ASTRONICS CORP Q1 FY2025 earnings call

• First quarter revenue was $206 million, up 11% year-over-year, with adjusted net income of $17 million and adjusted EBITDA of $30.7 million. • First quarter bookings were $280 million, a new record, with a book-to-bill of 1.36, and backlog at quarter end was $673 million, also a new all-time high. • Aerospace segment set new records for revenue, bookings, and backlog in Q1, with revenue up 17% y-o-y. • Test segment had a lackluster quarter with sales down and an adjusted operating loss, but cost changes were showing results. • Gross margin expanded 390 basis points to 29.5% due to volume growth and operating leverage in Aerospace. • Operating income was $13.1 million, including a $6.2 million true-up to the reserve for the U.K. litigation matter. • Generated $20.6 million in operating cash flow, up from $2 million in the prior year. • Long-term debt net of cash at quarter end was $134.2 million, a $16 million reduction from the prior quarter. • Expect CapEx to be in the range of $35 million to $50 million for the full year.

Aerospace segment: Revenue of $191 million in Q1, up 17% year-over-year. Bookings were $268 million, a record, and backlog was $614 million, up $66 million. Adjusted operating profit was 16.2%. Test segment: Sales were $14.6 million, down year-over-year, with an adjusted operating loss of $2.2 million. Bookings were $12 million, backlog $59 million. Aerospace revenue contribution was significant, making up the majority of the company's Q1 results.

• Forecasts revenue for 2025 to be in the range of $820 million to $860 million, a 6% increase at the midpoint from 2024. • Estimates tariff obligation before mitigations is in the range of $10 million to $20 million and has plans to mitigate through supply chain modifications, pass-through pricing changes, and other tariff-reducing structures. • Hopes the tariff situation will stabilize in the coming months to implement actions to minimize effects on the company and customers.

• Uncertainty around tariffs due to the on again, off again rollout, which could impact the company's margins. • Operational challenges in the Test segment leading to EAC growth and the need for deep dives to understand and improve. • Potential legal fee reimbursement issue associated with the U.K. case, with the plaintiff estimating $7.2 million and the company disputing the position. • Likely appeal of the U.K. judgment, which could stretch into the middle of 2026. • Significant income tax payments in the second quarter impacting cash from operations.

Q: How much mitigation can you do this year to offset the $10 million to $20 million tariff impact? And are you able to quantify what is direct and indirect?

A: It's hard to quantify timing as tariffs are not yet known. Roughly three quarters direct and one quarter indirect. Last time tariffs were implemented, they moved $40 million in subcontract manufacturing out of China. Still digging to confirm indirect tariff obligations.

Q: Does the review of each business mean more restructuring or product/portfolio management?

A: Could be any of those. Reviews are ongoing to assess new products and businesses, considering if they're worth investing in. Test business is the biggest segment getting attention.

Q: Can you talk about your 737 expectations today versus last quarter and Boeing's production needs?

A: Haven't heard major changes from Boeing. Encouraged by Boeing's progress in rate progression. China situation not consequential for 2025. Sooner Boeing ramps up production, sooner the company will see an uptick.

Q: How much of the demand growth in Aerospace was from airlines directly versus OEMs?

A: Demand has been strong from both sides. Commercial transport sales are roughly 50% line fit and 50% aftermarket. Absent tariff wars, trends are positive with Boeing and Airbus ramping up production.

Q: About the $1.9 million charge in Test segment, is it contained?

A: There is potential risk. Programs in Test have had consistent misses, so reviews are ongoing to assess estimates and determine if investment continues.

Q: UK settlement details and potential appeals?

A: $7.2 million is worst case for legal fees. Likely an appeal, but lawyers are comfortable with the judgment. Germany situation is on hold waiting for UK clarity, expected to be quiet in 2025 until 2026.