Astronics Corporation (NASDAQ:ATRO), a leading supplier of
advanced technologies and products to the global aerospace,
defense, and semiconductor industries, today reported financial
results for the three months ended March 31, 2018. Results
include the acquisition of Custom Control Concepts (“CCC”) on April
3, 2017 and Telefonix PDT on December 1, 2017 (collectively, the
"Acquired Businesses").
Three Months Ended
March 31, 2018
April 1, 2017
% Change
Sales $ 179,059 $ 152,396 17.5 %
Gross profit
$ 37,132 $ 38,317 (3.1 )% Gross margin 20.7 % 25.1 %
SG&A $ 30,500 $ 21,383 42.6 % SG&A percent of sales
17.0 % 14.0 %
Income from Operations $ 6,632 $ 16,934 (60.8
)% Operating margin % 3.7 % 11.1 %
Net Income $ 3,294 $
11,587 (71.6 )% Net Income % 1.8 % 7.6 %
Peter J. Gundermann, President and Chief Executive Officer,
commented, "While we had a strong quarter of sales and bookings,
margins were impacted by a number of items. We had strong revenue,
recording our highest quarterly sales level in more than two years.
Bookings were strong as well, reinforcing our expectation for solid
growth in 2018. Enhanced by our acquisitions, our Aerospace
segment, in particular, set new records for quarterly revenue,
bookings and backlog, all of which point to a strong near-term
future for our business.”
He continued, “Margins were weak for a number of reasons, in
part due to a particularly slow quarter for our Test segment, which
was the result of program timing. There were also a number of
acquisition-related items impacting margin, including increased
amortization of intangibles and inventory step-up expenses. Other
costs in the quarter included an increased loss reserve related to
a revised estimate to complete one particular job and the recording
of a legal reserve related to a long-term dispute we have been
litigating for the last several years. Most of these expenses are
expected to decrease or not recur in coming quarters.”
“All in all, we feel our first quarter was a decent start to the
year. We expect our sales growth momentum to continue in the coming
quarters, with revenue increasing to approximately
$200 million in the second quarter and then climbing again in
the final two quarters of the year. The increased revenue, combined
with a drop in acquisition-related and other unusual expenses that
affected our first quarter, will drive improved operating margins
considerably in the coming quarters.”
Consolidated Review
First Quarter 2018 Results
Consolidated sales were up $26.7 million from the same period
last year. Aerospace segment sales of $164.6 million were up $27.8
million and Test Systems segment sales of $14.5 million were down
$1.1 million. Organic revenue was $154.0 million, up 1% compared
with the same prior year period. The 2018 first quarter included
$25.1 million in sales from the Acquired Businesses all in the
Aerospace segment.
Consolidated gross margin was 20.7% in the first quarter of 2018
compared with 25.1% in the first quarter of 2017. Consolidated
gross margin was negatively impacted by several expenses that are
expected to decrease or not recur through the remainder of 2018,
including $1.3 million in expense related to the fair value step-up
of inventory from the Acquired Businesses, which is now fully
expensed. Another factor impacting gross margin in the quarter was
a program charge of $2.1 million recognized due to the revision of
estimated costs to complete a long-term contract assumed with the
acquisition of the CCC business. Gross margin was impacted as well
by the change in product mix, higher organic Engineering and
Development ("E&D") costs and market pricing pressures
primarily relating to cabin power.
Organic E&D costs were $24.3 million in the quarter,
compared with $22.9 million in last year’s first quarter. As a
percent of organic sales, organic E&D costs were 15.8% and
15.0% in the first quarters of 2018 and 2017, respectively. The
Acquired Businesses incurred E&D costs of $4.6 million in the
first quarter, which equates to 18.3% of acquired revenue.
Selling, general and administrative (“SG&A”) expenses were
up $9.1 million to $30.5 million, or 17.0% of sales, in the first
quarter of 2018 compared with $21.4 million, or 14.0% of sales, in
the same period last year. Acquired Businesses contributed $7.1
million to SG&A, including
$3.4 million of intangible asset amortization expense. Also
contributing to higher SG&A was a
$1.0 million litigation reserve recorded during the quarter for
an ongoing matter. Corporate expenses increased by $1.5 million due
to increased headcount, legal and accounting costs.
The effective tax rate for the quarter was 16.1%, compared with
25.2% in the first quarter of 2017. The 2018 first quarter tax rate
was favorably impacted by the decrease in the Federal statutory tax
rate partially offset by the elimination of the domestic production
activities deduction resulting from the Tax Cuts and Jobs Act.
Net income was $3.3 million, or $0.11 per diluted share,
compared with $11.6 million, or $0.38 per diluted share in the
prior year.
Bookings were strong at $196.2 million, for a book-to-bill ratio
of 1.10:1. The Company ended the first quarter with record backlog
of $398.6 million. Approximately 89% of backlog is expected to ship
in 2018.
Aerospace Segment Review (refer to sales by market and
segment data in accompanying tables)
Aerospace First Quarter 2018
Results
Aerospace segment sales increased by $27.8 million, or 20.3%,
when compared with the prior year’s first quarter, to $164.6
million. The Acquired Businesses contributed $25.1 million in sales
in the 2018 first quarter. Organic sales increased $2.7 million, or
2%.
Avionics sales were up $23.9 million, due to the addition of the
Acquired Businesses, which contributed $22.5 million, coupled with
an organic increase in antenna sales. System Certification sales
increased by $2.6 million on higher project activity. Sales of
other products were up $2.4 million, due primarily to the Acquired
Businesses. These increases were offset by a decrease in Lighting
& Safety sales of $1.0 million.
Aerospace operating profit for the first quarter of 2018 was
$13.1 million, or 8.0% of sales, compared with $19.8 million, or
14.4% of sales, in the same period last year. Organic Aerospace
E&D costs were $21.3 million compared with $20.3 million in the
same period last year. The Acquired Businesses incurred E&D
costs of $4.6 million during the quarter.
Aerospace operating profit was negatively impacted by several
expenses that are expected to decrease or not recur through the
remainder of 2018. As is typical during the first few quarters
following an acquisition, non-cash costs were higher than what is
expected over the long-term, as short-lived intangible assets are
amortized and the fair value step-up costs relating to the acquired
inventory is expensed. Intangible asset amortization expense for
the Acquired Businesses was $3.4 million in the first quarter and
fair value inventory step-up expense was $1.3 million. The
inventory step-up was fully expensed in the quarter and intangible
asset amortization expense related to the Acquired Businesses is
expected to decline to $2.2 million in the second quarter and
settle at a run rate of $1.6 million beginning in the third quarter
of this year.
Another factor impacting operating profit in the quarter was the
program charge of $2.1 million and the $1.0 million litigation
reserve, as discussed above. Operating margin was also negatively
impacted by change in product mix, coupled with market pricing
pressures primarily relating to cabin power.
Aerospace orders in the first quarter of 2018 were up 47% to
$180.9 million compared with the prior year period, and up 1%
compared with the trailing fourth quarter of 2017. The book-to-bill
ratio was 1.10:1 for the quarter. Backlog was $306.0 million at the
end of the first quarter of 2018, up from $298.6 million at
December 31, 2017.
Mr. Gundermann commented, “Our Aerospace segment had a solid
start to the year, with record sales, bookings, and quarter-end
backlog. We expect revenue in coming quarters to increase even
higher, especially in the second half of the year. We also expect
margin improvement, driven by the leverage gained from higher sales
as well as the expected reduction of the one-time expenses of the
first quarter, including acquisition-related inventory step-up and
amortization expenses, the program charge and the litigation
reserve.”
He continued: “Importantly, we are making progress with our
three operations facing temporary challenges: AeroSat, CCC, and
Armstrong. In the fourth quarter of 2017, these three collectively
produced an operating loss of $27.3 million, including the goodwill
impairment at Armstrong of $16.2 million. In the 2018 first
quarter, their combined loss was reduced to $8.9 million, which
included the $2.1 million loss associated with the CCC program
charge. We are expecting the loss to be reduced by about half in
the second quarter. Collectively, these three operations are making
substantial progress.”
“This improvement, combined with expected revenue growth, will
drive substantial margin improvement for the Company.”
Test Systems Segment Review (refer to sales by market and
segment data in accompanying tables)
Test Systems First Quarter 2018
Results
Sales in the first quarter of 2018 decreased approximately $1.1
million to $14.5 million compared with the same period in 2017, a
decrease of 7.1%. A $2.4 million increase in sales to the
Semiconductor market was offset by a $3.5 million decrease in sales
to the Aerospace & Defense market when compared with the
prior-year period.
The operating loss was $1.9 million compared with $0.3 million
in operating profit, or 2.0% of sales, in last year’s first
quarter. The lower margin was driven by an unfavorable sales mix
compared with the same period last year. E&D costs were $3.0
million, up from $2.5 million in the first quarter of 2017.
Orders for the Test Systems segment in the quarter were $15.3
million, for a book-to-bill ratio of 1.06:1 for the quarter.
Backlog was $92.6 million at the end of the first quarter of 2018,
down from $95.1 million at the end of 2017.
Mr. Gundermann said, “Our Test segment had a difficult first
quarter due primarily to customer timing. However, our backlog of
firm, scheduled deliveries is strong and we feel we are on track to
achieve our expectations for the year. In fact, we expect revenue
to more than double in the second quarter and remain strong through
the second half of the year.”
2018 Outlook
Consolidated sales in 2018 are forecasted to be in the range of
$765 million to $815 million, with $650 million to $680 million
expected from the Aerospace segment and $115 million to $135
million from the Test segment.
Consolidated backlog at March 31, 2018 was $398.6 million,
up from $393.7 million. Approximately $356.1 million of backlog is
expected to ship in 2018.
The effective tax rate for 2018 is expected to be in the range
of 18% to 21%.
Expectations for capital equipment spending in 2018 are
unchanged from a range of $24 million to $28 million.
E&D costs for 2018 continue to be expected in the range of
$110 million to $115 million.
Mr. Gundermann commented, "We expect the year to strengthen
progressively. Our second quarter should see revenue of
approximately $200 million, with operating profits more than double
those of the first quarter. The second half of the year will see
quarterly revenue climb even higher and we expect to reestablish
operating margins in the mid-teens by year-end.”
“The first quarter was not all that we hoped for, but demand
remains strong, and we feel we are on track for the year we
expected.”
First Quarter 2018 Webcast and Conference Call
The Company will host a teleconference today at 11:00 a.m. ET.
During the teleconference, management will review the financial and
operating results for the period and discuss Astronics’ corporate
strategy and outlook. A question-and-answer session will
follow.
The Astronics conference call can be accessed by calling (201)
493-6784. The listen-only audio webcast can be monitored at
www.astronics.com. To listen to the archived call, dial (412)
317-6671 and enter replay pin number 13679520. The telephonic
replay will be available from 2:00 p.m. on the day of the call
through Wednesday, May 16, 2018. A transcript will also be posted
to the Company’s Web site once available.
About Astronics
Corporation
Astronics Corporation (NASDAQ:ATRO) is a leading supplier of
advanced technologies and products to the global aerospace, defense
and semiconductor industries. Astronics’ products and services
include advanced, high-performance electrical power generation and
distribution systems, seat motion solutions, lighting and safety
systems, avionics products, aircraft structures, systems
certification and automated test systems. Astronics’ strategy is to
increase its value by developing technologies and capabilities,
either internally or through acquisition, and using those
capabilities to provide innovative solutions to its targeted
markets and other markets where its technology can be beneficial.
Through its wholly owned subsidiaries, Astronics has a reputation
for high-quality designs, exceptional responsiveness, strong brand
recognition and best-in-class manufacturing practices. The Company
routinely posts news and other important information on its website
at www.astronics.com.
For more information on Astronics and its products, visit its
Web site at www.astronics.com.
Safe Harbor Statement
This news release contains forward-looking statements as defined
by the Securities Exchange Act of 1934. One can identify these
forward-looking statements by the use of the words “expect,”
“anticipate,” “plan,” “may,” “will,” “estimate” or other similar
expressions. Because such statements apply to future events, they
are subject to risks and uncertainties that could cause actual
results to differ materially from those contemplated by the
statements. Important factors that could cause actual results to
differ materially from what may be stated here include the state of
the aerospace, defense, consumer electronics and semiconductor
industries, the market acceptance of newly developed products,
internal production capabilities, the timing of orders received,
the status of customer certification processes and delivery
schedules, the demand for and market acceptance of new or existing
aircraft which contain the Company’s products, the need for new and
advanced test and simulation equipment, customer preferences and
other factors which are described in filings by Astronics with the
Securities and Exchange Commission. The Company assumes no
obligation to update forward-looking information in this news
release whether to reflect changed assumptions, the occurrence of
unanticipated events or changes in future operating results,
financial conditions or prospects, or otherwise.
FINANCIAL TABLES FOLLOW
ASTRONICS CORPORATION
CONSOLIDATED
INCOME STATEMENT DATA
(Unaudited, $ in thousands except per share data)
Three Months Ended 3/31/2018 4/1/2017
Sales $ 179,059 $ 152,396
Cost of products sold 141,927 114,079 Gross
profit 37,132 38,317
Gross margin 20.7 %
25.1 % Selling, general and administrative
30,500 21,383
SG&A % of sales 17.0 %
14.0 % Income from operations 6,632 16,934
Operating margin 3.7 % 11.1 %
Other expense, net of other income 375 310 Interest expense,
net 2,331 1,133 Income before tax 3,926 15,491
Income tax expense 632 3,904
Net income
$ 3,294 $ 11,587
Net income % of sales 1.8 % 7.6
% *Basic earnings per share: $ 0.12 $ 0.40
*Diluted earnings per share: $ 0.11 $ 0.38 *Weighted average
diluted shares
outstanding (in thousands)
28,708 30,182 Capital expenditures $ 4,346 $ 2,767
Depreciation and amortization $ 9,841 $ 6,298
ASTRONICS CORPORATION
CONSOLIDATED
BALANCE SHEET DATA
($ in thousands) (unaudited)
3/31/2018 12/31/2017
ASSETS
Cash and cash equivalents $ 16,387 $ 17,914 Accounts receivable and
uncompleted contracts 157,650 132,633 Inventories 159,961 150,196
Other current assets 15,895 14,586 Property, plant and equipment,
net 124,762 125,830 Other long-term assets 19,693 15,659 Intangible
assets, net 147,592 153,493 Goodwill 125,630 125,645
Total assets $ 767,570 $
735,956
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current maturities of long term debt $ 2,478 $ 2,689 Accounts
payable and accrued expenses 97,897 80,595 Customer advances and
deferred revenue 22,164 19,607 Long-term debt 273,627 269,078 Other
liabilities 33,376 34,060 Shareholders' equity 338,028
329,927
Total liabilities and shareholders' equity
$ 767,570 $ 735,956
ASTRONICS CORPORATION CONSOLIDATED CASH
FLOWS DATA (Unaudited, $ in thousands)
Three Months Ended March 31, 2018
April 1, 2017 Cash Flows From Operating
Activities: Net Income $ 3,294 $ 11,587 Adjustments to
Reconcile Net Income to Cash Provided By Operating Activities:
Depreciation and Amortization 9,841 6,298 Provisions for Non-Cash
Losses on Inventory and Receivables 564 535 Stock Compensation
Expense 931 656 Deferred Tax Benefit (1,128 ) (516 ) Gain on Asset
Disposal 37 — Other (504 ) (291 ) Cash Flows from Changes in
Operating Assets and Liabilities: Accounts Receivable (20,868 )
(3,268 ) Inventories (18,204 ) (5,957 ) Accounts Payable 19,418
4,397 Accrued Expenses (3,194 ) (8,477 ) Other Current Assets and
Liabilities (3,474 ) (942 ) Customer Advanced Payments and Deferred
Revenue 10,482 (2,072 ) Income Taxes 1,303 4,038 Supplemental
Retirement and Other Liabilities 448 382 Cash (Used
For) Provided By Operating Activities (1,054 ) 6,370
Cash
Flows From Investing Activities: Capital Expenditures (4,346 )
(2,767 ) Cash Used For Investing Activities (4,346 ) (2,767 )
Cash Flows From Financing Activities: Proceeds from
Long-term Debt 15,000 — Payments for Long-term Debt (10,705 )
(6,657 ) Purchase of Outstanding Shares for Treasury — (4,413 )
Debt Acquisition Costs (516 ) — Proceeds from Exercise of Stock
Options 160 295 Cash Provided By (Used For) Financing
Activities 3,939 (10,775 ) Effect of Exchange Rates on Cash
(66 ) 34 Decrease in Cash and Cash Equivalents (1,527 )
(7,138 ) Cash and Cash Equivalents at Beginning of Period 17,914
17,901 Cash and Cash Equivalents at End of Period $
16,387 $ 10,763
ASTRONICS
CORPORATION
Segment
Data
(Unaudited, $ in thousands)
Three Months Ended
3/31/2018 4/1/2017 Sales
Aerospace $ 164,600 $ 136,827 Test Systems 14,459
15,569
Total consolidated sales 179,059
152,396 Operating profit and margins
Aerospace 13,115 19,754 8.0 % 14.4 % Test Systems (1,929 ) 318
(13.3 )% 2.0 %
Total operating profit 11,186
20,072 Interest expense 2,331 1,133 Corporate
expenses and other 4,929 3,448
Income before taxes $ 3,926 $ 15,491
ASTRONICS CORPORATION
SALES BY
MARKET
(Unaudited, $ in thousands)
Three
Months Ended 3/31/2018
4/1/2017 % change
2018 YTD Aerospace Segment
Commercial Transport $ 133,050 $ 109,723 21.3 % 74.4 % Military
14,015 15,146 -7.5 % 7.8 % Business Jet 10,664 7,536 41.5 % 6.0 %
Other 6,871 4,422 55.4 % 3.8 %
Aerospace
Total 164,600 136,827 20.3 % 92.0 %
Test Systems
Segment Semiconductor 7,060 4,631 52.5 % 3.9 % Aerospace &
Defense 7,399 10,938 -32.4 % 4.1 %
Test
Systems Total 14,459 15,569 -7.1 % 8.0 %
Total $ 179,059 $ 152,396 17.5 %
ASTRONICS CORPORATION
SALES BY PRODUCT
LINE
(Unaudited, $ in thousands)
Three
Months Ended 3/31/2018
4/1/2017 % change
2018 YTD Aerospace Segment
Electrical Power & Motion $ 72,678 $ 72,444 0.3 % 40.7 %
Lighting & Safety 41,642 42,670 -2.4 % 23.3 % Avionics 33,023
9,136 261.5 % 18.4 % Systems Certification 4,783 2,159 121.5 % 2.7
% Structures 5,603 5,996 -6.6 % 3.1 % Other 6,871 4,422
55.4 % 3.8 %
Aerospace Total 164,600 136,827
20.3 % 92.0 %
Test Systems 14,459 15,569
-7.1 % 8.0 %
Total $ 179,059 $
152,396 17.5 %
ASTRONICS CORPORATIONORDER AND BACKLOG TREND(Unaudited, $ in
thousands)
Q2 2017
Q3 2017
Q4 2017
Q12018
TrailingTwelveMonths
07/01/2017 9/30/2017 12/31/2017
3/31/2018 3/31/2018 Sales
Aerospace $ 129,547 $ 128,663 $ 139,566 $ 164,600 $ 562,376 Test
Systems 21,567 20,973 31,752
14,459 88,751
Total Sales
$ 151,114 $ 149,636
$ 171,318 $ 179,059
$ 651,127 Bookings Aerospace $ 134,822
$ 146,178 $ 179,340 $ 180,883 $ 641,223 Test Systems 23,944
40,161 57,719 15,280
$ 137,104
Total Bookings $ 158,766
$ 186,339 $ 237,059
$ 196,163 $ 778,327
Backlog* Aerospace $ 215,647 $ 233,162 $ 298,604 $
305,977 Test Systems 49,931 69,119
95,086 92,635
Total
Backlog $ 265,578 $ 302,281
$ 393,690 $ 398,612
N/A Book:Bill Ratio Aerospace
1.04 1.14 1.28 1.10 1.14 Test Systems 1.11
1.91 1.82 1.06 1.54
Total Book:Bill 1.05 1.25
1.38 1.10
1.20
* During the second and fourth quarters of 2017, acquisitions added
backlog of approximately $5.2 million and $25.7 million,
respectively, for the Aerospace segment. In the first quarter of
2018, the implementation of new required revenue recognition
accounting rules resulted in a reduction to backlog of $8.9 million
and $3.3 million for the Aerospace and Test Systems segments,
respectively.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180509005434/en/
For more information:Company:Astronics
CorporationDavid C. Burney, 716-805-1599, ext. 159Chief Financial
Officerdavid.burney@astronics.comorInvestor Relations:Kei
Advisors LLCDeborah K. Pawlowski,
716-843-3908dpawlowski@keiadvisors.com
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