Astronics Corporation

Good afternoon and welcome to the Astronics Corporation first quarter fiscal year 2023 conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star one on your telephone keypad. To withdraw your question, please press the star 2. Please note this event is being recorded. I would now like to turn the conference over to Debbie Polosky, Investor Relations for Astronics. Please go ahead.

Thank you, Priscilla, and good afternoon, everyone. We certainly appreciate your time today and your interest in astronomy. On the call here with me are Peter Gunderman, our Chairman, President, and Chief Executive Officer, and Dave Burney, our Chief Financial Officer. You should have a copy of our first quarter 2023 financial results, which we just released 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 in 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 can 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 those 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 GATT. We have provided reconciliations of non-GATT measures with comparable measures in the tables that accompany today's release. With that, let me turn it over to Pete to begin. Peter?

Thank you, Debbie, and good afternoon, everybody. Thank you for tuning in for our call. In general, we feel the first quarter was a reasonably good start to the year, and we're making lots of good progress, though there are challenges. We'll divide this conversation generally into a discussion of the positive points to begin with, and then focus a little bit on the challenges towards the end. Sales were up 35% year-over-year to $156 million. That exceeded the range that we predicted when we last talked. Arrow was up 34%, that's aerospace, to $135 million. Our test business was up 42% to $20.9 million, but that includes a $5.8 million non-operating adder, which we will discuss later. in some detail a little bit later. Jumping to the bottom line, we had a net loss of $4.4 million and an adjusted EBITDA of $6.1 million, which was 3.9 percent of sales. That's a nice improvement from where we were one year ago when we had adjusted EBITDA of $1 million. And even an improvement over the fourth quarter when adjusted EBITDA was 4 million on higher sales. Evaluating the quarter and comparing it to last year's first quarter is somewhat complicated due to several factors, including this non-operating revenue of 5.8 million in our test segment, an equity investment payable write-off of 1.8 million, Earn out income on our semiconductor test sale from a few years ago of 3.4 million in the current quarter versus 11.3 million in the comparator quarter a year ago. And AMJP Aerospace Aircraft Manufacturing Jobs Protection Act grant receipts of 6 million in the comparator quarter a year ago. Dave will dive into some of those specific items when he gets a turn at the mic in a few minutes. Demand remains pretty strong with bookings at 158 million, once again setting a new record backlog at the end of the quarter. Aerospace orders in particular were strong at 150 million, which is a book to bill of 1.11. Test was light by comparison at $7.8 million in bookings for the quarter. Test orders tend to be lumpy and vary quite a bit from quarter to quarter, so we don't get too worked up about one quarter being light in that business. In terms of new business, two significant developments occurred shortly after quarter end that are worth mentioning. On April 6th, the General Accounting Office, the GAO, dismissed the Lockheed protest on the Army's FLARA program, clearing the way for Textron's bell to proceed. There isn't, we're not allowed to say too much about that program at this point, but we expect to be turned on with development work in the coming few weeks. And as we have discussed on these calls in the past, this program promises or has the potential to be one of the most significant programs in our company's history before it's done. Also in April, we were awarded the handheld radio test sets program by the Marine Corps, otherwise known as HHRTS. This is an award that we expected to come out almost a year ago, but we're happy to get it late than never. It's a radio test program for the Marines an IDIQ, which stands for indefinite delivery, indefinite quantity, which we expect will be worth approximately $40 million in revenues over a five-year period, and we expect it to be front-loaded in the first three years mostly. We expect a first major task order, potentially of about $10 million in shipments in coming weeks. This is a compliment to the 4549T program we talked about before. That's a radio test program for the U.S. Army that we won last fall that is in contract negotiation. As an aside, HHRTS is the final major new program pursuit that we had in our sights when the pandemic began in early 2020. We made a conscious decision to maintain certain resources and pursuits, even though we knew that our business was going to struggle as the pandemic took its hold on the aerospace industry. At this point, I can say we've been stunningly successful, actually, winning pretty much every item on the list, except for a couple that are on indefinite hold, which includes, in addition to FLARA and HHRTS, 4549T that I just discussed, a new generation in-seat power architecture, which was instrumental in winning Southwest Airlines as a customer and has subsequently been successful with narrow-body operators all around the world, an antenna kit program for Safran and Airbus, establishing ourselves in the emerging electric and EV tall aircraft market and a few other programs that we are not yet allowed to discuss. These programs as a group are barely represented in our backlog and have not yet meaningfully affected our results, but they will begin to do so as 2023 rolls along. Looking forward, We are holding our 2023 revenue forecast at 640 to 680 million and establishing second quarter guidance at 165 to 175 million. At the midpoint, this implies second quarter growth of 32% year over year and 9% sequentially. For most of the pandemic, we have vacillated between 100 and 125 million in quarterly revenue The last two quarters have been in the 155 to 160 million. And now we feel we are stepping up to 175, 170, 175 million or slightly more for the rest of 2023. At that level, we would expect for the rest of the year to be strongly cash positive and profitable. Some discussion on margins. We are reasonably comfortable with how our aerospace segment is progressing. As volume increases, the margin profile will continue to improve, especially since the growth is largely in commercial aerospace, a market that has traditionally been quite lucrative for us. We are making margin progress in our test business also, but first quarter results make it less obvious. We restructured the business in mid-April and took out about $4 to $5 million of annual cost, with savings being evident in the third quarter this year after severance costs are finished. This action was necessary due to delays with some of the new programs we have won, particularly in the area of the radio test, HHRTS and 4549T programs discussed recently, but also with some transit test work that we are progressing on slowly due to customer delays. We expect these new programs eventually to contribute 20 to 40 million of annual revenue, which will be a significant adder to the current business level of about $80 million per year. But they've been slow to take off, and they're not here yet. And to bridge the gap, we felt it necessary to cut some costs. This action will allow the business to establish profitability at current revenue levels of $85 million per year while waiting for the new programs to launch. So, the test business has been a challenge. Another of our challenges is working capital. The sales ramp we are experiencing is a good thing, but it has led to higher receivable balances. and ongoing supply chain snags have resulted in increased levels of stranded inventory. This was especially apparent in the first quarter. Receivables remain high, will remain high in the near term as revenue continues to ramp, but we believe we are at the high point on inventory and expect to see a gradual decline from here. At this point, I'll turn it over to Dave to go into some details of some of the topics I brought up. Dave?