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.

David Calusdian - Senior Vice President, Sharon Merrill Associates, Inc.

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 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 now turn the call over to Greg.

Gregory A. Woods - President and Chief Executive Officer

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 look at this new printer with a large 7-inch color touchscreen, a unique feature for this category, and included ample internal image storage, making it extremely easy to use. It's also 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 $250,000 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 the [Technical Issue] ongoing recovery of the 737 MAX production rate. We're 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 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 counter measures 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.

David S. Smith - Vice President, Treasurer, and Chief Financial Officer

Thanks, Greg, and good morning, everyone. I'm just going to emphasize a couple of key items and metrics on 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 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 and as the aerospace industry 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 - 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% year early - 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 aerospace intangibles. 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 going to 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, it 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 1. While we continue to devote some of our operating spending to optimize 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 will let you know that in two weeks we will 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.

So now, I'll turn the call back to Greg for closing comments.

Gregory A. Woods - President and Chief Executive Officer

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.

Now with that, David and I will be happy to take your questions. Operator?

Question & Answers

Operator

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

Tom Spiro - Spiro Capital - Analyst

Good morning.

Gregory A. Woods - President and Chief Executive Officer

Good morning, Tom.

Tom Spiro - Spiro Capital - Analyst

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 see that as kind of a sustainable level for the next several quarters? What does that portend?

Gregory A. Woods - President and Chief Executive Officer

No. Like I 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, yeah.

Tom Spiro - Spiro Capital - Analyst

And the margins in that section - 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?

Gregory A. Woods - President and Chief Executive Officer

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

Tom Spiro - Spiro Capital - Analyst

Well, 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 inventories growing from here or do you now have the inventory at levels - for these levels of sales that are sufficient?

Gregory A. Woods - President and Chief Executive Officer

Yeah. There's still some…

David S. Smith - Vice President, Treasurer, and Chief Financial Officer

It remains to be…

Gregory A. Woods - President and Chief Executive Officer

Hands-on, Tom. 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 of 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.

You had a comment, David?

David S. Smith - Vice President, Treasurer, and Chief Financial Officer

Yeah. 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 will trend consistent with revenue and cost of goods trends.

Tom Spiro - Spiro Capital - Analyst

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 cushion 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?

Gregory A. Woods - President and Chief Executive Officer

Yeah, that's basically correct. I mean, we have - it's kind of across the board. And one big thing that 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 [Indecipherable] 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.

Tom Spiro - Spiro Capital - Analyst

That's great. That's great. Let's see. I'll get back in the line now. Thank you.

Gregory A. Woods - President and Chief Executive Officer

Okay.

Operator

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

George Melas-Kyriazi - MKH Management Company LLC - Analyst

Yes. Hi, good morning guys.

Gregory A. Woods - President and Chief Executive Officer

Hi, George.

George Melas-Kyriazi - MKH Management Company LLC - Analyst

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?

David S. Smith - Vice President, Treasurer, and Chief Financial Officer

Well, yeah. If we hadn't have had some margin difficulties 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.

George Melas-Kyriazi - MKH Management Company LLC - Analyst

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

David S. Smith - Vice President, Treasurer, and Chief Financial Officer

Well, they impacted both segments. We didn't break those out - all of the impacts out by segment, which is a challenge in any event.

George Melas-Kyriazi - MKH Management Company LLC - Analyst

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?

Gregory A. Woods - President and Chief Executive Officer

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

George Melas-Kyriazi - MKH Management Company LLC - Analyst

Okay.

Gregory A. Woods - President and Chief Executive Officer

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

George Melas-Kyriazi - MKH Management Company LLC - Analyst

So 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?

Gregory A. Woods - President and Chief Executive Officer

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

George Melas-Kyriazi - MKH Management Company LLC - Analyst

Yeah. 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?

Gregory A. Woods - President and Chief Executive Officer

Yeah. 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, 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 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 to put $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.

George Melas-Kyriazi - MKH Management Company LLC - Analyst

Okay. Great, great. That sounds great. Okay. Thank you very much.

Gregory A. Woods - President and Chief Executive Officer

Sure, George.

Operator

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

Tom Spiro - Spiro Capital - Analyst

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

Gregory A. Woods - President and Chief Executive Officer

Not likely. It's really more of a kind of entry level product that I mentioned. And what we really expect should happen is some of these businesses make up for the 120, one of our higher end printers - higher 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 out of the little printer and put it into the QL-120 and just carry on at a higher resolution faster production rate. So it's really designed to be part of a family of products.

Tom Spiro - Spiro Capital - Analyst

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

Gregory A. Woods - President and Chief Executive Officer

Like I mentioned in the beginning of the year, we are looking to do at least two. So this is kind of one and - in fact two, it depends on production cycles and whatnot. Maybe there is another beyond that, but at least two this year.

Tom Spiro - Spiro Capital - Analyst

Okay. Thanks so much, and good luck.

Gregory A. Woods - President and Chief Executive Officer

Thanks, Tom. Have a good day.

Operator

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.

Gregory A. Woods - President and Chief Executive Officer

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.

Operator

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ASTRONOVA INC

Q1 2023

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