Ladies and gentlemen, good day and welcome to the AstroNova's fiscal 2020 first quarter results conference call. Today's conference is being recorded. At this time, I would like to turn the call over to Mr. David Calusdian from the company's Investor Relations firm, Sharon Merrill Associates. Sir, please go ahead..

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, the company's Chief Financial Officer. 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 today 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, June 5, 2019. 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. I will now turn the call over to Greg..

Thank you David. Good morning everyone and thank you for joining us on the call today. The new fiscal year is off to a strong start. Our first quarter performance reflects focused consistent execution on our strategic plan and our ongoing commitment to continuous improvement driven by the AstroNova Operating System.

On a year-over-year basis, we delivered double digit growth in bookings, revenue, operating income and EPS, while driving a greater percentage of that growth to the bottomline.

Our ability to realize increased efficiencies and leverage the standard tools and processes of the AstroNova Operating System led to operating income growth of 95% or $1.2 million over the prior year's first quarter and an operating margin increase of 280 basis points.

Revenue increased 15% for the quarter highlighted by top and bottom line growth in both our product identification and test and measurement segments. In the test and measurement segment, revenue was up 9% with solid contributions from both our aerospace and data acquisition product lines.

Looking at operational highlights, the integration of the Honeywell business is substantially complete and the transition of remaining customer contracts to AstroNova should be wrapped up by year-end. We continued to expand our international aerospace business in Asia as well.

Last month, we announced flight deck printer contracts with several major Asian commercial airlines and leasing companies. These multiyear deals, which range from four to eight years further strengthen our position as a global leader in flight deck avionics in this key growth market.

According to the International Air Transportation Association, the Asia-Pacific region will be the biggest driver of industrial growth over the next two decades accounting for more than a total of half of the new passenger traffic in that area.

To support this growth, we recently established an additional authorized repair station in Asia located in Singapore to support our expanding customer base throughout the Southeast Asia region. Before turning to product identification segment, let me first comment on the grounding of the Boeing 737 aircraft.

While so far we have been largely unaffected by this event, we expect that the prolonged situation may result in a slight impact on our second quarter margins. We are in regular close contact with Boeing and are watching the developments closely.

Whether or not any impact continues beyond the second quarter is dependent on when the aircraft is returned to service. Turning now to the product identification segment. Key drivers behind this segment's 18% growth included demand for our new, five-color QL-300 tabletop label printer. Just launched at the end of January, demand has been strong.

The QL-300 allows commercial printers and end-users alike to expand their ability to produce high-quality, short run and specialty labels on much broader range of label materials.

Our TrojanLabel product line also enjoyed a strong quarter reflecting growing order demand for the compact T2C as well as the Trojan T4 professional label printing and finishing system. The positive momentum of our product identification business has been helped by the ongoing expansion of our worldwide distribution network.

Increasing the global penetration of our QuickLabel and TrojanLabel brand is an important part of the growth strategy for the product identification segment. In support of that strategy, we are in the midst of a busy second quarter exhibiting at more than 25 tradeshows around the world.

In addition, we are broadening our global reach by establishing innovation technology centers in key regions. We now have a total of eight ITCs in the U.S., Denmark, France, Germany, Mexico and China. Before turning it over to David, I want to acknowledge the excellent work of our people around the world.

Earlier, I talked about the way we have leveraged the AstroNova Operating System to drive profitable growth. That wouldn't be possible without all 380 team members pulling in the same direction. From participating in Kaizen events to the work of our cross functional teams, our dedicated team members are certainly the biggest factor in our success.

Now let me turn it over to David..

Thanks Greg and good morning everybody. From my perspective, the key takeaways from our first quarter results are the healthy organic growth across both segments and our ability to drive continuing operating expense leverage. The topline grew by $4.7 million year-over-year while operating expenses grew by $925,000.

We continue to work hard to manage our operating expenses prudently and deliver higher operating margins. As a percentage of revenues, operating expenses were down 190 basis points. Gross profit margin improved 90 basis points to 39.4% and operating margin was up 280 basis points to 6.8%.

Obviously, as Greg said, first quarter earnings then are $0.23 per share, up more than 90% from the first quarter last year. Domestic revenue in Q1 increased to $22.0 million, representing 61% of total revenue. International revenue was $14.6 million. Earnings release provides a breakout of revenue and operating profit by segments.

So I am not going to go through that in detail. On a combined basis, segment operating profit increased to $5.5 million or 15.1% of revenue from $3.9 million or 12.4% of revenue in the year earlier period reflecting all the new products and growth initiatives.

I will note that the sequential decline in revenue from the fourth to the first quarter is a typical pattern for us. A key element of our business model is a solid profitable base of recurring revenue. So we are happy that non-hardware revenue accounted for 64% of total revenue in the first quarter compared to 62% in the year ago period.

This result certainly speaks to the robust demand for inks, labels and other supplies to support our growing product ID segment, but also reflects the growth of our aerospace service and repair business. Income tax provision in Q1 was $400,000 for an effective tax rate of 19.1% and we expect the second quarter tax rate to be approximately 27%.

Looking at the balance sheet. We continue to reduce our debt and we exited the quarter with approximately $18.4 million in debt, $5.8 million in cash and a net debt to capital ratio of about 15%. To update you on the ERP implementation project. We now expect to go live at the end of this year, start of the new year, a bit later than we said earlier.

The project is going well, due to the efforts of the entire team, but we have decided that a slight delay is more prudent. With this additional time, the likely total capital cost is now expected to be in the range of $3.25 million.

We have reached a point in the project where work and training intensifies and it will continue for the balance of the year. The accounting rules don't allow training cost to be capitalized into the project and while our expenses will be impacted to some degree, that's included in our outlook.

In terms of non-cash charges for the quarter, depreciation was $1.049 million, amortization was $490,000 and stock-based compensation was $600,000. Before I turn the call back to Greg, please note that next Thursday, we will be presenting and hosting one-on-ones at the East Coast IDEAS Conference in Boston.

Please email alot@investorrelations.com to schedule a meeting. We look forward to seeing you. And I am going to turn the call back over to Greg..

Thanks David. Our strong first quarter performance reflects our commitment to consistent focused execution on our strategic plan. From commercial aerospace and high-speed data acquisition to digitally print, packaging, labeling, we operate in end-markets that we believe provide strong secular tailwinds to support our long-term growth objectives.

For the full fiscal year, we continue to expect overall modest revenue growth and increased operating leverage as we expand the application of the AstroNova Operating System across our businesses.

In closing, let me again thank our entire team for their diligent hard work in getting the year off to a great start and positioning us well in our markets to continue to drive profitable growth as we move forward. Now, David and I would be happy to take your questions.

Operator?.

[Operator Instructions]. Our first question will come from Dick Ryan with Dougherty..

Good morning guys. Say, Greg, last quarter you talked on the product ID side that North America and Asia, I think, were seeing some good expansion, Europe had underperformed, but you had made some sales organizational changes.

Can you just provide an update on the different regions and what you are seeing?.

Yes. So I would say, what I said there holds true and we are starting to see some improvements now in Europe and it doesn't happen overnight, but they did make some nice progress in the first quarter. There is still work to be done there.

And then if you look at the other regions, Asia, outperformed our expectations slightly and in North America, we continue on a strong growth profile there and adding more and more distribution partners.

If you remember, back in the middle of last year, we started to add dealers into the North American market where we formerly had primarily a direct sales force there. So it's nice to see some of those guys actually kicking and I won't mention any specifics but we had a couple of nice orders just in the past several weeks from our new dealers.

So that's great to see..

Are you planning any new IT center openings this year? You have the eight, I think, you said..

Yes. We have eight now. We have one in the works right now where we are kind of negotiating the lease. I don't want to say where it is. It's in Asia. But I won't say exactly where right now. We should have an update for you on that in the next quarter..

Okay.

On the test and measurement side, the nice win on the Asian airlines and leasing companies, was those existing Honeywell customers or your previous customers or were they new additions?.

It was a mix. So they were either Honeywell or new to us. So we had kind of both. So we were able to convert some Honeywell customers and get them onto our agreements. And we had some new to AstroNova customers as well..

Okay. And I know you don't break out the P&M revenue from the aerospace and the data acquisition and even within aerospace how that breaks out between Airbus and Boeing.

But can you give us a little more flavor or color on the Boeing issue and kind of the maybe potential impact on those margins?.

Yes. I can't give specifics on that. I guess what I could say on that is if you look at the number of aircraft we are at, the unit deliveries for 737 MAX are relatively low at this point in the game, irrespective of their grounding. So it's hard to say exactly what's going to happen.

Over the past weekend, I read a variety of different reports with dates from August till the CEO of [Airbus] [ph] was talking about Christmas. So I think the former is probably more probable, but we will see how it develops here. In the short term, it has not been a big impact.

As we mentioned, we had a few deliveries to move out from one quarter to the next, but so far it seems like in the U.S. they expect to get this thing back up and flying by the end of the summer..

Okay. And just to clarify, it’s standard offering on Airbus, not on Boeing, that's kind of a decision airlines make. .

Correct..

Okay. Great. Thank you..

Sure Dick..

[Operator Instructions]. At this time, we have no further questioners in the queue. So I will turn it back to Mr. Gregory Woods for closing comments..

Thank you. All right. Thanks everyone for your time and interest in AstroNova. We look forward to keeping you updated on our progress and we will talk to you next quarter. Bye, now..

Thank you. Ladies and gentlemen, that concludes AstroNova's fiscal 2020 first quarter results conference call. You may now disconnect and thank you for joining us today..