Q4 2021 Air Industries Group Earnings Call
Good day, ladies and gentlemen, and welcome to the Air Industries fourth quarter and full year 2021 Conference call. Today's conference is being recorded for Air Industries Group Harbor statement.
Except for the historical information contained herein the matters discussed in this presentation contain forward looking statements. The accuracy of 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 the important information.
About the company and the related risks EBITDA.
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 based compensation expenses, a non reoccurring expenses and outlays.
Prior to the consideration of the impact of other potential sources of uses of cash such as working capital items. This calculation may differ in method of calculation from similarity of titled measures used by other companies.
At this time I turn the conference over to Lou <unk> Lusso. Please go ahead.
Thank you Keith good afternoon, everyone and thank you for joining us today.
Our strong fourth quarter capped the year profitable growth for Air Industries group.
As we accomplished our goal of delivering continued improvement in operating results.
Consolidated net sales for the fourth quarter increased six 2%.
Same period a year ago.
<unk> full year sales to nearly $59 million, an increase of 17, 7% from 2020.
Further underscore our operating leverage while full year sales increased 17, 7% gross profit increased 57, 4%.
These times faster.
Gross profit for 2021 was $10 3 million for a gross margin.
<unk> of 17, 4% of sales.
This is an increase of four four percentage points or 440 basis points from 2020.
We expect to maintain or even improve gross margin percentages in 2022.
The profitability improvement flow through the rest of our income statement, which Mike <unk>, our CFO will discuss in his report.
121 was a year of important business wins they included.
Six plus million dollar in purchase orders to manufacture major landing gear components for Navy F 18 fighter aircraft.
We had held our license we have held a license to manufacture complete landing gear and related components for the F 18 for many years.
The $7 4 million dollar order for thrust struts, a critical component of the geared turbofan the GTS jet engine.
Our largest commercial aviation product.
This release was part of an existing long term LTA.
Long term agreement.
A follow on LTA to produce landing gear components for the F 35 joint strike fighter aircraft with estimated sales of between 12 and $18 million over a three year period beginning in 2022.
Yes, 35 is used by the U S of course, the Navy and the Marines.
Do some landing gear components used on all three variants of the aircraft yes.
F 35 is the military program of record and best in World Fifth generation fighter aircraft.
And an especially important win from a strategic perspective, our Sterling engineering subsidiary was awarded a new LTA to deliver chat pods for their new CH 53, K heavy lift helicopter.
With a minimum value in excess of $5 $2 million.
This was our first award for the latest version of the aircraft. This award furthers our goal of transitioning Sterling business from predominantly shop assist to make complete product produce under long term agreements.
I'm also pleased to report that we began 2022 on a strong footing with a number of.
Exciting New awards.
We took another step forward in our strategy for Sterling Engineering with its award of life of the program extension LTA for the turbine exhaust case component for the PW 4000 jet engine.
Which is used on many Airbus.
Airbus and Boeing commercial aircraft, including 30 and above.
Boeing Triple seven.
Contract extension is expected to generate revenue in excess of $6 million over its remaining term and it adds to our backlog in commercial aircraft.
We also were awarded a total of three new LTA for critical components for the Blackhawk helicopter with an estimated combined value of more than $20 million.
We are proud to have manufacturer of critical components for the Blackhawk for more than 20 years.
One of our goals in 2022 is to expand our product line.
Towards that end, we were awarded a contract to produce components for the landing gear of the U S Air Force's B B.
The value of approximately $1 9 million with deliveries in 2023.
While the order is from a long established customer it is for an aircraft platform today has not been.
The industry's portfolio for some time.
Finally, we were awarded a $12 4 million dollar contract to produce complete vein and those landing gear and ancillary components for the U S.
E <unk> advanced Hawkeye airborne early warning aircrafts.
We manufacture a complete ready to install landing gear as a tier one supplier to the Oems.
Excuse me deliver.
Deliveries will begin in 2023 and are expected to be completed in 2024.
In total, we received and announced new orders or long term agreements totaling more than $38 million in the first two months of this year and.
And we would expect to see the revenue benefits starting in 2023.
At December 31, 2021, our backlog totaled $75 million, a slight decrease from our year end 2022 2020.
Mainly due to timing between exploration of existing LTA is with a major customer and its recent restart.
As I reported on our last earnings call. We have continually improved the composition of our 18 month backlog since 2020.
Which is comprised only of firm fully funded orders from our customers.
To support our on time delivery efforts enhance our self sufficiency and efficiencies and improve our profitability. We began deploying a robust capital investment program starting in mid 2021.
Our capital investment in 2021 totaled $1 million. So far this year, we have written purchase orders for one $2 million.
We are currently we currently have two large new machines cost then.
$435000 each on order and explain to order a third machine costing between $810 million in the next few days.
We have previously discussed our initiatives to bring processing product in house.
Our first process to bring in house as Paty, we expect to complete the paint booth in the next few weeks and begin painting product shortly after.
As I said in today's release.
We intend to continually invest and modernize our equipment, enabling air industries to manufacturer with world class product more efficiently and more profitably.
Before I turn the call over to Mike Gregg I wanted to emphasize another point in today's release.
Air Industries business is overwhelmingly military aircraft.
The tragic events in Ukraine had reinforced the necessity and <unk>.
You have a strong ready to fight military.
Air Industries.
Manufacturers of critical components.
Opponents that are used on many if not most of the U S frontline fighter aircraft.
That the state of your F. 35 aircraft has recently been deployed to put in the U S basis to the Baltic States and the Black sea to bolster defenses of our NATO allies.
Let me further emphasize the pride.
All of US at Air Industries group that our products are supporting our war fighters and their crucial mission.
Yeah.
Thank you for your attention with that I would like to turn the Saab.
Call over to Michael <unk>, our CFO and then we will follow up with questions and answers Mike. Thank you Lou.
This was already discussed sales and gross profit for the quarter and the year. So I'd like to focus on some additional operating results and on the balance sheet.
First gross profit and I'll explain how we calculate gross profit historically, we have used let's call the gross profit method.
And what that means is for interim periods, we estimate gross profit using historical gross profit on the prior year.
Now during the year, we may make some small adjustments to that.
And sales volume.
That's the absorption of cost or a change in product mix or some other factors, but essentially.
Last year, especially was this year.
At the end of the year typically in November we have a complete inventory count and valuation.
Following that we then adjust.
Or true up the gross profit for the fourth quarter and the full year.
This year 2021.
Adjustments from the inventory count was an increase in gross profit of $1 $2 million. This increased the gross profit margin by four four percentage points as Lou discussed a little a few minutes ago.
Primary driver for the welcome increase in gross profit.
It was a change in product mix in 'twenty 'twenty. One we were in the last year of an LTA for a product whose cost had significantly increased overtime.
Essentially rendering that project breakeven at best.
Sales of that product have decreased and we were able to replace those sales.
And use resources, such as labor and like to replace those sales with product carrying a much higher profit margin.
Now this.
Zero profit product is back in the recently, we've seen the LTA, but at a much higher price.
We will no longer be a.
Zero or loser.
Our operating costs in 2021 remained very well controlled.
Modestly increasing by about 2% for the full year.
As achieve even in the face of 17% growth in sales.
However, we are alert to increasing inflationary pressure in 2022.
Our focus on minimizing any increase in operating costs.
So gross profit was up.
Operating expenses are flat.
Down.
So operating income for the year 2021.
It was improved to $2 5 million.
Compared to a loss of $1 6 million in 2020.
We have a $4 million swing.
And operating income.
Net income for the full year was $1 6 million.
Last year in 2020 net income from continuing operations was $1 3 million.
But there's one 3 million included $2 4 million of income on forgiveness of the PPP loans.
And an income tax benefit of $1 4 million due to a tax refund from.
From Covid related tax law changes.
Those two items, we had a net loss of $2 5 million in 2021 'twenty 'twenty.
Net in 2021, we had net income improved by about $4 million.
To operating income.
Our EBITDA.
Adjusted only to exclude stock based compensation totaled $6 2 million.
And finally in double digits 10, 6% of sales.
We ended the year with a strengthened balance sheet awesome.
Inventory, which had increased significantly during the COVID-19 disruption of 2020 was reduced by $2 6 million.
It sounds payable and accrued expenses.
Well controls they had been reduced by $2 4 million or nearly 25, 26%.
And are now 36 days of sales outstanding compared to <unk> 56 back in 2020.
Our revolving credit line and term loan with Webster Bank.
He was formerly called Sterling National Bank.
Were reduced by a combination of $4 4 million also 22%.
Now since we got the.
Sterling Webster alone in 'twenty January of 2020, we've been in full compliance with the financial covenants since inception.
I think this combined with our improving results and our improved balance sheet goes Webster to extend the maturity of our credit facility, both the revolving credit line and the term loan by three years to.
To December 31 2026.
Approximately four years from today, so we have a long term relationship with Webster Bank.
However.
Yeah.
Mechanical rules require us to consider the revolving credit line.
Current liability as opposed to a long term liability.
If we reclassify that debt credit line to long term, our working capital was about $32 million a year and certainly sufficient.
For us to execute the plan.
Oh I have so I'll pass the call back to Lou.
Two questions.
Yeah.
Thank you Mike.
Let me close this portion of the call with a few thoughts.
Fourth quarter capped a year of growth for air Industries group.
Executed on our growth strategy pursued our goal of continued improvement in operating results.
<unk> started 2022 on a strong footing with important and strategic wins in the first two months of the year.
As we look to 2022 first quarter revenues will be lower than that of a year ago, mostly due to timing differences and otas and some scenery lingering supply chain issues.
However, our profit margins should be significantly above Q1 of 2021 and should offset the first quarter revenue trend.
We expect to deliver our full year revenues equal to or better than last year, accompanied by continued strong margins throughout 2022.
Bottom line Q1 profitability will be up on lower revenues and will be a more profitable company in 2022, and we were in 2021.
With that I'd like to thank everybody for their attention and at this point I would like to open up the call to questions from participants Keith can you open up the call. Please.
Yes.
Ladies and gentlemen, if you'd like to ask a question star one on your Touchtone telephone. Please star one for questions, we'll pause a moment to assemble the queue.
Yeah.
Star one for questions or comments, please well take our first question.
Please go ahead.
Yeah.
Good afternoon, Lu and Mike Thanks for the call. Thanks, Thanks for taking my questions.
First of all congratulations on the recent orders announced over the last two months. So it was pretty significant.
I didn't catch what you said the backlog was at December 31st.
Just like to get that number and if you could even update us as to what the current backlog is now being that you have these orders that came in at $38 million over the last two months.
As of December 31, our backlog was $75 million.
70, <unk> your orders they came and now we're in the midst of putting them because we only we only look at our backlog from an 18 month perspective. So some of this some of this falls out. So we are we're working that out now John .
And John I remember on LTE as we May get a five year LTA.
I'm, making this up 5 million Bucks.
But against that we've got 300000 in order is immediately 300000 goes into our backlog and that's a $5 million and John when.
Are you looking at the 18 month number for that backlog, even though it's going to be a good five year number.
Right and what I am saying John is we don't put our numbers in our customers our do it for us they put it into the portal as to when they expect this product. So they are in the midst of doing that.
Okay I understand thanks for the explanation Mike on the.
The gross profit you had to true it up by about $1 2 million in the fourth quarter to true it up for the prior three quarters because.
You kind of guesstimate looking at the prior year, what the gross profit would be now that you have this.
This situation is typical like last year in the fourth quarter, you actually true up or true down and if I could say I don't know what it was at that time. This.
This is going to be like an ongoing thing in the fourth quarter, where you really just to make sure that your gross profit is accurate.
Yes.
We are moving increasingly to a monthly real time reconciliation of gross profit were not there yet.
Historically after the gross after the.
Inventory in the bag they realised evaluation.
Not counting the inventory the inventory accounts were always.
Remarkably accurate 99, 5%.
The lower cost of market adjustments, which in recent years have gone against us.
Cause prices have been going down they are no longer going against us.
But the.
This is one of the larger adjustments we've had.
So.
I don't expect that to be repeated next year.
I think we've.
We've had.
Order of magnitude, it's usually a couple of hundred thousand it gets lost in the noise.
We had inklings that gross margin was better this year than it was last but we wanted to wait to the inventory to be certain ever before.
Releasing it.
Okay.
On the last call.
Brought up and you said that there was a.
Potential amount of shipments that were anticipated for the third quarter that was going to be pushed into the fourth quarter, which you just reported I was wondering if you could actually quantify.
Does that amount or roughly quantify what that amount was.
If there was any substantial amount that was anticipated to be in that fourth quarter that might ask.
Actually be pushed into the first quarter of 2022.
No John we've we've cleared the decks.
Nobody nobody nobody likes push outs. So we were we were pretty diligent cleared the decks starting a new year.
Okay.
In Q3, I know the press release, it said that you had an improvement in your overdue product.
It was actually showing up to be less than 12, 5% of your backlog.
Which was a nice improvement obviously you want to have zero percent, but in Q4 was there any further improvement in this overdue product.
Yes, there was I don't I can't quantify it for you exactly John now, but I'd be happy to get back to you on it but.
But you'd never get to zero overdue.
Okay, but but obviously.
Our customers are.
Would be happy to see that go down so it was an improvement over the last year Atlanta excuse me last quarter's number of 12, 5%.
That is correct.
There's some stuff in the right direction there.
And if we get cut.
'cause it customers pause past dues.
Okay, well single digits better than double digit so hopefully just as normal.
Is that right.
Hey.
Over the past year, how much of your product processing was done in house.
How much more do you believe you could process in house in the current year 2022, with the capital investments that you projected to be made this year.
Okay. John that's two different two different questions here last year, we processed zero amount of product in house, because we don't have a processing plant well, we saying about processing, we're talking about things like.
Metal plating shop painting painting, we didn't do any of that so we've set up a paint booth up at Sterling that we're in the tail end of getting this thing certified and in not in action. So obviously, what's a plane with supply chain disruption ovens that we ordered months ago. They were supposed to be in late last year have still have just arrived.
So we're moving forward, we're moving forward with that so once we get painting and done which is going to be hopefully before the end of Q1 or very close.
Leanne.
In April we will we will take the next the next step which will probably in house grinding nidal edge.
Eventually over next couple of years, we plan on getting as much as we can put under one roof and accommodate done so it's going to be an ongoing thing will still be rollout.
Absolutely.
For some things that we will never put under our roof, but any.
We can't keep control over and it's environmentally friendly with the with the state and the laws of the land we will do.
The bottom line is it's only going to help or reduce.
Our bottleneck with the suppliers.
The more you can bring in house obviously.
It's more than yeah and scheduling.
Nice to know that if a product goes out to paint youre going to get it back in two days or two hours instead of having to go out to paint and.
You get your Q in line and in a couple of weeks they call you and say it will be.
[laughter] delayed further.
Scheduling problem.
So okay.
I just have one further question here.
I know that your gross margins are really sensitive to the revenue levels in the turbine engine segment.
Just curious to get your outlook or the prospects for this segment this year 2022 and beyond.
Well you know.
We thought we brought on two additional personnel and business development. So we brought up guy on the West coast that actually works right on the outskirts of Hill Air Force base and the ease of handling all of South America, the West coast and anything else that we can throw at them and we brought a guy in.
For our Sterling facility.
About.
I guess it was August September of last year, and it's really starting to gain traction.
With the new new opportunities and new prospects.
He has brought on board and obviously, we've had some quoting activity.
Is that getting reviewed and we made tremendous tremendous help we finally, we're doing a foreign spiral air show this year in July which any air show there hasn't been any activity out there. So we're really stepping up the business development side of things to be able to make up for Covid lost ground where people.
Or just taken calls instead of seeing you.
So we expect we expect that all of these actions will have some results.
Okay. So your turbine engine segment.
Think of that I think predominantly.
A lot of commercial aircraft.
Yes.
Yep.
Excuse me.
Now there's a lot of military.
Jet engine products here also.
Okay, but.
Dominic Lee.
Commercial segment your commercial sales are in that segment.
The only commercial product that we have currently on long island is the thrust struts and then the remaining commercial business is up at turbine engine, but it's not.
If it's 50% 50 50 up in Connecticut, that'd be surprising is more skewed to military.
There is commercial up here, yes.
Okay.
Really what I'm looking at is because obviously commercial sales.
When COVID-19 hit back in 2020.
Really impacted the sale.
Sales to that.
That market by 2021 opened up and it looks like 2022 should be even a further opening up on that so I was just looking to see what your outlook is as far as the commercial end of your business in 2022.
And that's that's a true statement John we are seeing some activity for RF or for proposals on commercial product things that we had not seen a year ago.
So it's I think it's a matter of time before.
Orders get placed.
Okay, Alright, that's all I have thanks, Mike Glu for taking my questions.
Hey, guys. Thanks, a lot.
As a reminder, star one for questions you will hear a voice product. When your line is open. Please state your name before posing a question.
We'll take our next question from.
Hello, gentlemen, my name is Paul and I've got a question for you.
What is your cash position right now.
I don't Paul.
We have we run a zero cash balance.
Basically what happens is every collection that we get from our customers paid down our credit line.
And then we.
We borrow daily borrow against the credit line to cover checks that we've written so.
Any given point in time, our cash balance basically our advances we've taken from the credit line, but checks haven't been presented and cleared yet. So I think the better measure is what is our availability under that credit line and today at year end it was about $3 million and today, it's about the same.
One more question.
Is there any interest at all in buying back shares.
Not at this point.
But we have we have talked about that but it's not.
It's not something we're going to do right away.
That's all I had thank you very much.
Thank you for the call.
Star one for questions, we'll pause a moment to assemble the queue.
It appears we have no further questions at this time.
Okay.
Thank you Keith.
So with that once again, thank you all for taking the time to be on the call today.
For your attention and questions. We look forward to updating you on the progress of Air Industries group on our next call.
Operator, you may conclude the call at this time, Thank you Keith for your time.
Thank you ladies and gentlemen, this does conclude today's conference. We appreciate your participation you may now disconnect.
[music].