Astronics Corporation

Greetings and welcome to the Astronics Corporation first quarter fiscal year 2021 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. It is now my pleasure to introduce Deborah Palacios of Vesta Relations. Thank you. You may begin.

Thank you, Daryl, and good morning, everyone. We appreciate your time today and your interest in Astronics. I have here with me Peter Gunderman, our Chairman and President and CEO, and Dave Burney, our Chief Financial Officer. You should have a copy of the first quarter financial results that were released this morning, and if not, you can find them on our website at Astronics.com. Let me mention that we may make some forward-looking statements during the 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 our 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 financial measures with comparable GAAP measures in the tables that accompany today's release. With that, I'll turn it over to Pete to begin. Peter?

Thank you, Debbie, and good morning, everybody. Thanks for tuning in to our call. I'm going to open the conversation here with a high-level summary of our first quarter and an outlook for our markets, and turn it over to Dave for a more detailed financial summary and a review of our banking arrangements, and then we'll close with questions and answer as usual. When I look at the first quarter, to me there are kind of two headlines. One is that we had obviously low sales by historical norms. Not a real surprise there, given the ongoing effects of the pandemic and where we are in the recovery cycle. The second headline, though, is more positive, and that is that bookings have been showing steady and consistent improvements over the last few quarters. And we're going to dive into that in a little bit more detail. Specifically, the relationship in our company between bookings and shipments, which we think tends to be pretty strong and pretty close, especially given the way that we measure bookings. And we talk about them pretty regularly in our quarterly reports and in these calls. In our business, There is generally a two to three quarter lag between bookings and shipments. In other words, bookings today influence shipments two to three quarters out. Or looked at the other way, shipments today are heavily influenced by bookings two or three quarters ago. We just finished a quarter with revenue of 105 million, again, very low by historical norms. You got to go back to like 2013 to find that level consistently. And it's no coincidence in our view that bookings two to three quarters ago were anemic and highly influenced by the onset of the pandemic at that time. I'm talking about the second quarter of 2020 and the third quarter of 2020 specifically. Our bookings in the second quarter, if you were to look back, were totaled about $61 million on a consolidated basis for the company. And in Q3 last year, $82 million, so an average of $72 million. That compares to a quarterly average in 2019 of 176. So 176 million on average in 2019, which was actually not a very strong booking year for us for a number of other reasons. But 176 million average dropping to 72 million in the second and third quarter average of last year is obviously a substantial drop. The good news is that bookings since then have shown a pretty good comeback, a pretty solid comeback. Our fourth quarter last year was $116 million, and our first quarter, the one just completed, was $120 million. So in that two-quarter period, or six-month period, we averaged $118 million in bookings per quarter. So we've bounced up from $72 million on average in the second and third quarter last year to 118 in the fourth quarter and the first quarter this year. Really good progress. Looking at the segments, most of the improvement is on the aerospace side. If you look at our quarters consecutively, and these numbers are spelled out on the table on the last page of our press release, Since the second quarter last year, bookings have gone from 43 million to 65 million to 74 million to 100 million. That's just aerospace bookings. Now, 100 million, that progress, if you look at it on percentage terms, can look pretty good. But of course, in 2019, our aerospace quarterly average is about 160 million. So even at the first quarter level of 100 million, we're still a pretty far ways off from where we were in pre-pandemic times when we were averaging about 160 million in aerospace bookings per quarter. So what's driving the improvement? If you look into our aerospace group, most of you know this, we have two smaller business units and one larger one. The two smaller ones are military aircraft and what we call business jet or general aviation. And both of those tend to be in pretty good shape. Pre-pandemic, they were each about 10% of our total business. And we expect them to be a higher percentage this year in part or largely due to the lower expectations for commercial transports, which I'll get to in a minute. I'm not going to take everybody through the different dynamics in military aircraft and general aviation. Most of the people who follow our company follow the industry, and you're probably well aware that military aircraft has been largely unaffected by COVID, certainly no demand effect. And if anything, business jet demand has bounced back strongly, which we expect will result in increasing unit demand as time goes on here. And that's important to us because most of our business jet sales are line fit and not aftermarket. So production rates are important. So long story short, if you look at aerospace, military aircraft and business jets are both in relatively good shape. The commercial transport side is the big issue. Again, no real news here. In the quarter just finished, we had commercial transport sales of 38 million, which was down from 103 in the first quarter of 2020. That's a significant drop. We're encouraged, however, by the narrow body side where domestic flying is increasing dramatically where and when the pandemic is under control, recognizing that wide body remains under significant pressure. So a reasonable question might be, what is our split between narrow bodies and wide bodies historically? And how are we positioned for today's world where narrow bodies are expected to recover relatively soon and wide bodies may lag quite a bit? And these are numbers that we have not typically talked a whole lot about in this setting. But we've done some analysis to nail this down, and it might seem like an obvious thing, but actually the way our business is structured, it's not always obvious where our products end up. So it's been a little bit of an effort. But the safe way to think about our business up to today is that our commercial transport business has almost a 50-50 split between narrow bodies and wide bodies. And also, if you cut it a different way, almost a 50-50 split between line fit and aftermarket. I don't think I said that very clearly. Both the narrow body and the wide body revenue that we have is split almost 50-50 line fit and aftermarket. So you can almost think of our commercial transport business, if you picture a two by two matrix with wide body on one axis and wide body, narrow body on one axis and line fit aftermarket on the other axis, it's almost 25% of our commercial transport volume in each box. And again, our perspective, not different from the conventional wisdom that's out there in the industry right now, is that wide body, line fit, and aftermarket is under pressure and will remain under pressure until international travel picks up. And we're hopeful for that to happen at least between the rich countries of the world where vaccines are likely to get pandemics under control. We hope to see some progress for that as 2021 wears on. But on the narrow-body side, things are looking more promising. Everybody in North America is aware of the increasing flights and load factors and crowds generally gathering at airports every day for domestic flying. It's another example how when and where the pandemic's under control, people want to fly. The two geographies in the world where this is most evident are in China and the U.S., and we hope and expect that continental Europe will be in that camp sooner rather than later. That supports the aftermarket. Flying supports the aftermarket. And production rates also are trending up on the narrow body side as most people know, including especially for us, the 737 MAX. The MAX back in 2019 was our biggest single aircraft production program, and it is picking back up, although still at a slow rate. We were shipping at a volume or a rate of about five or six aircraft per month in the first quarter And we expect that to rise to over 20 in the fourth quarter based on the best understanding we have right now of the production line expectations in Seattle. So that talks a lot about aerospace. Again, pretty solid expectations for military and business jet and reason to be optimistic on the narrow body side for commercial transport. That 50-50 narrow body, wide body split, we would expect by the end of this year to look quite a bit different, skewed towards the side of the narrow body with increased flights that are happening now and increased production rates up for the 737 MAX, and also potentially for the A320 line in Europe. Flipping over to the test side, I'm not gonna say a whole lot about test today. But test has done well through the pandemic in terms of bookings and shipments. Shipments in the last four quarters were 91 million, up about 15%. And bookings for the last four quarters were 96 million for a positive book to bill of 1.06. Our expectation for the test side of the business remains strong. It's a combination of municipal government spending, potentially the beneficiary of some of the stimulus efforts underway in D.C. these days, and also a large element of defense spending, which has been strong and we expect will continue to be strong over the coming year. I'll pause here for now and turn it over to Dave to talk through our financial statements, adjusted EBITDA levels, bank covenants, et cetera. Dave?