Astronics Corporation — Q2 2021 Form 10-Q
Business context and reporting period. The quarter ended July 3, 2021. Astronics supplies aerospace, defense and electronics technologies through its Aerospace and Test Systems segments. Results continued to reflect COVID-19-related weakness in commercial aerospace and disruption in supply chains. Comparisons are with the quarter and six months ended June 27, 2020.
Key financial results
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Sales | $111.2 million | $123.7 million | $217.0 million | $281.3 million |
| Gross profit / margin | $15.4 million / 13.8% | $26.8 million / 21.7% | $29.7 million / 13.7% | $62.6 million / 22.2% |
| Operating loss | $5.9 million | $18.7 million | $15.4 million | $86.2 million |
| Net loss | $8.1 million | $23.6 million | $20.0 million | $90.5 million |
| Diluted loss per share | $0.26 | $0.77 | $0.65 | $2.94 |
| Cash from operating activities | Not stated for quarter | Not stated for quarter | Use of $2.3 million | Provided $41.5 million |
At July 3, 2021, cash and cash equivalents were $33.6 million, down from $40.4 million at December 31, 2020. Long-term debt was $173.0 million, unchanged from year-end. Total liabilities were $347.6 million and shareholders’ equity was $254.9 million. First-half capital expenditures were $3.6 million; management expected full-year spending of $10–$11 million.
Material changes and segment performance
- Q2 consolidated sales declined 10% year over year; first-half sales declined 23%. Management attributed the contraction primarily to reduced aerospace demand amid the pandemic.
- Gross margin fell to 13.8% in Q2 from 21.7%, principally because lower volume reduced operating leverage. SG&A was lower year over year, including a $2.2 million non-cash benefit from reducing the fair value of Diagnosys acquisition contingent consideration.
- Aerospace Q2 sales were $89.2 million, down 13%; the segment recorded a $2.7 million operating loss. Commercial transport remained weak, while military and “Other” sales increased. First-half Aerospace sales were down 30%.
- Test Systems Q2 sales were $21.9 million, up modestly, but the segment reported a $0.9 million operating loss versus $2.6 million operating profit a year earlier. Q2 legal fees of $1.0 million affected results. First-half sales increased to $46.4 million, while operating profit fell to $0.2 million.
- Prior-year comparisons include $87.0 million of impairment charges in the first half of 2020, including $12.6 million in that year’s second quarter. No impairment loss was recorded in 2021. The filing states that no impairment indicators were identified as of July 3, 2021.
Cash, debt and liquidity
First-half operating cash flow was negative $2.3 million, compared with positive $41.5 million in the prior-year period; management cited lower earnings and changes in operating assets and liabilities. Investing activities used $3.6 million and financing activities used $0.9 million. Cash decreased by $6.8 million during the half.
The amended revolving credit facility had $173.0 million drawn and $200.9 million available, net of letters of credit and subject to the facility’s terms. A minimum liquidity covenant of $180 million applied through Q3 2021. The company reported compliance with its financial covenants at July 3, 2021. The facility’s leverage limits were scheduled to resume in Q3 2021 and tighten over subsequent quarters; acquisitions and share repurchases were restricted through Q2 2022. Debt maturity was February 2023.
Outlook, risks and unusual items
- Management expected second-half 2021 sales of about $240 million, weighted slightly toward Q4, assuming steady pandemic progress and no worsening in supply-chain conditions. Backlog at July 3 was $312.7 million; approximately $183.6 million, or 59%, was expected to be recognized as revenue during the remainder of 2021. Q2 bookings were $126.3 million and book-to-bill was 1.14:1.
- Supply-chain constraints increasingly affected delivery schedules and pricing. Management estimated Q2 revenue could have been $5–$10 million higher with normal supply-chain performance. The filing identifies component shortages, supplier concentration, price increases and delivery delays as material risks.
- COVID-19, commercial aircraft production and aftermarket demand, customer spending, and the pace of recovery remain uncertain. Management said the ultimate pandemic impact could not be predicted.
- A subsequent agreement to sell certain Aerospace facilities was expected to generate an approximately $5.3 million gain in Q3 2021. The related $3.8 million of property and equipment was classified as held for sale at quarter-end.
- The buyer’s calculation of the 2020 earnout from the 2019 semiconductor test-business divestiture changed from $10.7 million to $7.1 million. The parties were reviewing and negotiating the amount; timing and proceeds were uncertain, and no gain had yet been recognized.
- Astronics carried an approximately $17.0 million non-current reserve for a Lufthansa Technik German indirect claim, with no significant developments reported during the quarter. In the Teradyne patent and copyright case, discovery was ongoing; the filing’s note states no amount was accrued because loss exposure was neither probable nor estimable at that time.
Important facts for investors to verify
- Whether commercial aerospace demand and production rates recover as assumed, particularly for widebody aircraft and aftermarket activity.
- Whether supply constraints ease, and whether the estimated $5–$10 million of foregone Q2 revenue is recovered or has lasting effects on margins and deliveries.
- Progress toward the roughly $240 million second-half sales outlook, backlog conversion and Test Systems bookings.
- Liquidity and covenant headroom as leverage requirements resume and tighten, including the facility’s February 2023 maturity.
- Resolution and timing of the divestiture earnout negotiation, the facility sale and its expected gain, and the Lufthansa and Teradyne legal matters.