Astronics Corporation

Greetings and welcome to the Astronics Corporation third quarter fiscal year 2025 financial results. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Craig Mihalik. Thank you. You may begin.

Yeah, thank you, and good afternoon, everyone. We appreciate your time today and your interest in Astronix. Joining me here are Pete Gunderman, our Chairman, President, and CEO, and Nancy Hedges, our Chief Financial Officer. Our third quarter results crossed the wires after the market closed today, and you can find that release on our website at Astronix.com. As you are aware, we may make 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 the Securities and Exchange Commission. You can find those documents on our website or at scc.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 table that accompany today's release. So with that, I'll turn it over to Pete Vivian.

Thanks, Craig. Hello, everybody, and welcome to our third quarter call. We feel it was a very positive quarter and we are pleased to share the results. As is our practice, I'll start off with a summary of the headlines for the quarter. Then Nancy will go through the financial fine points. Then we will discuss expectations for the future for both the fourth quarter and also we'll take an early look at 2026. Finally, we'll open up the lines for questions. The first headline for the quarter is that we had solid volume with revenue of $211.4 million. This was our second highest quarterly level ever and just marginally below our record. That sales level is a tick up from the first couple quarters of 2025 and is the result of broad-based demand across our product lines, markets, and customers. as well as improved performance in our supply chain and better efficiencies in our production system our aerospace segment led the way with sales of 192.7 million a level consistent with recent periods our test business had sales of 18.7 million which is down from the third quarter of 2024 but higher than the earlier two quarters of this year The second headline has to do with margins. As one would expect, higher revenue together with efficiency improvements have led to higher margins. Operating margin of 10.9% in the quarter was higher than last year's 4.1%. Adjusted operating margin taking into account expenses related to restructuring litigation and acquisitions was 12.3% for the quarter. Our aerospace segment specifically had operating margin of 16.2%, generating all of our operating income for the quarter. Test operating margin was essentially breakeven at negative 0.1%. While no one is happy with a 0% operating margin, this actually represents progress and is a testament to the cost reduction initiatives we have put in place in recent periods. To break even on a modest revenue level of $19 million and a quarter promises good things in the future since we expect test sales to increase. Adjusted EBITDA was up 15.5% of sales, our highest since the pandemic struck in 2020. Our third headline has to do with bookings. Even though third quarter shipments were on the strong side, bookings kept right up. Total bookings of $210 million yielded a booked bill of $1.0. We ended the quarter with backlog of $647 million, a very high level by historical norms, which sets us up well for the coming periods. Our fourth headline has to do with acquisitions. We have made a couple of smaller acquisitions recently, one early in the third quarter and one just recently, early in the fourth. The first one was Envoy Aerospace, which we previously discussed in our second quarter call in August. 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 by which the FAA extends its capacity and reach. We believe having an ODA is a competitive differentiator, as we are often involved in aircraft retrofit programs, and FAA certification is becoming a more important capability in the eyes of our customers. Having certification authority lessens program and schedule risk, both for us and for our customers. Envoy has external sales of about $4 million annually, Prior to the acquisition, we were consistently one of their largest customers. The second acquisition is that of Buhler Motor Aviation, or BMA. Located in southern Germany, BMA is an established manufacturer of aircraft seat actuation systems with a broad product portfolio that includes actuators, control electronics, pneumatics, and lighting. BMA competed with our PGA operation in France in the seat actuation market, and now they will work cooperatively with each other to better serve the needs and opportunities of that market. We expect BMA to have sales of 20 to 25 million in 2026, and we paid less than one time sales for the acquisition. Much of the costs related to the acquisition, legal and diligence and the like, were included in our third quarter expenses. The acquisitions operating contributions will be captured in the fourth quarter and onward. Finally, our last headline. We completed a couple of important refinancing actions in recent weeks, one in the third quarter and one just after its close. These financings lowered our cost of debt, improved our financial flexibility, and importantly, reduced future dilution potential. Nancy will cover the accounting treatment, which is a little bit complex. But basically, in the third quarter, we issued a new $225 million 0% convertible bond to buy back a majority of an earlier convertible bond that was significantly in the money, meaning it was already fairly expensive to settle. And if our stock continued to rise as we expect it to do, it would get even more expensive. Using proceeds of the new convert plus some borrowings under our existing revolver and available cash, we successfully repurchased 80% of the previous 5.5% convertible note, effectively lowering our cost of debt while also eliminating 5.8 million shares of potential dilution. As part of the transaction, we also bought a capped call on the new 0% notes that effectively raises the equity conversion price to $83, meaning that there will be no dilution on the new bond unless and until the market price of our stock exceeds $83. So this transaction significantly reduced the potential dilution we would otherwise be facing. The earlier convert had a face value of $165 million. Since we bought in 80% of it, there is now 20% still outstanding, or $33 million. We can pay the smaller bond off when it comes due in about four years in either cash or stock. We intend to use cash, but even if we use stock, the dilution will be a maximum of 1.4 million shares, or about 4% based on our existing share count. This is a significant reduction in the potential dilution risk that existed before the buyback. We also benefit in terms of interest, obviously. The new bond has a 0% coupon, while the older bond is at 5.5%. So we replaced the more expensive debt with much cheaper debt. Our second refinancing step, completed just a couple weeks ago, was a transition from the ABL facility we had in place to a cash flow revolver. The size of the ABL was $220 million, and the cash flow revolver is sized at $300 million. The interest expense is comparable, but the new facility offers less administrative burden and increased financial liquidity for the future. The financial implications of the new convertible bond and the repurchase of the majority of the previous bond is fully reflected in our third quarter financials. The ABL to RCF transition will be reflected in our fourth quarter financials. Now I'll turn it over to Nancy.