Q2 2021 Air Industries Group Earnings Call

Okay.

Yes.

Good day and welcome to the Air Industries Conference call. Today's conference is being recorded Air Industries group's Safe Harbor statement, except for the historical information contained herein. The matters discussed in this presentation contain forward looking statements. The accuracy of these statements is subject to significant risks and uncertainties actual results could differ materially from those.

Change in the forward looking statements see the company's SEC filings on forms 10-K, and 10-Q for important information about the company and related risks EBITDA is used as a supplemental liquidity measure because management finds it useful to understand and evaluate results, excluding the impact of noncash depreciation and amortization charges stock.

[noise] based compensation expenses, and non recurring expenses and outlays prior to consideration of the impact of the potential sources and uses of cash such as working capital items. This calculation may differ in methods of calculation from similarly titled measures used by other companies at this time I would like to turn the call over to.

Lou Lou Zone. Please go ahead Sir.

Thank you Travis.

Good afternoon, and thank you for joining us as we summarize air industries results for the second quarter and the first half of 2021.

Air Industries had a profitable second quarter and we are excited to discuss the results.

The strong performance delivered by our team was led by a significant improvement at our Sterling manufacturing facility and a more profitable product mix. It on a complex machining sector.

Net sales in the second quarter were close to 15, and a half million dollars, an increase of more than 82% compared to 2020.

Sales in Q2 of 2021 were the highest in recent memory certainly the highest since I became CEO.

Our gross profit increased by more than threefold from 333%.

This increase was significantly.

Secondly, greater than the increase in sales, which is to be expected.

And our gross margins as returned to normal for you.

Remember the second quarter of last year was deeply impacted by Covid.

For the 6 months sales were up about 33% and gross profit was up 57% again record setting results.

These strong results were helped by great improvements in our Connecticut operations at Sterling Engineering Sterling sales increased 25% for 2021 yields.

Yielding a positive operating income and EBITDA contribution.

Turmoil in the aerospace industry caused by the pandemic seems to be dissipating.

And our backlog is growing.

During the 6 months, we booked $49 million in new business in our 18 month fully funded backlog increased by $3.1 million or 3.5% to more than $91 million at June 30th.

I would like again to reiterate that our backlog represents firm orders from customers not unfunded hope for anticipated orders under long term contracts.

We are continuing a robust capital investment program last year, we invested over $4 million in new equipment, a total of 5 new major large machines.

We are budgeting, an investment of about 2 to $2.5 million for 2021.

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

And I'll return to open the call up for questions Mike. Thank you Lou.

Lew described we had an excellent quarter in 6 months.

I'd like to point out a couple of what I consider important points for us.

Gross profit in absolute terms and as a percentage of sales increased significantly.

3 and 6 months. They were 2 there were 2 main reasons for this for.

With higher sales higher sales absorbed more of our manufacturing overhead.

And our long island operations.

Debt complex machining segment.

As we mentioned before there was a change in product mix.

Add more sales of the higher gross margin that we had in prior periods.

Lew pointed out the.

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The good results of our Connecticut operations.

Sterling in Connecticut added about $500000 on gross profit and the increase in gross profit for the quarter.

So for the for the quarter Sterling sales increased by $650000 and gross profit increased by 500.

And that is really an example of moving work from long island to 2 Sterling, where it absorbs some of their manufacturing overhead plus their internal growth.

Showing a dramatic increase in AR.

Contribution to profit.

Our operating costs remain well controlled for the 6 months, they're down 5.6% over the prior year.

Operating income in the second quarter swung to a profit some $440000. This compares to a minor operating profit in Q1 and an operating loss in 2020.

For the quarter, we also recorded a net profit.

And for the 6 months also in net profit.

And Theres some balance some balance sheet changes I would like to discuss.

While there are no major changes in assets and liabilities.

Our accounts payable and accrued expenses declined by more than a million dollars.

Our inventory, which began to grow last year due to COVID-19 supply chain disruptions declined by club declined by close to $2 million.

Our bank debt since year end has also declined by $1 million.

So in summary.

Sales were up gross Profit's up operating income net income that accounts payable declined inventory declined bank debt declined.

On all a very good quarter in 6 months.

Now I'll turn the call back to Lou and I look forward for your questions.

Thank you Mike.

Let me close the call with a few thoughts.

We continue to add to our backlog and are optimistic in that additional long term contracts are coming due for renewal.

Our shops are buzzing with activity, we are operating additional overtime to all our employees.

We are actively looking to expand our work force in both New York and Connecticut operations.

We look forward to a strong second half of the year and anticipate that the improvements and enhancements. We've initiated will continue to generate strong results.

With that Travis I would like to open the call up to questions from participants.

Yes, Sir if you would like to ask a question. Please signal by pressing star 1 on your telephone keypad. If you were using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again for star 1.

To ask a question.

We have a question from John Noble.

Okay.

Hi, good afternoon, Mike and thanks.

Thanks for taking this call on my questions.

Good results good top line numbers, there to see 15 on a half a million.

And not really comparable connect last year's quarter, but it's almost 2 million on 1.8 million higher than the first quarter. So that was nice to see in that regard, but Oh I know you said that you were profitable could you tell us what the actual net income or EPS was breakeven or a penny a share.

Well be filing the Q tomorrow.

Tomorrow morning.

The debt in front of me right now, but we had EPS for the for the year about $90000.

For the quarter it was significantly higher than it was close to 225000.

225 for net income on an EPS was oh.

What what was well you'll file I think always got tomorrow.

Yeah, well it'll be okay.

It'll be on Edgar at 9 o'clock.

Alright, I'll be on on the lookout.

And for the past year your results have been adversely affected by reduced commercial aircraft business.

Which had a significant impact on your gross margins and <unk>.

With the pickup in commercial business, particularly in this quarter and.

And the recently announced it was $7.4 million order you had for thrust struts I'm curious where do you see your gross margins for the second half of.

2021, and beyond if you can even talk about that because I know they picked up to about 16, 8% in the quarter should we anticipate a higher number going forward at this point.

I'm not sure you get a higher number than that for the as a percentage.

For the balance of the year, if you look back on gross margin and in the way back by 2016.2017 was 18.

18% to 20% and I could see us getting to that percentage.

Either very very late this year or in 2022.

Okay.

No obviously sterling has a big part of that because when it was.

Was negative but this quarter was a positive gross margin you had the southern in regards to Sterling what was the gross margin on Sterling for the quarter I'm sorry.

The gross margin dollars, but for 156000 and about 15% and that compares with 8.

That compares with a $54000 gross margin loss.

On about 500000 fewer sales in 2020.

So that was adequate there.

It's twofold number 1 we have moved business we've moved manufacturing.

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From long island to Connecticut, and that absorbs kinetics overhead it doesn't generate any sales we transfer those costs at cost from Connecticut to long Island, and we recognize the Sam on the profit there.

In 'twenty.

2020.

Sterling had about $400000 in Unabsorbed.

Manufacturing overhead based on their sales.

By absorbing that.

Benefit and then adding on the benefit of their increasing their sales, we kind of get a double whammy.

And so if we can pick up half a million dollars on revenue was I'm, sorry, $650000 on revenue and a $500000 increase in gross profit.

That's pretty good.

John debt that was accomplished that was accomplished without really adding anything in capital expense here. So we moved we moved several pieces of equipment that we are that we updated in our Connecticut, and our New York operations here to Sterling.

Beginning about end of last year on into the first quarter of this year. So that move took place then and now all of that equipment is coming.

It's being used so it's a it's definitely generating on hours debt will eat into unabsorbed burden.

Alright, great.

Last call you mentioned that you were looking to hire more machinist I forget if it was C. N C. But I'm just curious how does that currently look as far as any hiring difficulties with the labor shortage. The countries is currently experiencing.

Also has this actually had an impact an adverse impact on your Q2 results.

Well you know overtime right now is almost unlimited at Air Industries. You know on our guys are are not working 40 hours a lot of them are working 55 and beyond so we've been able to we've been able to cover some.

Some of the shortcomings that way.

We are still we are still actively looking to hire I mean, we've been successful bringing in a couple of guys but.

We can use some more but you know I'm on the board of adapt in long Island and all the.

Factoring all the manufacturers are.

We are seeing the same problems you know we're on we're reaching Dean Hum.

The University high schools.

Training programs anything and everything that we could debt.

Think of to try to bring more people and so it's it's slowly but surely we're going to probably see a little bump up in September when the government.

The government programs kind of start tapering off and and people are going to be looking for jobs, they probably be an uptick on.

On activity.

But that's kind of what we are right now.

Understood I fully agree with that.

I just have 1 final question actually on what was when was it a couple of things that go Oh actually about a month ago and I know Sikorsky is responsible for approximately 1 third of your revenue in any given quarter or year.

I just wanted to for this question out because Sikorsky just received a $879 million Navy contract.

To build a heavy lift helicopters. So I'm curious if that is actually going to be a benefit to you where you is this kind of benefit air that platform or.

Is it in another area.

Well, we are we are intimately tied with Sikorsky and contracts, but just because they received it if and if we get any part of this we're talking ways down the road.

For the 52 B H.

The K for heavy lift we do a little bit on that and certainly that program is no ways mature at this point in time, but I'm sure there'll be opportunities for us.

Okay, well, that's great to hear and when you say a little bit down the road.

How long do you think like you know if they just received the contract would it filtered down to air.

I haven't seen this particular contract, but it's not unusual for a defense contract to be awarded today with deliveries for the at 'twenty 3 'twenty 4 'twenty 5.

Okay, well, great keep up the good work once again nice to see that nice jump in the topline numbers. Thank you.

Thank you John.

Just a reminder to ask a question. Please press star 1.

And we have no further questions in the queue at this time.

Okay.

Thank you Travis.

So with that once again, thank you all for taking the time to be on the call today and for your attention and questions.

Travis you may conclude the call.

Thank you Sir thank.

Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.