Q2 2020 Air Industries Group Earnings Call

But you still tight.

Welcome to the Industries conference.

Today's conference is being recorded.

Industries Group Safe Harbor statement.

That's true perforation gets into the matters discussed in this presentation contains forward looking statements.

These statements are subject to significant risks and uncertainties actual results could differ materially from those can change what do you think statements.

He's asking.

Forms 10-Q, 10-Q, four important information about the company I really didn't risks.

She was a supplemental liquidity measure because management such that you're supposed to understand and evaluate results, excluding cats noncash depreciation and amortization charges stock based compensation expenses.

Nonrecurring expenses please.

Federation of the impact potential sources and uses of cash such as working capital items. It's kind of course, you may differ in method of calculation for somebody movie titles measures used by other companies.

Turning to see whats your limit. So please go ahead.

Thank you James.

Good afternoon. Thank you for joining us as we summarize air industries results second quarter in the first half a year.

In addition to disgusting I results, we will also discuss the attacks with Golden 19 operations.

As we continue to navigate through the new normal work environment Youre thankful that our workforce the stays healthy insane.

Air Industries results for the quarter were significantly impacted by cold and maybe.

We have discussed before.

I could buy employee absenteeism.

In particular in April and met with reduced productions and our factories.

In addition, our subcontractors and supply base were adversely affected as well, including weighting heat treating painting to name a few.

During the quarter. Many other companies that provide the surface completely shut down for extended periods of time.

The combination of these factors impacted both production and shipping abroad.

Net sales for the quarter were just eight and a half a million dollars.

During the quarter and particularly in April and May we chose to maintain employment. It continued to produce products, even though it could not do you need to be processed and shipped that we need to stage inventory for a dime.

This caused our work in process with.

Inventory to increase by about two and a half million dollars.

Some of that sales and the increase in the in semi finished with inventory is roughly $11 million, which is much closer to our normal sales gobble up 13 plus million in the first quarter.

As you know air industries business was heavily concentrated on components for military aircraft.

Like commercial aerospace.

It has been little change in demand.

Got it.

We have had some cancellations and reductions in our commercial business.

We are still in U.S gaps by accelerating the production of military product.

Our backlog, which consist of strong orders only.

Only marginally reduced remains at about $100 million.

I would like to turn the call over to our CFO, Mike rack up for the financial recap.

Please turn to close the call light.

So as to set our results for the first quarter understandable, considering the disruption due the virus People's lives and on every other business in the country.

Sales for the quarter by 8.5 million.

36% decline from the prior year.

In fact on gross profit was more significant.

But declined by $1.6 million or 76%.

<unk> gross profit greater than a decline of cells.

Well clearly about employee absenteeism.

Back to quantify those.

Quarter.

Total manufacturing hours.

I was less.

Q2 2019.

Oh, he's fewer labor hours, we had under absorption of manufacturing overhead.

Yeah, we all that would be 98% of the law labor hours.

Kurt in April and May.

For the quarter operating costs were essentially unchanged.

Hundred thousand dollar one way or another.

Ah lowers your freight out banks that we mentioned before.

Radically that more than 50% reduced our interest expense.

992.

Only 19 due for 28 2020.

I have a six month sales were 21.9 billion.

The decline of 21%.

And again more than 90% of the declines the six months.

In the.

That's three months since the second quarter.

There's an operating loss that's one.

$1.4 million.

A 95% losses attributable to the second quarter.

The negative EBITDA for.

Do you feel you can see April for the six month was $894000.

We are in compliance of all the covenants of our loan agreement.

Oh, we expect to remain in compliance for the balance of the or beyond.

Well go back here [noise].

Thanks [noise].

[noise], let me close the call with a few thoughts on the remainder of the are you.

We recently made an announcement of a major investment in a good totaling about $2.5 million.

He's acquisitions made it very attractive prices will accelerate production and also greatly enhanced the work envelope of the product that we can manufacture.

And they seem counterintuitive to make investments during the disruption caused like overnight. Pete. So we are in dot enviable position of having orders and backlog did exceed our ability to fulfill the.

These new machines will be installed and operating in the fourth quarter.

Baby Flex archive the future.

This concludes the formal remarks. This afternoon I would like to open up the qual two questions from participants.

James can you be open up the lights. Please.

Thank you if you like to ask a question for you said no by pressing star one or the telephone keypad seriously speakerphone. Please make sure. Your mute function is turned off to a lot of smartreach our equipment.

<unk> for later when they can't whenever that is open again press star one to ask the question <unk>.

Well take our first question.

Hi, good afternoon, a little and Mike.

So I wanted to get into the second quarter was adversely impacted by employee Judaism.

And then what temporary closures, which is understood what the virus.

Your split suppliers facilities I was hoping that you could update us on on how these conditions currently looks.

Hi, John how are you, saying.

Oh good it seems like Alan this is starting to stabilize you know everybody's open for business right now I know some places that have had an attrition and what's your workforce.

We've been we've been lucky enough to maintain the workforce, but the most part the way. We were you know we Oh, we temporarily furloughed. If you guys. During the crisis during the highlight of this virus, but to be up since either higher back or brought those folks back and it was only a handful of people.

But it seems like.

All our so you know our soft years, our supply base. Our subcontractors. However, you want to column I getting back to the cadence that we were accustomed to.

Can you know probably got product, though that's been on that's been state by some degree it might be less folks.

They are are they are there and they are working.

Okay, not fully back as far as your suppliers are concerned but obviously.

Marked improvements since the second quarter I could take it.

That's the supply just in terms of absenteeism.

Turning to normal two or 3% on any given day or not if not around our absenteeism into factory is often the.

Historical levels, it's back to model.

All right and as I have a question with regard to your two and a half million dollar a machinery purchase orders here, which you said, we anticipate you'll be a raise at full a full long it in the fourth quarter, you're getting them obviously.

And this quarter, but I was hoping you could quantify how much should be a bottleneck put suppliers.

You believed that this machine you will alleviate or.

If I could put it another way what percentage or be a bottleneck would supply as well the new equipment be able to handle.

Oh.

So to put it as perspective, it's it's tough to give you a percentage, but I'm going out I'm going to explain how this thing works, though that the equipment that we purchased you know we purchased a new five axis machine that greatly enhances the size the capability of our product, let's say our largest product was off 48 inches or 50 inches. This this thing gets us to it.

Level, that's another well beyond that so it gives us access into other products that we were either not doing effectively or at all.

Or is it puts us in a ball game, we can quote larger work.

So it and also lived it eliminates bottle we have to smaller small we had been hot 800 millimeter talent machine in our facility. We always that we've had it for a while this is a thousand millimeter machine, which is the next step up in the hot in five axis machine.

So that that opens up some new doors. It takes out bottlenecks from the existing equipment that we had and Dol. It's obviously, it's got off although the newest technology isn't it all the bells and whistles in process inspection. It helps us really inspect apart without having to take it off the table.

Well it does it does a lot in that respect so that's one one piece.

The other piece, we bought two additional five axis machines, which were smaller in size.

Envelope there is about.

39, 40 inches, let's call it for all intents and purposes, but the beauty on these machines is what we call a light lights outsell [laughter]. The machines are integrated into a pilot system with Htwo 28 different palace.

Yes, or no are loaded on loaded all off Bob Optigrid, well, they've got separately, while the machines are working and you really can low 28 pallets with different work push a button and walk away for the weekends machine will inspect the parts of the machine will.

Ill tell you what it's done enough to the problems those the red light can stop the process. So it's called the lights outsell because it works it could work around the caught with the right work. It can work around the clock, which is another feature to air industries is not had in the past so breaks the breaking new ground. This type of work that we can do that we would have not been competitor.

I've been to pass it opens up new doors.

And the in the last piece of equipment that we purchased was a vertical hall and now we have a 48 inch capacity vertical whole now.

Yes, and it goes up to eight inches in diameter 48 inches inch in stroke. This new home goes 60 inches in a in a length in stroke and up to 16 inches in diameter, which again is for a product that we would have passed on into bass and now we couldn't you know we could effectively.

Let's see pulled that so it not only eliminates bottlenecks one home to to only because it could do smaller parts as well, but it gives us saw it gives us a door into bigger bigger product.

And this year obviously.

It won't take care of the entire bottleneck it sound like you're gonna have to outsource what would you say that it would alleviate that makes a significant portion of your current bottleneck right now.

It would definitely.

Well, yes, yes, so he would it would eliminate a bottleneck it would eliminate the risk of having one machine, but does that breakdown and be dead in the water.

And it opens up capabilities.

So.

It glazed it's it solves a couple of different things John.

Okay I just wanted to get an idea because obviously with the backlog I think you mentioned done.

Probably a comments, it's still floating around 100 million dollar Mark that's the firm backlog for 18 months correct.

That is correct yes.

I just want to get a handle on on that because so significant investments in the machinery, which is a good thing I mean, you know if you can alleviate that bottom like there's some percentage that such a great thing.

I I realize without that bottom like you could probably be doing if you took 100 million who visit over a.

Six quotas flatlined it'd be a big.

That's like the oldest 17 million dollar quarters on the top Loring. So that's why I was just trying to get a handle on.

How much of this.

Bottleneck.

Would be alleviated by these purchases she era forgive me for being your analyst trying to get a you know percentages from at or whatever if you have that that would be great. But I. Just bottom line is this is only going to help to get product out the door faster and to help to bring that backlog down much quicker if I could take the faster and more.

Faster and more efficient.

Yeah, Okay, I mean, there should be fully operational by the fourth quarters. What you said all the equate that to me.

Gains were available.

You know these machines does the Mitsui speaking a big five axis typically has a 12 to 14 month lead time, but.

Oh, and OEM cancel the an order because it a commercial business going away. So that machine. It's available right now in a warehouse. So we just poured the foundation in the last stuff. He made spot in the shop import the foundation last weekend. So it's got to drive struggle weeks and.

I think are first we are in September definition it'd be in our facility.

You have a good for you and I just have one final question, if I can get into the commercial business I know that's significantly depressed currently but is there anything to report regarding the long term agreements for the flush through us I don't like you love to really see that work flush drugs.

That was announced back in January it was significant I'm, just hoping that there's some life still to this you know as anything to report on this going forward that at least in the next.

Six months or so.

Yeah, we have been told to expect.

Shout on they've got strike order.

So not a cancellation, but say a reduction in requirements for the balance of this year and next.

That was still a tire finalized what that would be.

We've had that.

Event.

Further we have.

Parts for the Athree 80 that they had outright cancelled and that they would paying that say termination. The good news as we were.

Nearly done I don't know what the percentages. So a will be paid about what we would have been pays for as we finished the product.

Then these holes that had been created.

We've been able to fill by accelerating.

Military product military components that the government is willing to take that as we've gotten done.

It's been kind of.

Looking to.

Looking through the Q you did have some sales in the.

In the second quarter commercial sales, where the thrust strut order or contribute to any of that revenue in the second quarter commercial sudden.

Yes, we did that we didn't make shipments of restaurants in second quarter.

Okay, I don't have that could you quantify that up.

Oh I can.

Okay. All right. That's all I had thanks for taking my questions.

Well, it's a pleasure Josh Thank you John.

[noise], what's a good press star one if you have a question, we'll pause for a moment.

And I will conclude today's question answer session now I'll turn the conference silversmith <unk> so for any additional closing remarks.

Thank you James So with that this concludes my formal remarks, this afternoon and Vicki for calling in and so your attention and questions.

The conference has now concluded and I would like to.

James Please.

Thanks.

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