Astronics Corporation

Good afternoon and welcome to the Astronics Corporation second quarter fiscal year 2023 financial results conference call. All participants will be in 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 then on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Deborah Palowski, Investor Relations for Astronics. Please go ahead.

Thank you, Anthony, 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 CEO, and Dave Burney, our Chief Financial Officer. You should have a copy of our second quarter 2023 financial results, which just crossed the wires 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 and 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 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. 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. We should not consider the presentation of this additional information in isolation or in the 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, and good afternoon, everybody. Thank you for tuning in. We are here to talk about our second quarter and our prospects for the rest of the year, and in sum, We think our second quarter was a pretty strong step forward for our company, easily the best quarter we've had since COVID took over in early 2020. There are three prominent themes that are going to come up over and over again as we talk through our results. And you'll catch them, no doubt. I mean, one is that volume continues to ramp. We're recovering our production rates, and that has a lot to do with our supply chain, which is the second theme, our supply chain, while certainly not perfect, is getting quite a bit better as time goes on. And that's pretty evident in the volume that we've been able to produce. The third prominent theme is that demand for our products remains very strong. This gives us confidence of continued recovery as we move through the quarters, the near-term quarters in the future. Digging into the specifics, sales of 175 million were up 35% year-over-year and 11% sequentially. It continues a pretty strong pattern of recovery set out over the last four, five, six quarters. The last four in succession, saw revenues of $131 million, then $158 million, then $157 million, and now $174 million, $175. Our aerospace segment was the key driver of our results, with sales up 45% year over year to $158 million. Our test segment, by comparison, had a pretty difficult quarter. Sales were down 19%. year-over-year to $16.1 million. Jumping to the bottom line, we had a net loss of $12 million, but an adjusted EBITDA of $15.8 million, which was 9.1% of sales. Dave will talk through the major EBITDA adjustments in a moment, but it was a pretty clean quarter compared to many we have had recently, without any earnouts, AMJP grants, or et cetera. A tax line that jumps out was the strangest entry in the numbers and was that way the last quarter too, and it will be for the near future. Again, Dave will explain that briefly in a minute. All in all, we think an adjusted EBITDA of $15.8 million Nice improvement from a year ago when we had an adjusted EBITDA of 129,000 or just 1.6% of sales. On the demand side, bookings of 207 million is basically pre-pandemic level. I mean, that's where we were back in 2018, 2019. A book-to-bill of 1.19, even with relatively strong shipments. Once again, setting a new record backlog, this time of 611 million. Of the 611 million, 330 million is scheduled for second half shipments. We'll come back and discuss the second half in a minute, but that's a number worth hanging on to. Aerospace orders in our second quarter were particularly strong, again, at 189 million, a book to bill of 1.19. TEST also had decent bookings of $18.3 million with a book to bill of $1.14. There were four press releases of note that went out over the last quarter, and I wanted to hit each one kind of briefly to talk a little bit about where our business is coming from and to give a little bit of the breadth of our activities these days. Test had a big order from something called HHRTS. We've talked about this before. It's the Handheld Radio Test Sets program with the U.S. Marine Corps. It's a radio test program, an IDIQ program that we won earlier in the year that we think is going to be about a $40 million program over three or four years. The big... Delivery order that we received in the second quarter was for $10 million. There were some other smaller things that happened on HHRTS earlier on, but the $10 million is the first significant delivery order, which we are working on now. Another radio test program that we have talked about in the past, 4549T is for the U.S. Army. Those who have been following our company for a while may remember about a year ago, actually, we were named the winner of a technical competition for the U.S. Army for their next radio test platform. And we anticipated at that time a pretty prompt march into contract negotiations on a directed procurement to our company. Long story short, we're still waiting for that directed procurement But it is moving forward. And the reason I'm bringing it up here is that the architecture and the theory of operation between HHRTS and 4549T are complementary and the armed forces are recognizing that. The Army program is moving forward. We are of the opinion or the understanding that that contract should be awarded by year end at the latest. And that will be, if it happens that way, a very positive boost to our fourth quarter results. Second press release I'd like to briefly mention is something we came out with very recently. It had to do with electric aircraft, commonly called EVTOLs. We have one of our specialties is basically electrical power distribution and generation for small aircraft. And as most of you presumably know, there's a wide range of eVTOL aircraft under development right now. And we have developed a family of products or capabilities that can be employed by these OEMs developing these airplanes in any of a number of ways. And we had previously announced an arrangement with Lilium, a German company that is one of the leaders in the eVTOL movement. But we've also attracted attention from a number of other companies. We, in that press release, talked about 10 of them. And we put a contract or order value of approximately $20 million to these 10 customers. These are obviously not big orders today, but they are development orders, and they are getting our foot in the door, so to speak. And people can disagree or differ over the prospects for the electric aircraft market. We think it's interesting, and our approach is to develop commercially available, nearly off-the-shelf kinds of products that they can employ and that they need for the safe and certifiable operation of the aircraft. So we're pleased with that development. We think it's going to be an interesting market to watch, and we're excited to be a part of it. We also put a couple press releases out in early June. One was on the Airbus A220 passenger service units, or PSUs. That's one of our product specialties. If you sit in a commercial airplane, that unit above your head that contains a bunch of different things, a couple of probably reading lights, some air handling systems, some oxygen system, emergency oxygen system, hopefully you've not tried that one before, and some communication, usually a call button. That's a pretty major product for us, and this A220 award from Airbus is the first time we have done this kind of work on an Airbus airplane. So we're pretty excited about it. We think it's going to be a pretty significant program. If you've flown on an A220, you've probably noticed it. It's a different kind of airplane, has a different kind of feel, and it seems to be gathering pretty good success in the market. It is in production now. Our products are scheduled to be delivered to ramp into production late in 2024, about a year from now, or early 2025. Finally, we put a press release out about an in-seat power, next generation in-seat power system. This was a while ago. Specifically designed to deliver USB type A and type C 60 watt power for narrow body airplanes. This is a system that we developed primarily for our friends Southwest during the pandemic. And we were very tickled to win Southwest about a year ago. And since then, we have been marketing it to the world. We own the technology and we own the IP. And it's been very successful. The press release talked about 12 or more airlines committing to about 1,100 narrow-body airplanes with options for a couple hundred more. What we're really happy about is that we've taken a franchise that we kind of developed and grew up with in the wide-body world and transferred it over to a major, you know, competitive element into the narrow-body world. And there are a lot of narrow-body airplanes out there that are candidate systems, candidate aircraft for this product and for these systems. And all these products that I'm talking about here, HHRTS, the eVTOL systems, the A220 PSUs, and what's called the Ultralight G2 ISP in-seat power system, for narrow body airplanes, all of these were pretty much developed over the course of the pandemic. So I'm happy with how this worked out. You know, a lot of companies who got caught up in the pandemic, like us, had to make some decisions about where do you cut costs? Where do you keep investing? And we, in many cases, decided to keep investing in programs that we thought had exciting futures. all of these are examples of those decisions that have worked out well. So they're not really helping our income statement yet, but they are starting to show up prominently in our backlog, and I expect over the next months and years that these things will become major elements of our business base going forward. So enough from me for the moment. I'll turn it over to Dave to talk through some of the specifics of our income statement and balance sheet.