AstroNova - Earnings Call - Q1 2026

Executive Summary

• Q1 FY26 revenue rose 14.4% YoY to $37.7M, with both segments growing double digits; GAAP operating income was $0.6M and GAAP net loss was $0.4M (-$0.05 per diluted share), while adjusted EBITDA improved 27.7% YoY to $3.1M and margin expanded 80 bps to 8.3%.
• Management reaffirmed FY26 guidance: revenue $160–$165M and adjusted EBITDA margin 8.5%–9.5%; effective tax rate ~25% and D&A ~$5M; capex expected to be < $2M in FY26.
• Execution highlights: $1.9M annualized cost saves executed in Q1 toward a $3M plan; launched three next-gen Product ID solutions; won a renewed ~$10M five‑year defense contract with ~$1.7M expected in FY26 shipments; orders were $34.9M and backlog $25.5M.
• Call commentary flagged improving mix (Tufrider 42% of Q1 shipments; aiming to double by FY-end), 83% recurring revenue, and limited tariff impact mitigated by surcharges and supply flexibility—catalysts for margin recovery through FY26.

What Went Well and What Went Wrong

What Went Well

• Double-digit growth in both segments: Product ID +13.4% to $26.3M and Aerospace +16.8% to $11.4M; aerospace operating profit rose 60.5% on higher volume.
• Strategic wins and product momentum: three next-gen Product ID launches (QL425, QL435, AJ800/VP‑800) and renewed ~$10M defense contract with ~$1.7M FY26 shipments; plus new wins with a multinational beauty company and a large U.K. private-label grocer.
• Cost actions underway: $1.9M of annualized savings executed in Q1; non‑GAAP operating income rose 13.4% YoY to $1.5M despite higher corporate costs; adjusted EBITDA up 27.7% YoY to $3.1M.
  • Quote: “We implemented approximately $1.9 million of our previously announced $3 million annualized cost reduction plan…we expect to…substantially complete the full cost reduction plan” – CEO Greg Woods.

What Went Wrong

• Margin pressure and higher corporate costs: gross margin fell to 33.6% (from 36.3% YoY) due to acquisition dilution and mix; corporate expenses increased ~$1.6M (healthcare and professional fees), compressing GAAP operating income to $0.6M (vs $1.3M YoY).
• Higher interest and GAAP loss: interest expense rose to $0.9M (from $0.5M YoY) tied to acquisition financing; GAAP net loss was $0.4M vs. $1.2M profit YoY.
• Backlog down and legacy drag: backlog declined to $25.5M vs. $28.3M at FY25 year‑end, and a legacy aerospace contract weighed on margins (expected to complete by end of Q2 FY26).

Transcript

Operator (participant)

Welcome to AstroNova's First-Quarter Fiscal Year 2026 Financial Results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Deborah Pawlowski, Investor Relations for AstroNova. Thank you. You may begin.

Deborah Pawlowski (Head of Investor Relations)

Thank you, and good morning, everyone. We certainly appreciate your interest in AstroNova, and thank you for sharing your time with us today. Joining me on our call are Greg Woods, our President and Chief Executive Officer, and Tom DeByle, our Chief Financial Officer. You should have the earnings release that went out this morning, as well as the slides that will accompany our conversation today. If not, you can find these documents on the Investor Relations section of our website at astronovainc.com. If you would turn to slide two, we'll discuss the cautionary statements. As you are likely aware, during the formal presentation, as well as the Q&A session, management may make some forward-looking statements about our current plans, beliefs, and expectations.

These statements apply to future events that are subject to risks and uncertainties, as well as other factors that could cause actual results to differ materially from what is stated here today. These risks, uncertainties, and other factors are provided in the earnings release, as well as in other documents filed by the company with the Securities and Exchange Commission. These documents can be found on our website or at sec.gov. Also, as noted on the slide, management will refer to some non-GAAP financial measures. We believe these will be useful in evaluating our performance. However, you should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. You can find reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release and slides.

Now, if you will please turn to slide three, I'll turn the call over to Greg. Greg?

Greg Woods (President and CEO)

Thank you, Debbie, and good morning, everyone, and thank you for joining us. Before I get into the details of the quarter, I want to reiterate our strategy to drive long-term revenue growth and improve profitability. AstroNova has a unique position in the global data visualization market with deeply embedded relationships, high-performance technology, and a strong recurring revenue model. Our goal is to leverage our technologies and market position and our streamlined organization to deliver stronger growth and earnings. With more predictable performance, core to the strategy are three strategic drivers. First, our aerospace segment, which has a leading market share in cockpit printers, is rapidly advancing the transition of customers from our legacy models to our high-performance and high-reliability ToughWriter printers.

This transition deepens our position with leading aerospace customers, decouples us from royalty costs associated with legacy products, and simplifies our product portfolio, which reduces supply chain complexity and inventory levels, improving cash generation and margins. The transition also enables us to capture a larger percentage of aftermarket sales. Our ToughWriter technology enables us to better leverage the positive macro backdrop of the commercial aerospace market as both Boeing and Airbus continue to ramp up their build rate. The second strategic driver is the launch of highly disruptive next-generation product identification solutions. These commercial-scale printing solutions unlock new end markets with large customers that have higher volume printing needs. They also allow us to better control the supply chain for our ink and critical print engine components, lowering costs over time. This provides more avenues for growth, and we have already been gaining traction with both new and existing customers.

The third strategic driver is further streamlining operations through headcount reductions and restructuring while strengthening segment-level accountability. We are working to structure incentive compensation with key performance indicators, including growth, profitability, cash generation, and earnings per share to further improve alignment between management and shareholders. We are laser-focused on executing this strategy. If you'll turn to slide four, let me touch on the quarterly highlight. We believe that our first quarter of fiscal 2026 results are an early indication of the traction we are making with our strategy. We delivered double-digit growth in both segments and increased consolidated adjusted operating income by 13.5% year-over-year. This was driven by our continued ToughWriter transition, renewed defense shipments of $500,000, higher demand for our desktop label printers, and a $1.4 million increase in product sales from last year's acquisition.

We also accelerated our previously announced $3 million annualized cost reduction plan by completing $1.9 million of annualized cost-saving actions in the quarter, most of which will begin to be realized in the second quarter. We plan to complete the remainder of the cost-saving actions in the second quarter. During Q1, we launched three next-generation product identification solutions ahead of schedule. The QL425 and the QL435 were launched as an extension of our flagship Quick Label line of high-resolution color label printers, bringing a new level of speed, flexibility, and cost efficiency to our professional labeling customers. We also released a new direct-to-package printer, the AJ800, which enables printing on sustainable packaging materials like corrugated cardboard, die-cut boxes, and paper bags, as well as wood. The AJ800 expands our product portfolio into larger print media and higher volume production.

We are ahead of schedule with the rollout of two additional next-generation products that we have in our pipeline. These are expected to be launched in this second quarter. In Q1, we up-trained and upgraded our sales team, implemented a new targeted sales strategy under our recently appointed segment leadership, and restructured our go-to-market approach. We are pleased with the progress the team has made already and encouraged by the early interest and orders they have generated. In aerospace, at the end of the quarter, we announced a renewed $10 million multi-year contract win for the delivery of our ToughWriter products over the next five years to a prime defense contractor. Shipments on this program began late in Q1. We expect to realize $1.7 million of revenue this fiscal year from this program.

The hard work and hard decisions we made over the past six months are improving results, but we still have more work to do. We expect our margin profile and aftermarket sales to strengthen as the rollout of our new product ID solutions gains market acceptance and our ToughWriter transition continues to advance. For the full year, we continue to expect to deliver revenue in the range of $160-$165 million and adjusted EBITDA margin in the range of 8.5%-9.5%. This is a critical juncture for AstroNova, and we are confident in our ability to deliver long-term shareholder value through the focused execution of our strategy. Looking at slide five, we will review orders and backlog and discuss the opportunities we are seeing in our markets.

First-quarter orders of $34.9 million were up 5.4% or $1.8 million compared with the prior year period, driven by a combination of higher demand for new and existing product identification hardware and supplies. Product ID orders were up $3.3 million-$26.2 million. We secured a three-year label supply contract with a multinational beauty company, which is a new account for us. We also captured a renewed upsize contract from a large private label coffee grocer in the U.K. This current customer also will be upgrading its entire fleet of Quick Label printers. While declines of $1.5 million in aerospace orders partially offset overall order growth, we continue to have strong demand for ToughWriters, reflecting the improved build rates of the major commercial aircraft OEMs. As we have previously pointed out, aerospace orders can vary quarter-to-quarter based on timing of customer contracts.

For example, shortly after the end of Q1, we received a $1 million ToughWriter printer order from an in-flight entertainment customer. During the quarter, we did also further expand our space launch data acquisition business. We secured an order from a new customer, Amazon Kuiper Systems, for our data acquisition systems to be used on their low Earth orbit satellite program. Backlog for the quarter declined by $2.8 million year-over-year to $25.5 million, primarily driven by clearing previously delayed shipments. As we move through fiscal 2026, we expect to benefit from our new product introductions and the increasing build rates with Airbus and Boeing. Before I pass the call over to Tom, please turn to slide six, and I will touch on what we are seeing regarding tariffs. The headline commentary is that so far the impacts have been negligible for our business.

Our aerospace shipments are insulated from many of the tariffs due to the contracts we have in place, which essentially hedge our exposure on the sales side. Most of our exposure comes from the component parts. However, due to the expense and regulatory difficulties associated with making changes to aerospace avionics, we typically carry large inventories of the most critical components. This gives us a multi-month protection from vendor and/or tariff issues. For product ID, our next-generation print engine allows us to source ink from across the world, providing flexibility on supply costs. Additionally, our global manufacturing presence in the United States, Europe, and Canada gives us more options for rerouting our shipments. To further combat tariffs, we implemented price increases on April 1st and tariff surcharges in the first week of May.

We continue to remain agile and look for ways we can partner with and source from alternative suppliers to minimize cost impacts. I'll hand the call over to Tom for the financial review. Tom?

Thomas DeByle (CFO)

Thank you, Greg. Good morning, everyone. On slide seven, you can see our first quarter revenue of $37.7 million grew 14.4% year-over-year and 0.9% sequentially. 83% of the quarter's revenue was recurring. The first quarter is a seasonally slow quarter, so we expect improvements throughout fiscal 2026. Year-over-year revenue growth was 13.8% in product identification and 16.8% in aerospace. Product identification sales increased for the quarter was driven by $1.4 million incremental MTEC sales and higher demand for tabletop and direct-to-package printers and supplies. Importantly, we unveiled three new product identification solutions at the FESPA Global Print Expo in Germany. We expect these product launches to help drive product identification hardware sales in the second half of fiscal 2026, with continued growth of our recurring media and supply sales as we increase the install base.

For aerospace, increased printer shipments to a major OEM and the carryover of shipments to a defense contractor under the recently renewed contract primarily drove revenue growth. The $10 million multi-year contract award began shipping in the first quarter, and we expect to ship the remaining portion of the expected $1.7 million in orders before our fiscal year-end. We also expect an increase in the ToughWriter shipments from an existing commercial aerospace customer beginning in the second quarter as we transition away from the legacy cockpit printers. ToughWriter aerospace printers were 42% of the first quarter shipments, and we remain on track to double the percentage by the fiscal year-end. Turning to slide eight, gross profit was $12.7 million, a $0.7 million increase year-over-year, representing 33.6% of sales. Adjusted gross profit was $13.1 million, a $1.1 million increase year-over-year, representing 34.6% of sales.

The increase in gross profit was primarily driven by higher sales volume, but year-over-year margin was negatively impacted by dilution related to the acquisition and a legacy aerospace printer contract, which we expect to be completed by the end of the second quarter of fiscal 2026. On an adjusted basis, gross margin increased 30 basis points from the trailing period, reflecting higher volume in the quarter. Going forward, we expect gross profit and margin to improve throughout fiscal 2026 as we increase the percentage of ToughWriter sales and the next-generation product ID printer sales and supplies. Looking at slide nine, product ID operating income for the quarter was $2.8 million, or 10.6% of sales, compared with $3 million in the prior year period. On a non-GAAP basis, operating income was $3.1 million, or 11.9% of revenue.

The year-over-year and quarter-over-quarter improvement in non-GAAP operating income was driven by higher sales and was partially offset by lower margins on the acquired legacy technology. Looking at slide 10, aerospace operating income for the quarter was $2.8 million, a 24.2% of sales, compared to $1.7 million in the prior year period. On a non-GAAP basis, operating income was $2.9 million, or 25.7% of revenue. The sequential and the year-over-year growth of operating income and margin were driven by improved product mix as we transitioned commercial and defense customers to our higher margin ToughWriter solutions and benefited from operating leverage gained on higher volume. Operating income was partially offset by legacy printer contract that is expected to be completed in the second quarter. Aerospace operating expense was lower year-over-year as we benefited from a $0.3 million reserve reversal related to a commercial airline.

Turning to slide 11, net loss was $0.4 million, or a negative $0.05 per share, compared with net income of $1.2 million, or $0.15 per share in the prior year period. Adjusted net income was $0.4 million, or $0.05 per share. Adjusted EBITDA of $3.1 million increased 27.6% compared with the prior year period and grew 28% compared with the trailing fourth quarter of fiscal 2025. Adjusted EBITDA margin for the first quarter expanded 80 basis points year-over-year and sequentially. We are expecting operating expenses to benefit from the restructuring program for the remainder of fiscal 2026. Moving to slide 12, during the quarter, we strengthened our balance sheet by paying down $3.9 million in debt and improved liquidity. We ended the quarter with $12.6 million in total liquidity, including $5.4 million in cash and $7.2 million in revolver availability.

Our leverage ratio of funded debt to EBITDA is 3.5 times. Our targeted leverage ratio is approximately 2 times. At the end of the quarter, we are in compliance with our covenants of our lending agreement. Cash provided by operations in the first quarter was $4.4 million, down from $6.9 million in the prior year period. The decline was primarily driven by the timing associated with bulk replenishment of legacy ink, printheads, and media supplies amounting to about $3 million. We are focused on improving our inventory turns from current levels of approximately 2 times to more than 3 times over the fiscal 2026 and 2027 years. Capital expenditures were $60,000 in the quarter, and we expect to be less than $2 million for the full fiscal year. Now, please turn to slide 13, and I'll hand the call back to Greg for closing comments.

Greg Woods (President and CEO)

Thanks, Tom. We are executing a clear strategy to deliver revenue growth and improve our profitability. We have implemented changes in the organization and are working diligently to deliver on our strategic plan. We believe that this quarter reflected a positive turning point in our business as we gained traction in both of our segments and controlled our costs. We have several catalysts that we are confident will propel our growth in fiscal 2026 and beyond. First, we are focused on launching our innovative product ID solutions, three of which have already been launched and are receiving strong customer interest and orders. We expect to launch six more disruptive solutions before the end of fiscal 2026. Second, we continue to make rapid progress on the ToughWriter transition program with several large commercial and defense customers transitioning to ToughWriters that will ramp up shipping in Q2 and beyond.

Importantly, we are looking critically at our cost structure and cash flow generation. We are on track to complete our $3 million cost reduction program by Q2, and we will continue to manage our costs prudently as we roll out next-generation and higher-margin solutions across our product ID and aerospace segments. We believe the actions we have taken in the past 6-12 months put us in a position to scale into new end markets and new geographies with high-margin solutions. Furthermore, we have additional long-term opportunities to improve margins through the rollout of royalties from legacy cockpit printers and through our multi-source ink supply program based on our new print engine technology. We are reiterating our guidance for the full year of fiscal 2026.

We expect to deliver full-year revenue of $160 million-$165 million, a 7% year-over-year increase at the midpoint, and adjusted EBITDA margin in the range of 8.5%-9.5%, or an 80 basis point expansion year-over-year at the midpoint. In summary, we are pleased with the progress that has been made this quarter, but we have more work to do. I want to thank our team for their hard work and position us for the future. We remain confident in our plan and believe we have the right people, infrastructure, and go-to-market strategy in place to drive long-term growth and profitability. Now, Tom and I will be happy to take your questions.

Operator (participant)

Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, it is star one on your telephone keypad if you would like to ask a question. We will pause for a brief moment to poll for questions. Once again, we will poll for questions. We'll just pause for one brief moment to see if there are any final questions. There are no questions at this time. I would like to turn the conference back over to management for closing remarks.

Greg Woods (President and CEO)

Great. Thank you. Thank everyone for joining us here today. We look forward to keeping you updated on our progress at AstroNova. Enjoy the weekend, and we'll talk to you guys soon. Have a good day.

Operator (participant)

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