Astronics Corporation — Q1 2022 Form 10-Q
Period: Three months ended April 2, 2022; comparisons are with the three months ended April 3, 2021. Astronics supplies aerospace, defense and electronics technologies through its Aerospace and Test Systems segments. Figures below are in millions of dollars unless stated otherwise.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Sales | $116.2 | $105.9; up 9.7% |
| Gross profit / margin | $19.9 / 17.2% | $14.3 / 13.5% |
| Operating loss | $(4.2) | $(9.5) |
| Net loss | $(3.1), or $(0.10) per diluted share | $(11.9), or $(0.39) per diluted share |
| Operating cash flow | $0.3 provided | $6.9 used |
| Cash and cash equivalents | $24.0 at quarter-end | $29.8 at December 31, 2021 |
| Long-term debt | $137.0 | $163.0 at December 31, 2021 |
| Backlog | $475.1 | $415.7 at December 31, 2021; $297.5 a year earlier |
Q1 pretax income was $5.0 million, including an $11.3 million gain on the 2019 semiconductor-test business divestiture earnout. Income tax expense of $8.1 million contributed to the reported net loss; the effective tax rate was 161.7%, affected by research-cost tax capitalization and valuation allowances.
Gross margin benefited from $6.0 million of Aviation Manufacturing Jobs Protection Program (AMJP) grant income recorded as a reduction of product costs. Research and development expense was $12.2 million, versus $10.3 million. The filing does not provide a consolidated operating margin measure; reported operating loss was $4.2 million.
Investing activities provided $20.8 million, including $22.0 million of proceeds from the 2020 and 2021 divestiture earnouts, partly offset by $1.2 million of capital expenditures. Financing activities used $26.7 million, principally reflecting $26.0 million of net debt payments and $0.8 million of facility-amendment costs. Cash decreased $5.7 million during the quarter.
Changes by business and versus prior year
- Aerospace: Sales rose 24.5% to $101.4 million, led by commercial transport, up $25.9 million to $64.1 million. Segment operating profit improved to $3.1 million from a $5.6 million loss; growth and the AMJP benefit contributed.
- Test Systems: Sales fell to $14.8 million from $24.4 million, primarily due to lower defense revenue. The segment swung to a $1.8 million operating loss from $1.2 million profit.
- Supply-chain constraints delayed an estimated $15 million of revenue from the quarter; management said the orders remained in backlog. Consolidated bookings were $175.6 million, a 1.51 book-to-bill ratio.
- Backlog increased to $475.1 million from $415.7 million at year-end. Approximately $364.3 million, or 77%, was expected to be recognized as revenue during the remainder of 2022.
Outlook, liquidity and risks
Management maintained full-year 2022 revenue guidance of $550 million to $600 million and forecast Q2 revenue of $125 million to $135 million, with similar improvement rates in Q3 and Q4. Planned 2022 capital expenditures were $15 million to $20 million. Management expects demand to ramp through the year but cited labor, supply-chain and demand uncertainty.
The March 2022 credit-facility amendment reduced the revolving commitment from $375 million to $225 million and extended maturity to May 30, 2023. At quarter-end, $137.0 million was outstanding and $86.9 million was available, subject to covenants and net of letters of credit. The facility requires minimum liquidity of $35 million; Astronics reported covenant compliance at April 2, 2022. It restricts certain dividends, acquisitions and share repurchases through Q3 2022.
Financing risk: Astronics said it was evaluating a new long-term financing arrangement and could not assure refinancing on acceptable terms or at all. If it failed to obtain replacement financing before filing its Q2 2022 10-Q, the existing debt could become due within 12 months of that filing; absent sufficient repayment resources, this could raise substantial doubt about its ability to continue as a going concern. Rising rates and market, aerospace, COVID-19, regional-conflict and supply-chain conditions could complicate refinancing.
Other risks include ongoing COVID-19 effects, slower-than-expected recovery—particularly in widebody commercial aviation—customer demand variability, labor and supply-chain constraints, and customer concentration: Boeing represented 13.4% of Q1 sales. The company had a $24.8 million reserve for Lufthansa patent litigation matters; the filing reported no significant developments in the quarter. A separate Teradyne patent and copyright case remained in discovery and was stayed pending a patent review; no loss was accrued because exposure was not considered probable or estimable.
Management stated that disclosure controls and procedures were effective as of April 2, 2022, with no material quarterly change in internal control over financial reporting. The filing reports no material off-balance-sheet arrangements.
Important facts for investors to verify
- Progress and terms of refinancing the facility before its May 30, 2023 maturity, including covenant headroom and liquidity.
- Whether the $15 million of delayed shipments convert to revenue and whether backlog converts on the expected schedule.
- Performance against the $550 million to $600 million revenue outlook, including the assumed recovery in commercial transport and widebody markets.
- Underlying profitability excluding the $6.0 million AMJP benefit and the $11.3 million divestiture earnout gain.
- Tax expense, deferred-tax valuation allowances, and expected 2022 income-tax payments of approximately $10 million to $12 million.
- Developments in Lufthansa and Teradyne litigation, and any resulting changes to reserves or potential exposure.