Astronics Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 28, 2024

There are 8 speakers on the call.

Operator

Good day, and welcome to the Astronics Corporation 4th Quarter Fiscal Year 2023 Financial Results Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded. I would now like to turn the conference over to Craig Mychajluk with Investor Relations.

Operator

Please go ahead, sir.

Speaker 1

Yes. Thank you, and good afternoon, everyone. We certainly appreciate your time today and your interest in Astronics. On the call with me here today are Pete Gunderman, our Chairman, President and CEO and Dave Berney, our Chief Financial Officer. You should have a copy of our Q4 and full year 2023 financial results, which crossed the wires after the market closed today.

Speaker 1

Do not have the release, you can find it on our website atastronics.com. As you are aware, we may make forward looking statements during the formal discussion and the Q and A session of this conference call. These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ materially from what is stated here today. These risks and uncertainties and other factors are provided in the earnings release as well as with other documents filed with the Securities and Exchange Commission. You can find those documents on our website or atsec.gov.

Speaker 1

During today's call, we'll also discuss some non GAAP measures. We believe these will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP. We have provided reconciliations of non GAAP measures with comparable GAAP measures in the tables that accompany today's release. So with that, let me turn it over to Pete to begin.

Speaker 1

Pete?

Speaker 2

Thanks, Craig, and good afternoon, everybody. Thanks for tuning into our call. We ended 2023 on a pretty strong note and consider it in retrospect now a solid year of progress. Our 4th quarter results were enabled by a series of trends that have been affecting our business for some time. Those trends are continuing to shape our environment as we enter 2024, which we expect will be another year of progress.

Speaker 2

I will dedicate my few minutes of comments this afternoon to describing these trends and the impact they are having on our business. Then Dave will talk you through some of the specifics of our financial statements. But first, some headlines from the Q4. 4th quarter revenue of $195,000,000 was at the high end of our forecasted range and up 23.5% over the comparator quarter of 2022. 2023 cumulative revenue of $689,000,000 was up almost 29% over 2022.

Speaker 2

The higher volume drove improvements in financial profit measures. Our 4th quarter adjusted EBITDA, for example, was just shy of $25,000,000 or 12.7 percent of sales. Year to date 2023 adjusted EBITDA was $55,600,000 or 8.1 percent of sales. In 2024, as previously announced, we expect revenue to be in the range of $760,000,000 to $795,000,000 That's up at the midpoint another 13 percent over where we closed 2023. So about those trends.

Speaker 2

Our 4th quarter results are really kind of the expected result of several trends affecting our business. None of these are new. We've talked about them to varying degrees over recent quarterly calls. In other words, there was nothing really special that went into our Q4 to drive these results. It's more just the expected result of things that have been happening kind of under the surface for some time now.

Speaker 2

And I'll talk through them not in any particular order, certainly not in a priority order. They're all important. First of all, demand has been and continues to be just really strong. And for us, airline demand or travel has been strong everywhere. You see this in pretty much any metric.

Speaker 2

If you follow the aerospace industry, the one exception being China, international travel in and out of China remains pretty weak, but in most other major parts of the world, travel is near or at or even above where it was in 2019 before the pandemic hit. With that, production rates of major platforms have increased over time in our major markets. Despite some of the travails going on at Boeing 737, there's upward pressure, 787, there's upward pressure, Airbus A350, A320, all trending up. And for a company like us, when more airplanes are being built and when more people are flying, that translates into improved or increased demand for us. And that's what we've been seeing, not just in the Q4, not just in 2020 3, but really for years now, our book to bill in 2021 was a 1.3.

Speaker 2

In 2022, it was pretty much at the same level, 1.29. The final number for 2023 looks a lot lower, 1.06, but that's dragged down a little bit by poor bookings in our test business where the book to bill came in at 0.76. Our Aerospace segment, which is the vast majority of our business came in with a book to bill for the year of 1.1%, so 10% above shipments. With that demand, our backlog has consistently set new highs quarter after quarter after quarter, the only exception being the 4th quarter where it came down ever so slightly. The second trend, which is worthy of mentioning is in addition to demand is the continuing improvement in our supply chain.

Speaker 2

Constraints in 2021 2022 left us handicapped and gave us a hard time trying to respond to the increases in demand I was just talking about. But those really started to dissipate and straighten out as we worked our way through 2023 and that continued through the Q4. It's not perfect. There are still challenges, but the headaches are much fewer and farther between than they were earlier on in the pandemic. And that supply chain performance is a major reason why we are able to execute on our backlog as 2023 drew to a close and why we are confident being able to predict another year of pretty solid growth for 2024.

Speaker 2

Another trend that needs mention is the really the improvement in personnel, labor availability and consistency that we have seen recently, especially as 2023 wore on again. Like a lot of companies, the great resignation, while we were used to turnover in the low single digits on a percentage basis in most of our operations during the peak of the pandemic, we saw turnovers approaching 20%, which is fundamentally a different situation. That has settled down. As a result, our workforce generally general is much less tenured than it was before the pandemic. And it's taken some time to get the culture going again, get the learning curves going again and getting people working together as a team.

Speaker 2

But we're seeing that improve and we're seeing turnover drop back to those kinds of rates that we were used to seeing years ago. There's still more turnover. It's not like it was before, but it's dropped dramatically from where it was at the peak of the pandemic. And finally, inflationary pressures of the last 24 months or so have also dissipated pretty dramatically. Obviously, the Fed is not back where they want to be.

Speaker 2

We all know that. But in terms of the pressures we see from suppliers, in particular, and other costs of the inputs for our business, the pressures have dissipated and have become more reasonable. So you add all that together and one of the things that I wanted to point out also as I look back at what's going on in our business is everything is getting quite a bit more predictable than it used to be. To be honest, in the peak of the pandemic with supply chain headaches and turnover and inflation, it was a challenge to accurately predict where the business was going to be and how it's going to perform. That's coming much more into focus as we worked our way through 2023 and now as we enter 2024.

Speaker 2

Some evidence for you to consider back in the fall of 2022 when we were putting our 2023 plan together, we issued initial revenue guidance of $640,000,000 to $680,000,000 We came in at $688,000,000 That's actually pretty accurate compared to what happened in the year or 2 before that. And not only that, but our internal forecast was within 1% of where we actually ended up for the cumulative year in 2023. And similarly with the Q4, we issued revenue guidance of $185,000,000 to $195,000,000 We came in right at the high end of that range. Again, another example of improved predictability, which is really critical for optimizing the business and executing a plan as we go forward. And as we go forward, with respect to 2024, the trends I just discussed and the strong finish we had to 2023 together give us confidence it will be another year of solid recovery.

Speaker 2

Our initial outlook in terms of the sales forecast is $760,000,000 to $795,000,000 at the midpoint. That's a year of 13% growth over 2023. That's a low percentage growth compared to what we saw in 2023 and in 2022, but it's one that's welcome for a couple of reasons. First of all, it will get us back to the revenue range of where we were pre pandemic. Finally, it's been a long journey, but in 2019, we had sales of $772,000,000 and the midpoint of this range would be 778 We have the business and the backlog to do more than that, but $795,000,000 And even at 13% growth, it would cap another year of pretty strong performance.

Speaker 2

If you look at top line, 2022, 2023 2020 4 at the midpoint, we would see $535,000,000 turning into $689,000,000 turning into 778,000,000 dollars As we work through 2024, we're also going to have an increased emphasis on margins. That's something that you always work on and worry about when you run a business. But frankly, we knew as we were operating through the pandemic that we would not be profitable at those lower sales levels. There's no way a company like ours, the way we're structured right now, is going to make money at $535,000,000 But as we move into the high 700s and with the performance that we saw in the Q4, we think there will be room to optimize and improve our profitability as we work through the year. We expect 2024 to start somewhat slowly.

Speaker 2

We expect Q1 sales to be $170,000,000 to $175,000,000 That's a little bit of a step back from where we were with the Q4 and it's a pattern that we've been in for various reasons over the last 6 quarters or so where we're up a little bit, down a little bit, up a little bit, down a little bit. But the trend overall continues to be positive, if you can look past 1 quarter at a time. There are a few things we can point to that are going to be affecting us in the Q1. The first is we're intentionally walking away and winding down some kind of non core, non aerospace business that we pursued and picked up early on in the pandemic to help keep our factories full. Those pieces of business are generally not as profitable.

Speaker 2

So we are prioritizing profitable So we are prioritizing profitable aerospace work as we wind them down, though there's a little bit of a hole in our income statement that will last for a quarter or so. There also is a little bit of a reschedule going on with Boeing on the 737 that's been in the news. I think people have heard it and seen it. Boeing is and has been our biggest customer. 737 is one of our biggest programs.

Speaker 2

It's not our biggest program. And we put product on that airplane from a number of different facilities through a number of different routes. And the messages we get are not entirely consistent from operating unit to operating unit, but there is, it seems, an overall or a general rescheduling going on, which will probably deflate 1st quarter sales a little bit, resulting in the range that we're giving. And then finally, just kind of a mix of customer schedule issues that you got to sell product and deliver product when the customers want it. So we're expecting Q1 to be 170 to 175.

Speaker 2

That's no indication whatsoever of wavering demand. We expect to climb pretty dramatically from there in the Q2, and we expect the second half to be quite strong relative to anything we've seen since well before the pandemic took hold. One other comment on 2024. We have been talking for some time about a army radio test program, we call it 45, 49 T. It's something that we were announced the winner of 1.5 years ago now and we have been waiting for a directed procurement sole source contract negotiation to take place.

Speaker 2

It is underway currently. We have not previously been able to talk about having positive momentum in this area, but we certainly have quite a bit of it now and so much so that we're expecting to see award there most likely, though not absolutely for sure in the Q2. So more on that as it happens. A little bit of a review is that this is for a platform of test equipment that the U. S.

Speaker 2

Army could use or will use to test the full range of their family of radios and they have quite a few radios in use. It will be an IDIQ program, but we expect it to be $200,000,000 to $300,000,000 over 4 to 5 years. And if you look at our test business, which is operating at about an $80,000,000 level, you can imagine the impact of dropping in $30,000,000 to $40,000,000 of sales a year once this thing gets underway. So, more on that as it happens, but that's one of the items which certainly will have an influence in our 2024 plan and we'll talk about it more as we know more, most likely in our Q1 call. That's the end of my prepared remarks.

Speaker 2

Dave, you want to take it away and talk about financials?

Speaker 3

Sure. Thanks, Pete. As Pete mentioned, we had a very strong Q4 customer demand, supply chain and our operations executed at a high level during the quarter. The top line was driven by strong sales to all of our aerospace markets that combined were up $30,400,000 or 22% compared to the Q4 of last year. Commercial transport, our largest end market was particularly strong with sales up $21,000,000 from last year's Q4.

Speaker 3

Test segment sales also increased compared to last year from $19,800,000 to $26,500,000 In terms of margins, we had a pretty clean quarter with no significant unusual costs or income. The item to be called out that was in the Q4 includes a full year of bonuses that were not determined until year end and therefore not accrued each quarter as we went through the year. So Q4 reflects bonuses of $4,200,000 that's the full year amount. These bonuses will be paid in stock to preserve cash and they are the first bonuses that we've paid since 2019. The top line growth drove our margin expansion demonstrating the leverage we can get on incremental sales.

Speaker 3

Consolidated operating income increased by $10,900,000 to $7,800,000 or 4.5% or 4% driven by the sales growth. Looking at segment performance, the Aerospace segment, which represented 86 percent of our consolidated sales, had operating income of 8.5%. Adjusting which is back in the neighborhood of pre pandemic levels. This margin expansion demonstrates the leverage we can achieve from incremental sales. As we've said before, depending on mix, we tend to think of our contribution margin in Aerospace being around 40%.

Speaker 3

The Test segment continues to be challenged by underutilization, program mix and high legal costs. Sales were up $6,700,000 over the comparator quarter last year and operating loss improved from a loss of $4,000,000 to a loss of $200,000 in this year's Q4. Interest rates remain a headwind with our current debt structure and high sulfur rates. Our cash interest expense for the quarter was about $5,100,000 which equates to about an effective rate of about 12%. At the end of the quarter, we had outstanding debt of $172,500,000 Now that we're recovering from a tough period over the last few years, we will have more alternatives available to us in terms of debt structure and we'll be reviewing options going forward.

Speaker 3

Cash used in operations in the quarter was $1,700,000 The net loss adjusted for non cash expenses provided $26,200,000 but was offset by an increase in net operating assets, which used $27,800,000 Looking at the components of the operating assets, where we consume much of the cash generated from operations, we continue to make progress in managing our inventory, which was a struggle earlier in 2023. In the 4th quarter, we're able to reduce inventory levels by $10,700,000 exclusive of reserves. The improvement was welcome, but we're still not where we need to be, which is a goal of getting our inventory turnover back close to pre pandemic levels. We're forecasting improvement as we move through 2024, but still face some headwinds as the supply chain while improved compared to a year ago is still not a well oiled machine and lead times remain longer than they were pre pandemic. The $19,000,000 increase of accounts receivable in the Q4 was due to the high level high sales level and timing being weighted in the second half of the year or second half of the quarter, I should say.

Speaker 3

Liquidity continues to be tight. We were active using our at the market program to sell 500,000 shares at an average price of $15.65 raising $7,600,000 to fund working capital needed until we realize the cash flow from the growing sales. The ATM program for the full year sold 1,300,000 shares and net proceeds were $21,300,000 all in the 3rd and 4th quarters. This equates to about 4% dilution. We're compliant with our debt covenants and are forecasting continued compliance.

Speaker 3

And in summary, as we move into 2024, our focus is on operational execution, optimizing our debt structure and improving our inventory turnover. Free cash flow will be used to reduce outstanding debt as we move through 2024. We're expecting free cash flow to grow as we move through the year. That concludes my remarks. Pete, back to you.

Speaker 2

And Rocco, over to you, if you want to open it up for questions.

Operator

Absolutely, Today's first question comes from Pete Osterland with Truist Securities. Please go ahead.

Speaker 4

Hey, good evening, guys. I'm on for Mike Ciarmoli this evening. Thanks for taking our questions.

Operator

So first, I just wanted

Speaker 4

to start with anything you could give us on how margins are looking to start the year. Just given that your Q1 sales guidance puts you at a similar level to where you were in the Q2 of last year and had EBITDA margins of around 9% in that quarter.

Operator

Is that a good starting point for what

Speaker 4

you might do in the Q1 or are there any notable changes to your cost structure since then that you'd call out whether it's labor or productivity or other inputs in the business? Does anything that would change how we look at what margins potentially might be?

Speaker 3

Pete, I could take that. But not I wouldn't say that there's any significant cost structure changes in the Q1. As I commented earlier, our contribution margin tends to be somewhere around 40% depending on product mix. So that works the same way as the top line goes down. So that would be a starting point.

Speaker 3

I think the other thing to look at would be the Q4, which as I mentioned, contained a full year's worth of bonuses in that Q4. So if you're going to try to do a bridge between Q4 and Q1,

Speaker 4

you need

Speaker 3

to make an adjustment for that full year worth of bonuses in the 4th quarter and adjust that profit up in Q4 for that.

Speaker 4

Okay. That's helpful. Thanks. So then, I also wanted to see if we could get a little more detail on the assumed revenue growth in 2024. Are you assuming a similar revenue split by segments for revenue in 2024?

Speaker 4

Or does your guidance assume relatively higher growth in either aero or test?

Speaker 2

We would anticipate most of the growth coming on the aero side. That's where the big that's where the penalty was from the pandemic and that's where the big turnaround really has been. I mean, if you look at our business by sources of income, our test business actually was relatively stable. It didn't go down a whole lot. So it's probably not going to go up a lot until we get this Army radio test program resolved and figured out.

Speaker 2

And similarly, business jet revenues have been relatively stable. The last quarter was particularly strong enabled by supply chain and military aircraft also has been pretty stable. So the big swing that took us from $772,000,000 down to $450,000,000 or whatever it was, was largely on the commercial transport side of the business and the rebound back to that level also is largely on the commercial transport side of the business.

Speaker 4

Great. Thanks. And then I just had one last one on the bookings environment. So it looks like in the Q4, your book to bill was a little bit lower versus what you put up in the rest of the year, although understood that that's relative to a higher revenue number. But I just wanted to get a sense, how are bookings trending to begin the Q1 in Aerospace so far?

Speaker 2

I don't know if I had to say much specifically there. I can tell you that we have regular interactions among the sales professionals across our business and the I guess I would describe the environment as continuing to be target rich. We think that there continues to be pretty strong demand. And so we're going to watch it, of course, because bookings over the Q1 and Q2 will start to have an impact on revenue as we work towards the end of the year. But the feedback I'm getting, the tone of our team is pretty positive there.

Speaker 2

And on the test side, if we get this radio test program under wraps and underway sometime soon, that will have a pretty positive influence also in the year as we get towards the end of it.

Speaker 4

Great. I'll jump back in queue. Thanks.

Speaker 2

Okay.

Operator

And our next question today comes from Jon Tanwanteng with CJS Securities. Please go ahead.

Speaker 5

Hi, good afternoon. Thank you for taking my questions and congrats on the nice performance in the quarter. Pete, my first question is, can you talk about the Army's recent FARA cancellation and the reallocation of resources to Flare and maybe tell us how that impacts you over the longer term?

Speaker 2

Well, it's a little bit of an early question, John, because we don't really know how this wrap up is going to happen. As you know and probably most listeners on the call know, we are teamed as we're part of the Bell V-two eighty flight team. Bell won that competition against the Sikorsky, Lockheed team and the 2 were set to compete against FARA. I guess, I can't speak for the Army, I can't speak for Bell and we're still learning the details. But I would tell you, I guess, from my perspective that freeing up the system and the money to concentrate on FLRA makes sense to me and is good for us.

Speaker 2

So we can concentrate our resources. Again, I can't speak for Bell, but Bell can concentrate their resources on one program instead of 2 and the Army also. So I'm okay with it, especially since we were on the winning team. That's all right with me.

Speaker 5

Fair enough. Got it. And can you

Speaker 2

give us just a little

Speaker 5

bit more color on the demand from Boeing that you're expecting beyond Q1? You mentioned a hole from rescheduling and I was wondering what your assumptions are in production run rates or the demand rates from you as you go through the year and what's assumed in the guidance?

Speaker 2

Yes. I didn't mean to imply a hold. It seems to be more of a reschedule. So Boeing has been anticipating a ramp on 7 37 and like many suppliers, I think we were getting those kinds of cues. We ship basically as they tell us to and they update shipping plans to us in our higher volume facilities like every 12 or 15 weeks.

Speaker 2

We don't always know what their production rate is. You would assume that our production rate is somehow correlated to their production rate. But every once in a while, it becomes apparent that they're a little bit ahead of us or they're a little bit behind us. And our hunch is that they were a little bit behind us. So they probably accumulated some inventory and they're rescheduling things.

Speaker 2

But I think we're still thinking that the word on the street is that they're going to build at 35 to 38 or 737s a month. And while that's not 45 or whatever they plan to go to by the end of 2024, it's a heck of a lot more than they were building back in 2020, which I think was about 0. So it's a minor kind of headache for us, but it's not a hold by any means, It's just a reallocation of inventory, I would say.

Speaker 5

Got it. Thank you. Appreciate it.

Operator

Thank you. And our next question comes from Tony Bancroft with Gabelli Funds. Please go ahead. Pardon me, Tony, is your line muted perhaps? Mr.

Operator

Bancroft, your line is open, sir. All right. Well, it looks like we're having technical issues with Mr. Bancroft. So at this time, we'll move to our next question, which comes from Brian McElveny with Mann Group.

Speaker 6

Congratulations on your results and the continued recovery from the pandemic. I think it

Speaker 2

speaks to the quality of

Speaker 6

the business and the management team. A more general question, if I may. When you think about the sort of broader lighting and safety market and your panel business, could you just talk a little bit about the competitive landscape there, who the key competitors are, your current market share dynamics there, if it's still very fragmented and how you see that market evolving and the opportunity set there?

Speaker 2

Sure. It's a you're asking about our lighting business in general, right?

Speaker 1

Yes, sir.

Speaker 2

Yes, it's one of our major thrusts for those who don't know and we do we're involved in aircraft lighting really across the spectrum, business jet, military, commercial transport. We're active in the cockpit, we're active in the exterior and we're active in the cabin. So, the range of products include the lights you see on the outside of airplane, the flashing light or red or red and green or landing lights. If you are sitting in the cabin and you push that reading lights above your head in the 37 or 777, that's our assembly for sure. And if you're in the cockpit, there's a whole bunch of things that light up, a whole bunch of indicators and we do a lot of work through major avionics companies that end up in aircraft cockpits.

Speaker 2

I would venture to say that we are one of the larger aircraft lighting companies in the world. We do lighting in various places in our company. But if you add it all together, we're one of the larger and the competitive nature of the business with our lighting product line, like some of our other product lines, the consolidation that's happened in the industry over the last 15 10, 15 years has made us one of the more prominent standalone available suppliers to the big OEMs. And that has so far worked in our favor. And I'm hoping that it does for a long time because that's one of our differentiators as we're big enough to do what it is that we need to do, what the customers are asking from us, but we're small enough to do it.

Speaker 2

We would like to think in a more prompt and effective and customer intimate kind of way. So the aerospace industry is like a lot of other industries, the reputation business and we've been picking up share. So we're enthusiastic about it. It's one of our we consider our business to be based on 4 strategic thrust and that's one of them.

Speaker 6

Got it. That's very helpful. Maybe just a quick follow-up on that. I mean, and I know it may be difficult to estimate, but when you think about your market share and sort of the main players that you're up against, particularly maybe in terms of the military segment, Are there any data points you have there that might be more helping us to understand the company a little better?

Speaker 2

Well, we do the exterior lighting suite on the Joint Strike Fighter, the F-thirty 5, for example, that's a high volume, high value program and we have a big portion of it. We are not active in the cockpit. And there's a story there back in the day, there were international work share arrangements. So we were kind of precluded from that. But that would give you an example of what we're involved with.

Speaker 5

Okay, got it. Thank you.

Speaker 3

Yes.

Operator

Thank you. And our next question is a follow-up from Jon Tanwanteng from CJS Securities. Please go ahead.

Speaker 5

Hi. I was wondering if you could guys if you guys could walk through kind of your cash flow expectations for the year, especially as we head into Q1 and maybe revenue comes down, you collect on receivables, 1st of all. And then second of all, as your EBITDA clients back up, what kind of conversion can you expect? Thank you.

Speaker 3

Sure. Pete, I assume you want me to take that one?

Speaker 2

No, go ahead. We're not in the same place obviously for those who are listening.

Speaker 3

Yes. So we expect to return to cash flow positivity as we move through 2024. It will start out slow as the top line is slow. But as we move through into the second, third, Q4, expect to generate significant cash flow cash flow from operations. And we'll have increased CapEx for the year compared to where we've been during the pandemic where we really cut back on spending there.

Speaker 3

It will be in the neighborhood of $20,000,000 in terms of CapEx. A lot of that is related to specific programs and new tooling for programs, testing setups for programs that we've won. And then I'm not going to give you specific numbers. We typically we've never given specific guidance on cash flow, but do expect it to return to significant cash flow generation as we move through the year. So that it's north of our significantly north of what our net income will be for the year.

Speaker 5

Got it. Thanks, Dave. And then any phasing to the CapEx plans as you go through the

Speaker 3

year? Yes. It's going to be more heavily weighted toward the back half of the year, I think, but not significant. And it's always a little bit difficult for us to predict specific quarters with the CapEx. A lot of things get moved out.

Speaker 3

Very rarely does anything get moved in. But I think for modeling purposes, I would probably look at it. And it's going to be more or less rounding if you try to break it out separately by quarters. I'd probably just take your model and take the midpoint of our range and divide it by 4, I think.

Speaker 5

Okay. Fair enough. And then just finally, obviously, with all the cash flow questions and what's the expectations for potential refinancing and working down that high cost debt that you have?

Speaker 3

As I mentioned, as we return to profitability here and positive cash flow, we'll have more options available to us. I'm not ready to get into those at this point. But obviously, we our interest cost is pretty high right now and our amortization of our term loan eats up a lot of cash. So we're going to continue to look at the alternatives and the best options for us as we move through the year here.

Speaker 5

Okay, great. Thank you.

Operator

Thank you. Our next question comes from Tony Bancroft, Wigabelli Funds. Please go ahead.

Speaker 7

Hey, gents. Great job on the quarter. Thanks for taking my call my question. I just wanted to ask about follow-up to the about FLRAA. Obviously, we listened to the Textron call the other week and they had some really positive news.

Speaker 7

It seems like things are going well there. Maybe just more of a 30,000 foot view of FLORA. Any incremental updates there? I know you talk a lot about electrification of the aircraft and how you have just a comparative advantage there. Maybe just some color or just maybe a little review of how that program impacts you positively?

Speaker 2

Sure. It's going to be a really important program long term for our company. When I look at it, I would say that it has the potential and probability to be the single largest program that the company has ever undertaken. And a lot of that has to do with the ship set content that we are developing. A lot of it's based on architectures that we've already proven out and thus we think are relatively low risk.

Speaker 2

But the ship set content should be substantial and it's still moving around, so it's premature to nail it down. But I think I've played this game with you, Tony, where if you take a theoretical wide body airplane and you imagine all the things we could possibly put and there's never been such an airplane. We've never done it. But an antenna on top and a full lighting suite on the exterior, escape path lighting, a full load of PSUs, a full load of our IFE equipment, you'd probably get somewhere in the neighborhood of $750,000 for that airplane in terms of Astronics content. And the range of numbers that we're talking about for Flaira are all well north of it.

Speaker 2

So it's for us a pretty substantial opportunity. I think we surprised some people in the industry that we were able to pull it off. And we're basically doing the entire electrical system from generators after the generators to the end use systems. So all the electronic circuit breakers, a lot of the switching in the electrical system, we're involved with. And obviously, trying to plan for and support the range of what might that aircraft might be asked to do over 30 years of use or 40 years of use.

Speaker 2

It's a pretty big task. But, Bell has been a really good partner for us and with us, I mean, we've done their 505, we did their 5/2 5, we did their FARA prototype actually before FLRA and then we did FLRA. So we know that organization pretty well and I think they know us pretty well. And we think it's going to be a I think it's going to be a really great program, something the Army really needs.

Speaker 7

Yes. That's pretty good overview. Thank you. And then again, I think we've been back and forth in this one too, but with the sort of anything that you're seeing incremental also maybe a little more 30,000 feet here, but with in flight entertainment and on the commercial transport side, sort of retrofitting cockpits. Has the customer just maybe you can give us a view on what the customer is talking to you about and what they want in sort of longer term view there?

Speaker 7

Just any thoughts there?

Speaker 2

Yes. I'd say the biggest trend that we see is that narrow body operators around the world are adopting in seat power in a way that they never really have before. It's a trend that was very helpful to us as we navigated through the pandemic as well as we did, but it's just picking up speed. So we developed a system largely in the pandemic or as the pandemic was beginning that where we were partnered with Southwest Airlines, they were the target customer and there was lot of back and forth and we developed a system on our dime with our IP that they endorsed and so far have agreed to put on their MAX fleet. There's an NGE portion of that fleet that I expect we'll be talking about at some portion sometime also here in the near future.

Speaker 2

But it turns out that Southwest desire and the kind of the unique architecture of the system has found a lot of favor all around the world from India to China to Europe. So we're booking a lot of orders there and that will be a major driving force for us in the ISEC world for a long time. The other trend I would say that's positive is that connectivity is getting better and more ubiquitous, not less. And we are involved in that in a number of ways also with some of the leading connectivity suppliers. So some of them are a little more reluctant to let us use their name than others, which they're the customer, it's their right.

Speaker 2

But we're pretty active in that space. So that's also I think a positive trend that's going to serve us well for a while.

Speaker 7

And then lastly, anything with the litigation on sort of what you guys have talked about in the K? Anything updated update there? What's going on? I know we've talked about a little bit before, but anything incremental?

Speaker 2

Well, we have 2 situations, as you know. We have a long running dispute with Lufthansa Technic been going on for more than a decade. Not much going on these days. There are little things happening here and there, but that's likely to pick up as we get towards the end of 2024 and there's a chance and I will dare say chance that those things get resolved in 2025, which would be kind of nice, that would be a change. As far as the Paradigm suit in our test business, we actually got a very favorable ruling in December where we basically won on all counts.

Speaker 2

But of course, as these things go, either side has the right to appeal and we understand that Teradyne intends to appeal. So the orbit that that takes is a little bit unpredictable. It's probably something that will play out in the middle of 2024, but it shouldn't be at least to begin with as expensive as what we've been through because all the fact finding has been found. So we'd hope for a little bit of a break there in terms of expense, but we won't know till we get there.

Speaker 7

Perfect. Thanks so much. Great job in the quarter. Looking forward to following you guys. Well done.

Speaker 2

All right. Thanks, Tony.

Operator

Thank you. And ladies and gentlemen, this concludes our question and answer session and today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

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Earnings Conference Call
Astronics Q4 2023
00:00 / 00:00