Astronics Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 30, 2024; balance sheet compared with December 31, 2023. Astronics supplies aerospace, defense and electronics technologies through its Aerospace and Test Systems segments. Amounts below are in U.S. dollars; financial statement amounts are generally in millions unless noted.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Sales | $185.1 | $156.5 |
| Gross profit / margin | $34.2 / 18.5% | $27.5 / 17.6% |
| Operating income (loss) | $1.7 | $(2.4) |
| Net loss | $(3.2) | $(4.4) |
| Diluted loss per share | $(0.09) | $(0.14) |
| Operating cash flow | $2.0 provided | $19.2 used |
| Capital expenditures | $1.6 | $1.6 |
Consolidated operating margin was approximately 0.9%. SG&A was $32.5 million, or 17.6% of sales, versus $29.9 million, or 19.1%, a year earlier. Net interest expense was $5.8 million. The tax benefit was $1.4 million, compared with tax expense of $1.3 million in Q1 2023.
At quarter-end, cash and cash equivalents were $5.3 million and restricted cash was $1.3 million. Current assets were $391.9 million and current liabilities were $151.3 million. Debt on the balance sheet included $9.0 million of current maturities and $153.1 million of long-term debt. Management reported net debt of $160.0 million, versus $161.2 million at year-end 2023.
The ABL revolver had $83.4 million outstanding and $36.3 million of availability net of letters of credit, subject to minimum-liquidity requirements. A temporary $5 million increase in the revolver limit, to $120 million, was scheduled to expire May 15, 2024. The term loan’s stated rate was SOFR plus 8.75%; the rate on current maturities was 14.2% at quarter-end. The company reported $166.6 million of floating-rate debt and estimated that a 1 percentage-point rate increase would raise annual pretax loss by about $1.7 million.
Material changes and segment results
- Sales grew 18.2%, mainly from Aerospace, where sales rose 20.7% to $163.6 million. Commercial transport sales increased 28.9%, supported by airline spending and higher OEM build rates. Electrical Power & Motion sales rose to $83.1 million from $53.5 million.
- Aerospace operating profit increased to $12.1 million from $4.1 million; margin improved to 7.4% from 3.0%, reflecting higher volume and production efficiency. Management cited increased litigation expense and resumed bonus programs as offsets.
- Test Systems sales were $21.4 million, up modestly, but its operating loss widened to $3.1 million from $0.6 million. The prior-year result included a $5.8 million revenue benefit from reversing deferred revenue; the segment continues to face low-volume fixed-cost under-absorption and delayed project awards.
- Bookings were $205.3 million, with a 1.11:1 book-to-bill ratio; trailing-12-month bookings were $771.6 million and book-to-bill was 1.08:1. Backlog was $612.5 million, versus $592.3 million at year-end and $558.6 million a year earlier. The company expects to recognize about $563.1 million of remaining performance obligations as revenue over the next 12 months.
- Operating cash flow improved from the prior-year use of cash, which management attributed to improved results and lower cash use by receivables and inventory. Inventory nevertheless increased to $199.5 million from $191.8 million during the quarter.
Comparability is affected by prior-year items: Q1 2023 included a $3.4 million gain from a semiconductor-test-business earnout, $1.8 million of income from reversing an equity-investment liability, and the $5.8 million Test Systems deferred-revenue reversal. These items did not recur in Q1 2024.
Outlook, risks and contingencies
- No specific consolidated revenue or earnings guidance was provided. Management expects 2024 capital spending of $17 million to $22 million and said operating cash flow is expected to fund operations, while noting liquidity depends heavily on achieving expected results.
- After quarter-end, Test Systems implemented restructuring initiatives expected to generate about $4 million in annualized savings beginning in Q3 2024; associated severance is expected to be about $1 million.
- The company was in compliance with debt covenants at quarter-end. Required minimum trailing-four-quarter adjusted EBITDA rises from $45.3 million for Q1 2024 to $48.0 million in Q2, $67.1 million in Q3 and $70 million thereafter. A minimum fixed-charge coverage ratio of 1.10:1.00 also applies. The filing warns that lower revenue or operating income could threaten covenant compliance and access to financing.
- Key operating risks include aircraft-production levels, government program funding and award timing, supply-chain and labor availability/cost, customer delivery schedules, and the timing of Test Systems orders. The company also cited uncertainty from the Russia-Ukraine conflict, sanctions, inflation and residual supply-chain disruption.
- Boeing represented 10.7% of Q1 sales; receivables from Boeing were approximately $17.6 million. A non-core Aerospace customer that filed for Chapter 11 in November 2023 had a full $7.5 million reserve recorded for its outstanding receivables.
- Patent litigation with Lufthansa remains ongoing. Accrued amounts included about $17.2 million for a German indirect claim and $7.3 million for the UK matter, plus approximately $0.7 million for UK legal expenses. The UK damages trial was scheduled to begin in October 2024, with payment considered likely in early 2025. No French-matter liability was recorded because loss exposure was not considered probable and estimable. Teradyne appealed a judgment in Astronics Test Systems’ favor; no liability was accrued because loss exposure was not considered probable or estimable.
Important facts for investors to verify
- Whether sales growth and Aerospace margin improvement continue, and whether Test Systems bookings recover enough to address its operating losses.
- Actual liquidity headroom after applicable minimum-liquidity requirements, and covenant performance as EBITDA thresholds step up during 2024.
- Whether the $4 million restructuring savings begin as planned in Q3 and whether severance and execution costs remain near expectations.
- Developments and potential payment timing in the Lufthansa proceedings, especially the UK damages trial.
- Conversion of the $612.5 million backlog into revenue and cash, including the effects of customer schedules, supply availability and working-capital needs.