Astronics Reports Quarterly Financial Results
Friday, July 31, 2020 | Comments

Astronics reported financial results for the three and six months ended June 27, 2020. Financial results reflect the divestiture of the test systems semiconductor business on February 13, and the acquisitions of Freedom Communications Technologies, acquired in July 2019, and the primary operating subsidiaries of Diagnosys Test Systems Limited, acquired in October 2019.

Second quarter revenue was $123.7 million with a net loss of $23.6 million. Contributing to the loss was a $12.6 million write-down of goodwill, which resulted from a reduced outlook in the aerospace segment, specifically within the PECO reporting unit, and $4.9 million in restructuring-related severance charges. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in the second quarter was $9.2 million, or 7.4% of sales. Cash flow from operations was a positive $18.3 million.

“The second quarter saw the full force of the COVID-19 pandemic’s effect on the commercial aircraft industry, which is the market in which we typically generate two-thirds of our revenue,” said Peter J. Gundermann, Astronics president and CEO. “We adjusted by implementing comprehensive cost controls across the business and rightsizing our operation for the path forward. We are positioning the company to endure the pandemic and emerge on the other side as a better, stronger company.”

The company continues to review its business prospects with its broad range of customers and partners to assess potential outcomes of demand for its products. The defense and government business appears strong, but aircraft build rates for business jets and commercial transports are being reduced. The airline aftermarket has weakened also but not as much as the company first expected. Given these market conditions, the company believes that total revenue for 2020 could possibly be 35% lower than 2019.

To address market conditions, the company implemented a significant downsizing exercise during the second quarter to align with reduced demand. As part of this downsizing, the company ended the second quarter with its employee count reduced by 20% to about 2,300 and recorded restructuring-related severance charges of $4.9 million.

In addition to the restructuring, the company has significantly reduced operating costs with the goal of staying cash-positive and maintaining positive adjusted EBITDA.

In terms of liquidity, the company amended its lending facility with its banks during the quarter, such that its maximum leverage covenant was temporarily suspended through the second quarter of 2021, replaced by an interest coverage covenant and a minimum liquidity covenant. During the quarter, the company generated cash from operations of $18.3 million.

“We have taken significant action to adjust to the evolving environment,” Gundermann said. “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 decline to $500 million to $525 million, the changes we have made should allow us to stay cash positive for the year and produce adjusted EBITDA levels of 5% to 9% of sales.”

Test segment sales were $21.1 million, up $6.3 million compared with the prior-year period. The acquired businesses contributed $2.5 million in sales in the second quarter of 2020. Test systems operating profit was $2.6 million, or 12.4% of sales, compared with an essentially breakeven second quarter in 2019. Operating profit for the second quarter of 2019 was impacted by restructuring-related severance charges of $2 million.

Bookings for the test systems segment in the quarter were $18.2 million, for a book-to-bill ratio, excluding semiconductor activity, of 0.91:1 for the quarter. Backlog was $80.8 million at the end of the second quarter of 2020.

“The bright spot for the quarter was our test business,” Gundermann said. “Revenue grew 43% for this segment in the quarter, and it achieved operating margin of 12.4%. Organic growth for the business was 26%. The business is pursuing a significant number of opportunities which should propel the business to continued high performance.”

For the first half of 2020, test segment sales were $37.6 million, up $3.2 million compared to the prior-year period. The acquired businesses contributed $6 million in sales in the first half of 2020, while semiconductor sales decreased $2.8 million. For the first six months, test systems operating profit was $3.3 million, or 8.9% of sales, compared to operating profit of $2.1 million in the prior-year period. Operating profit in the prior year period was impacted by restructuring-related severance charges of $2 million.

The company believes that, given its assumptions on the economic impacts of COVID-19 on its revenue streams in its aerospace business, consolidated revenue could be in the range of $500 million to $525 million. Given the fluidity of the situation with the pandemic and local, state, and national government responses, other outcomes, both positive and negative, are very possible. Management believes it has structured the company to be cash positive at this level, with adjusted EBITDA margins in the range of 5% to 9%.

Capital expenditures for 2020 are expected to be approximately $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 canceled, as well as the deferral or cancellation of discretionary investments.

“Our environment has changed dramatically since the beginning of March and we have taken a comprehensive set of actions in response,” Gundermann said. “We know things will continue to evolve, and we will keep diligent watch, ready to make additional adjustments and changes as necessary. Our team has demonstrated an impressive discipline and willingness to act in the face of the pandemic, and we are well positioned to survive and thrive into the future.”

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