Q2 2022 Astronics Corp Earnings Call

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Greetings and welcome to Astronix second quarter 2022 financial results goal. At this time all participants are on a listen only mode. A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Craig Mahalik, with Investor Relations. Thank you, you may begin.

Yeah, thank you and good morning everyone. We appreciate you joining us here today on the call with me, our Pete Gunderman, our chairman, president and CEO and Dave Burney, our chief financial officer.

Should have a copy of our second quarter 2022 financial results which we released earlier this morning. If not you can find the release on our website at extronics.com.

As you are likely aware, we may make some forward-looking statements during the formal discussion as well as during the Q&A session.

These statements apply to future events that are subject to risks and uncertainties, as well as other factors that could cause actual results to differ materially from what is stated here today.

These risks, uncertainties, and other factors are provided in the release, as well as with other documents filed with the Securities and Exchange Commission.

You can find the documents on our website or at SEC.gov.

During today's call we'll also discuss some non-GAAP financial measures. We believe these will be useful in evaluating our performance.

Should not consider the presentation of this additional information in isolation or is a substitute for results prepared in accordance with GAAP.

We have provided reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release.

With that, let me turn it over to Pete to begin. Thank you, Pete.

Thanks Craig and good morning everybody.

As in most quarters, there are some good things to think about or good things that happened in the second quarter, and there are some things that are a little bit more concerning or maybe watch items going forward.

I've organized my comments today to talk about the good things first and the watch items or bad things second.

And then we'll go to Dave for some specifics on a few topics, and then we'll do questions and answers afterwards.

So the positive things, when I look at the second quarter, there are a couple things that really stand out to me. One is that demand continues to be pretty strong for our business and for our products.

Second quarter bookings were 148 million. That's slightly off the pace of recent quarters but was still a book to bill of 1.15.

leaving us with another record backlog of $494 million in all-time high.

This continues the trend over the last year. Over the last four quarters, we had bookings of 655 million against sales of 473. That's a book to bill of 1.38. Very strong in our experience.

The important thing to recognize about the bookings that we've experienced to date is that for the most part, it's really a groundswell of business kind of across the business as the aviation industry.

particularly the commercial transport industry, comes back to life. There are no big blockbuster.

bookings that inflated those numbers, it's really much more of a groundswell of business across the company.

Again, a book to bill of 1.38 over the last year.

That being the case, in the second quarter we did announce some major program wins, which we think are going to be real important for driving our volume in the near future, but again did not contribute meaningfully to our bookings in the second quarter.

they will turn into bookings in the current quarter, or the fourth quarter, or the beginning of next year. And those three awards in particular that we released.

News about involved in seat power for Southwest Airlines, one of the world's most prominent.

airlines, obviously, and one that has never used our NC power product before. That's specifically for – Well I guess it soundsawnag

their 737 MAX aircraft which they run a bunch of MAXs now. They're going to take deliveries of quite a few more over the next year or two.

We also announced a...

SATCOM hardware award with Safran which is going to be primarily originally for Airbus aircraft.

but will be extended around the world. We think this is going to be a meaningful contributor to our progress also, but again, did not meaningfully contribute to second quarter bookings.

Finally, we were awarded the electrical distribution.

system for the William aircraft, which is our first major eVTOL announcement. eVTOL's electric vertical takeoff and landing.

There are a bunch of other acronyms that describe that kind of aircraft, but...

Most of you are aware that there's a bit of a rush going on around the world with a number of companies developing electric aircraft. And it happens, as we've discussed before, that our electrical system design expertise is very applicable.

to this class of aircraft and we expect to play a prominent role in it.

recognizing that reasonable people can differ over the timing and magnitude of how that industry is going to take off.

We're pleased to be on the Lilium team, and we're running hot and heavy on that one, and we'll continue to do so for the next year and a half, two years, as they work towards certification. We'll continue to do so for the next year and a half, two years, as they work towards

So demand is strong, has been strong, continues to be strong, and it's starting to drive a ramp in sales volume. And that ramp...

was beginning to show signs in the second quarter, we expected to

step forward and become more of a driving force in our results in the third quarter and fourth quarter as we close out 2022.

Second quarter revenue of $129 million.

is really a step up from where we were for the previous four quarters when we averaged 114 million.

So 114 million stepping up to 129 we think is an important indicator of where we're going.

The second quarter was actually our highest volume since the pandemic took hold in the first quarter of 2020.

And as I said, we expect the revenue ramp to accelerate in the second half of the year, the current quarter and the fourth quarter.

We revised our full year guidance to be 550 to 580 million.

The midpoint there implies average quarterly volume in the second half of 160 million.

It's going to weigh it a little bit towards the third quarter, towards the fourth quarter, third quarter being a little lighter, fourth quarter being a little heavier, but that's what we are thinking our average will be in the second half of the year.

So when you look at it sequentially,

We averaged 114 for the previous four quarters, 129 in the second quarter, and we're thinking we're going to average about 160 million in the second half here. So it's quite a ramp. We are depending on how far these models of collectionport infrastructure go, what age

It gets us also if we're successful within spitting distance of where we were before the pandemic struck when we were routinely in the $175 to $200 million range.

So if we can close the year being.

at or near 160 million on average.

will be within line of sight of where we were pre-pandemic.

There were some negative items, of course.

And they are significant also, nothing unique to our business, but more a sign of the macroeconomic situation that's playing out in many companies in our industry and around the world.

Supply chain in particular continues to be a struggle, especially with electronics.

but with other items also. We described it, I think, in past calls as a bit of a whack-a-mole kind of game, where you think you have things under control and things pop up last minute that causes delays or missed shipments.

We continue to see those kinds of pressures.

In the second quarter, we expect it's going to continue in the third quarter and fourth quarter.

In the second quarter compared to where we started out,

ended up deferring shipments or delaying shipments to the tune of about five or six million over the course of the quarter. We thought we might end up.

We were shooting for about 135 as the quarter began. We ended up at about 129.

There is some reason for optimism. Most of our operations report that at least things are not getting worse. They've stabilized and in some cases seem to be getting a little bit better. That lines up with what a lot of people are reading in the press.

particularly dropping demand from other sectors for things like electronic components might give reason for hope for our business where we're a little bit more of a niche player and we use some high reliability electronics which are a little harder to get, but if the world in general relaxes a little bit in terms of demand, we expect that'll trickle down to our type of business also.

The supply chain struggles are also the major reason for revised revenue guidance. We up till now have been talking about 550 to 600 million.

revenue range, top line range, we're taking 20 million off the high end of that range. We're keeping the low end so our revised

Range is 550 to 580.

that midpoint, if we're successful, will be 565. And if we were to hit that –

that would represent about 27% growth over 2021. So again, we think that would be a...

a strong step in the right direction going forward.

Second item that's kind of on the negative side is that labor shortages still exist. The great resignation is how people refer to it typically. And we are not immune from these pressures. We're experiencing turnover, have experienced turnover like a lot of other companies and have had troubles attracting people more so than before the pandemic. Ok.

The good news here is that we think pressure does seem to be lessening a little bit, that we're finding an easier time bringing people on board. People today are not our limiting factor in terms of deliveries. We do not expect them to be going forward. Supply chain will be a bigger struggle, we think, at least through the rest of this year.

Finally, again, a major macroeconomic issue shouldn't be news to anybody on the call, but we...

do face some inflationary pressure on the inputs to our business, both material and labor.

of these we expect to decline or reverse over time. We do experience some spot buys for special material where you have to go to secondary sources and pay some premiums to get parts in to make deliveries. That hurts margins, of course, but we think it's important to keep up with our customers.

when we can with our expectations.

There also is a general sense of inflation, both with material and labor. We think some of the commodity prices will decline as shipping expenses, for example, straighten out and revert back to something a little bit more normal around the world, which we expect will happen over the next six months or next year or so, six months to a year.

But regardless, we are working to pass higher costs on as best we can.

A lot of our business is...

tied up by long-term contracts. We're more limited there. It's going to be a slower recovery. But other parts of our business are more higher velocity orders and typically in lower volumes. But incrementally, we have flexibility to increase pricing in those areas, and we're doing so as aggressively as we can.

All this results in a lot of margin pressure.

From my perspective, the biggest issue that we think we can correct in the near term is getting our volume up as I've already discussed.

We have been intentionally maintaining a lot of capability across the business to execute on programs.

that our customers haven't trusted to us. We don't want to change that. But we recognize that that puts pressure on our income statement. We need volume to increase.

to justify that organizational...

structure and cost that we carry across our business going forward. We think we're in good shape in this area, but we also need to deal with the elevated input cost. And we recognize that, and that's gonna be a major focus of ours as we work through the rest of the year here.

Sequentially, of course, if you look back to the first quarter or to the fourth quarter last year,

You all recognize that we had AMJP proceeds done. We don't have them now. We also had to earn out income in both those quarters from

a company or product line sale that we did a couple years ago, we don't have that right now. So the second quarter results kind of stand on their own and compared to the fourth quarter the first quarter look a little thin accordingly.

A watch item, Dave will talk about this in more detail momentarily, but we did extend our bank facility for another three months.

We announced that today. That's-

to allow us to work a new deal with our banks, which is something we've been working on for the last couple months.

Like everything these days, it seems to take a little longer than you'd think.

While we think we're pretty close, coming weeks we should be able to close up this new deal. We have to do an extension to allow the time to get that to happen.

So I think that closes my prepared remarks, Dave. Why don't you add in what you'd like.

Sure, thanks.

As Pete said, so while sales continue to improve, we've experienced headwinds that are putting downward pressure on our margins.

The consolidated revenue of $129 million in the quarter was up 16% from last year's first quarter and up 11% sequentially from the first quarter.

driven by continued strength in the commercial transport market.

Despite an $18 million increase in our top line compared to the year ago quarter, we experienced the operating margin decline. So why is that? While).

So the margin headwinds for the quarter were on a sales increase of $18 million compared to the previous year's quarter. Historically, we'd expect about 40% to 45% of that sales increase.

We're about $7 to $8 million to drop to the operating profit, but we didn't see that.

We saw our loss from operations actually increase from a loss of 5.9 million to a loss of 8.4 million.

Pete mentioned some of the headwinds that we saw for the quarter in comparing this quarter to a year ago.

Yeah, first, affecting comparability in the 2021 second quarter, we eliminated a liability relating to the contingent consideration on an acquisition from a prior year.

Eliminating this liability had the impact of reducing our SG&A costs last year in the second quarter by $2.2 million.

Second, wage and benefit inflation amounted to

you know, somewhere around three to four million dollars on top of the wage base from a year ago.

That's close to a 10% or more increase there.

or more increase there.

different than what other companies are seeing as well.

store

Third, the cost of raw materials and subassemblies is up somewhere in the range of 5% to 10% typically.

In addition to that, we have the cost of the spot buys that we've been making when we can find components outside of our traditional supply chain.

Together, these are estimated to be about $4 to $5 million compared to a year ago.

And then we have we had some lower margins on a couple of development programs.

where the programs were operating at close to break even, where a year ago. So they contributed sales, but no earnings on those, which is not totally uncommon, but it's not consistent from quarter to quarter.

Additionally, when comparing operating margins this quarter to the preceding first quarter, first quarter of 2021,

or 2022, rather, the first quarter had AMJP grant income of $6 million.

And for the most part, that was offsetting cost of sales. And for the most part, annual pay adjustments did not have that much of an impact on our first quarter this year, as most pay adjustments happened toward the end of the first and into the second quarter. We know the price of sales has grown completely, and now it really is.

Additionally, in the first quarter we recognized earn-out income on contingent consideration for the sale of semi-business totaling $11.3 million.

That's shown on the income statement below operating margin.

Going to the balance sheet, it was not a strong quarter cash flow-wise as we used $10.6 million for operations. The balance sheet was not a strong quarter cash flow-wise as we used $10.6 million for operations.

If you take a look at the cash statement of cash flows, clearly you can see what jumps out is the increase in the inventory. Most of the increase in working capital related to inventory and to some degree, a lesser degree to investment in receivables, which is expected given our sales increase for the quarter.

Part of the increase is driven to inefficient supply chain.

in part driven to the fact that we're ramping up sales for the third and fourth quarter.

It's extremely difficult to optimize inventory levels when the supply chain is inconsistent in terms of lead times.

And as a customer-centric organization, we've been erring on the conservative side to do our best to keep our on-time delivery as high as possible with our customer base.

the credit facility update with the cooperation of our bank group.

We extended the expiration of our revolving credit facility by three months to the end of August 2023.

The extension will provide more time to get a long-term credit arrangement in place. You may recall that three months ago we reported we were targeting to have this done by now. And as Pete mentioned, the process has moved a little bit slower than we expected three or four months ago..

While we're not finished yet, we're into the final stretch and working with our lenders and expect that we'll have a new multi-year agreement in place shortly.

Some select changes.

to the terms of the revolver relating to the extension is the facility was reduced from $225 million down to $190 million.

further dropping to 180 million and then in mid-September and then 170 million in mid-October.

The SOFR...

Pricing spread increased by 100 basis points at all tiers, and there's a 10 basis point amendment fee.

this financing

strategy that we're working on and expect to have completed in the quarter.

We'll provide sufficient liquidity to fund our operations and will likely involve two pieces.

pieces being a term note and an asset-based credit facility supported by primarily inventory and receivables. And we're expecting the total facility to be somewhere in the range of $190 to $200 million.

of total availability.

Okay. Thank you.

That ends my prepared remarks.

OK, I think we'll open it up for questions now.

Thank you. At this time we'll be conducting a question-and-answer session. If you'd like to ask a question please press star 1 on your telephone keypad.

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One moment please while we poll for questions.

Our first question comes from John Tenwontang with CJS Securities. Please proceed with your question. John Tenwontang, CJS Securities. Please proceed with your question.

Hey, good morning, guys. Thank you for taking my questions.

First one is, Pete, did you have a specific component or pieces of supply chain that's been giving you the difficulty that's reducing the top end? Could you call it what that is? lines.

I don't know if I have specific components that have caused us. It's more a general trend, and you try to ratio it. We certainly have the work.

to do the, you know, even go beyond our original range, but we're observing that you just have these consistent regular.

supply chain snafus that bring you down at a certain rate. And so we're thinking that that revised range is more realistic, given that we're halfway through the year now.

But pretty much everything we make involves electronic components and quite a bit of it. We have some products that don't use so much primarily on the lighting.

side of our business, but it's the electronic components that are causing us the most trouble. But it's not limited to that. I mean, raw plastics, paints, basic hardware, it's really a, like I just said, it's a whack-a-mole effort. And I think we're getting pretty good at dealing with it.

But that doesn't mean that we're overcoming it. We're just surviving with it.

So like I said, some of our operations report that things might be getting a little bit better. Others don't feel that way. But nobody's saying it's getting a whole lot worse. So that's actually good news compared to where we've been in previous quarters.

Got it. Okay. And then can you just talk a little bit more about these three projects that – or these contracts that you signed? The south one – the southwest one especially sounds pretty interesting. Can you talk about the revenues that might be associated with each one of these and the scale in the coming year or two?

Sure, timing is a little bit of a question mark actually on all three of them.

Um, the Southwest and let me as a as a opening statement, though, let me say this. You know, the pandemic spent horrific, obviously being focused and concentrated on

commercial transport aircraft like we were is a bad place to be when a pandemic grounds the airlines around the world.

That's obvious. We just don't have the military diversification or defense diversification that a lot of other companies did. We were much more concentrated. So that being said, OK.

Two years later, as I look at the way the industry's coming back and I look at the way we're positioned, we're not implementing any major changes to our product line strategy or to,

our approach to the market. We were pretty happy with how we were situated up until the moment the pandemic struck. And now that it's coming back, we continue to feel pretty good about the product lines that we have, the customer relationships we have, and there's a lot of enthusiasm kind of in our corner of the world.

across the industry. And these three programs, I think, demonstrate that to a large extent. The Southwest one.

This is specifically for the MAX fleet, obviously a narrow body airplane.

Narrow body in-seat power is typically somewhere in the range of $100,000 per ship, something like that. And we've come out with a new architecture. We've been talking to Southwest for years.

We came up with a new architecture and they're kind of a launch customer. It's USB only, Type-C and Type-A, but it's a very lightweight system that really got them interested and excited. And we think it's going to play out positively in other narrow body operators around the world. You know, before the pandemic,

our feeling was that in-seat power is going to become more and more ubiquitous, more and more...

in demand and three years later we still feel that way. Narrow bodies had a much lower penetration rate. We think sooner or later they're gonna be as a common, the installations on narrow body aircraft are gonna be as common as they are on wide body aircraft today. So that's a positive program. It's only for the max fleet.

At Southwest, Southwest also runs a bunch of NGs. A question you might ask is, will they extend this program to those NGs and some of them...

We think they might as they plan to operate them for a while, but as of today it's only for the MAX aircraft.

The second one is with the Safran program for, the idea here is to make an antenna satellite communication.

capability, LineFit offerable.

on aircraft as they're being built that can be generically moved from one...

content provider to another or operate within different networks.

And that's a little bit of a change in approach to how the industry typically works. Typically, it's an aftermarket choice that the airlines make where they pick a provider and they get a hardware suite.

that is specific to that content provider, to that constellation.

And that hardware doesn't work, really, with any other constellation. The idea here is to separate it a little bit, put an antenna system on an airplane that airlines can use on multiple networks or change from one network to another over time if they feel so inclined. And it's going to start off with Airbus airplanes, like I talked about.

It's gonna be line fit, that's the goal, and it'll move more broadly to other aircraft types and retrofit opportunities as time goes on. It's a little bit unclear what the take rate's gonna be. This is something we're gonna have to keep our eye on, but we announced it with Safran at a major trade show in Germany in June , and the initial reaction.

from airlines who were also at that show is very positive. So we're pretty excited about that. And then the third one is the eVTOL announcement with Lilliam.

And I could talk about this one forever. I think it's pretty exciting. And those who are interested in the electric space, I think, should find it exciting. I mean, our hardware, our capability, is very much in demand in that space. I expect that we may not always have the whole system design like we do at Lilium, but we're gonna have a series of announcements. I think we're gonna be flying on a bunch of aircraft.

over the next year or so. And so stay tuned, we'll announce those as we can. But again, reasonable people can differ. Some people are very pessimistic about the possibility of the electric space really becoming something significant in the near term. Other people think it's a real...

strong solution for urban congestion and noise. And it's a much greener way to travel. So there are some very lofty volume.

predictions out there. We're not necessarily committed to those, but they do exist.

The way we're approaching this industry is we are funding the development work that's necessary for our system architecture so we stay in control of our product capabilities and we can mix and match. We're developing a whole suite of capabilities that are applicable to these aircraft.

But we are expecting customers to pay for development efforts that are unique or specific to their aircraft where we wouldn't do it except for their aircraft being on our project list. So it's a little bit of a shared cost. At this point, with Lilium, most of the cost is going to be in the market.

that are basic to our architecture have already been incurred and

are basic to our architecture have already been incurred and the...

effort going forward will largely be funded. We're not allowed to describe how, you know, what that is at this point, but it shouldn't be a major drain on our margins from this point going forward.

And I think that's enough on those three.

Okay.

As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad.

One moment while we poll for questions.

Our next question comes from Michael Sirimoli with Truist Securities.

Please proceed with your question.

Hey, good morning guys. Thanks for taking the questions. Pete, maybe just to stay on Lilium, you're probably not going to like this question, but maybe some of us remember Eclipse. I mean, it's certainly a very crowded space right now. It sounds like you're doing some fun to development, but you can port this system to other potential operators out there.

I guess when should we expect to see a ramp up in revenue specifically tied to Lilium or any of the other potential platforms?

It's a real good question, Michael.

I do remember Eclipse. I still, I don't shake as badly these days when I think back that far, but there's still a little bit of a shiver that goes on down your spine.

I think the, you know.

Again, nobody knows how this whole thing is going to shake out. There are a lot of different contenders.

like you've said, and there are some real differences in architecture, right, in terms of the kind of aircraft that these companies are trying to develop. And I think it's safe to say it's unclear if everybody's gonna win, and if not, who's gonna be the winner, who are gonna be the winners, who are gonna be the losers. It's just too early to tell.

But what we do think is that now is the time to be involved if you want to be involved. It's going to be hard to jump in later. Once these development efforts are well underway and certification is proceeding, at that point, it's going to be too late to get in. So, our part is ready.

What we are endeavoring to do is to play a role in the electrical systems and some of the other product lines that we have may also come into play like lighting.

And again,

reasonable with our funded development or our internally funded development so that we stay in control of our technology.

But we don't want to get too far over our skis in terms of investing in specific program requirements that various aircraft may require or customers may desire. So we're gonna balance that going forward where they pay for the customization and we pay for the basic system architecture and development and we think that's a reasonable balanced position to take.

as most of these companies are seeking certification sometime in the 2024, 2025 timeframe. That means the systems are gonna have to be nailed down and largely developed over the next year and a half, two years.

at most and you know that's what we're preparing for and gearing ourselves for.

Okay, okay. And then just back to the second half, I guess looking at the guidance, looking at the step up sequentially, I mean do you guys think you can, you know, with the higher costs right now, do you think you can be operating income positive and do you think you can generate cash flow in the second half?

Oh, sorry, Mike. Yeah, for sure.

Our gap-even point, break-even point, is right around 160-165 million per quarter in sales.

So if you look at our adjusted EBITDA calculation in the...

If you look at our adjusted EBITDA calculation in the press release...

At $129 million in sales, we're right at about an adjusted EBITDA breakeven point here. Our CapEx requirements, while we were estimating them at $9 or $10 million, I think they may come in a bit lower than that for the quarter, but that's...

That's where we're estimating now. So I think when we get up to north of 160, 165 million per quarter in sales, we start to generate positive cash flow.

assuming we can keep our working capital in check.

You know, as I mentioned earlier, the supply chain is the challenge. There are receivables are in good shape. But you know you buy all the stuff you need to deliver on an order and you're missing, you know, a $20 component and you have a million dollars worth of stuff sitting on the shelf that you don't ship until you get that last piece in. So that's part of the challenge there in terms of managing inventory.

We're getting better at doing it, but again part of that ramp up in working capital and inventory relates to the sales growth we're expecting and we're not expecting to continue growing our inventory at the level you saw in the second quarter.

Okay. Okay. And then last one, just can you maybe elaborate on the new credit facilities, the term and the asset based facility? I mean the markets.

clearly moving against you and depending on when you close this, you know, the spread might get even higher. What should we be thinking for the increase in annual interest expense? I mean, I guess we could probably figure it out on the term, but what else are you going to be paying for the asset-based credit facility? I mean, I think you're running kind of maybe six and a half million in annual interest right now.

Yeah, so...

We don't have the details finalized to that point yet, but both pieces are going to be sulfur based.

So if you start with that, you know.

Historically, Libra and then SOFR over the past few quarters has been pretty low. We're expecting SOFR to get up to between three and three and a half maybe over the next six months. We're expecting SOFR to get up to between three and a half maybe over the next six months

And then on top of that, there'll be the spread. So the spread's going to be determined based on the spread

you know, on the ABL it'll be based on some type of measurement of leverage.

Still working through the details of that. And then on the term note, it'll most likely be a set SOFR spread on that and details to be determined there. I can't give you how much because we're not there yet. But broadband is having a hard time locating that. Smartphone Virgo 8.

So it will be an increase over what our interest experience has been thus far this year.

Okay. And then just the last one, what, what, as you guys are defining leverage with your lenders, what's the trailing 12 month number you guys are using now? Because I mean, if we just look at the kind of reported adjusted EBITDOT, only about 3 million on a, on a trailing 12 months. So what, what, what kind of leverage ratio are you guys currently sitting at today for your sort of facility and

Yeah, based on the calculation in the revolving credit agreement, we're a little over four.

at the end of the second quarter, we're projecting that to drop.

Okay.

Perfect. All right, thanks, guys.

Our next question is from John Tawanteng with CJS Securities. Please proceed with your question.

Thanks for the follow-up. Pete, what's the update on the FLIR and the FARA programs?

on the FARA program.

Is that just us? Yes, let's clear our walls.

Okay, well, you know, the FLARA program has been delayed a little bit. I think award is now expected in the mid-October, late October time frame.

which is a slide of about two months from what the Army was saying before.

As a reminder, we are very heavily on the Textron team, the Bell team, and that award, if it goes to Bell, will be a very significant game changer for us. We are much less involved on the Sikorsky or Lockheed team.

So if it goes that direction, that would be a negative thing for us, although we have some opportunities there that would play out subsequent to award.

The FARA program has been pushed off more substantially and I don't have a date for you exactly. I think that's been pushed off like another year or year and a half.

So it's probably in the 2024, 2025 timeframe for down select.

So flare is the big deal.

And probably, you know, hopefully before we talk again, that will be decided.

And, you know, we're firmly in the bell camp at this point. So that would be good for our company.

Thanks, Pete. What's going on in the test business? What's your outlook there? What are the programs that you expected to win or others come through?

That's been a bit of a sore spot. The order rate for our test business has been slow.

kind of keeping up with shipments, but we're not seeing the growth that we saw. There are a couple of substantial

Radio test programs, one that we thought was going to be awarded in June , one that we thought was going to be awarded in October or so, and both of those have slid. We think the one from June will be awarded yet this month. That's the latest we've been told. And the one that we thought was going to happen kind of at the end of the government operating year is going to slide into the beginning of the next calendar year. That's what we understand.

So we haven't lost those programs, but the award date keeps sliding. It seems like that's the theme these days.

And the other major pursuits generally are along the lines of our transit business, our train test and subway test business, and those also have moved a little bit. I think the... So individual-minded business is on its way to, you know, making sure that you know what your business...

It's somewhat situational, but in general, COVID and work from home and.

budget pressures have slowed down that process. We still have a very long target list. In fact, nothing's come off the target list. It's just that things that we thought were gonna get awarded mid-year now are a little bit less definite. So we're continuing to push it. We obviously need to get bookings.

there to see some growth in that business.

so

You know, we're doing what we can to push bookings in the second half of this year and hopefully they come in. If not, we'll have to adjust as always, but we're still pretty optimistic long term just seeing short-term delays.

Got it, thanks Pete. Our next question is from Michael Ciaramoli with Truist Securities. Please proceed with your question.

Hey guys, thanks for taking the follow-up. Just on the ramp into the second half, you know, obviously supply chain issues, what has, I guess, your supply chain challenges getting components, was that sort of the biggest driver or are you looking at, you know, sort of kind of a slower rate here with the max, with the A320, you know, the 787 restart, have those kind of factored into the to the

taking the top end of the guidance down, just trying to understand kind of more the moving pieces around what's really impacting the ramp and how sensitive you are to some of these production rates and deliveries.

No, it's really just supply chain, Michael. We've had, our book to bill is great and our backlog is great and yeah, there's some puts and takes with the rate on some major programs but the real big deal is

customers want products and the question is when can we get material to support those orders? And that big ramp is something that we have anticipated for many, many months.

When lead times for a lot of commodities went way out, when we started getting strong orders over the last year, we had to schedule accordingly, and the way the calendar fell, it...

disproportionately fell on the second half of 2022. So we went into the year with an internal plan that was well above the range that we guided to, 550 to 600. As we've moved through the year and as we've experienced supply chain struggles, it really comes down to a probability weighted expectation going forward about how those troubles are going to continue.

It's not any kind of lessening of demand from customers. It's not a reduction in rates on major programs. Those are all kind of going the right direction. It's really an issue of how is our supply chain going to respond.

And we're kind of in a unique position of a major ramp and a really tough macroeconomic environment. So there are things that could go wrong. But, and I think I mentioned that we went into the second quarter thinking that internally we should be somewhere in the $135 million range.

from our, that was our perspective going into the quarter, we ended up at 129 if you run those numbers over six months.

you know, you responsibly come down from 600 to 580 on the high end. So that's what our thinking was.

certainly is not a reduction in demand from customers.

is not a reduction in demand from customers. Got it. Thanks, guys.

We have reached the end of the question and answer session. I'd now like to turn the call back over to management for closing comments.

Thank you for your time today.

Looking forward to an interesting and exciting second half of 2022, which we hope will set us up well for 2023.

Thanks for your interest in astronomy and have a good day.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.