Q4 2023 Air Industries Group Earnings Call
Hello, and welcome to the Air Industries group's Clemen every fourth quarter and full year 'twenty twenty-three earnings conference call.
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At this time I'd now like to turn the call over to your host Mr. Lou My lose out.
Lou My: I N C E O. Please go ahead Sir.
Thank you Rob.
Lou My: Thank you everyone for joining us today, the fourth quarter of 2023 marked a robust conclusion to a year filled with significant progress in strategic positioning for growth.
Lou My: Notably Q4 reflects the highest net sales of 2023 outperforming all of the quarters of this year.
Lou My: We also achieved our peak quarterly operating income and adjusted EBITDA for the year.
I will let Scott our CFO will discuss our preliminary financial resorts in more detail, but before I do I just want to say.
Lou My: It is clear to me are result of showing progress and our tangible evidence of the success of our strategy.
Lou My: Based on the strength of our bookings backlog and a growing opportunity set I have no doubt that fiscal 'twenty 'twenty four is shaping up to be a Europe growth.
Lou My: Let me dive right into why I'm, so confident burst during fiscal 2023, we booked $62 3 million of orders compared to $40 2 million in 2022.
Lou My: This represents a 55% increase that is quite an accomplishment.
Lou My: Our book to Bill ratio, which is simply bookings divided by net sales was a ratio of one point to two one a significant improvement over the 7.75 to one we achieved in 2022.
Lou My: Given the opportunities, we see and although timing is always difficult to predict I believe it is likely we will exceed the one two ratio for 2024.
Lou My: A good indicator that not only 2024 will be a year of growth, but 2025 will be as well.
Lou My: Third.
Lou My: Our backlog, which we can which can be considered funded backlog stood at $98 3 million.
Lou My: Marking a 14.7 increase from the $85 7 million, we had at December 31 2022.
Lou My: Our funded backlog represents the net future sales, we expect to realize from funded orders received these.
Lou My: These funded orders approved by our customers come from long term agreements spot buys and other contracts that are for essentially machine components essential machine components and assemblies used in key platforms and programs we serve.
Lou My: Importantly, our backlog excludes what is sometimes referred to as unfunded orders.
Lou My: Unfunded orders represent future orders possible under existing long term agreements for all of their contracts.
Lou My: When you take a step back the total value of contracts awarded to US as of December 31, 2022, three including $98 million of funded backlog was $191 1 million.
Lou My: As I have said earlier, although timing is difficult to predict the 191.1 million amount provides some multiyear visibility into our future revenue and validates that key partnerships, we have with our customers.
Lou My: The fourth and final reason why I'm. So confident is the support and dedication of our entire professional staff, we employ over 180 people many in manufacturing production and quality control.
Lou My: The dedication of our employees was key to our facing and overcoming the challenges of recent years, we have come a long way.
Lou My: And I believe our year end backlog position in 2023 bookings are are the best form of tangible evidence that our strategy is on track and things are looking bright.
When I took on the CEO role the company wasn't distress. If you look if you go back to 2016, we've begun we began a four year period, where we lost our combined.
Lou My: $51 $7 million.
Lou My: Today I believe we have the right products the right capital equipment, the right team and have a requisite capability to grow our business for many years.
Lou My: Relationships with our customers are much better and new ones are being nurtured.
Lou My: We have come a long way.
Lou My: In addition to our employees customers and suppliers I do want to thank our board of directors for their support wisdom and insight during the several challenging years, we had.
Lou My: Shortly and before I forget I want to mention that in July.
Lou My: 2023, our board announced that Pizza Italia I would become a chairman Pete had served as a director of the company since 2005 and in fact served as president and CEO.
Lou My: Of Air Industries from 2005 to December of 2014, I appreciate his guidance and I am glad he accepted the role.
Lou My: As I look as I look to fiscal 'twenty 'twenty four our business strategy is geared towards competing and winning programs that enable us to achieve sustainable and profitable growth.
We will also continue our unwavering commitment to genuine quality and exceptional reliability.
For those of you who are new to air industries, our rich history dates back to 1941, producing parts for World War two fighter aircraft.
Lou My: Then we have maintained maintained an impeccable record with no no incidence of heart failure, leading commission failure, resulting in a fatality.
Lou My: I'm, so proud of that and in 2023, we added yet another year to our track record.
Lou My: As a critical supplier to the aerospace and defense industry sales to customer or highly concentrated with four customers RPX.
And Marty both.
Lou My: In the U S government, representing 67, 8% of 2023 sales.
Lou My: We serve these customers proudly, although some a few sales concentration among a few customers as a risk I view it as an opportunity.
Lou My: These companies are much larger than us so when we partner with them we have room for growth on many new programs they have.
Lou My: With that let me briefly discuss some of the key platforms and programs that we supported during fiscal 2023.
Lou My: And that we will continue to support in 2024 here are the top four based on 2023 sales.
None: First yes.
Jorge program, which accounted for $24 three of our sales.
None: <unk> 18, 9% of our sales in 2023 came from the E <unk> Hawkeye.
Third another 18, 1% of sales came from the U H 60 Blackhawk helicopter.
None: And finally, the 10.5 came from sales of critical components for geared turbofan engines.
None: The first street programs cover a range of D. O D military battery breakthrough branches, whether it be the U S Army Navy Air Force Marine Corp's as well as foreign governments.
None: Additionally, the geared turbofan engine is one of the most successful programs introduced in modern times and has been used by many global commercial airlines.
None: So from where I stand on a revenue basis actually pretty diversified when you consider the different end users we actually support.
One important point to make.
None: In the past several years, we have expanded our sales and marketing efforts with a sharp focus on partner with existing customers and cultivating new ones and.
None: In 2023, our strategy yielded significant results and during the year. We secured an initial 700000 dollar order from a foreign based aerospace company for specialized components.
None: This customer is one of the largest providers of landing gear systems in the world.
None: As we continue to develop and strengthen this new relationship we are optimistic about securing additional orders over time.
None: Now, let me provide some comments on the supply chain front.
None: As everyone knows industry wide supply chain issues overall remained challenged.
It was COVID-19, we're securing raw materials from other countries I have never seen such industry why supply chain difficulties, we remain vigilant and working through specific issues that impact us.
None: I'm pleased to report that in the last several months, we have largely worked through what the major supply chain issue on one key program that impacted us in 2022 and 2023.
We are confident that this issue has been largely resolved.
None: That not only have we begun to receive raw materials from the supplier, but a second source has been identified.
None: Initial deliveries have occurred in 2024, and we expect delivery products throughout the year.
None: Now as a promised let me turn to <unk>, Let me turn it over to Scott for a few remarks on our financial results and I'll be back to provide a bit more color on our 2024 business outlook with that Scott.
Scott: Thanks, Lou Q4 was a really solid finish to the year consolidated net sales for the fourth quarter ended December 31, 2023 with $13.5 million this which was comparable to the amount we achieved in Q4 of last year, but it was also the highest quarterly level of sales all year long.
Scott: For the year sales approximated $51.5 million.
Scott: Gross profit as a percentage of sales in Q4 was 16%.
Scott: The year, our gross profit was 14, 4%, which was slightly higher than the 14% we achieved in 2022.
As a reminder, in Q4 of last year, we only achieved a five 1% gross margin, which was due to the write down of obsolete inventory.
Scott: Operating expenses in Q4 of 2023 for $1 $6 million comparable to the amount in Q4 of 2022, but lower than earlier fiscal quarters of 2023.
Scott: Q4, 2023 results benefited from a change in the way, we administer our bonus programs, although I won't go into specifics for competitive reasons. Our board is in the process of finalizing bonus plans to incorporate more equity for senior executives to further align them with shareholders at some point, we will share the specifics.
Scott: Our Q4 operating income was a positive $587000 compared to Q4 2022, when we had a loss of $820000 for the year, our operating loss was $295000 as compared to the 194000 operating.
Scott: Louis we experienced in fiscal 2022.
Scott: Interest expense in Q4 was $448000 as compared to 403000 in Q4 of 2022 for.
Scott: For the year interest expense was $1 $9 million up significantly from the $1 4 million in 2022. This increase was almost entirely attributable to the increase in interest rates by the fed which impact the applicable interest rates, we pay on our credit facility.
Scott: Finally on the bottom line net income was 181000 for the quarter. This was the first quarter of net income when looking across the past eight quarters for the year, we reported a net loss of $2 1 million compared to the 1 million most of 2022.
Scott: With respect to adjusted EBITDA, we generated $2 7 million in 2023 compared to $3 5 million in 2022 a.
Scott: A detailed reconciliation of this non-GAAP financial metrics is included in our press release that we issued earlier today.
Now, let me give some highlights on the balance sheet accounts receivable at year end was $7 $9 million and inventory was $29 9 million both amounts reflect a reduction from the prior year.
Scott: We finished the year with $346000 of cash which was up from the 281000 in 2022 and total indebtedness of approximately 23.310 million, which was a reduction of 1.958 million from last year's balance of approximately.
Scott: <unk> $25 million 268000.
Scott: As of December 31, 2023, we were in full compliance with all financial and business covenants related to our credit facility with Webster Bank.
None: I recognize that today is April one and two.
Q1 is technically over but we have not yet prepared any financial statements.
None: An initial calculations. It appears that we are in compliance with our covenants as of March 31, 2024 as well.
Our credit facility does not mature until December 30th 2025, and our subordinated notes are not due until July 2026, however, given our growth prospects and better visibility.
None: The process of negotiating with our bank and others to extend or refinance this facility to provide additional stability and strength of our balance sheet.
None: Take several months for more to come up with a win win and we will keep everyone up to date as appropriate.
Finally, before turning the call back over to Lew I wanted to mention that the company intends to file a notification of late filing on form <unk> 25, Tomorrow Tuesday April 2nd 'twenty 'twenty four with the SEC with everything going on in our small finance team, we need additional time to complete item nine a related to <unk>.
None: Internal controls and to conclude our assessment with respect going concern language in our notes. We are currently finalizing these items and then the orders will need to complete their work.
None: Our conclusions will be included on our Form 10-K, which I expect to file with the SEC on or before April 16th 2024.
None: Based on what I know today, the Finalization of these items will not have any impact on the preliminary unaudited Q4, and 2023 results announced in our press release issued earlier today, where as we have discussed on this conference call are of course, our Form 10-K will include a complete set of financial statements as well.
None: That I will turn the call back to Lou for some closing remarks on our 2024 business outlook before we have our Q&A blue.
Lou My: Thank you Scott.
All in all I wanted to reiterate my confidence in 2024.
Lou My: With strong bookings and continually expanding opportunities I am confident about our future and expect 2024 to be a year of growth.
As everyone knows the timing of orders to receipt of raw materials and the delivery of goods are challenging to predict, especially given the industry wide supply chain issues.
From my perspective net sales for the fiscal 2024 are expected to be at least $50 million, if not slightly higher than those of 2023 levels and adjusted EBITDA in 2024 being significantly better than the 2023.
Lou My: Given everything that's happening globally I am excited about our position to achieve such growth.
Lou My: As year progresses, we intend to provide updates as appropriate.
Lou My: With that I concluded my remarks, and at this point I would like to turn it over to Rob to open the lines for <unk>.
Lou My: Our Q&A portion Rob would you. Please do the honors sure. Thank you at this time, we'll be conducting a question and answer session.
Rob: Like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for <unk>.
Rob: Questions.
Rob: Our first question comes from Howard Halpern with tablets brothers. Please proceed with your question.
Howard Allen Halpern: Congratulations on finishing off a challenging year.
Howard Allen Halpern: In a very good way.
Howard Allen Halpern: Good afternoon, Howard how are you today okay.
None: Can we talk about I guess a little bit.
Howard Allen Halpern: What about the backlog and how you go about I guess, incorporating new new customers that maybe you know small in nature now, but you'll be able to grow in the future in terms of maybe new programs.
Howard Allen Halpern: Could you give a little perspective on I.
Howard Allen Halpern: I guess customer acquisitions.
None: Oh, absolutely Howard.
None: As you know you know we are and I made I made a comment on this on this call predominantly our our work is centered around four for big customers, who also you know Lockheed has the Lockheed portion and they have the Sikorsky portions.
None: <unk> Colons and it has a pratt whitney and several others. So the clients that we were pursuing in the clients that we pursue or not.
None: Usually third or second even second tier these aren't large Oems or government direct that.
None: For a company our size once we get into these companies. It seems like there's a lot of a lot of areas that we can get involved into.
None: So it just doesn't limit us to you know between the engine side of things and the landing gear side of things. The arresting side of things are the rotorcraft side of things any any typical company will have several avenues for us to pursue.
None: So are our main motive in the last two years has been customer acquisitions, we came off or we.
None: We did the foreign squirrel Air show two years ago, We did the Paris Air show last year, we're going back to England for Farnborough. This year, where you know to acquire a customer in a place like that.
None: Once sitting and and we'll make 50 appointments in the course of a couple of days that we visit so you can hit a lot of a lot of clients or potential clients very quickly and efficiently.
None: And we've been we've been successful and that's that's not surprising that's kind of what we do we offer we offer a very complex type product that Anna and I are out one of our biggest attributes is that we cannot only make the product that we can.
None: It's not that we just make the component we have bought the engineering we have the assembly.
None: And actually even a redesign of small redesign if need be so when a client sees the capabilities that we have and put on the table.
None: It's relatively easy to see the value that they could get by dropping to a product off at air industries.
None: Okay.
And you know based on how now you structured the company.
None: What kind of leverage could you create so in terms of I guess, the backlog and you know continue to grow in the backlog what kind of production can you can we assume.
None: Without material increase in.
None: Capex spending or operating costs increasing.
None: While our IRA or 'twenty 'twenty four capex is obviously minimal.
None: We spent close to $13 million in the last several years on Capex to <unk>.
None: Get the company to a point, where we are now I mean, you walk our shops, you see brand new machines you see.
None: A lot of shiny new stuff.
None: We're investing money in.
None: We've invested money into refurbishing older equipment in preparation for what we would've thought we were going down this road in 2020.
None: We are predominantly a 85, maybe 90%.
None: Military.
None: Company.
None: Service all the military programs our commercial content is.
None: Is very very low and in 2020, we were going to expand our commercial offerings that we could potentially get involved with it COVID-19 hit commercial fell through the floor, but commercial for US is it's almost like the unexplored.
None: Oh ground.
Ton of opportunities and it could all be done across the same machines that we have now if we stay within the limits, obviously, we're not going to make.
None: Pistons and cylinders for the big airliners, just too big for our equipment, but there's a lot of stuff that we can do on the commercial side that we have just not done in the past.
And those are going to be things that we could bring to the table without really a huge investment or any investment in capex. So the next couple of years.
None: However, it is going to be about filling the capacity in our shop and <unk>.
None: Streamline streamlining inefficient efficiencies and trying to do more with less.
None: And just one last one modeling question would.
None: Would it be fair to say that the fourth quarter gross margin is something that you.
None: You hope to achieve at a minimum for the full year 'twenty four and improve ongoing forward.
None: Hi, Howard how are you.
Howard Allen Halpern: I would say that what we achieved in the fourth quarter by itself. The 16% is something that we are and.
Howard Allen Halpern: Anticipating will be what where we are for 2024, if not better of course depends on product banks availability of material and so forth as Lou said we have.
Howard Allen Halpern: Have resolved thankfully.
Howard Allen Halpern: So a lot of the supply chain issues, but material is still on.
Howard Allen Halpern: On a short supply and very long lead time, so we anticipate that the 16% will hold throughout the year, if not be better each quarter.
Howard Allen Halpern: And we'll see where it goes you know each quarter, but.
Howard Allen Halpern: Strongly confident in that.
Howard Allen Halpern: Okay.
None: Thanks, and keep up the good work guys.
None: Thank you for your questions Howard.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment, please while we poll for questions.
Yeah.
None: There are no further questions at this time at this point I'd like to turn the call back over to Luke mill itself for closing comments.
Luke: Thank you Rob.
Luke Mills: Thank you all for taking the time to be on the call today and for your interest in Air Industries Group, We look forward to updating you on the progress on our next call.
Luke Mills: With that Rob I think the call you can conclude the call.
Rob: Thank you. This concludes today's conference you may disconnect your lines at this time.
We thank you for your participation.
Rob: Okay.
Rob: Today's conference has ended please disconnect your lines at this time. Thank you.