Astronics Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended April 3, 2021; comparisons are with the three months ended March 28, 2020. Astronics supplies technology and products to aerospace, defense, and electronics markets through its Aerospace and Test Systems segments.
Financial performance and position
| Metric | Q1 2021 | Prior-year period |
|---|---|---|
| Sales | $105.9 million | $157.6 million |
| Gross profit / margin | $14.3 million / 13.5% | $35.7 million / 22.7% |
| Operating loss | $9.5 million | $67.6 million |
| Net loss / diluted loss per share | $11.9 million / $0.39 | $67.0 million / $2.17 |
| Cash from operations | $(6.9) million | $23.3 million provided |
| Capital expenditures | $1.9 million | $2.8 million |
At April 3, cash was $30.7 million, total assets $606.0 million, and shareholders’ equity $260.3 million. Revolver borrowings were $173.0 million; $200.9 million remained available, subject to the facility’s liquidity covenant. The company reported covenant compliance. The revolving facility matures February 2023. Current liabilities were $95.2 million.
Material changes and segment results
- Sales declined $51.7 million year over year, principally because Aerospace sales fell $59.7 million, or 42.3%, amid weak commercial aircraft production and aftermarket demand. Commercial transport revenue was $38.2 million versus $102.8 million.
- Aerospace recorded an operating loss of $5.6 million, compared with $63.1 million in the prior-year quarter, which included $74.4 million of impairment charges. No impairment was recorded in Q1 2021; management reported no impairment indicators at quarter-end.
- Test Systems sales rose $7.9 million to $24.4 million, with operating profit of $1.2 million and a 4.9% margin. Results included $0.9 million of legal fees; prior-year results benefited from $1.6 million of semiconductor warranty revenue.
- Consolidated gross margin decreased to 13.5% from 22.7%, reflecting reduced volume and lower fixed-cost absorption. SG&A fell to $23.8 million from $28.9 million, partly due to cost reductions and workforce actions.
- Backlog was $297.5 million, up from $283.4 million at year-end but below $369.4 million a year earlier. Bookings were $120.0 million, a 1.13:1 book-to-bill ratio.
Outlook, risks, and contingencies
- Management expected Q2 2021 revenue of approximately $115 million and maintained 2021 capital expenditure expectations of $10–$11 million. It said recovery was encouraging but it was too early to forecast results confidently. The company’s stated goals were to generate cash and reduce debt.
- Approximately $217.2 million, or 73% of backlog, was expected to be recognized as revenue during the remainder of 2021. Aerospace bookings were $100.5 million (1.23:1 book-to-bill); Test Systems bookings were $19.5 million (0.80:1).
- COVID-19 remained a significant uncertainty, particularly for commercial aerospace. Management cited ongoing effects on airline spending, aircraft production, aftermarket demand, and cash flows. Defense and government markets were comparatively resilient. The company had reduced headcount by about 20%, to approximately 2,100 employees, and continued cost-control measures.
- The credit agreement required minimum liquidity of $180 million through Q3 2021 and minimum interest coverage through Q2 2021; leverage limits resume and step down beginning Q3 2021. The agreement also restricts certain actions, including share repurchases, and can require prepayments when cash exceeds $100 million.
- A buyer’s calculation of the 2020 earnout from the 2019 semiconductor-test divestiture changed from $10.7 million to $7.1 million. The parties were reviewing the calculation and negotiating; timing and amount of any proceeds were uncertain, and no gain was recorded pending agreement.
- Astronics reported a $16.8 million reserve for the Lufthansa patent litigation, classified as non-current. A separate Teradyne patent and copyright case remained in discovery; the company said loss exposure was not probable or estimable for accrual at quarter-end, while noting litigation proceedings in Part II.
- The company continued to maintain a valuation allowance against U.S. federal deferred tax assets, citing recent losses and uncertainty. It recorded $0.6 million of Canadian and French COVID-related wage assistance in the quarter.
Important facts for investors to verify
- Whether commercial aerospace bookings, aircraft production, and aftermarket demand recover sufficiently to improve sales and gross margin.
- Cash generation, debt reduction, revolver availability, covenant compliance, and the effect of scheduled leverage-covenant thresholds.
- The final amount and timing of the disputed divestiture earnout.
- Developments and potential financial exposure in the Lufthansa and Teradyne proceedings.
- Whether backlog converts as expected, including the company’s estimate that 73% would be recognized in 2021.