Q3 2023 Astronics Corp Earnings Call

Speaker 1: Good afternoon everyone and welcome to the Estronics Corporation 3rd quarter, 2023 Financial Results Conference call. All participants.

Good afternoon, everyone and welcome to the <unk> Corporation third quarter 2023 financial results Conference call.

All participants will be in a listen only mode.

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At this time I'd like to turn the floor over to Deborah Pawlowski Investor Relations for <unk>. Please go ahead.

Speaker 1: At this time I'd like to turn the floor over to Deborah Poloski, Investor Relations for Astronics. Please go ahead.

Thank you Jamie and good afternoon, everyone. We are certain we certainly appreciate your time today and your interest in the strikes joining.

Speaker 2: Thank you, Jamie, and good afternoon everyone. We certainly appreciate your time today and your interest in the strontics. Joining me on the call are Peter Gunderman, our chairman, president, CEO , and Dave Bernie, our chief financial officer.

Joining me on the call are Peter Gunderman, our chairman, President and CEO, and Dave Burney, Our Chief Financial Officer.

Speaker 2: We should have a copy of our third quarter 2023 financial results, which just crossed the wires after the market closed.

Should have a copy of our third quarter 2023 financial results, which just crossed the wires after the market closed today.

Speaker 2: If you do not have the release, you can find it on our website at astronics.com.

If you do not have the release you can find it on our website at <unk> Dot com.

Speaker 2: 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.

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.

One of those other factors that could cause actual results to differ materially from what is stated here today. These.

Speaker 2: These risks and uncertainties and other factors are provided in the earning.

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.

Speaker 2: as well as with other documents filed with Securities and Exchange Commission.

Speaker 2: You can find those documents on our website or at scc.gov. During today's call, we will also discuss some non- GAAP financial measures.

You can find those documents on our website or at SEC Gov.

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

Speaker 2: to not consider the presentation of this additional information in isolation or the substitute for results prepared in the courts with GAP. We've provided reconciliation of non- GAAP measures with comparable GAAP measures in the tables at a company today's release. So with that, let me turn it over to Pete.

You should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAAP we've provided.

Reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release.

So with that let me turn it over to Pete to begin Pete.

Thank you Debbie and good luck.

Speaker 3: Thank you, Debbie, and good afternoon, everybody. Thanks for tuning in to our call.

And everybody thanks for tuning in to our call.

Speaker 3: Our feeling is that the third quarter was a reasonably good quarter for our company.

Our feeling is about the third quarter was a reasonably good quarter for our company.

Speaker 3: Though there are many things to discuss, as usual, Dave and I will divide things up between us with respect to prepared comments, and then we will take questions.

So there are many things to discuss as usual David.

I will divide things up victoriaville.

With respect to prepared comments and then we'll take questions.

Speaker 3: Dave will focus on the nuts and bolts of the quarter, but I want to focus my time on what I consider to be the most important thing that is happening in our company these days and the most important thing for investors watching our company to understand. And that is the growth trajectory we have been on and that we will continue to feature prominently in the coming quarters.

Dave will focus on the nuts and bolts of the quarter, but I want to focus my time.

On what I consider to be the most important thing that is happening in our company. These days on the most important thing for investors watching our company to understand.

And that is the growth trajectory, we have been on and that Paramount will continue to feature prominently.

Coming quarters.

Speaker 3: It's important to understand that trajectory, both where we have been and where we are going in order to properly understand our company.

It is important to understand that trajectory, both where we have been and where we are going in order to properly understand our company.

I need to start with a bit of a history lesson, but will be old news to those who know our company well.

Speaker 3: I need to start with a bit of a history lesson that will be old news to those who know our company well.

But setting the stage is important to understanding where we are and what is before us.

Speaker 3: But setting the stage is important to understanding where we are and what is before us.

Speaker 3: I'll start by going way back to 2019, the good old days, pre-pandemic.

I'll start by going way back to 2019, the good old days pre pandemic.

Speaker 3: When we had fails for the year of 773 million.

We had sales for the year of 773 million.

Speaker 3: We were at that time and still today heavily exposed to the commercial transport airplane market, both OEM and retrofit applications.

We were at that time and still today heavily.

So the commercial transport airplanes market.

Both OEM and retrofit applications.

They made up about 70% of our sales back in 2019.

Speaker 3: They made up about 70% of our sales back in 2019.

Speaker 3: COVID arrived in early 2020 and hit the commercial transport industry hard and companies that were focused on it like proceed. they

Covid arrived in early 2020 and hit the commercial transport industry hard in companies that were focused on it.

Like astronomy.

Speaker 3: We bottomed out in 2021 with revenue of $455 million. So we went from $773 down to $455. It was a fairly painful decline for our company.

We bottomed out in 2020, one with revenue of 455 million. So we went from 773 down to 455.

It was a fairly painful decline for our company.

Speaker 3: The only glimmer of hope back then was the bookings level, which started to pick up as the year progressed, especially in the narrow body market.

The only glimmer of hope back then was the bookings level, which started to pick up as the year progressed, especially on the narrow body market.

Our book to Bill in 'twenty, 'twenty, one turned out to be 1.3.

Speaker 3: Our book to Bill in 2021 turned out to be 1.3.

Speaker 3: in most cases or in most times, pretty successful performance.

In most cases or in most times pretty.

It's a pretty successful performance.

However, the supply chain florals that were prominent at that time became apparent and while we're booking business. We generate the revenue that we wanted to so again 2021 revenue of 465 million.

Speaker 3: However, the supply chain snarls that were prominent at that time became apparent. And while we were booking business, we couldn't generate the revenue that we wanted to. So again, 2021 revenue of $455 million.

Speaker 3: In 2022 things began to improve significantly sales rose to 535 million up 20% as the supply chain began to

2022 things began to improve significantly sales rose to 535 million up 20%.

As the supply chain and began to correct itself.

Bookings, however stayed strong throughout the year with a book to Bill of 1.29, so while the supply chain.

Speaker 3: Bookings, however, stayed strong throughout the year with the book the bill of 1.29. So while the supply chain began to improve, it did not improve enough for us to make progress with respect to what the market was asking for us. But still, 20% growth in normal times, we'd be pretty proud of that.

Dan through improve it did not improve enough for us to make progress.

With respect to what the market was asking for us, but still a 20% growth in normal times we.

It'd be pretty proud of that.

Which brings us 2023.

Speaker 3: where we are seeing continued recovery in the airline industry and also for our supply chain.

Where we are seeing continued recovery in the airline industry and also for our supply chain.

Speaker 3: Given our Q3 results, our third quarter results, and updated guidance issued today in our press release for our fourth quarter, we expect to end the year in a range of 680 to 690 million.

Given our Q3 results our third quarter results.

David guidance issued today in our press release for our fourth quarter, we expect to end the year in a range of $680 million to $690 million.

At the midpoint that would be up 28% over 2022.

Speaker 3: At the midpoint, that would be up 28% over 2022.

Speaker 3: So 20% growth last year, 28% this year. Again, normally those will be things to be proud of.

So 20% growth last year, 28%. This year again normally those would be things to be proud of.

Speaker 3: I want to talk a little bit about that fourth quarter forecast.

I want to talk a little bit about that fourth quarter forecast.

Speaker 3: which you saw in the press release, which is 185 to 195 million.

Which you saw on the press release, which is $185 million to $195 million.

Speaker 3: Those are big numbers compared to where we've been over the last three years since the pandemic hit.

Those are big numbers compared to where we've been over the last three years since the pandemic hit.

But first of all we have the backlog to do it in fact, we have the backlog to do more than that if the stars were to align and capacity were to come in and.

Speaker 3: But first of all, we have the backlog to do it. In fact, we have the backlog to do more than that. If the stars were to align and capacity were to come in play in time, we could beat the high end of that range. But...

And play in time.

Beat the high end of that range, but.

Speaker 3: Being food will be conservative, we think 185 and 195 million is a proper range to go out with.

Being prudently Conservative we think 185 and 195 million is a proper range to go out west.

Yeah.

Speaker 3: Further, we are on pace through five weeks to get there.

Further.

We are on pace through five weeks to get there.

Speaker 3: You can take our five-week performance, which obviously is not released publicly at this point, but you ratio it to what we did in the second quarter and the third quarter and what our target is, and we're on pace, which is encouraging.

Can take our five week performance, which obviously is not released publicly at this point, but your ratio it to what we did in the second quarter in the third quarter and what our target is and now we're on pace, which is encouraging.

Speaker 3: Most importantly, that range 185 to 195 marks a return to what we typically did back in 2019. Finally, at long last, and that's important because

Most importantly.

That range of 185 to 195 marks a return to what we typically did back in 2019 finally.

At long last and that's important because.

Speaker 3: During the years of the pandemic, we kept our foot on the gas with respect to new programs.

During the years of the pandemic, we kept our foot on the gas with respect to new programs.

Confident that the historical volume would return eventually to help us cover the expense of those development programs.

Speaker 3: Confident that the historical volume would return eventually to help us cover the expense of those development programs.

Speaker 3: we finally think we're on the verge of doing that. And the fourth quarter, assuming we hit that range, will be a very interesting test of our income statement and our margin profile as it sits today.

We finally think we're on the verge of doing that in the fourth quarter.

Assuming we hit that range will be a very interesting test of our income statement and our margin profile as it as it sits today.

While I'm talking about 'twenty, two 'twenty three I want to briefly touch on revenue in the third quarter sales of $163 million were a little lighter than we hoped for but frankly for us at this point not a major point of concern.

Speaker 3: While I'm talking about 2023, I want to briefly touch on revenue in the third quarter sales of 163 million were a little lighter than we hoped for. But frankly, for us at this point, not a major point of concern.

Speaker 3: our volume in the third quarter was very much a function of scheduling and supplier capacity and our own capacity more than anything else. We ended the second quarter

Our volume in the third quarter was very much a function of scheduling and supplier capacity and our own capacity more than anything else. We ended the second quarter.

Speaker 3: on a very strong note and came into the third quarter with some pretty empty factories right in the face of a July 4th shutdown and basically July turned out to be a pretty weak month and we could not get the volume in August and September . August is also usually a challenging month with vacations and everything, but we built momentum.

On a very strong note and came into the third quarter.

With.

Some pretty empty factories right in the face of a July 4th shutdown and basically July turned out to be a pretty weak months and we could not get the volume in August and September or August is also usually a challenging month with vacations and everything.

But we built momentum as the quarter progressed and given the.

Speaker 3: And given the lumpiness of our business, sometimes $163 million in the third quarter, followed by $190 million at the midpoint in the fourth quarter, while maybe not the way you'd want to draw it up, doesn't bother us too much.

Lumpiness of our business, sometimes a $163 million in the third quarter, followed by a $190 million at the midpoint in the fourth quarter.

While maybe not the way you'd want to draw it up it doesn't bother us too much.

Speaker 3: Dave will go over the third quarter specifics in a minute.

Steve will go over the third quarter specifics in a minute.

Speaker 3: But before he does that, I wanted to talk a little bit about 2024.

But before he does that I wanted to talk a little bit about 'twenty 'twenty four.

Speaker 3: We're obviously within a month and a half or so of 2024 being here.

We're obviously within a month and a half.

Half or so of 2020 for being here.

Speaker 3: We normally would come out with revenue guidance in another month or so and we may do that again when the process of putting those numbers together. We're not done yet, so we're not ready to issue official guidance at this point. But I guess the message I wanted to send was at the revenue level that we're expecting for the fourth quarter.

We normally would come out with revenue guidance in another month or so and we may do that again, we're in the process of putting those numbers together, we're not done yet so we're not ready to issue official guidance at this point, but.

But I guess the message I wanted to spend was that the revenue level, but we're expecting for the fourth quarter.

Speaker 3: All indications are that is a fair indicator of where we're going to be throughout the year in 2024. In other words,

All indications are that is a fair indicator of where we're going to be throughout the year in 2024.

In other words, the fourth quarter.

Speaker 3: at 185 to 195 million is not, we do not view it as a fluke. It's not something that's gonna be a one and done kind of situation. So we expect when we do initial guidance that we're gonna, for 2024, that we're gonna end up in a range in the high $700 million.

At 185 to 195 million is not we do not view it as a it's not something that's going to be a one and done kind of situations. So we.

We expect when we.

Do initial guidance that we're going to for 2024 that were going to end up.

In a range in the high $700 million.

Speaker 3: You know, 750 year above up in that neighborhood.

750 or above up in that neighborhood.

Which will be a big improvement again over 2023. So we are looking forward to that.

Speaker 3: which will be a big improvement again over 2023. So we are looking forward to that. And again, we would expect to issue that guidance sometime towards the end of this year.

And again, we would expect to issue that guidance sometime towards the end of this year.

Dave I'll turn it over to you now.

Speaker 4: Dave, I'll turn it over to you now. Okay. Thanks Pete. So consolidated sales were up 31 and a half million dollars or 24% from, from last year's third quarter.

Thanks, Pete So consolidated sales were up $31 $5 million or 24% from last year's third quarter.

Speaker 4: The increase was across the board in all of our markets, but primarily driven by the commercial transport business as global air...

The increase was across the board in all of our markets, but primarily driven by the commercial transport businesses Global Airlines.

They've increased their retrofit programs and OEM build rates have increased.

Speaker 4: have increased their retrofit programs and OEM bill rates have increased.

Uh huh.

Other than that these are the same.

Speaker 4: Other than that, the sales increase was consistent throughout the entire aerospace business, but clearly dominated by the growth in the commercial transport business.

Intel's increase was consistent throughout the entire aerospace business, but.

But clearly dominated by the growth in.

The commercial transport business.

I'll just jump to some significant items that had impact on our margins this quarter.

Speaker 4: I'll jump to some significant items that had impact on our margins this quarter.

The largest.

Speaker 4: The largest item was the unexpected sudden bankruptcy a few days ago of a non-core customer.

Item was the unexpected sudden bankruptcy a few days ago, the noncore customer.

Speaker 4: that we did contract design and manufacturing work for that goes back to 2021 and 2022.

We did contract design and manufacturing work for that goes back to 2021 and 2022.

Speaker 4: We've been been in weekly contact with the customer regarding their sales pipeline and prospective customers order pipeline for their product and we're surprised

We've been we've been in weekly contact with the customer regarding their their sales pipeline and prospective customers.

Order pipeline for.

For their product and were surprised by the filing.

Speaker 4: We had very minimal sales activity with this customer this year and have not been including any sales relating to them in our forecast.

We had very minimal sales activity with this customer this year and have not been including any sales relating to them in our forecasts.

Speaker 4: The impact of this bankruptcy will have no impact on our operations beyond the reserves that we recorded this quarter related to inventory, all of which was purchased prior to 2023 and receivables, most of which were prior to 2020.

The impact of this bankruptcy will have no impact on our operations beyond the reserves.

Boarded this quarter related to inventory.

All of which was purchased prior to 2023.

And receivables most of which were prior to 2023.

Looking at gross profit for the quarter gross profit was $26 million or 12, 7% on sales.

Speaker 4: Looking at gross profit for the quarter, gross profit was $20.6 million or 12.7% on sales.

Lower than expected on $163 million of sales, primarily as a result of the reserve for inventory related specifically to that customer bankruptcy.

Speaker 4: Lower than expected on $163 million of sales, primarily as a result of the reserve for inventory related specifically to that customer bankruptcy.

Speaker 4: which added $3.6 million or 200 basis points to cost.

Which added $3 $6 million or 200 basis points to cost of sales.

Speaker 4: Absent this inventory reserve gross profit would have been 24.2 million or 15 percent. Up from 10.9 percent.

Absent this inventory reserve gross profit would have been $24 2 million or 15%.

Up from 10, 9% last year.

Speaker 4: but down sequentially from the second quarter due to the lower sales.

But down sequentially from the second quarter due to the lower sales volume.

SG&A of $35 million or 21, 5% of sales was higher than expected due to the accounts receivable reserve for the customer's bankruptcy, which was $7 $5 million that equates to 460 basis points on sales.

Speaker 4: SG&A of $35 million or 21.5% of sales was higher than expected due to the accounts receivable reserved for the customer's bankruptcy, which was $7.5 million.

Speaker 4: That equates to 460 basis points on sales.

Legal costs continue to run high and were $4 $6 million in the quarter.

Speaker 4: Legal costs continue to run high and we're $4.6 million in the court.

Speaker 4: Absent the accounts receivable were used or if STA would have been 27.6 million or about 17%.

Absent the accounts receivable reserve SG&A would have been 27 6 million or about 17% of sales.

The loss from operations was $14 5 million absent the impact of the customer bankruptcy loss loss from operations would have been $3 4 million a significant improvement compared with a loss from operations last year's third quarter $14 3 million.

Speaker 4: The loss from operations was 14.5 million. Absent the impact of the customer bankruptcy, loss from operations would have been 3.4 million.

Looking sequentially to bridging our second quarter operating income of $2 4 million to our third quarter operating loss of $14 5 million.

Speaker 4: Looking sequentially to bridging our second quarter operating income of $2.4 million to our third quarter operating loss of $14.5 million.

Speaker 4: We lose roughly 4.5 million to $5 million of contribution more.

We lose roughly $4 5 million to $5 million of contribution margin.

Speaker 4: on the 11.5 million dollar sales drop.

The $11 $5 million sales dropped.

The balance relates to the $11 $1 million of reserves taken related to the customer bankruptcy.

Speaker 4: The balance relates to the $11.1 million of reserves taken related to the customer.

Okay.

Speaker 4: Interest rates remain ahead when our cash interest for the quarter was about $5.6 million, which equates to a rate of 12% on our debt outstanding debt.

Interest rates remain a headwind our cash interest for the quarter was about $5 6 million, which equates to a rate of 12% on our debt outstanding debt balance during the quarter.

Speaker 4: At the end of the quarter, we had outstanding debt of $174 million.

At the end of the quarter, we had outstanding debt of $174 million.

Speaker 4: Jumping over to the balance sheet, cash and cash flows, cash used in operations in the quarter was $1.1 million, which is all an increase in net operating assets of $8.3 million that was largely offset by the net loss adjusted for non-cash accounts.

Jumping over to the balance sheet cash and cash flows cash used in operations in the quarter was $1 1 million.

Which is an all in increase in net operating assets of $8 3 million that was largely offset by the net loss adjusted for noncash expenses.

On a positive note our inventory level has stabilized and we are expecting from this point forward, we will begin to improve our inventory turnover.

Speaker 4: On a positive note, our inventory level is stabilized and we're expecting from this point forward, we will begin to improve our inventory turnover.

Speaker 4: Lowering inventory levels and generating cash flows we move into next year.

<unk> inventory levels and generating cash flow as we move into next year.

Speaker 4: As liquidity remains tight and our working capital remains high, we were active using our at the market program to sell 835,000 shares.

Liquidity remains tight and our working capital remains high we were active using our at the market program to sell 835000 shares.

Speaker 4: at an average price of $16.70 that generated $13.6 million that was used to fund the working capital needed until we realized the cash flow from the grown sales. This equates to a delusion of about...

At an average price of $16 70.

It generated $13 $6 million.

It was used to fund the working capital needed until we realize the cash flow from the growing sales.

This equates to a dilution of about two 5%.

Looking into the future in terms of deploying free cash flow. The first place we will start to target is to delever, our balance sheet with.

Speaker 4: Looking at the future in terms of deploying free cash flow, the first place we'll start to target is to deliver our balance.

Speaker 4: With our large fourth quarter sales forecast, we expect cash flow to improve significantly, but not until the first quarter of 2024.

With our large fourth quarter sales forecast, we expect cash flow to improve significantly, but not until the first quarter of 2024.

We are compliant with our debt covenants and are forecasting continued compliance.

Speaker 4: We are compliant with our debt confidence and our forecasting continued compliance.

With that back to you Pete.

I think that ends our prepared comments so Jamie if you want to open up for questions now.

Speaker 3: I think that ends our prepared comments. So Jamie, if you want to open it up for questions, now's the time.

Tom.

Ladies and gentlemen, we are now we will begin the question and answer session.

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We will pause momentarily to assemble the roster.

Our first question today comes from Pete <unk> from tourists Securities. Please go ahead with your question.

Speaker 1: Our first question today comes from Pete Osterlink from Truist Securities. Please go ahead with your question.

Hey, good afternoon, I'm on for Mike Chinn Moly today, thanks for taking our questions.

Speaker 5: Hey, good afternoon, a month from Mike Chamoli today. Thanks for taking our questions.

So first I just wanted to ask on the expectations for margins.

Speaker 5: So first I just wanted to ask on the expectations for margins. You know, if I look at your level of sales and EBITDA throughout the year, which seemed like in the fourth quarter, you should be able to put up at least low double digit EBITDA margins based on that sales level and, you know, continuing that momentum in the 2024. Is that reasonable? Or is there anything else you're currently seeing with costs or mix that would change how to think?

Look at your level of sales and EBITDA throughout the year, which seemed like in the fourth quarter, you should be able to put up at least low double digit EBITDA margins based on that sales level and continuing that momentum into 2024 is that reasonable or is there anything else you're currently seeing with costs or mix that would change how to think about the incrementals here.

Yes. This is Dave.

Speaker 4: Yeah, this is Dave. Well, typically we don't provide guidance on margins, but I'll steer you that. The way we think of it is.

Well typically we don't provide guidance on <unk>.

Margins, but I'll I'll steer you that the way the way we think of it is.

Somewhere between around 40% to 45% of our of our incremental sales.

Speaker 4: Somewhere between around 40 to 45% of our incremental sales drops to operating in.

Drops to operating income.

So.

Speaker 4: You know, it's reasonable, I think that we can get back up to

Speaker 4: Close to that double digit of EBITDA number in the at that sales level for sure, but for your modeling purposes, I typically, in my back of the napkin, is generally to look at like a 40% as a quick number.

Close to that double digit of EBITDA number in the.

Net sales levels for sure.

But for your modeling purposes I typically in my back of the napkin is generally to look at like a 40% is a quick number.

Speaker 4: you know, that'll drop to the operating income line on the sales.

That will drop to the operating income line.

On the sales.

That's very helpful. Thanks, and then I just had a follow up on the commercial Aero build rates are you currently aligned with the stated OEM build rates. It was publicly announced and I've been talking about recently or are there any areas, where you are currently lagging.

Speaker 5: very helpful thanks. And then I just had a follow up on the commercial arrow build rates. Are you currently aligned with the stated OEM build rates that is publicly announced and have been talking about recently or are there any areas where you're currently like

Okay.

Speaker 3: Well, sometimes we're aligned. I would say we're typically at this point on the narrow body max line, which is probably what you're asking about. We're running around mid to high 30s.

While sometimes we're aligned.

I would say we're typically at this point on the narrow body Max line, which is probably what you're asking about where we're running around mid to high thirty's.

And.

Speaker 3: So, you know, we're reasonably close to stated production.

So we're reasonably close to stated.

David production rates at this point.

Okay. So given that rates are picking up and expected to make meaningful progress soon.

Speaker 5: Okay, so given that rates are, you know, picking up and expected a meaningful progress soon. Are there any areas you'd call out where you saw meaningful challenges during the quarter within your manufacturing processes, whether it's labor productivity?

Are there any areas you would call out where you saw meaningful challenges during the quarter within your manufacturing processes, whether it's labor productivity or anything with <unk>.

Key suppliers if anything.

Speaker 5: If anything you call out there that you're kind of still seeing in the current quarter.

Call out there that youre kind of still seeing in the current quarter and the fourth quarter.

Speaker 3: No, I think it's safe to say that we continue to face supply chain flare ups here and there across all of our operations, but there's nothing that really stopped us in our track.

No.

I think it's safe to say that we continue to face.

Supply chain flare ups here and there.

Across all of our operations, but theres nothing that really stopped us in our tracks.

With any of our major products in the third quarter I think the bigger issue really was that we had a very large second quarter.

Speaker 3: with any of our major products in the third quarter. I think the bigger issue really was that we had a very large second quarter.

Speaker 3: with huge shipments right at the end. If you go back and listen to that conversation that we had around that call, one of our concerns was that we're in this cycle where everything's back weighted or backended and you end up with this huge push. And then you end up with empty factories as you start out the next period. And...

With huge shipments right at the end.

If you go back and listen to that conversation that we had around that call. One of our concerns was that we're in the cycle where were you know everything is back weighted or back ended and you end up with this huge push and then you end up with empty factories is you start off the next period.

And.

And that was definitely the case as we move from the second quarter into the third quarter and that combined with some shutdowns a lot of our operations shutdown for the week of July four really made for a pretty weak start to the third quarter and we just never really caught up but I think that was the more major issue.

Speaker 3: And that was definitely the case as we move from the second quarter into the third quarter. And that combined with some shutdowns, a lot of our operations shut down for the week of July 4th, really made for a pretty weak start to the third quarter. And we just never really caught up. But I think that was the more major issue.

Speaker 3: I would say generally kind of across the board our supply chain continues to improve.

I would say generally kind of across the board our supply chain continues to improve and once we got kind of through July and into August and September we accelerated in the operations or.

Speaker 3: And once we got kind of through July and into August and September , we accelerated and the operations are working more routinely at higher volumes. And certainly now as we're into the fourth quarter with the volume that we're expecting.

Our working more routinely at higher volumes and certainly now as we're into the fourth quarter with the volume that we're expecting.

Speaker 3: Things are accelerating, but I can't pin the weakness of the third quarter on any specific supply chain problems.

Things are accelerating but I can't pin the weakness of the third quarter on any specific supply chain problems.

Got it thanks, guys I'll leave it there.

Okay. Thank you.

Once again, if he would like to ask a question. Please press star and one.

Speaker 1: And again, if you would like to ask a question, please press star and 1.

Our next question comes from Jon <unk> from CJS Securities. Please go ahead with your question.

Speaker 1: Our next question comes from John Tenwantang from CJS Securities. Please go ahead with your question.

Hi, Thanks for taking my questions guys.

Speaker 6: Hi, thanks for taking my questions, guys. I was just wondering today how much excess or stranded inventory you're hanging onto and kind of what is the path or timing to work that down to more normalize?

I was just wondering today, how much excess of stranded inventory you're hanging onto and kind of what is the path of timing to work that down to more normalized levels.

But I don't think.

Speaker 4: I don't think, I don't think we have a number for kind of the access or stranded. It's definitely there and it's significant. And when we call it stranded,

We have a number for kind of the.

Excess or strength, it's definitely there.

And it's significant and when we call it stranded.

Speaker 4: It just means that it's waiting for the rest of the parts to catch up with it so that the quarters can be completed and shipped.

It just it just means that it's waiting for the rest of the parts to catch up with it so that the orders can be completed and shipped.

So.

Speaker 4: It's a contributor to our high inventory levels, for sure. I don't have a number for you on that.

It's a contributor to our high inventory levels for sure.

I don't have a number for you on that.

Speaker 3: I would add some color, John , that there's stranded inventory and then there's slower moving inventory. And one of the things that happened as we went into the pandemic is the wide body world really slowed down.

I would add.

Some color John that.

There are stranded inventory and then there is slower moving inventory and one of the things that happened as we went into the pandemic is the wide body world really slowed down.

Speaker 3: And we got caught with some inventory that's specific to wide bodies.

And we got caught with some inventory that's specific to wide bodies.

Speaker 3: that we expect will start to burn down as we move through 2024 and the wide body production rates and markets continue to pick up.

That we expect will start to burn down as we move through 2024, and the wide body production rates and markets continue to pick up.

Speaker 3: So I think we're gonna see a reduction in inventory, both in the stranded variety and kind of the wide body variety. How to quantify those is difficult with our systems, but we would like to think that we could burn down our inventory by the end of the year, at least 20 or 30 million. I think that's what we're thinking.

So I think we're going to see a reduction in inventory both in the stranded variety and kind of the wide body variety how to quantify those as is difficult with our with our systems, but.

We would like to think that we could burn down our inventory by the end of the year at least 20 or $30 million I think that's.

What we're thinking.

No it will be less of that now.

Okay, great. Thanks for that color Pete I was wondering just.

Speaker 6: Okay, great. Thanks for that color. Pete, I was wondering just next year you gave kind of a range for what you expected on revenue, you know, just measured against Q4, but I was wondering what you thought about order rates going forward and what the demand you think is going to look like from your customers. And that's excluding whatever military, you know, large military order.

Next year, you gave kind of a.

Our range for what you expected.

Earned revenue.

Just measured against Q4, but I was wondering what you thought about.

Order rates going forward and what the demand is going.

It looked like from <unk>.

Customers and that's excluding whatever military.

Military what are you waiting for.

Speaker 3: Oh, that's certainly a watch item. I would think that we're going to at least stabilize around that higher 750 or 800 million dollar level, but we're going to have to watch bookings over the next couple of quarters pretty closely to confirm that.

Well that's.

Certainly a watch item.

I would say that we're going to at least stabilize around that higher 750 or $800 million level, but we're going to have to watch bookings over the next couple of quarters pretty closely to confirm that.

Speaker 3: One of the things that has not happened as we as we hoped for was, you know, on our test business, we're still waiting for some very significant programs been waiting for one of them for over a year now, the US Army radio test program, and that is an example where it'll have a significant impact on our bookings when it happens, and a significant impact on our 2024 plan.

One of the things that has not happened as we as.

As we hoped for was.

Our test business, we're still waiting for some very significant programs.

Waiting for one of them for over a year now.

The U S Army Radio test program and that is an example, where it'll have a significant impact on our bookings when it happens in a significant impact on our 2024 plants. So.

We obviously publish bookings because we think it's a leading indicator of where we're going to be as a business and we've got a record backlog. So.

Speaker 3: You know, we, we obviously publish bookings because we think it's a leading indicator of where we're going to be as a business and we've got a record backlog, so we feel we're pretty safe with the, uh, you know, preliminary initial look in the 2024 that I talked about earlier, but, uh, where bookings come out beyond that is something we're going to have to watch.

We feel we're pretty safe with the preliminary initial look into 2024 that I talked about earlier.

But.

Where bookings come out beyond that is something we're going to have to watch.

Okay, Great and then if there's any update just on the litigation that expenses, you're incurring what when do you expect that to either laid up or some kind of resolution to occur.

Speaker 6: Okay, great. And then is there any update just on the litigation that expenses you're incurring? When do you expect that to either let up or some kind of resolution to occur?

We have two major.

Speaker 3: Actions involved one of which has been going on for over a decade and that one we would expect to continue to

Actions involved one of which has been going on for over a decade and that one we would expect to continue the.

Speaker 3: you know, move pretty hot and heavy through 2024. Hopefully with some kind of resolution as we get into 2025. That's our thinking there. The other one is relatively recent. And there is a chance we believe that that could be wrapped up pretty quickly and have minimal expense in the 2024. We'll know more about that as we get into year end here.

Move pretty hot and heavy through <unk>.

2024.

Hopefully with some kind of resolution as we get into 2025 Thats our thinking there. The other one is relatively recent and.

There is a chance we believe that that could be wrapped up pretty quickly and have minimal expense into 2024, we will know more.

About that as we get into year end here.

Okay, great. Thank you.

Speaker 1: And ladies and gentlemen, at this time, in showing no additional questions, we'll conclude today's question-and-answer session as well as today's presentation.

And ladies and gentlemen at this time in showing no additional questions. We will conclude today's question and answer session as well as todays presentation.

Speaker 1: We thank everyone for joining. You may now disconnect your line.

We thank everyone for joining you may now disconnect your lines.