Astronics Corporation

Greetings and welcome to the Astronics Corporation first quarter fiscal year 2022 financial results. 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 this conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to our host, Deborah Pawlowski, Investor Relations for Astronics Corporation. Thank you. You may begin.

Thanks, Diego, and good morning, everyone. We appreciate your joining us here today. On the call with me are Pete Gunderman, our Chairman, President, and Chief Executive Officer, and Dave Burney, our Chief Financial Officer. You should have a copy of our first quarter 2022 financial results, which we released earlier this morning. If not, you can find the release on our website at astronics.com. As you are likely aware, 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 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 tables that accompany today's release. So with that, let me turn it over to Pete to begin. Peter?

Thank you, Debbie. Good morning, everybody. Thanks for tuning in for our call here. Our agenda is as follows. I'm going to start by talking about a couple of prominent forces which have been affecting our company for some time but have really come to a head here in the first quarter. And then I'm going to turn it over to Dave to talk through our financials, including some pretty strong cash results over the course of the quarter. I'll take it back and we will talk about a forward look for the remainder of 2022 and revisit our guidance and some of the issues affecting that and then go to Q&A at the end. So the two prominent forces affecting our company, one negative, one positive, if you read our press release, you've seen them both pretty prominently displayed. The negative one is supply chain struggles. We're not unique here and I don't intend to present a thesis, but I do want to describe how the supply chain is affecting our performance. It was pretty significant in the first quarter and it's something that's been growing. The positive force is continued strong demand from the market for our products and for our services. Bookings were really strong. Backlog set another record, and it's setting up for what will undoubtedly be a pretty exciting second half of 2022. So the supply chain. This is something that's become more and more of an issue over the last six to nine months. Basically, as demand started picking up for us, that's when supply chain struggles became more and more apparent. In the first quarter, it was as bad as ever. We went into the quarter thinking that we would have revenues somewhere north of 130 million. We ended up at 116, and the reduction occurred kind of steadily over the course of the quarter when we realized that necessary components that we needed to build our products were not coming in as expected or as really agreed to by our suppliers. It's a very unpredictable situation. Products that we buy and have bought forever that have pretty standard and stable lead times of maybe three or four or six weeks or whatever the case may be, all of a sudden can turn in 20 or 30 or even longer. And it's really kind of across the board, although the worst situations for us are in the area of electronics. A large percentage of what we build and produce for customers involves electronic components, and electronic components seem to be the sweet spot of the worldwide supply chain shortage. And that is the case with us. I think it's the kind of thing that affects pretty much everybody in business these days who produces a product. But it's especially bad for companies that have to buy chips and other electronic components which are designed in the products. that you produce. Again, I don't want to turn it into a thesis, but I do have to say that as far as we can tell, the situation is not really improving. I keep asking our people that every time I can, and nobody is willing to step forward and say that the situation in general is getting better. gotten a lot better at identifying problems early and responding to them as proactively as possible. Sometimes that involves spot buys and special purchase techniques, which can be expensive. So there's always a little bit of a reality check as to when a problem pops up, what are the possible solutions and how expensive will it get? But it's obviously a worldwide problem. It's affecting a lot of companies, and it got us in the first quarter. We'll talk about the rest of 2022 later, but we have incorporated what we know as best we can with reasonable buffers into our revenue guidance going forward. So we are sticking with our revenue guidance that we issued in our last call. and in there is some margin for supply chain problems which may raise their head. That being the case, however, these things are unpredictable. It's a little bit difficult to know for sure how things are going to work out with any particular product or any particular period, but more on that later. The positive force that continues to drive our business is bookings. We had bookings of 175 million in the first quarter. That's a book to bill of over 1.5. And it's our second quarter in a row. In the fourth quarter last year, we had a book to bill of 1.53. So two very strong booking quarters in a row have left us with a record backlog. For the last 12 months, bookings have totaled 633 million. That's over sales of $455 million. So for a rolling 12-month interval, our book-to-bill has been 1.39. It's important to note that in these bookings totals, there's really nothing special in terms of new significant big chunks of business so far. So it's really been kind of a groundswell of orders from across our product line, which is especially encouraging. It means our markets are coming back and the demand that used to exist for our products pre-pandemic is increasingly back in play. Aerospace in particular has been really strong. Our aerospace book to bill in the first quarter was 1.59. Aerospace amounted to 90% of our bookings over the last year. And if you look at the rolling 12 months, the book to bill It was 1.48 for our aerospace business. All these numbers, by the way, are being taken off the table on the back of our press release, the last page of our press release. I should have mentioned that earlier. For aerospace, again, very strong terms quarter to quarter over that rolling 12-month period. Basically, bookings quarter by quarter went from $118 million to $142 million to $148 million and now to $161 million. So aerospace bookings are definitely going the right way. One of the interesting observations in the bookings is that we are seeing some evidence of wide-body bookings. resurrection, I guess I would call it, some kind of resumption of wide body orders. Some of our products are specific to narrow body applications and some of them are specific to wide body applications. And we're seeing early signs of some kind of rebirth of wide body demand, which has really been dormant for most of the time of the pandemic. Our test business demand has been a little bit weaker with lower bookings in early 2021 resulting in low sales now. Our quarter one backlog consolidated, as I mentioned, is a new record of $475 million. That's an increase from early 2021 when our backlog was at $283 million. So obviously the bookings have positioned us well in terms of work to be executed. We need to have our supply chain cooperate so we can do the work and turn the backlog into revenue. Last time we had a backlog anywhere near current levels was really late 2018. At that time, our annual sales level was running at around $800 million a year. So those are the two big forces that I think about when I think of our first quarter, supply chain struggles and strong demand from the market. And I'm going to pass it over to Dave now to talk through the specifics of our income statement, and I'll take it back and we'll talk about our forecast for the rest of 2022 at the end here.