AstroNova, Inc. Stock

Greetings. Welcome to AstroNova's First Quarter Fiscal Year 2027 Financial Results Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Deb Pawlowski, Investor Relations. Thank you. You may begin.

Thank you, and good morning, everyone. We appreciate your interest in AstroNova. With me are Jorik Ittmann, our President and Chief Executive Officer; and Tom DeByle, our Chief Financial Officer. You should have a copy of the earnings release that crossed the wires after market close as well as the slide deck for today's call. If you do not, you can find both on the Investor Relations section of our website.

Please turn to Slide 2 for our cautionary statement. As a reminder, during this call, we may make forward-looking statements about our current plans, beliefs and expectations. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. These risks and uncertainties are described in today's earnings release and in our SEC filings, which are available on our website and at sec.gov. We do not undertake any obligation to update these forward-looking statements.

We will also refer to certain non-GAAP financial measures. We believe these measures provide investors with additional insight into our core operating performance. However, they should not be considered in isolation or as a substitute for GAAP results. Reconciliations of non-GAAP to GAAP measures are included in the tables accompanying today's release and slide presentation.

With that, please turn to Slide 3, and I'll hand the call over to Jorik to discuss the quarter and our progress. Jorik?

Thank you, Debbie, and good morning, everyone. We had a solid start to fiscal 2027, continuing the momentum from the second half of last year as we drive greater sales, marketing and operating discipline. First quarter revenue grew over 4%, primarily due to the strong Aerospace performance, while margins also expanded nicely resulting in an adjusted EBITDA margin of 10.5%.

Our bookings grew 32.6%, also driven by Aerospace, and our Product ID order rate is averaging up on a trailing 12-month basis. Aerospace was the primary driver of our first quarter results. The predominance of ToughWriter shipments and strong industry tailwinds are delivering growth and profitability. Commercial Aircraft build rates are projected to increase over the next few years, and we have captured a significant share of that opportunity with our ToughWriter printers.

We're also working to improve our aftermarket service processes to increase throughput and capture more of that attractive business. In Product ID, we're making good progress, although revenue was slightly down from the prior year period. Operating income doubled. Higher and sustained sales of certain legacy products helped offset the impact of the ongoing transition to our newer Direct-to-Packaging Printer platform. This, along with improving productivity and better cost control supported margin expansion. The comprehensive settlement agreement announced in May resolved the arbitration and related proceedings tied to the MTEX acquisition and mutually discharge all liabilities arising from related agreements. This removes a source of uncertainty and distraction and allows us to stay focused on execution, customer service and realizing the strategic value of the platform within Product ID.

We continue to make investments in the team to sustain our momentum. We have recently added a global sales director who is reshaping our channels to market. While we have strong channel partners, they are not aligned with the markets we are targeting. As discussed last quarter, the life sciences, chemical and industrial markets value the technical capabilities and quality of our printers and labels. In these markets, we're a critical element to address regulatory requirements, safety and longevity.

We also have added a global operations director, adding much needed talent to take a critical eye at our manufacturing processes and footprint. As you know, the Board is evaluating a range of potential strategic alternatives to maximize shareholder value. That process is ongoing. We will not speculate on potential outcomes, timing or specific alternatives. We do not intend to comment further unless and until the Board approves a specific course of action or disclosure is otherwise required. At the same time, we remain fully focused on running the business. improving performance and executing the strategy that is driving better results across both segments.

With that, please turn to Slide 4, and I will hand the call over to Tom to review the financials in more detail. Tom?

Thank you, Jorik, and good morning, everyone. As shown on the slide, consolidated revenue increased to $39.4 million in the quarter from $37.7 million a year ago and from $37.5 million in the fourth quarter. Tariff mitigation actions contributed approximately $0.7 million to revenue in the quarter and foreign currency translation provided a $0.6 million benefit.

Aerospace was a clear driver, with sales up 16.3% year-over-year to $13.3 million. Commercial Aircraft sales increased 46%, supported by increasing build rates. We also had strength in Regional and Biz Jet Aircraft resulting in hardware revenue increasing $2.5 million or 38% year-over-year. In Product ID, Revenue was down modestly, but underlying trends are encouraging. Desktop Labeling revenue grew sequentially. Aftermarket revenue remained approximately 82% of segment sales and orders were up year-over-year.

The Direct-to-Package business remains in transition from our legacy platform to newer products. And while this transition affected our first quarter revenue, we believe it positions us better over the long term with a strong technology platform and a clear road map for our customers.

Please turn to Slide 5. Gross profit increased to $14.4 million from $12 million in the prior year quarter, and gross margin expanded 490 basis points to 36.6%. On an adjusted basis, gross margin was 36.9%, up 410 basis points year-over-year, reflecting Aerospace volume, better mix and ongoing operational improvements.

Turning to Slide 6. Higher gross profit combined with cost containment initiatives resulted in an operating income increasing $1 million to $1.6 million. While operating expenses included higher legal and professional fees, we still delivered a substantial improvement in profitability. Non-GAAP operating income increased 70% to $2.6 million. Aerospace non-GAAP operating income was $3.4 million or 25.6% of revenue and Product ID non-GAAP operating income more than doubled year-over-year.

Turning to Slide 7. Our progress has translated to an improving bottom line. Net income increased by $0.7 million or $0.08 per diluted share compared with a net loss in the prior year period. This also reflects lower interest expense, which decreased by $0.2 million year-over-year to $0.7 million as a result of lower outstanding debt. Non-GAAP net income was $1.4 million or $0.19 per diluted share. Adjusted EBITDA increased to $4.1 million, and adjusted EBITDA margin improved to 10.5%, reflecting both stronger underlying performance and disciplined cost management.

If you turn to Slide 8, I'll review cash flow, debt reduction and liquidity. We generated $3 million of cash from operations, reduced debt by $1.7 million to $36 million and ended the quarter with $17.4 million in liquidity, including $4.7 million in cash and cash equivalents and $12.7 million of borrowing capacity on our revolver. Stronger cash earnings were partially offset by higher working capital requirements due to the timing of receivable and inventory's needs to support growth.

Capital expenditures were only $36,000 in the quarter, which resulted in a free cash flow of $3 million. Debt was $36 million at the end of the quarter, down from $37.7 million at fiscal year-end and $44.8 million a year ago. Our net debt leverage ratio improved to 2.6x, well inside our covenant threshold. Overall, we are pleased with the continued progress we are making in improving profitability, generating cash and strengthening our balance sheet.

Turning to Slide 9. Total orders in the quarter were $46.3 million, up 33% over the prior year period, producing a book-to-bill ratio of 118%. Total backlog ended the quarter at $32.4 million. Growth in orders was also driven by Aerospace, which had orders of $19.5 million and a book-to-bill ratio of 147%. Aerospace backlog at the end of the quarter was $18.2 million, more than double the prior year level.

Product ID orders increased to $26.8 million. Backlog rose sequentially to $14.2 million, and our go-to-market strategy continues to gain traction in the verticals where our solutions are the most differentiated and the customer relationships tend to be the stickiest. Our orders and backlog trends along with customer feedback, provide good visibility and support confidence in the direction of the business. With that, please turn to Slide 10, and I'll hand the call back to Jorik to conclude our comments. Jorik?

Thank you, Tom. We are encouraged by the start to fiscal 2027 and believe the business is moving in the right direction. In Aerospace, we continue to see favorable demand trends and the benefit of the ToughWriter transition. In Product ID, our focus remains on converting pipeline into revenue growth, improving operational consistency and supporting the migration to our new technology platforms while building on the traction we are seeing in our target verticals.

Looking ahead, our positive outlook is supported by strong Aerospace demand, improving execution in Product ID, growing backlog and the anticipated expiration of a major royalty obligation in the third quarter of fiscal 2027. This will provide approximately $2 million of annualized gross profit benefit beginning in the fourth quarter.

As we move through the year, we remain committed to creating value for shareholders that includes continuing to execute our operating plan, while the Board evaluates strategic alternatives. With improving margins, stronger backlog and a continued debt reduction, AstroNova is better positioned to deliver more consistent and resilient performance.

With that, operator, we're ready to open the line for questions.

[Operator Instructions]

There are no questions at this time. I would like to turn the call back over to management for closing remarks.

Thank you, everyone. I mean we truly appreciate your support going through this journey to all the employees. Thank you for your hard work and dedication. It is truly appreciated. Thank you. .

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

Greetings. Welcome to AstroNova Fourth Quarter Fiscal Year 2026 Financial Results Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Deborah Pawlowski, Investor Relations for AstroNova. Thank you. You may begin.

Thank you, and good morning, everyone. We appreciate your interest in AstroNova, and thank you for taking the time to join us today. With me on the call are Jorik Ittmann, our President and Chief Executive Officer; and Tom DeByle, our Chief Financial Officer.

You should have a copy of the earnings release that crossed the wires after market closed yesterday as well as the slide deck that will accompany our conversation today. If you do not, you can find both documents on the Investor Relations section of our website at astronovainc.com.

Please turn to Slide 2 for our cautionary statements. As a reminder, during this call, we may make some forward-looking statements about our current plans, beliefs and expectations. These statements relate to future events and results and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied today. These risks and uncertainties are described in today's earnings release and in our filings with the Securities and Exchange Commission, which are available on our website and at sec.gov. We do not undertake any obligation to update these forward-looking statements.

We also will be referring to certain non-GAAP financial measures. We believe these measures provide investors with additional insight into our core operating performance. However, they should not be considered in isolation or as a substitute for GAAP results. Reconciliations of non-GAAP to GAAP measures are included in the tables that accompany both today's release and the slide presentation.

With that, please turn to Slide 3, and I'll hand the call over to Jorik to discuss the quarter and our progress. Jorik?

Thank you, Debbie, and good morning, everyone. We appreciate you joining us today. As we said on my first conference call reporting the second quarter of fiscal 2026, we expected the second half to perform better than the first half of the year. The second half of fiscal 2026 was a reset period for AstroNova, and our results reflect the early benefits of the changes we have made across the business. We entered the year with a focus on stabilizing the company, improving cash generation, reducing debt and raising accountability across both segments, and we delivered against those priorities.

Operationally, the Product Identification turnaround is gaining momentum. In the Product ID, we're executing against a clear go-to-market and operational strategy. By applying more robust analytics to understand our value proposition and where we have the best opportunity to win, we have a clearer view of where we are the stickiest with our customers. Our products and full-service capability are appreciated in these applications. We have focused our sales resources to better address these markets, which has entailed changes in talent and structure.

Operationally, we are addressing productivity and efficiencies to strengthen our competitive position while also to support a stronger margin profile. Our Aerospace business continues to perform well. We are benefiting from a favorable product mix and a strong demand for our ToughWriter solutions. We had a very strong order quarter and have several tailwinds that should continue to benefit the business. Importantly, we exited the year with a solid backlog in both segments, providing a good visibility heading into fiscal 2027.

As you know, we announced that the Board is evaluating a range of potential strategic alternatives, which may include, among other things, a sale of all or part of the company, a strategic investment, a merger or other business combination, other strategic or financial options or continuing to execute on our organic strategic plan. We are early in the process, and as you would expect, we cannot speculate on the outcome.

If you turn to Slide 4, I will walk you through our sales results. As shown on the slide, our performance picked up in the second half of the year, and we believe that momentum is carrying into the fiscal 2027. Product ID second half sales were up 4.2% over the first half of the year as our customer-centric sales approach gained traction. Notably, Product ID orders were $27.5 million, up $2.9 million year-over-year, resulting in a book-to-bill ratio of 104% and backlog increased by $1.1 million sequentially as our new go-to-market strategy continued to gain traction.

Our new sales and marketing strategy is focused on applications where we tend to win and where customer relationships are the stickiest. This is often where our print solutions are part of a customer product in a highly regulated markets. Over the past several quarters, we have sharpened our focus on 3 key verticals of life science, industrial, chemical markets. In these verticals, our label and packaging solutions are directly embedded in customer products and workflows, making reliability, durability and regulatory compliance critical for our customer outcomes. In these applications, labels can change frequently to address regulatory updates must be durable to withstand heavy handling in harsh environments and both the label and the ink must meet regulatory standards.

Turning to Aerospace. Second half sales also improved over the first half. Orders in Aerospace were $13.6 million, resulting in a book-to-bill ratio of 122% and year-end backlog was $12 million, reflecting sustained demand from OEMs as aircraft build rates continue to recover. A key driver in Aerospace is the ongoing transition to our ToughWriter product family. ToughWriter now represents more than 80% of total flight deck printers shipments, positioning us well as aircraft utilization and build rates increase.

Looking ahead, a major royalty obligation will expire in the third quarter of fiscal 2027, representing approximately a $2 million annualized benefit to gross profit that will be fully realized beginning in the fourth quarter. We're also making operational improvements in the business, driving greater efficiency and productivity in our service and repair operation.

With that, I will turn it over to Tom to walk us through the financial details. Tom?

Thank you, Jorik, and good morning, everyone. Fourth quarter revenue was $37.5 million, up $0.2 million compared with the prior year period as growth in our Product ID slightly more than offset our lower Aerospace revenue. Tariff mitigation actions contributed approximately $0.6 million to revenue in the quarter, and the foreign currency translation provided a $0.8 million benefit. For the full year, revenue was $150.5 million compared with $151.3 million last year. As Jorik noted, second half revenue grew nearly 4% over the first half, and the demand we are building from our sales efforts supports our expectation for mid-single-digit growth in our fiscal 2027.

Please turn to Slide 5. Gross profit for the fourth quarter was $11.3 million and gross margin was 30.2%, reflecting a contraction of 250 to 260 basis points year-over-year, primarily to lower volume and mix. On a non-GAAP basis, gross profit was $11.9 million and non-GAAP gross margin was 31.7%. It is also worth noting that the second half gross profit increased 8% and margin expanded 130 basis points. Given our size, quarter-to-quarter comparisons can sometimes mask the changes occurring in the business, and we believe the trailing periods since our second half reset provide a better view of the progress we are making with our strategy.

Turning to Slide 6. Last year's fourth quarter was impacted by a $13.4 million goodwill impairment charge, which makes the year-over-year comparison less meaningful. Here, too, the first half and second half comparison is more realistic. Under new leadership, we had $1.3 million in operating profit in the second half of fiscal '26 compared with the loss in the first half. On a non-GAAP basis, operating profit grew by more than 90% and operating margin expanded 220 basis points.

Turning to Slide 7. You can see our adjusted EBITDA performance. Starting with GAAP results. Net loss for the quarter was $1.1 million or $0.15 per diluted share versus a net loss of $15.6 million or $2.07 per share in the prior year quarter, which again included the goodwill impairment charge. Non-GAAP net loss was $0.3 million or $0.04 per share. Adjusted EBITDA in the fourth quarter grew 18% to $3.3 million, while adjusted EBITDA margin expanded 130 basis points to 8.8%. For the full fiscal year 2026, adjusted EBITDA was $12.7 million, up $0.4 million, and adjusted EBITDA margin improved 20 basis points to 8.4%. Comparing the second half with the first half, adjusted EBITDA grew 44% and margin expanded 270 basis points, again, demonstrating the progress resulting from the actions we have taken across the organization.

If you turn to Slide 8, I'll review our improved cash generation, debt reduction and liquidity. Cash provided by operating activities in the fourth quarter was $3.7 million compared with $2.5 million in the prior year period, reflecting stronger cash earnings and lower working capital needs, particularly inventory. For the full year, cash from operations was $11.7 million, a meaningful improvement over fiscal 2025. Capital expenditures were tightly controlled at $0.3 million for the year compared with $1.2 million in the prior year. This also highlights capital-light nature of our business. We use the stronger cash generation to further deleverage the balance sheet.

During the fourth quarter, we reduced debt by $2.7 million, bringing total debt to $37.6 million as of January 31, 2026, down from the $46.7 million at the end of fiscal 2025. We ended the year with $4.1 million of cash and cash equivalents and total liquidity of $15.9 million, including $11.8 million of borrowing capacity on our revolver. Our net debt leverage ratio was 2.97 at year-end, well inside our 4.5 covenant, and our fixed charge coverage ratio was 1.43 versus the 1.05 requirement. Overall, we are pleased with the progress we have made in strengthening the balance sheet and enhancing our financial flexibility.

Turning to Slide 9. I'll briefly review orders and backlog. As most of you know, our orders can vary from period to period, especially in Aerospace because of the size and timing of customer projects. So quarter-to-quarter order patterns do not necessarily reflect underlying demand. Total orders in the quarter of $41.1 million were up 6.5% over the prior year period, driven by over 12% growth in the Product ID orders. Demand for our label printing products has improved with renewed energy and focus of our sales and marketing organization. Aerospace demand, which is subject to customer project timing reflects improved aircraft build by the major OEMs.

At year-end, backlog of $25.5 million was down from $28.3 million in the prior year. During the second half, we reduced our backlog in our Mail & Sheet/Flatpack Printers that was long past overdue by improving productivity in the operation. As Jorik mentioned, we have added leadership talent in both the segment for both operations and sales that we expect to help further drive demand and production output while streamlining costs. Aerospace backlog was up 17.6%, driven by increasing demand from our OEMs and the timing of deliveries.

With that, please turn to Slide 10, and I'll hand the call back to Jorik to discuss our outlook.

Thanks, Tom. Let me reiterate that fiscal 2026 was a foundational reset year for AstroNova, particularly in the second half of the year. Across the organization, we have been driving culture change around customer centricity and transparency, disciplined, data-driven decision-making at the time we are simplifying operation, containing costs and refining our organizational structure to support continued improvement in execution. We have spent the last 6 months positioning AstroNova for improved and more sustainable performance.

Looking ahead, for fiscal 2027, we expect mid-single-digit revenue growth and expansion in adjusted EBITDA margin. In Aerospace, we anticipated measured top line growth supported by rising aircraft utilization and favorable shift in product mix and the expiration of a major royalty obligation in the third quarter of fiscal 2027, which will provide an approximate $2 million annualized contribution to gross profit beginning in the fourth quarter.

In Product ID, our focus is on converting our growing commercial pipeline into consistent revenue growth while continuing to improve operational performance and profitability. As we navigate this next phase, we remain committed to create value for our shareholders. This includes evaluating all strategic alternatives that can enhance that value, as I discussed earlier. With a more disciplined operating model, a stronger balance sheet and attractive opportunities across both segments, we believe AstroNova is on a path to deliver stronger and more resilient performance over time.

With that, operator, we're ready to open the line for questions.

[Operator Instructions] There are no questions at this time. I would like to turn the conference back over to management for closing remarks.

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

Greetings. Welcome to AstroNova's Third Quarter Fiscal Year 2026 Financial Results. [Operator Instructions] Please note, this conference is being recorded.

At this time, I'll turn the conference over to Deborah Pawlowski, Investor Relations for AstroNova. Thank you, Deborah, you may now begin.

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 Jorik Ittmann, our President and Chief Executive Officer; and Tom DeByle, our Chief Financial Officer. You should have the earnings release that crossed the wires earlier this morning as well as the slides that will accompany our conversation day. If not, you can find these documents on the Investor Relations section of our website, astronovainc.com.

Please turn to Slide 2 to review 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, uncertainties and 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 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.

So now if you will turn to Slide 3, I'll turn the call over to Jorik to begin. Jorik?

Thank you, Debbie. Good morning, everyone, and thank you for joining us today. Our third quarter results are an early demonstration of our execution on the plan to transform AstroNova. Our priorities remain focused on improving customer engagement, strengthening operational performance and building a culture accountability and urgency. While we're early in our transformation efforts, there were clear signs of progress across both segments in the quarter, including meaningful improvements in margins and cash generation. I am encouraged by the momentum we're building inside the organization.

If you turn to Slide 4, I will talk through sales by segment. Product ID delivered year-over-year revenue growth in Q3, supported by improved execution across the business. Our Mail & Sheet Flatpack Printer business or Astro Machine performed well, with sales up 14% as productivity improvements enabled increased shipment levels. We also had higher shipments sequentially of direct-to-package overprint printers, including the redesigned AJ-800. Sales increase has updated systems, reach customers and continued to gain valuable feedback. The reorganization of commercial sales, which focused separate teams on customer retention and customer acquisition has gained traction. Sales of our legacy desktop label printers increased nearly 5% over last year's third quarter and was up 6% over the second quarter of this fiscal year. We are improving engagement with our existing customers, reconnecting with customers we have previously lost and developing a clear understanding of the sales cycles for our newer fair value printer platforms.

We also continue to advance and validate our next-generation print solutions. With upgraded MTEX units now in customer environments, we are gaining insight, we need to refine the product and ensure our offerings meet customer expectations.

Turning to Aerospace. The business maintained its leading market position with major aircraft manufacturers. We continue to make progress transitioning customers to our ToughWriter product family. Customer adoption remains strong, and shipments of the ToughWriter exceeded 80% of total flight deck printer in the quarter. We also saw healthy demand patterns this last quarter. Orders increased 24% year-over-year, and we benefited from improving production schedules at our major OEMs. Aerospace remains a stable and profitable business for us, and we expect industry build rates to remain a positive tailwinds as we head into the fourth quarter and fiscal 2027.

Across AstroNova, we continue to strengthen our culture around customer centricity, transparent communication and disciplined operating focus.

With that, I will turn it over to Tom to review the financials.

Thank you, Jorik, and good morning, everyone. Turning to Slide 5. Gross profit in the second quarter was $14.2 million, up 3.5% year-over-year, and gross margin expanded 240 basis points on lower revenue. Sequentially, gross margin expanded 100 basis points driven by higher volume, productivity improvements and improved mix. Year-to-date fiscal '26, gross profit was $38.5 million or 34.1% of sales, a $1.5 million decline from the same period last year as a result of less favorable product mix associated with the atypical shipment of print heads in the Aerospace segment.

Looking at Slide 6. Product ID operating income was $1.9 million, consistent with the prior year period. Higher volume and a more favorable mix helped offset the $0.7 million inventory provision related to a warehouse closure and segment true-up as well as a $0.3 million goodwill impairment charge. On an adjusted basis, operating income increased by 50% to $2.9 million or 10.6% of sales.

Moving to Slide 7. Aerospace operating income for the quarter was $4.5 million, up 39% from last year. This was driven by cost reductions and a $0.3 million benefit from the previously mentioned inventory true-up between segments. Sequentially, we saw the benefit of a shift towards the ToughWriter systems, which contributed to improved mix and expected to remain a margin tailwind.

Year-to-date, the impact of royalty payments on cost of goods sold was $1.8 million and are expected to be $2.3 million for the full year. This is down about $0.5 million from fiscal 2025.

Going into fiscal 2027, a major royalty agreement expires in September 2026, providing about $2.2 million annualized margin tailwind to be fully realized beginning in the fourth quarter.

Turning to Slide 8. Our net income was $0.4 million or $0.05 per share, reflecting improved financial performance this quarter. Adjusted EBITDA was $4.2 million, up 29% from the prior year. Adjusted EBITDA margin for the third quarter was 10.7%.

Moving to Slide 9. We had a strong quarter of cash generation, which was very encouraging. Cash provided from operations in the third quarter of fiscal 2026 was $3.4 million, up from the prior year due to strong cash earnings and reduced working capital requirements, primarily due to lower inventory mostly in the Aerospace segment.

AstroNova is a very capital-light business. CapEx year-to-date was $0.2 million, and we are expecting CapEx for the full year to be less than $0.5 million. We refinanced our credit facility during the quarter, extending maturity out to 2028 and beyond, consolidating our foreign debt into the U.S. and providing temporary expansion of our revolver. The refinance lowered our principal payments and converted term euro debt to U.S. dollar debt. Our new credit agreement provides us greater flexibility as we continue to strengthen the business.

This quarter, we paid down $3.2 million in debt and have reduced the debt by $6.4 million year-to-date. Our net debt leverage ratio at the end of the quarter was at 3.38, comfortably below the maximum 4.75 coverage ratio allow in our lending agreement. Our fixed charge coverage ratio was 1.27 at the end of the quarter versus the minimum requirement of 1.05. As of October 31, 2025, we had $13.5 million in total liquidity, including $3.6 million in cash and $9.9 million available on the revolver. We remain focused on improving cash generation, being disciplined in our capital allocation and reducing leverage over time.

Now please turn to Slide 10, and I'll hand the call back to Jorik.

Thanks, Tom. We had orders of $35.9 million in the third quarter of fiscal 2026, which were down $1.7 million from the prior year period and relatively unchanged sequentially as improvements in aerospace offset a slightly weaker order quarter for Product ID. In Product ID, orders were impacted by delays in renewing blanket orders with shorting customers, which we expect to see return in the fourth quarter. The team now continues to engage more directly with current, past and prospective customers to rebuild our consistency and strengthen the pipeline. In Aerospace, we had strong order activity from major OEMs. As their inventories came down, we expect our shipments going forward to be more in line with the OEMs improving build rates. While quarterly order patterns can vary, the underlying production environment remains constructive, and the ongoing transition to our ToughWriter product line continues to support a better mix.

Lower backlog at quarter end was driven by a decline in Product ID, which was not fully offset by growth in Aerospace backlog. The decline in product ID backlog was due to higher shipments of mail and sheet flatpack printers and the timing associated with blanket orders.

If you will turn to Slide 11, I will summarize that we're currently underway with AstroNova on track to deliver stronger profitability and improved sales. Many of the initiatives we introduced last quarter are now well in motion, and we are beginning to see benefits across the organization. We continue to strengthen our culture around customer centricity, transparency and disciplined execution. Teams are collaborating more effectively, decision making is faster, and we are aligning the organization around clear priorities. The reason we have focused our executive leadership on the higher value, long sales cycle products, given our experience there and the significant difference in the type of sales versus our shorter-cycle desktop printer. By doing so, we can also better leverage the sales team experience on shorter cycle wins. Across the company, we're containing costs, improving processes, simplifying our operation. The $3 million in annualized cost reductions, we have discussed previously, are now fully implemented, and we saw a full impact of the savings in the third quarter. We're investing in growth as well. We had -- we have added some new sales talent and to build a pipeline of qualified opportunities. Our employing active digital marketing outreach campaigns, which are complemented by exhibits at high-impact industry events. We're also employing a very disciplined qualification process to prioritize the user -- the use of resources, improve forecast and quality and maintain pipeline integrity.

Our ongoing transition to autonomous ink-printed platform will enable greater supply chain flexibility. In an Aerospace, the upcoming royalty roll-off in fiscal 2027 remains a meaningful long-term margin opportunity. We are reiterating our guidance for the full year of fiscal 2026. We expect to deliver full year revenue of $149 million to $154 million, which implies fourth quarter revenue of $36 million to $41 million, and we expect adjusted EBITDA margin to be in the 7.5% to 8.5% range.

We're creating stability across the business. The team is aligned and committed, and we're executing with a greater sense of urgency. While there is still work ahead, we are confident of our ability to improve performance and deliver a stronger, more resilient AstroNova.

Operator, let's open the line for questions.

[Operator Instructions] We did have no question at this time. I'll turn the floor back to management for closing remarks.

Thank you. Thank you, everyone, for participating in this call. We appreciate it. There are no questions today. Thank you for your time.

Thank you, gentlemen. This will conclude today's conference. You may now disconnect your lines at this time. We thank you for your participation. Have a wonderful day.

Greetings, and welcome to AstroNova's Second Quarter Fiscal Year 2026 Financial Results. [Operator Instructions]. As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Debbie Pawlowski. Thank you. You may begin.

Thank you, and good morning, everyone. We certainly appreciate your interest in AstroNova, and thank you for sharing your time with us today. I am pleased to introduce to you, Jorik Ittmann, who is appointed President and Chief Executive Officer of AstroNova effective August 15 this year. Also joining us is Tom DeByle, our Chief Financial Officer, who should be familiar to most of you.

You should have the earnings release that crossed the wires earlier this morning as well as the slides that will accompany our conversation today. If not, you can find these documents on the Investor Relations segment of our website, AstroNova, Inc.

Please turn to Slide 2 to review 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, uncertainties and other factors that could cause actual results to differ materially from what is stated here today. These risks and uncertainties and other factors are provided in the earnings release as well as in other documents filed by the company with Securities and 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.

We will turn to Slide 3 and I will turn the call over to Jorik. Jorik?

Thank you, Debbie. Good morning, everyone, and thank you for joining us today. I'm excited to take on this new leadership role and confident in the future of AstroNova. We have a leading market position in Aerospace with a loyal customer base and long-term contracts as a first tier supplier to major aircraft manufacturers.

In our Product Identification segment, our new commercial print technologies have begun to ship as these new print solutions are validated by our customers, we expect to be able to address the full funnel of interest we have been generating to drive sales. But I know we have a lot of work to do to get our growth and profitability on track.

On Slide 3, you see my priorities for AstroNova. Starting first with our Product ID segment, we began the restructuring of our sales team earlier this year to be much more customer-centric. The company has been losing customers over the last number of years. I believe it's because of how we went to market and how our sales organization was compensated. I have reorganized sales into 2 teams. Customer acquisition and customer retention. This reorients our focus on taking care of our current customers and winning back those we have lost while gaining new customers.

We're also working to change the skills of our sales team to align with our new product offerings. Our new print solutions, especially the significantly larger and higher-value print solutions, we're now offering our capital projects for our customers. This is a very different sales process from how we have solved our legacy tabletop printers. The sales cycle is longer and customers' needs are more specific. We've been making progress with our new go-to-market strategy and believe results will begin to demonstrate it over the next several quarters. Our success is also dependent upon a couple of other hurdles we are currently addressing.

First, we have to validate with customers that the upgrades we have made to the MTEX product line meets their needs, including print quality, speed, reliability, durability and lower operating costs. We have shipped several of the models with another to be on the way this week. If results come our as we expect, we can drive more sales, if not, we will have to rethink that portfolio.

Second, as this might be news to you, we have a different kind of problem with our product line for our partners who serve the Mail & Sheet printer line. We have had a hard time keeping up with demand. We have redesigned products for that market and we have excellent partners serving customers. Our partners and their customers like the products. We just haven't been able to make enough of these products. Our PI leadership team is actively engaged now in order to capitalize on this opportunity.

Turning to Aerospace now. Even though revenue declined compared with last year's second quarter, we believe that business is performing on key metrics such as transitioning to our ToughWriter, flight deck printers from legacy equipment. During the quarter, we began shipping the ToughWriter 640 to a major aircraft OEM. As a result, the ToughWriter represented 50% of second quarter shipments and we remain on track to reach our target of over 80% by fiscal year-end.

Aerospace can be a lumpy business from quarter-to-quarter, nearly 45% of the segment's revenues for aftermarket sales and service and roughly 10% of hardware sales are dependent upon spare replacement machines. However, for new build aircraft, we like the long-term tailwind provided by growth in commercial aircraft build rates.

We're also making changes in the culture of AstroNova. We have great talent within the organization that needs to be unleashed yet held accountable. I am working to create a more collaborative culture that puts the customer first. I'm excited on how the team has embraced change and believe we can develop into an organization that delivers. We have to execute a plan to regain trust with our key stakeholders, including customers, employees and not least, investors. I believe that if we can demonstrate AstroNova can make progress in our markets with our customers, strengthening earnings power and be straightforward and transparent while delivering on our promises, we will build credibility with you.

Tom, I will turn it to you now to review the financials.

Thank you, Jorik, and good morning, everyone. On Slide 4, you can see the second quarter revenue of $36.1 million declined 10.9% year-over-year and sequentially 4.2%. 70% of the quarter's revenue was reoccurring. By segment, Product ID and Aerospace decreased 8.9% and 15.1%, respectively. Lower sale Product Identification in the quarter were primarily driven by $2.6 million decline in recurring supplies, parts and service from customer attrition. This was partially offset by higher demand for the Mail & Sheet flat pack products. In July, we began shipping our professional label printers, the QL-425 and 435 models. And in August, we shipped the AJ-800, a new direct-to-package printer line that was upgraded from the former MTEX model.

For Aerospace, the year-over-year decline was a result of a tough comparison against last year's second quarter, which benefited from a $1.3 million in unusually large spare printer shipments to both the airline and the defense customer as well as nonrecurring engineering revenue from an OEM project. For the first half of fiscal 2026 revenue of $73.8 million increased marginally year-over-year due to higher hardware sales, offsetting the decline in recurring supplies, parts and service revenue.

Turning to Slide 5. Gross profit in the second quarter was $11.6 million, down $2.7 million year-over-year, reflecting lower sales and unfavorable mix, primarily related to the decline in aerospace volume. For the first half of fiscal 2026, gross profit was $24.3 million or 32.9% of sales, a $2 million decline from the same period as a result of less favorable product mix, primarily in the Aerospace segment.

For the second half of the year, we expect Aerospace gross margin improve on similar volume since we began shipping the ToughWriter to a major OEM in June, higher volume and improved mix in the Product ID should drive margins as well.

Look at Slide 6. Product ID operating income for the quarter declined $0.4 million or 18%, it was partially offset by a $0.5 million reduction in operating costs. In the first 6 months of fiscal '26, GAAP operating income also declined. We expect improvements in sales and with the impact of our cost reductions, we should see improving margins for the segment.

Looking at Slide 7. Aerospace operating income for the quarter was down $1.4 million or 37% due to sales volume and unfavorable mix. This was partially offset by $0.3 million in cost reductions. For the first half of fiscal 2026 GAAP and adjusted operating income declined due to weak second quarter results.

Turning to Slide 8. Our net loss was $1.2 million or $0.16 per share, reflecting lower volume, partially offset by a $0.5 million tax benefit. Adjusted EBITDA was $2.1 million, down $1.8 million compared with the prior year period. Adjusted EBITDA margin for the second quarter was 5.7%.

Moving to Slide 9. Cash provided from operations in the first half of fiscal '26 was $4.6 million and down from the prior year based on everything we have covered here. As Jorik mentioned, we are rethinking how we operate the business and are driving a stronger focus on cash generation through improved operational performance. We are carefully managing our capital.

And as a result, our CapEx was almost $0.1 million in the first 6 months of the year. We have been constraining our capital investments and expect CapEx for the fiscal year to be less than $0.5 million. We paid down $5.1 million in debt through the first half of fiscal '26 and as of July 31, 2025, we have $10.4 million in total liquidity including $3.9 million in cash, $5.9 million available on our revolver and an untapped $0.6 million line of credit in Portugal. Our leverage ratio of funded debt to adjusted EBITDA was 3.5x. The bank waived our fixed charge coverage ratio for the second quarter, and we are in discussions regarding restructuring of our debt which we expect to have completed in the next 60 days.

Our objective with the turnaround of Product ID and continued advancement of the Aerospace segment is on a consolidated basis to grow sales, drive product profitability, generate cash and pay down debt.

Now please turn to Slide 10, and I'll hand the call back to Jorik.

Thanks, Tom. We had orders of $30.9 million in the second quarter of fiscal 2026, which were relatively unchanged from the prior year period but up $1 million sequentially as the sold improvements in Aerospace more than offset a very weak order quarter for Product ID. As we discussed earlier, we have changed the team's structure and are actively meeting with current and past and prospective customers. Aerospace orders were up $3.8 million for the trailing first quarter. I'm seeing how much variation this business can have from quarter-to-quarter.

We do expect that as Boeing increases its build rates and inventories level out, we should see steady growth in hardware sales related to new builds. Backlog for the quarter was down $4.6 million year-over-year to $25.3 million and represent about 30% of expected shipments for the second half of the year at the midpoint of our guidance range.

If you will turn to Slide 11, and I will summarize the work we have to do to put AstroNova on track to deliver stronger profitability and improve sales. There unfortunately is not any single lever to pull to make this work. We have to reengage with our customers and simplify our processes to improve our responsiveness. We need to measurably improve our customer retention rate, we have to evolve our sales approach for a new higher-value printers.

We also are addressing production challenges in the Mail & Sheet flat pack printer operation. We need to streamline processes to take out costs and reduce our lead times. We're simplifying operations in Portugal and better prioritizing and allocating our resources. I remain encouraged as we move forward, we expect to see a full benefit of $3 million in annualized cost reductions in the second half of the fiscal year with a much better understanding of the potential of our new printers over the next few months.

And our Aerospace business provides a stable base with a couple of tailwinds, including increasing aircraft build rates and a benefit to profit margin, we will realize in fiscal 2028 as Honeywell royalty rolls off. I'm looking forward to the challenge of improving the business and driving change for AstroNova.

Operator, let's open the line for questions.

[Operator Instructions].

This concludes the question-and-answer session. And this concludes our conference for today. You may disconnect your lines at this time, and we thank you for your participation.