David Calusdian - Investor Relations, Sharon Merrill Greg Woods - President and CEO Joe O'Connell - SVP & CFO.

Lou Moser - Mayfax Investors.

Good day and welcome to the Astro-Med's Q3 Fiscal Year 2015 Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to David Calusdian. Please go ahead..

Thank you, and good morning, everyone. Hosting today's call are Astro-Med's Chief Executive Officer, Greg Woods and Chief Financial Officer Joe O'Connell. Greg will begin today's call by reviewing the company's operating highlights and business outlook.

Joe will then take you through the financials and then management will be happy to take your questions. By now, you should have received a copy of the news release, which was issued earlier today.

If you have not received a copy, please go to the Investor section of the company's website, www.Astro-MedInc.com Before we begin, please note that statements during this call that are not statements of historical facts are considered forward-looking statements within the meaning of the Securities and Exchange Act of 1934.

These forward-looking statements are based on a number of assumptions that could involve risks and uncertainties. Accordingly, actual results could differ materially. Such forward-looking statements speak only as of the date made. Except as required by law, the company undertakes no obligation to update these forward-looking statements.

For further information regarding the forward-looking statements and the factors that may cause differences, please see the company's risk factors in the company's annual report on Form 10-K and other filings Astro-Med makes with the Securities and Exchange Commission. With that, I'll turn the call over to Greg Woods. .

Thank you, David. Good morning, everyone, and welcome to our third quarter fiscal 2015 earnings conference call. Here is the plan for today's call. I will begin by reviewing the company's third quarter results and operating highlights. I will then turn the call over to Joe who will take you through the financials.

After Joe returns the call to me I will have some closing comments and then we will be happy to take your questions. Let's start now by taking a look at Astro-Med's third quarter.

With 27% top line growth and improved profitability Astro-Med reported another strong quarter that builds on the key strategic themes we have discussed with you over the past year.

Specifically, our results further evidence the emphasis our organization is placing on three key initiatives, product innovation, geographic expansion and manufacturing efficiency.

These initiatives support the continued expansion of our data visualization technology, which is the driving force behind our specialty printing and data acquisition solutions. Strong customer demand for these solutions is borne out by the performance of our segments.

Revenue in the QuickLabel Systems segment increased nearly 22% from Q3 of fiscal 2014 while revenue in our Test & Measurement segment was up 39%. Coupled with the revenue increase the company also achieved significant improvements in operating income and operating margin.

Through the first nine months of 2015 net sales were nearly $65 million, 30% of the same period a year ago and on pace to exceed the high end of our full year guidance. In percentage terms orders achieved in Q3 were up more than 27% year-over-year essentially mirroring the third quarter sales increase.

Looking in more detail at the QLS segment, we continue to raise the bar for quality, performance and value with several new products that extend our successful Kiaro! family of inkjet color label printers.

During this month's PACK EXPO tradeshow in Chicago, we launched the industry's first complete line of color digital label printers using pigment inks.

Our new Kiaro! D series, the D is for durable, prints extremely durable labels that can weather harsh environments, sunlight, moisture, dirt or chemicals for example, without losing their legibility or color fastness. We introduced three D models, the Kiaro! D, the 50D and the 200D, that cover a broad range of label sizes and applications.

Our pigment ink label technology is primarily designed for industrial application to bottle, carton, case and pack labels, to gallon cans, shipping drums, et cetera. If you need a versatile, durable label that displays product pictures, logos, color codes, barcodes or other variable elements, the D series is a great solution.

They deliver the same rapid print speed and high print quality customers have come to rely on over the entire Kiaro! family. And the Kiaro! family has grown nicely. The first model was introduced a little over two years ago at the 2012 PACK EXPO show.

The following year we introduced the second model, the Kiaro! 200 and this year we had six models in our booth. We now offer three sizes, 2, 4 and 8-inch models for both our ultrahigh quality dye-based series, as well as the new, more industrial pigment ink-based D series.

Judging by the activity at the PACK EXPO booth and other recent tradeshows around the globe, we expect this lineup of products to be well received as we roll them out to our sales channels this quarter. Turning now to the Test & Measurement segment, the integration of our Miltope acquisition was completed in Q3 as scheduled.

We have fully transitioned the manufacturing for the Miltope aerospace printer line from Alabama to our West Warwick, Rhode Island plant. The addition of the Miltope line has expanded our base of customers and broadened our relationships with existing customers who are adding new aircraft to their fleet.

Miltope was especially strong in Asia where the acquisition has bolstered our presence there. In terms of the overall ruggedized product line, we are making good inroads in both the direct to airline business, as well as the OEM markets. The data acquisition piece of our Test & Measurement segment also performed well in Q3.

We continue to excel in our core aerospace and energy verticals for our data acquisition products. We have been able to build our business in other markets as well. These include amusement industry, light rail and other transportation markets where high speed data acquisition and analysis are required.

The strong turnout at our booth at this year's Automotive Testing Expo in Detroit was a good indicator of our progress. Overall Test & Measurement accounted for 34% of net sales in the third quarter compared with 31% in the third quarter of fiscal 2014.

As we discussed in our earnings call in August, one of the growth drivers for this segment has been our geographic expansion. From that perspective fiscal 2015 has been a year of firsts for Astro-Med. Earlier this year we established our first presence south of the border with a sales office in Monterrey, Mexico.

And this past quarter we achieved our target of opening an office in Southeast Asia, the first time Astro-Med has had a direct presence in this area. Further expansion in Southeast Asia, as well as in China is planned in the coming quarters.

I touched on two of the strategic themes I mentioned at the outset of the call, product innovation and geographic expansion. Let me round out the discussion by updating you on the progress of our lean and operational excellence activities.

One of our most recent kaizen events centered on improving the workflow in the final assembly of our ruggedized products. The area was reconfigured for a single piece flow with customize benches and new rolling racks to present all materials directly to the assemblers.

As a result of the kaizen, the final assembly process now requires less than half of the previous floor space. Through kaizen events like this, we expect to be able to handle a further increase in revenue of 50% or so before we would need to expand the physical plant. And with that, I'll turn the call over to Joe to review the numbers..

Thank you, Greg. Good morning, everyone. Sales volume, product mix and our focus on productivity improvements were the keys to our strong performance in Q3. Net sales in the period were $23.1 million. As you heard it’s a 27.3% greater than the third quarter of fiscal 2014.

Looking at our channel distribution, our sales to our domestic customers increased 25.2% from the prior year to $16.5 million, while our shipments to our international customers grew 32.7% year-over-year to $6.6 million.

The international shipments represent approximately 28.6% of Astro-Med's total revenues in our third quarter, slightly down from the year-to-date average about 30%. Turning to the business segments, QuickLabel Systems reported sales of $15.2 million ahead of the prior year's third quarter by some 21.9%.

Test & Measurement, which includes our ruggedized products and data acquisition systems, posted sales of $7.9 million. This represents an increase of 39% from the third quarter of fiscal 2014. Profiling the third quarter by product, our consumables were $11 million.

That’s up 16.6% from the third quarter of fiscal 2014, while our hardware sales increased 36.6% from a year ago to $10.6 million. Our service, parts and repairs revenue contributed another $1.6 million in quarterly sales. That’s up 55.9% from the prior year.

Third quarter sales generated $10.2 million in gross profit dollars, up some 37.9% from the prior year. Our gross profit margin of 43.9% was up some 340 basis points from the 40.5% in the third quarter of fiscal 2014.

The increase in gross margin from a year ago was primarily attributable to the higher revenue, the improved product mix and the ongoing success of Astro-Med's productivity improvement initiatives. Our operating expenses totaled $7.6 million in the quarter, or 32.7% of net sales.

That represents 130 basis points below or lower than the fiscal period of fiscal 2014.

In dollars the operating expenses were about $1.4 million higher in this year's third quarter, but similar to the second quarter of this year, the increase primarily relates to growing the business through additional sales personnel, marketing programs and R&D initiatives. Operating income in the third quarter for fiscal 2015 was $2.6 million.

That’s more than double the $1.2 million from the same period of the year earlier. Our operating margin of 11.1 in Q3 represents the high watermark for this year's operating margin and moves us closer to achieving our corporate target of operating margins of above 15%. The comparable operating margin for the third quarter of fiscal 2014 was 6.5%.

Relative to the segment operating profit during the quarter, QuickLabel Systems earned $2 million in segment operating income with a margin of just under 13% while our Test & Measurement segment reported a similar income of $2 million with a corresponding margin of just under 26%.

Our federal, state and foreign tax provision in the quarter was $974,000 representing an effective tax rate of 38.5%. It compares with the prior year's effective tax rate of 24%. Last year we had a true-up of 187 benefit as a result of filing of the prior year's tax return.

This year we had a charge of $80,000 related to the true-up of our tax in our state tax returns. Third-quarter income was $1.6 million or $0.20 per diluted share compared to $1.1 million or $0.14 per diluted share in the year ago quarter. Turning quickly to the balance sheet, our assets as of November 1 was $81.8 million.

Our equity balance was $70.1 million representing a book value of $9.06 per share. Our cash and cash equivalents position at the quarter end was $30.9 million representing a 14% increase from the year end balance of $27.1 million. Relative to our working capital, our accounts receivables were $14.3 million.

That represents some 51 days sales outstanding, a nice improvement from the year end 54 days outstanding. Inventory levels at the end of the third quarter were $17.8 million representing 116 days on hand, slightly up from the year end 113 days on hand.

Capital expenditures during the first nine months of fiscal 2015 were $1.8 million, primarily related to investments in information technology, machinery and equipment and building improvements. Our dividends in the third quarter of fiscal 2015 were $542,000 representing $0.07 per share.

Our employee population at the end of the quarter was some 339 persons representing an increase of 11% from the year end balance of 304 persons. Our sales per employee increased nicely to $262,000 that represent a 21% improvement over the year-over-year basis of last year's $217,000.

Orders received in the third quarter were just under $23 million representing a 28% increase over the same period of last year and our backlog remains strong at $13.6 million.

With $66.3 million in net sales and a diluted earnings per share of $0.52 per share for the first nine months of this year, we are on pace to exceed the high end of our fiscal 2015 guidance. Now let me turn it back to Greg for closing comments..

Thank you, Joe. In summary, our commitment to innovative product development, geographic expansion and manufacturing efficiency continues to produce excellent results for Astro-Med. And we have a significant number of ongoing action plans in process to continuously improve our performance in these areas.

In the fourth quarter we look forward to further increasing our operational efficiency as we migrate to our new IT system over the new Oracle ERP platform.

While the conversion process this quarter will require a significant amount of time and effort, when fully deployed this new system will reduce transaction times and provide us with a solid foundation to build our business in the years ahead. With that we will be happy to take your questions.

Operator?.

Thank you. [Operator Instructions] We'll take our first question..

Yes. This is Lou Moser, Mayfax Investors. You've heard a couple of times to your full year guidance of 2015; I didn't see that many previous reports.

What is the actual guidance for the full year of 2015?.

The full year guidance for revenue is $80 million to $85 million with an EPS of $0.55 to $0.60 per share. .

Great.

How is your back order of 13.6 compare to previous quarter and prior year?.

It is down slightly from – it’s about – it’s down about maybe 2% from the year end. .

All right, those are the two questions I wanted. Thank you very much. .

Sure..

And we'll take our next question..

Hey, Joe. Hi, Steve.[ph] How are you? Evan Greenburg [ph] I wanted to know, you talked a little bit about your potential slowdown in Europe.

Have you had issues due to the strengthening dollar at all and what size of the business is Europe in terms of printers in Kiaro! and what's – how much businesses does Astro-Med do in Europe? I don't think it's an enormous amount of business.

Just give us a breakdown so we know?.

Evan, this is Greg Woods. We don't actually break down by country, but our international business is in the low 30% range. It varies a little bit quarter-to-quarter, but that’s about where we're at. .

Yes..

Of course as I mentioned we are expanding in other geographic markets. The day you set up shop there you don't have a huge up-tick, so it is building slowly..

Sure..

And it represents all the products, not just the Kiaro! but the Test & Measurement and aircraft business as well. As you might guess that’s pretty big in France where you have Airbus and a number of OEMs. So yes, there is a ForEx impact. Obviously when the dollar is stronger there's – we have an impact on that and then beyond that, go ahead..

No, no, continue. I'm sorry..

What I was going to say is there is a ForEx impact, but there's also kind of the, you know, it depends on the country, but there are, as you've probably been noting, different countries are up and down in Europe and there is a little bit of headwind going on there right now in terms of overall growth in some of those markets..

Okay. And the second question had to do with the Oracle implementation. Will that be done by the end of this quarter? And….

Yes, I am sorry. Yes, the plan is really to have it up and running by the beginning of fiscal 2016. .

Okay, all right. So it's going to be another couple of quarters.

If there are additional expenses you may not want to pro forma it out, but you may want to state with those additional expenses are so that people can get an idea of the quarter and the extent of the company?.

Right..

Rather than pro forma it just state that, you know, the additional Oracle implementation cost X amount of dollars in the quarter, so that people know that it's not pure operating expense.

It's the kind of thing that only happens once every four or five years, these kinds of updates?.

Sure..

Well some of these are obviously capitalized, it will be amortized. It's really a new platform that’s going to serve our business for the next really five years. It's really a combination of not only software but also hardware. So it's really a fundamental transformation change in the IT platform for the company. .

We're doing a bit of catch up….

Well, you know, this….

It's, how old was the….

Well, the original system we had put in a 1994 and probably one of the original J.D. Edwards green screen application. So, the….

I don't even remember J.D. Edwards, that's how far back it is. .

Well that’s a good – to your point is that's why we've changed. But this is going to be a much different environment for us and really provide the visibility to all the managers both domestically and internationally. We do eventually next year also have to integrate the branches because the branches are working on a cloud based application today. .

Okay, terrific. You guys have done a terrific job of repositioning the company for growth. It's really now a growth company. It's not being recognized in the marketplace, but I am very happy. Joe, as you know I have been around Astro-Med for a long time, very happy. .

Thank you, Evan..

Thank you..

[Operator Instructions] And we'll go next to Ron Cohen [ph]..

Good morning, everybody.

Can everybody hear me?.

Good morning, Ron..

Yes, great job on the quarter. You guys are doing a great job with the company.

I asked at the shareholders meeting I believe last year regarding what's in – what do you have in increasing the shareholder value in terms of increasing the dividend?.

Ron, this comes up every board meeting. Of course we had a board meeting again on Monday of this week where we declared the dividend. And we take a look at that versus the use of capital for a variety of areas, be it CapEx, acquisition or just funding more rapid growth in our business.

So that does come up in every meeting and our feeling was to keep the, you know, from the board's perspective, keep the dividend as is because we have quite a number of opportunities that we think are much higher return for the shareholder..

Okay. I've just got a couple more questions. What's your forecast, I know you guys work on – you don't work on a calendar year.

What are you forecasting for this year total sales, is that $88 million?.

Well, actually, we're in a fiscal year, which is January 31 year end..

Yes, that's what I mean….

Yes, and so our guidance….

You woke me up early this morning..

Yes, you're on the West Coast. Yes, so our guidance is $80 million to $85 million and we're certainly, you know, it looks like we're tracking toward the high end of that..

Okay.

And then did you make some sort of estimate on what you're going to do in the following year in sales?.

No, we do that after the – once a year. So, we'll do that again in the spring..

Okay.

So you guys still have a balance sheet right now of $30.9 million and you feel that having all that cash on hand there is no reason to increase the dividend?.

Yes, like I said we look at that every quarter. And at this point we feel that that's the best use of our shareholders – the best way to increase the shareholder value is to pursue some of the activities that we have, which of course we cannot disclose exactly what those might be..

Okay.

Do you have any – can you give me more color on – do you have any current negotiations in terms of acquiring another company?.

Yes, of course, we can't comment on any kind of ongoing negotiations. All I can say is that we have quite an active M&A program going on right now. We have a funnel with a lot of candidates in there and they are in various stages. But beyond that I can't comment on it until we make a public disclosure..

All right. And my final question, it's kind of funny, but is there any way in the future you can make the shareholder conference calls a little later in the day, because I think we're shutting out the West Coast participants. I had to get up at five in the morning to participate in the conference call..

Yes, I appreciate that. We'll mention that to Sharon Merrill, who is our IR firm. They are up with us on this call, so he's jotting it down as you say it..

Yes. All right. Well, anyway, I don't want to keep you guys any longer. I feel you guys are doing a great job and keep up the good work..

Thank you. Thanks, Ron..

All right. Good day..

Thank you..

We'll take our next question from Steve Busch [ph]..

Hi, guys. Good morning and Happy Thanksgiving..

Morning, Steve..

Happy Thanksgiving, Steve..

So, amazing great quarter. I mean, sales were up 30%, earnings up 42%, but we have like no earnings estimates, no analyst coverage. I know last year we talked about perhaps launching a, you know, tell our story offensive.

Is there any update on that front?.

Well, I think we have – we are talking actually now with the folks at Sharon Merrill to lay out the schedule for getting out to the market. And we'll probably lay out a more detailed schedule over the next couple of months, Steve, in terms of who we'll talk to and the timing associated with these functioned schedules..

We don't publicize it, but we have a number of direct meetings that we have held with investors really around the country. So we're out – yes, it depends on the time of the year. But usually every other month at a minimum we're out there meeting with different investor groups..

Right. I mean, are you doing any – I haven't seen any investor conferences where you're going and along with other….

Last January we were at the Sidoti Conference. So we're not doing a lot of those, but yes we do participate in them..

I think what we're doing, Steve, is just identifying the ones that make the most sense for us..

Okay. I mean, there's not many companies out there right now growing sales and earnings. But we're not getting any, maybe we should say we're all electric interest, so we can get a Tesla valuation. But, so….

Printers instead of inkjet printers, right?.

So you are talking about the headwinds overseas, but it seems like aviation is actually pretty strong over there.

So is that mostly QuickLabel related or is it just headwind you see in the economy so you are hedging your bets even though the aviation seems to be pretty strong over there?.

Yes, the aviation business, that’s kind of more long-term. So the short-term impacts on that are really more or lot, its just small numbers. But the data acquisition product and the printers are more discretionary purchases, people you can put those off.

So in different countries we're seeing probably less rapid growth than we would expect, I guess that is the way to put it. And it seems to be tied with the countries where their economies are not really growing, or growing at a minimal level..

Right, okay.

Are you seeing any slowdown in QuickLabel business around here? Are there any particular industries that are below what you were expecting?.

Not really. I mean, it actually goes up and down, but the biggest segment there I may have mentioned in prior calls is the food and beverage market and then pharmaceuticals, nutraceuticals is a big market for us. And those are pretty much every day purchases.

So it's really a matter of who is coming in out of the market from our end customer point of view..

Right. Okay. I mean, you guys are doing a great job. I don't really have any complaints. But let me ask you this final kind of question. We talked about it before I think a couple of years ago.

Are we going to change our name now that we are not medical related?.

It is something that comes up quite a bit to be honest with you. And one of our critical issues for – we have kind of a number of strategic issues and one of those for fiscal 2016 is to take a look at the overall marketing presence of the company. As you, we're not thrilled with our website.

There's a number of things you want to do to upgrade that, but that was really kind of in the third year of our three year plan. We want to kind of get the foundation set and some of the basics under control and then we're going to take a look at that..

Okay.

So one final question, did you have an earnings estimate for the current quarter, or?.

No..

No, we just come out of it once a year, so we do an annual once a year..

All right.

So we expect a little bit of a slowdown for this quarter relative to what we were just in?.

Pretty much..

Yes, we're being cautious, I guess, in that….

Okay. No, that's fine. Thank you very much and good work. Happy Thanksgiving..

Thank you. Happy Thanksgiving, Steve..

Happy Thanksgiving, Steve..

We'll take our next question from Jim Lanthrop [ph].

Good morning..

Good morning..

Good morning, Jim..

I'm just getting back to the story again after a few years. So Joe and I, we touched base many years ago, I think..

Right..

I hope all is well, Joe..

Nice to hear you, Jim, yes..

Yes, just wondered, since I am kind of relatively new again. Could you just walk through your growth, the recent growth? I know you did the acquisition.

But I also wanted to know in both segments is it new customers or are you taking market share? Are your existing customers upgrading to the new printer? Is it relevant in regards to the QuickLabel business? If you could just briefly walk through some of the reasons you're growing..

Yes, I guess, the quick answer is yes to all of the above. So we are – we're expanding the product line. So we've done a lot of work on the product line over the last 2.5, 3 years in really all of the businesses. So there's new products coming out, of course that always helps.

So there is – part of that’s an upgrade if they had similar products, but a lot of its new customers and the new markets. If you look at the QuickLabel business, the adoption rate of inkjet printing is now at a quality level where it’s on par or in many cases better than flexographic printing, which is a level we hadn't been at before.

So it's opening up customers who before were on the fence, should I keep buying labels from a third party printer or do my own. Now they can print labels in-house, on demand, at a moment's notice and have the exact same quality they are getting from their flexo people.

And there's a lot of other derivative benefits that they obtained by having their own printer. So in that market that's sort of a change. And if you look at the data acquisition products, its more of an evolutionary upgrade of our product line, but different dealers and distributors and then geographic markets is all helping us there.

We have a bit more sophisticated marketing program too, so when we start seeing hits of a certain market segment we have four or five, six, seven, eight kind of companies around the word buying it. We haven't seen them before. We actually have a more sophisticated way to actually go after targeting that industry segment around the world..

And in Test & Measurement, I know you made the acquisition.

Is that basically you are saying the same reasoning there that, are you – is there cross-selling opportunities, or are there or have there been already with the acquisition?.

Well, yes, there is – we were taking market share already away from Miltope, so – and actually we continue to do that. So even though they are part of the product line for us now we acquired the whole thing. There are still customers that as we are buying the Miltope products and say hey I'd really rather go to the Astro-Med ToughWriter series.

So it's getting pretty well blended. So I'd say, I don’t rough, this is off the top of my head, roughly 60% of the customers are the same. We already knew them. But there's a 30% or 40% increase in the customers where people we weren't selling to at all.

So that’s fantastic for us and we're actually going to introduce our whole product line to those people and a lot of that was in Asia and the airline direct business. So while we were well established with the airframers, the Airbus, Boeing, airframers of the world, we weren't as well established directly with the airlines..

I know you've talked about a large pipeline in that business for many, for quite a while.

Is some of this just that pipeline is kind of finally kind of busting loose?.

Yes, if you are familiar with that aviation business, of course the guys building the airplanes have a huge backlog, 8 to 10 years depending on who you are talking to. And we're on a number of those programs, but several of those who have won over the last five years, so they take a while to ramp up.

So what we see is more and more of those shipments actually coming online as opposed to just seeing a contract where we know when they ship an airplane we're going to get the printer. Well now they are shipping more of those airplanes where we're testified..

Okay. Just some housekeeping. The Q3 orders, I missed that because I was late to the call.

Joe, do you have the Q3 order number?.

I do, Jim. It’s just under $23 million. .

So your book-to-bill was pretty healthy then yet?.

Yes. .

Okay.

And seasonality wise, I know you talked about season, but seasonally are you typically a little down in Q4 anyway?.

Not normally. We are just being a little cautious I think with some of the uncertainties as Greg described it, especially in the European markets.

But no, I think generally if there is like – it all depends I guess in terms of a couple of our markets as to whether those if we don't – shouldn't be anything different aside from perhaps maybe some of the markets will be a little slower than that in the business. .

Okay, but if you – if I understand this correctly the numbers you've done $0.52 for the first nine months year-to-date, I believe it was?.

That's right. .

And you have – and your guidance is $0.55 to $0.60 for the full year, correct?.

That is correct. .

That’s correct..

Okay..

And we'd be certainly on the high side of that business..

Yes, that seems like it's almost too low. But anyway I understand your reasoning. Appreciate it. Guys, I look forward to talking a little bit more. Thank you..

Thanks, Jim. Thanks, to hear again..

Okay. Thank you..

At this time we have no further questions. I would like to turn the call back over to Mr. Woods for any additional or closing comments. End of Q&A.

Great, thank you, and thank everyone for joining us here this morning. We look forward to keeping you up-to-date on our progress and enjoy the holidays. Happy Thanksgiving..

Happy Thanksgiving. .

That does conclude today's conference. We thank you for your participation..