Q4 2023 Astronics Corporation Earnings Call

Good day and welcome to the strikes Corporation fourth quarter fiscal year 2020 through your financial results Conference call.

Operator: Good day, and welcome to the Astronics Corporation fourth quarter fiscal year 2023 financial results. All participants will be enlisted only in..., and the Global Conference Specialists by pressing After today's presentation, there will be an opportunity to ask questions. If you ask a question, you may press star then one on your telephone. To withdraw your question, please press star 3. Please note today's event is, and I would now like to turn the conference over to Craig Mychajluk with Investor Relations. Yeah, thank you, and good afternoon, everyone.

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I would now like to turn the conference over looks like Mahalik with Investor Relations. Please go ahead Sir.

Yeah. Thank you and good afternoon, everyone. We certainly appreciate your time today and your interest in astronomy on the call.

Craig Mychajluk: We certainly appreciate your time today and your interest in astronics. On the call with me here today are Pete Gundermann, our Chairman, President, and CEO, and Dave Burney, our Chief Financial Officer. You should have a copy of our fourth quarter and full year 2023 financial results, which crossed the wires after the market closed today. If you do not have the release, you can find it on our website at Astronix.com.

With me here today are peek under men are chairman, President and CEO, and Dave Burney, Our Chief Financial Officer Sheila.

You should have a copy of our fourth quarter and full year 2023 financial results, which crossed the wires. After the market closed today if.

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

Craig Mychajluk: As you are aware, we may make forward-looking statements during the formal discussion and 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 in other documents filed with the Securities and Exchange Commission. You can find those documents on our website or at scc.gov.

As you are aware, we may make forward looking statements during the formal discussion and 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 the Securities and Exchange Commission.

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

Craig Mychajluk: During today's call, we'll also discuss some non-GAAP measures. We believe these will be useful in evaluating our performance. However, you should not consider the presentation of this additional information in isolation or as a substitute for results prepared in accordance with GAP.

During today's call will also discuss some non-GAAP 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.

Craig Mychajluk: We have 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. Thanks, Craig, and good afternoon, everybody.

We have 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.

Yeah.

Thanks, Craig and good afternoon, everybody, thanks for tuning into our call.

Peter J. Gundermann: Thanks for tuning in to our call. We ended 2023 on a pretty strong note and consider it, in retrospect now, a solid year of progress. Our fourth-quarter results were enabled by a series of trends that have been affecting our business for some time. Those trends are continuing to shape our environment as we enter 2024, which we expect will be another year of pride. I will dedicate my few minutes of comments this afternoon to describing these trends and the impact they are having on our business. Then Dave will talk you through some of the specifics of our financial statements.

We ended 2023.

On a pretty strong note.

Sooner it in retrospect now a solid year of progress.

Our fourth quarter results were enabled by a series of trends that have been affecting our business for some time.

Those trends are continuing to shape, our environment as we enter 2024, which we expect.

Will be another year of progress.

I will dedicate my few minutes of comments this afternoon to describing these trends and the impact they're having on our business and Dave will talk you through some of the specifics of our financial statements.

Peter J. Gundermann: But first, some headlines from the fourth quarter. Fourth quarter revenue of $195 million was at the high end of our forecasted range and up 23.5% over the comparator quarter of 2022. 2023 cumulative revenue of $689 million was up almost 29% over 2022. The higher volume drove improvements in financial profit measures. Our fourth quarter adjusted EBITDA, for example, was just shy of $25 million, or 12.7% of sales.

But first.

Headlines from the fourth quarter.

Fourth quarter revenue of 195 million was at the high end of our forecasted range and up 23, 5% over the comparator quarter of 2022.

2023 cumulative revenue of 689 million was up almost 29% over 2022.

The higher volume drove improvements in financial.

Actual profit measures.

Our fourth quarter adjusted EBITDA. For example was just shy of 25 million or 12, 7% of sales.

Peter J. Gundermann: Year-to-date 2023 adjusted for that was 55.6 million, or 8.1% of sales. In 2024, as previously announced, we expect revenue to be in the range of $760 to $795 million, up at the midpoint another 13% over where we close 2023. So about this trend. Our fourth quarter results are really kind of the expected results of several trends affecting our business. None of these are new.

Year to date 2023, adjusted EBITDA was $55 6 million or eight 1% of sales.

And 'twenty 'twenty four as previously announced we.

Expect.

Our revenue to be in the range of $760 795 million.

That's.

At the mid point, another 13% over where are we closed 2023.

So about those trends.

Our fourth quarter results are really kind of the expected results of several trends affecting our business. None of these are new we've talked about them.

Peter J. Gundermann: We've talked about them to varying degrees on recent quarterly calls. In other words, there was nothing really special that went into our fourth quarter to drive these results. It's more just the expected result of things that have been happening kind of under the surface for some time now, and I'll talk through them, not in any particular order. Certainly not in a priority order; they're all important.

To varying degrees over recent quarterly calls and in other words, there was nothing really special about went into our fourth quarter to drive. These results. It's more just the expected result of things that have been happening kind of under the surface.

For some time now and I'll talk through them.

Any particular order.

Certainly not in the priority order, they're all important.

First of all demand has been and continues to be just really strong for us.

Peter J. Gundermann: First of all, demand has been and continues to be really strong, and for us, airline demand or travel has been strong everywhere. You see this in pretty much any metric if you follow the aerospace industry, with the one exception being China.

Airline demand or travel has been strong everywhere you see this in pretty much any metric if you follow the aerospace industry.

One exception being China International travel travel in and out of China remains pretty weak, but in most other major parts of the world.

Peter J. Gundermann: International travel in and out of China remains pretty weak, but in most other major parts of the world, travel is near or at or even above where it was in 2019 before the pandemic hit. With that, production rates of major platforms have increased over time in our major markets. Despite some of the travails going on at Boeing, 737, there's upward pressure, 787, Airbus A350, A320, all trending upward, and for a company like us, when more airplanes are being built, and when more people are flying, that translates into improved or increased demand for us. And that's what we've been seeing, not just in the fourth quarter, not just in 2023, but really for years now. Our book-to-bill in 2021 was 1.3. In 2022, it was pretty much at the same level, 1.29.

Travel is near or at or even above where it was in 2019 before the pandemic.

With that production rates of major platforms.

Increased overtime in our major markets.

Despite some of the trials going on at Boeing 737, there's upward pressure seven eight someone there's upward pressure Airbus <unk> hundred 50, <unk> hundred 20, all trending up.

And for a company like us.

When more airplanes are being built.

And when more people are flying that translates into improved or increased demand for us and that's what we've been seeing not just in the fourth quarter not just in 2023, but really for years now our book to Bill in 2021.

Was a one three and 2022 it was pretty much at the same level 129.

Peter J. Gundermann: The final number for 2023 looks a lot lower, 1.06, but that's dragged down a little bit by poor bookings in our test business, where the book-to-bill came in at 0.76. Our aerospace segment, which is the vast majority of our business, came in with a book-to-bill for the year of 1.1, so 10% above shipment. With that demand, our backlog has consistently set new highs quarter after quarter after quarter, the only exception being the fourth quarter, where it came down ever so slightly. The second trend, which is worth mentioning, is, in addition to demand, the continuing improvement in our supply chain. Constraints in 2021 and 2022 left us handicapped and gave us a hard time trying to respond to the increases in demand I was just talking about. But those really started to dissipate and straighten out as we worked our way through 2023, and that continued through the fourth quarter. It's not perfect.

The final number for 2023 looks a lot lower 1.0 sucks, but that's dragged down a little bit by poor bookings in our test business, where the book to Bill came in up seven six.

Our aerospace segment, which is the vast majority of our business came in with a book to Bill for the year of one point once so 10% above shipments.

With that demand our backlog has consistently set new highs quarter after quarter after quarter, the only exception being the fourth quarter anywhere.

It came down ever so slightly.

The second trend, which is worthy of mentioning is in addition to demand is the continued improvement in our supply chain.

Strengths in 'twenty, 'twenty, one and 'twenty two 2022.

Left us handicapped and Gaye.

Gave us a hard time trying to respond to the increases in demand I was just talking about.

But those really started to dissipate and straighten out as we worked our way through 2023 and that continued through the fourth quarter.

Perfect there are still challenges.

Peter J. Gundermann: There are still challenges, but the headaches are much fewer and farther between than they were earlier on in the pandemic, and that supply chain performance is a major reason why we were able to execute on our backlog as 2023 drew to a close and why we are confident, being able to predict another year of pretty solid growth for 2024. Another trend that needs to be mentioned is the really improvement in personnel, labor, availability, and consistency that we have seen recently, especially as 2023 wore on again. Like a lot of companies, the great resignation rate, while we were used to turnover in the low single digits on a percentage basis, in most of our operations, during the peak of the pandemic, we saw turnovers approaching 20%, which is fundamentally a different situation. That has settled down now.

But the headaches are much fewer and farther between than they were earlier on in the pandemic and that supply chain performance is a major reason why we were able to execute on our backlog as 2023 drew to a close and why we are confident.

Being able to predict another year of pretty solid growth for 2024.

Another another trend but needs mentioned.

Is the.

Really big improvement.

Personnel labor availability and consistency.

We have seen.

Recently, especially as 2023 wore on again like a lot of companies.

Great resignation.

While we were used to turnover in the low single digits on a percentage basis.

And most of our operations during the peak of the pandemic, we saw turnovers approaching 20%, which is fundamentally a different situation.

That has settled down.

Peter J. Gundermann: As a result, our workforce, in general, is much less tenured than it was before the pandemic, and it's taken some time to get the culture going again, get the learning curves going again, and get people working together as a team, but we're seeing that improve, and we're seeing turnover drop back to those kinds of rates that we were used to seeing years ago. But there's still more turnover. It's not like it was before, but it's dropped dramatically from where it was at the peak of the pandemic. And finally, inflationary pressures of the last 24 months or so have also dissipated pretty dramatically. Obviously, the Fed's not back where they want to be, but we all know that.

As a result, our.

Our workforce and generally general is much less tenured than it was before the pandemic and it's taken some time to get the culture going again and get the.

Get the learning curves going again and getting people working together as a team, but we're seeing that improve.

And we're seeing.

Turnover dropped back to those kinds of rates that we were used to seeing in years ago, There's still more turnover, it's not like it was before but it's dropped dramatically from where it was at the peak of the pandemic.

And finally inflationary pressures.

Of the last 24 months or so have also disappoint dissipated pretty dramatically obviously, the fed's not back where they want to be we all know that but in terms of the pressures we see from suppliers.

Peter J. Gundermann: But in terms of the pressures we see from suppliers, in particular, and other costs of the inputs for our business, the pressures have dissipated and have become more reasonable. So you add all that together, and one of the things that I wanted to point out also as I look back at what's going on in our business is that everything's getting quite a bit more predictable than it used to be. To be honest, at the peak of the pandemic, with supply chain headaches, turnover, and inflation, it was a challenge to accurately predict where the business was going to be and how it was going to perform.

In particular and other cost of the inputs for our business.

The pressures have dissipated and have become more reasonable.

So you add all that together and one of the things that I wanted to point out also as I look back at what's going on in our business as everything is getting quite a bit more predictable.

And it used to be.

To be honest in the peak of the pandemic with supply chain headaches and turnover and inflation.

It was a challenge to accurately predict where the business was going to be and how it is going to perform.

Peter J. Gundermann: That's coming much more into focus as we worked our way through 2023 and now as we enter 2024. Some evidence for you to consider, back in the fall of 2022, when we were putting our 2023 plan together, we issued initial revenue guidance of $640 to $680 million. We came in at $688. That's actually pretty accurate compared to what happened in the year or two before that.

That's coming much more into focus as we worked our way through 2023 and now as we enter 2024.

Some evidence for you to consider back in the fall of 2022, when we were putting our 2023 plan together, we issued initial revenue guidance of $640 million to $680 million. We came in at 688.

That's actually pretty accurate compared to what happened in the year or two before that and.

Peter J. Gundermann: And not only that, but our internal forecast was within 1% of where we actually ended up for the cumulative year in 2023. And similarly, for the fourth quarter, we issued revenue guidance of 185 to 195. We came in right at the high end of that range.

And not only that but our internal forecast was within 1% of where we actually ended up.

Oh for the cumulative year in 2023, and similarly, with the fourth quarter, we issued revenue guidance.

185 to 195, we came in right at the high end of that range again. Another example of improved predictability.

Peter J. Gundermann: Again, another example of improved predictability, which is really critical for optimizing the business and executing a plan as we go forward. And as we go forward, with respect to 2024, the trends I just discussed and the strong finish we had in 2023 together give us confidence that it will be another year of solid recovery. Our initial outlook in terms of the sales forecast is $760 to $795 million at the midpoint. That's a year of 13% growth over 2023. That's a low percentage growth compared to what we saw in 2023 and in 2022, but it's one that's welcome for a couple of reasons.

It is really critical for optimizing the business and executing our plan as we go forward.

And as we go forward with respect to 2024, the trends I just discussed and the strong finish we had to 2023.

Together give us confidence it will be another year of solid recovery.

Our initial outlook in terms of the sales forecast is $760 million to $795 million at the midpoint.

Our Europe, 13% growth over 2023.

That's a low percentage growth compared to what we saw in 2023 and in 2022, but it's one that's welcome for.

There are a couple of reasons first of all it will get us back to the revenue range of where we were pre pandemic. Finally, it's been a long journey, but in 2019, we had sales of $772 million.

Peter J. Gundermann: First of all, it'll get us back to the revenue range of where we were pre-pandemic. Finally, it's been a long journey, but in 2019, we had sales of $772 million, and the midpoint of this range would be 778. We have the business and the backlog to do more than that. But our expectation, our goal, is to be at the high end of that range, 760 to 795. And even at 13% growth, it would cap another year of pretty strong performance. If you look at the top line for 2022, 2023, and 2024 at the midpoint, we would see $535 million turning into $689 million turning into $778 million. As we work through 2024, we're also going to have an increased emphasis on margins.

And the midpoint of this range.

It would be 778.

We have the business and the backlog to do more than that but our expectation. Our goal is to be at the high end of that range $760 795.

And even at 13% growth.

Wood capped another year of <unk>.

Pretty strong performance. If you look at top line 2022, 2023, and 2024 at the midpoint.

We would see $535 million turning into $689 million turning in the $778 million.

As we work through 2024, we're also gonna have increased.

Increased emphasis on margins.

Peter J. Gundermann: That's something that you always, you know, work on and worry about when you run a business, but frankly, we knew as we were operating through the pandemic that we would not be profitable at those lower sales levels. There's no way a company like ours, the way we're structured right now, is going to make money at $535 million. But as we move into the high $700s... and with the performance that we saw in the fourth quarter, we think there will be room to optimize and improve our profitability as we work through the year. We expect 2024 to start somewhat slowly. We expect first quarter sales to be $170 to $175 million. That's a little bit of a step back from where we were with the fourth quarter, and it's a pattern that we've been in for various reasons over the last six quarters or so, where we're up a little bit, down a little bit, up a little bit, down a little bit, but the trend... overall, continues to be positive, as There are a few things we can point to that are going to be affecting us in the first quarter.

Something that you always have.

Work on and worry about when you run a business, but frankly, we.

As we are operating through the pandemic that we would not be profitable at those lower sales levels.

There is no way a company like ours the way, we're structured right now it's going to make money at $535 million, but as we move into the high seven hundreds.

And with the performance that we saw in the fourth quarter.

We think there will be room to optimize and improve our profitability as we work through the year.

We expect 2020 forward to start somewhat slowly we expect first quarter sales to be $170 million to $175 million.

That's a little bit of a step back from where we were with our fourth quarter and that's a pattern that we've been in for various reasons over the last six quarters or so we were up a little bit down a little bit up a little bit down a little bit but the trend.

Overall continues to be positive. This you can look past one quarter at a time.

There are a few things we can point to that are going to be affecting us in the first quarter. The first is we are intentionally walking away and winding down some.

Peter J. Gundermann: The first is that we're intentionally walking away from and winding down some kind of non-core, non-aerospace business that we pursued and picked up early on in the pandemic to help keep our factories full. Those pieces of businesses are generally not as profitable. So, we are prioritizing profitable aerospace work as we wind it down, though there's a little bit of a hole in our income statement that will last for a quarter or so. There also is a little bit of a reschedule going on with Boeing on the 737. That's been in the news. I think people have heard about it and seen it.

Kind of non core non aerospace business that we pursued and picked up early on in the pandemic to help keep our factories full those pieces of business are generally not as profitable.

So we are prioritizing profitable aerospace work as we wind them down, though there is a little bit of a hole in our in our income statement.

That will last for a quarter or so.

There also is a little bit of a reschedule going on with Boeing on the 737, that's been in the news I think people have heard it and seen it.

Peter J. Gundermann: Boeing is and has been our biggest customer. The 737 is one of our biggest programs, but it's not our biggest program.

Boeing is and has been our biggest customer is 737 is one of our biggest programs. It's not our biggest program and we put.

Peter J. Gundermann: We put product on that airplane from a number of different facilities on a number of different routes, and the messages we get are not entirely consistent from operating unit to operating unit, but there is, it seems, an overall or general plan to sell product and deliver product when the customers want it. So we're expecting the first quarter to be 170 to 175. That's no indication whatsoever of wavering demand. We expect it to climb pretty dramatically from there in the second quarter, and we expect the second half to be quite strong relative to anything we've seen since well before the pandemic took hold. One other comment on 2024. We have been talking for some time about an Army radio test program. We call it 4549T.

On that airplane from a number of different facilities through a number of different routes.

And the messages we get are not entirely consistent from operating units the operating unit, but there is it seems an overall or general.

Rescheduling going on which will probably deflate first quarter sales a little bit resulting in a range that we're giving and then finally, just kind of a mix of customers schedule issues.

All of that.

So product and deliver products when the customers on it.

So we're expecting first quarter to be 170 to 175, that's no indication whatsoever of wavering demand, we expect to climb pretty dramatically from there in the second quarter and we expect the second half to be quite strong relative to.

Anything we've seen since well before the pandemic took hold.

One other comment on 2024, we have been talking for some.

About a army radio test program, we call at $45 49 Chi it's something that.

Peter J. Gundermann: It's something that we were, you know, announced the winner of, boy, a year and a half ago now, and we have been waiting for a directed procurement sole source contract negotiation to take place. It is currently underway. We have not previously been able to talk about having positive momentum in this area, but we certainly have quite a bit of it now, and so much so that we're expecting to see a ward there most likely, though not absolutely for sure, in the second quarter. So more on that as it happens. A little bit of a review is that this is for a platform of test equipment that the U.S. Army could use, or will use, to test the full range of their family of radios. And they have quite a few radios you can use.

We were.

Announced for winter of boy, a year and a half ago now and we have been waiting for.

<unk> directed procurements sole source contract negotiation to take place.

It is underway currently.

We have not previously been able to talk about having positive momentum in this area, but we certainly have quite.

Quite a bit of it now and so much though that we're expecting.

To see award there most likely though not absolutely for sure in the second quarter. So.

More on that as it happens a little bit of a review.

This was for a platform of test equipment.

But the U S army could use or will use to test before range of their family of radios and they have quite a few radios use.

Peter J. Gundermann: It'll be an IDIQ program, but we expect it to be $200 to $300 million over four to five years. And if you look at our test business, which is operating at about an $80 million level, You can imagine the impact of dropping 30 to 40 million sales a year once this thing gets underway. More on that as it happens, but that's one of the items which certainly will have an influence on our 2024 plan, and we'll talk about it more as we know more, most likely in our Q1 call. That's the end of my prepared remarks. Dave, do you want to take it away and talk about finances? Sure. Thanks, Pete.

It will be in IQ program, but we expected to be 200 to 300 million over four to five years and if you look at our test business, which is operating at about an $80 million level.

You can imagine.

The impact of dropping in $30 million to $40 million of sales a year. Once this thing gets gets underway. So.

And our 2024 plan and we will talk about it more as we know more.

Likely in our Q1 call.

That's the end of my prepared remarks, Dave you want to take it away and talk about financials.

Sure. Thanks Pete.

David C. Burney: As Pete mentioned, we had very strong fourth-quarter customer demand, supply chain, and our operations executed at a high level during the quarter. The top line was driven by strong sales to all of our aerospace markets, which combined were up $30.4 million or 22% compared to the fourth quarter of last year. Commercial transport, our largest end market, was particularly strong, with sales up $21 million from last year's fourth quarter.

Mentioned, we had a very strong fourth quarter as customer demand supply chain and our operations execute at a high level during the quarter.

The top line was driven by strong sales to all of our aerospace markets.

And we're up $34 million or 22% compared to the fourth quarter of last year.

Commercial transport.

Our largest end market was particularly strong with sales up $21 million from last year's fourth quarter.

David C. Burney: Test segment sales also increased compared to last year from $19.8 million to $26.5 million. In terms of margins, we had a pretty clean quarter with no significant unusual costs or income. One item to be called out, though, is that the fourth quarter includes a full year of bonuses that were not determined until year-end and therefore not accrued each quarter as we went through the year. So Q4 reflects bonuses of $4.2 million. That's the full year amount.

Test segment sales also increased compared to last year from $19 8 million to $26 5 million.

In terms of margins, we had a pretty clean quarter with no significant unusual cost or income.

One item that we called out that was in the fourth quarter includes a full year of bonuses that were not determined until year end and therefore, not accrued each quarter as we went through the year. So Q4 reflects bonuses a $4 $2 million that's the full year amount. These.

David C. Burney: These bonuses will be paid in stock to preserve cash, and they're the first bonuses that we've paid since 2019. Top-line growth drove our margin expansion, demonstrating the leverage we can get on incremental sales. Consolidated operating income increased by $10.9 million to $7.8 million, or 4.5% or 4% driven by the sales growth. Looking at segment performance, the aerospace segment, which represented 86% of our consolidated sales, had operating income of 8.5%.

These bonuses will be paid in stock to preserve cash and near the first bonuses that were paid since 2019.

The top line growth drove our margin expansion demonstrating the leverage we can get on incremental sales.

Consolidated operating income increased by $10 9 million to $7 8 million or four 5% or 4% driven by the sales growth.

Looking at segment performance Aerospace segment, which represented 86% of our consolidated sales and operating income of eight 5%.

David C. Burney: Adjusting for the full year of bonuses that were recognized in the quarter, aerospace operating margins would have been closer to 10 percent, which is back in the neighborhood of pre-pandemic levels. This margin expansion demonstrates the leverage we can achieve from incremental sales. As we've said before, depending on the mix, we tend to think of our contribution margin in aerospace being around 40%. The test segment continues to be challenged by underutilization, program mix, and high legal costs.

Adjusting for the full year of bonuses that were recognized in the quarter Aerospace operating margins would have been closer to 10%, which is back in the neighborhood of pre pandemic levels.

This margin expansion demonstrates the leverage we can achieve from incremental sales.

As we've said before depending on mix, we tend to think of our contribution margin in aerospace being around 40%.

The test segment continues to be challenged by under utilization program mix and high legal costs.

David C. Burney: Sales were up $6.7 million over the comparator quarter last year, and operating loss improved from a loss of $4 million to a loss of $200,000 in this year's fourth quarter. Interest rates remain a headwind with our current debt structure and high SOFR rates. Our cash interest expense for the quarter was about $5.1 million, which equates to an effective rate of about 12%.

Sales were up $6 $7 million over the comparator quarter last year and operating loss improved from a loss of $4 million to a loss of $200000 in this year's fourth quarter.

Interest rates remain a headwind with our current debt structure and high sulfur rates.

Our cash interest expense for the quarter was about $5 $1 million, which equates to about an effective rate of about 12%.

David C. Burney: At the end of the quarter, we had outstanding debt of $172.5 million. Now that we're recovering from a tough period over the last few years, we will have more alternatives available to us in terms of debt structure, and we'll be reviewing options going forward. Cash used in operations in the quarter was $1.7 million. The net loss adjusted for non-cash expenses provided $26.2 million, but was offset by an increase in net operating assets, which used $27.8 million. Looking at the components of the operating assets, where we consume much of the cash generated from operations, we continue to make progress in managing our inventory, which was a struggle earlier in 2023. In the fourth quarter, we were able to reduce inventory levels by $10.7 million, exclusive of reserves.

At the end of the quarter, we had outstanding debt of $172 5 million.

Now that we are recovering from a tough period over the last few years, we will have more alternatives available to us in terms of debt structure, and we will be reviewing options going forward.

Cash used in operations in the quarter was $1 $7 million the net loss adjusted for non cash expenses provided $26 $2 million.

That was offset by an increase in net operating assets, which used $27 8 million.

Looking at the components of the operating assets.

Where we consumed much of the cash generated from operations, we continued to make progress in managing our inventory, which was a struggle earlier in 2023.

In the fourth quarter, we were able to reduce inventory levels by $10 $7 million exclusive of reserves.

David C. Burney: The improvement was welcome, but we're still not where we need to be, which is a goal of getting our inventory turnover back close to pre-pandemic levels. We're forecasting improvement as we move through 2024 but still face some headwinds as the supply chain, while improved compared to a year ago, is still not a well-oiled machine, and lead times remain longer than they were pre-pandemic. The $19 million increase in accounts receivable in the fourth quarter was due to the high level, high sales level, and timing being weighted in the second half of the year, for the second half of the quarter, I should say.

The improvement was welcome, but we're still not where we need to be which is a goal of getting our inventory turnover back close to pre pandemic levels.

We're forecasting improvement as we move through 2024.

Still face some headwinds as the supply chain, while improved compared to a year ago.

Not a well oiled machine and lead times remain longer than they were pre pandemic.

The $19 million increase of accounts receivable in the fourth quarter was due to the high level high sales level and timing being weighted in the second half of the year.

Second half of the quarter I should say.

Liquidity continues to be tight.

David C. Burney: Liquidity continues to be tight. We were active using our at-the-market program to sell 500,000 shares at an average price of $15.65, raising $7.6 million to fund working capital needed until we realize the cash flow from the growing sales. The ATM program for the full year sold 1.3 million shares, and net proceeds were $21.3 million, all in the third and fourth quarters. This equates to about 4% dilution.

We were active using our at the market program to sell 500000 shares.

At an average price of $15 65.

Seven $6 million to fund working capital needed until we realize the cash flow from the growing sales.

The ATM program for the full year sold one 3 million shares and net proceeds were $21 $3 million all in the third and fourth quarters.

This equates to about 4% dilution.

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

David C. Burney: We're compliant with our debt covenants and are forecasting continued compliance. And, in summary, as we move into 2024, our focus is on operational execution, optimizing our debt structure, and improving our inventory turnover. Free cash flow will be used to reduce outstanding debt as we move through 2024.

In summary, as we move into 2024, our focus is on operational execution, optimizing our debt structure and improving our inventory turnover free cash flow will be used to reduce outstanding data as we move through 2024, and we're expecting free cash flow to grow as we move through the year.

David C. Burney: And we're expecting free cash flow to grow as we move through the year. That concludes my remarks. Pete, back to you.

That concludes my remarks, Pete back to you.

And Rocco over to you if you want to open it up for questions absolutely, Sir if you'd like to ask a question. Please press Star then one on your telephone keypad.

Operator: And Rocco, it's up to you if you want to open it up for questions. Absolutely, sir. If you'd like to ask a question, please press star then 1 on your telephone. Your question has already been addressed, and you'd like to withdraw yourself. This is a press story. Today's first question comes from Pete Osterland with... Hey, good evening, guys. I'm on for Mike Trimoli this evening

If a question has already been addressed I would like to withdraw yourself. Thank you.

Please press Star then two.

Today's first question comes from Pete <unk> with tourists Securities. Please go ahead.

Hey, good evening guys I'm on for Mike Chipotle. This evening, thanks for taking our questions.

Peter Osterland: Thanks for taking our questions. So first, I just wanted to start with anything you could give us on how margins are looking to start the year. Just given that your first quarter sales guidance puts you at a similar level to where you were in the second quarter of last year, and you had EBITDA margins of around 9% in that quarter, is that a good starting point for what you might do in the first quarter, or are there any notable changes to your cost structure since then that you'd call out, whether it's labor or productivity or other inputs into the business? Anything that would change how we look at what the margins potentially might be?

So first I just wanted to start with anything you could give us on how margins are looking to start the year just given that your first quarter sales guidance puts you at a similar level to where you were in the second quarter of last year and you have EBITDA margins of around 9% in that quarter is that a good starting point for what you might do in the <unk>.

First quarter or are there any notable changes to your cost structure. Since then you would call out whether it's labor or productivity or other inputs in the business.

Anything that would change how we look at what margins potentially might be.

David C. Burney: Pete, I could take that, but, you know, I wouldn't say that there were any significant cost structure changes in the first quarter. You know, as I commented earlier, our contribution margin tends to be somewhere around 40%, depending on product mix. So, you know, that works the same way as the top line goes down.

I can take that.

No I Wouldnt say that theres any significant cost structure changes in.

In the first quarter.

As I commented earlier, our contribution margin tends to be somewhere around 40% depending on product mix.

No.

It works the same way as the top line goes down so that would be a starting point I think the other thing to look at.

David C. Burney: So, you know, that would be a starting point. I think the other thing to look at would be the fourth quarter, which, as I mentioned, contained a full year's worth of bonuses in that quarter. So, if you're going to try to bridge between Q4 and Q1, you need to make an adjustment for that full year's worth of bonuses in the fourth quarter and adjust that profit up in Q4 for that. Okay, that's helpful. Thanks.

It would be the fourth quarter, which as I mentioned contain a full years worth of bonuses.

And that fourth quarter. So if you if youre going to try to do a bridge between Q4 and Q1.

You need to make an adjustment for that full year worth of bonuses in the fourth quarter and adjust that profit up in Q4 for that.

Okay. That's helpful. Thanks, and then.

Peter J. Gundermann: So then, I also wanted to see if we could get a little more detail on the assumed revenue growth in 2024. Are you assuming a similar revenue split by segment for revenue in 2024? Or does your guidance assume relatively higher growth in either ERO or TASC? We would anticipate most of the growth coming in Aerospace because that's where the big penalty was from the pandemic.

Also wanted to see if we could get a little more detail on the assumed revenue growth. In 2024 are you assuming a similar revenue split by segment.

For revenue in 2024 or does your guidance assume relatively higher growth in either aero or test.

We would anticipate most of the growth coming on the Aero side.

That's where the big that's where the penalty was from the pandemic and that's where the big turnaround really has been I mean, if you look at our business by sources of income our test business actually was relatively stable with Enzo down a whole lot.

Peter J. Gundermann: And that's where the big turnaround really has been. I mean, if you look at our business by sources of income, our test business actually was relatively stable. It didn't go down a whole lot.

So, it's probably not going to go up a lot.

Peter J. Gundermann: So it's probably not going to go up a lot until we get this Army radio test program resolved and figured out. And similarly, you know, business jet revenues were, have been relatively stable. The last quarter was particularly strong, enabled by the supply chain. And military aircraft also have been, you know, pretty stable.

Till we get this.

Army Radio test program.

Resolved and figure it out and similarly business jet revenues have been relatively stable over the last quarter was particularly strong enabled by supply chain.

And military aircraft also or has been.

Pretty stable so the big swing that took us from 772 million downloads 450, or whatever it was was largely on the commercial transport side of the business and the rebound back to that level.

Peter J. Gundermann: So the big swing that took us from 772 million down to 450 or whatever it was was largely on the commercial transport side of the business, and the rebound back to that level also is largely on the commercial transport side of the business. Great, thanks. And then I just had one last one on the bookings environment.

So it was largely on the commercial transport side of the business.

Great. Thanks, and then I just have one last one.

On the bookings environment.

Peter J. Gundermann: So it looks like in the fourth quarter, your book-to-bill was a little bit lower versus what you put up for the rest of the year, although I understand that that's relative to a higher revenue number. But I just wanted to get a sense of how bookings are trending to begin the first quarter in aerospace so far. I don't know if I have to say much, specifically there, but I can tell you that we have regular, you know, regular interactions among the sales professionals across our business, and the, I guess I would describe the environment as continuing to be target-rich. We think that there continues to be pretty strong demand, and so, you know, we're going to watch it, of course, because bookings over the first quarter and second quarter will start to have an impact on revenue as we work towards the end of the year.

So it looks like in the fourth quarter. Your book to Bill was a little bit lower versus what you put up in the rest of the year, although understood that thats relative to a higher revenue number.

I just wanted to get a sense of how our bookings trending to begin the first quarter in aerospace so far.

I don't know if I may.

Had consumed much.

Specifically there I can tell you that we have regular.

Regular interactions among the sales professionals across our business.

I guess I would describe the environment as continuing to be target rich.

We think that there continues to be pretty strong demand.

And so we're going to watch it of course, because bookings over the first quarter and second quarter will start to have.

And impact on revenue as we work towards the end of the year, but the feedback I'm getting the tone of our team.

Peter J. Gundermann: But the feedback I'm getting, the tone of our team is pretty positive there. And on the test side, if we, you know, get this radio test program under wraps and underway sometime soon, that will have a pretty positive influence also in the years we get towards the end of it. Great, I'll jump back in to you, thanks. And our next question today comes from Jon Tanwanteng with CGS. Hi, good afternoon.

Is pretty positive there.

On the plus side if we.

This radio test program.

Under wraps and underway sometime soon that we'll have a pretty positive influence also in the years, we get towards the end of it.

Great I'll jump back in queue. Thanks.

Okay.

And our next question today comes from Jon <unk> with CJS Securities. Please go ahead.

Hi, Good afternoon. Thank you for taking my questions and congrats on that on the nice performance in the quarter. Pete. My first question is can you talk about the Army's recent cancellation and a reallocation of resources to flare and maybe tell us how that impacts you over the longer term.

Jonathan E. Tanwanteng: Thank you for taking my questions and congratulations on the nice performance in the quarter. Pete, my first question is, can you talk about the Army's recent FARA cancellation and the reallocation of resources to FLIR and maybe tell us how that impacts you over the longer term? Well, it's a little bit of an early question, John, because we don't really know how this wrap-up is going to happen. As you know, and probably most listeners on the call know, we are part of the Bell V280 FLIR team. Bell won that competition against the Sikorsky-Lockheed team, and the two were set to compete against Farah.

Well, it's it's a little bit of an early question John because we don't really know how this ramp up is going to is going to happen.

As you know and probably most listeners on the call know we are teamed as we're part of the Bell.

<unk> hundred 80 <unk>.

Bell won that competition against the Sikorsky Lockheed.

Team and.

And the two are set to compete against Farah.

Yes.

Peter J. Gundermann: Yeah, I guess I can't speak for the Army, I can't speak for Bell, and we're still learning the details, but I would tell you, from my perspective, that freeing up the system and the money to concentrate on FLARA makes sense to me and is good for us. So we can concentrate our resources. Again, I can't speak for Bell, but Bell can concentrate their resources on one program instead of two, and the Army also, so I'm okay with it, especially since we were on the winning team.

Yes.

I can't speak for the Army I can't speak for Bill and we're still learning the details, but I would tell you I guess from my perspective that.

Freeing up the system.

And the money to concentrate on flora mix.

It makes sense to me and is good for us.

So we can concentrate our resources.

Again, I can't speak for bell, but bulk concentrate their resources.

On one program instead of two and the Army also so.

So I'm, okay with it, especially since we were on the winning team that's alright with me.

Peter J. Gundermann: That's all right with me. Fair enough. Got it. And can you give us just a little bit more color on the demand from Boeing that you're expecting beyond Q1? You mentioned a hole from rescheduling, and I was just wondering what your assumptions are in production run rates or the demand rates from you as you go through the year and what's assumed in the guidance. Yeah, I didn't mean to imply a hold

Fair enough got it.

And can you give us just a little bit more color on the demand from Boeing that you're expecting beyond Q1, you mentioned.

Oh from Rescheduling and I was just wondering what your assumptions are.

Production run rates or the demand rates from you as you go through the year and what's assumed in the guidance.

Yes.

Didn't mean to imply a hold it seems to be more of a reschedule.

Peter J. Gundermann: It seems to be more of a rescheduled, um, So, you know, Boeing has been anticipating a ramp on the 737, and, you know, like many suppliers, I think we were getting those kinds of cues. We ship basically as they tell us to, and they update shipping plans for us in our higher volume facilities like every 12 or 15 weeks. We don't always know what their production rate is, so you would assume that our production rate is somehow correlated to their production rate. But every once in a while, it becomes apparent that they're a little bit ahead of us or they're a little bit behind us, and our hunch is that they were a little bit behind us, so they probably accumulated some inventory, and they're rescheduling things.

So Boeing has been anticipating a ramp on.

737, and like many suppliers I think we were getting those kinds of skus.

We ship.

Basically as they tell us too and they update shipping plants and.

In our higher volume facilities like every 12 or 15 weeks.

We don't always know what their production rate as you would assume that our production rate is somehow correlated to their production rate, but every once in a while it becomes apparent that.

There are a little bit ahead of us or theyre, a little bit behind us and our hunch is that they were a little bit behind us so they probably accumulated some inventory.

And their risk.

Rescheduling things, but.

Peter J. Gundermann: But I think we're still thinking that, you know, the word on the street is that they're going to build 35 to 38 or 737s a month, and while that's not 45 or whatever they plan to go to by the end of 2024, it's a heck of a lot more than they were building back in 2020, which I think was about zero. So, um... And so it's a minor kind of headache for us, but it's not a hold by any means. It's just a reallocation of inventory, I would say. I got it.

I think we're still thinking but.

The word on the street is that Theyre going to build a 35% to 38 or 737 months in.

And while Thats, not 45 or whatever they're planning to go to by the end of 2024, So a heck of a lot more than they are building back in 2020, which I think it was about zero. So.

So it's a minor.

Kind of a headache for us, but it's not a it's not a whole by any means it's just a reallocation of inventory I would say.

Got it thank you I appreciate it.

Jonathan E. Tanwanteng: Thank you. I appreciate it. Thank you, and our next question comes from Tony Bancroft. Pardon me, Tony, is your line muted, perhaps?

Yes.

And our next question comes from Tony Bancroft Gabelli funds. Please go ahead.

Pardon me Tony is your line muted perhaps.

Mr. Bancroft Your line is open Sir.

Operator: Mr. Bancroft, your line is open, sir. Alright, well it looks like we're having technical issues with Mr. Bancroft, so at this time, we'll move to our next question, which comes from Ryan McIlvenny. Hi, good afternoon.

It looks like we're having technical issues with Mr. Bryan Carlson at this time, we'll move to our next question comes from Ryan Merkel with Man Group. Please go ahead.

Hi, Good afternoon. Thank you for taking the time and congratulations on your results and the continued recovery from the pandemic I think it speaks to the quality of the business and the management team.

Ryan McIlvenny: Thank you for taking the time. Congratulations on your results and your continued recovery from the pandemic. I think it speaks to the quality of the business and the management team. A more general question, if I may, when you think about the sort of broader lighting and safety market and your panel business, could you just talk a little bit about the competitive landscape there, who the key competitors are, or, you know, your current market share dynamics there, if it's still very fragmented, and how you see that market evolving and the opportunity set there? Sure. It's a question about our lighting business in general, right? Yes, sir.

General question, if I may when you think about the sort of broader lighting and safety market and your panel business could you just talk a little bit about the competitive landscape there who the key competitors are.

Your current market share dynamics, there, it's still very fragmented and how you see that market evolving and the opportunity set there.

Sure.

Youre asking about our lighting business in general right.

Yes, Sir.

Peter J. Gundermann: It's one of our major thrusts. For those who don't know, and we do, we're involved in aircraft lighting, really across the spectrum, business jet, military, commercial transport. We're active in the cockpit, we're active in the exterior, and we're active in the cabin. So, the range of products includes, you know, the lights you see on the outside of the airplane, the flashing white or red or... Red and Green or Landing Lights. If you are sitting in the cabin and you push that reading light above your head in the 3-7 or triple 7, that's our assembly, for sure. And if you're in the cockpit, there's a whole bunch of things that light up, a whole bunch of indicators, and we do a lot of work through major avionics companies that end up in aircraft cockpits.

Yes, it's one of our major thrusts for those who don't know and we do we're involved in aircraft lighting.

Across the spectrum business jet military commercial transport were active in the cockpit were active in the exterior and we are active in the cabin.

So.

The range of products include.

The lights, you see on the outside of our plan with flash and wider rotor.

Red and green or landing lights, if you are sitting in the cabin and you pushed that reading light.

Above your head in the three seven or Triple seven.

That's our assembly.

For sure and if you are in the.

If you're in the cockpit theres, a whole bunch of things that light up a whole bunch of indicators and we do a lot of work through major avionics companies that end up in aircraft cockpits.

Peter J. Gundermann: I would venture to say that we are one of the larger aircraft lighting companies in the world. We do lighting in various places in our company, but if you add it all together, we're one of the larger companies, and the competitive nature of the business with our lighting product line, like some of our other product lines, the consolidation that's happened in the industry over the last 10, 15 years has made us one of the more prominent stand-alone available suppliers to the big OEMs.

I would venture to say that we are one of the larger aircraft lighting companies in the world, We do lighting in various places in our company, but if you add it all together.

One of the larger and the competitive nature of the business with our lighting product line like some of our other product lines.

Consolidation that's happened in the industry over the last 15 10 15 years.

Has has made us one of the more prominent.

Standalone available suppliers to the big Oems.

And that has.

Peter J. Gundermann: And that has, so far, worked in our favor. And I'm hoping that it will for a long time. Because one of our differentiators is that we're big enough to do what it is that we need to do, what the customers are asking from us, but we're small enough to do it in a more prompt and effective and customer-intimate kind of way. So, the aerospace industry is, like a lot of other industries, it's a reputation business, and we've been picking up share. So, we're enthusiastic about it. It's one of our We consider our business to be based on four strategic thrusts, and that's one of them. Got it.

So far worked in our favor and.

And I'm, hoping that a dose for a long time, because thats one of our Differentiators is we're big enough to do what it is that we need to do what the customers are asking from us, but we're small enough to do it.

We would like to think.

More prompt and.

<unk> customer intimate intimate kind of way.

So.

The aerospace industry is like a lot of other industries, the reputation business and we've been picking up share.

So.

We're enthusiastic about it.

It's a one of our we consider our business to be based on four strategic thrust and Thats one of them.

Got it that's very helpful. Maybe just a quick follow up on that I mean.

Peter J. Gundermann: That's very helpful. Maybe just a quick follow up on that. I mean, and I know it may be difficult to estimate, but when you think about your market share and the sort of the main players that you're up against, particularly maybe in terms of the military segment, are there any data points you have there that might be worth helping us to understand the company a little better? Well, we do the exterior lighting suite on the Joint Strike Fighter, the F-35. For example, that's a high volume, high value program, and we have a big portion of it. But we are not active in the cockpit. And there's a story there. Back in the day, there were international work-share arrangements, so we were kind of precluded from that.

Maybe difficult to estimate, but when you think about your market share in sort of the main players that day youre up against particularly maybe in terms of the military segment.

Are there any data points, you have there that might be helping us to understand a little better.

Well we.

We do the exterior lighting freedom on the joint strike Fighter F 30 filings.

For example, that's a high volume high value program, and we have a big portion of it we are not active in the cockpit.

And there's a story there back in the day there were international work share arrangements. So we were kind of precluded from that.

Peter J. Gundermann: But that would give you an example of what we're involved with. Okay, I got it. Thank you. Thank you, and our next question is a follow-up from Jon Tanwanteng from CGS. I was wondering if you guys could walk through kind of your cash flow expectations for the year, especially as we head into Q1 and maybe revenue comes down, you collect on receivables, first of all, and then second of all, as your EBITDA climbs back up, what kind of conversions. [inaudible] Pete, do you assume you want me to take that one?

But.

That would give you an example of what we're involved with.

Okay got it thank you.

Yes.

Thank you and our next question is a follow up from John <unk> from CJS Securities. Please go ahead.

I was wondering if you could guys you guys could walk through kind of your cash flow expectations for the year.

Especially as we head into Q1, and maybe revenue comes down you collect on receivables first of all and then second of all is it your EBIT climbs back up what kind of conversion can you expect thank you.

Sure.

Pete I assume you want me to take that one.

Go ahead, we're not in the same place obviously for those who are listening.

David C. Burney: Go ahead. We're not in the same place, obviously, for those who... Yeah. Yeah, so we expect to return to cash flow positivity as we move through 2024. It'll start out slow as the top line is slow, but as we move through into the second, third, fourth quarter, you know, expect to generate significant cash flow from operations. And, you know, we'll have, you know, increased CapEx for the year compared to where we were during the pandemic, where we really cut back on spending there. It'll be in the neighborhood of 20 million in terms of CapEx. A lot of that is related to specific programs and new tooling for programs, and testing setups for programs that we've won. And then, You know, I'm not going to give you specific numbers. We typically never give them specific guidance on cash flow but do expect it to return to significant cash flow generation as we move through the year so that it's significantly north of our significantly north of what our net income will be for the year. Got it.

Yes, yes.

Yes.

We expect.

To return to cash flow positivity.

As we move through 'twenty 2024.

It will start out slow as the topline is slow.

But as we move through into the second third and fourth quarter.

Expect to.

Generate significant cash flow.

Cash flow from operations.

We will have.

Increased capex for the year compared to where.

Where we've been during the pandemic borrowing really cut back on spending there.

It will be in the neighborhood of $20 million in terms of Capex a lot of that is related to two <unk>.

Specific programs and new tooling for programs testing setups for programs that we've won.

And then.

I'm not going to give you specific numbers, we typically never given specific guidance on cash flow but.

Do you expect it to to return to.

Significant.

Cash flow generation as we move through the year.

So it's it's north of our significantly north of what our our net income will be for the year.

Got it thanks, Dave and then any phasing to the Capex plans as you go through the year.

David C. Burney: Thanks, Dave. And then any phasing to the CAPEX plans as you go through the year? Yeah, it's going to be more heavily weighted toward the back half of the year, I think, but not significant. And it's always a little bit difficult for us to predict specific quarters with the CapEx. A lot of things get moved out, but very rarely does anything get moved in.

Yes.

It's going to be more heavily weighted toward the.

To the back half of the year I think but.

Not significant.

And it's always a little bit difficult for us to predict specific quarters with the capex.

Lot of things get moved out.

Very rarely does anything get moved in but.

David C. Burney: But I think for modeling purposes, I would probably look at it and see that it's going to be more or less rounding if you try to break it out separately by quarters. I'd probably just take your model and take the midpoint of our range and divide it by four, I think. Okay, fair enough. And then just finally, obviously, with all the cash flow questions and what the expectations are for potential refinancing and working down that high-cost. As I mentioned, as we return to profitability here and positive cash flow, we'll have more options available to us. I'm not ready to get into those at this point, but obviously, our interest cost is pretty high right now, and our amortization of our term loan eats up a lot of cash, so we're going to continue to look at the alternatives and the best options for us as we move through the year here. Thank you. Thank you. And as a reminder, ladies and gentlemen, if you'd like to ask a question, please use the Q&A function. Thank you.

I think for modeling purposes, I would probably look at it.

<unk>.

Uh huh.

It's going to be more or less rounding if you tried to break it out.

Separately by quarters.

Probably just take your model and take the midpoint of our range and divided by four I think.

Okay Fair enough and then just finally, obviously with all of it.

The cash flow question, but what's the expectations for potential refinancing and working down that high cost debt that you have.

Hi.

As I mentioned.

As we return to.

To profitability here in positive cash flow.

We will have more options available to us not ready to get into those at this point, but obviously we.

Our interest cost is pretty high right now and our.

Our amortization of our term loan.

Eats up a lot of cash so we're going to we're going to continue to look at the alternatives and the best options for us as we as we move through through the year here.

Okay, great. Thank you.

Thank you.

Operator: And as a reminder, ladies and gentlemen, if you'd like to ask a question, please use the Q&A function. Our next question comes from Tony Bancroft, from Fukuoka. Hey gents, great job on the quarter.

Ladies and gentlemen, if you'd like to ask a question. Please press Star then one.

Question comes from Tony Bancroft with Gabelli funds. Please go ahead.

Yeah.

Hey, gentlemen, great job on the quarter. Thanks for taking my call. My question just wanted to ask about follow up too.

Tony Bancroft: Thanks for taking my call. My question is, I just want to ask about follow-up on FLORA. Obviously, we listened to the Textron call the other week, and they had some really positive news. It seems like things are going well there. Maybe just more of a 30,000-foot view of FLORA.

Be about Florida, obviously, we listen to the Textron call. The other the other week and add some.

Really positive news it seems like.

Things are going well there.

Maybe just more of a 30000 foot view of <unk>.

Peter J. Gundermann: Any incremental updates there? I know you talk a lot about electrification of the aircraft and how you have a comparative advantage there. Maybe just some color or maybe a little review of how that program impacts you positively. Sure, it's going to be a really important program long term for our company. When I look at it, I would say that it has the potential and probability to be the single largest program that the company's ever, ever undertaken. And a lot of that has to do with the ship set content that we are developing. A lot of it's based on architectures that we've already proven out and thus we think are relatively low risk. But the ship set content should be substantial. And it's still moving around, so it's premature to nail it down, but it is. I think I've played this game with you, Tony, where if you...

Flora any any any incremental updates there I know you've talked a lot about electrification of the aircraft and how it obviously.

Just a comparative advantage there maybe.

Maybe just some color or just maybe a little review of how that program impact.

Text <unk> positively.

Sure.

Going to be a really important program long term for our company.

When I look at it I would say that it has the potential and probability to be the single largest program that the company has ever.

Ever undertaken and a lot of that has to do with.

The ship set content that we are developing a lot of it's based on.

Architectures that we've already proven out.

And thus we think are relatively low risk.

But the ship set content should be substantial and it's still moving around so its premature to nail it down but.

I think I've played this game with you Tony Ware if you.

If you take a theoretical wide body airplane and you imagine all of the things we could possibly put.

Peter J. Gundermann: If you take a theoretical wide-body airplane and imagine all the things we could possibly put on it, And there's never been such an airplane; we've never done it, but, you know, an antenna on top and a full lighting suite on the exterior, escape path lighting, a full load of PSUs, a full load of our IFE equipment. You'd probably get somewhere in the neighborhood of $750,000 for that airplane in terms of And the range of numbers that we're talking about for FLARA are all well north of that. So it's, for us, a pretty substantial opportunity. I think we surprised some people in the industry that we were able to pull it off. And we're basically doing the entire electrical system, from generators, after the generators, to the end-use systems. So all the electronic circuit breakers, a lot of the switching in the electrical system, were involved in and obviously trying to plan for and support the range of what that aircraft might be asked to do over 30 years of use or 40 years of use.

And Theres never been switching airplanes, we've never done it but.

And antenna on top and a full lighting suite on the exterior escape path lighting, a full load of psus, a full load of our IFC equipment you had <unk>.

We get somewhere in the neighborhood of 750000 Bucks.

For that airplane in terms of <unk> content and the range of numbers that we're talking about for flow well north of that so.

It's for us a pretty substantial.

<unk>.

I think we surprised some people in the industry that we were able to pull it off.

Certainly during the entire electrical system.

From generators after the generators to the end use systems. So all of the electronic circuit Breakers, a lot of you are switching.

Switching in the electrical system.

We're involved with and obviously trying to plan for and support.

The range of what might.

That aircraft might be asked to do over 30 years of use or 40 years of usage.

Peter J. Gundermann: It's a pretty big task, but Bell has been a really good partner for us and with us. I mean, we did their 505, we did their 525, we did their FARA prototype actually before FLARA, and then we did FLARA. So we know that organization pretty well, and I think they know us pretty well, and we think it's going to be a really great program, something the Army really needs. Thank you. And then, again, I think we've been back and forth on this one, too, but with the sort of anything that you're seeing incremental, also maybe a little more 30,000 feet here, but with in-flight entertainment and on the commercial transport side, you know, sort of... We're going to be talking about retrofitting cockpits. As a customer, just maybe give us an idea of what the customer is talking to you about and what they want in the longer term.

Pretty big task, but.

Bill has been a really good partner for us.

I mean, we've done there 505, we did they're five to five we did their furlough prototype actually before and then we did so.

We know that organization pretty well and I think they know us pretty well.

And we think it's going to be.

I think it's going to be a really great program, it's something the army really needs.

Yes.

Pretty good overview, thank you and then.

Again, I mean, we are actually we've been back and forth on this one too but with the.

Sort of anything that Youre seeing incremental also maybe a little more 30000 feet here, but with in flight entertainment.

On the commercial on the commercial transport side.

Sort of.

Retrofitting cockpit has the customer just maybe you can give us a view on what the customers is talking to you about and what they want and sort of longer term view there.

Peter J. Gundermann: Yeah, I'd say the biggest trend that we see is that narrow-body operators around the world are adapting in-seat power in a way that they never really have before. You know, it's a term that was very hopeful to us as we navigated through the pandemic as well as we did, but it's just picking up speed. So we developed a system largely during the pandemic, or as the pandemic was beginning, where we were partnered with Southwest Airlines. They were the target customer, and there was a lot of back and forth, and we developed a system on Ardyne with RIP that they endorsed and so far have agreed to put on their MAX fleet. There's an NG portion of that fleet that I expect we'll be talking about at some point here in the near future. But it turns out that Southwest's desire and the unique architecture of the system have found a lot of favor all around the world, from India to China to Europe.

Just any thoughts there.

Yes, I'd say the biggest trend, but we still use that.

Narrow body operators around the world are.

Our adapting in seat power in a way that they never really happened before.

It's a trend that was very helpful to us as we navigated through the pandemic as well as we did but it's just picking up speed. So.

We developed a system largely independent or as the pandemic was beginning that.

We're partnered with southwest Airlines.

Okay.

The target customer and there was a lot of back and forth and we developed a system.

On our dime.

With our IP that they endorsed.

So far have agreed to put on their Max fleet. There is in MG a portion of that fleet, but I expect we'll be talking about at some portion. Some time also here on the near future but.

But it turns out that southwest desire.

Kind of a unique architecture of the system has found a lot of favor all around the world from India to China Europe. So so.

Peter J. Gundermann: So we're booking a lot of orders there, and that will be a major driving force for us in the ISEC world for a long time. The other trend I would say that's positive is that connectivity is getting better and more ubiquitous, not less, and we are involved in that in a number of ways with some of the leading connectivity suppliers. So some of them are a little more reluctant to let us use their names than others, which, you know, they're the customer, it's their right, but we're pretty active in that space.

So we're we're we're booking a lot of orders there.

That will be a major driving force for us.

The <unk> world.

For a long time the other the other trend I would say that's positive is that connectivity is getting better and more ubiquitous not less and.

And we are involved in that and a number of ways also with some of the leading connectivity suppliers. So.

Some of them are a little more reluctant to let us use their names and others, which.

They are the customer it's there right, but we're pretty active in that space. So.

Peter J. Gundermann: So that's also, I think, a positive trend that's going to serve us well for quite a while. And then lastly, anything with litigation, sort of what you guys have talked about in the K, any updates there, what's going on? I know we've talked about it a little bit before, but anything incremental?

That's also I think a positive trend that's going to serve us well for quite a while.

And then lastly.

Anything with it.

With the litigation.

Sort of what you got.

Guys have talked about it in the K.

Anything updated update there with what's going on and I know, we've talked about it a little bit before but anything incremental.

Well we are too.

Peter J. Gundermann: Well, we have two situations, as you know. We have a long-running dispute with Lufthansa Technics that has been going on for more than a decade. Not much going on these days. There are, you know, little things happening here and there, but that's likely to pick up as we get towards the end of 2024, and there's a chance, and I will dare say chance, that those things get resolved in 2025, which would be kind of nice. That would be a change. As far as the paradigm suit in our test business, we actually got a very favorable ruling in December where we basically won on all counts. But of course, as these things go, either side has the right to appeal. We understand that Teradyne intends to appeal. So, you know, the orbit that that takes is a little bit unpredictable.

Situations as you know we have a long running dispute.

With Lufthansa Technik.

It's been going on for more than a decade.

Not much going on these days there are little things happening here and there but that's.

That's likely to pick up as we get towards the end of 2024 and there is a chance.

Well there is a chance that those things get resolved.

In 2025, which would be kind of nice that would be a change.

As far as the.

Teradyne suite in our test business, we actually got a very favorable ruling in December where we basically won on all counts.

But of course as these things go.

Either side has the right to appeal.

We understand that the.

Teradyne and tends to appeal so.

The orbit that that takes.

A little bit unpredictable, its probably something that will play out in the middle of 2024, but it shouldn't be.

Peter J. Gundermann: It's probably something that'll play out in the middle of 2024, but it shouldn't be, at least to begin with, as expensive as what we've been through because, you know, all the fact-finding has been done. So we'd hope for a little bit of a break there in terms of expense, but, you know, we won't know until we get there. Perfect. Thanks so much. Great job in the quarter. Looking forward to following you guys. And ladies and gentlemen, this concludes our question and answer session and today's conference call. Thank you all for attending today. And now, disconnect your lines and have a wonderful day.

At least to begin with as expensive as what we've been through because.

All the fact finding has been found so.

We would hope for a little bit of a break there in terms of expense but.

We won't know till we get there.

Perfect. Thanks, so much great job on the quarter looking forward to following you guys well done.

Alright, Thanks, Tony.

Thank you and ladies and gentlemen, this concludes our question and answer session and today's conference call.

Thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

Okay.

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