David Calusdian - IR, Sharon Merrill Associates Gregory Woods - President & CEO David Smith - CFO.

Tom Spiro - Spiro Capital Management Steve Bush - Everglades Research.

Good day, and welcome to the AstroNova's Q4 Fiscal Year 2018 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the call over to David Calusdian from the Company's Investor Relations firm, Sharon Merrill Associates. Please go ahead, sir..

Thank you. Good morning, everyone, and thank you for joining us. Hosting this morning's call are Greg Woods, AstroNova's President and CEO; and David Smith, CFO.

Greg will discuss the Company's operating results; David will take you through the financials; Greg will make some concluding comments; 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 today.

If you do not have a copy, please go to the investors section of the AstroNova 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 Private Securities Litigation Reform 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; except as required by law, any forward-looking statements speak only as of today, March 14, 2018. 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 Risk Factors in AstroNova's Annual Report on Form 10-K and other filings the Company makes with the Securities and Exchange Commission.

During this morning's call, management will refer to non-GAAP earnings per share, this is a non-GAAP financial measure the company believes to help investors to gain the meaningful understanding of changes in the company’s core operating results and also can help investors towards to make comparison between AstroNova and other companies on both of GAAP and non-GAAP basis.

For more information, please see the GAAP and non-GAAP reconciliation table in this morning’s news release, the table have more details about the GAAP financial measure that are most directly comparable to the non-GAAP financial measures and related reconciliations between this financial measures. Now, I'll turn the call over to Greg Woods..

Thank you, David. Good morning, everyone, and thank you for joining us. We kept a strong year with an outstanding performance in the fourth quarter, generating higher earnings on record revenue and bookings. Total revenue for the quarter was a record $32.7 million, up more than 27%.

Revenue for the year was also a record coming in at $113.4 million more than 15% higher than fiscal 2017. Our Product Identification business was up 16% and Test and Measurement was up 59% from the fourth quarter of fiscal 2017.

For the year, Product Identification revenue grew 17% with solid organic growth and a quick label product line and Test and Measurement grew 11% for fiscal year 2018. I am pleased to report that our investments in geographic expansion are paying off quite well.

International revenue was up 72% in the quarter, and 60% for the year, with broad-based growth. Our $43.6 million of international revenue for fiscal 2018 was another record for the company. This was the result of our focused effort over the past several years to invest and grow revenues across the globe.

During the past year for example, we opened our first office in India, added sales personnel in Latin America, and established a wholly-owned foreign enterprise in China, located in the Shanghai free trade zone district.

Our presence in China helped us win the Chinese C919 aircraft contract earlier in this year and has given AstroNova a seat at the table with large global manufacturing companies looking for enterprise-wide solutions to meet the needs of their customers. In addition to penetrating these local markets, we are building a truly international brand.

We are now winning larger contracts from global organizations, because of our greatly expanded worldwide presence.

To further facilitate our worldwide growth, last year we also begin opening a series of innovation technology centers or ITCs around the globe to demonstrate the full range of our products, provide technical support and enable customers to buy on site.

Today, we have opened technologies centers in Chicago, West Warwick, Copenhagen, Shanghai and most recently Frankfurt, Germany. Our Frankfurt ITC is co-located with our new EMEA hub location, which serves Europe, Middle East and Africa.

This is part of a planned network of hubs, that we are setting up to be closer to our customers and improve our marketing, manufacturing and distribution efficiencies on a regional basis.

While establishing these ITCs and moving into a three-continent hub structure requires a significant financial and time investment in the short-term they position AstroNova well for accelerated growth in the years ahead. Now, let me take you through the developments for the quarter in each of our segments.

Looking first at Product Identification, the quick label organic business continues to grow, and the new products we introduced last year are beginning to ramp. We are also making excellent progress with the TrojanLabel product line as we continue to add dealers and increase brand awareness.

Our latest Trojan products, the T4 and T2C began shipping at the end of Q4. So, we look for those products and begin contributing to our results as we move through the fiscal year. In Test and Measurement, we began to see revenue contribution from the Honeywell Aerospace Printer agreement in the fourth quarter.

We believe these products are a real game changer for our aerospace unit. A key reason is that the narrow format flight deck printer will be producing a standard equipment on the Airbus A320 family, and frequently selected for the Boeing 737. These are the two highest volume commercial planes on the market.

To give you some context, there are over 14,000 the 737s and A320s currently in service. And 10,000 new aircraft are expected to be entered into service in the next 10 years, a very strong seven to 10-year backlog for both manufacturers.

Together with the 737 and the A320, they account for about 60% of all commercial deliveries, with about 1,200 planes expected to go into production this year, ramping to 1,400 next year. It should be noted that our Q4 results included cost related to the integration of the Honeywell product line.

And we believe those costs will continue for the next couple of quarters as we migrate the manufacturing of the narrow-format printers from Asia into West Warwick. This integration process should be completed by the end of the first half of this fiscal year.

During the quarter, we also expanded our data acquisition product line, the introduction of a new upgraded TMX data acquisition system. The benefits of this new system include the enhanced security of the Windows 10 operating system and much higher sampling rates, 50 times faster than previous TMX miles.

These new capabilities allow the new TMX to tackle a far broader range of applications. We also enhanced our corporate governance during the quarter with the appointment of Dick Warzala, Chairman and CEO of Allied Motion Technologies to the Board of Directors.

Dick's background and leadership experience in industrial, aerospace and commercial markets has been more than four decades. Before joining Allied Motion, he was President of Danaher's Motion Control Components Group. He also served in senior positions at American Precision Industries.

Dick's corporate governance expertise, business insights and deep understanding of lean manufacturing principles will be valuable in formulating and guiding our strategy. In January, we welcome David Smith, as our new Chief Financial Officer, and I'm delighted to have him on board.

David will oversight the financial and information systems functions, which will play a key role and helping the company improve overall performance. He brings more than two decades of financial leadership experience at public companies, including two large multinational organizations and a NASDAQ listed global hi-tech company.

David is a proven leader whose financial experience with diverse global businesses, strong operations background and M&A experience are a great fit with our long-term strategy. Let me now turn it over to David to take you through the Q4 results. Then I'll come back briefly to provide a summary and after that, we'll be happy to take your questions.

David?.

Thank you, Greg. Good morning, everyone. I am delighted to have the opportunity to communicate with you the first time as AstroNova's, Chief Financial Officer and I look forward to meeting many of you in person over the next weeks and months.

Greg mentioned my background as CFO of Global Company such as Crain & Co., Dover Corporation and Standard Microsystems. And each of these companies, each of them are global manufacturing organizations with diverse product lines and complicated business structures. I have been focused on linking the company's strategy to results.

I am passionate about collaboration. Continuous improvement and raising the level of financial acumen of the entire management team, so that we can together focused on the most important activities.

I have been very excited by the quality of the team here at AstroNova and I am truly enjoying working closely with them as we work on delivering results to our shareholders.

One of the things that attracted me to AstroNova was the company's strong focus on operational excellence, particularly the work that Greg has done in fostering collaboration and commitment across the global business.

In that regard, I have been extremely impressed with the application of the AstroNova operating system, which is as sophisticated as any I have seen.

Well, unless than eight weeks into my tenure as Chief Financial Officer, I have been reviewing AstroNova's strategic initiatives with all of our business leadership team and I can see that the growth and profit improvement opportunities throughout our business or even greater than I envisioned when I signed on.

So, with all that intro, I'd like to quickly provide some context on a few areas from our income statement and balance sheet. Bookings in the fourth quarter were $34.8 million, up 32% from the prior year. For the full year, bookings were up 22% to a $119.6 million. As Greg noted, these are all record numbers.

Hardware revenue was $12.2 million in the quarter, up 44% and for the full year hardware sales were $37.9 million, up 11%. Supplies were up 17% to $75.9 million for the year and up 19% to $20.5 million in the quarter.

Turning to profitability for the fourth quarter compared to last year, gross profit was up 26% to $12.6 million and operating income was up 85% to $12.1 million on the higher revenue. Fourth quarter gross margin was 38.7% down 60 basis points primarily due to cost related to the Honeywell Aerospace Printer acquisition related cost.

As Greg suggested those start-up cost including those under a transition services agreement will abate as we move through the year. For the full year, gross margins were down 1.3% due to an unfavorable mix of lower margin QuickLabel product earlier in the year.

Operating margin in the fourth quarter improved from the prior year by 200 basis points coming in at 6.5% for the quarter. This is the third consecutive quarter of sequential improvement in operating profit.

The amortization of the customer relationship intangibles we acquired with the Aerospace Printer product line runs through the selling and marketing expense line and we also incurred higher people cost and commissions as we invested in our global distribution channel.

For the full year, operating margins were down as we continue to invest in the AstroNova growth engine, a substantial portion of the increase was due to the charge in label and Honeywell Printer product line acquisition related cost.

However, it was also due to investment in people, processes and product development to drive growth and establish critical mass. Except for some additional investments we expect to make this year in information technology to drive improvements in efficiency, we expect the overall rate of spending increases to abate.

In terms of other income expense, we had interest income in 2017 and interest on net debt in 2018, which accounts for the bulk of the swing of about $600,000.

Earnings were down about a penny per diluted share on a GAAP basis in the quarter due to a $1.1 million or $0.16 per dilute share expense related to the tax cut and jobs act but was up 250% or $0.15 per diluted share on a non-GAAP basis for the quarter excluding the effect of the tax cut and jobs act. This is detailed in the press release tables.

Earnings were down $0.09 per diluted share for the full year to $0.47 per diluted share, but up $0.07 per diluted share on a non-GAAP basis excluding the tax law changes. The GAAP to non-GAAP reconciliation is included with the press release.

The bulk of the tax law change impact was due to the revaluation of the deferred tax assets at the new lower tax rate and a small portion related to the toll tax on foreign assets.

Turning to the balance sheet, AstroNova started the year debt free and over the course of the year bought stock back from the state of the founder and completed two acquisitions. We exited the year with just over $23 million in debt and $11 million in cash, so our net debt is $11.7 million, and our year-end equity is about $63.7 million.

Our leverage is not high, net debt to capital is about 15% and so our ability to service the debt is very solid. We spent $2.2 million on CapEx this past year. We have the capacity to do appropriately sized and structured acquisitions when the timing and pricing is right.

Let me close now by saying, I am delighted to be here, I look forward to speaking with many of you in the weeks ahead. Also, Greg and I will be presenting later this month at the Sidoti Spring Convention in New York and in May, at the East Coast IDEAS Conference in Boston. Now, I’d like to turn the call back to Greg..

Thank you, David. As many of you are aware, in fiscal 2017, we put in the motion our five-year strategic plan. Design to dramatically grow our business, we have just completed the first phase of that plan. Having significantly grown and upgraded our revenue, infrastructure, talent pool and geographic footprint.

Over the next three years, in phase 2 of our plan, where we will continue to focus on those areas, we will be leveraging the progress we have made thus far, to capitalize on our product and business development initiatives, to leverage our topline growth into improved profitability.

We continue to see excellent growth opportunities from our TrojanLabel acquisition last year, and our asset purchase and licensing agreement with Honeywell’s International Aerospace division, that we closed at the end of fiscal 2018's third quarter.

And we see numerous operational excellence opportunities across the company, through the addition of automated technology and other ongoing improvement that will enable us to further enhance our economies of scale.

In summary, the investments we have been making in our growth initiatives have positioned us well for a stronger AstroNova, and even greater financial performance. With that, David and I will be happy to take your questions.

Operator?.

[Operator Instructions]. We will take your first question from Tom Spiro, from Spiro Capital..

Tom Spiro, Spiro Capital, good morning..

Hey Tom..

First David, welcome aboard, glad to have you aboard David and we are expecting big things from you David, all eyes are on you at this moment, so good luck..

I appreciate the good wishes..

Let me just focus on Product Identification for a moment.

The TrojanLabel division, have we completed the integration now or we – we’re all set to move forward with vigor in the new fiscal year?.

Yes, we are pretty far along on that now Tom and the only thing we have left at this point are some – some dealer networks in some of parts of the world need to be further rationalize, but other than that we’re in good shape there, manufacturing and the back office operations are done, the product developments, integrated with engineering, so, we are in pretty good shape now for this year and obviously the future..

And as you look at the portfolio of TrojanLabel products, we have come out with two new ones recently and we had the T3 and the T1 in such that were there when we acquired the company. Which of those products do you think is really going to drive growth forward in the fiscal year, where is the excitement..

Well, the full range looks pretty good, but the big movement and the excitement we have seen at the trade shows and from customer feedback, are actually in the higher production unit, so the T2C, which is -- we just started shipping at the end of Q4, or actually backorder on that one right now with so popular.

So we’re kind of making those as fast as we can and the T4, which is new to the market, it’s our highest end product, it sells for a bit over a $100,000, so it’s a little bit of a longer sales cycle on that one, but that’s also got quite a bit of interest, primarily because it’s in many cases doing the work of equipment that’s twice as expenses as that unit.

So quite a bit from the T2C, the T4 and the T3 which is the kind of a new technology product that can new overprinting on boxes, can print on over a wide variety of surfaces, so that’s really new to the market as well..

And we’re manufacturing all of those in China?.

Primarily, yes..

I see. Well that’s Greg, good luck with the TrojanLabel.

And then on the tabletop printers, I guess the Kiaro line is getting a little long in the tooth as they say, I think the first Kiaro came out four or five years ago, is there some plan to bring out a fresh line of products or update those in the new fiscal year?.

Yeah, I don’t want to give too much away, but as you know we typically bring out new products in the fall at the bigger packaging shows and we have a couple things in the queue for that, for this year but I don’t want to preannounce those.

So, the Kiaro product is still doing fantastic there’s really nothing else like it in the market place so that continues to be a very strong seller, but we do have some follow-on products that are in the works. But I want to kind of keep that under wrap until our close to release date..

And how’s the QL800 fairing?.

Very good, we had kind of a slow start last year with that and I can give kudos to the engineering team both in West Warwick and also with a lot of help from the new guys in the TrojanLabel organization.

They’re able to finalize kind of quirks we had that initial launch I'm happy to say that that product is shipping and doing very well in the market now..

I see. And David just a question or two for you I may have missed these, but the segment to sales, I think you did give them, I didn’t hear the segment operating income numbers for Product Identification and Test and Measurement.

Could you give us those please?.

Yeah and just as a piece of to be aware of as we move forward we’re going to try to focus on the press release the public disclosure but in the fourth quarter the segment profit at this point for product ID, Product Identification was $2.8 million and for the T&M segment as a whole in the fourth quarter was $1.5 million..

I see.

Okay, that’s very helpful and how many employees does the company have at the end of the year?.

The employee count at the end of the year is my eyes are too….

It’s about….

Number right in front of me ... .

Kind of in that ballpark..

I'm sorry didn’t hear you Greg..

Yeah, it’s around little over 350, 352 or 355 some or somewhere around that..

Okay many thanks..

The number..

Thanks much/ I’ll get back in the queue. Thank you so much and again, good luck David..

Thank you very much..

[Operator Instructions] We’ll hear next from Sameer Patel from Adback [ph] Capital Management..

Morning guys..

Morning..

David since you’re new around here, I’ll send you all the questions give you a warm welcome.

First off just on the press release do you have a number I'm trying get the adjusted EBITDA for the year do you have a full year number for both depreciation and amortization and then also integration expenses?.

Depreciation and amortization will be in the K when we file it couple of weeks and we’ll think in the future about discussing the integration expenses, it’s not a number that we’ve historically disclosed..

Okay, sure.

On the tax rate side, I didn’t see anything in the press release about what tax rate you’re expecting going forward pro forma for the tax reform any thoughts on that?.

Yeah in the range of 28% or 29%..

Okay..

It should be very tight in that range someplace..

Okay.

And then Greg I think you talked a little bit about being done with Phase 1 of the strategic plan moving on the Phase 2 as you look out over the next few years I mean how do you think about the margin cadence in terms of kind of getting from where you are to where you want to be is that mostly front-end loaded, is that mostly backend loaded, is it kind of linear?.

Yeah, I would say it’s something obviously little bit hard to predict, but it’s more of a steady progress it’s not the type of business where turning by the dime.

But it’s, we’re in two things, we’re getting operating leverage obviously now that we’re well above the $100 million level and as David referenced the operating expenses will not be growing in the same type of ratio and lost up.

So the only thing we have in the short term which is the bid of our drag and David also reference that is the TSA slash integration charges that -- but while the second half for this year the bulk of those should be behind us and we start to move in ahead of that..

Okay, I have more but I will get back in the queue and come back. Thanks..

Sure..

We have our next from Steve Bush from Everglades Research Inc..

Good morning, guys..

Good morning, Steve..

So, good number, I like the way it’s going we are finally over a $100 million, if you are trying –.

Especially promising of course with the bookings at $120 million, so we are very pleased with that..

Yes, and so, you kind of say there is 1200 Boeing Airbus planes rated for this year, is that correct?.

Yes, that the production numbers we have for the A320 and 737 combined..

And do we think we are going to get some percentage of those for our printers?.

Pardon, I didn’t hear that part..

Do you think we're going to be like the 80% level or 50%, 90% what kind of percentage do we have with that market?.

Well, the two aircraft manufacturers are kind of neck-in-neck and I think on depends on a given month who produces more but they're basically 50-50 on those numbers and on the A320, our printers standard equipment service single gets one of our printers.

On the 737, there is an option for a wide format printer which we also make, so as far as AstroNova manufactured printers also be a very high percentage, there is very few aircraft that do not get printers, so -- exact percentage -- 100% of the A320 and much more than 50% of the 737 –.

All right, and so that’s good. So, on the 10,000 or so over the next decade.

I think that’s we waited more towards the next year or is it kind of evenly distributed any idea on that kind of roadmap?.

Yeah, you can take a look – there is lot of literature about that, I will just say a rough -- last week and then had talked with the people at the U.S. commerce aerospace some at a couple weeks before.

And both those manufacturers are trying to ramp as quickly as they can from -- they are kind in that 40's to maybe 50 right now, and they are looking for ways to get to 70.

And that will take them 70 per month, which will currently take them a couple of years and get mainly a supply chain issue, but you can, they both publish information, it's easy to Google, you can find that where they are at, but I would think 60 per month is very doable within less than a two year window and 70 if they can get the supply chain in line..

Right. So, it seems like once we get our integration costs fully completed we should be able to drop some good earnings down to bottom-line going forward.

Fair assessment?.

Yes. .

Yes, that’s the objective..

All right, okay. And so I guess just more on like an overview of the company in the stock, I have been in a long time and happy with you guys, you did a great job, but the liquidity still bit of an issue, any kind of concept of doing a stock dividend or anything like that to get more, I know I ask this every couple of years..

Discussion at the board meetings and obviously we can say anything before anything, so changed or updated there, but at this point there is nothing to report there..

It would be helpful to the thought process there if we could get our stock price to a point where after we say split or something that the price would be high enough. So, it’s something we will continue to look in as we are long here..

That's right. Sometime stock dividends are that are going to stock split until it gets tired but either way you guys are doing a great job and I look forward to future..

Great, thanks Steve..

It does conclude the question-and-answer portion of today’s conference. I would like to turn the conference back over to Greg Woods for any additional or closing comments..

Okay, thank you. Well, thanks again everyone for joining us here this morning and we look forward to updating you on our results for the next quarter. Bye now and enjoy Pi Day. .

And that does conclude today’s teleconference. We thank you all for your participation..