Q1 2023 Astronics Corporation Earnings Call
Good afternoon, and allow comes to the <unk> Corporation first quarter fiscal year 2023 conference call.
All participants will be listen only mode.
You didn't need a system needs to get out of Congress actually that's what I've seen they sparky followed by zero.
Today's presentation, there will be an opportunity to ask questions Jack.
So that's a question you May press star one on your telephone keypad to withdraw your question. Please press star two.
Please note. This event is being recorded I would now like to turn the conference over to Debbie Pawlowski Investor Relations.
Please go ahead.
Thank you Priscilla and good afternoon, everyone. We certainly appreciate your time today and your interest in <unk>.
On the call here with me are Peter Gunderman, Our chairman, President and Chief Executive Officer, and Dave Burney, Our Chief Financial Officer, you should have a copy of our first quarter 2023 financial results, which we just released after the market closed today. If you do not have the beliefs you can find it.
On our website and a strong dot com.
As you are aware, we may make some forward looking statements during the formal discussion in the Q&A session of this conference call. 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 and uncertainties and other factors are provided in the earnings release as well as with other documents filed with Securities and Exchange Commission you can find those documents on our website or at S&P Dot Gov.
During today's call. We will also discuss some non-GAAP financial measures. We believe these will be useful in evaluating our performance you should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP we.
We have provided reconciliations of non-GAAP measures with comparable measures in the tables that accompany today's release.
With that let me turn it over to Pete to begin Peter.
Thank you Debbie and good afternoon, everybody. Thank you for tuning in for our call.
In general we feel the first quarter was a reasonably good start to the year.
And we're making lots of good progress.
There are challenges.
I had this conversation generally into a discussion of the positive points to begin with and then focus.
Focus a little bit on the challenges towards the.
Yeah.
Sales were up 35% year over year to 156 million.
He did the range that we predicted.
When we last talked.
Aero was up 34%, that's aerospace to $135 million.
Our test business was up 42%, so $29 million, but that includes a $5 8 million non operating after which we will discuss in some detail a little later.
Jumping to the bottom line.
We had a net loss of $4 4 million and <unk>.
Adjusted EBITDA of $6 1 million, which was three 9% of sales.
A nice improvement from where we were one year ago, when we had adjusted EBITDA of $1 million.
And even an improvement over the fourth quarter, one adjusted EBITDA was 4 million on higher sales.
Evaluating the quarter and comparing it to last year's first quarter is somewhat complicated due to several factors.
Including this non operating revenue of $5 8 million and our test segment.
And equity investment payable write off of $1 8 million.
Earn out income on our semiconductor test sale from a few years ago of $3 4 million in the current quarter versus $11 3 million in the comparator quarter a year ago.
And J P.
Aerospace.
Aircraft manufacturing jobs Protection Act grant receipts of 6 million in the comparator quarter a year ago.
Steve will dive into some of those specific items when I guess when he gets a turn at the mic in a few minutes.
Demand remains.
Pretty strong with bookings at 158 million once again setting a new record backlog at the end of the quarter.
Aerospace orders in particular were strong at a 150 million, which is a book to bill of 111.
Test was buoyed by comparison at seven 8 million in bookings for the quarter.
Test orders tend to be lumpy and vary quite a bit from quarter to quarter. So we don't get too worked up about one quarter being light in that business.
In terms of new business two significant developments occurred shortly after quarter end.
That are worth mentioning.
On April six the general accounting office with Diego dismissed the Lockheed protest on the Army's Fluoro program clearing the way for Textron's Bell to proceed.
There isn't.
We're not allowed to say too much about that program at this point.
But we expect to be turned on with development work in the coming few weeks.
As we have discussed on these calls in the past this program promises or has the potential to be one of the most significant programs in our company's history.
Before it's done.
Also in April we were awarded the handheld radio test sets program by the Marine Corps.
Otherwise known as H H Rts.
This is an award that we expect to come out almost a year ago.
But we're happy to get it leased and never so radio test program for the Marines.
And I D IQ, which stands for indefinite delivery indefinite quantity.
Which we expect will be worth approximately 40 million in revenues over a five year period, and we expect it to be frontloaded in the first three years.
Mostly.
We expect a first major task order potentially of about $10 million in shipments in the coming weeks.
This is a complement to the $45 49 T program, we've talked about before that's a radio test program for the U S. Army that we won last fall that is in contract negotiation.
Okay.
As an aside HHR to US is the final major new program pursuit that we had in our sites when the pandemic began in early 2020.
We made a conscious decision to maintain certain resources and pursuits, even though we knew that our business has been a struggle.
As the pandemic took its hold on the aerospace industry.
At this point I can say, we've been stunningly successful actually winning pretty much every item on the list except for a couple of them that have are on indefinite hold.
Which includes in addition to flora and HHR Tee us.
45, 49 to you that I just discussed our new generation in seat power.
Architecture, which was instrumental in winning southwest airlines as a customer and has subsequently been successful with narrow body operators all around the world.
And antenna kit.
Kit program for Safran in Airbus.
Tablets shooting ourselves in the emerging electric and you'd VTOL aircrafts market and a few other programs that we are not yet allowed to discuss.
These programs as a group are barely represented in our backlog.
And if not yet meaningfully affected our results, but they will begin to do so as 2023 rolls along.
Looking forward, we are holding our 2023 revenue forecast at $640 to $680 million.
Establishing second quarter guidance at $165 million to $175 million.
At the midpoint this implies second quarter growth of 32% year over year and 9% sequentially.
For most of the pandemic, we have vacillated between 100 and 125 million in quarterly revenue.
The last two quarters have been in the $155 million to $160 million and now we feel we are stepping up to 170 570 $175 million or slightly more.
For the rest of 2023.
At that level, we would expect for the rest of the year to be strongly cash positive and profitable.
Some discussion on margins.
We are reasonably comfortable with our aerospace segment is progressing.
As volume increases the margin profile will continue to improve our splits, especially since the growth is largely in commercial aerospace a market that has traditionally been quite lucrative for us.
We are making margin progress in our test business also but first quarter results make it less obvious.
We have restructured the business in mid April and took out about $4 million to $5 million of annual cost.
With savings being evident in the third quarter. This year after severance cost are finished.
This action was necessary due to delays with some of the new programs. We have one particularly in the area of the radio test HHR Tee up some 45 14 90 programs discussed recently.
But also with some transit test work that we are.
Progressing on slowly due to customer delays.
We expect these new programs eventually to contribute $20 million to $40 million of annual revenue, which will be a significant adder to the current business level of about $80 million per year.
<unk> been slow to take off and they are not here, yet and to bridge. The gap, we felt it necessary to cut some costs.
The select this action will allow the business to establish profitability at current revenue levels of $80 million to $85 million per year.
While waiting for the new programs to launch.
So the test business has been a challenge another of our challenges is working capital.
The sales ramp we are experiencing is a good thing.
But it has led to higher receivable balances and.
And ongoing supply chain snags have resulted in increased levels of stranded inventory.
This was especially apparent in the first quarter.
Receivables remain high will win.
Will remain high in the near term as revenue continues to ramp, but we believe we are at the high point on inventory and expect to see a gradual decline from here.
At this point I'll turn it over to Dave to go into some details of some of the topics I brought up Dave.
Thanks, Pete as Pete mentioned, there are several unusual income and expense items to point out in the quarter.
And one in the comparable 2020 to first quarter.
For reference you can see these items called out and I think it's page eight of the release and the in the table that reconciles adjusted EBITDA to GAAP net loss.
Yeah.
First and most significant of which was a $5 8 million dollar increase to sales there.
There is a result of reversing an opening balance sheet contract liability.
It was created in one of our acquisitions a few years back.
The short explanation is that we bought a test company and assumed a $5 8 million dollar deferred revenue liability related to a customer contract, which is no longer expected to occur.
Second item I'd like to point out is a reversal of another liability of $1 8 million that was recorded as.
In other income this quarter and it was related to an equity investment in another company that we no longer are required to make it was a it was a startup company that failed to meet certain milestones.
Third item, we recorded a final earn out payment.
Well $3 $4 million from the sale of our semiconductor test.
Line, a few years ago.
In last year's first quarter, we recognized $11 3 million for the for the earn out.
And as compared to $3 4 million this year.
And it was the it was the final earn out for that sale of that business from several years ago.
The fourth item is our legal costs defending our positions in the IP related suits was high in the quarter at $4 $4 million, it's about $3 $2 million higher than last year's first quarter.
And last I'd like to point out than last year's first quarter, we recognized $6 million from the AMG P. Grant program that Pete mentioned.
It's a reduction in cost of sales for that period.
And there've been no comparable grants available since then.
So considering all these puts and takes are adjusted EBITDA improved from $949000 in 2022 first quarter to $6 $1 million this quarter.
And a $34 million increase of sales, excluding the adjustments for the $5 $8 million.
Non operating sales that I previously referred to.
Yeah.
I'd like to add that adjusted EBIT also improved when compared to the preceding fourth quarter of 2022.
Looking at segments, our aerospace business continues to see a strong recovery.
And its ramping to satisfy customer demand aerospace sales were $135 6 million up $34 2 million or 33, 7% from last year and.
And bookings were strong at $150 million.
We expect aerospace sales to ramp to $150 million to $160 million in each of the final three quarters of the year.
Which will see segment the segment returned to solid profitability.
So we're still expecting to incur some spot by expense in the second quarter, which will impact margins in that period.
Aerospace operating margin was $4 1 million or 3% an improvement of $7 million compared to the 22 2022 first quarter. When you exclude the impact of the $6 million of M. J P Grant from last year.
Our test business on the other hand had a mixed quarter. The top line of $20 9 million looks all right.
<unk> $5.8 million of nonoperating adjustments discussed above and mentioned by Pete.
One backs out the <unk> adjustment the test results were not so good we expected sales to pick back up to $20 million in the second quarter and stay there for the rest of the year.
Shortly after the quarter close we had restructuring Pete went through that a little bit.
We're expected to benefit $4 million to $5 million annually from that restructuring.
They will start to show up in the third quarter.
And the restructuring again was necessary due to the slow takeoff of some of the higher dollar programs.
For the test segment.
Turning to debt and.
The balance sheet cash flow continues to be a challenge due to inventory growth.
Cash flow from operations was negative $19 million due primarily to inventory growth.
Which increased by $13 $9 million and receivable growth, which increased by $4 $2 million during the quarter.
While the supply chain is improving part shortages in last minute rescheduled from suppliers are hampering our efforts to reduce inventory levels and improve inventory turnover.
Receivable growth was mostly due to the timing of shipments weighted toward the last month of the quarter were roughly 50% of our shipments.
Occurred in the month of March.
We're compliant with our debt covenants and are forecasting continued compliance and positive cash flow for the balance of the year.
And Pete mentioned.
Maintaining revenue guidance of 640 to 600 million $680 million for the year.
And that's all I had Pete.
Okay, I think that concludes our prepared remarks with everything being said, we feel that the first quarter was a reasonable start to the year. There are challenges there always are.
Well, we think the rest of 2023 is setting up to be a pretty exciting time for our company.
And.
We will open it up at this point for questions for solar.
My first one is just wondering how much you have left on the table in terms of sales because of the inventory those stranded whether I'm just component shortages or timing of other stuff that was going on.
Uh huh.
Probably about $25 million.
We've got about $25 million of.
Orders that are there.
Our scheduled or overdue pass through at this point and most of that is due to part shortages.
Okay.
Good question.
Are you seeing.
So we're seeing continued I would say continued progress on our supply chain in general.
We've been saying that now for probably about five or six months.
And it continues to get better.
But it's still not perfect and so you end up with these situations.
You never know, what it's going to be from period to period or week to week or month to month, but.
But in general $25 million is the number that we think is past due now I should distinguish a little bit because we have this huge backlog.
And customers would happily take stuff.
Faster and sooner, if we could accelerate and do it.
So.
And as our supply chain improve sometimes that improves in fits and starts so to give you. Some color on that we were putting guidance out there for the second quarter of $165 million to $175 million, we've got scheduled orders well in excess of the high end of the range there.
So we're taking into account.
Our current performance level of our supply chain and we're not assuming significant improvements in the short term.
But.
I might point out that for each of the last two quarters, we've actually exceeded the high end or hit the high end of our of our range.
So it's starting to come back and it's starting to come back.
I think a little bit faster, which is a good thing in general for the world and for our industry.
But it also caught us a little bit by surprise with inventory growth in the first quarter. So there is a flipside to it thats not so positive.
Got it.
That's helpful.
Just thinking about the run rates that you are forecasting for the rest of the year 150 to 160 on the aerospace side and $20 million on a test site that gets you to the high end of your range already.
So I'm wondering if that's kind of what's your what's your plenty yet.
In your guidance with those expectations.
Second whats the whats the profitability, you're expecting and at that run rate the $160 million to $170 million.
Well, we don't typically.
What did you say profitability or possibility profitability.
Thanks.
Probability.
Sorry, John we have a weird set up in this room that we're in it's hard it's not totally easy to hear what Youre, saying did you say, what's the probability of hitting the high end of our range.
I said, what's the profit at that range the profitability.
Okay. That's what I thought we would we don't do down.
Bottom line guidance as you know, but we would expect.
As we get to that range and Youre right. The kind of the numbers, we're forecasting put us at the high end of our stated range.
We would expect to be us to be.
Positive cash flow.
No reasonably profitable.
In the second half of this year in particular.
And as far as the range goes we're sticking with 640 to $6 80, as I said the supply chain and all of the unpredictability of the world.
Certainly mean that there is some risk of downside potential there, but there's also opportunity for upside potential in my opinion as the supply chain continues to improve we certainly have the business and we have the orders.
So and the customers will generally take product if we can deliver it earlier than what we're currently agreeing to so.
I think the second half is going to be an exciting time for the company and.
It'll it'll begin to feel and look a lot more like it did kind of pre pandemic than it has.
Okay.
Got it.
One of the things.
General rule of thumb is to think about is our contribution margin on incremental sales.
It's going to be close to 40% 35, 40%, we have some spot buys that are continuing to happen, but they're much smaller than.
I think last last year, some quarters, we had $3 million of costs relating to spot buys first quarter. This year. It was somewhere around rounded to $1 million or so that will those will drop off as we move into the second half of the year, but the contribution margins should improve to.
We were down in the 30.
30% to 35% last year, I think we're progressing up moving toward that 40% contribution margin on the incremental sales.
Okay great.
One for me just within that $20 million run rates for the test business for the rest of the year does that assume any pick up from these on the army or for marine contracts that you landed.
Or is that expecting more of a ramp in 'twenty four.
Alright.
They're going to significantly ramp in 2024.
We do have some kind of lower level.
Assumptions in 2023, but theyre.
Therefore test units in low rate initial production units things like that.
And.
We don't have this Hh Rts task order, yet we expect it.
Shortly but it will probably become more of an early 2024 issue than a 2023 45 40 <unk> 90 on the other hand.
We are at this point expecting formal contract award sometime in the August September timeframe.
And there will be some positive impact at that point in terms of low rate initial production units.
And some engineering expense that.
That will get relieved once the contract is signed.
But that also will significantly begin to ramp more in 2020 for them in 2023.
Understood. Thank you I'll jump back in queue.
Got it.
Our next question comes from Pete I'll start with Chuck.
Thank you Ricky.
Hey, good evening I'm on for Mike <unk>. This evening, thanks for taking our questions.
So first I just wanted to ask on the aerospace segment. So looking back historically at the revenue run rate you delivered this quarter, you've been able to generate segment operating margins that were more in the low teens.
So just kind of wondering how to kind of think about the different like how much of an impact to margins would you estimate that the spot I've had in the first quarter and kind of where are the other biggest margin headwinds that you're seeing versus what your cost structure look like pre pandemic thing I'm just trying to get at if theres any other potential drivers for margin expansion throughout the rest of the year aside from.
The volume impact you called out.
Well most of it most of the spot buy was was all of the spot buy was.
It was in the aerospace segment, so that was roughly roughly a $1 million, but the volume is what.
The topline growth is what's going to drive the.
The operating margin for the segment.
Move through the year.
I would answer by saying that.
I don't know how far back you had to go to look at that so.
Similar kind of revenue run rate for our aerospace business, but.
Today, we're <unk>.
And deep company.
Frankly, we didn't really have a chance at.
Back in those days I mean, the system that we're putting on flare I just as an example on those diesel 80 valor.
Is it is something that I think most of the industry didn't think.
Even today, we were capable of bell, new because we've been working with them on their previous to <unk>.
Commercial helicopter projects. So they knew what we could do but but a flare of type of program is not something we could have done say five or six years ago.
So we do have more of an overhead.
<unk> to our business.
I think it is a very capable.
Element and I think it's one that's going to drive results.
But they take time to mature and Florida will not be an exception to that it'll take time, but those kind of programs can be incredibly valuable over a long horizon period.
Okay. That's very helpful. Thank you and then just as a follow up I wanted to ask a question on the <unk>.
<unk>.
Are you fully staffed to the degree that you need to be in order to meet your full year revenue guidance and have you seen any recent changes over the last few months, even with attrition or just overall labor availability.
We have certain hotspots in our company, where we do have labor challenges, but in general and even in those hotspots.
I would say that labor is getting to be an easier issue.
It's freeing up a little bit.
We like most companies had a lot of churn over the last couple of years, we're starting to see some of those people come back even.
Now.
It turns out the grass isn't always greener on the other side, but we're also.
By having an easier time, just attracting people in general across most parts of our business. So.
If all of the parts came in right now.
Would we have all the people, we need probably not but the big challenge for US is not people it's much more parts.
Okay very helpful. Thank you for taking the question.
Sure thing.
Our next question comes from Tony Bancroft with Gabelli.
Kibali fun.
Hey, Ken Thanks, so much for taking my question and congratulations on the good quarter maybe.
Maybe you could remind us again.
What what the Florida program entails.
Potential full rate.
Ship set.
And then is there potential to gain more content on that program.
Well as you know Tony of these programs can have a long and somewhat unpredictable.
Trail.
And our piece of it at this point isn't even firmly defined yet it's still a little bit in flux, but I think I'd use this line before and I'll use it again, even though we're no we're not.
Not under contract yet and this is an formalized but.
As our company has grown.
Over the years, our ship set content has grown also and I use. The example of.
There was a time when the business was based on maybe.
$10000 per business jet and we were largely a business jet company.
Today, if you were to take a wide body aircraft and put absolutely everything on it that we could possibly put on it from a lighting perspective from a safety perspective from a <unk>.
<unk> power perspective from antennas and file servers and wireless access points all the things that we do.
You'd probably come up with and by the way there's never been an airplane like this [laughter], we've never had one but if we had one it would be somewhere in the neighborhood of probably a $750000 chipset something like that.
And our lira ship set content as it.
As it exists right now is well north of that.
So.
It is a major program and.
As you know largely designed to replace.
Blackhawk.
Or to complement the Blackhawk.
Nobody is saying, they're going to be a one for one replacement, but there are 4000 Blackhawks out there are many of them have been out there since the mid 1970. So so theres due for a major upgrade and I think the working number that I come across most is somewhere in the neighborhood of 2000 ships.
Before you start selling internationally so.
It's a significant program.
Yeah, that's great and then.
Again could you remind me I know that in the second program is obviously the far program. Obviously is not as it's much it's not doesn't have the same kind of volte.
Volume is Florida, but is there any just because of the relationship with with Dell and just.
You guys do is there any potential to be on that program as well as that is that a possibility.
So like what maybe.
Yeah with Bell certainly we are on their Farah.
<unk> also.
Wonderful and then I guess with such a long.
Transformational.
Contractors.
And potentially transformational maybe longer term view, where do you see your company.
Five years from now when this witness with this program matures. It if it makes sense to do.
Do something transformational with with.
With the <unk> or how do you see that I mean, it's such a.
This is just really changed I think is probably going to change your business quite a bit I just wanted to get your thoughts on that.
Okay.
Well I'll tell you the truth, we've been thinking so much about quarter to quarter through this pandemic.
And then.
The program delays in them.
Challenges legally and all that stuff, but.
Yeah, I think it opens up a ton of opportunity for our company.
We were challenged in this pandemic largely because when we went into it we were 70% commercial transport.
And that's the that's the area that got kicked in the teeth. The most by the pandemic.
We were only 10% military aircrafts. So if you run those numbers that we were talking about just moments ago.
That program is single Handedly has the has the probability or potential to rebalance our business I think in very favorable ways from a market diversification standpoint.
So so we're certainly looking forward to that that will be transformational in and of itself from my perspective.
But beyond that we haven't put any stakes in the ground as to what we wanted to accomplish or.
Even where we would plan to build those products.
We're going to design them in our facilities, where we have that expertise but.
It's going to take a lot of floor space and a lot of capital to get that prop program going so.
Luckily we have a few years to get that effort underway.
That's a good point.
Maybe just one more.
You sort of.
Talk about how this is.
You'll likely going to shift the.
Business.
Giving the split more more balanced in defense, but then.
Sort of.
Another.
No.
Benefit of course is the back.
The commercial side you have all these.
Aircraft that are still being flown longer than extending out Todd you've heard all of the other conference calls and discussions about this and so I mean, it seems like on the aftermarket piece there.
There's probably a huge wave of opportunity for these extensions and then just retrofits maybe could you just update us on what.
How are you seeing that.
That's.
Sort of transformed over over.
Over throughout the pandemic and up to this point.
I think it's a good point and it is a growing part of our business.
Our business has grown quite a bit over the years, but in many respects, where we're still a pretty young company.
In.
Date myself here, a little bit, but I remember.
Remember a time when we were about $4 5 million in sales and we hit 800 right before the pandemic.
And in a lot of that growth came over the last 10 years or so 10 to 12 13 years.
And a lot of the products that drove that growth or are are maturing and needing to be replaced so we definitely are seeing an uptick in some of the spares.
<unk> and some other repairs purchases thats never been a big part of our business.
But but as we get larger and as these as these products you know everything on an airplane breaks again as you know.
And.
I think.
Being a pilot is a much easier job if airplanes never broke right, but they do so.
Hum.
There is certainly a market there and I expect that we will become a bigger part of our business in certain places it's starting to now.
But but it's not a major thing yet for us it's not something we breakout separately in our financials, but I can see us getting to that point at some someday.
Yeah, Thanks, great Great job, Peter Dave Wilson.
Thanks.
Our next question comes from Scott Lewis.
That is capital management.
Hey, good afternoon guys.
Hi, Scott.
Hi, Pete.
A question on one question on <unk>, what kind of margins.
The development work.
Bill.
Oh, well, we anticipate being fully funded for sure and we anticipate having a reasonable return on it our risk reduced return.
So that contract is in negotiation so it's a little hard to talk about it at this point, but.
I expect that we're going to be turned on before our next conference call. So I should be able to talk about it a little bit more by then.
Can also say that the.
The scope of activities.
Over the next say 15 months has bounced around quite a bit. So we don't really know exactly what we're gonna be asked to do yet at least I don't some people in our company may now.
So it's a little hard to say, but.
We expect to be turned on and we expect to be.
<unk> some of our people around and adding to our staff.
To do it but we're not going to make additions and we're not going to do too much of that shuffling until we finally get under contract.
Okay got it and then the second question is.
It looks like in 2024, you'll be pushing out good volume through your main.
Kind of business units, how about your smaller business units.
Some of those that gave the company some troubles right before the pandemic.
Anything there that is concerning that could detract from the.
The overall performance of the company.
No not really.
You have a long memory Scott.
But.
Also.
Also remember that.
But those three I think we call them problem children at the end of 2019, we took some pretty major restructuring steps to fix them.
And those steps have largely I feel been successful we haven't talked about them a whole lot since.
And they are in general doing pretty well one of them in fact is.
Probably one of the most profitable parts of our business right now right profitable.
Which is a big change so.
Yeah, I don't we're not going to go back to those days I think we got those things fixed.
Okay, great that is great to hear and as far as long memory I remember the big Guy.
Really big military contract the F 16 night vision cockpit.
Boy Scout fairly yeah, that's right so that was.
Starting in the late nineties.
98.
It was earlier than that was the reason we built the building.
My recollection of all time wells that was just when we were just two operations or just new Hampshire.
Org.
And we were a $16 million program and the program Scotts, referring to for those who don't know it was a it was a.
Uh huh.
International Guard led program to retrofit.
<unk>.
Fleet of F 16 fighters for night vision goggle compatibility, so everything that lit up on the airplane interiors cockpit and exterior had to be replaced we were about a $60 million company I think that was a $50 million contract before you started doing spares and all of that and then the air force jumped in on it too.
So it turned out to be 1156 airplanes, just for what it's worth.
Although for whom.
One of our Portland crushed before we got done so it was really 1152 airplanes.
Alright.
Yes, it does.
As many and maybe more.
Yeah.
It'd be nice.
Alright, thanks, guys.
Thank you.
Our next question comes from John <unk> with CJS Securities.
Hey, guys I just wanted to go back to the margin question do you still expect to be back at those low teen operating margins in the aerospace business.
Sometime in the next maybe 567 quarters or so.
Yeah.
Yeah.
I think we're going to it.
It might take a little bit longer than the next.
Four or five quarters to get to get back to those two.
So the low teens in terms of.
Operating margins.
But.
Yeah I think.
Our expectation is to get up to the mid teens in terms of.
EBIDTA margins.
As the topline grows when we get.
Probably post post this year maybe into the beginning of next year.
But.
But I can see us getting.
In the into the teens in terms of operating income.
On the aerospace segment.
Probably not within the next year, though.
No.
As the topline grows.
We'll also see as new contract pricing start to kick in more than it is right now we're really not seeing a whole lot of that we quoted a lot with new pricing in it and those are typically.
There are two three year programs that will begin as we move through this year and into next year and those the new quoting the new pricing is reflecting the inflation that we saw in the past 12 months here. So it's.
We're going to see some some margin expansion.
Related to that versus what we're seeing right now too.
Okay.
Got it that's helpful. And then just a quick question on the legal costs. What are you expecting for the rest of the year and kind of when you expect that to finish up.
Yeah.
Yeah.
That's a hard one to predict.
Probably it may not be consistent from quarter to quarter, but probably in the $2 million to $4 million a quarter range I would say.
It could.
B 4 million one quarter $1 million the next.
<unk>.
It's depending on what's going on.
Okay.
In the process for each of the states.
Okay, and then just remind us how much room you have under your covenants at this point in case, you know do you have more problems with receivables and inventory or something else is going on.
Yeah.
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Okay.
Yeah.
Where we are right now.
Okay.
In terms of the.
Minimum a bit the compliance.
We have around $9 million of room.
On the minimum EBITDA compliance.
Okay, and that's our priority.
Our financial Covenant right now.
Got it.
Thanks, Ed.
Janet.
Please go ahead.
Thanks, gentlemen, ladies and gentlemen, if you would like to pose a question. Please press star.
Aylwin.
Yeah.
The conference has now concluded.
Thank you for attending today's presentation.
Now disconnect.
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Yes.
Yes.
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