AstroNova(ALOT) - 2019 Q4 - Annual Report

PART I Business AstroNova, Inc. designs, develops, and manufactures specialty printers and data acquisition systems through its Product Identification and Test & Measurement segments, with growth supported by strategic acquisitions - The company's business is structured into two main segments: Product Identification (PI) and Test & Measurement (T&M)[6] - The Product Identification (PI) segment includes specialty printing systems sold under the QuickLabel®, TrojanLabel®, and GetLabels™ brands, targeting markets like food and beverage, chemicals, and pharmaceuticals for in-house label printing[6][8][9] - The Test & Measurement (T&M) segment provides data acquisition systems and a line of aerospace flight deck printers used in military, commercial, and business aircraft from manufacturers like Airbus, Boeing, and Gulfstream[6][10] - Recent strategic growth includes the acquisition of TrojanLabel, a European manufacturer of digital color label presses, and an exclusive license from Honeywell International, Inc. for its narrow-format flight deck printers[6] Order Backlog Trend | Fiscal Year End | Backlog (in millions USD) | | :--- | :--- | | Jan 31, 2019 | $25.6 | | Jan 31, 2018 | $21.4 | | Jan 31, 2017 | $17.6 | Risk Factors The company faces significant risks including market dependency, innovation needs, supplier reliance, intense competition, international operation exposures, and potential liabilities - AstroNova's performance is sensitive to economic conditions, as declines in customer markets could reduce demand for its capital equipment and consumable products[20] - Future revenue growth is dependent on the ability to develop and introduce new products in markets with rapidly changing technologies[21] - The company relies on single or limited source suppliers for certain components and subcontractors for manufacturing, posing risks of supply chain interruption[22][24] - International sales accounted for 39% of total revenue in fiscal 2019, exposing the company to risks such as currency fluctuations, trade protection measures, and geopolitical turmoil[29] - The company may not fully realize the anticipated benefits of past acquisitions (Honeywell, TrojanLabel) due to potential integration challenges, which could divert management attention and incur unexpected costs[36] - The planned exit of the United Kingdom from the European Union ("Brexit") could negatively impact operations and financial results due to potential trade restrictions, regulatory complexity, and currency volatility[53] Properties AstroNova's principal owned property is its 135,500 square foot corporate headquarters in West Warwick, Rhode Island, supplemented by international owned and leased properties Principal Owned and Leased Properties | Location | Approx. Square Footage | Principal Use | | :--- | :--- | :--- | | West Warwick, RI, USA | 135,500 | Corporate HQ, R&D, Manufacturing, Sales & Service | | Dietzenbach, Germany | 18,630 | Manufacturing, Sales & Service | | Brossard, Quebec, Canada | 4,500 | Manufacturing, Sales & Service | | Elancourt, France | 4,150 | Sales & Service | | Copenhagen, Denmark | 4,800 | R&D | Legal Proceedings The company reports no pending or threatened legal proceedings believed to be material to its financial position or results of operations - There are no material pending or threatened legal proceedings against the Company[59] PART II Market for Common Stock, Stockholder Matters and Issuer Purchases AstroNova's common stock trades on NASDAQ under 'ALOT', with a consistent quarterly dividend policy and an ongoing share repurchase program - The company's common stock trades on the NASDAQ Global Market under the symbol 'ALOT'[59] - AstroNova has paid a quarterly cash dividend for 110 consecutive quarters, with the dividend set at $0.07 per share in each quarter of fiscal years 2019, 2018, and 2017[60] - The company is authorized to repurchase up to 390,000 shares of its common stock, with no expiration date for the authorization[61] Selected Financial Data This section presents a five-year summary of AstroNova's historical financial performance, showing consistent revenue growth and increased net income in fiscal 2019 Historical Financial Summary (FY2015-2019) | (In thousands, except per share data) | 2019 (USD) | 2018 (USD) | 2017 (USD) | 2016 (USD) | 2015 (USD) | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $136,657 | $113,401 | $98,448 | $94,658 | $88,347 | | Operating Income | $8,720 | $5,412 | $6,281 | $5,934 | $7,231 | | Net Income | $5,730 | $3,286 | $4,228 | $4,525 | $4,662 | | Net Income per Share—Diluted | $0.81 | $0.47 | $0.56 | $0.61 | $0.60 | | Total Assets | $118,983 | $122,313 | $83,665 | $77,963 | $74,330 | | Shareholders' Equity | $69,775 | $63,647 | $70,537 | $67,373 | $63,511 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) AstroNova's fiscal 2019 revenue grew 20.5% to $136.7 million, driven by the Honeywell acquisition, with improved gross margin and significantly increased net income Results of Operations For fiscal 2019, total revenue increased 20.5% to $136.7 million, led by the T&M segment, resulting in a significant rise in net income to $5.7 million Revenue by Segment (FY2019 vs. FY2018) | Segment | FY2019 Revenue (Thousands USD) | FY2018 Revenue (Thousands USD) | % Change | | :--- | :--- | :--- | :--- | | Product Identification | $86,786 | $81,681 | 6.2% | | T&M | $49,871 | $31,720 | 57.2% | | Total | $136,657 | $113,401 | 20.5% | Revenue by Type (FY2019 vs. FY2018) | Revenue Type | FY2019 Revenue (Millions USD) | FY2018 Revenue (Millions USD) | % Change | | :--- | :--- | :--- | :--- | | Hardware | $53.2M | $37.5M | 41.9% | | Supplies | $71.2M | $65.3M | 9.0% | | Service and other | $12.3M | $10.6M | 16.0% | - Net income for fiscal 2019 was $5.7 million, or $0.81 per diluted share, a significant increase from $3.3 million, or $0.47 per diluted share, in fiscal 2018[68] - For fiscal 2018 compared to 2017, revenue increased 15.2% to $113.4 million, driven by the Honeywell and TrojanLabel acquisitions, but net income decreased from $4.2 million to $3.3 million due to a $1.1 million tax expense related to the 2017 Tax Act[71][72] Segment Analysis In fiscal 2019, PI segment revenue grew 6.2% with a margin decline due to investments, while T&M segment revenue surged 57.2% with a doubled margin driven by the Honeywell product line Segment Operating Profit and Margin | Segment | FY2019 Operating Profit (Thousands USD) | FY2019 Margin (%) | FY2018 Operating Profit (Thousands USD) | FY2018 Margin (%) | | :--- | :--- | :--- | :--- | :--- | | Product Identification | $7,910 | 9.1% | $10,561 | 12.9% | | T&M | $11,933 | 23.9% | $3,754 | 11.8% | - The decrease in the PI segment's operating margin was attributed to significant investments in new product development, sales, and marketing[75] - The T&M segment's significant increase in revenue and operating margin was primarily due to the first full year of contribution from the acquired Honeywell product line[76] Liquidity and Capital Resources The company's liquidity is supported by cash from operations and a credit facility, with $7.5 million in cash and $18.2 million in debt as of January 31, 2019, despite a slight decrease in operating cash flow - As of January 31, 2019, the company had $7.5 million in cash and cash equivalents and $8.5 million available under its revolving credit facility[78] - Total debt, consisting of two term loans, was $18.2 million as of January 31, 2019[79][80][160] - Net cash provided by operating activities decreased to $3.4 million in FY2019 from $3.7 million in FY2018, primarily due to payments to Honeywell under the TSA and an increase in inventory to support the production transition[81] Contractual Obligations (as of Jan 31, 2019) | (In thousands USD) | Total (Thousands USD) | Less than 1 Year (Thousands USD) | 1-3 Years (Thousands USD) | 3-5 Years (Thousands USD) | More than 5 Years (Thousands USD) | | :--- | :--- | :--- | :--- | :--- | :--- | | Purchase Commitments | $30,617 | $30,146 | $471 | $— | $— | | Debt | $18,242 | $5,208 | $10,784 | $2,250 | $— | | Royalty Obligation | $11,791 | $1,779 | $3,651 | $3,152 | $3,209 | | Operating Lease Obligations | $2,616 | $574 | $907 | $567 | $568 | Critical Accounting Policies and Estimates Management identifies critical accounting policies requiring significant judgment, including revenue recognition, inventory valuation, income taxes, intangible asset impairment, and share-based compensation - The company adopted the new revenue recognition standard (Topic 606) on February 1, 2018, using the modified retrospective method, which did not have a material impact on revenue recognition[85] - Goodwill is tested for impairment annually at the reporting unit level, with a qualitative assessment in fiscal 2019 indicating no impairment[86] - The 2017 Tax Cuts and Jobs Act required the company to remeasure its U.S. deferred tax assets and liabilities and account for a one-time transition tax on foreign earnings[86] Quantitative and Qualitative Disclosures About Market Risk AstroNova is exposed to financial market risks, primarily from foreign currency exchange rates and interest rates, which it manages through hedging strategies - The company's primary foreign currency translation exposure is related to its subsidiaries with functional currencies denominated in the Euro[89] - Realized and unrealized foreign exchange losses from transactional exposure amounted to $0.7 million for the year ended January 31, 2019[90] - The company utilizes interest rate swaps to hedge the interest rate exposure related to its variable-rate long-term debt[91] Changes in and Disagreements with Accountants The company reported no changes in or disagreements with its accountants regarding accounting and financial disclosure - None reported[92] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of January 31, 2019, with no material changes - Management concluded that disclosure controls and procedures were effective as of January 31, 2019[93] - Management assessed internal control over financial reporting as effective as of January 31, 2019, based on the COSO framework[94] PART III Directors, Executive Officers and Corporate Governance This section, largely incorporated by reference from the 2019 proxy statement, details executive officers and confirms the adoption of a Code of Conduct - Most information required by this item is incorporated by reference from the company's definitive proxy statement[96] - The company has adopted a Code of Conduct that applies to all directors, officers, and employees, and is available on its website[97] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's definitive Proxy Statement for the 2019 Annual Meeting of Shareholders - All information required by this item is incorporated by reference from the Company's definitive Proxy Statement[98] Security Ownership and Related Stockholder Matters Details on security ownership are incorporated by reference from the 2019 Proxy Statement, including securities to be issued upon option exercise and those available for future issuance Equity Compensation Plan Information (as of Jan 31, 2019) | Plan Category | Securities to be Issued Upon Exercise (Number) | Weighted-Average Exercise Price (USD) | Securities Remaining for Future Issuance (Number) | | :--- | :--- | :--- | :--- | | Approved by Shareholders | 901,664 | $14.30 | 290,593 | Certain Relationships, Related Transactions and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's definitive Proxy Statement - All information required by this item is incorporated by reference from the Company's definitive Proxy Statement[100] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's definitive Proxy Statement for the 2019 Annual Meeting of Shareholders - All information required by this item is incorporated by reference from the Company's definitive Proxy Statement[101] PART IV Exhibits and Financial Statement Schedule This section provides an index of all financial statements, schedules, and exhibits filed as part of the Form 10-K, including key agreements and financial reports - This item provides an index of all financial statements, schedules, and exhibits included in the Form 10-K filing[101] - Key exhibits filed include the Credit Agreement with Bank of America, the Asset Purchase and License Agreement with Honeywell, and details of the company's various equity incentive plans[103][104]