Astronics (US:ATRO)2024-11-07 00:08Financial Data and Key Metrics - Sales increased by 25% year-over-year, reaching the high end of the forecasted range [8] - Adjusted net income was $12.2 million, or $0.35 per share [8] - Adjusted EBITDA was $27 million, representing 13% of sales [8] - Trailing 12 months adjusted EBITDA stands at $91 million [8] - GAAP gross margins improved to 21%, up 8.3 points from the prior year [21] - Adjusted gross margin improved to 23% [21] - GAAP loss per share for the quarter was $0.34, while adjusted earnings per share was $0.35 [25] - Net debt at the end of the quarter was approximately $174 million, with $60 million available on the revolver [27] Business Segment Performance - Aerospace segment sales increased by 25% for the quarter and 19% for the year, with adjusted operating margin improving to 14.2% from 3.5% in the prior year [9] - Aerospace segment represented 88% of the business, with a $22 million improvement in operating income driven by higher sales volume and improved productivity [28] - Adjusted operating profit for Aerospace was $25.3 million, compared to $5 million in the prior year period [30] - Test segment was near breakeven, primarily due to lower legal fees and less favorable sales mix [31] Market and Industry Trends - Supply chain improvements have contributed to better performance, with fewer issues reported compared to previous quarters [10][11] - Input cost pressures have subsided, and workforce efficiency has improved [12] - Pricing adjustments negotiated during the inflationary period are now taking effect, benefiting major programs [13] - Demand remains strong, with a backlog of $612 million entering the fourth quarter, significantly higher than the $400-$420 million range in 2018-2019 [14] Strategic Direction and Competition - The company is focused on volume and margin improvement initiatives, which are showing positive results [9] - The company is involved with multiple eVTOL customers, with a standardized architecture that reduces exposure to customization risks [17] - The company is preparing for potential legal damages related to a patent infringement case, with reserves of $7.4 million and possible damages up to $105 million [34] Management Commentary on Operating Environment and Future Outlook - Management expects fourth-quarter sales to be in the range of $190 million to $210 million, with a full-year forecast of $777 million to $797 million, representing a 14.2% increase at the midpoint [37] - The company anticipates continued growth in 2025, though potentially at a slower pace than 2024, with margin improvements expected [38] - The Boeing strike impacted third-quarter revenues by approximately $3 million, with a more significant impact expected in the fourth quarter [36] Other Important Information - The company incurred $7 million in expenses related to the refinancing of its credit facility [15] - Legal expenses of $5.6 million were recorded in the quarter, related to a hearing in the UK [16] - A $2.2 million charge was taken due to the bankruptcy of eVTOL customer Lilium [16] - A $3.5 million warranty reserve was recorded for an electrical power system experiencing reliability issues [18] Q&A Session Summary Question: Impact of Boeing strike on monthly revenue and future ramp-up [40] - The company expects Boeing to start slow and accelerate production throughout 2025, with initial shipment rates potentially around 20 ship sets per month, down from 32-33 previously [45] - The strike led to inventory accumulation, which will need to be burned down before normal operations resume [41] Question: Margin impact from lower Boeing shipment rates [46] - The company does not expect a material impact on margins, as the work remains profitable despite lower volumes [46] Question: Cash flow and net debt improvement in Q4 [47] - Strong cash flow is expected in the fourth quarter, with net debt already reduced to $168 million [47] Question: Revenue split between new production and aftermarket [49] - The company has been running around 50-50 between line fit and aftermarket, with the Boeing strike potentially skewing the mix towards aftermarket by $8-$10 million [50] Question: Opportunities with Southwest Airlines for IFE power products [51] - The company is already a major supplier to Southwest and has developed a new USB Type-C power architecture, which is featured in Southwest's new cabins [52][53] Question: Legal damages and competitive impact [55] - The company does not expect the legal case to impact its competitive position, as the patents in question have expired [56] - The company is financially stronger and has options to manage potential damages, with appeals likely to extend the legal process [57][58] Question: Test business strength and future outlook [60] - The Test segment saw a jump to $25 million in sales, but this is not expected to be sustained, with restructuring efforts aimed at preparing for a major U.S. Army program expected to start in late 2025 [60][61] Question: Future legal expenses [62] - Legal expenses are expected to be relatively quiet, with potential appeals in the UK and Germany not expected until late 2025 or 2026 [62]