Q3 2021 Air Industries Group Earnings Call
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.
These statements are subject to significant risks and uncertainties.
Actual results could differ materially from those contained 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.
Excluding the impact of noncash depreciation and amortization charges stock based compensation expenses and nonrecurring expenses and outlays prior to consideration of the impact of other potential sources and uses of cash such as working capital items.
This calculation may differ in method of calculation from similarly titled measures used by other companies at.
At this time I would like to turn the conference over to Mr. Maluso.
The loser President and CEO, Sir please begin.
Thank you Chelsea.
Good afternoon, everyone and thank you for joining us as we summarize air industries results for the third quarter and the first nine months of 2021.
Net sales in the third quarter were about $14 $5 million, an increase of more than 5% compared to 2020.
For the nine months sales were up about 22%.
Our gross profit continues to improve increasing by nearly 22% for the quarter and 44% for the nine months.
Any chris's increases are significantly greater than the increase in sales illustrating our earnings leverage.
Despite the local and global supply chain disruptions, we have made significant progress in improving our on time delivery of product to customers.
It's 2020, we have continually improved the composition of our 18 month backlog, which is comprised only of burn fully funded orders from our customers.
Our overdue product to customers has declined considerably and more apart orders have taken their place.
Overdue product now accounts for less than 12, 5%.
The funded backlog and we will continue to decrease in the fourth quarter.
We are continuing a robust capital investment program, and our budgeting and investment of two to $2 $5 million in 2021.
We have already spent roughly a $1 million and are expecting a delivery of additional machines by year end.
The pandemic served as an important reminder, about being self sufficient and because of that we are wrapping up and aggressive in house processing initiatives.
Over the next two years, we plan on bringing in.
Bring it in house several outside process that have slowed down our production in the past.
Did these outside processes are heavily regulated and require special permitting so patients and a constant push that required.
And we will gain more control over the products we manufacture.
I would like to turn the call over to our CFO, Mike SEC Gov for a financial recap then I'll return to open up.
The call for questions, Mike Alright, Thank you Luke.
We've already discussed sales and gross profits.
I'd like to focus on some other operating and balance sheet metrics.
Our operating costs remain well controlled compared to 2020 for the quarter operating costs were flat with the prior year.
Nine months, they were down close to 5% so.
Inflation that seems to be emerging in the economy at large has not yet had an impact on our operations.
As a result operating income in the third quarter was positive.
It grew by over $400000.
In 2021, we had a profit of $178000 compared to a loss of nearly a quarter million dollars in 2020.
For the nine months operating income improved by $2 2 million.
In 'twenty, one we had a profit of more than 600000 last year, we had an operating loss of one 6 million.
I also like to point to some changes in our balance sheet, which I think are very positive that occurred during the quarter and the nine months.
First and foremost inventory due to all the disruption to 2020 inventory has been a problem since early in the year.
Our inventory grew by some $5 million from about $28 million before the pandemic.
To a high of $33 million.
Inventory has now declined to below $30 million in there.
Down close to $2 8 million or 9% since year end and we think this is a major improvement.
Our accounts payable and accrued expenses since year end have declined by nearly $1 $6 million.
About 15%.
AP and accruals now are about 45 days.
Sales outstanding, which we think theres, a pretty good pretty good level and metrics.
So between cash generated from operations, reducing inventory on the balance sheet changes, we've been able to reduce our debt, which is principally bank debt by about 3 million Bucks. So.
In summary for the third quarter and the nine months.
Sales gross profit operating income all improved inventory declined accounts payable declined.
It declined.
Okay.
Okay.
Lou and to your question.
Thank you Mike.
Let me, let me close the call with a few thoughts.
Despite the disruptions with transportation rising fuel costs shortage of qualified workers.
The new vaccine mandate for federal contractors in general and general World of uncertainty.
Our industry has delivered a solid quarter as profitable for nine months of 2021.
The new equipment, we purchased earlier in the year is proving its worth and reducing both cycle time and improving bottom line results.
We look forward for continuing on this journey of improvement for the balance of the year.
With that Chelsea I would like to open up the call to questions from participants if you may yes, Sir.
At this time, we will open the floor for questions. If you would like to ask a question you may do so by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
A voice prompts on the phone line will indicate what your line is open.
Be sure to state your name before asking a question again that is star one to ask a question.
Our first question.
Okay.
Hi, Good afternoon Lewis, Mike, It's John <unk> from <unk> brothers.
So a couple of questions I appreciate the.
I appreciate having the call.
I just wanted to start with what is the current backlog I don't know either as of September or today.
Okay.
Bob.
Our current backlog is just about just above 80.
Hi, <unk>.
82 ish Scott.
Okay. So about $82 million currently and were there any shipments that you anticipated for Q3 that we're gonna be you believe we're going to be pushed into future quarters.
Well, John we have that kind of off every quarter.
Every quieter as Theres something that pushes we've got enough work in the works that we kind of have that built into our into our budgets.
So it's not a perfect world. So we've always got more than.
More than we think we can do just for that for that to happen. There's always there's always tie ups here theres tie ups, there, there's literally hiccups along the way.
Okay, sometimes small sometimes it's major but.
That's something we live with.
Alright.
Would you classify it as either smaller major or somewhere in between for the third quarter.
There was a substantial amount.
This quarter it okay, good and quantify it exactly but.
Anecdotally there was a lot of product that just didnt get in.
It was tied up in processing or other delays kind of slipped as theirs.
We describe it slipped to the right.
Sometimes John you have questions out to the government and how quickly they react so.
Alright.
Do you anticipate in a word.
Into the fourth quarter, we anticipate the fourth quarter number is looking better than the third quarter.
Yeah, Yeah, so I would see an improvement.
Okay.
Okay, and you mentioned your prepared comments that.
Projected to make anywhere from 2 million to two and a half million dollars in capital investments on new machines.
In an effort to grow your in house processing so.
So I believe you said you've already spent a year to date approximately $1 million. So just doing the math if we're looking at about a 1 million to one and a half a million dollar a fourth quarter in our investments in these machines is that correct, yes, that's correct John.
I mean, the path, we're taking we got out and we got a big wave coming in hopefully in the next couple of weeks I went down to.
I went down South to go look at it just last week I was on a road of late is ready for shipment it should be here.
Sometime in maybe the third week in November.
That will be installed so that's that's part of the spend that we've already put in place said.
Third in order to gain more control over our destiny. We are we have decided to bring in some in processing.
At our Connecticut facility, we've carved out about 23% to 25000 square feet of space.
We are currently setting up a paint booth.
I already hired I already hired people for it.
So that's kind of in the works.
And after that we're going to look at other processing like brightening Nidal etch MDT sharp pain now granted the disease.
Processes are heavily regulated.
You ever tried to set up a paint booth there is a lot of permitting.
With both.
State.
Town, there's just a ton of stuff that you have to go through but we are chipping away at it.
And once we get that that under our belt, we will what we will start the next process but.
We're never going to be a chromeplate shop or a net.
Baghdad cap or.
Tad plate and stuff of that nature, but there's a lot of processes that we could not we could do ourselves to make life easier.
And.
Get a better inventory turn and in the course of doing it.
And besides just faster more more dependable.
As you know right now.
Something has to be processed and historically has taken two weeks call in two weeks and they said well we're going to get to another week in the coming two weeks after that and then I've got a three week or four week.
Yes.
Hole in your budget, if you will now exclude our plan and tremendous tremendously.
No. That's a good thing I agree as much of in house processing as you could do obviously I know your backlog is very healthy and I know in the past you haven't been able to it's an 18 months the firm backlog.
It really has been hindered by a what you call a bottleneck with all the suppliers. So the more I guess you can do in house.
The better chance you have of actually shipping out in 18 months backlog in that 18 month period.
I wanted to.
Over the summer we saw a bit of.
It eased up a little bit because the commercial side of the business is.
Very very almost non existent. So these places we're able to service us a little bit better, but how long is that going to last so we're.
We're planning for the future commercial will come back and when it does then we're just going to be a number. So we would we want to we want to charge of our destiny.
Okay.
I wanted to ask a question about the the CH 53 helicopter I know you had a press release not that long ago. It was a.
$5 $2 million long term agreement for the helicopter.
That was based on existing orders. So I was just curious is that existing order base.
The initial production of four aircraft that is scheduled for 2022.
Or is the those existing orders based on.
The projected increase in our production through 2026, I just wanted to get a feel for what exactly what the existing orders for the helicopter that you had in the press release stated that it was based on.
Was it four or are we looking at the long term of I think it was going up to I don't know if it was 15 in a couple of years.
I believe is closer to 10-C, it's not for the four aircraft in the next couple of years, but rather the first.
Low rate initial production.
Now that is that that $5 2 million is at the minimum that our customer said.
That they will be producing and that we should be prepared for upside additional orders beyond that.
This helicopter, we'll probably have additional orders both in the U S military and foreign military sales.
It's a new platform correct.
Yeah, the derivation of 50.
<unk> three has been around this is the K version.
Mhm Okay.
So.
So based on existing orders of approximately 10.
These helicopters.
Just wanted to get an idea because you got four in 2022 I know the press release says knowing in 2023 that already and so over time that's 13.
And you're increasing.
To 15 aircraft I believe annually by 2026 so.
That does conclude rock bottom.
We're very conservative on the numbers that we put out we know that theyre going to sell bar helicopters and what we state in the in that release.
Again. This doesn't include any foreign orders any any anything.
So look we know that there is going to be a ramp up in this in this thing once we get off this initial Brian.
That's what I was getting to I just wanted to make sure that I was thinking about this correctly like this is a start but at this point $5 2 million exactly.
Exactly correct, Okay, and just one more question here.
Did your Sterling subsidiary show a positive gross margin in the third quarter.
You know I know the Q will probably have that broken out but.
I was also curious what that gross margin is for sterling into third quarter, because I know, it's always hindered your overall margins when it shows up negative, but not only in the third quarter Oh.
Oh I'm sorry.
Got it.
I just besides the gross margin for Sterling in the quarter with the new $5 $2 million long term agreement for this helicopter.
Just wanted to make sure that if you expect sterling gross margins to improve going forward.
For the third quarter I do not believe is still I think Scott I am pretty much broke even on a gross profit basis.
They had a solid gross profit for the nine months.
And going forward between the internal production.
Production and the addition of this CH 53 order growth.
Gross profit should be very solidly profitable hence forth.
Okay, because I know that has a big effect on your overall gross margins when you have either breakeven or negative gross margin in your Sterling subsidiary Alright.
Alright, so ER in the fourth quarter, we shouldn't anticipate oh, so showing some revenue from this.
CH 53 K.
Negative John.
Because we got an order does I mean, we're producing it tomorrow.
It's long lead items.
So they're okay, where we're at.
Development with it right now youre going to see revenue youre going to see some revenue on it sometime next year, but youre not going to you're not going to see it in the fourth quarter.
Okay, Alright, alright, well thanks for that that's all I have thank you.
John Thank you for the call.
Again that is star one to ask a question.
Alright, and speakers we have no further questions in the queue.
Okay.
Thank you Chelsea.
With that once again, thank you all for taking the time.
To call in.
And for your questions with that Chelsea can you. Please conclude the call yes, Sir.
Thank you ladies and gentlemen, we appreciate your participation. This concludes today's teleconference and you may now disconnect.
Okay.
Yes.
Okay.
Okay.
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Okay.
Thank you.
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