Good day, ladies and gentlemen, and welcome to AstroNova's First Quarter Fiscal 2023 Financial Results Conference Call. Today's conference is being recorded. I would now like to turn the conference over to David Calusdian, the company's Investor Relations firm, Sharon Merrill Associates. Please go ahead, Sir.

Thank you, Carl. Good morning, everyone, and thanks for joining us. Hosting this morning's call are Greg Woods, AstroNova's President and CEO; and David Smith, Vice President and Chief Financial Officer. Greg will discuss the company's operating highlights. David will take you through the financials at a high level. 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 don't have a copy, please go to the Investors page of the AstroNova Web site 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 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 8, 2022. AstroNova 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. On today's call, management will be referring to non-GAAP financial measures. AstroNova believes that the inclusion of these measures helps investors gain a meaningful understanding of the changes in the company's core operating results and can also help investors who wish to make comparisons between AstroNova and other companies on both the GAAP and a non-GAAP basis. A reconciliation of non-GAAP financial measures to their most directly comparable GAAP measures is available in today's earnings release. With that, I'll turn the call over to Greg.

Thanks, David, and good morning, everyone. Despite the ongoing supply chain constraints and cost increases we faced during the first quarter, we were able to post modest increases in both revenue and operating income compared to last year's first quarter. Revenue was up 6.6% to $31 million, and operating income was up 4% to $764,000. Those supply chain impacts affected both segments of our business. In our Product Identification segment where, again, this quarter several orders could not be fulfilled, resulting in lower segment revenue. Product Identification revenue declined 6% in the quarter, to $21.7 million, and operating income was $1.4 million or 6.5% of product revenue, compared to $2.7 million or 11.8% of product revenue in the same period last year. On the innovation front, as mentioned is this morning's press release, we are about to further extend the breadth of our industry-leading QuickLabel product line, we're launching our first printer specifically designed for the entry-level segment or the onsite digital color label printing market. We've equipped this new printer with a large seven-inch color touch screen, a unique feature for this category, and included ample internal image storage, making it extremely easy to use. It's also a highly affordable solution for smaller businesses as well as larger enterprises that need to deploy multiple on-demand label printers at distributed locations throughout their facilities. This product significantly expands our addressable market to a new large class of customers, those looking for a sub-5,000-hour printer solution. Turning to out Test & Measurement segment, first quarter revenue increased to $9.3 million, up 55% from the same period in fiscal 2022. Segment operating income also increased substantially, climbing to $1.9 million or 20.6% of revenue, from $350,000 or 5.9% in the year-ago period. Our results continue to be bolstered by the ongoing gradual…

Thanks, Greg, and good morning everyone. I'm just going to emphasize a couple of key items and metrics from the income statement balance sheet. We do plan to file our first quarter 10-Q later today. For segment revenue, Product Identification accounted for 70.1% of revenue in the first quarter, down from 79.4% a year earlier. Test & Measurement was 29.9% of revenue, compared with 20.6% in the same period of fiscal 2022. Gross profit was $10.6 million in the quarter, down 1.5% from the first quarter of fiscal 2022 last year. The gross profit margin decline of 2.8% to 34.6% was primarily due to increased input cost related to the supply chain disruptions affecting the TNM segment particularly the aerospace business unit. While volume has trended higher in the aerospace -- as the aerospace industry has recovered, the challenging cost and supply chain environment is expected to persist in the near term. Overall revenue was up $1.7 million -- was $1.7 million, up 21.6% to $9.3 million largely due to aircraft printer sales increases but also the data acquisition products Greg talked about. Supplies revenue was $17.9 million. Overall showing typical resilience, but down a modest 1.5% from Q1 of last year due to lower revenues for certain specialized consumables in the PI segment. Supply revenues were also impacted by certain supplier product shortages. Service and other revenue grew almost 17% in the quarter to $3.8 million, driven by increased parts and revenue activity in our aerospace business. Domestic revenue accounted for 63% of total revenue, up from 57% earlier. And conversely international revenue totaled 37% of revenue, down from 43% last year. Operating expenses in the current quarter were $10.0 million, down a modest 1.9% year-over-year. Selling and marketing expenses were down 3.4% from the prior year to $5.9…

Thanks, David. While the near-term macro economic environment remains challenging, we are taking several measures to diminish those headwinds. The underlying fundamentals of our business remain strong, and we are encouraged by the momentum we are seeing in the Test & Measurement segment as the commercial aviation market continues its recovery, as well as the strong new product pipeline in our Product Identification segment. So, with that, David and I will be happy to take your questions. Operator?

Thank you. [Operator Instructions] We take our first question from Tom Spiro with Spiro Capital. Your line is open. Please go ahead.

Good morning.

Morning, Tom.

On the Test & Measurement side of the company, the revenues were quite strong in the quarter, strongest it did in a while. Were there sort of one-time transactions inflating that? Do you see that as kind of a sustainable level for the next several quarters? What does that portend?

No. Like mentioned, Tom, it's mainly driven by kind of increases across the board in Test & Measurement. Really, the data acquisition piece contributed to that, but it's primarily via aerospace recoveries boosting that up. And we're not back to where we were, but it's coming back in a pretty nice fashion. So far, it looks like it's going to continue doing that, yes.

And the margins that section -- that segment were also quite strong, I think roughly 20%. Same question, is that inflated by some, perhaps, unusually profitable transaction or two or is that, broadly speaking, sustainable?

I think it's generally a pretty good mix. It's really a function of better absorption as the volume increases.

That's great. Thanks much. The inventory is running high, as you mentioned, because of the supply chain issues. Do you see inventories growing from here, or do you know how the inventory levels -- for these levels of sales that are -- if they're sufficient?

Yes, there's still some [indiscernible] hands-on, Tom, there. So, when we can get things, we tend to buy quite a bit of it just because we have a lot of things that we still can't get our hands on. So, broadly, for the next, I don't know, couple quarters it's going to be on that kind of trend where we're going to get what we can get, maybe even looking out at four, five months worth of inventory if we can lock it up, so. Thank you. You had a comment, David?

Yes, I don't think it's -- I think we're probably in a heavy inventory period for a little while yet. I don't think it's going to get dramatically better in the near-term. But I think it'll trend consistent with revenue and cost of goods trends.

Okay, that's helpful, thanks. And on the Product Identification side, you've mentioned in the last several quarters that some sales in each of those quarters were lost because of supply chain -- not lost, deferred, because of supply chain issues in question to the succeeding quarter. And as I try to think it through, it would seem to me that unless the amount of deferrals is increasing that impact should sort of wash in succeeding quarters, that is to say what -- in this quarter, what we couldn't ship for supply chain issues might have been offset by what was brought into this quarter from the prior quarter. Is -- am I thinking about this right? Or are the deferrals increasing, what's going on there?

Yes, that's basically correct. I mean we have -- it's kind of across the board. And one big thing is abating is now there's a major paper supplier which feeds into a lot of our media. You might remember, in Product Identification, media is actually a bigger piece of the supplies business than inks, and toners, and such. So, they were at a strike for a while. That strike is over. Plus, we've been sourcing from different companies. It takes a while to -- we have to produce that. So, not like we just take an ink tank and ship it to someone in [socio] [Ph] production process. So, we're hopeful that we'll start chipping away at that starting probably the end of this quarter, and then into Q3.

Well, that's great. Let's see. I'll get back in line now, thank you.

Okay.

Thank you. [Operator Instructions] We take our next question from George Milos with MKH Management.

Yes. Hi, good morning, guys.

Hi, George.

Hi. A follow-up on Tom's question about the margins at -- in Test & Measurement, David, I think you said that the gross margin was affected a little bit primarily on the T&M segment. So, is that right now the case the margin would be even slightly higher, is that correct?

Well, yes. If we hadn't have had some margin difficulties the -- on the gross margin, it would have been more profitable. But it's primarily a function of the supply chain stuff that we've been talking about, to a lesser extent mix. But -- and as those unwind, which hopefully they will as supply chain conditions improve, we hope to be able to take advantage of some of that.

Okay. But the major impact on the -- of the supply chain issues in the gross margin were of the T&M segment?

Well, they impacted both segments. We didn't -- we did not break those -- we didn't break those out -- all of the impacts out by segment.

Right.

Which is a challenge in any event.

Okay. And on the revenue on the T&M side, it seems like is there a way to break down the printer with the data acquisition? I know, usually, you don't do that, but I'm just curious if you would do that this time because data acquisition seemed to have had a nice rebound?

Yes, we don't breakout specific product lines in either segment, actually.

Okay.

But, yes, we are seeing -- yes, it's nice to see it improving. And that the majority of that segment remains in the aerospace area.

Yes. So, the aerospace is really driven by aircraft production. On the data acquisition side, it's maybe a little bit more project oriented, right?

Yes, that's correct. It's a bit more predictable in terms of tying it to aircraft production and, actually, aircraft usage, yes, which that those numbers are pretty well know. Whereas in data acquisition it's a lot of different projects, yes.

Yes, okay, great. And then just one question on the P&I segment, the new product that you have, the QL-E100, seems like it's interesting how it sort of both touches sort of the SMB segment, but also large companies that may have multiple facilities. Do you see that more as a defensive move to sort of secure the entry-level category or do you think that there is a great deal of growth potential in that space?

Yes, from our market research it's a much higher unit volume space. And we've seen it with our own sales force been clamoring for something like this. And we looked at a number of me too type products, there's a lot of them out there that look the same. But our R&D focus really puts the emphasis on kind of that differentiator, or that's -- we would have liked to have had this probably couple years ago, but we don't. But we think the wait was well worth it. And to answer your other question, yes, it's in both spaces. Like sometimes you find customers that would really love to get one of our, let's say, QL-120 product but they can't really afford it yet for a variety of reasons. So that's one part of the market that we can address. And the other one is these production facilities where they may want to replace a zebra black and white printer with a color printer at the end of a production line, but they have 20 production lines in their building. So, each one would need a printer, and they don't necessarily want a $10,000-printer at each of those spots. So, that's kind of the other big market that we see for it with our own internal demand, yes.

Okay, great, great. That sounds great. Okay, thank you very much.

Sure, George.

Thank you. We have follow-up question from Tom Spiro with Spiro Capital. Your line is open. Please go ahead.

You have a new product on PI. Do you see much potential for cannibalization of your existing products?

Not likely. It's really more of a kind of entry level product that mentioned. And what we really expect should happen is some of these businesses make up for the 120, one of our higher end printers -- high volume printers. As their business grows they could step up to it. And one thing I didn't mention is that the same media that runs in this printer, we've designed it such that you could take that role of media of the little printer and put it into the QL-120and just carry on higher resolution faster production rate. So, it really designed to be part of a family product.

And how many new products in PI do you anticipate rolling out this year?

Like I mentioned in the beginning of the year, we are looking to do at these two. This is kind of one and in fact two, you know, it depends on production cycles and what not. Maybe there is another beyond that, but at least two this year.

Okay, thanks so much. And good luck.

Thanks, Tom. Have a good day.

It appears we have no additional questions in the queue at this time. I would like to turn the call back to the management for any additional or closing comments.

Okay. I would just like to thank everyone for joining us here this morning. And we look forward to keeping you updated on our progress and look forward to seeing some of you at the IDEAS conference. Have a good day.

Thank you and that concludes this call. Thank you for your participation. You may now disconnect.

Thank you.