Q2 2023 Air Industries Group Earnings Call
Hello, and welcome to the Air Industries group's second quarter 2023 earnings call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
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This call and the accompanying webcast may contain forward looking statements as defined in section 27 of the Securities Act of between 33 as amended.
Clothing statements regarding among other things the company's expectations regarding realization of its business strategy and growth strategy expressions, which include forward looking statements speak only as of the date of this call.
These forward looking statements are based largely on our company's expectations and are subject to a number of risks and uncertainties some of which are beyond our control and cannot be predicted or quantified.
Future developments and actual results could differ materially from those set forth and contemplated by or underlying the forward looking statements.
These risks and uncertainties there can be no assurance that the forward looking information will prove to be accurate. This call does not constitute an offer to purchase any securities nor a solicitation of a proxy constant authorization or Egypt explanation with respect to a meeting of the company's shareholders.
At this time I would like to turn the call over to lose Maluso, President and CEO . Please go ahead Sir.
Thank you Latanya.
Good afternoon, and thank you for joining us today.
I'm pleased to report that we have achieved strong topline and bottom line improvements in the second quarter of 2023.
Net sales grew 5% to $13 2 million or.
Our profitability improved at even a faster pace with gross profit dollars up more than 13% and gross profit margin increasing to 16, 4%.
And we recorded a positive operating income in the second quarter. After two quarters of operating losses, resulting in a 36% reduction in our net loss.
The main drivers of our profitability improvement, where the sales growth and product mix at our Sterling engineering subsidiary.
In general we realized higher margins on the products sold to Sterling.
Higher volume and plant Utilizations have made a substantial difference in.
And cost absorption and therefore profit leverage.
We're fully focused on increasing sterling sales, especially through long term agreements, we see additional exciting opportunities for sterling in the coming months.
Additionally, Sterling performance has benefited from transformation effort, we have undertaken to capital investments and project engineers.
Highlights the efficiency of our new equipment over the past two years, we have added critical equipment at Sterling such as a new large format bridgeville and coordinate measuring machine we.
We are continuing to invest in machines. It gives us unique capabilities and differentiates us in the marketplace.
Additionally.
A plant modernization project is in the works that includes a new roof and solar panels installation of the solar roof panels will reduce city requirements and further save cost.
Yeah.
Pretty wide business development effort is proceeding at full throttle and we're encouraged by the feedback we received from both our long standing and new customers.
Last month, we announced two new contract awards valued at a total of $5 2 million for arresting gear components for the U S Army E <unk> Hawkeye tactical airborne early warning aircrafts.
The F 35 lightning tie back aircraft.
One of the contract was from a longtime customer while the other came from a new non U S customer. It was our first award from a customer located outside the U S.
The Paris Air show also proved to be an important source of new business opportunities. For example, we met with a potential customer in France, which led to a meeting with their Canadian operations and we have now received in Q2.
For proposal.
From a highly interested potential new customer.
We made further inroads into the nuclear submarine market in the second quarter and expect more of the projects to begin in the third quarter.
That market is experiencing expansive growth given the projected 50% increase in the number of submarines required by the U S. Navy over the next few years.
We have targeted this market because we have identified a need for suppliers like air industries to deliver components that meet the ultra high quality standards required.
Our business development effort has translated into increased bookings, which jumped more than 250% in the second quarter of 2023 for the second quarter last year.
Quoting activity continues to be very high across the board.
And our last call I discussed the strategic analysis that we conducted with the help of an outside consultant.
<unk>, our most compelling market opportunities.
As a result, we have defined the intermediate to longer term opportunities we plan to pivot toward.
With the potential to further drive profitability growth.
We have identified markets that are attractive and actionable.
And fit our capabilities, where we can compete effectively.
And importantly, we will target markets, where we have significant in the near to mid term visibility into the volume and profit potential.
Specifically, we attack we intent to expand our penetration of existing platforms continue to add new platforms and capture new markets.
The additional E D and F. 35 awards are two examples of our expansion of existing military platforms.
With our strong second quarter behind US we are very optimistic that the momentum we have gained and the outlook for the future of the company.
We demand.
Excuse me the demand drivers I pointed to the last quarter remain intact, the evolving geopolitical landscape the need to modernize U S Air Naval our resources and the recovery and growth of commercial aerospace.
Let me conclude by asserting the following.
Our team is primed and ready we have made the capital investments in the equipment to further differentiate our capabilities, while also refining our delivery processes and reinforcing customer service.
I'm confident that we are seeing the onset of a sustained period of improved order flow trajectory.
In short we are in a position to take full advantage of the current upcycle and.
Now, let me turn the call over to Mike <unk>, our CFO for his report, which we will follow with a Q&A and some concluding remarks Mike.
I'd like to see.
Sharp is I agree with Lou this is the second quarter was very encouraging.
Maybe provide some additional detail.
As reported our second quarter sales were $13 2 million and that was up 5% from the first quarter of 2008.
And although they were five 7% lower than the.
Second quarter of 'twenty two.
Year to date sales for the six months were $25 8 million essentially flat with the prior year.
Our gross profit for the second quarter was $2 2 million, which is up around 13% from the 1.9 million in the first quarter 'twenty three was down about 10% from the $2 4 million in the second quarter of 'twenty two.
Gross profit margin and this is going to get a little complicated gross profit margin was 15, 4% of sales for the second quarter. That's an increase of 100 and base 140 basis points 1.4 percentage points from 15% in the first quarter.
Gross profit margin recorded for the second quarter of 2022 was 17, 3%.
So it looks like our gross profit margin was down but the.
The first three quarters of 2022 from January through September .
Our gross margin was 17% 17, 3% at.
At year end, we determined that our gross margin for the full year with only 14, 3%.
The reduction resulted from a new more conservative method of calculated and reserving for slow moving inventory and anticipated future losses on one particular contract.
And that's the contract that will be completed.
For 2023.
So when comparing our second quarter 2023, gross profit margin against our full year margin.
2022 that is 14, 3%.
Our 'twenty to 'twenty three gross profit dollars and gross profit margin percentage exceeded the prior year.
Operating expenses were 2.1 million.
That's the only 2% higher than the first quarter of 'twenty to 'twenty, three and 4.3% lower than the second quarter of 'twenty to 'twenty two.
And so I have lower operating expenses and the inflationary environment.
Our operating income.
<unk> positive in the second quarter of 2023 totaling $90000.
And that compares to an operating loss of 158 in the first quarter of 23.
Operating income of $2 50 in operating income compared to operating income of 250000.
The second quarter of 2022.
Interest expense interest expense has gone up and increased about 5% from the first quarter.
It was up 73% from the second quarter I'll try 22.
Our interest rate on our bank line and that's the majority of our debt is calculated at the prime rate, which is currently a one 5%.
<unk> 65 per cent and 650 basis points.
With a floor of three three.
So until mid last mid June last year 2022.
Federal reserve interest rate increases did not affect us.
Since then our interest rates and thus our interest expense has doubled.
Our net loss for the second quarter of 2023 was reduced 395000.
My net loss versus a net loss of 618000 and the <unk>.
First quarter of this year net.
Net loss in the second quarter with 7000 again, keeping in mind the gross profit gross margin differences.
Our performance improved.
Our balance sheet remains more than adequate in our accounts payable and receivables a very current.
Our inventory, which had increased significantly in 2021 2020 'twenty. One is now in line with historical averages.
And that concludes what I have to say, let me try to call back to Lou.
Thank you Mike.
Let me reiterate our team is primed and ready we've made the capital investments to further differentiate our capabilities and we are in a position to take full advantage of the current up cycle.
We are highly excited about our opportunities and we are vigorously executing our strategy.
And with that let's let the way that I would like to open up the call to any questions.
Questions.
Thank you.
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Once again Thats star one to ask a question at this time, one moment, while we poll for our first question.
Our first question comes from Howard Halpern with <unk> Brothers. Please proceed.
Oh, congratulations nice quarter, guys nice quarter good.
Good afternoon Howard.
And in terms of.
Gross margin.
What are we looking at.
The key elements to keeping it at the 16.4, we're improving it over the second half.
Yeah.
This is Mike rack I believe the gross margin will improve.
As the margin as the year progresses for a couple of reasons.
First.
We have one contract at Air Industries machining are our biggest company that was operating at a loss last year.
We accounted for what we anticipate in the future losses were for this year that account is pretty accurate. So that means we have a bunch of sales is essentially zero margin or very slight profit or very slight loss I don't have the exact numbers in front of me. So once that goes away it will no longer pulls.
Down the average other remaining sales.
Second up at Sterling.
The gross margin is highly highly.
Variable depending on volumes and in the second quarter. The gross margin was 18, some odd percent and that's a significant improvement over the 0.2% that we had in the first quarter.
We expect those margins and better.
Product mix is going to are going to continue and in fact continued to improve so it was a combination of 18% at Sterling plus what I think is going to be more like 17% to 18% on long island, we should be have some improvement over the $16 five.
Okay. That's nice that's very encouraging.
Hum.
You talked about being prepared for the up cycle now and you also talked about receiving some alright rfps.
Going forward were included right now.
Are there new areas that you're investigating.
Any rfps what are those areas or is that still yet to come.
So you know one of the areas we were investigating a lashed earlier on last year, where the submarine business and that seems to be taking a life of its own. There's there's very much interest from several customers.
And so that's going that's going in the right direction, there's a lot of quoting activity and we have a we have orders in house. It both in our New York and Connecticut facilities. So that that's been a big plus you.
You know our trip to all the Paris Air show.
June of this year.
It's really led to some additional opportunities that are you know we've been after for a long time and you finally get to talk to the right people.
So you know we are.
Now, we're talking to the world's largest.
<unk> overseas.
Landing gear company, which is something that we were not able to crack in the past for one reason or another.
And the interest is high both in us doing business with them and just as importantly, with them doing business with us and although that's the at the Air show was only off maybe a month month and a half away a golf well, there's there's a substantial amount of our F. Q activity right now basically coming out of that business sort of it.
It's very very promising and the respect that.
We will hit something you know and it'll start a new relationship.
You know we thought we've always been a domestic supplier. So we supply to the places like Northrop Grumman.
And the our products are one way or another do end up overseas somewhere but not directly to us.
And now we bought where we're doing business with some oversea companies direct which.
Which you know is kind of going into right direction for the type of work that we do.
There's a lot of four and a lot of foreign countries that fly U S jets, so and the spare side.
Okay.
Yes.
Full avenues that we're pursuing.
Okay, and just one final one you didn't mention I just want to confirm that.
Supply chain issues, mostly alleviated [laughter].
Into the second half of the year.
Well you know the supply chain issues are are still mostly centered around materials availability.
And you know they seem to be easing it areas.
And then you know getting worse in other areas. So it's a fine balance you know one of our I guess running product, which is our thrust struts here in La and New York. That's that's been an ongoing product most of this year.
Towards the end towards the fourth quarter of this year supposedly we're being told by the mills that somebody's material supply issues will start easing up and materials should start flowing hopefully in 'twenty four but.
When we talk about supply chain issues right now that seems to be the biggest contributor to the problem is materials.
Uh huh.
Well keep up the good work guys.
Howard.
We speak to be able to tell him I said a lot of places.
Well.
Thank you Howard.
Once again, ladies and gentlemen to ask a question at this time. Please press star one on your telephone keypad.
There are no further questions in queue at this time I would like to turn the call back over to Mr. Mendelsohn for closing comments.
Thank you Latanya.
So with that guys I want to thank everybody for being on the call today and for your interest in Air Industries. We look forward to updating everyone on our progress on our next call with that Latanya I, you can and in the conference.
Thank you. This does concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation participation as a great day.