Q4 2022 Astronics Corp Earnings Call

Speaker 1: And that.

Speaker 1: I that so.

Speaker 2: Greetings. Welcome to the Astronix Corporation Fourth Quarter Fiscal Year 2022 Financial 470 Donaldson and his Frequencyott

Speaker 2: At this time, all participants are in 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-0 on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your hosts, Greg Mihalik, and Fested Relations. You may begin.

Speaker 3: Thank you and good afternoon everyone. We certainly appreciate your time today and your interest in Astronix. On the call here with me are Pete Gunderman, our Chairman, President, and Chief Executive Officer and Dave Berne, our Chief Financial Officer. We have a copy of our fourth quarter and full year 2022 financial results.

Speaker 3: statement to apply to future events that are subject to RIT, Senate certain needs, as well as other factors that can cause actual results to differ materially from what is stated here today.

Speaker 3: These risk uncertainties and other factors are provided in the earnings release and with other documents filed with the Securities and Exchange Commission.

Speaker 3: You can find those back in the center website or at sec.gov. During today's call, we will also discuss the non-GAAP financial measures. We believe these will be useful in evaluating our performance.

Speaker 3: Should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAP. 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 again. Pete? Thanks, Craig, and good afternoon, everybody. Thanks for tuning in.

Speaker 4: for a fourth quarter conference call. As usual, or as is often the case, I've tried to simplify the headlines for the quarter and the things that I would broadly categorize as good news, things that I think will be well received by our investor base and some...

Speaker 4: Other things that are less good may be bad challenges that we want to also give equal time to.

Speaker 4: And we will kind of close with turning our attention away from 2022 and turning towards 2023 and talking about what we expect to happen.

Speaker 4: in the current year and how we think it's going to play out, recognizing that it's pretty early and a lot can happen.

Speaker 4: and how we think it's going to flood out, recognize that it's pretty early and a lot can happen. So we're giving these headlines.

Speaker 4: Strong demand continues as evidenced by our bookings. 182 million in bookings is a very solid performance, our second highest since COVID came in, and a very good close for the year. We'll talk in detail about bookings and how that's translated into a record backlog and how that's set up.

Speaker 4: A good news headline is that the revenue ramp that we've been looking for

Speaker 4: we believe has begun. We have since COVID struck been stuck in a quarterly revenue band of about 105 to 130 million and just seem to have a really hard time getting beyond that level until the fourth quarter. 159 million frankly was higher than we thought we would be.

Speaker 4: in the first half or two thirds of 2022. Not to say it's perfect, but we think it's getting better, not getting worse.

Speaker 4: Third good news headline is that we got our refinance completed that was technically a January event, not a fourth quarter event, but there was a lot happening behind the scenes in the fourth quarter to bring that about and we want to talk that over.

Speaker 4: in adequate detail when we get to it. If I flip over to the other side of the coin, kind of the bad news things that you might pick up on or might be concerned about, margins were under pressure, primarily due to inflation that we've incurred and some special charges..

Speaker 4: that we have paid to compensate for supply chain snafus. That was apparent if you look at our cost structure or margins for the quarter. Dave will talk through that in some detail. And also during the quarter, it became apparent that a couple of programs that we think overall...

Speaker 4: for the Army of 4549 T. It's a radio test program. And FLRRA. Good news, bad news. Good news is that we're on the Bell team and Bell was selected by Army.

Speaker 4: for the U.S. Army for that program. Bad news is, as everybody probably knows, it's under protest and that means that we're kind of at a standing stop, whereas we were hoping by now to be underway. We'll turn our attention at the end of 2023 preview. We are maintaining earlier guidance.

Speaker 4: 640 to 680 million. That's a big step up from 2022, we realize, but we believe we have some.

Speaker 4: Pretty solid reasons to think that that's achievable. Supply chain, of course, will be critical. And we'll tell you what we know about our supply chain, but it's early. We think that $640 to $680 million range has upside potential and downside risk, depending on how chunk itla costs us much.

Speaker 4: supply chain performs as we get into the first half of 2023. So taking those topics in the range I just discussed, demand continues to be very strong. Fourth quarter bookings of 182 million, as I mentioned, second highest booking result since COVID only behind the previous quarter.

Speaker 4: the third quarter of 2022. Bookings for all of 2222 or 690 million, that's a book to bill of 1.29 for the year and sets us up with a record backlog of 571 million as we began 2023.

Speaker 4: You might be interested to know that our previous record backlog pre-COVID was 416 million in late 2018.

Speaker 4: That was a year when we did about $800 million in revenue. So $416 million was our previous high. Today we're at $571 million, or as we entered the first quarter we're at $571 million. It's a big step up. Of that $571,451 is scheduled for delivery in 2023.

Speaker 4: Given the range we talked about for 2023, that leaves a couple hundred million of what we might call book and ship over the course of the year in the normal course.

Speaker 4: That's a pretty achievable number. That's pretty low. Our supply chain gives us reason to be a little bit cautious about it's one thing to get the order, it's another thing to turn around and ship it. But 200 million over the course of 12 months book and ship is pretty modest compared to what we've been used to. We expect to see.

Speaker 4: Strong demand continue for a couple of reasons. Our recovery so far has largely been based on the narrowbody regional market for the commercial transport industry.

Speaker 4: But now it appears widebody long haul is coming back pretty strongly.

Speaker 4: Pre-COVID, we were approximately 50-50 narrow body, wide body.

Speaker 4: Widebodies have spent most of COVID parked in the desert. Narrowbodies are where the action has been as regional travel barriers have come down. But now with widebody coming back, we have reason to believe that we're gonna see another kind of...

Speaker 4: source of strength from demand in the market, and we're looking forward to that. You probably read the headlines. They're all over the place. They're pulling wide-body airplanes out of storage and pressing them back into service.

Speaker 4: that not too long ago most experts in the industry were predicting would never fly again. A380s, A340s.

Speaker 4: even some 747s, but demand has come back strong enough that airlines are taking the expense of resurrecting these airplanes and that's good for us. Airplanes flying is good for us.

Speaker 4: Similarly, for also along the way, production rates for the prominent wide-body airplanes today, specifically 787 at Boeing and A350, they're talking about upward revisions to plans there. Now, there are challenges. There are capacities. For more information about these Lafey flights, visit

Speaker 4: issues to come across, but I guess my point is that as we look at what's been driving our demand, it's primarily the narrow body. Now we think widebodies, and we've seen this happening over the last few quarters, we think widebodies are going to be more and more of a contributor as we go forward.

Speaker 4: And that's good for a company like us. Also along these lines, the opening up of China from travel restrictions is a very positive. It's not angiographically the recovery in the commercial airline industry has been driven by the US and by Europe .

Speaker 4: Asia has lagged. China is obviously a very popular location in Asia. It's hard for the industry worldwide to recover without China recovering and China opening up.

Speaker 4: to less strenuous travel restrictions as they did in early December , we think it's going to have a very positive impact on our industry overall.

Speaker 4: The second issue I wanted to call attention to, the reason why we think demand is going to continue to be pretty strong is that...

Speaker 4: While we have talked about a number of pretty major program wins over the last year, those program wins.

Speaker 4: are not really reflected in our booking level to date. We think these programs collectively are gonna be worth hundreds of millions of dollars, but today, if I were to add them up in backlog, they're probably less than 20 million cumulative. And I'm talking about, I'm talking about,

Speaker 4: Programs that we've announced – Southwest wind that we announced probably a year and a half ago now, an antenna program that we're doing with Safran, the 4549T program, some activity that we have going in the electric airplane market, and also FLRA. Now just –

Speaker 4: We haven't talked as a conference call since the battle of the decision came down. I think most people who follow our company know this, but we are on the belt team. We're doing the most of the electrical system right after generation to end use system. And of course, assuming the protest that is just rough things, we extract this program.

Speaker 4: Again, there are a couple other programs that we're not at liberty to talk about that are similarly significant. And all of these we expect to start contributing to bookings and to demand in the coming quarters. But as of today, or as of the end of the fourth quarter, I think it was less than 20 million all of these things cumulatively.

Speaker 4: So, I want to switch from bookings and demand to the revenue ramp, as I mentioned. Since COVID hit, we've really been stuck in a band of 105 to 130 million bookings. We've been stuck in a band of 105 to 130 million bookings. Since COVID hit, we've been stuck in a band of 105 to 130 million bookings.

Speaker 4: excuse me, in quarterly revenue, even though bookings have been much higher, our quarter for revenue of 159 million is a significant step up towards where we need to be in 2023.

Speaker 4: to meet our goals and to satisfy customer demand. The limiting factor through 2022 has been first supply chain and second people, much more of a supply chain issue than a people issue. And when all's said and done, we're gonna look back on 2022 as a year of really strong demand and really disrupted supply chains where we had 20% growth and usually we would expect 20% growth.

Speaker 4: saw regular negative surprise disruptions.

Speaker 4: coming across the line today, there are more and more positive surprises and fewer and fewer negative surprise. Pickups still happen.

Speaker 4: But they're fewer and we're better at responding to them frankly a year ago. We weren't used to dealing with the level of detail and climbing down a supply chain to our supplier suppliers as well as as effectively as we can and do today. So while the hiccups happen, they're fewer and fewer and we're better and better at responding to them. A REFY reference, it was a complicated and drawn-up process.

Speaker 4: We finally completed it on January 19th, as most of you undoubtedly know. It's a deal that we feel is adequate to get us through the rest of the COVID recovery and frankly reflects the reality of our macroeconomic environment and the position that the company is in at this point in the cycle.

Speaker 4: it on January 19th as most of you undoubtedly know. It's a deal that we feel is adequate to get us through the rest of the COVID recovery and frankly reflects the reality of our macroeconomic environment and the position that the company is in at this point in the cycle.

Speaker 4: We need to perform, but if we can do what we think we can do, it should be an adequate facility for us for the time being. And Dave will cover some of those details in just a minute. The bad news headlines, two of them I talked about, margins under pressure. We had elevated input costs, and those costs are going to take some time to sort out.

Speaker 4: We have portions of our business where we can react pretty quickly. The order cycles are short. Frankly, a lot of the strong bookings that we've been taking are...

Speaker 4: Very helpful because we've been able to work in pricing that reflects the current cost structure. It's the longer-term, older contracts that in many cases tend to cause us problems. We also tend to run into troubles when supply chain has a hiccup and we have to make what we call spot-bys or pay expedite fees. Those activities are getting fewer and fewer. They're winding down and we expect them to continue to wind down. But they were a pretty major source of margin pressure or erosion in the fourth quarter. As we move through 2020...

Speaker 4: negotiate and develop a sole source production contractor a directed procurement.

Speaker 4: Going forward, we expected that directed procurement would be in place probably by now, if not by the end of the year. It's become apparent now that it's going to be much later than that. We're now thinking, as we understand the Army's processes, that this could last until the middle of the year or even a little bit later.

Speaker 4: before we get under contract and before that program starts seriously contributing. And depending on long-lead funding and a couple of other things that are to be determined, it's unclear at this point when that program is going to contribute. We believe that that order.

Speaker 4: will be somewhere in the neighborhood of 150 to a couple hundred million in revenue. We expect it will run over two to three years and We're eager to get at it, but we just can't get going until the army wants to steal The other program that that is stretching out because of the protested the flare program when I talked about earlier We thought that we would be underway by now and now it appears that the protest period will last at least April 6th or 7th of August is and so we will not be under contract we're basically done the water

Speaker 3: The primary driver for both bookings and sales increase was the commercial transport market. Sales for this market were up 76% to about $103 million.

Speaker 3: which was an increase of a little over 44 million from last year's fourth quarter, and up just over 24 million sequentially from the third quarter.

Speaker 3: Global air travel continues to improve driving the man for the aircraft retrofit spend and increasing OEM build rates. Now there are a lot of puts and takes to compare last year's P&L to this year's.

Speaker 3: quarter. This was partially offset in that quarter by a full years accrual for our 401K cost. As we reinstated the company contribution in the fourth quarter of last year and higher legal fees.

Speaker 3: The 2022 fourth quarter, on the other hand, had the benefit of a 1.5 million dollar gain relating to the litigation settlement.

Speaker 3: Contribution margin on incremental sales is running at about 40% right now. This is somewhat lower than our pre-prandemic contribution margins, which were typically closer to 45% to 50%. These are being impacted by input costs on labor and materials. The margins continue to face headwinds primarily from supply chain predictability, which impacts shop floor efficiency.

Speaker 3: as well as increased input costs that eventually will gradually be mitigated as we pass on these costs through new contracts. It does appear that the trajectory of the inflation that we experienced through 2021 and early 2022 has slowed significantly.

Speaker 3: Additionally, we continue to source hard-defined parts on the spot market, which is a significant impact to our margins. In the fourth quarter, these spot buys were roughly $2 million above our standard cost for these parts. We are expecting the impact of these spot buys to reduce as we move through this year. Looking to the balance sheet and cash flow for the company.

Speaker 3: Castrol from operations for the fourth quarter improved and was a positive $10.8 million as our net loss improved as compared with prior quarters this year. Networking capital remained flat with the third quarter and inventory growth was minimal during the quarter, which was a significant improvement over the last three quarters where inventory levels increased roughly $34 million during the first three quarters of 2022.

Speaker 3: Increased receivables were offset by lower prepaid expenses and increased accounts payable. We are forecasting our inventory levels to drop as we move through the year as supply change stabilizes and the shop floor becomes more efficient. CAPX for the quarter was $3.4 million, a little below our forecast. We're forecasting CAPX for 2023 to be in the range of $17 million to $20 million, which is back in line with our typical spending levels after the last couple of years of cash conservation. At the end of the year, our net debt was $150.2 million, which is down from $156 million at the end of the third quarter.

Speaker 3: We're forecasting to be cash flow positive for the year and the positive cash flow will be used to reduce debt.

Speaker 3: We're expecting cash outflow relating to our 2022 taxes that will be paid in 2023 to be about $6 million during the year.

Speaker 3: And this all relates to the new tax treatment for R and D costs where We're now required to put them on the balance sheet and capitalize them and expense them over 5 years. To the credit facility update, on January 19th, we announced that we had closed on our new debt financing.

Speaker 3: which we had been working on for the better part of the year. The new financing structure replaces the cash flow-based revolving credit facility that was set to expire in November 2023 with two asset-based credit facilities. The two pieces to the new debt structure are a $4 million, a $4-year $90 million term loan and a $3-year $115 million revolving credit facility. The term loan will bear interest at silver plus 8.75% and the revolving credit facility will bear interest at silver plus 2.25%.

Speaker 3: to 2.75% depending on the available balance. Scheduled principal payments on the term note will begin in the second quarter. Scheduled principal payments are $788,000 in the second quarter, $1.5 million in the third quarter, and $2.25 million each quarter thereafter. The term note is not callable in the first year. The next year, the term note will begin in the second quarter. Scheduled principal payments are $788,000 in the third quarter. Scheduled principal payments are $2.25, $2.25, and $2.25. The next year, the term note will begin in the second quarter. Scheduled principal payments are $2.25, $2.25, and $2.25.

Speaker 3: And then the second year there's a 4% prepayment penalty and then the third year there's a 1.5% prepayment penalty. Based on a sulfur rate of 5% or forecasting weighted average cash interest rate in 2023 to be between 10 and 12%. 2023 quarterly cash interest expense is expected to be approximately $4.5 million per quarter. The F interest expense on the income statement will include amortization of up-fund costs and will be higher by about $700,000 per quarter. Total upfront freezing closing costs were approximately $8.6 million that will be amortized.

Speaker 3: year. The more important number to focus on is our cash taxes and we expect our cash taxes that we will pay in 2023 will be about six to seven million dollars primarily for the tax year of 2022.

Speaker 3: And this all relates to the new tax treatment for the research and development accounting.

Speaker 3: And this all relates to the new tax treatment for the research and development accounting. Our full tax rate. And this all relates to the new tax rate.

Speaker 3: for the year, it's going to be a negative 500 percent. And I'm just telling you this because if somebody's going to ask and it doesn't make any sense, what this means is in quarters with a profit, we have a tax benefit. And for quarters with a loss, we're going to have a tax expense because it's a negative 500 percent tax rate. I know it makes no sense to an ordinary person. This is a result of having the fully reserved for our deferred tax assets until we generate cumulative pre-tax income over a three-year period.

Speaker 3: So we're not recognizing the income statement impact for the deferred tax assets that are being created by this timing difference. That's all I had.

Speaker 3: Recognizing the income statement impact for the deferred tax assets that are being created by this timing difference See that's all I had You okay?

Speaker 4: Turning to 2023, we are maintaining our initial 2023 revenue guide of 640 to 680 million. That may seem like a pretty big jump from 2022's 535 million, but there are a couple things to think about at the midpoint of that 2023 range, we would be seeing something like 23 percent growth over 2022. That's actually just slightly more than what we did in 2022 over 2021. We saw 20 percent growth in 2022. That initial range anticipates 23 percent growth in 2020.

Speaker 4: is to moderate around the world. That seems to be happening, that people are traveling. Travel restrictions are coming down. We talked about China. Certainly, I assume a majority of people on the call have been on commercial airplanes over the last couple months. They are packed and loaded. And it doesn't seem to matter where you are, or where you're going.

Speaker 4: And we expect to see cautious but steady improvement. Again, problems still exist, but we're better at recognizing them and resolving them when they do occur.

Speaker 4: And we're recognizing that we think we're going to continue to get more positive surprises, which means lead times are going to come down or availability is going to increase, and fewer negative surprises.

Speaker 4: Now the cadence of 2023 were actually expecting first quarter revenues to be a little bit lighter than what the fourth quarter was.

Speaker 4: That's a function of just demand scheduling and some of these program slides that I was talking about earlier. And even though we're within a month of the end of the first quarter, it's a little difficult to know exactly what our supply chain performance is going to be like. So this is also a wide range on our revenue guidance for the first quarter. We're saying 140 to 150 million. Of course, that's what we said in the fourth quarter. We ended up 159. So.

Speaker 4: We're doing our best. We do think that we're going to see a positive mix change in the first quarter with respect to margins. So, model makers out there, you can't just knock off, say, $10 million or $12 million off of our fourth quarter results and do the simple exercise of knocking off a 40 percent contribution margin or something. We think you might in normal times. We think the mix change is going to get more positive and we think that will help our first quarter results. And of course, we're thinking that our production volume will ramp as the year progresses. We're thinking quarters two through four will be each in the range of $160 million to $185 million, ending at the lower end of that ramp and ending at the higher end.

Speaker 2: In the confirmation tool, we'll indicate you're lighted in the question queue. You may press start too if you would like to remove your question from the queue.

Speaker 2: If participants use the speaker equipment, it may be necessary to pick up your hands at before pressing the start keys. Now first question, come from the Rhino John Tan Wang Tang with CJS Securities. Please proceed with your trip.

Speaker 3: Hi, good afternoon guys. Thank you for taking my question. Obviously, nice to see the supply improve. Just to double check that the timing is what's going on in Q1 is not to use the supply of constricting again, or that maybe you had some of the push down from Q3 and Q4 and you just caught up to that. Just to help you understand the supply chain, you know, improved into Q1 from Q4. It is a question really. Yeah, it's a good question and it's not an easy answer. I think the way to answer is that the top line is going to move a little bit by program slides. We did pull a couple of things that we were able to pull into the fourth quarter out of the first quarter, which left the first quarter.

Speaker 4: a little bit light. And I think the way to think about supply chain is that a year ago we would place an order for a part where we might normally expect it to come in in 10 weeks or 15 weeks, all of a sudden we were getting quotes for 52 weeks. And the difference now is that in many cases 52 is coming down but it's still not 10 to 15 weeks. But the suppliers are more capable of hitting whatever they commit to which is an improvement.

Speaker 4: It's not an improvement to the point where we can accelerate things very easily. Given our backlog, given the orders that we have in two, if we had a supply chain that was cooperative or functioning like it used to, you know, first we have no trouble filling the hole in the first quarter, but given the way the supply chain is performing, while it's getting better, it's not getting better to the point where we can, you know, push and yank and pull all the levers that we, you know, are used to operating with. So it's kind of a combination of all that. It's just a little bit of a cleansier process. We've times is still a little bit longer. And we do have, you know, the occasional hiccup. I hear about them fairly regularly. And so it just limits our ability. We think to respond to the short term to the first quarter of the way it's looking.

Speaker 3: Dave, I don't know if you'd add anything to that. No, I think that covers it. A lot of it is, as you said, we, you know, pre COVID, we were able to respond really quickly to customer requests if they wanted something in six weeks or eight weeks and, you know, it puts a damper on your ability to do that. I think generally speaking, what we're seeing is a little bit, a lot more consistency than what we saw in supply chain six months ago or eight months ago, nine months ago.

Speaker 5: How should we think of that contribution margin going to the year? Should it be improving towards that 45-year-old 50 as the spot-by goes down? Just tell us understand you know when you hit that you know 150 or 180. What does that you know incremental margin actually look like?

Speaker 3: Yeah, the way we're forecasting in particular with regard to the spot buys, which, as I pointed out, are not insignificant on a quarterly basis, is they will gradually, we're expecting them to phase out as there's more normalization in the supply chain. We don't expect this to happen until we move into the second half of the year.

Speaker 3: So that by the by the fourth quarter, we're expecting it, you know, the spot by cost to decrease the other thing that we're expecting to see. As we mentioned earlier, as we roll in the new contracts, where our quotes that reflected the higher cost and a higher selling price, those will start to become more meaningful as we move through the year and into next year as well. You know, the 40% contribution margin, I think, you know, the way we're forecasting is expecting that to gradually improve as we move through the year as well.

Speaker 5: Okay, and then last one from me. Did you say that your cash tax burden would be $67 million to zero? Is that a non-cash number? What I intended to say was $6 to $7 million. $6 to $7. Okay, understood. That caught me off guard. I apologize. Oh, did you hear $60? I have $67 and maybe that was just my phone. Oh, no, no, no. $6 million to $7 million. Yeah. Thank you. Okay. I'll jump back and cute. Thanks a lot, guys. And our next question comes from the line of Michael is here moldy with true securities.

Speaker 5: Thank you for seeing me. Hey, good evening, guys. Thanks for taking the questions. Hello, maybe, how are you? Peter or Dave, just to stay on that margin, kind of the contribution margin and just thinking about aerospace margins. I mean, given the volumes, you know, you put up, I think it was what three eight in the quarter. You know, should we expect a kind of steady increase in those aerospace margins as we move through the year and presumably knock on wood, nothing kind of, you know, gets a dereality with supply chain, but we've we continue to see the demand flow through. Is that is that a reasonable expectation that the margins build off this level? Yeah, I think the the conscious. When I speak to this 40%. I'm speaking of the incremental contribution margin, but, but what'll happen also as the top line grows is better absorption.

Speaker 4: over on a pretty frequent basis. We certainly have long-term contracts.

Speaker 4: on major programs. And in some of those cases, we're able to increase prices. In some cases, we got to wait for the contract to renew. But I guess I feel that assuming that inflation doesn't pop along.

Speaker 4: ridiculously high rates for another two or three years. I think we're going to ride it out and I think it'll adjust in due course. I'm not considering it at this point a major issue. That's not to say we don't have our stress points. We've got some parts of our business that are adjusting quite a bit better than other parts of our business and we've got to fix that on an operational basis.

Speaker 4: to keep pace with it or... Now, for the most part, we're adjusting where we think it's going based on when we think we're gonna have to execute certain programs. We're also, you know, making some use of surcharges. And we're going to our customers inside and, you know, this thing that you wanna buy is costing us a lot more than we expected. And in many cases, customers are agreeing to pay that surcharge.

Speaker 5: In some cases, that's being reworked into the base price. In some cases, the temporary arrangement that'll go away later. We'll have to deal with that. But for the most part, I feel like we're staying on top of it and the relatively recent ramp in bookings works to our favor. Got it. Got it. And then just one more. I mean, you talked about wide bodies. Can you kind of just remind us what your ship set content there is? And then it seems like you called out some older platforms. So it seems like some of these older ones are seeing.

Speaker 5: retrofit opportunities. I mean we know where we're the 8350 and the each seven are going right now, but and so I guess I'm asking is seemingly maybe more sort of retrofit demand right now and then just you know maybe if you can get some color on the content. Sure, now we do a number of things in wide body airplanes. The most prominent though are IFE.

Speaker 4: So, most every wide-body airplane that comes off a production line gets a seat-back display in every seat, nose to tail. And for quite a few years now, we have been the prominent provider of power, for example.

Speaker 4: to those systems, the major system manufacturers. So when somebody buys an A7 or an A350, they check the boxes. They want provider A, B, or C, and whichever one they pick, they get a Stronix or the power system.

Speaker 4: Additionally, we – depending on whether they pick A, B, or C, we might do other parts of the system theoretically – file servers, wireless access points, data loaders, things like that. And then we also do wide fit work. So it's not uncommon for a widebody airplane on the production line to be somewhere in the neighborhood of $250,000 in revenue. In theory it could be half a million or more. But the aftermarket is important too. The aftermarket is important because this IFE product line, when you think about it, is kind of where consumers –

Speaker 4: Now touch these pruning and they're not compatible. It's completely different.

Speaker 4: One of the things that's great for just having airplanes flying is that life cycle effect takes place and The systems need to be upgraded if they're sitting in the desert. They don't need to be upgraded to be blunt. So So that's all helpful New or old we just like them why yep. Yep. God it makes sense Perfect. All right. Let me I'll jump back in the queue here. Thanks guys

Speaker 5: All right, next question comes from the line of John , Taren, Wayne Peng, with CJS Securities. Please, just a proceed with your question. Hi, thanks for taking the follow up. I just wanted to follow up actually on the wide body topic. How much wide body revenue do you have in the forecast this year, or how much was in the revenue last year? And kind of what was the prior peak, I guess, and do you think you get back there?

Speaker 6: If average or 50 or 75% of where used to be, end of the take two or three years to get there maybe.

Speaker 4: It's a very good question. Those are numbers that are really hard to... We have some products and product lines which are used exclusively on widebody, and we have some that are used exclusively on narrowbody. We have some that are used on both, so it's really hard to figure out definitively where they're going. I can tell you that...

Speaker 4: I would say, just from what I understand of the business, that wide-body revenue last year was probably running in the neighborhood of $100,000.

Speaker 4: 10% or 15% of where it used to be. And we're probably going to move closer to 30 or 40% this year. From what I can tell, we're taking a lot of orders that are widebody specific. And I think what's interesting to me is you follow the

Speaker 4: you know, experts in the industry and whereas six months or a year ago, they were all predicting live body return and global airline traffic. Getting back to 2019 level sometime in the, you know, 2024 or 2025 timeframe. More and more voices are now expecting or predicting that that's going to happen mid 2023 or late 2023 again.

Speaker 4: and half of 2023, I guess I'd expect our ordering patterns to be pretty much back to normal by that also. And by the way, we're not that far off. I mean, we did 780 million, 770 million in 2019. We just booked 690 million in...

Speaker 4: in 2022. So it's not that far from here to there before we're kind of back at pre-COVID levels of ordering. Anyway, and then it's up to the splichain to allow us to execute on.

Speaker 6: That's very helpful. Could you just give us a little more color on the expectations for Flaira and the Army radio test program when they do actually start up and get going. What are the run rates you expect out of there? Is it consistent? Is it lumpy? Just help us understand what the contributions that I'll look like. Sure. Recognize that we know not much at this point. The 4549, the radio test program, we expect the initial award.

Speaker 4: impact in our production, you know, theoretically, depending on the lead times, may not happen until late 2024.

Speaker 4: If we can stack those things or do them concurrently, then I think it becomes probably not a late 2023 thing, but probably an early 2024 thing. So, and we think that that initial order is just the beginning. This is gonna be a standard for the US Army. They have a lot of areas and a lot of units and families that our product will be testing. So, we think...

Speaker 4: could be a decade. So, more on that as it develops. Flera, I've used this analogy to describe the importance of this program for us. You've been following us for a while, John . Now, we have this electrical, flake-critical, electrical-powered franchise that we've been building. And it's been pretty successful in terms of becoming a high-end standard in small aircraft and both the rotary-wing, fixed-ring, just turtle-brought.

Speaker 4: and we are expanding it now into the electric EV tall area. But the FLRRA opportunities is kind of a night and day kind of difference in tenor from those other programs. And again, we have a little bit of a gag alert, but I've used this analogy. I've said, imagine a wide body airplane where we put absolutely everything that we might possibly have to do.

Speaker 4: put on that airplane that's in our toolkit. And this is a little different than how I answered Michael's question earlier, because this is a theoretical airplane that's never really existed, but if it comes down the production line and we put power on it, we put a full suite of IFE equipment on it, we put an antenna on the roof, we put a radar in it, we put a full cockpit lighting suite, a full exterior lighting suite, a full interior lighting suite in terms of passenger service units, et cetera, et cetera, you add all that up, you probably get to somewhere in the neighborhood of a $750,000 airplane.

Speaker 4: And while we aren't under contract and there's movement in the ships and things are going to change, we expect that our flora content will be well done at the back. So, and then then you ask, well, how many how many aircraft are they going to build and that's a whole nother kind of guessing game at this point, you know, some replacement for the black cock. There are 4,000 black cock's out there and nobody expects a one for one replacement, but what you expect.

Speaker 6: a little bit of a guessing game, but even if you guess conservatively for a company like us, it's a real significant, you know, over time game changer of a program. Got to know that, that house putter and perspective. Thank you, Pete. I assume that doesn't go to production until much later though in the second. I said the initial development revenues over thinking about, which would be... I think I'm older than you are John , but we've been both through to be retired before we know how far this program's going to go.

Speaker 6: You know, real volumes, but if it's anything like, well, the black hot spending production now for 50 years, you know. Now that it could be, it could be, it could be, I guess. Okay, great. Last question for me, just on the labor issue, let's assume you're supply chain cooperation. You get all these light body orders.

Speaker 6: that you have to say, okay, can you reach that 180 run rate with the workforce that you have now or is it gonna take more work just to get those people in the door and then supplying that? Yeah, for the most part, I guess my feeling is that labor is certainly not our biggest problem. Supply chain has been our biggest problem. Your question is insightful. If all of a sudden the supply chain snapped to attention and the trucks pulled up full of parts then.

Speaker 4: Yeah, we would be short labor to turn those that quickly. But for the most part, in most places of our business, the labor side of it is a little bit better than what it was a year and a half ago. At the height of COVID, nobody wanted to come out of their houses to work.

Speaker 4: That's changing a little bit. We soon have parts of our business that are struggling for labor. But for the most part, kind of across the board, I think that we have a general feeling that we're okay. And that we can, you know, adjust our headcount and our capacity to the scheduling of the major programs as they happen. That's what happened.

Speaker 6: Dave, how have you answered that in Dr. Fowler? Great. Great. Thank you guys. And obviously, you know, you can grab some getting all the stuff done and over the finish line now and over the last couple of minutes.

Speaker 2: Thank you, John . And our next question comes from the line of Michael Cimeoli with true securities. Please proceed with your question.

Speaker 5: Hey, thanks guys. John picked up my labor question there, but just on floor two, P. Does there anything assumed in the current year outlook for floor revenue contribution from the development program?

Speaker 4: We do have some, yes, we have some NRE built them. As you might imagine, it's probably a couple of years engineering effort. It's a little unclear how that's going to play out at this point. We originally thought that it would be somewhere, you know, north of 30 million south of 50 million over two and a half years. Mario jobs in 29 Jews

Speaker 4: to our internal forecast. But at this point we feel that we've got enough demand and enough excess demand that over the course of the year while it's going to change the shape of our first quarter a little bit it's not at this point material to the whole year. Again we're expecting

Speaker 5: The protest to be resolved early April , that's what we're hoping and we expect to be kind of, you know, to hit the starting blocks right then or pretty close to right then. Does that, I mean, I think Lockheed filed a second complaint, which is that there's a deadline on that for May 17th. So I know the first decision is, I mean, does that have any implications given their additional complaint that they filed? Not that I know of, but again, I don't know any.

Speaker 4: inside knowledge about what the deliberations are on the protest. I can just say that the longer it goes, the more it becomes a material detractor to our plans. Got it. Perfect. Thanks, guys.

Speaker 4: What what the deliberations are on the protest. Okay, I can just say that the longer it goes, you know, the more it becomes a material, the tractor to our plans. Got it, got it. Perfect. All right. Thanks, guys. Thank you.

Speaker 2: It looks like we have reached the end of our question and answer session. I'll now turn the call back over to management for closing remarks. Okay, no closing remarks. Thank you again for your attention. We feel like the fourth quarter was a step up to close 2022 and we're optimistic for 2023. Thanks for joining us, everybody.

Speaker 2: We look forward to talking to you again next time. Have a good night. And this concludes today's conference and you made us connect you live at this time. Thank you for your participation.