Q1 2024 Air Industries Group Earnings Call
Hello, and welcome to the Air Industries Group first quarter 2024 earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Operator: Hello and welcome to the Air Industries Group first quarter 2024 earnings conference call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. At that time, if you would like to ask a question, please press star 1 on your telephone keypad. You may press star 2 if you would like to remove your questions from the queue. You may need to pick up your handset before pressing the star keys if you are using speakers.
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Operator: If anyone should require operator assistance during the conference, please press star zero on your telephone. Please note this conference is being recorded. This call and the accompanying webcast may contain forward-looking statements as defined in Section 27A of the Securities Act of 1933 as amended, including statements regarding, among other things, the company's business strategy and growth strategy. Expressions which identify forward-looking statements speak only as of the date of the statement made.
Speaker Change: Please note this conference is being recorded.
Speaker Change: This call and the accompanying webcast may contain forward looking statements as defined in section 27, a of the Securities Act of 1933 as amended including statements regarding among other things the company's business strategy NGO strategy.
Speaker Change: Russians, which identify forward looking statements speak only as of the date of the statement is made.
Operator: These four forward-looking statements are based largely on our company's expectations and are subject to a number of risks and uncertainties, some of which are beyond our control and cannot be predicted or quantified. Future developments and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statement. In light of these risks and uncertainties, there can be no assurance that the forward-looking information will prove to be accurate.
Speaker Change: These forward looking statements are based largely on our company's expectations subject to a number of risks and uncertainties.
Speaker Change: All of which are beyond our control and cannot be predicted with Wifi.
Speaker Change: Future developments and actual results could differ materially from those exports.
Speaker Change: Contemplated by or underlying the forward looking statements.
Speaker Change: In light of these risks and uncertainties there can be no assurance that the forward looking information will prove to be accurate.
Operator: This call does not constitute an offer to purchase any securities nor a solicitation of a proxy, consent, authorization, or agent designation with respect to a meeting of the company's shareholders. At this time, I would now like to turn the call over to Lou Melluzzo, president and CEO. Please go ahead, sir.
Speaker Change: Call does not constitute an offer to purchase any securities nor a solicitation of a proxy consent.
Speaker Change: Authorization or agent designation with respect to a meeting of the company's shareholders. At this time I would now like to turn the call over to Lou.
Lou: So president and CEO. Please go ahead Sir.
Luciano M. Melluzzo: Thank you, Shivali. Thank you everyone for joining us today. The first quarter of 2024 saw revenue growth as compared to the first quarter of last year, as well as compared to revenues we achieved during the fourth quarter of 2023. More importantly, the strong order and opportunity flow we experienced during the fourth quarter of last year continues and remains strong. We achieved bookings of $12.95 million, and our backlog increased to $99.3 million. Our quarterly book-to-bill ratio, which is simply quarterly bookings divided by quarterly net sales, was 0.92 to 1. Q2 has started strong with new activity.
Thank you sure.
Speaker Change: Thank you everyone for joining us today.
Speaker Change: The first quarter of 2024 saw revenue growth as compared to the first quarter of last year as well as compared to revenues, we achieved during the fourth quarter of 2023.
Lou: More importantly, the strong order an opportunity flow we experienced during the fourth quarter of last year continues and remains strong.
Speaker Change: We achieved bookings of $12 $95 million and our backlog increased to $99 3 million.
Speaker Change: Our quarterly book to Bill ratio, which is simply broadly bookings divided by quite a lead net sales was <unk> 92 to one.
Speaker Change: Q2 has started strong with new activity and although timing is always difficult to predict given the opportunity should we see I believe that our annual book to Bill ratio in fiscal 'twenty 'twenty four will continue to exceed the industry standards of one two to one.
Luciano M. Melluzzo: And although timing is always difficult to predict, given the opportunities we see, I believe that our annual book to bill ratio in fiscal 2024 will continue to exceed the industry standards of 1.2 to 1. After the market closed today, we announced an $8.2 million order for Blackhawk and H92 components. Our funded backlog of $99.3 million represents the net future sales we expect to realize from funded orders we have already received. These funded orders issued by our customers come from long-term agreements, spot buys, and other contracts.
Speaker Change: After the market close today, we announced an $8 2 million dollar order for Black Hawk in each 92 components.
Speaker Change: Our funded backlog of $99 3 million and represents the net future sales, we expect to realize from funded orders we have already received.
Speaker Change: These funded orders issued by our customers come from long term agreements spot buys and other contracts.
Luciano M. Melluzzo: It is important to understand that our backlog does not include what is sometimes referred to as unfunded orders. Unfunded orders represent future orders possible under existing long-term agreements and other contracts. When you take a step back, the total value of contracts awarded to us as of March 31st, 2024, including our $99.3 million of funded backlog, was $179.1 million. The $179.1 million amount provides some multi-year visibility into our future revenue and validates the key partnerships we have with our customers.
Speaker Change: It is important to understand that our backlog does not include what is sometimes referred to as unfunded orders.
Speaker Change: Unfunded orders represent future orders possible under existing long term agreements and other contracts.
Speaker Change: When you take a step back the total value of contracts awarded to US as of March 31, 2024, including our $99 3 million of funded backlog was $179 million 0.1.
Speaker Change: The $179 1 million of Mount provide some multiyear visibility into our future revenue and validates that key partnerships, we have with our customers.
Speaker Change: Importantly, as I mentioned earlier, we remain laser focused on several large opportunities. We eventually expect to close.
Luciano M. Melluzzo: Importantly, as I mentioned earlier, we remain laser-focused on several large opportunities we eventually expect to close. All in all, I am confident that fiscal 2024 will be a year of growth. Now, I'll turn the call over to Scott, who will discuss our Q1 results. I'll be back to add some closing commentary and a bit more specifics on our 2024 outlook before opening it up to questions and answers. Scott, you may proceed. Thanks, Lou.
Speaker Change: All in all I am confident that fiscal 'twenty 'twenty four will be a year of growth.
Speaker Change: Now, let me turn the call over to Scott, who will discuss our Q1 results.
Scott: I'll be back to add some closing commentary and a bit more specifics on our 2024 outlook before we before opening it up to questions and answers.
Scott.
Scott: Yeah.
Scott A. Glassman: Thanks, Lou. As Lou mentioned, we remain confident that fiscal 2024 will be a year of growth. Let me discuss our results. Consolidated net sales for the first quarter ended March 31st, 2024 were $14 million. This was higher than the $12.5 million we achieved in Q1 of 2023. And, in fact, it was even higher than the $13.5 million we achieved in the fourth quarter of 2023. Although I caution everyone not to annualize any particular quarter's results.
Scott: Thanks, Lou as Lou mentioned, we remain confident that fiscal 'twenty 'twenty four will be a year of growth, let me discuss our results.
Scott: Consolidated net sales for the first quarter ended March 31, 'twenty 'twenty four were $14 million. This was higher than the 12 and a half million we achieved in Q1 of 2023.
Scott: And in fact, it was even higher than the $13 5 million, we achieved in the fourth quarter of 2023.
Speaker Change: Though I caution everyone not to annualize any particular quarter's results.
Scott A. Glassman: This quarter's sales level shows you a sense of our current production capabilities at our current staffing level. Gross profit as a percentage of sales in Q1 2024 was 13.6% as compared to the 15% we achieved in Q1 2023. It was lower than that than what we had achieved in Q4 of 2023, which was 16%. This quarter, our gross margins were impacted by several new products. We also experienced some hiccups in our Connecticut manufacturing facility, specifically incurring lower than expected hours.
Speaker Change: This quarter sales level shows you a sense of our current production capabilities at our current staffing levels.
Speaker Change: Gross profit as a percentage of sales in Q1, 2024 was 13, 6% as compared to the 15%. We achieved in Q1 of 2023, it was lower than that than what we had achieved in Q4.
Speaker Change: 2023, which was 16% this quarter our gross margins were impacted by several new products. We also experienced some hiccups in our Connecticut manufacturing facility, specifically incurring lower than expected hours. However, I am confident that gross margin will improve later in the year as we refine our.
Scott A. Glassman: However, I am confident that gross margin will improve later in the year as we refine our operations and accelerate our product. Operating expenses in Q1 2024 were $2.2 million, or 15.4% of sales. When compared to Q1 2023, these metrics were very similar.
Speaker Change: <unk> and accelerate our products.
Speaker Change: Operating expenses in Q1, 'twenty, 'twenty, four or $2 2 million or 15, 4% of sales when compared to Q1 of 2023. These metrics were very similar.
Speaker Change: Our Q1, 'twenty 'twenty four operating loss largely driven by the lower gross profit was $259000 compared to Q1 2023 loss of $158000.
Scott A. Glassman: Our Q1 2024 operating loss, largely driven by the lower gross profit, was $259,000 compared to the Q1 2023 loss of $158,000. Interest expense in Q1 2024 was $462,000, down slightly as compared to the $476,000 in Q1 2023. Finally, on the bottom line, the net loss was $706,000 for the quarter compared to a Q1 2023 loss of $618,000. With respect to adjusted EBITDA, we generated $362,000 in 2024, compared to $578,000 in 2020-2023. A detailed reconciliation of this non-GAAP financial metric is included in our press release that was issued last evening.
Speaker Change: Interest expense in Q1, 2024 was $462000 down slightly as compared to the 476000 in Q1 of 2023.
Speaker Change: Finally on the bottom line net loss was 706000 for the quarter compared to Q1 2023 loss of 618000.
Speaker Change: With respect to adjusted EBITDA, we generated $362000 in 2024 compared to 578000 in 2000 2023, a detailed reconciliation of this non-GAAP financial metrics is included in our press release that was issued last evening.
Scott A. Glassman: Now let me quickly highlight a few items on the balance sheet. We finished the quarter with $225,000 of cash. Our debt level was approximately $23,936,000, a slight increase from Q4 of 2024. As of March 31, 2024, we unfortunately did not meet our fixed coverage charge ratio in our credit facility with Webster Bank. However, we did make all required principal payments pursuant to the terms of the credit facility, and we are working with Webster to obtain adjusted or new financing that better meets our operating requirements.
Speaker Change: Now let me quickly highlight a few items on the balance sheet.
Speaker Change: We finished the quarter with $225000 of cash.
Speaker Change: Our debt level was approximately $23.936 million a slight increase from Q4 of 'twenty 'twenty four.
Speaker Change: As of March 31st 2024, we unfortunately did not meet our fixed coverage charge ratio.
Speaker Change: Credit facility with Webster Bank. However, we did make all required principal payments pursuant to the terms of the credit facility and we are working with Webster to obtain adjusted or new financing that better meet our operating requirements.
Scott A. Glassman: The cash receivable at quarter end was $8 million, and inventory was $29.3 million. Both amounts are very similar to how we finished Q4 of 2023. And with that, I will turn the call back to Lou for some closing remarks and an update on our 2024 business outlook.
Speaker Change: Accounts receivable at quarter end was $8 million and inventory was $29 $3 million both of them as very similar to how we finished Q4 it was 2023.
Speaker Change: And with that I will turn the call back to Lou for some closing remarks and update on our 2024 business outlook loop. Thank you Scott.
Speaker Change: Let me provide some additional color on the challenges with gross profit in Q1.
Luciano M. Melluzzo: Let me provide some additional color on the challenges with gross profit in Q1. During Q1, we began initial production on a number of new programs from new customers at the same time. Gross margins at the development stage of a new product tend to be lower. Historically, as we become more knowledgeable about how to produce the product, we reduce production time, we reduce costs, and we become more efficient as the product matures. The good news is that once these products are under our belts, it is not uncommon for us to improve our production cycle times by upwards of 30 to 40 percent.
Lou: During Q1, we began initial production on a number of new programs from new customers at the same time.
Lou: Gross margins at the development stage of our new product tends to be lower historically as we become more knowledgeable about how to produce the product we reduced production time, we reduce cost and become more efficient as the product matures.
Speaker Change: The good news is that once these products are under our belt, it's not uncommon for us to improve our production cycle times upwards of 30% to 40%.
Luciano M. Melluzzo: At the end of the day, I am pleased with my Q1 performance, and I am confident that fiscal 2024 will be a year of growth. And, considering all the typical disclaimers in our Form 10-Q filed with the SEC yesterday, we are still targeting net sales for fiscal 2024 to be at least $50 million, with an adjusted EBITDA in 2024 being better than that in 2023. As the year progresses, we intend to provide updates as appropriate. Now, we turn the call over to the Q&A portion of the call. Shamali, can you please open up the lines?
Speaker Change: At the end of the day I am pleased what I Q1 performance and I am confident that fiscal 2024 will be a year of growth and considering all the typical disclaimers in our Form 10-Q filed with the SEC yesterday, we are still targeting the net sales for fiscal 2020 for it to be at least $50 million with an adjusted EBITDA.
Speaker Change: In 24 be better than that of 2023.
Speaker Change: As the year progresses, we intend to provide update as appropriate now lets turn the call over for the Q&A portion of the call.
Speaker Change: Mollie can you please open up the lines.
Mollie: Thank you and at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Operator: Thank you. And at this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing restart. And our first question comes from the line of Howard Halpern, Halpern with the Taglit Brothers. Please proceed with your question.
Confirmation tone will indicate your lies in the question queue.
Mollie: You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing.
Speaker Change: Uh huh.
Speaker Change: And our first question comes from the line of Howard Halpern offering with taxes brothers. Please proceed with your question.
Howard Allen Halpern: Good afternoon and a good start to the year. Good afternoon, Howard. Hi Howard. How are you?
Howard Allen Halpern: Good afternoon, and a good start with regard to the Oh good afternoon Howard.
Howard Allen Halpern: Hi, Howard how are you.
Luciano M. Melluzzo: Okay. So on a modeling basis going forward, would operating expenses in the first quarter be what we're going to see for a time as you continue to upgrade the information technology and cyber security areas of the business?
Howard Allen Halpern: Okay.
Speaker Change: So for.
Speaker Change: On a modeling basis going forward would that be.
Howard Allen Halpern: Our operating expenses in the first quarter is that what we're going to see for a time as you continue to upgrade that.
Howard Allen Halpern: Information technology, and cyber security area of the business.
Scott A. Glassman: So, I would say that in Q1, the operating expenses will probably be, were probably slightly higher than I anticipate for the remainder of the year. However, there are additional costs in there, as you indicated, for, you know, IT upgrade and cyber technology to make us compliant with the various things we need to be as a government contractor and just as a business in general. But I wouldn't think that they would be higher than that in the future.
Speaker Change: So I would say that in Q1, the operating expenses will probably be we're probably slightly higher than I anticipate for the remainder of the year. However, there are additional costs in there as you indicated for it upgrades and cyber technology to make us comply.
With the various things we need to be as the government contracts all right and just as a business in general, but I wouldnt think that they would be higher than that in the future periods.
Howard Allen Halpern: Okay. And in terms of, you know, you talk about it being a new program that began in Q1. Now, are those sales going to ramp up? [inaudible]
Speaker Change: Okay.
Speaker Change: And in terms of you know you talk about.
Speaker Change: It was a new program that we.
Speaker Change: Beginning in Q1 now was is that.
Speaker Change: Ram.
Speaker Change: Warner Mike why don't well will there still be some fluctuations in that new program.
Mike: You continue to deploy it it'll help drive margins up throughout the quarters.
Scott A. Glassman: As Lou said, as production matures, typically, our cycle time is reduced, and that would, of course, lead to a higher margin. I believe that we will see that as time progresses. Lou, would you care to add any more color to that?
Uh huh.
Lou: As Lou said.
Lou:
Lou: As product production matures typically our cycle time to reduce and that would of course lead to a higher margin I believe that we will see that as as time progresses lube would you care to add any more color to that absolutely.
Luciano M. Melluzzo: Absolutely. Howard, as you know, and we've been saying all along, we've been on a real new business development quest for the last 12 to 16 months. And, you know, we've been successful at bringing in new products and new clients. So what's happening is some of this material, and I think we're all aware of it, you know, has nine months, a year, a year and a half lead time. It all showed up at the same time.
Speaker Change: Howard as.
Speaker Change: You know and we've been saying all along we've been on a real new business development Quest. The last 12 to 16 months.
Speaker Change: And we've been successful at bringing in new product and from new clients. So what's happening is some of this material.
Howard Allen Halpern: We're all aware of but you know it has a nine months a year year and a half lead time.
It all showed up at the same time. So we've got we had several projects that we initiated all at one time and.
Luciano M. Melluzzo: So we've got, we had several projects that we initiated all at one time. And we expect to be shipping this product, you know, throughout the course of the year. And some of these are LTAs that go on, you know, beyond this year, and they'll go out three to five, seven years. So we'll start seeing some gains from the product that we developed in Q1 and the end of last year as well.
Speaker Change: And we expect to be shipping this product you know throughout the course of the year and somebody's R. L. T. A's that go on you know beyond our beyond this year and they'll go out three to five seven years. So.
Speaker Change: We'll start seeing some gains from the product that we have developed in Q1 and in the end of last year as well.
Howard Allen Halpern: Okay, and we will from time to time, I guess, see some fluctuations based on if it's a new, you know, a new program. So there will be some startup costs and then
Okay well.
Speaker Change: From time to time, I guess see some fluctuations based on it.
It's a new.
Speaker Change: Our new programs.
There will be some start up always and then a ramp a ramp to follow on some of the new programs that you will be engaged in that that is absolutely correct.
Luciano M. Melluzzo: That's correct.
Howard Allen Halpern: Okay, and as of now, does the raw materials issue seem like it's pretty much behind us?
Speaker Change: Okay and as of now the raw materials issue seems like it's pretty much behind.
Luciano M. Melluzzo: You know, for most of our products, especially the important ones that really caused us some aggravation in 2023, it seems like that's mostly beyond us. I mean, we're still managing it day-to-day, but we're getting material, you know, and I have more material in-house so far this year than I had all last year. So that's a very, that's a positive trend. You can't predict the future, but we're hopeful that it continues.
Speaker Change: No.
Speaker Change: Most of our product, especially the important ones that really causes us some aggravation in 2023. It seems like that's mostly beyond us I mean, we're still managing it day to day, but it is we're getting material you know and.
Speaker Change: And I have more material in house, so far this year than I at all last year. So that's a very that's a positive trend to stop you can't predict the future, but we're all we're hopeful that it continues [laughter] so yes.
Speaker Change: Yeah.
Howard Allen Halpern: and you're seeing and and what are you seeing from your customers that you're producing for and potential new customers spending? You know that their their goal is to they have budgets to deploy capital.
Speaker Change: And you're seeing and what are you seeing from your from your customers.
Speaker Change: Customers that you're producing for and.
Speaker Change: Potential new customers spending you know.
Speaker Change: Their goal is you may have.
Speaker Change: Just to.
Speaker Change: Deploy capital.
Luciano M. Melluzzo: Well, it seems like, you know, the government, the Rett, we're seeing a lot more activity from the government than we saw in the last couple years. You know, since COVID hit, government spending has been more allocated to stuff that we don't get involved with, you know, space and stuff that just was outside of our forte.
Speaker Change: Well it seems it seems like you know the government. The ret is we're seeing a lot more activity from the government than we saw in the last couple of years, you know since Covid hit.
Government spending was more allocated for stuff that we don't get involved with you know space and and and stuffed. It just was outside of our our forte, but it just seems like now there's a lot more opportunities for spares on programs that we do get.
Luciano M. Melluzzo: But it just seems like now there are a lot more opportunities for spares on programs that we do get involved with, and, you know, so we're seeing an uptick in that. We brought in several new customers that, you know, potentially make up 30-40% of our business. So we're going through the curve of producing product and, you know, developing product right now, but it seemed commercial. We produced a strategic plan that was presented at the end of last year to our board.
Speaker Change: Getting involved with and you know so we're seeing an uptick in that you know we are because we.
Speaker Change: Brought in several new customers that are you know.
Speaker Change: She couldn't make up 30%, 40% of our business. So.
Speaker Change: We're going through the curve of our producing product and not you know developing product right now but it.
Speaker Change: It seemed you.
Speaker Change: Commercial you know we are we produced a strategic plan that was presented at the at the end of last year to our board.
Luciano M. Melluzzo: And so we're following that plan to a T. And, you know, that plan had us, you know, as you're well aware, we're predominantly military. 85-90% of our revenue comes from military programs. And, you know, during the COVID years, there was no such thing as commercial, but commercial is starting to make a comeback. And so we're pursuing that pretty heavily as well because there's work to be had there.
Speaker Change: And so we're following that plan to a tee.
Speaker Change: And that plan had US you know as you're well aware, we're predominantly military you know 80, 590% of our revenue comes from military programs.
Speaker Change: All right out during a COVID-19 years, there was no such thing as a commercial but commercial is starting to make a comeback.
Speaker Change: So we're pursuing that pretty heavily as well because there's there's there's all work to be had there.
Howard Allen Halpern: Okay, and just one last one: how is the move or the progression to the submarine business going?
Speaker Change: Okay, and just one last one how is Uh huh.
Speaker Change: The move or the progression to.
Speaker Change: The submarine business.
Speaker Change: <unk>.
Luciano M. Melluzzo: Slowly but surely, it's new to us. So, you know, materials react differently than the aerospace materials that we are accustomed to. It's all about the proper development, when you're cutting tolerances as tight as we produce, the way you dress a part and speed speeds, there's a litany of things that you just have to try to see how the materials react. It's moving along. It's not going as fast as I would like it to go, but it is moving along.
Speaker Change: Slowly, but surely it's new to us. So you know materials react differently than the aerospace materials than we that we are all accustomed to.
Speaker Change: You know it's all about.
Speaker Change: The profit development.
Speaker Change: When you're when you're cutting tolerant just as tight as we produce.
Speaker Change: The way you are the way you dress apart and the speed speeds, there's there's all there's oh.
Speaker Change: Litany of of things that you just have to try to see how the materials react Ah it's moving along it's not going as fast as I would like it to go but it is moving along.
Howard Allen Halpern: Okay, okay. Thanks and keep up the great work. Thank you for your call, Howard.
Speaker Change: Okay, Okay, thanks, and keep up the great work.
Operator: And we have reached the end of the question and answer session. I'll turn the call back over to Melluzzo for a closing remark.
Speaker Change: Howard.
Howard Allen Halpern: Thank you.
And we have reached the end of the question and answer session I'll turn the call back over to.
Speaker Change: Oh for closing remarks.
Speaker Change: Thank you Shimon.
Luciano M. Melluzzo: Thank you everybody for being on the call today and for your interest in Air Industries Group. We look forward to updating you on our progress on the next call. Shemali, at this point, you may conclude the call. Thank you.
Speaker Change: Thank you everybody for being on the call today and for your interest in Air Industries Group, We look forward to updating you on our progress on the next on the next call Smalley at this point you may conclude the call.
Speaker Change: Thank you and ladies and gentlemen. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
Operator: Thank you. And now, ladies and gentlemen, this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Speaker Change: Okay.
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