024, other than those occurring in the ordinary course of business.
Critical Accounting Policies, Estimates and Certain Other Matters
The preparation of our condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosure of commitments and contingencies at the date of the condensed consolidated financial statements and reported amounts of revenue and expenses during the reporting period. We base these estimates and judgments on factors we believe to be relevant, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
The process of determining significant estimates is fact-specific and takes into account factors such as historical experience, current and expected economic conditions, product mix, and in some cases, actuarial and appraisal techniques. We constantly re-evaluate these significant factors and make adjustments where facts and circumstances dictate.
While we believe that the factors considered provide a meaningful basis for the accounting policies applied in the preparation of the condensed consolidated financial statements, we cannot guarantee that our estimates and assumptions will be accurate. As the determination of these estimates requires the exercise of judgment, actual results may differ from those estimates, and such differences
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may be material to our condensed consolidated financial statements. There have been no material changes to the application of critical accounting policies as disclosed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2024.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not statements of historical fact, but rather reflect our current expectations concerning future events and results. We generally use the words “believes,” “expects,” “intends,” “plans,” “anticipates,” “likely,” “continues,” “may,” “will,” and similar expressions to identify forward-looking statements. Such forward-looking statements, including those concerning our expectations, involve risks, uncertainties and other factors, some of which are beyond our control, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors which could cause actual results to differ materially from those anticipated include, but are not limited to (a) general economic, financial, industry and business conditions; (b) the lingering impact of the COVID-19 pandemic on us, our customers, our suppliers and the global economy; (c) declining demand in the test and measurement markets, especially defense and aerospace; (d) our ability to develop and introduce new products and achieve market acceptance of these products; (e) our dependance on contract manufacturers and/or single or limited source suppliers; (f) competition in the specialty printer or data acquisition industries; (g) our ability to obtain adequate pricing for our products and control our cost structure; (h) our ability to adequately enforce and protect our intellectual property, defend against assertions of infringement or loss of certain licenses; (i) the risk of incurring liabilities as a result of installed product failures due to design or manufacturing defects; (j) the risk of a material security breach of our information technology system or cybersecurity attack impacting our business and our relationship with customers; (k) our ability to attract, develop and retain key employees and manage human capital resources; (l) economic, political and other risks associated with international sales and operations and the impact of changes in foreign currency exchange rates on the results of operations; (m) changes in tax rates or exposure to additional income tax liabilities; (n) our ability to comply with our current credit agreement or secure alternative financing and to otherwise manage our indebtedness; (o) our ability to successfully integrate and realize the expected benefits from MTEX, Astro Machine and other acquisitions and realize benefits from divestitures; (p) our ability to maintain adequate self-insurance accruals or insurance coverage for employee health care benefits; (q) our compliance with customer or regulators certifications and our compliance with certain governmental laws and regulations; (r) our ability to achieve and maintain effective internal controls and procedures over financial reporting; (s) the risk that we may not successfully execute or achieve the expected benefits of our restructuring plan for our Product Identification segment; (t) the risk that we may not be able to ship delayed hardware items on the timeline we expect or at all; and (u) all other risks included under “Item 1A-Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 31, 2024. We assume no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
During the six months ended August 3, 2024, there were no material changes to our market risk disclosures as set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended January 31, 2024.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our senior leadership team, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of August 3, 2024 as a result of the material weakness in our internal control over financial reporting described below.
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Material Weakness in Internal Control Over Financial Reporting
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As reported in Item 9A of our Annual Report on Form 10-K for the year ended January 31, 2024, our management concluded that our internal control over financial reporting was ineffective because of the following material weakness:
As of January 31, 2024, we did not design or maintain an effective control environment to ensure the accurate and timely reporting of transactions related to our Astro Machine subsidiary, which was acquired August 4, 2022.
Plan for Remediation of Material Weakness
Our management has discussed the identified material weakness with the Audit Committee of our Board of Directors. Subsequent to January 31, 2024, we began to implement measures designed to improve internal control over financial reporting and to remediate our material weakness, and we are currently in the process of implementing our NetSuite ERP system at our Astro Machine subsidiary and we have gone live with this implementation at the beginning of September 2024.
Our management believes that when completed, the measures described above will be sufficient to remediate the identified material weakness and strengthen our overall internal control over financial reporting. As our management continues to evaluate and work to enhance our internal control over financial reporting, we may take additional measures to address control deficiencies, or we may modify some of the remediation measures described above. The identified material weakness will not be considered remediated until the applicable remediated controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Changes in Internal Control over Financial Reporting
Except for the measures taken to remediate our identified material weakness noted above, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the fiscal quarter ended August 3, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no pending or threatened legal proceedings against us that we believe to be material to our financial position or results of operations.
Item 1A. Risk Factors
In addition to the other information set forth in this Quarterly Report on Form 10-Q, one should carefully consider the factors discussed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended January 31, 2024, which could materially affect our business, financial condition or future operating results. The risks described in our Annual Report on Form 10-K are not the only risks that could affect our business, as additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results as well as adversely affect the value of our common stock.
There have been no material updates to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2024.
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Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
During the second quarter of fiscal 2024, we made the following repurchases of our common stock:
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Total Number of |
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Maximum Number |
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May 1- May 31 |
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June 1-June 30 |
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July 1- July 31 |
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Item 6. Exhibits
2.1 |
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3A |
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3B |
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10.1 |
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10.2 |
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10.3 |
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10.4 |
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10.5 |
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31.1 |
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1 |
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32.2 |
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101.INS |
XBRL Instance Document—the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
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104 |
Cover Page Interactive Data File (embedded within the Inline XBRL document)
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* Certain of the exhibits and schedules to this exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5). The Company will furnish copies of any such schedules to the SEC upon request.
† Certain confidential portions of this exhibit were omitted because the identified confidential provisions (i) are not material and (ii) is the type that the Company treats as private or confidential.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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ASTRONOVA, INC. (Registrant) |
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Date: September 17, 2024 |
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By |
/s/ Gregory A. Woods |
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Gregory A. Woods, |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
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By |
/s/ Thomas DeByle |
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Thomas DeByle, |
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Vice President, Chief Financial Officer and Treasurer |
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(Principal Accounting Officer and Principal Financial Officer) |
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