Astronics Corporation

Greetings, and welcome to the Astronics Corporation second quarter fiscal year 2025 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 requires 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 conference over to your host, Debbie Polowski, Investor Relations for Astronics. Please go ahead.

Thank you, and good afternoon. We appreciate your time today and your interest in Astronics. Joining me here are Pete Gunderman, our Chairman, President, and CEO, and Nancy Hedges, our Chief Financial Officer. Our second quarter results crossed the wires after the market closed today, and you can find that release 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'll also discuss some non-GAAP measures, which we believe 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, I will turn it over to Pete to begin. Peter?

Hello, everybody, and welcome to the call. I'll open the call with my comments on the second quarter, which had a number of puts and takes, but also showed consistent progress towards improved performance for the business, which has been our goal as we work our way through 2025. I'll then turn it to Nancy to cover the details, and later I'll talk about our strengthened outlook for the remainder of the year. Sales for the quarter were just under $205 million, similar to the first quarter and up 3.3% from the second quarter of 2024. This was driven by record sales for our aerospace segment, which compensated for lower test segment sales. Test sales were low due to a $6.4 million adjustment driven by our ongoing program review process which has caused us to reevaluate our financial position on a few programs. Year-to-date sales are $411 million, up 7.2% from $383 million last year, so our sales momentum remains solid. Our margins continue to make progress also, driven by the success of our aerospace segment. we had adjusted EBITDA of 25.4 million or 12.4% of sales in the quarter. On a rolling 12-month basis, adjusted EBITDA, as we calculate it, has been 114.7 million. This is up from 71 million for the previous 12-month period. So we have continued to make pretty good progress. Second quarter bookings were on the light side at $177 million for a book-to-bill of 0.86, primarily as a result of timing following a record level of bookings in the first quarter. Market demand for our products remains strong. Our book-to-bill for the first half of 2025 is positive at 1.11, and for the last 12 months also it's positive at 1.02. So while our revenues have been ramping over recent periods, our bookings have been keeping up just fine, which is a good indication of continued strength going forward. Our quarter results were colored by some large and unusual adjustments resulting from the business review we described in our first quarter call. That review, as I mentioned a minute ago, led us to a $6.8 million EAC-related adjustment in our test segment. The EAC charges the level set certain long term development contracts in our transit business. Specifically, our review concluded that we're not as far along on the programs as we thought leading to the reset. Our work is being verified currently by an outside consultant firm hired to help us implement management systems to minimize any recurrences in the future. Our program review also led us to step away from a couple of aerospace segment product lines that we have concluded are non-core to our future. This simplification initiative resulted in 6.2 million of restructuring charges in the aerospace segment. These product lines have proven to be low growth and low margin, and the charges relate to write downs of inventory on certain facility assets. These two product lines, which include satellite antennas and contract engineering and manufacturing programs, are expected to contribute sales of only 4 to 8 million in all of 2025. We expect to exit a couple of facilities related to these actions over the next 12 to 18 months. As an aside, including these two facilities, We've closed eight facilities in recent years, significantly reducing our footprint and simplifying our organization. The contract engineering and manufacturing initiative is one that we entered into in the heat of the pandemic to leverage some manufacturing space and engineering resources that were underutilized at the time. Over time, we found the program risks were too high and the resulting margins did not justify the effort. The discontinuation of any further development of our satellite antenna product line, which had been focused on large business jets and commercial transports operating with geosynchronous satellite constellations, was the result of having a low market share and recognition that conditions have slowed as customers contemplate emerging low Earth orbit constellations. We decided that the investment in developing new antennas specific to either the LEO and or GEO market would be too risky to justify the required financial investment. But to be clear, the antenna decision does not mean we are walking away from LEO as a technology. To the contrary, the vast majority of our in-flight entertainment and connectivity capabilities are as relevant to LEO networks as they are to GEO. and to air to ground, ATG topologies. The market is in a state of flux currently as customers consider the merits of the competing technologies, but we are optimistic that we will be able to create value in the emerging LEO world as we have in the past with GEO and ATG. We made a small acquisition in our aerospace segment at the beginning of the third quarter. Envoy Aerospace is an ODA which stands for Organizational Designation Authority. ODA is a program in which the FAA grants certification approval authority to outside organizations through which the FAA extends its capacity and reach. We believe that having an ODA will be a competitive differentiator as we are often involved in aircraft retrofit programs and FAA certification is becoming a more important capability in competitive situations. Having certification authority lessens program and schedule risk for both us and our customers. Envoy has sales of about 8 million and will report through our Astronix CSC operation. I'll turn it over to Nancy now to cover segment results and other details relating to our second quarter results. Nancy?