Astronics (NASDAQ:ATRO) Corporation (NASDAQ: ATRO), a leading provider of advanced technologies for the aerospace and defense industries, has reported a strong financial performance for the first quarter of 2024. The company saw an 18% increase in sales year-over-year, reaching $185 million, which surpassed both its guidance and internal forecasts.
This growth is attributed to positive trends such as improved supply chain, increased workforce efficiency, and moderated inflation. Despite the success in the Aerospace segment, the Test Systems segment experienced underperformance, prompting a restructuring to improve future results. Astronics is also in the process of securing a significant contract with the US Army, which could further bolster its financial standing.
Key Takeaways
- Astronics' Q1 sales rose to $185 million, an 18% increase year-over-year.
- Aerospace segment sales grew by 21%, with $12 million in operating profit.
- Test Systems segment saw a modest 2% increase, with an operating loss of $3.1 million.
- Restructuring in the Test segment is expected to save $4 million annually.
- A potential $200 million to $300 million Army contract is anticipated in the coming months.
- Record backlog of $612 million, with a book-to-bill ratio of 1.11.
- 2024 revenue forecasted to be between $760 million and $795 million.
- Consolidated operating income increased to $1.7 million, with improved Aerospace operating margin of 7.4%.
- Refinancing efforts are underway to improve cash flow and lower interest rates.
Company Outlook
- Anticipated annual revenue for 2024 is projected to be in the range of $760 million to $795 million.
- Expected cost savings from the Test segment restructuring to begin in the third quarter.
- Revenue to exceed $200 million per quarter in the second half of the year, returning to pre-pandemic levels.
- Refinancing options are being explored to be completed by mid-year.
Bearish Highlights
- The Test Systems segment faced challenges, resulting in a slight sales increase and an operating loss.
- Incremental margin on increased sales was slightly lower than expected at 37%.
- SG&A expenses increased, influenced by the reinstatement of bonus programs.
Bullish Highlights
- Aerospace segment demonstrated strong performance with significant sales growth and margin expansion.
- The company has a strong backlog and book-to-bill ratio, indicating robust demand.
- Prospects for securing a sizeable Army contract and improving Boeing (NYSE:BA) MAX production rates present potential upside.
Misses
- Test Systems segment did not meet performance expectations, leading to restructuring efforts.
Q&A Highlights
- The company is actively exploring refinancing and recapitalization opportunities, with good market interest.
- Litigation issues, including the LHD Lufthansa saga, are expected to conclude next year.
- Despite the FLRAA program cancellation, Astronics sees it as beneficial due to their busy project pipeline.
- Long-term aerospace industry opportunities are identified in upgrading and replacing existing technologies.
In summary, Astronics Corporation has started the year on a strong note with significant sales growth, particularly in the Aerospace segment. The company is addressing challenges in the Test segment through restructuring and is optimistic about potential contracts and industry opportunities. With a solid financial outlook and strategic initiatives underway, Astronics is well-positioned for sustained growth in 2024.
InvestingPro Insights
Astronics Corporation's (NASDAQ: ATRO) financial results for the first quarter of 2024 reflect a company on the rise, with a notable increase in sales and a strong backlog that indicates a healthy demand for its aerospace and defense technologies. The InvestingPro data underscores this positive trajectory with several key metrics:
- The company's market capitalization stands at a solid $640.01 million, reflecting investor confidence.
- Revenue has grown impressively, showing a 24.77% increase over the last twelve months as of Q1 2024, with the most recent quarter exhibiting an 18.23% growth.
- Astronics has maintained a gross profit margin of 17.76% over the last twelve months, highlighting its ability to manage costs effectively despite industry-wide challenges.
These data points are pivotal to understanding Astronics' financial health and potential for future growth. Moreover, two InvestingPro Tips provide additional insights:
1. Analysts are optimistic about Astronics' profitability, predicting that the company will transition into profitability this year. This forecast aligns with the company's strong sales performance and efforts to restructure its Test Systems segment.
2. The company's liquid assets exceed its short-term obligations, indicating a stable financial position that could support its ongoing operations and strategic initiatives.
For investors seeking a deeper analysis, there are additional InvestingPro Tips available, which can provide a more comprehensive view of Astronics' financial landscape. Use the coupon code PRONEWS24 to get an extra 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro, where you can access these valuable insights.
Full transcript - Astronics Corp (ATRO) Q1 2024:
Operator: Good day, and welcome to the Astronics Corporation First Quarter 2024 Financial Results Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Debbie Pawlowski, Investor Relations for Astronics Corporation. Please go ahead.
Debbie Pawlowski: Thank you, Megan, and good afternoon everyone. We certainly appreciate your time today and your interest in Astronics. Joining me on the call here today are Pete Gundermann, our Chairman, President and CEO; and Dave Burney, our Chief Financial Officer. You should have a copy of our first quarter 2024 financial results, which crossed the wires after the market closed today. If you do not have the release, you can find it on our website at astronics.com. As you are aware we may make some forward-looking statements during the formal discussion and the Q&A session of this conference call. These statements apply to future events that are subject to risks and uncertainties, as well as other factors that could cause actual results to differ materially from what is stated here today. These risks and uncertainties and other factors are provided in the earnings release, as well as with other documents filed with Securities and Exchange Commission. You can find these documents on our website or at sec.gov. During today's call we'll also discuss some non-GAAP measures. We believe this will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release. So with that, let me turn it over to Pete to begin. Peter?
Pete Gundermann: Thanks Debbie, and good afternoon everybody. Thanks for tuning into the call. We feel our first quarter was a reasonably solid start to 2024 and we think it sets us up pretty well for what's going to be positive and exciting year. Sales of $185 million exceeded both our guidance and our internal forecast frankly, up 18% year-over-year, down slightly from the fourth quarter where we recorded sales of $195 million. But the two together represent a near return to pre-pandemic revenue levels, which we're pretty excited about. Our sales level has been enabled by positive trends that continue to propel us forward. We've talked about these before and they're widespread throughout industries. I'm not going to spend a whole lot of time on them. But supply chain for us continues to improve but it was a major handicap over really the last year and a half, two years but it's coming into line nicely. Now it continues to get better. Also our workforce churn, which was a big deal in 2021 and 2022 has moderated. And the efficiency of our team of employees has improved and continues to improve. Inflation has moderated despite some travails with the flood, and price increases are taking hold and becoming more of a positive influence on our results. None of these things are done yet. They're all in work but they're all continuing to improve. And in that sense creates significant tailwinds, whereas, they were headwinds not that long ago. Sales level approaching pre-pandemic levels, certainly helps our bottom line and Dave will talk through the puts and takes in a little bit. But from my perspective, adjusted EBITDA has improved and is improving in the first quarter up 10.3% compared to 3.9% one year ago. That is improvement and we expect more of it as we go through the year as our sales continue to climb and we continue to get those tailwind benefits that I just talked about with respect to supply chain, workforce efficiency and pricing in particular. Also now that we're back at pre-pandemic levels or pretty close to it, we have had an opportunity to review and reassert our promise that our business generally works with a 40% marginal contribution model. So, as we continue to ramp over the next few quarters, that will be a useful measure to try to anticipate our performance. The segment analysis in the press release shows that our Aerospace segment had a pretty nice quarter, but our Test segment was pretty weak. Aerospace had 21% growth over a year ago, and reported $12 million of operating profit whereas Test was up 2%, and had an operating loss of $3.1 million. The evidence that aerospace -- our Aerospace segment is on a very good track and we think has a really bright path ahead of it. But our Test business needs to improve. To help bring that up, we executed a restructuring just a couple of weeks ago. In late April, we think there's been a save in the order of $4 million annually beginning in the third quarter. We also announced the closure of one of the smaller facilities in our Test segment, and a planned consolidation over the next couple of months into our Orlando headquarters for our Test business. The other thing that we continue to do in our Test business, which I know people are going to be curious about is, working on our original Test contract that we are trying to get in place with the US Army. We're not there yet, but we're making really good progress. For those who don't know, we expect this to be a $200 million to $300 million program over the next few years. It's an IDIQ program, so the absolute timing is unknown, but there is good momentum at the moment. Some of the pre-award things that need to happen are happening, facility audits, financial audits, fact-finding regarding pricing, so on and so forth. And we are at this point, expecting that to happen in the coming months, perhaps late in the second quarter or early in the third quarter. Finally with respect to the quarter, demand continues to be very strong. We had two one bookings of $205 million. That's a book-to-bill of 1.11. It was pretty strong in the Aero and later in Test and it's really driven by what I would refer to as a ground swell of demand. There was no one big spending or even a few big things that really drove that booking performance, it's rather a rising tide, lifts all ships. We're getting good demand across the business, across our product lines and it's encouraging and sets us up I think for a really good remainder of 2024. We ended the quarter, with a record backlog again of $612 million. And interestingly 12 months of bookings, rolling 12 months ended with the first quarter was totaled $772 million, which is very supportive of our 2024 guide, which remains at $760 million to $795 million. Digging into the guide, a little bit. It's early, just one quarter into the year and there are many moving parts. I want to talk through some of the moving parts which we are sensitive to and some of the watch items, which will help dictate, how our year's going to play out. One of the trends is, just the overall strength of the business, winter groundswell of demand is encouraging and the evidence is that it's going to continue. The record backlog and strong bookings suggest upward opportunity for the year, enabled by continuous improvements in the supply chain workforce and pricing, as I mentioned earlier. A watch item is the radio test program, with the Army. We have slated for somewhere in the neighborhood of $8 million to $10 million of impact on our 2024 revenue, at this point. That assumes a mid-year award by contract, will obviously be much bigger in 2025 and 2026, but we need to get it going in the middle of 2024 in order for that to happen. And even just for 2024, $8 million to $10 million impact on our business plan is substantial. And then of course there's, the elephant in the room and that's production rates at Boeing, our biggest customer and specifically with the MAX, I'm going to be a little transparent here with some of our pacing and some of our numbers. The MAX production rate is down in the first quarter by pretty well documented by all accounts and Boeing has expressed that they want to increase it as quickly as possible. They have not been clear with the world or certainly with us as to what that ramp is going to look like. So lacking any other information, we are currently planning on about 35 ships a month for the MAX. Will they slow down suppliers? They might. It's unclear. We have not heard anything at this point. But for information sake Windset, we put about $95,000 of product on each 737 that goes down the production line that gets delivered. That line fit content, if they were to reschedule us could be affected what would they reschedule us to? I mean, it's kind of a wild guess at this point, nobody really knows. And we certainly, again, have no indication of anything. But a conservative number that I've seen in a number of places is 20 ship sets a month, that would be a reduction of what we have loaded of about 15%. So if you take 15 ships times $95,000 a ship times eight months for the rest of the year, you're talking about a potential downward reduction in our volume of about $11.5 million of revenue. We put another amount of content on each airplane, which is generally BFE buyer furnished equipment. At this point, our general feeling is that, that's unlikely to be adjusted in a substantial way. So it's really the line fit equipment that could come into play here. So how would this affect our range -- our internal forecast right now is really at the high end of our revenue guidance range, so right around that $795 million level. So from my perspective, we've got upward potential with the general ground swell of demand. If you take a pessimistic perspective on the Army radio contract, you'd be down $10 million. If you took Boeing, you'd be down if the rate went down 20 MAXs a month for the rest of the year, that would be another $10 million to $11 million. So that would take our internal forecast down right to the middle of our range. So we think our range is reasonable and adequate at this point. As we get through the next couple of months, we'll know what the radio test contract looks like and what the timing is. We'll know what the production rate for MAX is likely to be for the rest of the year. And we'll now with that groundswell of demand, the strong bookings and the record backlogs continue from my perspective, there's very little downside risk to our forecast beyond the published range and there is upside potential depending on how the MAX shapes up and how the Army contract goes. We will undoubtedly clarify this and update it next time we talk or maybe even before, depending on how things go. I'd like to turn it over to Dave now to talk about some of the fine points.
Dave Burney: Thanks, Pete. As Pete mentioned, we had a strong start to 2024, with 18% sales growth. This was driven by 21% growth in our Aerospace segment. Test Systems sales were up modestly, but up against the tough comp that I'll talk about in a second here. The growth in aerospace and the higher volume through our facilities translated into margin expansion year-over-year. However, this was muted by the results of our Test segment. Consolidated operating income increased $4 million to $1.7 million. I should point out that, the 2023 first quarter benefited from a $5.8 million liability reversal of a deferred revenue liability that increased sales and margins in the Test segment and consolidation. Adjusting for this, the leverage achieved on the incremental sales was about 37% on a consolidated basis, a little lower than our expected 40% incremental margin, but this was due primarily to the resumption of bonus plans in 2024. The increase in SG&A year-over-year to $32.5 million is nonetheless at a rate similar to the fourth quarter of last year. There are not any unusual items in the mix but a couple of things to point out. For year-over-year comparison, we've reinstated a couple of bonus programs which had been suspended. For the first quarter of 2024 a bonus expense amounted to about $3.6 million, which is likely to continue versus no bonus expense in the first quarter of last year. For sequential comparison I should point out that the corporate expenses of $7.7 million includes roughly $1 million of annual equity compensation granted in the quarter primarily to the directors which won't repeat in the remaining quarters of this year as invested in the first quarter. We incurred $3.7 million in litigation expenses in the quarter which we expect to or likely to continue through the year. And this was for the most part in the aerospace segment this quarter. Aerospace sales were up 21% compared with the first quarter last year. This increase was primarily in the commercial transport market which increased $27 million or about 29% demonstrating the continued strong recovery in the market. Sales to the military aerospace market were up $3 million or 21%. And sales to the general aviation market were relatively flat at about $20 million. I should point out that the decline in the other category in Aerospace was related to the efforts to walk away from non-core contract manufacture. We are filling our facilities with more profitable aerospace business as that business and that facility rebounds. Aerospace operating margin improved to 7.4% a 440 basis point expansion over last year. That's driven by higher sales and improved pricing and productivity gains. We expect our Aerospace segment operating income to improve as we move through the year. Higher volume will help as well continued improvements in productivity. Also as new contracts roll on with improved pricing we expect that to contribute to margin expansion as well. As I noted last quarter the test segment continues to be challenged by underutilization and program mix. The test business has prepared itself to meet the requirements of the very large US Army radio test program that Pete mentioned whilst progressing the program has not yet started. In April we restructured that business. Restructuring costs will be approximately $1.1 million which is expected to translate into $4 million in annualized savings. Those savings will be split approximately 75% between cost of goods sold and 25% in SG&A. Total liquidity at the end of the quarter was $23 million. When we file our quarter end paperwork next week with the lenders we will free up another an additional $5 million in liquidity. Inventory turns are stepping up with the 2024 goal of getting our inventory turns up to the mid-three times per year and the 2025 goal of over four times per year which would get us back to where we were prior to the pandemic. The rate of growth of our inventory has slowed measurably even as we plan for increasing levels of shipments in the latter half of the year. Despite a slight increase to our inventory in Q1, that was primarily related to a specific new program, we are forecasting our inventory levels to drop over the course of the year. We generated $2 million in cash from operations. CapEx was just $1.6 million in the quarter. We are planning CapEx for the full year to be in the range of $17 million to $22 million and we expect to pace that with improvements in cash generation. We paid down $5.9 million of debt during the quarter. We also executed a minor amendment to the credit agreement that established a $5 million accordion that we had expired in January. Also we updated covenants that had been established in January 2023 to reflect the actual results for the relevant trailing 12 month periods as we move through the year. While we have approximately $8 million remaining at the ATM program, we do not plan on using since our liquidity is improving as planned. As we're in a much better financial position now than in early 2023, we are reviewing our debt structure options with the objective to lower our interest rate and improve cash flow and reduce required debt amortization payments. We expect to have this completed midyear. This concludes my remarks and Pete back to you.
Pete Gundermann: Just wanted to talk a little bit about the second quarter specifically the current quarter that we're in. We are issuing guidance to for this quarter of $185 million to $195 million. That would be at the midpoint of marginal step up from the first quarter. If you add the first quarter and the midpoint of the second quarter and subtract midpoint of the year range, you'll see that in the second half we are planning for a step up of revenue to or above slightly $200 million a quarter. That would represent a complete return to pre-pandemic levels. We expect our income statement to strengthen considerably as we get into that neighborhood. And that is what we are very much looking forward to these days. So, I think that ends our prepared remarks Megan maybe we open it up for questions at this point.
Operator: We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Michael Ciarmoli with SunTrust. Please go ahead.
Michael Ciarmoli: Hey good evening guys. Thanks for taking the questions here. Good start to the year. Hey Pete, just can you on walk me through. I mean obviously the MAX is a total you know moving equation here and I don't expect anybody to understand what's really happening. But how is your BSC on content not impacted there? I mean I typically think of that as you some of the airline customers outfitting the interiors and the finishing stalls, just -- maybe can you just give us give us an assessment there? I mean it sounds like you know could be 120 planes or so coming out, but no BFE impact. How's does that work?
Pete Gundermann: Well, it's a good question. And note if the rates stay lower for longer, then eventually BFE would be affected. But what we find with our BFE is that for narrow-body airplanes, we're basically primarily selling to the airlines and the airlines often are going through retrofits. So, they have the opportunity to reallocate from line-fit to retrofit for a while. They also -- our prudent reluctant to jeopardize their BFE obligations. They want to be ready when the airplanes ready. So, they are usually a little bit more conservative I should say are slow to react when rates adjust. On the widebody side, it's kind of the same story. We primarily sell to IFE integrators in-flight entertainment integrators and they serviced customers around the world including the active retrofit efforts that are underway. So, for some period of time and that hardware can be reallocated from line-fit to retrofit. And that's why we don't think over the course of 2024 that we're likely to see too much from a rescheduling of BFE.
Michael Ciarmoli: Okay, got it. No, that makes sense. What about -- any shift or change that you're seeing on the 787, I mean it’s a wide-body seemingly still I think a good story Airbus talking about raising rates and it sounds like couple of suppliers may be responsible for Boeing having to slow the 727, but any major swing to your P&L one way or the other for the year on that?
Pete Gundermann: I don't think so. I mean they been at a lower rate for quite a while as you know and we don't think that's a major driver. There is pretty substantial upside potential there for us if they ever get to where they want to go. We've got primarily BFE content to the tune of 250,000 an airplane. So that's an important program for us, similar with A350.
Michael Ciarmoli: Yes. Got it, got it. Last one on the -- you kind of hinted at and alluded to unit back half of the year is going to be above $200 million. I mean, if we look pre-COVID those levels you guys we're solidly in that double digit op margin. You talked about the contribution margin, anything kind of preventing you from getting back there? I know, it sounds like labor is getting a little bit more efficient, pricing I don't know do you have to add any more employees to achieve those revenues? Or just how do we think about some of the moving parts in the margins?
Pete Gundermann: Well, I think we're well-positioned for it. There are no major changes to our cost structure. Obviously direct labor would have to ramp up a little bit and we're working on that every day. But one of the things that I think we have gone in our favor that we haven't really talked a whole lot about because we've been talking about more dire consequences or dire topics over the last few years, but we have done a number of things to make the business more efficient and one of them I referred to and I've spoken about the test business where we are now seeing a consolidation and closing of the facility. And I may talk about this more in the future on other calls. But over the last few years during the pandemic, we've done that like five or six times on a company our size. That's a significant simplification, so I think there's a good potential for us to get not only get back to where we were, but to do better in terms of margins and efficiency with all -- with the way everything is developing, I think we feel pretty good about it.
Michael Ciarmoli: Okay. Good. Perfect. I'll jump back in the queue here. Thanks guys.
Pete Gundermann: Sure.
Operator: Our next question comes from Jon Tanwanteng with CJS Securities. Please go ahead.
Jon Tanwanteng: Hi. Thanks for taking my questions and congrats on the strong quarter. I was wondering, if you could talk about the opportunities for refinancing and how you're initially expecting that to shape up? What kind of recapitalization are you thinking about? And just thinking about the last time around there was a lot of delays related to lenders and I was wondering if might be something you're trying to do? Thanks.
Pete Gundermann: Well, Jon, it's a different day and it's a better day. How's that? We know, we have been playing a little bit of a game where the longer we wait for better financials and the better our results and the better our prospects, and I think we're at the same time sensitive to execution risk as we get closer to an election and some of the things that are going to be happening a year end. So I think we are pulling the market. We're getting pretty good interest and pretty good results and we're kind of waiting to see what kind of final terms leaving come up with we could act sooner, we could act later. But I think it's a 2024 events. Dave, I don't know if you want to expand on that at all?
Dave Burney: No, it's that's exactly what I would have said.
Jon Tanwanteng: Okay, great. And then on Dave just a quick clarification. You expect that run rate of stock comp and bonuses to continue through the rest of the year that minimize the director bonus that probably $6 million to $7 million?
Dave Burney: Yeah, the stock comp if you back out $1 million from that then the remainder should be the run rate roughly for the for the next three quarters?
Jon Tanwanteng: Got it. And then Pete is there any update on litigation and what do you think the outcomes might be?
Pete Gundermann: It's been pretty quiet actually. I think we're still of the premium that we're beginning to see the light at the end of the tunnel with respect to the LHD Lufthansa saga, we're thinking that that could and should wrap up sometime next year 2025. I'm assuming that an appeal that's going on right now in France is not successful and we're doing well in France, and they are appealing it, and we're waiting for their equivalent of a high court to get involved with it. But we're reasonably confident there, so then it's just a matter of cleaning up issues in the UK and in Germany, and we're thinking that should be able to happen in 2025.
Jon Tanwanteng: Okay. And then finally, just any update on the FLRAA program? I know last quarter or maybe interquarter, the Army made a decision to cancel FLRAA and maybe put more money into FLRAA. I was just wondering if there's any change there.
Pete Gundermann: Well, we're certainly working on FLRA, hot and heavy. We're also still working to get a kind of an official contract in place with Bell. We are working on what they would call kind of a temporary contract to get going, but we remain very excited about the program. I think for us, the FLRAA cancellation probably was a blessing in a way because we're busy enough with FLRAA and eVTOL and some of the other things that we're doing for flight critical power, and we would have been a team member. We were a team member with Bell on that program also, so we would have additional duties there. And given that we have our hands full with FLRAA, we're happy the way things are working out. We're okay with that.
Jon Tanwanteng: Okay, great. Thank you.
Operator: [Operator Instructions]. Our next question comes from Tony Bancroft with Gabelli Funds. Please go ahead.
Tony Bancroft: Hey, thanks for taking my question, Jens. Great job managing through all the moving parts that have been going on the last couple of years. Could you just lay out for us and remind us again sort of the longer-term opportunities? I know you just talked about FLRAA there, maybe it's just on the IFE side, power. I know that there's been discussions with airline penalties for Wi-Fi not working. Could that positively impact you in the longer run, having more sort of higher fidelity Wi-Fi to the customers?
Pete Gundermann: Absolutely. I think it's an interesting observation, Tony. I've long been of the opinion that one of the unique things about our business is the reality that consumer electronic product and technology life cycles turn really quickly compared to aerospace life cycles. And we are one of these companies where we kind of live in that junction, that space between consumer electronics and aerospace. So on the one hand, we've got the real quick turning things with cell phones and tablets and computers and communication and satellite connectivity. And on the other hand, we live in this world where the aerospace industry likes to be pretty conservative sometimes. And the reality is that people want to be able to do in airplanes the same kind of things they do in their living room. And it's hard to keep up for aerospace, which means that we always have an opportunity to kind of replace ourselves or upgrade ourselves. And that happens fairly regularly. I mean, people think of power as being a commodity-like technology, but it's one of those things that's not easy to do a really good job at. And you think of how a 110-volt system is turned into USB Type-A and now USB Type-C. Power is dynamic, it turns out, in consumer electronics. Same thing with wireless access points. There are increasing requirements and upgrades for security and for performance. So many of the WAPs that are out there in service right now need to be replaced, and we're on the forefront of that also. They work fine. There's no problem with them, except they don't meet the current evolving requirements. So it's an interesting business as it grows. We've always looked at new markets and new customers and new penetration, but it also is one of those where we're increasingly going to have the opportunity to replace ourselves or obsolete ourselves. And that's a good place to be.
Tony Bancroft: Great answer. I think that's a pretty interesting place to be. Thanks so much and great job.
Pete Gundermann: Thanks, Tony.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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