Astronics (ATRO)2024-11-07 00:08Financial Data and Key Metrics - Sales increased by 25% year-over-year, reaching the high end of the forecasted range [8] - Adjusted net income was 0.35 per share [8] - Adjusted EBITDA was 91 million [8] - GAAP gross margins improved to 21%, up 8.3 points from the prior year [21] - Adjusted gross margin improved to 23% [21] - GAAP loss per share for the quarter was 0.35 [25] - Net debt at the end of the quarter was approximately 60 million available on the revolver [27] Business Segment Performance - Aerospace segment sales increased by 25% for the quarter and 19% for the year, with adjusted operating margin improving to 14.2% from 3.5% in the prior year [9] - Aerospace segment represented 88% of the business, with a 25.3 million, compared to 612 million entering the fourth quarter, significantly higher than the 420 million range in 2018-2019 [14] Strategic Direction and Competition - The company is focused on volume and margin improvement initiatives, which are showing positive results [9] - The company is involved with multiple eVTOL customers, with a standardized architecture that reduces exposure to customization risks [17] - The company is preparing for potential legal damages related to a patent infringement case, with reserves of 105 million [34] Management Commentary on Operating Environment and Future Outlook - Management expects fourth-quarter sales to be in the range of 210 million, with a full-year forecast of 797 million, representing a 14.2% increase at the midpoint [37] - The company anticipates continued growth in 2025, though potentially at a slower pace than 2024, with margin improvements expected [38] - The Boeing strike impacted third-quarter revenues by approximately 7 million in expenses related to the refinancing of its credit facility [15] - Legal expenses of 2.2 million charge was taken due to the bankruptcy of eVTOL customer Lilium [16] - A 3.5 million warranty reserve was recorded for an electrical power system experiencing reliability issues [18] Q&A Session Summary Question: Impact of Boeing strike on monthly revenue and future ramp-up [40] - The company expects Boeing to start slow and accelerate production throughout 2025, with initial shipment rates potentially around 20 ship sets per month, down from 32-33 previously [45] - The strike led to inventory accumulation, which will need to be burned down before normal operations resume [41] Question: Margin impact from lower Boeing shipment rates [46] - The company does not expect a material impact on margins, as the work remains profitable despite lower volumes [46] Question: Cash flow and net debt improvement in Q4 [47] - Strong cash flow is expected in the fourth quarter, with net debt already reduced to 168 million [47] Question: Revenue split between new production and aftermarket [49] - The company has been running around 50-50 between line fit and aftermarket, with the Boeing strike potentially skewing the mix towards aftermarket by 10 million [50] Question: Opportunities with Southwest Airlines for IFE power products [51] - The company is already a major supplier to Southwest and has developed a new USB Type-C power architecture, which is featured in Southwest's new cabins [52][53] Question: Legal damages and competitive impact [55] - The company does not expect the legal case to impact its competitive position, as the patents in question have expired [56] - The company is financially stronger and has options to manage potential damages, with appeals likely to extend the legal process [57][58] Question: Test business strength and future outlook [60] - The Test segment saw a jump to $25 million in sales, but this is not expected to be sustained, with restructuring efforts aimed at preparing for a major U.S. Army program expected to start in late 2025 [60][61] Question: Future legal expenses [62] - Legal expenses are expected to be relatively quiet, with potential appeals in the UK and Germany not expected until late 2025 or 2026 [62]