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, Kyle. 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 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 Private Securities Litigation Reform Act of 1995. 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 the 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 a GAAP and 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 now 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 in this morning's press release, we are about to further extend the breadth of our industry-leading QuickLabel product line by launching our first printer specifically designed for the entry-level segment of the on-site digital color label printing market. We've equipped this new printer with a large seven-inch color touchscreen, 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 printer solution.
Turning to our 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 recovery in the commercial aviation market. Most of the rebound so far has occurred with the domestic single aisle aircraft, and in particular, the ongoing recovery of the 737 MAX production rate. We are also starting to see encouraging signs of growth in the long-haul dual aisle aircraft segment.
In addition to the increased production rates of commercial and business aircraft, the overall air traffic growth benefits our aerospace parts and repair businesses, which continued to increase during the quarter. One area that is still lagging, however, is Asia, and in particular, China. We're hopeful that this region, too, will start ramping up later this year. In the Test & Measurement segment's data acquisition product lines, we're also seeing stronger demand. In particular, we are benefiting from some of last year's program wins in the defense sector. Especially in demand are our high-end EV-5000 systems that are being deployed at several U.S. installations this year. In addition to the defense segment, we are also making inroads with our data acquisition offerings in the power industry, where we have scored design wins in various applications ranging from solar to battery to nuclear power monitoring and troubleshooting.
In closing, despite the current macro environmental challenges, we are making headway in addressing supply chain and cost issues in both segments of our business, including sourcing alternative components and materials, as well as boosting inventories to buffer disruptions. Additionally, we are increasing prices in areas that have seen higher input costs where we have the opportunity to do so. We believe these and other countermeasures underway will better position us in the future. Although it will take time for the increases to be fully reflected in our results, we expect to begin seeing those in the second half of this year. Now let me turn the call over to David for the financial review.
Thanks, Greg, and good morning, everyone. I'm just gonna emphasize a couple of key items and metrics from the income statement and 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 costs related to the supply chain disruptions affecting the T&M segment, particularly the aerospace business unit.
While volume has trended higher in the aerospace industry as it has recovered, the challenging cost and supply chain environment is expected to persist in the near term. Hardware revenue was up $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. Supplies 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 million. This is primarily due to a decrease in the amortization expense. In last year's second quarter, we changed the amortization period for our aerospace intangibles. It's also due to decreases in certain third-party contract services and commission expenses, partly offset by employee wages and benefits and increased travel expenses as the pandemic restrictions have waned.
General and administrative expenses were $2.5 million, up 9.2% compared with last year's first quarter, primarily due to increased payments to outside service providers. R&D expenses were $1.5 million. While this might seem like a notable 11.3% decline in the quarter year-over-year comparisons, it's primarily due to modest decreases in supplies and repairs expenses and shouldn't be interpreted as a change in philosophy or approach or indicative of full-year trend. R&D spending as a percentage of revenue was 4.9% in the first quarter of the year compared with 5.9% last year. Turning to the balance sheet. Cash and cash equivalents as of April 30 totaled $11.4 million.
During the first quarter, we borrowed $3 million on our revolving credit to support domestic working capital and had $19.5 million available for borrowing under that facility at quarter end, and we think that's gonna be sufficient to support our operating requirements, including capital expenditure commitments. Supply chain factors obviously affected both segments and the challenging cost and supply chain environment is expected to persist in the near term. As Greg mentioned, part of our response has driven inventories higher, and as of the quarter end, they totaled $36.9 million, up 6.5% or $2.65 million from year-end. Capital expenditures are down as we completed the large part of the NetSuite ERP implementation on November first.
While we'll continue to devote some of our operating spending to optimizing the ERP system, the heavy lifting is over and we expect CapEx to be significantly lower this year than last year or the prior two years for that matter. Before handing the call back to Greg, I want to let you know that in two weeks we'll be presenting and hosting one-on-one meetings at the East Coast IDEAS Virtual Conference. If you are participating, we look forward to the opportunity to meet with you there. Now I'll turn the call back to Greg for closing comments.
Thanks, David. While the near-term macroeconomic 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. Now with that, David and I will be happy to take your questions. Operator?
Thank you. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We pause just for a moment to allow everyone an opportunity to sign now. Once again, star one to ask a question. That is star one to ask a question. 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 they've been in a while. Were there sort of one-time transactions inflating that? Do you expect to see that as kind of a sustainable level to the next several quarters? What does that portend?
No. Like I mentioned, Tom, it's mainly driven by kind of increases across the board in Test & Measurement. Really, you know, the data acquisition piece, you know, contributed to that, but it's primarily via aerospace recovery is boosting that up. You know, we're not back to where we were, but you know, it's coming back in a pretty nice fashion. You know, so far it looks like it's gonna continue doing that, you know.
The margins in 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, you know, better absorption as the volume increases.
Oh, that's great. That's great. Thanks much. The inventory is running high, as you mentioned, because of the supply chain issues. Do you see inventory, inventories growing from here, or do you now have the inventory at levels for these levels of sales that are sufficient?
Yeah. There's still some
That remain today.
hands on, Tom. You know, 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. Probably for the next, I don't know, couple quarters, it's gonna be on that kind of trend where we're gonna get what we can get, maybe looking out at, you know, four or five months' worth of inventory if we can lock it up. You have a comment, David?
Yeah. I think we're probably in a heavy inventory period for a little while yet. I don't think it's gonna get dramatically better in the near term. You know, I think it'll trend consistent with revenue and cost of goods trends.
Okay. That's helpful. Thanks. On the Product Identification side, you've mentioned in the last several quarters that some sales in each of those quarters were lost, not lost, deferred, because of supply chain issues and pushed into the succeeding quarter. 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, 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. Am I thinking about this right or are the deferrals increasing? What's going on there?
Yeah. That's basically correct. I mean, it's kind of across the board. One big thing that is abating now is 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. They were on strike for a while. That strike is over. Plus we've been sourcing from different companies. But it takes a while, we have to produce that. We're hopeful that we'll start, you know, chipping away at that starting probably the end of this quarter and then into Q3.
Oh, that's great. Let's see. I'll get back in line now. Thank you.
Okay.
Thank you. Just a reminder, that's star one to ask a question. We take our next question from George Melas with MKH Management.
Yes. Hi. Good morning, guys.
Hi, George.
Hi. A follow-up on Tom's question about the margins in Test & Measurement. David, I think you said that the gross margin was affected a little bit primarily on the T&M segment. If that were not the case, the margin would be even slightly higher. Is that correct?
Well, yeah, if we hadn't have had some margin difficulties on the gross margin, it would have been more profitable. You know, it's primarily a function of the supply chain stuff that we've been talking about, to a lesser extent mix. You know, as those unwind, which hopefully they will, as supply chain conditions improve, we'd hope to be able to take advantage of some of that.
The major impact of the supply chain issues and the gross margin were on the T&M segment.
Well, they impacted both segments. We didn't break those out, you know, all of the impacts out by segment.
Right. Right.
Which is, you know, a challenge in any event.
Okay. 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.
Yeah. Yeah, we don't break out specific product lines in either segment, actually.
Okay.
Yeah, we are seeing, you know, it's nice to see it improving and yeah, the majority of that segment remains in the aerospace area.
Yeah. The aerospace is really driven by aircraft sort of production. On the data acquisition side, it's maybe a little bit more project oriented, right?
Yeah, that's correct. It's, you know, a bit more predictable in terms of tying it to aircraft production and, actually, you know, aircraft usage, you know, which those numbers are pretty well known, whereas in data acquisition it's a lot of different projects, yeah.
Yeah. Okay, great. One question on the PI 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's a great deal of growth potential in that space?
Yeah. From our market research, it's a much higher unit volume space, and we've seen that with our own, you know, sales force been clamoring for something like this. We looked at a number of me-too type products. There's a lot of them out there that look the same. Our R&D folks really puts the emphasis on, you know, kind of a differentiator. That's, you know, we would have liked to have had this probably a couple of years ago, but, you know, we don't. We think the wait was well worth it. To answer your other question, yeah, it's in both spaces.
Like, sometimes you find customers that would really love to get one of our, let's say, QL-120 products, but they can't really afford it yet for a variety of reasons. That's one part of the market that we can address. The other one is these production facilities where they may want to replace a Zebra, you know, black and white printer with a color printer at the end of a production line, but they have, you know, 20 production lines in their building. You know, each one would need a printer, and they don't necessarily want to put a $10,000 printer at each of those spots. That's kind of the other big market that we see for it, you know, with our own internal demand, yeah.
Okay, great. Great. That sounds great. Okay, thank you very much.
Sure, George.
Thank you. We have a follow-up question from Tom Spiro with Spiro Capital. Your line is open. Please go ahead.
Yeah. On the new product on PI, do you see much potential for cannibalization of your existing products?
Not likely, because it's really more of a kind of an entry-level product, like I mentioned. What we really expect would happen is, you know, some of these, you know, businesses maybe can't afford a QL-120, you know, one of our higher-end printers, you know, higher volume printers. As their business grows, they could step up to it. One of the nice features I didn't mention is that, the same media that runs in this printer, we've designed it such that you could take that, you know, roll of media out of the little printer and put it into the QL-120 and just carry on at a, you know, higher resolution, faster production rate. It's really designed to be, you know, part of a family of products.
How many new products in PI do you anticipate rolling out this year?
Like I mentioned at the beginning of the year, we're looking to do at least two. This is, you know, kind of one and you know, looks like two. You know, it depends on production cycles and whatnot. Maybe there'll be another one beyond that. You know, at least two this year.
Okay. Thanks 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'd just like to thank everyone for joining us here this morning, and we'll 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. That concludes today's call. Thank you for your participation. You may now disconnect.
Thank you.