Air Industries Group Q2 2024 Earnings Call Transcript

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August 14, 2024

There are 4 speakers on the call.

Operator

Hello, and welcome to the Air Industries Group Second Quarter 20 24 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. This call and the accompanying webcast may contain forward looking statements as defined in Section 27A of the Securities Act of 1933 as amended, including statements regarding, among other things, the company's business strategy and growth strategy. Expressions which identify forward looking statements speak only as of the date the statement is made.

Operator

These forward looking statements are based largely on our company's expectations and are subject to a number of risks and uncertainties, some of which are beyond our control and cannot be predicted or quantified. Future developments and actual results could differ materially from those set forth in, contemplated by or underlying the forward looking statements. In light of these risks and uncertainties, there can be no assurance that the forward looking information will prove to be accurate. This call does not constitute an offer to purchase any securities nor a solicitation of a proxy, consent, authorization or agent designation with respect to a meeting of the company's shareholders. At this time, I would now like to turn the call over to Lou Meluso, President and CEO.

Operator

Please go ahead.

Speaker 1

Thank you, Joe, and thank you all for joining us today. The results for the Q2 of 2024 are extremely encouraging. We are profitable for the quarter, which was an improvement over a loss in Q1. While we had a modest 2.8% increase in revenue for the quarter compared to last year, we achieved a significant increase in gross profit. For the quarter, gross profit increased by $474,000 or nearly 22% compared to Q2 of 2023.

Speaker 1

Just to get some perspective on our Q2 results, while revenue was down by $489,000 gross profit was $738,000 or nearly 39% higher than in the Q1. Our gross margin on sales increased from 13.6% to 19.5%. It is important to understand that profitability is highly dependent on several factors such as product mix, timing and a steady flow of raw material. Our Connecticut operations benefited from the ramp up of a rotorcraft product and the fruition of several company wide profit enhancement initiatives that we have been working on over the last several months. This increased gross margins together with closely controlled expenses resulted in our return to profitability.

Speaker 1

In addition, I want to mention that we expect Q3 to reflect some softness as compared to our earlier quarters followed by a stronger Q4. Now let me turn to bookings. Our order flow continues to be strong. Bookings in Q2 were $16,500,000 growing 3,500,000 dollars or 27% from the level we achieved in Q1. We achieved a book to bill ratio of 1.2:one.

Speaker 1

Given our strong bookings, our total funded backlog

Operator

at

Speaker 1

the end of Q2 was slightly over $100,000,000 which is a significant milestone. Our goal is to grow the backlog from here. Before turning the call over to Scott, I want to provide a brief summary of our recent visit to the Farnborough Air International Show. The show is a trade exhibit for the aerospace and defense industry and is attended by key primes and manufacturers. From our perspective, it was a great show.

Speaker 1

Our schedule was booked full. We met and solidified relationships with both old and new customers and believe we have set the stage for great things to come. Now let me turn the call over to Scott, who will discuss our Q2 results in more detail. I'll be back to add some closing commentary and a bit more specifics on our 2024 outlook before opening the call up to questions and answers. Scott, you may proceed.

Speaker 2

Thanks, Lou. I share Lou's enthusiasm about the Q2 results. Let me discuss them in more detail. Consolidated net sales for the Q2 ended June 30, 2024 were 13,600,000 This represents a 2.8% increase as compared to the $13,200,000 we achieved in Q2 of 2023. The improvement in our operating results is directly due to increased gross margins, which was approximately $474,000 or 22 percent higher than Q2 of 2023 and $738,000 or 39% higher than the Q1.

Speaker 2

During our last call, we expressed confidence that margins would improve and they have. Although quarterly fluctuations may still occur, we believe the gross margin on a year over year basis will continue to show improvement. We continue to focus on keeping operating expenses controlled. For the Q2, they were $1,900,000 which was $206,000 or 9.8 percent lower than the prior year 2nd quarter and $273,000 or 12.6 percent less than Q1 of 2024. As a result of increased profitability and controlled expenses, we had operating income exceeding $0.75 of $1,000,000 compared to a modest operating income of just $72,000 in Q2 of 2023 and an operating loss of close to $260,000 in Q1 of 2024.

Speaker 2

Finally, on the bottom line, we had net income of $298,000 or $0.09 per share compared to a loss of $395,000 or negative $0.12 a share in 2023 and a loss of $706,000

Speaker 3

or a loss

Speaker 2

of $0.21 a share in Q1 of 'twenty four. From the Q1 to the Q2, our net income has increased by over $1,000,000 For the 6 months ended June 30, 2024, our adjusted EBITDA was $1,775,000 an improvement of nearly $236,000 or 15% from the prior year. A detailed reconciliation of EBITDA to GAAP was included in our press release that was issued last evening. As filed on Form 8 ks earlier this year, we amended our credit facility and negotiated more favorable covenants. In this regard, I am pleased to report that we are in compliance with these covenants and expect to remain in compliance.

Speaker 2

Now let me quickly highlight a few items on the balance sheet. Compared to December 31, 2023, our total debt is up by $1,600,000 to 24,939,000 dollars a 7% increase. This was due to the completion of the installation of solar panels at our Connecticut manufacturing facility, an increase in our equipment term loan that was made with our recent amendment to our banking agreement. Inventory is slightly lower, which reflects timing and carefully monitoring inventory levels with a goal to improve our working capital requirements. Accounts receivable are essentially unchanged, but other working capital accounts such as accounts payable and accrued expenses are down by about $500,000 And with that, I will turn the call back to Lou for some closing remarks and an update on our 2024 business outlook.

Speaker 2

Lou?

Speaker 1

Thank you, Scott. First half of fiscal twenty twenty four reflecting strength, strong order flow and an improvement from last year, I feel confident about our second half. With 2 quarters under our belt, fiscal 2024 is on track to be a year of significant growth. Although it remains difficult to predict the timing of orders, raw materials and delivery times for finished products, the company reaffirms our target of net sales for fiscal 2024 to be at least $50,000,000 with adjusted EBITDA in 2024 being significantly better than in 2023. Additionally, we are working on a number of large booking opportunities that we expect to finalize soon.

Speaker 1

If we are successful in closing these opportunities before the end of our fiscal 2024, not only will we achieve growth in 2024, but 2025 will be even better. With that, Joe, I would like to open the call to our questions and answer portion. Thank

Operator

And our first question comes from the line of Howard Halpern with Taglich Brothers. Please proceed.

Speaker 3

Congratulations guys. Fantastic quarter.

Speaker 1

Hi Howard, how are you doing today?

Speaker 2

Hi Howard, thank you.

Speaker 3

You did mention briefly that Q4 will be stronger than Q3. Is that in terms of revenue and margin or just in terms of revenue for Q3? And are there new programs starting, I guess, in Q3 that might hamper gross margin a little bit?

Speaker 2

Hi, Howard. So Q3 is going to be a combination of lower sales and lower which will obviously give you lower margin dollars, probably slightly lower margin percentage as well, which as we said will turn around in the Q4. It has to do with some customer push outs and things of that nature, but we are confident that the year will be as we have laid out.

Speaker 1

Howard, it's timing of orders in material flows. The pipeline is full, the very positive thing for the balance of the year.

Speaker 3

Okay. Are there any additional projects that you are doing in house to create efficiencies? Or is that type of capital spending coming to an end where you'll start paying down some debt?

Speaker 1

We came well, we've been very frugal this year with capital spending. We retrofitted we haven't we purchased 1 new corded measuring machines in the early this year, I think to the tune of about $300,000 But other than that, we had 3 machines in the shop that have been there for a while. It's old iron and it has great capability, 3 spindle machines. It's what you need in this business. And we spent roughly $300,000 per machine to bring it up to the 21st century.

Speaker 1

So basically new controls, new brains in these things, and we will reap the benefit on we're looking our pipeline of potential orders is immense, I mean immense. So we don't want to get caught short. We wanted to make sure that we had machines to be able to produce this work if we're fortunate enough to win some of these projects coming up because in this industry, you're a year out in getting things repaired and equipment in. So we went ahead and spent the money to prepare for potential floodgate of new opportunities coming down the pike.

Speaker 3

Okay. And in terms of those opportunities and maybe in conjunction with the air show too, those opportunities, are they, as you said, new old and potentially new customers, but are the programs brand new or will they be similar to some of the other programs that you have that are ongoing?

Speaker 1

It's all aerospace programs. Predominantly, Air Industries Group is roughly 85% military programs. But in light of what's happened to the commercial aviation in Boeing, there's been a lot more opportunities on the other side of the fence on the commercial side, which we are we have one product here in our Bayshore facility in New York that's commercial, everything else, and that's our thrust drop. So we're pursuing both military and commercial work. Commercial would be a relatively new frontier for us here in New York.

Speaker 1

We do a lot more commercial in our Connecticut operations. But it's the same equipment. It's the same materials. It's the same way to approach the work. So it's nothing new to us.

Speaker 1

It's just commercial in the past hasn't been as lucrative as military work. We all know that. That's no secret. But Boeing with the 767 and the 787 and all these other new programs and despite the issues that they've had with it, a lot of people during COVID that were commercially based went out of business. So we're finding that the market is looking for companies such as ours for commercial applications and we plan on taking advantage of it.

Speaker 3

Okay. Well, I look forward to those announcements yet to come. Keep up the great work, guys.

Speaker 2

Thank you, Howard. Thanks, Howard.

Operator

Thank you. There are no further questions at this time. Now I'll turn the call back to Luma Luzzo for closing remarks.

Speaker 1

Thank you, Joe. Thank you all for taking the time be on this call today and for your interest in Air Industries Group. We look forward to updating you on our progress on the next call. Thank you again. Joe, with that, if there's no further questions or anything, you may terminate the call or end the call.

Operator

Thank you. This concludes today's conference. You may now disconnect your lines at this time. Enjoy the rest of your day.

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