Q4 2019 Earnings Call

Good day and welcome to the at Industries Conference call. Today's conference is being recorded at industry scope Safe Harbor statements, except for the historical information contained herein. The matters discussed in this presentation contains forward looking statements. The accuracy of these statements is subject.

A significant risks and uncertainties actual results could differ materially from those content in the forward looking statements see the Companys FCC filings on forms 10-K, and 10-Q pretty important information about the company underneath of risks EBITDA is used as a supplement our liquidity measure because management fine.

It's useful to understand antibodies results, excluding the impact of noncash depreciation and the mall position charges stock based compensation expenses, and nonrecurring expenses and outlays buyer to consideration of the impact of other potential sources and uses of cash such as working capital items. This calculation.

Maybe fat in method of calculation from similarly, titled measures used by other companies.

This time I would like to turn the confidence over to see all normal adult. Please go ahead.

Thank you need.

Good morning, Thank you for joining us as we summarized care industries as old for 29 G.

Our results for the year or much improved.

Sales are up gross profit is up and expenses remain well controlled.

Industries reported an operating profit for first time in several years.

Hi points 29 compared to 28.

Our sales increased to $54.6 million 10 million for 23%.

Okay.

Gross profit increased by 3.7.

For 68%.

Operating expenses were essentially flat.

Adjusted EBITDA was 5.2 million three times, what was in 28 years.

Our non our on time delivery metrics improved across all metrics.

Bookings were up 49.5 per se.

The relationship with our supply chain pool dramatically.

We have refinanced our credit line, replacing PNC bank with Sterling National Bank.

New credit facility combination public revolving credit line.

Karen Roan has very favorable terms.

Interest rates is less than half, what we were paying with PNC.

<unk> amortization of our term loan is much more David.

The combination will reduce our cash needs by about $2.5 million a year.

This is newfound money, we can reinvest in our operations.

At this time I would like to turn the call over to Michael WRECO, our CFO for recap on the financials.

And I'll return to close the call like thank you.

A couple of topics I want to discuss our gross profit.

Operating income and net income and me a little more information our Sterling bag refinancing.

I wasn't as you said gross profit is highly variable sales sales.

For the last year 2019 were up 23% over the prior year.

But our gross profit grew by 68%.

Really the indication of the earnings leverage as a company that our gross profit.

Increases at a faster rate than the increase in sales and that's because of manufacturing company we have.

Sales go up our.

Manufacturing overhead is absorbed and spread over more more dollars of sales increase your gross profit.

Operating income was very hot very.

Satisfying for the year.

2019, we had positive operating income.

Greatly reduced net loss.

Operating income between 19 was $320000 and this compares to a loss of 4.9 close to $5 million loss for 2018 now to be fair.

Loss in 2018 included a that expense a write off of capitalized engineering.

2 million, so perhaps a better comparison is income of 320000 reversal was about $3 million.

Still a dramatic turnaround.

Our net loss from continuing operations and 29 Jane was about 2.6 million.

Compared with $8.5 million lost 28.

We do still lost by two surge.

Continues a trend.

Excellent Fyseventeen and 28 units now into 2019, I hope that continue in 2020.

As Lou mentioned.

At December 31st.

Placed PNC bank Sterling National.

And it dramatically reduced our interest rates.

Yes, you are paying about 9.5% for most of 20 nineteenfive over prime.

Plus substantial quarterly renewal fees to keeps them in place.

At Sterling National we're paying two points two percentage points over 30 day LIBOR.

Currently paying about 4% this floor three and a half person on the Sterling alone.

Stonewall, we paid off all of our capital leases.

Under our drugs, we have one single term loan as Lou mentioned, he got free of about two and a half a million dollars.

In cash that we know what we need to use to amortize that debt.

Pass back.

Thank you Mike.

Let me close with a few thoughts on the remainder of here.

Our results for 2019 confirmed that we have increased sales and margins. We have achieved both operating profitability and greatly reduced our loss compared to 2080.

Our dedicated to continue in these trends.

During 2019, we issued guidance that revenue would be 50 to 55 million with EBITDA.

The five to five and a half a million.

We have achieved both goals, while we expect 2020 to exceed 2019.

You know certainly in the world today, we are not issuing guidance at this time.

He will do so as soon as things stabilize.

With that this concludes our formal remarks, this morning, and I would like to open the call.

I would like to open the lineup for questions from participants Anita.

You take a thank you please.

Yes. Thank you if he would like to ask a question on the phone. Please signal by pressing star bundling up telephone keypad, if you're using a speaker phone. Please make sure you admit function is turned off to what are your signals that he took with month a boy something before like that indicates that your line is open. Please state your name before opposing your question again, that's bad.

Wanted to ask a question we have a question.

Oh Lady on line is open. Please go ahead.

Hi, Good morning. This is John all deal from Taglich brothers.

Thanks for the call and thanks for taking my questions I just have a few here my first one I was hoping that then you could actually break out your sales from the fence related sales versus commercial sales would not go 2019. If you have a loss estimate is that there would be great.

First good morning, John how are you.

Good how long.

Well, John we're about 80, 85% military.

15 to 20 basically to call. It 820, something in that neighborhood of military versus.

Commercial.

Sure that predominately liana military side.

Okay, because it's so just wanted to make sure to so but 80% military 20% commercial now I have spent only supposed to defense sales to grow in 20 Twond.

I believe you to commercial sales given the current situation will probably be under pressure at least in the short term.

Is there anything encouraging that he may be able to say about the long term commercial sales from what you see at this point.

Well our involvement in the commercial side is really with a couple of platforms. You know I mean, we are heavily into the geared turbofan. That's the contracted they'll be published I believe back at the beginning in a year.

For $60 million five right your LPG going forward.

We don't expect that or at least from where we sit right now we don't expect that to slow down dramatically.

I think the need for that engine will.

Hi, heavy in the future. So that's that's a that's a pretty stable platform.

Oh, we have very little content on a on the 80 80 now we know that 80 80 does comedy twinning and at some point and a we're we're gonna be wrapping that up actually we've ramped up our for his contract, but we just got an extension.

For another year year, and a half as much favorable pricing that we've been doing this program.

And I I don't see that being sideline, so that that's not going to affect us that much we have absolutely zero content on the 737. So that has had a that has had no impact on your industries or Sterling engineering operations in any way shape or form.

So our content on their commercial side.

This is we're not at a great exposure is what we're saying.

Okay. That's great to hear I, just wanted to make sure just some clarification on that and.

Well, obviously being a more heavily into defense or like there's little loved the principal focus I get that way.

And then what is the current backlog I know, it's been the floating around 100 million what is the current backlog and how much of that is actually defense related.

Our current backlog.

18 month funded backlog besides it for a 114.7 just on their own it $15 million.

And Oh that what would you put the pipe for the defense more than 90% yeah. All the time items. It it's okay, great anyway defense side.

Okay, and the one thing being let you do have that that much of a defense backlog huh.

On the last call you mentioned that you purchased a four horizontal plays.

And that was in an effort to remove some of the bottlenecks in shipping product.

Could you called comment on the status of those leads and any further progress that might have been made and alleviating the bottleneck.

So we purchased two horizontal AIDS.

Purchased two okay, I'm, sorry, so to speak more exact horizontals and 45, hundreds and those machines are both fully operational fully staffed and they're running two ships and they do wonders with eliminating bottlenecks to that area than last year's Capex also included.

Our exploring mill Rocky.

Horizontal boring you know, which we've just retrofit it matches also running.

Commercial product on it right now.

Right.

Linda will be bought the street for all three pieces of equipment.

<unk> operational staff.

Okay. So what do you see or a leading alleviating the bottleneck or one can at least anticipate especially with the heavy defense spending that the.

But there should be a ramp up a a sequential ramp up in sales from at least in the fourth quarter.

We we are we are oh.

Forecasting a ramp up this year, obviously, there's a hiccup right now into system with this virus or simply at home knowledge can affect the supply base.

How it's going to affect the Oems anyhow.

As of right now you know there's a Boeing has.

Shutdown I sat on the West coast.

Doesn't have really had down much effect, you know, where we're seeing the Airbus I think just close in France for four or five teams for his deep cleaning and to do is working.

Some limited hours.

Can over in Sweden, Norway are also working on limited on a limited schedule.

We don't we don't know I mean, the gingerly given here is that just think blows over in a couple of weeks, which I don't know that's the case or not obviously on government can can't.

Give us more information but.

I can't see I can't see this thinking around for six months or I'd put it got its not are often a six months huh.

T I hope it now that ran I totally understand you have hired some some personnel in Q1.

You know we plan b that it for people to pay shifts we've added for people to nine ships since December.

So we are planning on on a ramp up.

Got it does end up in mind.

Remember were different than a retail store or a restaurant the demand even if.

We have a delay in shipments because one of our customers closed when they reopen we can make up that difference.

Oh, so okay, so they'll be like ER.

No we aren't considered in the central business, John So, which means we're going to be open open through this and it would be our intent to keep a the machining operations going Oh.

Pretty much at all costs and like I might just because you're saying.

You know, it's an opportunity to get ahead or even though you might not be able to ship. The parts. This week or next week, we'll have those parts <unk> go.

No. That's that's great to hear I went that was my next question I wanted to find out. If you know you were considered in the central business, where are you still our operational so that that was a good to hear that if I could switch gears here too the interest rates here.

Your interest cost 30, and 29 came it was about 3.6 million and that was at an average rate of about 9.5%.

Now in light of the current rate being around the world less than 4%.

Mike If I could ask you what do you believe interest expense will be in 2020 from what you see right now.

It'll be down by about a million $100000.

I got on million.

Okay. So we were 3.6, but are you looking roughly how did you see now maybe about two and a half million and that long.

That's correct.

Okay and just one final question it does anybody else I'll leave it open for them a the Roth agreement. The today, how much was raised from that agreement.

Oh I'm glad you asked.

That the rock agreement [noise].

Opened up so you so shares afford basis.

We raised about a million dollars, we literally sold 419577 shares.

So oh is it.

Okay that was 419 219000 shares.

That is that correct.

And that was approximately a million Ruth.

Great well, it's good to hear some some words of encouragement. These days here from a what's happening in your business.

That's all I have thanks for taking my call I'll leave it open to others. Thank you.

As a place for John Thank you for called.

Thank you we have no further questions at this time, but once again, if he'd like to ask a question Keith and I thought of on.

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It appears we have no further questions at this time so.

Okay.

So with that once again thank you.

Everyone for taking the time to be on this call today.

For your attentions and questions the management and employees of Air Industries look forward to continue to open 2020.

Neither these clothes.

Thank you Sir this concludes today's call.

Good for your participation you may now disconnect.

Thank you.