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EX-31.2 - EX-31.2 - AstroNova, Inc.alot-ex312_6.htm
EX-31.1 - EX-31.1 - AstroNova, Inc.alot-ex311_8.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 27, 2018

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 0-13200

 

AstroNova, Inc.

(Exact name of registrant as specified in its charter)

 

 

Rhode Island

05-0318215

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

600 East Greenwich Avenue,

West Warwick, Rhode Island

02893

(Address of principal executive offices)

(Zip Code)

(401) 828-4000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

 

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.    Yes      No  .

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).    Yes      No  .

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

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

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.

Common Stock, $.05 Par Value – 6,952,794 shares

(excluding treasury shares) as of November 30, 2018

 

 

 


ASTRONOVA, INC.

INDEX

 

 

 

Page No.

Part I.

Financial Information

3

Item 1.

Financial Statements

3

 

Unaudited Condensed Consolidated Balance Sheets—October 27, 2018 and January 31, 2018

3

 

Unaudited Condensed Consolidated Statements of Income—Three and Nine Months Ended October 27, 2018 and October 28, 2017

4

 

Unaudited Condensed Consolidated Statements of Comprehensive Income—Three and Nine Months Ended October 27, 2018 and October 28, 2017

5

 

Unaudited Condensed Consolidated Statements of Cash Flows—Nine Months Ended October 27, 2018 and October 28, 2017

6

 

Notes to the Condensed Consolidated Financial Statements (unaudited)

7-23

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24-29

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

30

Item 4.

Controls and Procedures

30

Part II.

Other Information

31

Item 1.

Legal Proceedings

31

Item 1A.

Risk Factors

31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31

Item 6.

Exhibits

32

Signatures

33

 

2


Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

ASTRONOVA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, Except Share Data)

 

 

 

October 27,

2018

 

 

January 31,

2018

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

7,816

 

 

$

10,177

 

Securities Available for Sale

 

 

 

 

 

1,511

 

Accounts Receivable, net of allowance for doubtful accounts of $501

   at October 27, 2018 and $377 at January 31, 2018

 

 

21,717

 

 

 

22,400

 

Inventories, net

 

 

28,330

 

 

 

27,609

 

Prepaid Expenses and Other Current Assets

 

 

2,014

 

 

 

1,251

 

Total Current Assets

 

 

59,877

 

 

 

62,948

 

PROPERTY, PLANT AND EQUIPMENT

 

 

44,568

 

 

 

42,877

 

Less Accumulated Depreciation

 

 

(34,459

)

 

 

(33,125

)

Property, Plant and Equipment, net

 

 

10,109

 

 

 

9,752

 

OTHER ASSETS

 

 

 

 

 

 

 

 

Intangible Assets, net

 

 

30,685

 

 

 

33,633

 

Goodwill

 

 

12,283

 

 

 

13,004

 

Deferred Tax Assets

 

 

1,827

 

 

 

1,829

 

Other

 

 

1,275

 

 

 

1,147

 

Total Other Assets

 

 

46,070

 

 

 

49,613

 

TOTAL ASSETS

 

$

116,056

 

 

$

122,313

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Accounts Payable

 

$

5,355

 

 

$

11,808

 

Accrued Compensation

 

 

3,853

 

 

 

2,901

 

Other Liabilities and Accrued Expenses

 

 

2,697

 

 

 

2,414

 

Current Portion of Long-Term Debt

 

 

5,116

 

 

 

5,498

 

Current Portion of Royalty Obligation

 

 

1,750

 

 

 

1,625

 

Revolving Credit Facility

 

 

1,500

 

 

 

 

Current Liability – Excess Royalty Payment Due

 

 

1,246

 

 

 

615

 

Deferred Revenue

 

 

374

 

 

 

367

 

Income Taxes Payable

 

 

 

 

 

684

 

Total Current Liabilities

 

 

21,891

 

 

 

25,912

 

NON CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Long-Term Debt, net of current portion

 

 

14,068

 

 

 

17,648

 

Royalty Obligation, net of current portion

 

 

10,408

 

 

 

11,760

 

Deferred Tax Liabilities

 

 

614

 

 

 

698

 

Other Liabilities

 

 

1,667

 

 

 

2,648

 

TOTAL LIABILITIES

 

 

48,648

 

 

 

58,666

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Common Stock, $0.05 Par Value, Authorized 13,000,000 shares; Issued

   10,196,755 shares and 9,996,120 shares at October 27, 2018 and January 31,

   2018, respectively

 

 

510

 

 

 

500

 

Additional Paid-in Capital

 

 

52,948

 

 

 

50,016

 

Retained Earnings

 

 

47,693

 

 

 

45,700

 

Treasury Stock, at Cost, 3,259,473 and 3,227,942 shares at

   October 27, 2018 and January 31, 2018, respectively

 

 

(32,960

)

 

 

(32,397

)

Accumulated Other Comprehensive Loss, net of tax

 

 

(783

)

 

 

(172

)

TOTAL SHAREHOLDERS’ EQUITY

 

 

67,408

 

 

 

63,647

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

116,056

 

 

$

122,313

 

 

See Notes to condensed consolidated financial statements (unaudited).

3


ASTRONOVA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, Except Per Share Data)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 27,

2018

 

 

October 28,

2017

 

 

October 27,

2018

 

 

October 28,

2017

 

Revenue

 

$

34,196

 

 

$

28,760

 

 

$

99,490

 

 

$

80,701

 

Cost of Revenue

 

 

20,288

 

 

 

16,966

 

 

 

60,073

 

 

 

49,342

 

Gross Profit

 

 

13,908

 

 

 

11,794

 

 

 

39,417

 

 

 

31,359

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and Marketing

 

 

6,587

 

 

 

5,532

 

 

 

19,484

 

 

 

15,958

 

Research and Development

 

 

2,123

 

 

 

2,033

 

 

 

5,844

 

 

 

5,340

 

General and Administrative

 

 

2,836

 

 

 

2,597

 

 

 

8,298

 

 

 

6,780

 

Operating Expenses

 

 

11,546

 

 

 

10,162

 

 

 

33,626

 

 

 

28,078

 

Operating Income, net

 

 

2,362

 

 

 

1,632

 

 

 

5,791

 

 

 

3,281

 

Other Income (Expense)

 

 

(538

)

 

 

(12

)

 

 

(1,320

)

 

 

(45

)

Income before Income Taxes

 

 

1,824

 

 

 

1,620

 

 

 

4,471

 

 

 

3,236

 

Income Tax Provision

 

 

407

 

 

 

201

 

 

 

1,046

 

 

 

579

 

Net Income

 

$

1,417

 

 

$

1,419

 

 

$

3,425

 

 

$

2,657

 

Net Income per Common Share—Basic:

 

$

0.21

 

 

$

0.21

 

 

$

0.50

 

 

$

0.38

 

Net Income per Common Share—Diluted:

 

$

0.20

 

 

$

0.21

 

 

$

0.49

 

 

$

0.38

 

Weighted Average Number of Common Shares Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

6,925

 

 

 

6,725

 

 

 

6,858

 

 

 

6,968

 

Diluted

 

 

7,167

 

 

 

6,821

 

 

 

7,056

 

 

 

7,082

 

Dividends Declared Per Common Share

 

$

0.07

 

 

$

0.07

 

 

$

0.21

 

 

$

0.21

 

 

See Notes to condensed consolidated financial statements (unaudited).

 

4


ASTRONOVA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 27,

2018

 

 

October 28,

2017

 

 

October 27,

2018

 

 

October 28,

2017

 

Net Income

 

$

1,417

 

 

$

1,419

 

 

$

3,425

 

 

$

2,657

 

Other Comprehensive Income (Loss), Net of Taxes and

   Reclassification Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Currency Translation Adjustments

 

 

(157

)

 

 

(108

)

 

 

(775

)

 

 

210

 

Change in Value of Derivatives Designated as Cash

   Flow Hedge

 

 

221

 

 

 

60

 

 

 

766

 

 

 

(700

)

Losses (Gains) from Cash Flow Hedges Reclassified

   to Income Statement

 

 

(150

)

 

 

(58

)

 

 

(605

)

 

 

646

 

Unrealized Holding Gain (Loss) on Securities Available

   for Sale

 

 

 

 

 

(2

)

 

 

 

 

 

5

 

Realized Gain on Securities Available for Sale

   reclassified to income statement

 

 

 

 

 

 

 

 

3

 

 

 

 

Other Comprehensive Income (Loss)

 

 

(86

)

 

 

(108

)

 

 

(611

)

 

 

161

 

Comprehensive Income

 

$

1,331

 

 

$

1,311

 

 

$

2,814

 

 

$

2,818

 

 

See Notes to condensed consolidated financial statements (unaudited).

 

5


ASTRONOVA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

 

 

 

Nine Months Ended

 

 

 

October 27,

2018

 

 

October 28,

2017

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Net Income

 

$

3,425

 

 

$

2,657

 

Adjustments to Reconcile Net Income to Net Cash Provided (Used)

   by Operating Activities:

 

 

 

 

 

 

 

 

Depreciation and Amortization

 

 

4,633

 

 

 

2,394

 

Amortization of Debt Issuance Costs

 

 

38

 

 

 

22

 

Share-Based Compensation

 

 

1,339

 

 

 

1,125

 

Deferred Income Tax Provision

 

 

(67

)

 

 

(14

)

Changes in Assets and Liabilities, Net of Impact of Acquisition:

 

 

 

 

 

 

 

 

Accounts Receivable

 

 

248

 

 

 

(575

)

Inventories

 

 

(1,140

)

 

 

(1,769

)

Income Taxes

 

 

(244

)

 

 

(1,078

)

Accounts Payable and Accrued Expenses

 

 

(6,043

)

 

 

(610

)

Other

 

 

(916

)

 

 

(175

)

Net Cash Provided (Used) by Operating Activities

 

 

1,273

 

 

 

1,977

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

Proceeds from Sales/Maturities of Securities Available for Sale

 

 

1,511

 

 

 

3,766

 

Purchases of Securities Available for Sale

 

 

 

 

 

(321

)

Cash Paid for TrojanLabel Acquisition, net of cash acquired

 

 

 

 

 

(9,007

)

Cash Paid for Honeywell Asset Purchase and License Agreement

 

 

 

 

 

(14,873

)

Cash Paid for Honeywell Asset Purchase and License Agreement—TSA

   Agreement

 

 

(400

)

 

 

 

Payments Received on Line of Credit Issued to Label Line

 

 

 

 

 

85

 

Additions to Property, Plant and Equipment

 

 

(1,902

)

 

 

(1,719

)

Net Cash Provided (Used) by Investing Activities

 

 

(791

)

 

 

(22,069

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Net cash proceeds from Common Shares Issued Under Employee

   Benefit Plans and Employee Stock Option Plans, Net of Payment

   of Minimum Tax Withholdings

 

 

1,041

 

 

 

471

 

Purchase of Treasury Stock

 

 

 

 

 

(11,238

)

Proceeds from Issuance of Long-Term Debt

 

 

 

 

 

9,200

 

Borrowings under Revolving Credit Facility

 

 

3,000

 

 

 

14,600

 

Repayments under Revolving Credit Facility

 

 

(1,500

)

 

 

 

Change in Fair Value of Trojan Label Earn-Out

 

 

 

 

 

(477

)

Principal Payments of Long-Term Debt

 

 

(4,012

)

 

 

(552

)

Payments of Debt Issuance Costs

 

 

 

 

 

(155

)

Dividends Paid

 

 

(1,446

)

 

 

(1,470

)

Net Cash Provided (Used) by Financing Activities

 

 

(2,917

)

 

 

10,379

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents

 

 

74

 

 

 

81

 

Net Decrease in Cash and Cash Equivalents

 

 

(2,361

)

 

 

(9,632

)

Cash and Cash Equivalents, Beginning of Period

 

 

10,177

 

 

 

18,098

 

Cash and Cash Equivalents, End of Period

 

$

7,816

 

 

$

8,466

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

 

 

 

Cash Paid During the Period for Interest

 

$

449

 

 

$

138

 

Cash Paid During the Period for Income Taxes, Net of Refunds

 

$

3,154

 

 

$

1,736

 

Schedule of Non-Cash Financing Activities:

 

 

 

 

 

 

 

 

Value of Shares Received in Satisfaction of Option Exercise Price

 

$

366

 

 

$

242

 

 

See Notes to condensed consolidated financial statements (unaudited).

6


ASTRONOVA, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(1) 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 distributed through our own sales force and authorized dealers in the United States. We also sell to customers outside of the United States primarily through our Company offices in Canada, China, Europe, Mexico and Southeast Asia as well as through independent dealers and representatives. AstroNova, Inc. products are employed around the world in a wide range of aerospace, apparel, automotive, avionics, chemical, computer peripherals, communications, distribution, food and beverage, general manufacturing, packaging and transportation applications.

The business consists of two segments, Product Identification, which includes specialty printing systems sold under the QuickLabel® and TrojanLabel® brand names, and Test & Measurement which includes test and measurement systems sold under the AstroNova® brand name.

Products sold under the QuickLabel and TrojanLabel brands are used in industrial and commercial product packaging, branding and labeling applications to digitally print custom labels and corresponding visual content in house. Products sold under the AstroNova brand 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 and analyzed and then stored and presented in various visual output formats. In the aerospace market, the Company has a long history of using its data visualization technologies to provide high-resolution light-weight flight deck and cabin printers.

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.

(2) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, 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 footnotes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2018.

Results of operations for the interim periods presented herein are not necessarily indicative of the results that may be expected for the full year.

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. Some of the more significant estimates relate to revenue recognition, the allowances for doubtful accounts and credits, inventory valuation, impairment of long-lived assets and goodwill, income taxes, share-based compensation, accrued expenses 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.

Certain amounts in the prior year financial statements have been reclassified to conform to the current year’s presentation.

(3) Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation.

7


(4) Revenue Recognition

On February 1, 2018 we adopted Accounting Standards Update 2014-09, “Revenue from Contracts with Customers (Accounting Standards Codification “ASC” Topic 606),” which superseded nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASC Topic 606 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASC Topic 606 defines a five step process to recognize revenue and requires more judgment and estimates within the revenue recognition process than required under previous U.S. GAAP, which includes identifying contracts with customers, identifying performance obligations in the contract, determining and estimating the amount of any variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation and recognizing revenue when the entity satisfies each performance obligation.

We adopted this standard using the modified retrospective method and have applied the guidance to all contracts within the scope of ASC Topic 606 as of the February 1, 2018 adoption date. Under ASC Topic 606, based on the nature of our contracts and consistent with prior practice, we recognize the large majority of our revenue upon shipment, which is when the performance obligation has been satisfied. Accordingly, the adoption of this standard did not have a material impact on our revenue recognition and there was no cumulative effective adjustment as of February 1, 2018 as a result of the adoption of ASC Topic 606.

Significant judgments primarily include the identification of performance obligation arrangements as well as the pattern of delivery for those services.

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 used in the flight deck and in the cabin of military, commercial and business aircraft, (ii) related supplies required in the operation of the hardware, (iii) repairs and maintenance of equipment and (iv) service agreements.

The vast majority of our revenue is generated from the sale of distinct products. Revenue is measured as the amount of consideration the Company expects to receive in exchange for such products, which is generally at the contractually stated prices, and is recognized when we satisfy a performance obligation by transferring control of a product to a customer. The transfer of control generally occurs at one point in time, upon shipment, when title and risk of loss pass to the customer. Returns and customer credits are infrequent and are recorded as a reduction to revenue. Sales taxes and value added taxes collected concurrently with revenue generating activities are excluded from revenue.

Many of the contracts entered into with customers are commonly comprised of a combination of equipment, supplies, installation and/or training services. We determine performance obligations by assessing whether the products or services are distinct from other elements of the contract. In order to be distinct, the product must perform either on its own or with readily available resources and must be separate within the context of the contract.

The majority of our hardware products contain embedded operating systems and data management software which is included in the purchase price of the equipment. The software is deemed incidental to the systems as a whole as it is not sold or marketed separately and its production costs are minor compared to those of the hardware system. Hardware and software elements are typically delivered at the same time and are accounted for as a single performance obligation for which revenue is recognized at the point in time when ownership is transferred to the customer.

Installation and training services vary based on certain factors such as the complexity of the equipment, staffing availability in a geographic location and customer preferences, and can range from a few days to a few months. The delivery of installation and training services are not assessed to determine whether they are separate performance obligations, as the amounts are not material to the contract.

Shipping and handling activities that occur after control over a product has transferred to a customer are accounted for as fulfillment activities rather than performance obligations, as allowed under a practical expedient provided by ASC Topic 606. The shipping and handling fees charged to customers are recognized as revenue and the related costs are included in cost of revenue at the point in time when ownership of the product is transferred to the customer.

We may perform service at the request of the customer, generally for the repair and maintenance of products previously sold. These services are short in duration, typically less than one month, and total less than 9% of revenue for the nine months ended October 27, 2018. Revenue is recognized as services are rendered and accepted by the customer. We also provide service agreements on certain of our Product Identification equipment. Service agreements are purchased separately from the equipment and provide for the right to obtain service and maintenance on the equipment for a period of typically one to two years. Accordingly, revenue on these agreements is recognized over the term of the agreements. The portion of service agreement contracts that are uncompleted at the end of any reporting period are included in deferred revenue.

8


We generally provide warranties for our products. The standard warranty period is typically 12 months for most hardware products except for airborne printers, which typically have warranties that extend for 4-5 years, consistent with industry practice. Such assurance-type warranties are not deemed to be separate performance obligations from the hardware product and costs associated with providing the warranties are accrued in accordance with ASC 450, “Contingencies,” as we have the ability to ascertain the likelihood of the liability and can reasonably estimate the amount of the liability. Our estimate of costs to service the warranty obligations is based on historical experience and expectations of future conditions. To the extent that our experience in warranty claims or costs associated with servicing those claims differ from the original estimates, revisions to the estimated warranty liability are recorded at that time, with an offsetting adjustment to cost of revenue. On occasion, customers request a warranty period longer than our standard warranty. In those instances, in which extended warranty services are separately quoted to the customer, an additional performance obligation is created, and the associated revenue is deferred and recognized as service revenue ratably over the term of the extended warranty period. The portion of service contracts and extended warranty services agreements that are uncompleted at the end of any reporting period are included in deferred revenue.

Revenues disaggregated by primary geographic markets and major product type are as follows:

Primary geographical markets:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

(In thousands)

 

October 27,

2018

 

 

October 28,

2017

 

 

October 27,

2018

 

 

October 28,

2017

 

United States

 

$

21,542

 

 

$

18,116

 

 

$

60,752

 

 

$

51,048

 

Europe

 

 

7,573

 

 

 

6,771

 

 

 

23,292

 

 

 

20,545

 

Canada

 

 

1,560

 

 

 

1,428

 

 

 

4,653

 

 

 

3,854

 

Asia

 

 

1,860

 

 

 

1,183

 

 

 

5,836

 

 

 

2,270

 

Central and South America

 

 

921

 

 

 

1,045

 

 

 

3,078

 

 

 

2,529

 

Other

 

 

740

 

 

 

217

 

 

 

1,879

 

 

 

455

 

Total Revenue

 

$

34,196

 

 

$

28,760

 

 

$

99,490

 

 

$

80,701

 

 

Major product type:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

(In thousands)

 

October 27,

2018

 

 

October 28,

2017

 

 

October 27,

2018

 

 

October 28,

2017

 

Hardware

 

$

13,096

 

 

$

9,394

 

 

$

37,989

 

 

$

25,285

 

Supplies

 

 

18,107

 

 

 

16,608

 

 

 

52,690

 

 

 

47,734

 

Service and Other

 

 

2,993

 

 

 

2,758

 

 

 

8,811

 

 

 

7,682

 

Total Revenue

 

$

34,196

 

 

$

28,760

 

 

$

99,490

 

 

$

80,701

 

 

Accounts Receivable

Credit is extended based upon an evaluation of the customer’s financial condition. Accounts receivable are stated at their estimated net realizable value. The allowance for doubtful accounts is based on a variety of factors, including the age of amounts outstanding relative to their contractual due date, specific customer factors, historical write-off experience and current market assessments. Standard payment terms are typically 30 days after shipment, but vary by type and geographic location of our customers.

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 and were $374,000 and $367,000 at October 27, 2018 and January 31, 2018, respectively, and are recorded as deferred revenue in the condensed consolidated balance sheet. The slight increase in the deferred revenue at October 27, 2018 is primarily due to approximately $610,000 of revenue recognized during the period that was included in the deferred revenue balance at January 31, 2018, offset by cash payments received in advance of satisfying performance obligations.

9


Contract Costs

We recognize an asset for the incremental direct 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 based on the forecasted number of units sold over the estimated benefit term. There has been no change in the Company’s accounting for these contracts as a result of the adoption of ASC Topic 606. The balance of these contract assets at January 31, 2018 was $832,000 and was reported in other assets in the consolidated balance sheet. In the first quarter of fiscal 2019, the Company incurred an additional $150,000 in incremental direct costs which were deferred. The amortization of incremental direct costs was $50,000 and $65,000 for the three and nine months periods ended October 27, 2018. The balance of the deferred incremental direct contract costs net of accumulated amortization at October 27, 2018 is $916,000 and is reported in other assets in the condensed consolidated balance sheet. This amount is expected to be amortized over its estimated remaining period of benefit, which we currently estimate to be approximately 8 years.

We apply the practical expedient to expense costs incurred for costs to obtain a contract when the amortization period would have been less than a year. These costs include sales commissions paid to the internal direct sales team as well as to third-party representatives and distributors. Contractual agreements with each of these parties outline commission structures and rates to be paid. Generally speaking, the contracts are all individual procurement decisions by the customers and do not include renewal provisions and as such the majority of the contracts have an economic life of significantly less than a year.

(5) Acquisitions

On September 28, 2017, AstroNova, Inc. entered into an Asset Purchase and License Agreement (the “Honeywell Agreement”) with Honeywell International, Inc. 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 consisted of an initial upfront payment of $14.6 million in cash. The Honeywell Agreement also provided for guaranteed minimum royalty payments of $15.0 million, to be paid to Honeywell over the next ten years, based on gross revenues from the sales of the printers, paper and repair services of the licensed products. The royalty rates vary based on the year in which they are paid or earned and product sold or service provided, and range from single-digit to mid double-digit percentages of gross revenue.

This transaction was evaluated under Accounting Standard Update 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” and was accounted for as an asset acquisition.

The initial upfront payment of $14.6 million was paid at the closing of this transaction using borrowings from the Company’s revolving credit facility under its amended Credit Agreement with Bank of America, N.A.

The minimum royalty payment obligation of $15.0 million was recorded at the present value of the annual minimum royalty payments using a present value factor of 2.8%, which is based on the estimated after tax cost of debt for similar companies. At October 27, 2018, the current portion of the minimum royalty obligation to be paid over the next twelve months is $1.8 million and is reported as a current liability, and the remainder of $10.4 million is reported as a long-term liability on the Company’s condensed consolidated balance sheet. For the three and nine months ended October 27, 2018, the Company incurred $0.7 million and $2.0 million, respectively, in excess royalty expense, which is included in cost of revenue in the Company’s condensed consolidated statement of income for the period ended October 27, 2018. A total of $1.2 million of excess royalty is payable at October 27, 2018 and reported as a current liability on the Company’s condensed consolidated balance sheet.

In connection with the Honeywell Agreement, the Company also entered into a Transition Services Agreement (“TSA”) with Honeywell related to the transfer of the manufacturing and repair of the licensed printers from their current locations to AstroNova’s plant in West Warwick, Rhode Island. During the current year, the Company paid $0.4 million to acquire an additional repair facility revenue stream in accordance with the terms of the TSA. The additional $0.4 million TSA obligation payment was included as part of the Honeywell Agreement purchase price and recorded as an increase to the related intangible asset.

Under the terms of the TSA, the Company is required to pay for certain expenses incurred by Honeywell during the period in which product manufacturing is transferred to the Company’s facilities. In the first quarter of fiscal 2019, a change in accounting estimates for product costs and operating expenses related to the TSA resulted in an increase of $1.0 million in operating income ($0.8 million net of tax or $0.12 per diluted share). Additionally, in the first quarter of fiscal 2019, a change in accounting estimates for revenue subject to customer rebates under the Honeywell Agreement increased operating income by $0.4 million ($0.3 million net of tax or $0.05 per diluted share). These changes in accounting estimates were the result of actual amounts billed and received differing from initial estimates.

10


Transaction costs incurred for this acquisition were $0.3 million and were included as part of the purchase price.

The assets acquired in connection with the acquisition were recorded by the Company at their estimated relative fair values as follows:

 

(In thousands)

 

 

 

 

Inventory

 

$

1,411

 

Identifiable Intangible Assets

 

 

27,243

 

Total Purchase Price

 

$

28,654

 

 

The purchase price, including the initial payment, the minimum royalty payment obligation, transaction costs, and the subsequent TSA $0.4 million obligation payment, were allocated based on the relative fair value of the assets acquired. The fair value of the intangible assets acquired was estimated by applying the income approach. These fair value measurements are based on significant inputs that are not observable in the market and therefore represent a Level 3 measurement as defined in ASC 820, “Fair Value Measurement and Disclosure.” Key assumptions in estimating the fair value of the intangibles include (1) the remaining life of the intangibles based on the term of the Honeywell Asset Purchase and License Agreement of 10 years, (2) a range of annual earnings projections from $3.9 million – $5.4 million and (3) the Company’s internal rate of return of 21.0%.

The acquired identifiable intangible assets are as follows:

 

(In thousands)

 

Fair

Value

 

 

Useful Life

(Years)

 

Customer Contract Relationships

 

$

27,243

 

 

 

10

 

 

TrojanLabel

On February 1, 2017, our wholly-owned Danish subsidiary, ANI ApS, completed the acquisition of the issued and outstanding equity interests of TrojanLabel ApS (TrojanLabel). The purchase price of this acquisition was 62.9 million Danish Krone (approximately $9.1 million), net of cash acquired of 976,000 Danish Krone (approximately $0.1 million), of which 6.4 million Danish Krone (approximately $0.9 million) was placed in escrow to secure certain post-closing working capital adjustments and indemnification obligations of the sellers. In the first quarter of fiscal 2019, the Company settled the post-closing adjustments with TrojanLabel and recovered approximately 891,000 Danish Krone (approximately $145,000) of the amount held in escrow account, which was recognized as an adjustment to the allowance account for TrojanLabel receivables. The remaining escrow balance was retained by TrojanLabel.

(6) Net Income Per Common Share

Basic net income per share is calculated by dividing net income by the weighted average number of shares outstanding during the period. Diluted net income per share is calculated by dividing net income 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. A reconciliation of the shares used in calculating basic and diluted net income per share is as follows:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

October 27, 2018

 

 

October 28,

2017

 

 

October 27, 2018

 

 

October 28,

2017

 

Weighted Average Common Shares Outstanding - Basic

 

 

6,924,554

 

 

 

6,725,414

 

 

 

6,858,365

 

 

 

6,968,285

 

Effect of Dilutive Options, Restricted Stock Awards and

   Restricted Stock Units

 

 

242,074

 

 

 

95,507

 

 

 

197,760

 

 

 

114,076

 

Weighted Average Common Shares Outstanding - Diluted

 

 

7,166,628

 

 

 

6,820,921

 

 

 

7,056,125

 

 

 

7,082,361

 

 

11


For the three and nine months ended October 27, 2018, the diluted per share amounts do not reflect common equivalent shares outstanding of 228,600 and 333,175, respectively. For the three and nine months ended October 28, 2017, the diluted per share amounts do not reflect common equivalent shares outstanding of 609,934 and 612,248, respectively. These outstanding common equivalent shares were not included due to their anti-dilutive effect. Anti-dilutive shares consist of those common stock equivalents that have an exercise price above the average stock price for the period or for which the common stock equivalent’s related average unrecognized stock compensation expense is sufficient to “buy back” the entire amount of shares. Restricted stock units which vest based upon achievement of performance targets are excluded from the diluted shares outstanding unless the performance targets have been met as of the end of the reporting period, regardless of whether such performance targets are probable of achievement as of the end of the measurement period.

(7) Intangible Assets

Intangible assets are as follows:

 

 

 

October 27, 2018

 

 

January 31, 2018

 

(In thousands)

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Currency

Translation

Adjustment

 

 

Net

Carrying

Amount

 

 

Gross

Carrying

Amount

 

 

Accumulated

Amortization

 

 

Currency

Translation

Adjustment

 

 

Net

Carrying

Amount

 

Miltope:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer Contract Relationships

 

$

3,100

 

 

$

(1,644

)

 

$

 

 

$

1,456

 

 

$

3,100

 

 

$

(1,438

)

 

$

 

 

$

1,662

 

RITEC:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer Contract Relationships

 

 

2,830

 

 

 

(667

)

 

 

 

 

 

2,163

 

 

 

2,830

 

 

 

(461

)

 

 

 

 

 

2,369

 

Non-Competition Agreement

 

 

950

 

 

 

(633

)

 

 

 

 

 

317

 

 

 

950

 

 

 

(491

)

 

 

 

 

 

459

 

TrojanLabel:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Existing Technology

 

 

2,327

 

 

 

(624

)

 

 

130

 

 

 

1,833

 

 

 

2,327

 

 

 

(350

)

 

 

313

 

 

 

2,290

 

Distributor Relations

 

 

937

 

 

 

(176

)

 

 

51

 

 

 

812

 

 

 

937

 

 

 

(99

)

 

 

130

 

 

 

968

 

Honeywell:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer Contract Relationships

 

 

27,243

 

*

 

(3,139

)

 

 

 

 

 

24,104

 

 

 

26,843

 

 

 

(958

)

 

 

 

 

 

25,885

 

Intangible Assets, net

 

$

37,387

 

 

$

(6,883

)

 

$

181

 

 

$

30,685

 

 

$

36,987

 

 

$

(3,797

)

 

$

443

 

 

$

33,633

 

 

*

Includes additional $0.4 million related to the payment in fiscal 2019 in accordance with the terms of the TSA.

There were no impairments to intangible assets during the periods ended October 27, 2018 and October 28, 2017. With respect to the acquired intangibles included in the table above, amortization expense of $1,039,000 and $508,000 related to the above acquired intangibles has been included in the condensed consolidated statement of income for the three months ended October 27, 2018 and October 28, 2017, respectively. Amortization expense of $3,085,000 and $1,111,000 related to the above acquired intangibles has been included in the condensed consolidated statement of income for the nine months ended October 27, 2018 and October 28, 2017, respectively.

Estimated amortization expense for the next five fiscal years is as follows:

 

(In thousands)

 

Remaining

2019

 

 

2020

 

 

2021

 

 

2022

 

 

2023

 

Estimated amortization expense

 

$

1,031

 

 

$

4,228

 

 

$

4,098

 

 

$

4,010

 

 

$

4,006

 

 

(8) Share-Based Compensation

At the Company’s annual meeting of shareholders held on June 4, 2018, the Company’s shareholders approved the AstroNova, Inc. 2018 Equity Incentive Plan (the “2018 Plan”). The 2018 Plan provides for, among other things, the issuance of awards with respect to up to 650,000 shares of the Company’s common stock, plus an additional number of shares equal to the number of shares subject to awards granted under the 2018 Plan or the Company’s 2015 Equity Incentive Plan (the “2015 Plan” and, together with the 2018 Plan, the “Plans”) that are, following the effectiveness of the 2018 Plan, forfeited, cancelled, satisfied without the issuance of stock, otherwise terminated (other than by exercise), or, for shares of stock issued pursuant to any unvested award, reacquired by the Company at not more than the grantee’s purchase price (other than by exercise). Following the approval of the 2018 Plan at the Company’s annual meeting of shareholders, the Company ceased granting new equity awards pursuant to the 2015 Plan.

The Company has a Non-Employee Director Annual Compensation Program (the “Program”) under which each non-employee director receives an automatic grant of restricted stock awards (“RSAs”) on the first business day of each fiscal quarter. Under the Program, the number of whole shares to be granted each quarter is equal to 25% of the number calculated by dividing the director

12


compensation amount by the fair market value of the Company’s stock on such day. The director annual compensation amount was $65,000 in fiscal year 2018 and is $75,000 in fiscal year 2019. In addition, the Chairman of the Board receives RSAs with an aggregate value of $6,000, and the Chairs of the Audit and Compensation Committees each receive RSAs with an aggregate value of $4,000, also issued in quarterly installments and calculated in the same manner as the directors’ RSA grants. RSAs granted prior to March 30, 2017 became fully vested on the first anniversary of the date of grant. RSAs granted subsequent to March 30, 2017 become vested three months after the date of grant. A total of 5,300 and 7,314 shares were awarded to the non-employee directors as compensation under the Program in the third quarter of fiscal 2019 and 2018, respectively.

In April 2013 (fiscal year 2014), the Company granted options and RSUs to officers (“2014 RSUs”). The 2014 RSUs vested as follows: twenty-five percent vested on the third anniversary of the grant date, fifty percent vested upon the Company achieving its cumulative budgeted net revenue target for fiscal years 2014 through 2016 (the “Measurement Period”), and twenty-five percent vested upon the Company achieving a target average annual ORONA (operating income return on net assets as calculated under the Domestic Management Bonus Plan) for the Measurement Period. The grantee may not sell, transfer or otherwise dispose of more than fifty percent of the common stock issued upon vesting of the 2014 RSUs until the first anniversary of the vesting date. In April 2016, 9,300 of the 2014 RSUs vested, as the Company achieved the targeted average annual ORONA, as defined in the plan, for the Measurement Period and another 9,300 vested as a result of the third year anniversary date of the grant. Additionally, on February 1, 2014, the Company accelerated the vesting of 4,166 of the 2014 RSUs held by Everett Pizzuti in connection with his retirement.

In March 2015 (fiscal year 2016), the Company granted 50,000 options and 537 RSAs to its Chief Executive Officer pursuant to an Equity Incentive Award Agreement dated as of November 24, 2014 (“CEO Equity Incentive Agreement”), and 35,000 options to other key employees.

In May 2015 (fiscal year 2016), the Company granted an aggregate of 80,000 time-based and 155,000 performance-based RSUs (“2016 RSUs”) to certain officers of the Company. The time-based 2016 RSUs vest in four equal annual installments commencing on the first anniversary of the grant date. The performance-based 2016 RSUs vest over three years based upon the increase in revenue, if any, achieved each fiscal year relative to a three-year revenue increase goal. Performance-based 2016 RSUs that are earned based on organic revenue growth are fully vested when earned, while those earned based on revenue growth via acquisitions vest annually over a three-year period following the fiscal year in which the revenue growth occurs. Any performance-based 2016 RSUs that were not earned at the end of fiscal 2018 were forfeited. The expense for such shares was recognized in the fiscal year in which the results were achieved, however, the shares were not fully earned until approved by the Compensation Committee in the first quarter of the following fiscal year. Based upon revenue in fiscal 2018, 2017 and 2016, 33,638, 9,025 and 15,810 shares of the performance based RSUs were earned in the first quarter of fiscal 2019, 2018 and 2017, respectively.

In March 2016 (fiscal year 2017), the Company granted 50,000 options and 4,030 RSAs to its Chief Executive Officer pursuant to the CEO Equity Incentive Agreement.

In May 2016 (fiscal year 2017) the Company granted 37,000 options to certain key employees. On August 1, 2016 (fiscal year 2017) the Company granted 5,000 options to its Chief Financial Officer.

In March 2017 (fiscal year 2018), the Company granted 50,000 options to the Chief Executive Officer pursuant to the CEO Equity Incentive Agreement. In February and April 2017 the Company granted 52,189 options to certain other key employees. In December 2017, upon election to the Board, the Company granted 5,000 non-qualified options and 675 RSUs to a Board member. In January 2018, the Company granted 50,000 non-qualified options and 15,000 RSUs to the newly appointed Chief Financial Officer.

In April 2018 (fiscal year 2019), the Company granted 5,000 non-qualified options and 341 RSUs to a newly elected member of the Board of Directors.

In May 2018, the Company granted 40,000 options to certain key employees.

In June 2018, the Company granted an aggregate of 25,000 non-qualified options to the members of the Board of Directors. Also in June 2018, the Company granted an aggregate of 126,000 options, 44,275 time-based RSUs and 38,000 performance-based RSUs to certain officers of the Company, all of which vest over three years. The number of performance-based RSUs that are eligible to vest will be determined based upon achievement of fiscal 2019 revenue and operating income targets.

13


Share-based compensation expense was recognized as follows:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

(In thousands)

 

October 27,

2018

 

 

October 28,

2017

 

 

October 27,

2018

 

 

October 28,

2017

 

Stock Options

 

$

215

 

 

$

105

 

 

$

571

 

 

$

316

 

Restricted Stock Awards and Restricted Stock Units

 

 

290

 

 

 

436

 

 

 

757

 

 

 

800

 

Employee Stock Purchase Plan

 

 

5

 

 

 

3

 

 

 

11

 

 

 

9

 

Total

 

$

510

 

 

$

544

 

 

$

1,339

 

 

$

1,125

 

 

Stock Options

The fair value of stock options granted during the nine months ended October 27, 2018 and October 28, 2017 was estimated using the following assumptions:

 

 

 

Nine Months Ended

 

 

 

October 27,

2018

 

 

October 28,

2017

 

Risk Free Interest Rate

 

 

2.6

%

 

 

1.7

%

Expected Volatility

 

 

39.3

%

 

 

37.9

%

Expected Life (in years)

 

 

9.0

 

 

 

8.0

 

Dividend Yield

 

 

1.5

%

 

 

2.2