Astronics Corporation

Greetings and welcome to the Astronics Corporation third quarter 2020 financial results call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Deb Palowski, Investor Relations for Astronics Corporation. Thank you. You may begin.

Thanks, Melissa, and good morning, everyone. We certainly appreciate your time today and your interest in Astronix. Joining me on the call are Peter Gunderman, our Chairman, President, CEO, and David Burney, our Chief Financial Officer. You should have a copy of the third quarter 2020 financial results and the contract award release that was released this morning. And if not, you can find them on our website at Astronix.com. Let me mention first that we may make some forward-looking statements during this formal discussion as well as during the Q&A session. 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. These documents can be found on our website or at SEC.gov. During today's call, we will also discuss some non-GAAP financial measures We believe that these 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 in accordance with GAAP. We have provided reconciliations of non-GAAP measures to comparable GAAP measures in the tables that accompany today's release. So with that, let me turn it over to Pete to begin. Pete?

Thank you, Debbie, and good morning, everybody. Thank you for joining us. Our agenda today is to first and foremost talk about Our third quarter, which was a very light quarter, heavily impacted by the ongoing COVID-19 pandemic. We will talk a little bit about what we see happening in the future. We're coming up on the end of the year here, so the fourth quarter is something we can talk about with some level of surety. We'll review our major market segments. or perspectives on the market, and then we'll open it up for questions and answers. Before we get going, though, just a quick review of our major overlying goals as a company as we work through our current situation. We have the ongoing objective of protecting our employees and the safety of our workplace. I think we're doing a pretty good job there in general. We've learned to deal with the pandemic and work from home and all the stuff that comes along with it. We have little interruptions here and there, but for the most part, we continue to function and continue to operate pretty well. We secondly want to keep serving our customers with the level of service and productivity that they expect and need. That's been a little bit of an exercise through the pandemic as the goalposts keep moving, sometimes in, sometimes out. But I think we're doing a pretty good job in general, staying in front of our customers' requirements, which is important. And finally, we want to position the company not only for survival during the pandemic, but for success afterwards. We are not optimizing the company for our current level of volume or what the market is giving us currently. but we're keeping an eye on where we expect to be on the other side of this as the markets recover, as we believe they surely will. That being said, digging into the third quarter, it was a very difficult quarter, very light, heavily impacted by COVID-19 in the vast majority of our business. As a reminder, in normal times, 2019, before the pandemic hit, Seventy percent of our revenue or so came from the commercial transport industry, both line fit production of new aircraft and the aftermarket servicing airlines and leasing companies. That has been a pretty good place for us to be over the last decade or more. But during a pandemic, when people stop traveling, that's a pretty tough place to be. When we last talked, we were beginning to see a resurgence of air travel, domestically anyway, in the U.S. in the July-August timeframe. And we had the hope at the time that that resurgence was going to continue and strengthen through year-end. That has not happened. We'll talk more about that later on in the call here. But our core market, our commercial transport market, has largely stagnated since that time in terms of flights and passengers up modestly, but not where we thought it would be and not where most people in the industry thought it would be. With that as a backdrop, our revenue for the quarter was $106.5 million. That's as low as we've been since back in 2013. down 40% year over year, down 13% sequentially from the second quarter. Our aerospace segment, which in normal times is 90% of our business, was responsible for all the draft, down 48% year over year. Our test business, normally 10% of our business, was actually up 37% year over year, excluding the semiconductor business that we sold a year ago. That increase in test is a function of consistent and robust government spending, also aided by a couple of acquisitions that we did, smaller acquisitions in 2019. Fortunately, we implemented a number of cost-saving measures as the pandemic took hold. These are a little bit old news at this point, so I'm not going to go through them in detail. We figure today, when we look at the way our company is structured, we took about $160 million or so of costs out of our business from where we thought we would be when we entered 2020, which seems like a long time ago now. These cost saving measures make our income statement look somewhat tolerable. Gap loss was a negative 5.2 million or 4.9% of sales. Our adjusted EBITDA was just about break even. Dave will talk about adjustments in a second. Cash from operations was a negative $10 million, something we're a little bit disappointed by, but we think we're coming to grips with as our business stabilizes at the current level. Bookings during the quarter saw a slight uptick of $81.6 million. That's fairly significant on a percentage basis, but it goes from disappointing bookings in the second quarter to mildly less disappointing bookings in the third quarter. But it's going the right way. We feel that we're experiencing some destocking effect as OEMs settle down at reduced production rates. We continue to see a pretty weak aftermarket in commercial transport. We'll talk about that a little bit later in the call. One positive aspect in the business in general is represented by a program that we announced earlier today from a customer called Xenix, a $20 million order, which is not exactly mainline aerospace business for us, but is a complement to some of the design capabilities that we offer the world in general and are now complementing with contract manufacturing services. We also announced earlier this week a pretty good order for the Atlanta Rapid Transit Authority, or our customer specifically, Stadler. That's a $30 million program. For those who keep track of such things, the Zenex order was included in our third quarter bookings totals. The MARTA Stadler order was not. That's a fourth quarter booking. So that will show up in our fourth quarter numbers when we release them at the end of the year. I think with that, I will turn it over to Dave to go through some details on our income statement and balance sheet. and financing, and then I'll come back and talk about how we see our markets in general. Dave?