Good day, everyone, and welcome to AstroNova's Q1 Fiscal Year 2017 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the call over to David Calusdian. Please go ahead, sir. .

Thank you. Good morning, everyone. Thank you for joining us. Hosting this morning's call are Greg Woods, AstroNova's President and CEO; and Joe O'Connell, Senior Vice President and CFO. Greg will begin the call by reviewing the company's operating highlights and business outlook. Joe will take you through the financials..

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concluding remarks and then management will be happy to take your questions. By now you should have received a copy of the earnings release that was issued earlier today. If you have not received a copy, please go to the Investors section of the company's website, www.astronovainc.com..

Please note that statements made during today's call that are not statements of historical fact 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 factors that may cause differences, please see the company's risk factors and the annual report on Form 10-K and other filings AstroNova makes with the Securities and Exchange Commission..

With that, I will turn the call over to Greg Woods. .

Thank you, David. Good morning, everyone. In fiscal 2014 we began building the foundation for long-term, sustainable growth at AstroNova. We introduced a formal product development process. We widened the geographic lens on our distribution efforts.

We began putting the initial infrastructure in place to build a much larger and more profitable organization based on our data visualization technology..

We also launched the AstroNova operating system, or AOS for short, a system rooted in world-class lean enterprise tools that fosters a continuous improvement culture..

Our employees play a central role in making AOS a way of life at AstroNova. Through their commitment to achieve operational excellence across the value chain, our employees have helped transform the way we do business. AOS helps build our competitive advantage and drives margin improvements..

You can see the continuing progress of this strategic transformation in our fiscal 2017 first quarter, which marked our 15th consecutive period of year-over-year revenue growth. Let me share a few highlights..

Sales in the Product Identification segment were up 6% for the quarter to $16.6 million. Sales in the Test & Measurement segment increased to $7.5 million, with more than a -- 14% higher than Q1 a year ago. As expected, we began to see an uptick in the aerospace hardware revenue from customers that had extended orders from prior quarters. .

Looking briefly at our performance by region. Domestic and international revenue were both up nicely over Q1 2016. We're especially pleased with the performance of our international dealers, distributers and European branch offices. Our recent expansion efforts in Asia and Latin America are really beginning to pay off.

During this past quarter we added to our direct sales team in China and enhanced our international distribution channels. Later this year we plan to open our first office in Spain, which will give us a direct sales presence in 4 of the EU's 5 largest countries..

Now we will move on to operational highlights in the quarter. Among these was the introduction of new products in both our Product Identification and Test & Measurement segments. On the Product Identification side, we launched the QL-111, a cost efficient color label printer designed for industrial and manufacturing environments.

Among the many customer benefits is the QL-111's ability to meet the high throughput, accuracy and color coding requirements for secondary product packaging labels.

The QL-111 eliminates the waste and inconvenience inherent in the typical process of buying a variety of preprinted color labels and in overprinting black-only variable data at the production line. QuickLabel customers can now print full-color, fully variable data labels in just one pass..

On the Test & Measurement side, we debuted the DDX100 SmartCorder at the recent Defense Aerospace Test and Telemetry Summit. The DDX100 now marks the second entry in our new Daxus data acquisition product family.

The system offers engineers and technicians across a broad range of industries a unique combination of size, portability, convenience and power. The DDX100 displays real-time signals on a vivid 15-inch color touch screen and stores them on an internal 500 gigabyte drive.

AstroNova's proven and easy-to-use intuitive software provides users with the ability to set up the DDX100, record data and obtain results in just minutes..

All of these products are the direct result of our formal Stage-Gate development process, based on Voice of the Customer that we implemented 2 years ago. We now have multi-year product roadmaps in place for each of our 3 major product lines.

This allows us to be more responsive to customer requirements and to develop, release and ship products at a much faster pace, increasing our competitive advantage..

Another key to accelerating our product development process has been the many improvements we've made to our design and information technology systems.

As I mentioned on our Q4 call, we're now beginning to integrate the numerous standalone IT subsystems we have throughout the company, with our new Oracle EOne environment, a process we expect to complete in fiscal 2018. Upon completion, this new fully integrated platform will support our growth for many years to come.

It is scalable, and the infrastructure supports all the countries in which we do business. It also provides opportunities to significantly enhance operational efficiencies, more effectively manage inventories, and enhance the overall customer experience. .

Within our aerospace business we've also made significant improvements in our design, manufacturing and quality assurance systems over the past few years. These improvements have enabled AstroNova to achieve higher ratings and recognition within the aviation community.

Last month we announced that we were awarded the prestigious Supplier of the Year awards by Honeywell Aerospace, recognizing the company's outstanding achievement in design, development and delivery of flight deck printers.

And last week we announced that the flagship ToughWriter 5 airborne printer has been selected for inclusion in Boeing's catalog for the next-generation 737 and the new 737 MAX aircraft families..

The 737 is Boeing's highest volume commercial aircraft. We anticipate shipments will begin in calendar year 2017, pending final certification by Boeing. Inclusion in the Boeing catalog positions the ToughWriter 5 prominently for carriers expanding and upgrading their fleets. In fact, a major U.S.

carrier recently selected the ToughWriter 5 for its 737 MAX airplanes. The broader visibility of our products that they receive as catalog-offered equipment enables us to reach a wider customer base and further accelerate the sales growth..

Updating you on the Ritec acquisition, this month we received regulatory approval to begin producing Ritec printers here in West Warwick, Rhode Island. This is a key milestone as we transition the Ritec line to our manufacturing facility, a process we expect to complete this quarter. .

In summary, we're off to a strong start in fiscal 2017. We expect to achieve solid growth and profitability this year, while continuing the strategic purposeful investments necessary to drive increasing returns for our shareholders..

Now let me turn the call over to Joe for his financial review. .

Thank you, Greg, and good morning, everyone. Well, starting with income statement, our net sales in the first quarter of fiscal 2017 were up 8.6% to $24.1 million.

Our domestic sales increased 6.7% to $16.8 million; while our international sales rose 13.6%, as we saw a nice traction across both Europe and Asia to international sales representing about 30% of our total revenues for the quarter. .

Turning to our segments, Product Identification contributed sales of $16.6 million, that's about 6% ahead of the first quarter of fiscal 2016, as we saw a continuation of the strong demand for inks, labels and other consumables. .

Test & Measurement sales of $7.5 million were up more than 14% over the same period a year ago, as a portion of the aerospace-related orders that had been received in prior quarters begin to kick in this quarter. .

Looking at sales by product category, consumables, as I noted, another strong, solid quarter, increasing 14% to $13.4 million, and accounting for 55% of total sales. We continue to operate 3 shifts in our media plant here in West Warwick and see opportunities to further develop the consumable product lines.

Hardware sales in Q1 increased nearly 4% from the prior year to $8.7 million, largely reflecting the uptick in the orders to the aerospace customers. Sales from our service, parts and repairs totaled $2 million in the quarter. That's slightly lower than the same period of fiscal 2016..

Our gross profit in fiscal 2017 first quarter increased to $9.5 million from $9 million in the same quarter of our prior year. Our gross profit margins in the quarter were 39.3% versus 40.7% in the first quarter of fiscal 2016.

The variance in gross margin related largely to product mix, costs associated with the product line integrations and the absorption in our manufacturing operation..

Operating expenses in the quarter increased 4.5% to $7.9 million from $7.6 million for the same period of a year ago. The increase is largely related to increases in selling and marketing initiatives and some administrative expenses. .

Turning to the segment operating profit, Product Identification generated $2 million in segment operating profits with a margin of 12%, whereas Test & Measurement reported operating income of approximately $1.2 million with a corresponding margin of 16%.

Our federal state and foreign tax provision in the quarter was $476,000, representing an effective tax rate of 31.8%. That compares against last year's 28% in the first quarter of fiscal 2016..

First quarter 2017 net income was $1,019,000 or $0.14 per diluted share compared to $1.2 million or $0.16 per diluted share in the first quarter of fiscal 2016.

Keep in mind that our fiscal 2016 results included other income of $234,000, which represents a settlement of an escrow account which contributed $250,000 to last year's first quarter income..

In the fiscal 2017 period we incurred $52,000 in net expenses related to FX and some miscellaneous charges. .

Turning to the balance sheet. Our cash and marketable securities at April 30, 2016, were $23.3 million, compares with $20.4 million at the end of fiscal 2016. Accounts receivable at the end of the quarter were $15 million, representing some 51 day sales outstanding.

This compares to 50 days at the end of fiscal 2016 and 52 days outstanding at the end of the first quarter of fiscal 2016..

Inventory levels at the end of the quarter were $16.6 million, representing 102 days of inventory on hand. This compares with inventories of $14.9 million at the end of fiscal 2016, representing some 92 days on hand.

Capital expenditures in the first quarter were $195,000, primarily related to information technology, machinery and equipment, tools and dyes. The company returned $516,000 to shareholders in the first quarter in the form of cash dividends, representing $0.07 per share..

Our employee population stood at 319 at the end of the first quarter. That's down some 10 employees from year-end 2016. Our sales per employee increased to $294,000, up some 9% from the $269,000 for the same period last year. Orders received in the first quarter were down 5.1% to $24.8 million.

This balance reflects a record volume in orders for the Product Identification group of $18.2 million, up 4%, as well as $6.6 million in new orders for the Test & Measurement product group, lower by approximately 23% from the prior-year as the aerospace orders in the prior year quarter were especially strong..

We exited the first quarter with a backlog of $17 million. That's up approximately 17% higher than the end of the first quarter of fiscal 2016. The strength of our liquidity is also evident in the $2.7 billion in free cash flow we generated during the quarter. .

Now before I turn it back to Greg, let me give you the dates of two upcoming investor presentations. We will be at the Marcum MicroCap Conference in New York City on June 2 and at the East Coast IDEAS Conference in Boston on June 28.

If you are an institutional investor who would like to schedule a one-on-one meeting, please contact Sharon Merrill Associates at (617) 542-5300..

We look forward to seeing you there. Now let me turn the call back to Greg for his closing comments. .

Thank you, Joe. Accelerate, innovate, automate. That is the mantra for this second phase in our strategic deployment. Our focus is to accelerate product launches and channel build-out, innovate game-changing products and automate key processes, build management team depth and continue to pursue strategic M&A opportunities.

We achieved significant progress in the first 3 years of our strategic plan, and the outlook for the future is very bright. Finally, as we did last year at this time, we will close with full year guidance..

Based on the current business environment, we expect to generate revenue for fiscal 2017 in the range of $100 million to $108 million and earnings per diluted share of between $0.70 and $0.75. And with that, Joe and I will be happy to take your questions.

Operator?.

[Operator Instructions] We will go first to Evan Greenberg with Legend Capital. .

Okay.

Number one, I wanted to get an idea, did you -- you didn't put out an operating EBITDA number, a year-over-year comparison? Was there one, Joe?.

We certainly have -- I don't think we put it out, Evan, but we did $2.1 million in EBITDA for the -- in the quarter. And that's comparable to last year's EBITDA, $2.1 million also. .

And I guess gross margins were partially due to mix and ramping up the production facilities.

Was there any apprehension from customers in terms of the new products that came out in some of the QuickLabel printing that would have prevented some sales from occurring or -- because people were waiting for newer products or -- did you see any of that at all? Is it [indiscernible]?.

There's always going to be some of that because, as much as we try to keep it under wraps, sometimes some things leak out to the channel. But I wouldn't think -- say that would be significant. The QL-111 does overlap a little bit of the space of the QL-100 [ph]. So it depends on the application and which is the appropriate printer for people.

So there may have been a little bit of that, but I wouldn't think that was a significant factor. .

And was there any currency impact or the dollar issues have kind of gone away now?.

No, not really. No. I think, gosh, I think it might have been as low as $40,000 in the quarter, Evan. .

[Operator Instructions] At this time I would like to turn the conference back to Mr. Greg Woods for any closing comments. .

Great. Thank you. Well, thank you, everyone, for joining us this morning. We look forward to keeping you updated on our progress, and have a good day. .

Thank you. .

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