Astronics Corporation

Welcome to the Astronics Corporation third quarter fiscal year 2021 financial results conference 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 call over to Deborah Pilowski of Investor Relations. Thank you. You may begin.

Thanks, Daryl, and good morning, everyone. We appreciate your joining us here today. On the call with me are Pete Gunderman, our president and CEO, and Dave Burney, our chief financial officer. You should have a copy of our third quarter 2021 financial results, which we released earlier this morning, and if not, you can find them on our website at astronics.com. Let me mention first, as you're likely aware, 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 the release, as well as with other documents filed with the Securities and Exchange Commission. You can find the documents on our website or at sec.gov. During today's call, we will also discuss some non-GAAP financial measures. We believe 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 prepared in accordance with GAAP. We have provided reconciliations of non-GAAP measures with comparable GAAP measures in the table that accompanies today's release. With that, let me turn it over to Pete to begin. Peter?

Thank you, Debbie, and good morning, everybody. Our agenda this morning is to review the third quarter again, which was a mixed quarter. If you've read the press release, Sales were light, as was the income statement. On the other hand, bookings were very strong with a consolidated book to bill of 1.37. So our discussion will basically vacillate between reviewing the income statement, which is disappointing to us, and bookings, which we're very pleased about. Also sprinkled throughout the conversation will be a couple of significant cash events, Dave will go through the details, but we have an AMJP award which happened late in the quarter and had a minor impact on our income statement. It'll have a bigger impact in the fourth quarter and the first quarter and also subsequent to the third quarter. We sold a facility which will be reflected in our fourth quarter results, but is another kind of worthwhile cash event to spend some time on. We'll close with some expectations of the fourth quarter. as far as we can see, and a little bit of discussion on 2022, although we're not gonna be at a point today where we can provide much guidance going forward at this point. So a Q3 summary, sales were disappointing at 112 million. We guided with our second quarter release to sales of 115 to 120, so we obviously missed our own target. The big challenge, frankly, is supply chain related, probably a recurring theme that you've heard about from a bunch of companies. And secondly, personnel challenges or shortages. We figure the supply chain hit for the quarter was somewhere in the $8 to $10 million range, and we can talk through the specifics of how that plays out. But long story short, We use a lot of electronic assemblies and a lot of smaller components in our products, and lead times are extended and unpredictable and leaves us less able to respond to short-term requests for changes from customers. So there's a constant churn among our customer base over the course of a quarter. Sometimes they want to push things out a little bit. That's not a problem. But when they want to pull things in, We can't respond these days the way we normally could if our supply chain was acting normally. So if you accept the $8 to $10 million number, that puts us at or above the predicted range. And that's, I guess, the frustrating backwards look at our third quarter. In terms of personnel across the company, we are at about 2,200 people right now. We would like to be about 2,400, and we're actively trying to bring up our resources. That shortage had some impact on our revenue levels in the third quarter, but it pales in comparison to what the supply chain problems were. Weak revenues hurt the income statement, obviously, but the bottom line does show some improvement over comparable revenue in previous quarters. The second quarter had comparable revenues of $111 million and adjusted EBITDA just above break even in the most recent quarter. On similar revenues, adjusted EBITDA of about $2.8 million. That has more to do with mix than anything, more aerospace and less test, we feel drove the positive EBITDA in the third quarter. I mentioned AMJP earlier. For those unfamiliar, that stands for Aviation Manufacturing Jobs Protection Act. It's a program that's been run by the Department of Transportation. There are a bunch of qualifications and requirements. We put in an application probably six months ago, five months ago.

It was worked on for that period of time, signed at the end of September.

Right, but we got the award in the end of September. Dave will talk a little bit about what the requirements are. But we basically got our full application amount of $14.7 million. There was a small benefit in the third quarter of $1.1 million and a reduction of cost of goods. It'll be a much more significant impact in the fourth quarter and the first quarter as the thing has a six-month period of performance. The bright spot in the quarter for sure was bookings, consolidated of 153.5 million, booked a bill of 1.37. That continues a very positive trend over the last four quarters, and I'm going to throw out a bunch of numbers which are evident in the table on the last page of our press release. The last four quarters, total bookings have trended very positively, 116. to 120 to 126 to 154 over the last four quarters. Total for the last four quarters, 516 million, a book to bill of 1.16 over shipments over the last four quarters. The numbers are driven by a very positive aerospace trend and a negative test trend, so a real mixed change in the business in terms of bookings. Arrow bookings in this most recent quarter were 142 million for a book to bill of 1.49, so 50% higher than shipments. And again, the sequence over the last four quarters, if you look at that table, is very noteworthy from our perspective. 74 million to 100 million to 118 million to 142 million That means the total for the last four quarters in our aerospace segment was 435, a book to bill of 1.22. One caveat in there is that in the most recent quarter, we did get a significant amount of bookings that are categorized in our aerospace group, but when they ship, they will appear as in the other category, which we expect to happen over 2022. And that total is somewhere in the neighborhood of about 17 million. The aerospace news is driven by a pretty solid set of good news across most of the industry that we service. Narrow body activity in particular is very strong. Flights are up. Load factors are up. And production rates are ramping with the primarily driven by 737 MAX. We're shipping in the mid to high teens these days, or we were through the third quarter in terms of ship sets per month. And retrofit activity is picking up noticeably. So we think that's been a major driver, not only for the strength in the last quarter, but looking forward, we see a target-rich environment there that we expect will drive us very positively for the foreseeable future. Wide-body activity, on the other hand, remains pretty subdued. But we are encouraged by the current easing of international travel restrictions, particularly in the US, which should pick up or should promote wide-body utilization as we close out 2021 and enter 2022. Similarly, business jet demand. For the OEMs has been very strong. I'm sure you've all read about the book to bills that the major OEMs are reporting. We should benefit from that in terms of higher production rates forecast for 2022. We aren't necessarily seeing that in our production yet. There's a lag between their orders from their customers and their orders to us. But we're sitting on that and looking to see what our 2022 production rates are going to be like. We expect them to be higher. And finally, military aircraft, about 10% of our business in a typical year is stable, remains strong, mostly driven by F-35 these days and a few other premier programs. While I'm talking about the aerospace market and industry, I do want to take a little bit of a detour here and talk about an emerging opportunity, which we're pretty excited about and some of you have probably read about. There is a trend or a number of startups in the industry and more established companies also who are developing electric aircraft. And often these aircraft are categorized as EV tall airplanes, electric vertical takeoff and landing airplanes, but also conventional aircraft with electric propulsion. We are of the opinion, after having done some development and a pretty comprehensive review of the industry, that some of our skill set is directly applicable to these types of aircraft. We haven't talked about it too much as a kind of main course of conversation over the last couple years, but we have been developing busy developing a franchise of electrical power distribution, primarily for smaller airplanes. And many of you have heard me talk about or us talk about programs like the Textron Denali or the Pilatus PC-12 or the Bell 525. More recently, we've been talking about our involvement in the FARA and FLARA competition for the US Army Future Lift. The capabilities we have and the expertise we have developed is increasingly apparent, is directly applicable to this emerging electric or eVTOL segment of the industry. And I don't have a whole lot of predictions beyond this here today other than to say do this little bit of introduction because we expect that as we wrap up this year and move into next year, this part of our business will get a few headlines and we expect that it should be a promising area for us to plan as we go forward. Skipping over to our test business. Test has had a tough spell here. It's been a downward trend with both sales and bookings under pressure the last few quarters. We think of it as an $80 million plus business. So we need to average at least $20 million a quarter in bookings to keep things healthy. And the last few have been about half of that. Our second quarter was about 8.5%. 2 million in this quarter. Third quarter was 11.1, way off where we want to be. We've talked about it before, and the story has not changed. We feel like these delays in orders are largely related to the COVID-19 pandemic and the work-from-home scenario that a lot of our customers in this space are dealing with. We do not feel that that we have lost anything competitively. And we are seeing some signs of life. Our October booking subsequent to the third quarter, the first month of the fourth quarter, came in at just shy of 12 million, 11.9. So we booked more in October than we did in the third quarter, which was more in the second quarter. So the optimist in me says that hopefully things are starting to break loose. And our fourth quarter bookings level should put us back on a healthy track. Taken together, we ended the quarter with a backlog of 354 million. That's up from the beginning of the year when we began with 283 million. And we think sets us up pretty well for expectations going forward, which I'll talk about more in a few minutes. But for now, I want to turn it over to Dave to go through some of the specifics of the income statement and our banking arrangement and some of the cash events.

Thanks, Pete. Consolidated sales in the third quarter were $111.8 million later than we expected, but up 5% from last year's third quarter and flat sequentially with the second quarter of this year. Going into the quarter, we were expecting higher revenues, but material shortages had a larger impact than expected. At the end of the quarter, we had about $8 to $10 million of backlog, as Pete mentioned, that we could have shipped if we had the inventory to complete the work. Aerospace segment sales continue to improve with sales up 16% over last year's third quarter and up 7.3% sequentially from the second quarter and up 17.6% from the first quarter of this year. Most of the improvement this year has been in the commercial transport market, which had sales of 57.5 million, a 30.6% increase compared to the third quarter of last year, and up 20.4% sequentially from the second quarter. Driving the increase has increased volume of our seat and passenger power products as activities with the airlines have increased. Additionally, volume increases for passenger service units primarily for the 737 MAX have increased. In the test segment, revenue declined by about 33% compared with last year's third quarter and driven by decreases in defense and transit areas. Operating margins improved compared with last year's third quarter, reflecting the higher sales volume. and the recognition of $1.1 million of AMJP money. We received the proceeds for about half of the $14.7 million grant during the quarter, but we'll recognize the income from the grant over a six-month period that started near the end of September when the grant agreement was signed. We expect that we'll recognize about $7 million as a benefit to gross profit in the fourth quarter, with the remainder recognized in the first quarter of 2022. We expect a second cash installment of approximately $5 to $6 million to be received in December of this year, and the balance upon final reconciliation of the allowable labor costs in mid-next year. The AMJP is a grant program administered by the Department of Transportation that provides grants to eligible aerospace companies to support those companies in retaining jobs in the area of commercial aerospace. Grants based on an estimate of eligible labor costs over a six-month period and requires grantees to retain those jobs. Switching over to a little bit of a forward look, we're forecasting near-term margin headwinds as we move into 2022 due to increased raw material costs and shortages as well as tight labor market. The supply chain situation is complicated and changing on a daily basis and difficult to predict. Regarding tax rate, some of you will notice that we have a bit of a strange tax rate. Typically, in a period of loss, you see a tax benefit. Ours continues to look a little strange as we fully reserve and will continue to reserve all of our deferred tax assets. We fully expect to be able to realize these and utilize these assets to offset future income tax expense, but the guidance for accounting for such assets when the company has had several years of losses requires us to fully reserve them. We do not expect we will have any federal cash income tax expense, or gap income tax or benefit through the 2022 and into 2023 periods. In terms of liquidity and debt, we were in and continue to forecast to be in compliance with our debt covenants. For covenant purposes, we were slightly below our maximum leverage limit of six times adjusted EBITDA for the quarter. Forecasted top line growth in the coming quarters, as well as some positive one-time items, such as the AMJP grant, sales of Fort Lauderdale building and tax refunds will help. The Fort Lauderdale building sales was concluded at the beginning of October, so it was a fourth quarter event, and it was part of a planned facility consolidation. The consolidation is expected to be completed by the end of the second quarter in 2022. We're forecasting rolling four-quarter EBITDA margin improvements as we move through 2022 with the goal of moving our leverage below three and a half times adjusted EBITDA. Our maximum leverage for the fourth quarter of this year is 5.5 times and is based on net debt as a reminder. Short note on cash flow. Cash flow from operations for the third quarter was poor. and was driven by an increase of about $21 million in net working capital in the quarter. The larger pieces of the working capital changes during the quarter were accounts receivable, which increased by $10 million, inventory increased by $4 million, and payables were down by six. Having an impact on the receivable balance was increased sales to customers with payment terms of 90 days during the quarter. So that is driving a lot of the receivable increase that you see on the balance sheet. And that concludes my remarks, Pete. Okay.

So looking ahead, we are forecasting fourth quarter revenue of $115 to $118 million. We did consider supply chain constraints in determining this number. Our third quarter backlog of 354 million, or our fourth quarter backlog at the beginning was 354 million, 113 million of which is scheduled to ship in the fourth quarter, so you might think getting from 113 million into the range of 115, 118 million shouldn't be that hard, and I would agree with you. In normal circumstances, kind of book and ship business, if we go in with $113 million, we might expect to be in the mid-120s at least. But given the supply chain constraints, it's just difficult to count on doing that. So there's noise and opportunity, I guess, both on the high side and the low side. But our best chance, best range right now is $115 to $118 million. We're not ready to predict 2022 yet. Hopefully we will be comfortable saying something when we talk about our fourth quarter results. But we are comfortable saying that we expect it will be a strong year of strong double digit growth. We believe everything's kind of lining up such that, you know, unless there's some kind of another variant round, which would be terrible, or something crazy in the world, we think we're in for a strong double-digit year. Looking forward to 2022. Frankly, can't wait to get there. So I think that ends our planned remarks. Daryl, if you want to open it up for questions, now would be good.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions. Our first questions come from the line of John with CJS Securities. Please proceed with your questions.

Hi. Good morning, guys. Thank you for taking my questions. My first one is, Pete, I was wondering if you could give us a little more color regarding that bit of error that Facebook is going to test. I'm not sure what exactly that means or what kind of product line that was.

Can you say that again, John? I'm not sure I followed.

I think you said that you booked something into aerospace that you said would have gone into the other segment. I'm not sure I quite understand.

Oh, no, no, no, no. Other, other, uh, you know, we break out our revenue into military, um, business jet commercial and other, and it'll show up in other in the aerospace segment.

Okay. Got it. That's, that makes more sense now. Okay. Um, And I caught the comment that you had planned for supply chain disruptions in Q4. I was just wondering, if you leaped $8 million to $10 million or pushed out that much into Q4 from Q3, is there an expectation of the same amount as you go into Q4 and roll into 2022, or is that number going to increase or decrease? I'm just wondering how you tried to handicap that going forward.

Yeah, it's a really good question, and... I think we think it's going to get a little bit bigger going forward. We do regular reviews with our business units and one of my recurring questions is, is the supply chain picture getting better or getting worse? We have, I don't know, 12, 13 different operating units and nobody is telling me it's getting better, frankly, at this point. You know, some are saying it's kind of staying the same, but nobody's telling me it's getting better. So that tells me that, you know, as a group, it's probably getting a little worse, which is discouraging. So we tried to factor that into what we expect is going to happen in the fourth quarter, and we'll obviously report a number when we get there. But we think, we hope, that 115 to 118 number is pretty safe.

Got it. Thanks for that call, Aaron. I was just wondering, what are your thoughts on wide-body production and retrofits going into next year now that these travel restrictions are lifting? And frankly, everybody was hoping and waiting for this. So is it in line with your expectations, or do you think there might be some upside? Just help us understand how much is being made now versus how much you think it'll get to next year.

I don't expect production rates necessarily to move much next year. I think the well-publicized rates by Boeing and Airbus probably take this into account. But we would hope that there would be activity on the retrofit side for our main products for commercial transports, which are mostly in-flight entertainment related. And I guess I would tell you that if the narrow body trends are any indication, when it comes back, it should come back pretty strong. So Production rate's nice, but aftermarket's nice also. I'd expect to benefit from an aftermarket pickup before a production rate pickup.

Okay, great. Thanks. I'll jump back in queue.

Okay.

Thank you. Our next questions come from the line of Michael Ciaramoli with Truist Securities. Please proceed with your questions.

Hey, good morning, guys. Thanks for taking the questions. Or maybe, Dave, first, just can you reconcile the – are you adjusting or adding anything else back to the EBITDA to get to the covenant level? I think you said, you know, the rolling quarter leverage should improve to below two times. But what – are there any other inputs that's – No, no, no.

I don't think – if I said the rolling four-quarter EBITDA leverage improved it two times, that was a mistake.

No, no, I said three and a half times.

I said that's what our goal is as we move into 2022. Okay. Yeah. No, to get to the covenant adjusted EBITDA number, you need to adjust – your traditional EBITDA calculation for the non-cash expense items that you have on the top part of the income statement. Okay. That's the largest. And we did utilize about $6.6 million of excludable legal expense for the quarter to increase our adjusted EBITDA.

Okay. Okay. Got it. Got it. And then maybe just more on the supply chain, you know, Pete, I guess, you know, looking at, you know, aerospace, you had that little bit of a million dollar, 1.1 million tailwind, but you were just about at breakeven operating margins, you know, probably could have been, you know, significantly better had you had that extra 8 to 10 million drop through in there. when we think about the pressures from supply chain and maybe inability to get product out the door, you know, can you, can you specify is this, you know, all electronic components, chips, and then can you maybe talk about the pricing environment as well? Um, are you having to pay significantly more for, for some of your raw material inputs and whether there's freight logistics and how we should think about that going forward in terms of, uh, impacting segment margins?

Sure. We are seeing pressures in a wide range of commodities that we buy. I would say the biggest general area is in electronic components because we build a lot of electronics and a lot of assemblies that require chips and diodes and capacitors and components that come primarily from Asia. So that has definitely been a point of pain. But we're also seeing it in things that you might not expect, like plastics or even paint. We have some parts of our business that are heavily dependent on molding and die casting, things like that. And even those kinds of materials have been problematic. So it's pretty widespread. And part of the frustration, frankly, is it's unpredictable. You know, you bid on a program and you refresh your suppliers and you get pricing and lead times and you relay that to your customer and then the customer gives you an order and you go to place an order and something they said was eight weeks is now 30 weeks. And it's that kind of thing that can really screw up a delivery schedule. We are seeing some price pressure. primarily in the area of going out and doing spot buys because our blanket arrangements with existing subcontractors are falling short. They're just not delivering on time. So we are seeing some of that. I think it's not something that we would consider permanent at this point, but certainly troubling and problematic. I mean, it's going to play through our income statement in the beginning of next year. We're still trying to figure out exactly how to quantify it. But our perspective is that our customers want parts, and we have a history of servicing them to a certain standard. And we're going out and buying some components over and above what existing backlog justifies in anticipation of being able to support those orders when they come in. So it's a little bit of a guessing game to some extent. But when you're looking at customers that expect things in 12 weeks maybe and suppliers that are now pushing things out to 20 or 30 weeks, you've got to kind of take proactive action. So I'm going to turn it over to Dave to see if he wants to augment that discussion at all.

Yeah, it's... Particularly hard to quantify because you can take one group of materials, say resistors, and some are available and some aren't available. Some have had 20%, 30% price increases and some have not. So it's not straight across the board situation on all similar components, and it's difficult to project.

Got it. What about pricing? I mean, are you increasing your prices to your customers? I mean, I think you're probably still 80% to 90% market share globally. I would think you'd have some success just pushing that through, whether it's to airline customers or the OEs directly or IFE providers, any kind of color there.

Yeah, I think you're right. Compared to a lot of companies, we probably have a little bit more pricing flexibility and short-term ordering patterns that will allow us to do that. But I use the word will allow us to do it, not that we've done it already. I mean, in some parts of our business, we have increased pricing to reflect increased costs. or reduced volume, frankly. And we have blanket agreements with some of our major customers, which are volume-dependent, and the volume's dropped as part of the whole pandemic effect on the industry. And in some parts of our business, we're doing some other kind of innovative things, like putting on a temporary surcharge to cover what we think are temporary increases in cost. And that's actually kind of been working, I guess. We haven't had much pushback on that. So we definitely have an eye out for it, but I would tell you that the price increases that we've seen so far are outpacing the opportunities that we have to increase pricing going to our customers. So over time, that'll all equal out, but there's probably going to be You know, hopefully a three- or four-month lag could be a six-month or a year lag before it all kind of balances out. Got it. All right, perfect. I'll jump back in the queue here.

Okay.

Thank you. Our next questions come from the line of Dick Ryan with Collier Securities. Please proceed with your questions.

Thank you. Say, Pete, what's the status of the earn-out rate?

on the semi-business sale where does that stand at this point no real change in that we're hoping to get that resolved here we have a opportunity perhaps later this month where something may break loose but we don't have anything new to report on that at this point okay

You've had some strong orders in the aerosat, you know, the tail mount satellite antenna. What's your outlook there? I mean, and when, you know, you've had two bulk orders, I think you'd probably classify them, maybe not. But what's your outlook going into 22 for the tail mounts?

It's pretty solid. Percentage-wise, it's probably going to be one of our, fastest-growing product lines in the business, but it's still relatively small. I think we're expecting revenues of about mid-$20 million range. That's going to be up 30% to 50%. That's actually one of the areas, just to tie all this together because it's all kind of interrelated, that's one of the areas where we could probably deliver significantly more if we could get the parts. But it's a very complex assembly. It's got a pretty long supply chain, and we're really challenged to do that. But that is an example where we could, especially here in the fourth quarter, we could probably do twice what we're actually planning to do if we could just get the parts.

Okay. And can you comment on the down select maybe timing as you see it for FARA or FLARA and how you're playing into either one or both?

Yeah. Well, FARA is out a ways. It is behind FLARA. So I'll concentrate my discussion on FLARA. We think that the architecture that the Army wants favors our technology very strongly. We think there's going to be a down select between the, you know, Lockheed Sikorsky team and the Bell team, uh, sometime, uh, late first quarter or into the second quarter of, uh, of 2022. Um, we are a primary team member of, uh, on the Bell team. And, uh, Our role there is pretty defined, although still evolving. We're hopeful of opportunities with Sikorsky if Sikorsky team were to be successful, but that's less firm at this point. If the Bell team wins, it'll be a real significant program for us as early as the second half of next year from a development perspective and ship set contents will easily be the biggest we've ever seen in that type of product, the electrical power distribution system to date. So more on that as it happens. But it's basically a first half 2022 event.

Okay, great. Thank you.

Thank you. Our next question has come from the line of John Tan with CJS Securities. Please proceed with your questions.

Thanks for the follow-up. Dave, I was wondering with the networking capital use and slightly up revenues and maybe a margin headwind next quarter, do you expect to remain with your covenants next quarter and kind of what are the puts and takes to get there, especially with some of these one-time items you were talking about?

Yeah, we do expect to remain compliant and actually to – to improve on our leverage ratio in the fourth quarter. A couple of one-time things to rehash a little bit. We expect about $5 million of additional AMJP cash to come in in the fourth quarter. We're expecting... Well, we received $9 million for the sale of the building, just under $9 million in the beginning of the fourth quarter. And we're expecting... tax refunds of roughly $10 million to come in during the fourth quarter. So, you know, $20, $23, $24 million of cash inflow from kind of non-operating type of stuff there will help. And the top line growth that we're expecting going from $111 million in the third quarter, you know, up $4 or $5 million into the fourth quarter is going to add margin that's going to help there as well.

Okay, great. Thank you. And then just as we head into next year, Pete, I think you said you felt confident in double digit growth, a strong double digit growth. I was just wondering with the component headwinds, you know, other inflation, like, you know, everything that's out there, like plastic and labor, like you mentioned, you know, hiring more people, retaining more people. I'm just wondering what kind of EBITs or EBIT on margins are possible in that environment. And maybe, you know, you know, I don't know if you're looking at a full year basis, or maybe as we roll through the quarter, things get better. How should we think about the potential next year if you hit the growth targets you're thinking about?

Well, there are obviously a lot of big unknowns, and we don't typically give bottom line guidance. So if we're reluctant to issue top line guidance at this point, the bottom line is even that much more complex. But if we can do strong double digits, and I would expect if things were to work halfway reasonably, we're going to be you know, well into double-digit growth, it ought to have a very strong positive impact to our income statement. I don't think we're set up to get back to, you know, 15% EBITDA numbers at this point, but we should take some pretty solid steps in that direction. And I think we need to table the discussion in terms you know, before we get into any more detail until we can talk about revenue confidently. But certainly we would expect to, you know, start to see stronger adjusted EBIT numbers at that higher revenue level. Dave, I don't know if you want to come up.

No, I agree. I agree. I think, you know, it's the top line and, you know, we're going to have the additional contribution margin from that strong sales growth we're expecting, but there'll be some offset to it with the inputs on cost going up a little bit there. But, you know, I think we'll start the process of working our way back. You know, we won't get into those double-digit EBITDA multiples next year, I don't think. But certainly as we move into 2023, that's something that we're – is within range. But I do think we'll improve steadily as we move through 2020, 2022. Okay, great.

And then last one for me, just with regards to the orders in the quarter, 153 million, does that mean you have line of sight to a quarter that's about that big in revenue terms within the next two or three quarters? Or is the timing or lumpiness of that going to preclude that from happening? As you see it, just help me understand what the timing and lumpiness in the backlog looks like.

It's a good question. I think we do have line of sight trending in that direction. I mean, you look at the last four quarters, cumulatively, we have bookings of 516 million, and that's with 280 or so in the last two quarters. And if we get any kind of continued improvement, you know, we ought to be able to push that four-quarter moving total forward. up close to the $600 million level. So sooner or later, you've got to ship that stuff, right? So we're obviously going to struggle, we think, for a while with supply chain like everybody else in the world. And I don't know where all the workers went, but hopefully some people start coming back into the labor market. But the best takeaway from our position right now is, Looking backward at the third quarter and even the early days of the fourth quarter is that demand picture is really strengthening nicely. And so we think that's a very positive trend. Dave and I were talking this morning and we unanimously, both of us, feel that you'd much rather have supply chain problems and very strong demand rather than demand problems and no supply chain. or supply chain working normally. So if you have to have problems in one place or the other, we like it where it is, I guess.

Sure, I got it. Good luck. Thank you.

Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next questions come from the line of Michael Tormoli with Truist. Please proceed with your questions.

Hey, thanks, guys, for taking the follow-up. Pete, what specifically – I know you said that 17 million bookings that's in Arrow goes into other. What sort of products are they?

They are not aerospace-related. You might recall, Michael, when the pandemic took hold, we took some of our facility resources and personnel resources and applied them toward – some of our contract design, contract build programs, and some of them are apparently coming through in pretty significant volumes. We talked about one, I think we did an announcement a few quarters ago, or a few months ago, about a hand wash station using oxygenated ozone, and that turns out to be a really big hit in organizations and facilities that are concerned about the COVID pandemic. And so we've received some very strong orders there. And that makes up a bulk of that $17 million. But I will tell you that there are others in the pipeline, difficult to predict at this point, but, you know, it's taken longer than we had hoped when we launched this kind of um, initiative as a response to COVID, but, uh, it's going to be, uh, we think pretty good business throughout 2022, uh, and one of our drivers.

Got it. Um, two other quick ones, uh, F 35. How are you guys thinking about that into next year? Is that going to be a potential headwind just given the rebase signing of that program?

Yeah, it's a, it's an evolving picture, isn't it? Um, You know, F-35 is a pretty important program for us. We have a ship set content off the top of my head somewhere in the neighborhood of $80,000 or so on that airplane. And it's an important program for us. I guess rates are expected to drop a little bit next year, but there are other things in terms of upgrades and changes that we think might compensate, so we don't think that's going to be a serious headwind for us next year.

Okay. Last one. This might be a tougher one, but I think in a prior call, as you've said, the break-even point for the company in terms of revenues might be around that $115 million level. Do you have a sense? I mean, I know it's tougher right now with supply chain and elevated costs, but just as we think about kind of a run rate business is, you know, you've obviously taken some cost actions, but should we think about $115, $120 as sort of the break-even level?

In terms of EBITDA break-even?

I was thinking operating income.

Yeah, you know, for the reasons you said, it's tough to predict there. It's probably moved up a little bit from there and changes from day to day given kind of where the material costs are going, but the break-even point has definitely gone up a little bit from where we were, say, a year ago in that regard. Okay, got it.

Perfect. Thanks, Gus.

Thank you. There are no further questions at this time. I would like to turn the call back over to Mr. Gunderman for any closing comments.

No comments. Thank you for your attention today. We look forward to talking to you again. Have a good day.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Have a great day.