AstroNova(ALOT) - 2023 Q2 - Quarterly Report

Part I. Financial Information Financial Statements This section presents AstroNova, Inc.'s unaudited condensed consolidated financial statements for the quarter ended July 30, 2022, along with detailed explanatory notes Condensed Consolidated Balance Sheets Total assets increased slightly to $116.3 million as of July 30, 2022, driven by higher inventories, with stable liabilities and equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | July 30, 2022 | January 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $67,662 | $63,778 | | Inventories, net | $41,727 | $34,609 | | Total Assets | $116,298 | $114,955 | | Total Current Liabilities | $22,521 | $20,035 | | Revolving Line of Credit | $4,500 | $— | | Total Liabilities | $35,202 | $33,943 | | Total Shareholders' Equity | $81,096 | $81,012 | Condensed Consolidated Statements of Income Q2 FY2023 revenue grew 8.1% to $32.3 million, but net income significantly declined to $0.6 million compared to the prior year's PPP loan benefit Statement of Income Summary (in thousands, except per share data) | Metric | Q2 2022 (3 Months) | Q2 2021 (3 Months) | H1 2022 (6 Months) | H1 2021 (6 Months) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $32,259 | $29,845 | $63,269 | $58,923 | | Gross Profit | $11,382 | $12,716 | $22,111 | $23,603 | | Operating Income | $1,235 | $3,452 | $1,999 | $4,186 | | Extinguishment of Debt – PPP Loan | $— | $4,466 | $— | $4,466 | | Net Income | $584 | $7,019 | $1,009 | $7,612 | | Diluted EPS | $0.08 | $0.96 | $0.14 | $1.04 | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities was $3.8 million for the six months ended July 30, 2022, primarily due to increased inventories Cash Flow Summary (Six Months Ended, in thousands) | Cash Flow Activity | July 30, 2022 | July 31, 2021 | | :--- | :--- | :--- | | Net Cash (Used) Provided by Operating Activities | $(3,819) | $5,493 | | Net Cash Used for Investing Activities | $(163) | $(1,162) | | Net Cash Provided (Used) for Financing Activities | $3,089 | $(4,218) | | Net Decrease in Cash | $(991) | $(50) | | Cash and Cash Equivalents, End of Period | $4,285 | $11,389 | - The primary use of cash from operations was a $7.5 million increase in inventories and a $2.3 million increase in accounts payable and accrued expenses, partially offset by a $3.1 million Employee Retention Credit receipt[23] Notes to the Condensed Consolidated Financial Statements These notes detail the company's business segments, accounting policies, debt, and significant events, including the Astro Machine LLC acquisition - The company operates in two segments: Product Identification (PI), including specialty printing systems, and Test & Measurement (T&M), including aerospace and data acquisition products[27] - On August 4, 2022, the company acquired Astro Machine LLC for $17.1 million, financed by a new $6.0 million term loan and an increased revolving credit facility[106] - In the prior fiscal year (FY2022), the company benefited from the forgiveness of a $4.4 million PPP loan and recognized a $3.1 million Employee Retention Credit, significantly impacting year-over-year comparisons[64][75] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q2 FY2023 financial performance, highlighting strong T&M revenue growth, lower profitability due to prior-year benefits, and liquidity Results of Operations Q2 FY2023 revenue increased 8.1% to $32.3 million driven by T&M growth, but gross margin and net income significantly declined Q2 FY2023 vs Q2 FY2022 Revenue by Segment (in thousands) | Segment | Q2 FY2023 Revenue | Q2 FY2022 Revenue | % Change | | :--- | :--- | :--- | :--- | | Product Identification | $23,382 | $23,492 | (0.5)% | | T&M | $8,877 | $6,353 | 39.7% | | Total | $32,259 | $29,845 | 8.1% | - Q2 gross profit margin decreased to 35.3% from 42.6% year-over-year, primarily due to increased manufacturing costs and the absence of a $1.7 million Employee Retention Credit benefit in the prior-year quarter[124] - Q2 net income was $0.6 million, or $0.08 per diluted share, compared to $7.0 million, or $0.96 per diluted share, in the prior year, which included a $4.5 million PPP loan forgiveness gain and a $3.1 million Employee Retention Credit benefit[128] Segment Analysis PI segment revenue was flat with declining operating profit, while T&M revenue surged 39.7% due to aerospace recovery - Product Identification's Q2 operating profit declined to $1.6 million from $4.4 million year-over-year, attributed to the absence of a $1.4 million Employee Retention Credit benefit, unfavorable sales mix, and higher costs[139] - Test & Measurement's Q2 revenue grew 39.7% due to a rebound in air travel, leading to higher volume of aerospace repairs, parts, and cockpit printer revenue, with operating profit increasing to $2.2 million despite higher component costs[141] Financial Condition, Liquidity and Capital Resources Liquidity is supported by operations and a revolving credit facility, with cash used for inventory increases and a subsequent credit agreement amendment for acquisition financing - Net cash used by operating activities was $3.8 million for the first half of the year, compared to $5.5 million provided in the prior year, mainly due to a significant increase in working capital, particularly inventory[163] - Inventory increased by $7.1 million to $41.7 million at quarter-end, a strategic move to create buffer stock against supply chain difficulties and long lead times for components[165] - Subsequent to the quarter, the company amended its credit agreement, adding a new $6.0 million term loan and increasing its revolving credit facility from $22.5 million to $25.0 million to fund the Astro Machine acquisition[155] Quantitative and Qualitative Disclosures About Market Risk No material changes occurred in the company's market risk disclosures since the Annual Report on Form 10-K for the fiscal year ended January 31, 2022 - There were no material changes to the company's market risk disclosures during the six months ended July 30, 2022[170] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of July 30, 2022, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of the end of the reporting period, the company's disclosure controls and procedures are effective[171] - No changes occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[172] Part II. Other Information Legal Proceedings There are no material pending or threatened legal proceedings against the company - There are no material pending or threatened legal proceedings against the company[173] Risk Factors No material updates have been made to the risk factors disclosed in the Annual Report on Form 10-K for the fiscal year ended January 31, 2022 - No material updates have been made to the risk factors disclosed in the Annual Report on Form 10-K for the fiscal year ended January 31, 2022[175] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any shares of its common stock during the second quarter of fiscal 2023 - The company did not repurchase any shares of its common stock during the second quarter of fiscal 2023[176][177] Exhibits This section lists exhibits filed with the Form 10-Q, including agreements for the Astro Machine LLC acquisition and required CEO/CFO certifications - Exhibits filed include the Equity Interest Purchase Agreement for Astro Machine LLC and the Second Amendment to the Amended and Restated Credit Agreement with Bank of America, N.A., both dated August 4, 2022[178] - Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included as exhibits[178] Signatures The report is duly signed on September 8, 2022, by the President and CEO, and the VP, CFO, and Treasurer