Astronics Reports Quarterly Financial Results
Wednesday, May 06, 2020 | Comments

Astronics reported financial results for the three months ended March 28. Financial results reflect the divestiture of the test systems’ semiconductor business in February 2019 and the acquisitions of Freedom Communications Technologies in July 2019 and the primary operating subsidiaries of Diagnosys Test Systems in October 2019.

First-quarter consolidated sales were down $50.6 million compared with the first quarter of 2019, which was the third highest revenue quarter in the company’s history. Aerospace sales were down $47.4 million, and test system sales decreased $3.2 million. Acquisitions contributed $3.5 million in sales in the first quarter of 2020. Semiconductor sales were down $1.7 million, as that business was divested in February 2019.

Consolidated operating loss was $67.6 million reflecting non-cash impairment charges of $74.4 million in the aerospace segment and lower sales volumes compared with the prior-year period. Impairment charges were recognized in the current quarter because of reduced expectations of future operating results due to the COVID-19 pandemic, which has significantly impacted the global economy and particularly the aerospace industry.

Net loss was $67 million compared with net income of $78.1 million in the prior year. The after-tax impact of the impairment was $68.8 million.

Bookings were $167.4 million for a book-to-bill ratio, excluding the semiconductor business, of 1.07:1. Backlog at the end of the quarter was $369.4 million. About $268.1 million, or 73%, of backlog is expected to ship in the remainder of 2020.

In September 2019, Astronics’ board of directors approved a share repurchase program, authorizing the company to repurchase, in the aggregate, up to $50 million of its outstanding stock. About 282,000 shares were repurchased in the first quarter at a cost of $7.7 million before the 10b5-1 plan associated with the share repurchase program was terminated Feb. 3. The recently amended credit agreement temporarily restricts the repurchase of the company’s common stock.

Aerospace segment sales decreased $47.4 million, or 25.2%, to $141.1 million. Aerospace segment operating loss was $63.1 million compared with operating profit of $25.8 million the same period last year. Aerospace operating profit was impacted by impairment charges of $74.4 million, of which $73.7 million was related to goodwill, as previously discussed. Leverage lost on reduced sales also significantly impacted operating results.

Aerospace bookings in the first quarter were $151.million, for a book-to-bill ratio of 1.07:1. Backlog was $285.7 million at the end of the first quarter of 2020.

Test segment sales were $16.5 million, down $3.2 million compared with the prior-year period. Semiconductor sales decreased $1.7 million due to the sale of the semiconductor business, while organic sales decreased $5 million. The acquired businesses contributed $3.5 million in sales in the first quarter of 2020.

Test systems operating profit was $700,000, or 4.4% of sales, compared with operating profit of $2.2 million, or 11.1% of sales, in last year’s first quarter. Operating profit was impacted mostly by lower leverage on decreased sales volume.

Bookings for the test systems segment in the quarter were $16.4 million, for a book-to-bill ratio, excluding semiconductor activity, of 1.10:1 for the quarter. Backlog was $83.7 million at the end of the first quarter of 2020.

Similar to many companies in the aerospace industry, Astronics has been significantly affected by the COVID-19 pandemic. In the space of a few weeks, the company saw significant changes in expected demand as airline traffic bottomed and manufacturers announced reduced production rates.

The defense and government business appears strong, but aircraft build rates are expected to drop, and the airline aftermarket is expected to weaken considerably. Given these market conditions, the company has reduced costs and expects to have positive cashflow even with a decline in sales between 30% and 35% from 2019’s total revenue of $773 million.

In terms of liquidity, in March the company drew down $150 million on its existing revolver, ending the quarter with total cash of $188 million. Astronics has subsequently amended its lending facility with its banks such that its maximum leverage covenant is temporarily suspended until the second quarter of 2021, replaced by an interest coverage covenant and a minimum liquidity covenant.

“We have taken significant action to adjust to the evolving environment,” said Peter J. Gundermann, president and CEO. “Our team has responded very effectively to the situation, and our operations continue to perform well given the challenging conditions. The situation is far from settled, but if our revenue in 2020 were to drop on the order of 30% to 35% from 2019, the changes we have made should allow us to stay cash positive and produce EBITDA (earnings before interest, taxes, depreciation and amortization) levels of 5% to 9% of sales.”

Capital expenditures for 2020 are expected to be about $8 million, reduced from initial plans of $20 million to $25 million for the year. The reduction reflects the change in tooling and equipment capacity requirements for certain programs that were either postponed or cancelled, as well as the deferral or cancelation of discretionary investments.

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