AstroNova, Inc. (NASDAQ:ALOT)
Q1 2016 Earnings Conference Call
May 17, 2016 09:00 ET
David Calusian - IR
Greg Woods - President & CEO
Joe O'Connell - SVP, Treasurer & CFO
Good day 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 Calusian. 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 Joe O'Connell, Senior Vice President and CFO. Greg will begin the call by reviewing the company's operating highlights, business outlook. Joe 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 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 the 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 the factors that may cause differences, please see the company's risk factors in the annual report on Form 10-K and other filings the company makes with the Securities and Exchange Commission.
To supplement its consolidated financial statements presented in accordance with GAAP, AstroNova uses non-GAAP net income, non-GAAP net income per diluted share and free cash flow. The company believes that the inclusion of these non-GAAP financial measures in this press release and on this conference call help investors gaining meaningful understanding of the changes and the company's core operating results, it can also help investors to make comparisons between the company and other companies on both a GAAP and a non-GAAP basis.
Management uses these non-GAAP measures, in addition to GAAP financial measures, as the basis for measuring its core operating performance and comparing such performance to that of prior periods and to the performance of its competitors. These measures are also used by management to assist with their financial and operating decision-making.
For more information please see the GAAP to non-GAAP reconciliation tables in this morning's earnings release. The tables have more details about the GAAP financial measures that are most directly comparable to the non-GAAP financial measures and the related reconciliations between those financial measures.
Now I'll hand 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 development process. We widened the geographic lens on our distribution efforts though we began putting the initial infrastructure in place to build a much larger and more profitable organization based on the data visualization technologies.
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 larger improvement. You can see the continuing progress of the strategic transformation in our fiscal 2017 first quarter which marked our 15th consecutive year-over-year growth. Let me share 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 year ago. As expected we began to see an uptake 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 are especially pleased with the performance of our international dealers, distributors 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 four of the EUs five largest countries. Now let me 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. In the Product Identification side we launched a QL-111 a cost efficient color label printer designed for industrial and manufacturing environments. Among the many customer benefits is the QL-111 ability meet the high-throughput accuracy and color-coding requirements for secondary product packaging labels.
QL-111 eliminates the waste and inconvenience inherent in the typical process of buying a variety of pre-printed color labels and then over printing 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 reviewed 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 the broad range of industries, a unique combination of size, portability, convenience and power. The DDX100 displays real tie signals on a vivid 15 inch touchscreen and stores them on an internal 500GB drive.
AstroNova's proven and easy to use intuitive software provides users with the ability to setup the DDX100 record data and obtain results in just minutes. All of these products are the direct result of our formal StageGate development process based on voice of the customer that we implemented two years ago. We now have multiyear product roadmaps in place for each of our 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 have made to our design and information technology systems.
As I mentioned in our Q4 call we are now beginning to integrate the numerous standalone IT subsystems we have throughout the company which are new Oracle E1 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 efficiencies, more effectively manage inventories and enhance the overall customer experience. Within our Aerospace business we have also made significant improvements in 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 announced that the flagship ToughWriter 5 airborne printer has been selected for inclusion in Boeing's catalogue 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 catalogue positions the ToughWriter 5 for carriers expanding and upgrading their fleets.
In fact, a major US Carrier recently selected the ToughWriter 5 for its 737 MAX Airplanes. The visibility of our products as they receive as a catalogue 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 Islands. 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 are off to a strong start in fiscal 2017.
We expect to achieve solid growth and profit this year while continuing the strategic purposeful investments necessary to drive increasing investments 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 the 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 serve a nice traction across both Europe and Asia to national 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 of the year ago as a portion of the Aerospace related orders had been received in the prior quarter began to kick in this quarter.
Looking at sales by product category, consumables as I noted another strong solid quarter increase in 14% to $13.4 million and accounting for 55% of total sales. We continue to operate three shifts in our media plant here in West Warwick and see the opportunities to develop the product lines. Hardware sales in Q1 increased nearly 4% from the prior year to $8.7 million prior to reflecting the uptake in orders of 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 increased to $9.5 million from $9 million in the same quarter of prior year. Our gross profit margin in the quarter was 39.3% versus 40.7% in the first quarter of fiscal 2016. The variance in gross margin related largely to product mix, cost associated with the product line integrations and the absorption in our manufacturing operations. Operating Expenses increased 4.5% to $7.9 million from $7.6 million for the same period of the year ago. Increases in large are related to increases in selling and marketing initiative 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 the 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 and $0.16 per diluted share in the quarter of fiscal 2016. Keep in mind that in 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 fiscal 2017 period we incurred $50,000 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 receivables at the end of the quarter were $15 million representing some 51 days 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 a 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 from 10 employees from the year end 2016. Our sales from employee increased to $294,000 up some 9% from the $269,000 for the same period of last year.
Orders received in the first quarter were down 5.1% to $24.8 million. This balance reflects record volume in orders from Product Identification group of $18.2 million up 4% as well as $6.6 million in new orders of the Test & Measurement product group lower by approximately 3% as the Aerospace orders in the prior year quarter were actually strong.
We exited the first quarter with a backlog of $17 million that's 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 of free cash flow we generated during the quarter. And before I turn it back to Greg let me give you the dates for two upcoming investor presentations.
We will be at the 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 with me please contact Sean 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, and 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 up and continue to pursue strategic M&A opportunities.
We achieved significant progress in the first three years' of our strategic plan and the outlook for our future is very bright. Finally, as we did last year 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 would be happy to take your question. Operator?
[Operator Instructions] We will go first to Evan Greenberg with Searchin [ph] Capital. Please go ahead.
Hey guys, how are you? Number one I wanted to get an idea, you didn't put an operating EBITDA number year-over-year comparison, was there one Joe?
We certainly have Evan, I don't think we have put it out. It's $2.1 million for EBITDA 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 the mix of ramping up of 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 the sales from occurring because people were waiting for newer products, did you see any of that at all?
There's always some of that because as much as try to keep under wraps sometimes something's leak out to the channel but I wouldn't think it would be significant. The QL-111 does overwrap a little bit of the space of the Kera100 so it depends on the application which is appropriate printer so there may have been little bit of that but I wouldn't think it will be a significant factor.
And was there currency impact or the dollar issues?
No not really. I think this must have been the slowest $40,000 in the quarter.
Alright guys, see you there [ph].
[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.
This does conclude today's conference. Thank you for your participation.
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