ASTRONICS CORP Q4 FY2024 earnings call

• Fourth quarter sales were $208.5 million, the high end of the forecast range despite the Boeing strike. Aerospace segment sales reached an all-time high of $188.5 million, up 11.7% quarter over quarter.
• Adjusted operating income was 11.4% for the quarter, up from 5.9% last year; adjusted net income was 8.1%, up from 3.3% last year; adjusted EBITDA was $31.5 million or 15.1% of sales.
• Positive cash from operations was $26.4 million in the quarter, the first seriously positive cash quarter since before the pandemic.
• Unusual factors included legal expenses of $6.1 million related to UK patent infringement, $3.2 million refinance expenses, $4.8 million legal settlement reserve increase, $1.7 million warranty reserve, and $0.8 million inventory charge related to Lilium bankruptcy.

Aerospace segment was the driver, with sales of $188.5 million in the fourth quarter, an all-time high, up 11.7% from the prior year. This segment contributed approximately 90% of total revenue. The test segment had operating profit roughly breakeven, with $1.4 million in restructuring charges in the fourth quarter of 2024.

• Maintained 2025 sales guide at $820 to $860 million.
• Expect first quarter 2025 sales to be in the range of $190 million to $205 million, with sales expected to ramp in the second half of 2025.

• Patent infringement suits in multiple countries (US, France, Germany, UK) with uncertainties in damages and potential outcomes. For example, UK court ruled Astronics infringing but damages were lower than feared, but other cases like France appeal and Germany proceedings are uncertain.
• Potential impact of tariffs on international sales, though supply chain has minimized dependence on China but still a fluid situation.

Q: Could you talk about the potential for other open-ended cases to have damages claims in or around the neighborhood of the UK case?

A: In France, it could be zero if appeal court maintains patent dismissal; in Germany, damages are a question and proceedings may slow roll if there's an appeal. It's hard to predict and could take a couple of years.

Q: Could you talk a little bit more about the increased CapEx this year, what you're planning to fund, and maybe the cadence of cash flows?

A: CapEx will be fairly level loaded throughout the year. Primary driver is facility consolidation and building out capacity for growth. Normal pre-pandemic CapEx was $10 to $20 million, but now at $35 to $40 million to catch up on deferred spending and invest for growth.

Q: Any thoughts on various military programs and potential defense budget reallocations?

A: Spare parts sales for aircraft are critical and will continue. Small drone-like aircraft programs might get more funding. FLRAA program is a big army program with broad support but uncertainty remains.

Q: On the 2025 outlook, any color on the ARO test split?

A: Aero expected to have strong margins with upside potential in commercial transport production rates at Boeing. Test segment depends on the 45-49T army radio test program, hoping for production in late 2025 to be a game changer.

Q: On tariffs and how you might respond?

A: Supply chain has minimized dependence on China, but tariffs are a fluid situation. Most contracts likely obligate buyer to pay tariffs, so not a big deal but could be if out of control.

Q: Thoughts on retrofit market?

A: Retrofit market has been strong due to aircraft production problems. We benefit from updated technologies in new seats for both new and retrofitted planes.

Q: On Boeing order rates rebounding?

A: Bookings light in third and fourth quarter due to Boeing rescheduling, but deliveries cadence is strong. Expect turn-on rate to trail production rate to some extent but encouraged by dialogue with Boeing.

Q: Update on municipal transit markets?

A: Return to office is picking up momentum in some municipalities, but transit programs are still alive and delayed, so it's a watch item