Q2 2024 Astronics Corp Earnings Call

Good day, everyone, and welcome to the Astronics Corporation's second quarter 2024 financial results conference call.

Operator: in quarter of 2024, Financial Results Conference Call. All participants will be in a listen-only mode. Should you do the assistant, please say no to a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and one using a touch-tone telephone. To withdraw your questions, you may press star and two. These also note today's event is being recorded.

Operator: After today's presentation, there will be an opportunity to ask questions. Please also note that today's event is being held, Thanks, Jamie, and good afternoon, everyone. We certainly appreciate your time today and your interest in astronics.

Operator: At this time, I'd like to turn the floor over to Deborah Pawlowski. Ma'am, please go ahead.

Deborah Pawlowski: Thanks, Jamie, and good afternoon everyone. We certainly appreciate your time today and your interest in Astronics.

Speaker Change: Thanks, Jamie and good afternoon, everyone. We certainly appreciate your time today and your interest in astronomy.

Deborah Pawlowski: Joining me on the call are Pete Gundermann, our chairman, president of the CEO, and Dave Burney, our chief financial officer. You should have a copy of our second quarter of 2024 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 Astronics.com.

Deborah Pawlowski: Joining me on the call are Pete Gundermann, our Chairman, President, and CEO, and Dave Burney, our Chief Financial Officer. You should have a copy of our second quarter 2024 financial results, which crossed the wires after the market closed today. We have provided reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release.

Speaker Change: Joining me on the call are peaked out Herman our chairman President and CEO and Dave Burney, Our Chief Financial Officer, you should have a copy of our second quarter 2024 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.

Deborah Pawlowski: As you are aware, we may make some 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 Securities and Exchange Commissions. You can find these documents on our website or at SCC.gov.

Speaker Change: As you are aware, we may make some forward looking statements during the formal discussion and Q&A session. This conference call.

Speaker Change: 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.

Speaker Change: Risks and uncertainties and other factors are provided in the earnings release as well as with other documents filed with Securities and Exchange Commission.

Speaker Change: You can find these documents on our website or at SEC Gov.

Deborah Pawlowski: During today's call, we 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 have provided reconciliation of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release.

Speaker Change: During today's call. We 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.

Speaker Change: We have provided reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release.

Deborah Pawlowski: So, with that, let me turn the call over to Pete to begin.

Speaker Change: So with that let me turn the call over to Pete to begin.

Peter Gundermann: Peter? Thank you, Debbie, and good afternoon, everybody. Thanks for tuning in to our call. We're going to talk about second quarter results, obviously, digging into some specifics of a recent refinance effort that we were refinanced process that we went through earlier in July and closed the call by talking through our expectations for the remainder of 2024. So one story short, we feel that the second quarter was a very good quarter for Australians. Simply put, Australian sales, improving margins, and very strong bookings. Our aerospace segment, which is just shy of 90 percent of our sales year to date, had a very good quarter.

Peter.

Peter: Thank you Debbie and good afternoon, everybody. Thanks for tuning into our call we're going to talk about second quarter results obviously.

Speaker Change: Into some specifics of our recent recently have suffered or refinanced process that we went through.

Speaker Change: Earlier in July.

Speaker Change: Close the call by talking through our expectations for the remainder of 2024.

Speaker Change: So long story short, we feel that the second quarter was a very good quarter for our strong simpler what stu.

Speaker Change: Strong sales improving margins and very strong bookings.

Speaker Change: Our aerospace segment, which is just shy of 90% of our sales year to date had a very good quarter.

Peter Gundermann: Our test segment, approximately 10 percent of our sales, had what I would term as a reset quarter. We'll get into the segment results a little bit later. But as I already mentioned, we also, after the quarter closed, accomplished a refunds in early July, which we feel is a very important step forward for the financial health of our company. So running through some overall consolidated numbers, again, sales of 198 million exceeded our guidance for the quarter. That's happened a handful of times recently, has become a little bit of a trend. Up 14% year-over-year in the comparator quarter and up 7% sequentially from the first quarter.

Speaker Change: Our test segment.

Speaker Change: Approximately 10% of our sales had what I would term as a reset quarter.

Speaker Change: We're getting into the segment results a little bit later.

Speaker Change: But as I already mentioned, we also have.

Speaker Change: After the quarter closed accomplish the refinance and the early July which we feel is a very important step forward.

Speaker Change: For the financial health of our company.

Speaker Change: So running through some overall consolidated numbers again sales of 198 million exceeded our guidance for the quarter. That's happened a handful of times recently has become a little bit of a trend.

Speaker Change: Up 14% year over year in the comparator quarter and up 7% sequentially from the first quarter.

Peter Gundermann: The sales level marks a return, frankly, to pre-pandemic levels. The sales level was enabled by positive trends that continue to propel us forward. And these are the things that we talked about the last few calls. I'm not going to go into a whole lot of detail, but we continue to see moderating inflation. We continue to see pricing increases that we have implemented taking hold and beginning to have an effect on our business. And most importantly, our supply chain, which is very much global in nature, continues to improve. Also, our workforce turnover has reduced from the very high levels of 2022 and 2023.

Speaker Change: So global marks a return frankly to pre pandemic levels.

Peter Gundermann: The sales level was enabled by positive trends that continue to propel us forward, and these are things that we talked about on the last few calls. I'm not going to go into a whole lot of detail, but we continue to see moderating inflation. We continue to see price increases that we have implemented taking hold and beginning to have an effect on our business. And most importantly, our supply chain, which is very much global in nature, continues to improve.

Speaker Change: The sales level was enable by positive trends that continue to propel us forward and these are things that we've talked about the last few calls I'm not going to go into them a whole lot of detail, but we continue to see moderating inflation, we continue to see price increases, but we have implemented.

Speaker Change: Taking hold and beginning to have an effect on our business and most importantly, our supply chain, which is very much global in nature continues to improve.

Speaker Change: Also our workforce turnover has reduced from the very high levels of 2022, and 2023 and the efficiency of our workforce is improving and I expect we will continue to improve.

Peter Gundermann: And the efficiency of our workforce is improving, and I expect we'll continue to improve. A tidbit of number, which may surprise you, did me when we ran these numbers. Our workforce currently totals about 2,600 people, and 43% of them at the end of the second quarter had been with us for less than three years. That's almost half, and it's a much higher percentage than what we are typically accustomed to. I don't think it's unique. I think a lot of companies in our space are dealing with the same realities, and it makes it challenging to step on the gas and immediately have a response in terms of organizational efficiency.

Speaker Change: A tidbit of number which may surprise you did me when we ran these numbers.

Speaker Change: Our workforce currently totals about 2600 people and 43% of them at the end of the second quarter. It had been with us for less than three years, it's almost half and it's a much higher percentage than what we are typically accustomed.

Speaker Change: I don't think it's unique I think a lot of companies.

Speaker Change: Banks are dealing with the spring realities.

Speaker Change: It makes it challenging to sell.

Speaker Change: On the gas and immediately have a response.

Speaker Change: As of organizational efficiency, but we're getting better and it's starting to show in our financials.

Peter Gundermann: But we're getting better, and it's starting to show in our financials. The income statement is improving with the sales level. Dave will talk through a lot of the details in just a few minutes. The adjust to the bit for the quarter was 10.2% up from 9.1% last year, or 20.2 million compared to 15.9 million. That's an improvement, but we expect more of it as we go through the years. Our sales continue to climb, and as our supply chain continues to improve, and as our workforce efficiency and quality improve, and as price increases continue to take hold.

Speaker Change: The income statement is improving with the sales level, Dave will talk through a lot of the details in just a few minutes.

Dave Burney: The adjusted EBITDA for the quarter was 10, 2%.

Dave Burney: Up from 9.1% last year, or 22 million compared to $15 9 million.

Peter Gundermann: That's an improvement, but we expect more of it as we go through the year, as our sales continue to climb, and as our supply chain continues to improve, and as our workforce efficiency and quality improve, and as price increases continue to take hold. And it was, with, importantly, $402 million scheduled to ship in the second half of 2024. Looking at our segments, we had a restructuring in April that I think we talked about on our first quarter call. And as part of that, we closed a facility in Texas, a smaller one, about 30 people or so, and consolidated those results in our Orlando headquarters.

Dave Burney: That's an improvement, but we expect more of it as we go through the year as our sales continue to climb.

Dave Burney: As our supply chain continues to improve and as our workforce efficiency and quality improves and as price increases.

Dave Burney: Well continue to take hold.

Speaker Change: Okay.

Peter Gundermann: Also, and it shouldn't be understated, demand continues to be very strong. Our second quarter bookings were 219 million. That's a book-to-bill of 1.11, and it was strong demand really across our range of product lines. It's really nice when you have a high shipping quarter and an even higher booking quarter that makes you feel really confident about the near-term future of the business. Our 12-month bookings at the end of the second quarter were 783 million. That again is a number that's approaching pre-pandemic levels. and we ended the quarter with a record backlog again of 633 million, with importantly 402 million scheduled to ship in the second half of 2024.

Speaker Change: Also and it shouldn't be understated demand continues to be very strong on our second quarter bookings were 219 million. That's a book to bill of 111.

Speaker Change: And it was.

Speaker Change: Demand really across a range of product lines.

It's really nice when you have a high shipping quarter and even higher bookings quarter that makes you feel really confident about the near term future of the business.

Speaker Change: Our 12 month bookings at the end of the second quarter were 783 million.

Speaker Change: But again, it's a number that's approaching pre pandemic levels.

Speaker Change: And we ended the quarter with a record backlog again of 633 million.

Speaker Change: With importantly, 402 million scheduled to ship in the second half of 'twenty 'twenty four.

Peter Gundermann: Looking at our segments, simply put, again, the aerospace segment had a really nice quarter; it's 90% of our consolidated sales, and basically, as aerospace goes, Astronics goes. Solid growth of 11.7% year over year, 177 million in revenue with good margin improvement. Dave will talk through those details in a second.

Speaker Change: Looking at our segments.

Speaker Change: Simply put again aerospace our aerospace segment had a really nice quarter, it's 90% of our consolidated sales.

Speaker Change: And basically as aerospace.

Speaker Change: Our strong scope.

Speaker Change: Solid growth of 11, 7% year over year to 177 million in revenue with good margin improvement.

Speaker Change: Dave will talk through those details in a second I don't want to spend a few minutes talking about trust.

Peter Gundermann: I want to spend a few minutes talking about test and what I described earlier as a reset quarter. We had a restructuring in April that I think we talked about on our first quarter call, and it was designed to save about $4 million annually, beginning in the current quarter, the third quarter of 2024. So that restructuring was accomplished, and as part of that, we closed a facility in Texas, a smaller one, about 30 people or so, and consolidated those results in our Orlando headquarters. It's similar to a consolidation we implemented last year of an operation up in the message, the Boston area, and another one that we have announced but not yet accomplished for a smaller UK operation.

Speaker Change: And what I described earlier as a reset quarter.

Dave Burney: We had a restructuring in April that I think we talked about on our first quarter call.

Dave Burney: And it was designed to.

Speaker Change: Save about $4 million annually beginning in the current quarter the third quarter of 2024, so that restructuring was accomplished.

Speaker Change: And as part of that we closed a facility in Texas, a smaller one about 30 people or so.

Speaker Change: Consolidated those results in our Orlando headquarters.

Speaker Change: It's similar to a consolidation we implemented last year of an operation up in the message the Boston area and another one that we have announced but not yet accomplished whereas smaller UK operation.

Peter Gundermann: All of these are designed to simplify the business, simplify the operations, and lower cost, and we're well underway with that effort. An unfortunate development in the second quarter was an estimate to complete adjustment for a 3.5 million for a couple of revenue over time, or otherwise, might people might know it as percentage of completion jobs in our transit test business. These resulted in sales and margin reductions of 3.5 million in the quarter, and it's basically a result of doing a ground-up review of those programs and learning or deciding or discovering that we weren't a spot along in terms of a development effort as we thought we were.

Speaker Change: All of these are designed to simplify the business.

Speaker Change: Simplify the operations and lower costs.

Speaker Change: And we're well underway with that effort.

Peter Gundermann: An unfortunate development in the second quarter was an estimate to complete adjustment of $3.5 million for a couple of revenue over time, or otherwise, people might know it as the percentage of completion jobs in our transit test business. These resulted in sales and margin reductions of $3.5 million in the quarter, and it's basically a result of doing a ground-up review of those programs and learning, deciding, or discovering that we weren't as far along in terms of a development effort as we thought we were.

Speaker Change: And the unfortunate development in the second quarter was an estimate to complete adjustment of $3 5 million for a couple of revenue over time or otherwise my people might know it is percentage of completion jobs in our transit.

Speaker Change: Business.

Speaker Change: These resulted in sales and margin reductions of three 5 million in the quarter and that's basically a result of doing a ground up review of those programs and learning are deciding are discovering that we werent as far along in terms of the development effort.

Speaker Change: As we thought we were.

Peter Gundermann: We should get that revenue back over the next few quarters. The contribution on it is something we're going to have to wait and see what that's all about, but that was a negative development for our test business. However, we feel it sets us up pretty good for the second half of the year and getting it behind us. Most importantly, in the second quarter, we were finally awarded that radio test contract by the US Army that you've heard me talk about almost for two years now. It was an IDIQ, or indefinite delivery indefinite quantity contract, or radio test equipment that is designed to allow the US Army to test its full range of radios proactively and to diagnose failures in the field or in the lab or wherever. It is a big program.

Speaker Change: We should get that revenue back over the next few quarters.

Speaker Change: Contribution on it is something we're gonna have to wait and see what that's all about but.

Speaker Change: That was a negative development for our test business, but we feel sets us up pretty good for the second half of the year.

Speaker Change: Getting it behind us.

Peter Gundermann: Most importantly, in the second quarter, we were finally awarded that radio test contract by the U.S. Army that you've heard me talk about for almost two years now. The initial contract came with an award for $15.5 million, and $7.2 million of that was recognized as revenue in the second quarter. We expect the majority of the remainder, a total of about $10 to $12 million, will be recognized over the course of 2024.

Speaker Change: Most importantly in the second quarter, we were finally awarded about radio test contract by the U S. But you've heard me talk about almost for two years now.

Speaker Change: It was an idea that you are indefinite delivery indefinite quantity contract or radio test equipment that is designed to allow the U S Army.

Speaker Change: To test its full range of radios proactively and how to diagnose failures.

In the field or in the lab or wherever it is a big program, it's funded to be $215 million.

Peter Gundermann: It's funded to be 215 million. We understand that there is clearly demand in the field at the Army to consume that amount of money, and we expect that it will be consumed in the coming years. The initial contract came with an award for 15.5 million, and 7.2 million of that was recognized as revenue in the second quarter. The total of about 10 to 12 million will be recognized over the course of 2024. And that initial delivery order was for engineering, qualification, and low rate initial production tasks. The question remains: when will full rate production begin, and we don't know the answer to that yet.

Speaker Change: We understand that there is clearly demand in the field.

Speaker Change: The army to consume that amount of money and we expect that it will be consumed in the coming years.

Speaker Change: The initial contract came with an award for $15 5 million.

Speaker Change: And $7 2 million of that was recognized as revenue in the second quarter.

Speaker Change: We expect.

Speaker Change: Majority of the remainder a total of about 10 to 12 million will be recognized over the course of 'twenty 'twenty four.

Peter Gundermann: And that initial delivery order was for engineering, qualification, and low-rate initial production tasks. The question... We also are dependent on the Army getting through some of their tasks. Our best guess is that it's mid-2025 or later, but probably will be completed by, you know, the early part of 2026.

Speaker Change: Initial delivery order was for engineering qualification.

Speaker Change: And low rate initial production tax.

Speaker Change: Good question.

Speaker Change: Remains when will full rate production begin and we don't know the answer to that yet we have some task we need to get through as part of the initial <unk> Award.

Peter Gundermann: We have some tasks we need to get through as part of the initial Elevator award. We also are dependent on the Army getting through some of their tasks. Our best guess is that it's mid 2025 or later, but probably will be commenced by the early part of 2026. More on that as it happens over the coming months. With that program, along with the cost reductions that we've implemented, we expect we'll put the test business on a much better footing compared to where it's been over the last quarter, last few quarters.

Speaker Change: We also are dependent on the army of getting through some of their test. Our best guess is that it's mid 2025 or later.

Speaker Change: But probably will be commenced by.

Speaker Change: The early part of 2026 more on that as it happens.

Peter Gundermann: More on that as it happens. In sum, it's an important step towards the recovery of our company and gives us the flexibility financially to make the investments we need to make to realize the opportunities that are ahead of us in the near future. I'll turn it over to Dave at this point to talk through some of the details of the quarter and the refinance package. Dave, with strength across most product lines and notable increases in demand from the commercial transport and defense markets, part shortages, and high inflation, hadn't yet re-implemented bonus plans.

Speaker Change: Over the coming months.

Speaker Change: With that program along with the cost reductions that we've implemented we expect we will put the test business on a much better footing compared to where it's been over the last.

Speaker Change: Quarter last few quarters.

Peter Gundermann: Finally, the refinance that we announced early in July. This is a big deal for our company. It is basically a larger improved ABL revolver facility combined with a reduced, less expensive term loan, and the combination of the two in some provides us a lower combined interest rate. It's a much lower amortization compared to what we had before. It improves the level of available liquidity and friendly recoverments. In some, it's an important step towards the recovery of our company and gives us the flexibility, financially, to make the investments we need to make to realize the opportunities that are ahead of us in the near future.

Speaker Change: Finally, the refinance that we announced early in July this is a big deal for our company.

Speaker Change: Basically a larger improved ABL revolver facility.

Speaker Change: Combined with a reduced.

Speaker Change: Less expensive term loan.

Speaker Change: And the combination of the two.

Speaker Change: Some.

Speaker Change: <unk> provides us a lower combined interest rate much lower amortization compared to what we had before.

Speaker Change: An improved level of available liquidity.

Speaker Change: And primarily our covenants and some it's an important step.

Speaker Change: Towards the recovery of our company and it gives us the flexibility financially to make the investments we need to make.

Speaker Change: To realize the opportunities that are ahead of us in the near future.

David Burney: I'll turn it over today at this point to talk through some of the details of the quarter and the refinance package today.

Speaker Change: I'll turn it over to Dave at this point to talk through some of the details of the quarter and the refinance that for today.

David Burney: All right, thanks, Pete. As Pete discussed, we continued our strong momentum into the second quarter with consolidated sales growth of 14%. With strength across most product lines and notable increases in demand from the commercial transport and defense markets, consolidated revenue was $198.1 million, and this is the highest we've seen since the fourth quarter of 2019.

Dave Burney: Alright, Thanks Pete.

Dave Burney: As Pete discussed we continued our strong momentum into the second quarter.

Consolidated sales growth of 14%.

Dave Burney: With strength across most product lines and notable increases in demand from the commercial transport and defense markets.

Dave Burney: Consolidated revenue was $198 $1 million and this is the highest we've seen since the fourth quarter of 2019.

David Burney: It's difficult to make comparisons to 2023 as we're still fighting through the pandemic. Part shortages and high inflation and hadn't yet re-implemented bonus bonus plans. So I think it's more relevant for the most part to compare performance to the first quarter of this year sequentially. As we frequently point out, there is inherently strong operating leverage in our business. The double digit growth in sales compared with the second quarter last year translated into 21% gross margin, which was up 220 basis points compared with last year, while operating margin improved 240 basis to 3.8%. While these improvements are nice, our sales and profit were actually dampened by about $3.5 million due to an increase of estimated costs that complete that Peter had mentioned on the mass transit test contracts.

Dave Burney: It's difficult to make comparisons to 2023 as we are still fighting through the pandemic.

Dave Burney: Parts shortages and high inflation and hadn't yet re implemented.

Speaker Change: Honest bonus plan, so I think it's more relevant for the most part.

Peter Gundermann: So I think it's more relevant for the most part to compare performance to the first quarter of this year sequentially. The double-digit growth in sales compared with the second quarter last year translated into a 21% gross margin, and that should be able to achieve EBITDA margins in the high teens, at least. And that translates to operating income in the 14 to 15 percent range for us. Sequentially, compared with the first quarter of this year, consolidated SG&A increased $1.3 million, primarily related to restructuring and severance costs of the test segment, slightly higher legal costs, and partially offset by lower equity compensation.

Dave Burney: To compare performance to the first quarter of this year sequentially.

Dave Burney: As we frequently point out there is inherently strong operating leverage in our business.

Dave Burney: The double digit growth in sales compared with the second quarter last year translated into 21% gross margin.

Dave Burney: Which was up 220 basis points compared with last year, while operating margin improved 240 basis to three points.

Speaker Change: Baseball, Thanks to 303, 8%.

Speaker Change: While these improvements are nice our sales and profit were actually dampened by about $3 $5 million due to an increase of estimated cost to complete that Pete had mentioned.

Pete: Mass transit test contracts, and then had the effect of lowering sales and related margins by the same amount as the percentage of completion on those contracts was reduced.

David Burney: And this has had the effect of lowering sales and related margins by the same amount as the percentage of completion on those contracts was reduced. Also, $1.3 million of restructuring and severance costs, primarily in the test segment, were recorded in the quarter. Consolidated operating income was $7.6 million and represents 45% operating leverage on the incremental sales over the first quarter of 2024. Adjusting for the estimated cost to complete revisions and the restructuring and severance costs, our consolidated operating profit would have been $12.4 million, or about 6%. Still not where we want to be, which is up in the double digits, but on the right track.

Speaker Change: Also.

Speaker Change: $1.3 million of restructuring and severance costs, primarily in the text test segment were recorded in the quarter.

Speaker Change: Consolidated operating income was $7 $6 million and represents 45% operating leverage on the incremental sales over the first quarter of 2024.

Speaker Change: Adjusting for the estimated cost to complete revisions and the restructuring and severance cost our consolidated operating profit would have been $12 4 million or about 6% still.

Speaker Change: Still not where we want to be.

Speaker Change: Which is up in the double digits, but on the right track.

David Burney: As we've stated before, we feel we should be a company that should be able to achieve a bit of margins in the high teens, at least. And that translates to operating income in the 14 to 15% range for us. Sequentially, compared with the first quarter of this year, consolidated SGNA increased $1.3 million, primarily related to restructuring and severance costs of the test segment, slightly higher legal costs, and being partially offset by lower equity compensation. Sequentially again, corporate expense is declined by about $1 million as the first quarter had roughly $1 million of annual equity compensation granted and recognized in the quarter, primarily to directors.

Speaker Change: We stated before we feel we should be a company.

Speaker Change: This should be able to achieve EBITDA margins in the high teens at least and that translates to operating income in the 14% to 15% range for us.

Speaker Change: Sequentially compared with the first quarter of this year consolidated SG&A increased $1.3 million.

Speaker Change: Primarily related to restructuring and severance costs of the test segment slightly higher legal cost.

Speaker Change: Being partially offset by lower equity compensation.

Speaker Change: Sequentially again corporate expenses declined by about $1 million as first quarter had roughly $1 million of annual equity compensation granted and.

Speaker Change: And recognized in the quarter primarily to directors.

David Burney: We expect the $6.8 million in corporate costs to be about the run rate for the rest of the year. Looking at the segments compared again to the first quarter, aerospace operating profit grew 59% on an 80% sales increase. The $19.3 million in operating profit for the aerospace segment was as high as since the first quarter of 2019. The sequential improvement was a result of strong contribution margin on the incremental sales and improved operating efficiency. Test sales were flat compared with the first quarter, while the operating loss increased $2.3 million to $5.3 million compared with the first quarter.

Speaker Change: We expect the $6 $8 million and corporate cost to be about the run rate for the rest of the year.

Speaker Change: Looking at the segments compared again to the first quarter Aerospace operating profit grew 59% on an 8% sales increase the $19 $3 million in operating profit for the aerospace segment.

Speaker Change: Its highest since the first quarter of 2019.

David Burney: The sequential improvement was a result of strong contribution margin on the incremental sales and improved operating efficiency, and the $3.5 million reduction in sales related to the transit program. As we continue to execute on new programs to grow revenue, we expect that the test segment will approach break-even by the end of the year. But for that to happen, the top line needs to improve, and we need to get past the current program mix, which has weak profit profiles.

Speaker Change: The sequential improvement was a result of strong contribution margin on the incremental sales and improved operating efficiency.

Speaker Change: Test sales were flat compared with the first quarter, while the operating loss increased $2 $3 million to $5 $3 million compared with the first quarter.

David Burney: Test sales reflect $7 million of revenue and related profit from the recently awarded 45-49T radio test contract. Included in the test segment loss was the $1.1 million in severance and restructuring costs and the $3.5 million reduction to sales related to the transit programs. Excluding these, the test segment would have approached break-even. As we continued to execute on new programs to grow revenue, we expect that the test segment will approach break even by the end of the year. That's not to say we think this segment should operate at break even, as we believe this business should also be able to achieve double-digit operating profit.

Speaker Change: Test sales reflects $7 million of revenue and related profit from the recently awarded 45 40 90 radio test contract.

Speaker Change: Included in the test segment loss was the $1 $1 million in severance and restructuring costs.

Speaker Change: And the $3 $5 million reduction to sales related to the transit programs.

Speaker Change: Excluding these the test segment would have approached breakeven.

Speaker Change: As we continue to execute on new programs to grow revenue, we expect that the test segment will approach breakeven by the end of the year.

Speaker Change: That's not to say we think this segment should operate at breakeven as we believe this business should also be able to achieve double digit operating profit.

David Burney: But for that to happen, the top line needs to improve, and we need to get past the current program mix, which has weak profit profiles. 45-49T will provide a significant step towards higher volumes with a solid margin profile.

Speaker Change: But for that to happen the top line needs to improve and we need to get past the current program mix, which has profit profiles.

Speaker Change: 45% 40, 90 will provide a significant step towards higher volumes with solid margin profile.

David Burney: We've taken steps to simplify the business by, as Pete mentioned, consolidating facilities and reducing the workforce during the last quarter, and we should see the impact of that as we move forward into next year.

Speaker Change: We've taken steps to simplify the business bank as Pete mentioned by consolidating facilities and reducing the workforce during the last quarter and we should see the impact of that as we move forward into next year.

David Burney: Moving on to the balance sheet, as we announced on July 11th, we amended and expanded our asset-based revolving line of credit and refinanced the term loan. The refinancing included an expanded asset-based line of credit in a smaller, lower-cost term loan. The revolving line of credit was expanded to a $200 million maximum, subject to the borrowing base. With an interest rate of SOFA plus 2.5% to 3%, varying based on our consolidated leverage ratio. We're currently at Sofa plus 3. At closing, we had $128 million drawn on the facility and total availability of about $50 million. The new $55 million term loan reduced the interest rate by approximately 200 to 325 basis points to SOFR plus 5.5% to SOFR plus 6.75%.

Speaker Change: Moving onto the balance sheet as we announced on July 11th we amended and expanded our asset based revolving line of credit and refinanced refinanced the term loan.

David Burney: The refinancing included an expanded asset-based line of credit in a smaller, lower-cost term loan. The revolving line of credit was expanded to a $200 million maximum, subject to the borrowing base, with an interest rate of SOFR plus 2.5% to 3%, varying based on our consolidated leverage ratio. We're currently at SOFR plus three. The new $55 million term loan, to SOFR plus 5.5% to SOFR plus 6.75%, depending on our leverage ratio, and importantly reduces the mandatory annual principal payments.

Speaker Change: The refinancing included an expanded asset based line of credit and a smaller lower cost term loan.

Speaker Change: The revolving line of credit was expanded to a $200 million maximum subject to the borrowing base.

Speaker Change: With an interest rate of sulfur plus two 5% to 3% varying based on our consolidated leverage ratio.

Speaker Change: We're currently a sofa plus three.

Speaker Change: At closing, we had $128 million drawn on the facility and total availability of about $50 million.

Speaker Change: The new $55 million term loan.

Speaker Change: Interest rates.

Speaker Change: Reduce the interest rate by approximately 200 to 325 basis points.

Speaker Change: Two sofa, plus five 5% to sulfur plus 675%, depending on our leverage ratio and importantly reduced the mandatory annual principal payments.

David Burney: Depending on our leverage ratio, it importantly reduced the mandatory annual principal payments from $9 million to $550,000 annually, saving us $8.5 million annually in principal payments. We're currently at Sofa plus 6.75 on that. In all, the refinancing improved liquidity, reduced our annual cash cost for debt service by about $10 million to $11 million, and provided overall greater financial flexibility. The term note and the revolving credit facility both expired in July, 2027. Jumping forward a bit, this refinancing, since it was completed in the third quarter, will have an impact on our third quarter income statement. The refinancing was the third quarter event; our third quarter will reflect some one-time costs relating to the write-off of some deferred financing costs from the old term loan and the revolving credit facility, and the payment of the call premium on the old term note.

Speaker Change: From $9 million to $550000 annually, saving us $8 $5 million annually and principal payments.

David Burney: We're currently at SOFR plus 6.75 on that. These costs total approximately 7.5 million dollars. About $7 million of these costs will be reflected in the third quarter as a loss on extinguishment of debt in our income statement, with the residual half a million dollars recorded as interest expense in the third quarter.

Speaker Change: We're currently yes, sofa plus six 675 on that.

Speaker Change: And all the refinancing improved liquidity reduced our annual cash cost for debt service by about 10 million to $11 million and provided overall greater financial flexibility.

Speaker Change: The term note and the revolving credit facility both expire in July 2027.

Speaker Change: Okay.

Speaker Change: Jumped.

Speaker Change: Jumping forward a bit this refinancing since it was completed in the third quarter will have an impact on our third quarter income statement.

Speaker Change: Does the refinancing was a third quarter event, our third quarter will reflect some one time costs relating to the write off of some deferred financing cost from the old term loan and the revolving credit facility and a payment of the call premium on the old term note.

David Burney: These costs total approximately approximately $7.5 million. About $7 million of these costs will be reflected in the third quarter as a loss on extinguishment of debt in our income statement, with the residual half a million dollars recorded as interest expense in the third quarter. Our blended cash interest rate today is roughly 9.5%, but could move if, so far, rates change or our leverage or drawn balance changes. Additionally, we'll have non-cash amortization of the new upfront fees classified as interest expense of approximately $500,000 per quarter. Although it might not appear this way, we have been focusing resources on managing our inventory.

Speaker Change: These costs totaled approximately may of approximately $7 $5 million.

Speaker Change: About $7 million of these costs will be reflected in the third quarter as a loss on extinguishment of debt in our income statement.

Speaker Change: With the residual half a million dollars recorded as interest expense in the third quarter.

Speaker Change: Our blended cash interest rate today is roughly nine 5%, but could move if sulfur rates change or our leverage are drawn balance changes.

Speaker Change: Additionally, we will have noncash amortization of the new upfront fees classified as interest expense of approximately $500000 per quarter.

Speaker Change: Although it might not that might not appear this way we have been focusing resources on managing our inventory.

David Burney: Inventory increased the modest 0.6% compared with the first quarter and reflects the continued delay in several new programs that have moved out one or two quarters. We continue to target mid-three times turns per year for 2024 and a goal over four turns per year in 2025, which gets us back to a more acceptable inventory turnover rate. CAPX, where $1.8 was $1.8 million in the quarter and $3.4 million a year to date, and we are planning CAPX for the full year to be in the range of $17 million to $22 million. So I'll pick up in the second half of the year.

David Burney: The inventory has increased to modest levels of machinery and equipment and test equipment that we need for the new programs that we're winning. And this concludes my remarks. Pete, back to you.

Speaker Change: The inventory increased a modest <unk>.

Speaker Change: 6% compared with the first quarter and reflects the continued delay in several new programs that have moved out one or two quarters.

Speaker Change: We continue to target mid three times turns per year for 2024, and the goal of over four turns per year in 2025.

Speaker Change: Gets us back to a more acceptable inventory turnover rate.

Speaker Change: Capex were one point it was $1 $8 million in the quarter and $3 $4 million year to date.

Speaker Change: And we are planning capex for the full year to be in the range of 17 million to 22 million. So a pickup in the second half of the year much of that is related to.

David Burney: Much of that is related to machinery and equipment and test equipment that we need for the new programs that we're winning.

Speaker Change: Machinery and equipment and test equipment that we are that we need for the new programs that we're winning.

Speaker Change:

David Burney: We had no activity on our ATM program in the quarter and are not anticipating any further activity with that program.

Speaker Change: We had no activity on our ATM program in the quarter and are and are not anticipating any further activity with that program.

David Burney: This concludes my remarks. Feet back to you.

Speaker Change: This concludes my remarks feedback to you.

Speaker Change: Okay.

Peter Gundermann: Okay. With respect to the remainder of 2024, in our first quarter call, we identified three watch items which we felt would be important for how 2024 was going to shape up and work out. The first one was whether the demand groundswell that we had been seeing for many quarters up to that point would continue. The second one was whether we would get the 45-49-T contract award in a timely manner. And the third was: what would Boeing rates do with respect to their demand signals for us? We're good news for today is that all three of those things seemed to be in pretty good shape.

Speaker Change: Okay.

Speaker Change: Look to the remainder of 2024.

Peter Gundermann: In our first quarter call, we identified three watch items which we felt would be important for how 2024 was gonna shape up and work out. The first one was whether the demand groundswell that we had been seeing for many quarters up to that point would continue. And the third was, what would Boeing rate? The good news for today is that all three of those things seem to be in pretty good shape.

Speaker Change: In our first quarter call.

Speaker Change: We identified three watch items, which we felt would be important.

Speaker Change: For how 2020 for whats going on whats going to shape up and work out.

Speaker Change: The first one was whether the demand groundswell, but we had been seeing for.

Speaker Change: Many quarters up to that point would continue.

Speaker Change: Second one was whether we would get the 45 40 90 contract award in a timely manner.

Speaker Change: And the third was what with Boeing rates do with respect to their demand signals for us.

Speaker Change: The good news for today is that all three of those things seem to be in pretty good shape, we've talked about demand already $219 million of bookings in the second quarter very well answered back question, we continue to be pretty optimistic about our prospects in the <unk>.

Peter Gundermann: We've talked about demand already: $219 million of bookings in the second quarter very well answered back question. And we continue to be pretty optimistic about our prospects in the market. So demand continues to be very strong and is a helpful tailwind as we move into the second half of the year.

Peter Gundermann: We've talked about demand already. 219 million bookings in the second quarter very well answered that question. And we continue to be pretty optimistic about our prospects in the market. Demand continues to be very strong and is a helpful tailwind as we move into the second half of the year. The 4549T radio test contract with the Army came a little later than we'd hoped, but it still got into the second quarter, which was what the plan was as we started the quarter.

Speaker Change: Market demand.

Speaker Change: Continues to be very strong and it's a helpful tailwind as we move into the second half of the year.

Peter Gundermann: The 45-49-T radio test contract with the Army came a little later than we'd hoped, but it still got into the second quarter, which is what the plan was as we started the quarter. We are thinking again that that will provide 10-12 million of revenue. over the course of 2024, and it already did 7.2 that in the second quarter. So it will be a reduced rate in the third quarter and the fourth quarter, but the important thing here is that the sooner we get through that engineering low rate production portion of the program, the sooner we will get into full rate production again, assuming that's consistent with the Army's expectations.

Speaker Change: A 45 49 key radio test contract with the Army came a little later than we'd hoped but it still got into the second quarter, which is what the plan was.

Speaker Change: We started the quarter we.

Peter Gundermann: We are thinking, again, that that will provide 10 to 12 million dollars in revenue, the low rate production portion of the program, the sooner we will get into full rate production again, assuming that's consistent with the Army's expectations. Finally, Boeing rates. I'm not going to tell this crowd on our call anything they don't already know.

Speaker Change: We are thinking again, but that will provide $10 million to $12 million of revenue.

Speaker Change: Over the course of 2024 and it already did seven zero of that in the second quarter. So it'll be a reduced rate in the third quarter and the fourth quarter, but the important thing here is that the sooner we get through that engineering.

Speaker Change: Low rate production portion of the program the sooner we will get into.

Speaker Change: Full rate production again.

Speaker Change: That's consistent.

Speaker Change: Consistent with the army as expectations, we think it does.

Peter Gundermann: We think it is.

Peter Gundermann: Finally, Boeing rates. I'm not going to tell this crowd on our call anything that I already know. Boeing is committing to, or has the goal to get up to 38 ships a month by the end of 2024. I talked in our last call that they had held us for 30 to 35 ships a month, but they're doing that. So we don't think they're building at that rate; they're building inventory, apparently, but they don't want to turn their supply chain down and then try to turn back up later in the year. So we're expecting, although we don't know, that we will stay at this 30, 35 ships a month over the rest of the year, and you know, eventually they will accelerate beyond 38 a month, I'm sure they're planning that sometime in 2025. And when that happens, our rate probably will not increase accordingly while they burn off inventory, but that's where that arrangement stands for us at this point.

Speaker Change: Finally at Boeing right.

Speaker Change: It's.

Speaker Change: I'm not gonna told us on our call anything that all already know boy.

Peter Gundermann: Boeing is committing to or has the goal of getting up to 38 ships a month by the end of 2024. They don't want to turn their supply chain down and then try to turn it back up later in the year. So we're expecting, although we don't know, that we will stay at this 30-35 ships per month. I mentioned earlier that at the end of the second quarter, we had scheduled a backlog of $402 million for the second half of the year. If that keeps up, and assuming our capacity continues to develop, we should be in pretty comfortable shape with that stated range of 780 to 800 million.

Speaker Change: It was committing to or has.

Speaker Change: Is the goal to get up to 38 ships a month by the end of 'twenty 'twenty four.

Speaker Change: I talked last call that they had held US a 30 to 35 ships a month, but we're still doing that.

Speaker Change: So.

Speaker Change: We don't think they're building at that rate or building inventory apparently but.

Speaker Change: They don't want to turn their supply chain down and then tried to turn back up later in the year. So we're expecting although we don't know that we will stay at this 30% 35 ships per month.

Speaker Change: Over the rest of the year end.

Speaker Change: Eventually they will accelerate beyond 38, a month I'm sugar planning that sometime in 2025 and when that happens our rate probably will not increase accordingly, while they burn off inventory.

Speaker Change: That's where that arrangement stands for us at this point.

Peter Gundermann: So given all that, we are increasing our revenue guide for the year to the range of 780 to 800 million. That's up from the initial 760 to 795. That would be a 15% increase over 2023 at the midpoint of the range. I mentioned earlier that at the end of the second quarter, we had scheduled the backlog of 402 million for the second half of the year. If you take our first half actual shipments, and if we were to be successful shipping everything we've got scheduled in the second half, we would already be at the low end of that range without any additional book and ship orders over the course of the year.

Speaker Change: So given all that we are increasing our revenue guide.

Speaker Change: For the year to the range of 780 to 800 million that's up from the initial 760 to 795.

Speaker Change: That would be a 15% increase over 2023 at the midpoint of the range.

Speaker Change: I mentioned earlier that at the end of the second quarter, we had scheduled the backlog.

Speaker Change: $402 million.

Speaker Change: For the second half of the year.

Speaker Change: If you take our first half actual shipments and if we were to be successful shipping everything we've got scheduled in the second half we would already be at the low end of that range.

Speaker Change: Without any.

Speaker Change: Additional book and ship orders over the course of the year.

Peter Gundermann: Now that was all, as of the end of the second quarter, we typically do get a healthy amount of book and ship business. So, assuming supply chain keeps up and assuming our capacity continues to develop, we should be in pretty comfortable shape with that stated range of 780 to 800 million.

Speaker Change: Now that was all as of the end of the second quarter, we typically do get a healthy amount of book and ship business, So assuming supply chain.

Speaker Change: Keeps up and assuming our our capacity continues to develop.

Speaker Change: We should be a pretty comfortable shape.

Speaker Change: With that stated range of $780 million to $800 million.

Peter Gundermann: We also announced in our press release that we are forecasting third quarter revenue of 195 to 205 million. Midpoint obviously 200 million, which is a relatively small step up from our actual Q2 revenue that we're recording today. But again, with the range on there for a reason, we have been in recent quarters pretty consistently at or above the high end of our ranges. And, you know, we haven't changed our forecasting techniques significantly from last quarter to this quarter. If we were, however, in the third quarter to be at the midpoint of that range, again, 195 to 205 million, that would imply.

Speaker Change: We also announced in our press release that we are forecasting third quarter revenue of 195 to 205 million.

Speaker Change: Midpoint, obviously 200 million, which is a relatively small step up from our actual Q2 revenue that we're reporting today.

Speaker Change: But again with a range around there for a reason we have been.

Speaker Change: Recent quarters pretty consistently at or above the high end of our ranges and we haven't changed our forecasting techniques significantly from last quarter to this quarter.

Speaker Change: If we were however in the third quarter to be at the midpoint of that range of down 195 to 205 million that would imply something in the fourth quarter like $207 million to get to the midpoint of our new range of 700 or are you going to market. So.

Peter Gundermann: Something in the fourth quarter, like 207 million, to get to the midpoint of our range of 700 to 800 million. So I just put a whole bunch of numbers out there. They're all in the press release to digest. But what it basically means is that we are anticipating a continued ramp in top line below over the next couple of quarters. We believe that we have reset our test business so that it will not be anywhere near as big a drag on our financial results going forward. And if you look at the change from the first quarter to the second quarter and the marginal contribution in our aerospace business in particular.

Speaker Change: But a whole bunch of numbers out there.

Speaker Change: They're all in the press release to Digest.

Speaker Change: Basically means is that we are anticipating a continued ramp in top line growth.

Speaker Change: Over the next couple of quarters.

Peter Gundermann: We believe that we have reset our test business so that it will not be anywhere near as big a drag on our financial results going forward, and if you look at the change from the first quarter to the second quarter and the marginal contribution in our aerospace business, in particular, we think we're set up for a pretty healthy close to the year, a pretty exciting close to the year, in terms of recovery from the pandemic and rebuilding our income statement. And our first question today comes from Jon Tanwanteng from CJS Securities. Please go ahead with your question.

Speaker Change: We believe that we have reset our test business. So that it will not be anywhere near as big a drag on our financial results going forward and if you look at the chain.

Speaker Change: Change from the first quarter to the second quarter and the marginal contribution and our aerospace business in particular.

Peter Gundermann: We think we're set up for a pretty healthy close to the year, a pretty exciting close to the year, in terms of recovery from the pandemic and rebuilding our income statement.

Speaker Change: We think we're set up for a pretty healthy close 30 year of pretty exciting flows through the year.

Speaker Change: In terms of recovery from the pandemic and rebuilding our income statement.

Operator: And I think that concludes our prepared remarks, Jamie. We can open up the floor for questions at this point.

Speaker Change: And I think that concludes our prepared remarks, Jamie to open up the floor for questions at this point.

Operator: Please, and gentlemen, at this time we'll begin the question and answer session. To ask a question, you may press star and one using a touchstone telephone. To withdraw your questions, you may press star and two. If you are using a speaker phone, we do ask that you please pick up your handset prior to pressing the keys to ensure the best sound quality. But again, that is star and then one to join the question queue. We'll pause momentarily to assemble the roster.

Jamie: Ladies and gentlemen at this time, we'll begin the question and answer session to ask a question you May press star and one using a touchstone telephone too.

Jamie: To withdraw your question you May press Star two.

Speaker Change: If you are using a speakerphone please.

Speaker Change: Please pick up the handset hired a person the keys to ensure the best sound quality.

Jamie: Once again that is star and then wanted to join the question queue.

Speaker Change: Pause momentarily to assemble the roster.

John Tanwanteng: And our first question today comes from John and Wenteng from CJS Securities. Please go ahead with your question.

Speaker Change: And our first question today comes from John and one tank C. J S. Securities. Please go ahead with your question.

Peter Gundermann: Hey Pete, thanks for taking my question and a nice job on the both things and the recovery here. I'm wondering if you are still comfortable with the mid-teens even in March and eggs in the year. I think you talk about that several times, or maybe just below that. I know you're trying to get higher than that, but is that still on the picture with the way the backlog is and how do supply and prices are improving through the year? Yeah, I think it's going to be close. I think we've got a very healthy backlog, and we've demonstrated the incremental margins that should get us there if our top line does what we think it might do.

John: Hey, Peter Thanks for taking my question and nice job on the bookings in the recovery here.

Peter Gundermann: I was wondering if you were still comfortable with the mid-teens, even a margin exiting the year. Yeah, I think it's, it's going to be close. I think we've got a very healthy backlog, and we've demonstrated the, you know, incremental margins that should get us there if our top line does what we think it might do. The other obvious unknown at this point is how our test business is going to respond to all the changes that happened in the second quarter. We're hoping, so I would say it's going to be a push, but we think we have a good shot at being there. Dave, what would you say?

Speaker Change: I'm wondering if you were still comfortable with the mid teens EBIT margin exiting the year I think.

Speaker Change: You talked about that several times or maybe just below that I know you're trying to get higher than that but I mean is that still in the picture with the way the backlog is and how long do you supply and prices improve through.

Speaker Change: For the year.

Speaker Change: Yeah, I mean, I think it's it's going to be close.

Speaker Change: I think we've got a very healthy backlog and we've demonstrated there.

John: Incremental margins that should get us there if our top line.

John: Does what we think it might do.

David Burney: The other obvious unknown at this point is how our test business is going to respond to all the changes that happened in the second quarter. We're hoping that it makes big incremental contributions simply by avoiding the big hits. So I would say it's going to be a push, but we think we have a good shot at being there.

John: The other obvious.

John: Unknown at this point is how our test business is going to respond to the all the changes that happened in the second quarter were hoping.

John: That it makes big incremental contributions simply by avoiding the big hits.

John: So so I would say, it's gonna be a push but we think we have.

John: Good shot of being there, Dave what would you say.

David Burney: Dave, what would you say? Yeah, I think I would echo that.

Dave Burney: Yeah, I think I.

Dave Burney: I would echo that.

David Burney: You know, you make an assumption that we don't have any of these odd things that we had in the second quarter here with, you know, adjustments, significant adjustment to the estimated cost to complete that program and severance. I think getting up into the double digits and mid-teen area is achievable. It's a more achievable level of adjusted EBITDA.

Dave Burney: Yes.

John: Make an assumption that we don't have any of these these.

Jamie: Things that we had in the second quarter here with.

Jamie: Adjustments significant adjustment to the estimated cost to complete that program and severance.

Speaker Change: I think getting up into the double digits and mid teen area is achievable.

Jamie:

David Burney: achievable level of adjustability. I know you're working on him, and much more. Yeah, I won't give you a quantitative answer here, but qualitatively, definitely, the second half of the year is going to be a significant improvement in cash flows. Yeah, I think we're going to have to wait and see on that one, John. What happens to Delta if that doesn't flow through to you? You know, what you're shipping direct to Boeing, what you're shipping direct to Airbus, and I guess simultaneously, what's going on with the two big seeding suppliers and carriers.

Jamie: [noise] achievable level of adjusted EBITDA.

John Tanwanteng: Got it.

Speaker Change: Got it and when do you think cash flow will start to catch up to the earnings.

John Tanwanteng: And when do you think cash flow will start to catch up to the earnings? It looks like you've built some working capital here. I know you're working on inventory trends, obviously, but is there any thoughts on kind of when that actually converges? Yeah, I won't give you a quantitative answer here, but qualitatively, definitely the second half of the year is going to be a significant improvement in cash flows.

Speaker Change: It looks like you've built some working capital here.

Speaker Change: I know youre working on inventory turns obviously, but is there any thoughts on kind of when that actually converted.

Speaker Change: And how much.

Speaker Change: Sure.

Speaker Change: Yes, I won't give you give you a quantitative answer here, but qualitatively are definitely the second half of the year is going to be a significant improvement in <unk> and.

Speaker Change: And cash flows.

John Tanwanteng: Okay, and then when do you expect test revenue to ramp as we go through, you know, as you start executing on this contract? Is that next year, or did we have to wait till 26 before you get out of this program, this low rate initial production?

Speaker Change: Okay, and then when do you expect test revenue to ramp.

Speaker Change: As we go through as you start executing on this contract at that mid next year or.

Speaker Change: Do we have to wait till 'twenty six before you get out of this program.

Speaker Change: This low rate initial production.

Peter Gundermann: Yeah, I think we're going to have to wait and see on that one, John. As best we, you know, we just won the program a month ago. We had a kickoff meeting with the Army, so we learned a little bit about what their intentions are. And it seems like this original $15 million delivery order will be followed by another, you know, similarly sized delivery order of further engineering development work for TPSs for test programs. That's that need to be done in some other ancillary engineering requirements. Your question at its core is, when are we going to get into production, and I don't.

Speaker Change: Yes, I think we're gonna have to wait and see on that one John.

Speaker Change: <unk>.

Speaker Change: As best we we just won the program a month ago, we had a kickoff meeting with the army. So we learned a little bit about what their intentions are.

Speaker Change: And it seems like this original $15 million delivery order will be followed by another.

Speaker Change: Similarly sized.

Speaker Change: Delivery order of further engineering development work for Tps's for test program, such that needs to be done and some other ancillary engineering requirements.

Speaker Change: Your question at its core is when are we going to get into production and I don't.

Peter Gundermann: And we are thinking that that will be, at the earliest, the middle of next year. But it could be slower than that. It really depends on how long it takes us to get our part done because we have a lot of things to do. But also the Army has to do their part. So we obviously don't control how they allocate resources internally to these kinds of tasks.

Speaker Change: We are thinking about that will be at the earliest the middle of next year.

Speaker Change: But it could be slower than that it really depends.

Speaker Change: And how long it takes us to get our part done because we have a lot of things to do.

Speaker Change: But also the army has to do their part so.

Speaker Change: We obviously don't control, how they allocate resources internally to these kind of attacks but.

Peter Gundermann: But we'll know more about that, and I expect that'll be a regular, you know, part of the conversation in these calls every quarter going forward.

Speaker Change: We'll know more about that and I expect that'll be irregular.

Speaker Change: Part of the conversation in these calls every quarter going forward.

John Tanwanteng: Okay. Last one effect is going in there just any thoughts on what happened to Delta that will go through to you as one of their one of your customers. Does there an impact on the operations has any effect on their spending?

Speaker Change: Okay.

Speaker Change: Last one if I could sneak one in there.

Speaker Change: Hum.

Speaker Change: The delta of that will flow.

Speaker Change: I was wondering one of your customers.

Speaker Change: Is there an impact on the operations have any effect on their spending.

Speaker Change: No not not significantly no their longer term plans stay in place we don't.

Peter Gundermann: No, not not significantly. Now they, their longer term plans stay in place. We don't, you know, we can't really comment on what happened to them or why, but we don't see any ramifications directly for us as a result of that whole issue. Okay.

Speaker Change: We can't really comment on what happened to them or why but we don't see any ramifications directly for us as a result of that whole issue.

Speaker Change: Okay, great. Thank you.

John Tanwanteng: Thank you.

Speaker Change: Mhm.

Michael: And our next question comes from Michael from All of you.

Speaker Change: And our next question comes from Michael.

Speaker Change: Holly.

Michael: Please go ahead with your question.

Holly: Please go ahead with your question.

Michael: Hi, good evening, guys. Thanks for taking the questions. Nice to next quarter here. Pete, I guess just on the, you know, you've got the line of sight here. You've got the bookings, the backlog. You know, and it, yes, certainly sounds like Boeing wants to protect the suppliers. I mean, if you have the visibility of what you're shipping direct to Boeing, what you're shipping direct to Airbus. And I guess simultaneously what's going to the two big seating suppliers and carriers. I mean, it just seems like there's so many different crosscards out there on these production rates.

Michael Holly: Hey, good evening guys. Thanks for taking my questions nice nice quarter here.

Michael: I guess just on the <unk>.

Speaker Change: Got the line of sight here, you've got the bookings the backlog.

Speaker Change: Yes, it certainly sounds like Boeing wants to protect it.

Speaker Change: Buyers I mean do you have the visibility.

Speaker Change: What you're shipping direct to Boeing what Youre shipping direct to Airbus I guess.

Speaker Change: Simultaneously whats going to the two big seating suppliers and carriers I mean, it just seems like there's so many different cross currents out there on these production rates you did call out some inventory in the channel.

David Burney: I mean, it just seems like there's so many different cross currents out there on these production rates. You did call out some inventory in the channel, presumably, but do you have that line of thought? Thanks for the booking. And I think the simplest.

Peter Gundermann: You did call out some inventory in the channel, presumably, but do you have that line of sight from the bookings? I would say that the bookings are driven mostly by demand for updating. You know, a big portion of our bookings are driven by demand for updating, in-flight entertainment and connectivity equipment. So we ship to channels that aren't always correlated with production rates, right? So they generally are two airlines, ultimately, and they may go to line-fit installation or they may go to retrofit installation. And I think the simplest thing I can say about our booking trends is that it's robust.

Speaker Change: Presumably but do you have that that line of sight from from the bookings.

Speaker Change:

Speaker Change: I would say that the bookings are driven mostly by demand for updating.

Speaker Change: Yeah, a big portion of our bookings are driven by demand for updating in flight entertainment and connectivity equipment.

Speaker Change: So we shipped to channels that.

Speaker Change: <unk> always correlated with.

Speaker Change: Production rates right. So.

Speaker Change: They generally are.

Speaker Change: Two airlines ultimately and they May go to the line fit installation or they may go to retrofit installation.

Speaker Change: And I think the simplest.

Peter Gundermann: The one thing I can say about our booking trends is that it's robust. I mean, there's a lot of demand for both retrofit and, I think, preparation for increased line fit and having all the quality that everybody wants, and so it tends to be one of the last places the industry is going to want to slow down or cut back. I think they're looking at this opportunity as a way to maybe get ahead of the curve a little bit and deliver more product and be on time.

Speaker Change: Thing I can say about our booking trends is that.

Speaker Change: It's robust I mean, theres a lot of demand for both.

Peter Gundermann: I mean, there's a lot of demand for both retrofit and I think preparation for increased line-fit rates. So, you know, we're not thinking that there's a whole lot of inventory being built up there. Obviously, if Boeing can't get their 8.7 rate up and can't get their 3.7 rate up, and sooner or later that becomes an issue and things change. But it seems to us that the world is expecting those rates to go up, and they're planning accordingly. I think part of it, I think you and I had this discussion also separately that, you know, for better or for worse, the interior parts of the industry, like seats and interiors and some of the other ancillary parts, tend to be problematic for aircraft production in terms of, you know, the suppliers getting out and being on time and having all the quality that everybody wants.

Speaker Change: Retrofit.

Speaker Change: And I think preparation for increased lines, but.

Speaker Change: Right.

Speaker Change: We're not thinking.

Speaker Change: But theres a whole lot of inventory being built up there obviously, if Boeing tanker 37 rate up and can't get there are three seven rate up and sooner or later that becomes a issue and things.

Speaker Change: Change but.

Speaker Change: It seems to us.

Speaker Change: That the world is expecting those rates to go up and they are planning accordingly.

Speaker Change: I think part of it I think you and I had this discussion also separately but.

Speaker Change: For better or for worse.

Speaker Change: The interior parts of the industry.

Speaker Change: Like seats and interiors.

Speaker Change: Some of the other ancillary parts tend to be problematic for aircraft production in terms of.

Speaker Change: The suppliers getting out and being on time.

Speaker Change: And having all the quality that everybody wants.

Peter Gundermann: And so it tends to be one of the last places I think that the industry is going to want to slow down or cut back. I think they're looking at this opportunity as a way to maybe get ahead of the curve a little bit and deliver more product and get on time. So of all the things that we worry about or struggle with, I don't think building inventory in the channel is a major concern at this point.

Speaker Change: And so it tends to be one of the last places I think.

Speaker Change: The industry is going to want a slowdown or cut back I think they are looking at this opportunity.

Speaker Change: As a way to.

Speaker Change: Maybe get ahead of the curve a little bit.

Speaker Change: And deliver more product and get on time so.

Peter Gundermann: So, of all the things that we worry about or struggle with, I don't think building inventory in the channel is a major concern at this point. Got it, got it, and then any time you see any behavioral or demand changes, I know you talked about airline retrofits, it seems like some of the low-cost carriers are having their struggles. Not really.

Speaker Change: No.

Speaker Change: Of all the things that we worry about our struggle with I don't think building inventory in the channel is a major concern at this point.

Peter Gundermann: Got it, got it, and then anything, any behavioral or demand changes, and you talk about airline retrofit. It seems like some of the low-cost carriers are having their struggles, and Southwest, maybe that could be a tailwind given, you know, they're going to finally move to the 20th, 10th, 20th century here. But any noticeable difference between the majors that discount carriers. Not really, I mean Southwest has become a major customer for us this year. We're going to have revenue, you know, approaching the $20 million range, something like that. They are they are kind of catching up; they're one of our biggest, certainly North American airlines that hadn't invested heavily in our product; they are doing so now.

Speaker Change: Got it got it and then any you've seen anything any behavioral or demand changes I know you talked about airline retrofit. It seems like some of the low cost carriers are having their struggles.

Speaker Change: Southwest maybe that could be a tailwind given theyre going to finally move to the 20th 20% per year, but any any noticeable difference between the majors the discount carriers.

Peter Gundermann: I mean, Southwest has become a major customer for us this year. We're going to have revenue, you know, approaching the $20 million range, something like that. They are kind of catching up. They were one of our biggest, certainly North American airlines that hadn't invested heavily in our product.

Speaker Change: Well not really I mean southwest has become a major customer for us this year, we're going to have revenue.

Speaker Change: Approaching the $20 million range something like that.

Speaker Change: They are kind of catching up there where one of our biggest certainly north American airlines that hadn't invested heavily in our product. They are doing so now.

Peter Gundermann: They are doing so now, where decisions are getting pushed out because of the inability for the OEMs to deliver the airplanes that the airlines want. I mean, that's definitely happening, and we are seeing that in certain situations. But I mean, you step back, and you look at our overall booking trends. You know, we put that chart on the back of our press release, and I think it pretty effectively tells a story.

Peter Gundermann: There are some tweets on some airlines where decisions are getting pushed out because of the inability for the OEMs to deliver the airplanes that the airlines want, and that's definitely happening, and we are seeing that in certain situations.

Speaker Change: There are some fleets on some airlines.

Speaker Change: Where decisions are getting pushed out because of the inability for the Oems to deliver the airplanes at the airlines want I mean, that's that's definitely happening and we are.

Speaker Change: Seeing that in certain situations.

Peter Gundermann: James. But I mean, you step back and you look at our overall booking trends. You know, we put that chart on the back of our press release, and I think it a pretty effectively tells a story. For, you know, a couple of years now, the booking bars are significantly ahead of the shipping bars, and that's ultimately not just building inventory; that's increasing strong demand kind of across the customer base. And we're very much enjoying it and like to see it continue. Got it.

Speaker Change: But if you step back and you look at our overall booking trends, we put that chart on the back of our press release and I think at a pretty effectively tell the story.

Peter Gundermann: For, you know, a couple of years now, the booking bars are significantly ahead of the shipping bars. And that's ultimately not just building inventory. It's also increasing strong demand kind of across the customer base, which we have developed so far in terms of consolidating efforts. Thank you for your call and congrats on a nice quarter.

Speaker Change: Or you know couple of years now.

Speaker Change: Looking bars are significantly ahead of the of.

Speaker Change: The shipping borrowers.

Speaker Change: Ultimately not just building inventory.

Speaker Change: Yes.

Speaker Change: Increasing strong demand kind of across the customer base.

Speaker Change: We are very much enjoying it and wait to see it continue.

Speaker Change: Got it got it.

Peter Gundermann: And then just last one for me is shifting over to test the EAC in the quarter on the transit program. I mean, is there any additional risk on that contract to say EAC sort of write down the margin on a go forward basis or do you have some. Some residual kind of tail risk on this program just to understand if this is the front end of EACs or you think this kind of cleans it all up. It's a very fair question based on our history here with this particular product line, but the way we've developed so far in terms of consolidating effort and shutting down, you know, ancillary operations, and the fact that we're at the very tail end of the programs that are in question leads us to believe that we're in pretty good shape.

Speaker Change: And then just last one for me just shifting over to test that.

Speaker Change: See in the quarter on the transit program.

Speaker Change: Is there any additional risk on that contract at this eight EAC sort of right down the margin on a go forward basis.

Speaker Change: Do you have some dumb.

Speaker Change: Some residual kind of tail risk on this program just trying to understand.

Speaker Change: The front end.

Speaker Change: Or do you think this kind of cleans it all up.

Speaker Change: It's a very fair question.

Speaker Change: Based on our history here with this particular product line, but the way we have.

Speaker Change: Developed so far in terms of consolidating effort.

Speaker Change: And shutting down.

Speaker Change: Ancillary operations.

Speaker Change: And the fact that we're at the very tail end of the programs that are in question leads us to believe that we're in pretty good shape I mean, certainly.

Peter Gundermann: I mean, certainly, we took the reserve that we took or the adjustment that we took with an idea that that's all there's going to be. And, there might be more going forward at the smaller marginal end, but we don't see that at this point. We're hoping for something quite a bit different. Okay, got it.

Speaker Change: We took.

Speaker Change: Took the reserve that we took or the adjustment that we took with an idea that that's all there is going to be I mean, there might be more going forward at the smaller marginal and but we don't see that at this point and we're hoping for something quite a bit different.

Speaker Change: Yes.

Speaker Change: Okay got it perfect. Thanks, guys.

Michael: Perfect. Thanks, guys.

Speaker Change: Okay.

Scott Lewis: Our next question comes from Scott Lewis from Lewis Capitol. Please go ahead with your question.

Speaker Change: Our next question comes from Scott Lewis from Lewis Capital. Please go ahead with your question.

Scott Lewis: Thanks, hey, Pete, Dave, Debbie. Thanks for being a call, and congrats on the nice quarter. It's got kind of a conceptual question about price increases. I know you guys are probably trying to capture the material cost increase you've seen, but I wonder if you're thinking about the increase in cost of capital with a kind of much higher interest rate environment and maybe also your increased cost of protecting your IP. Do you think you have the ability to kind of capture those in your price increases going forward?

Scott Lewis: Thanks, Hey, Pete Dave Debbie Thanks for taking the call and congrats on a nice quarter.

Peter Gundermann: I've got kind of a conceptual question about price increases. I know you guys are probably trying to capture the..., but I wonder if you're thinking about..., indices and things like that that I think will leave us in a much stronger position. I'll also say that, you know, inflation pressures have been so significant and they're so pervasive and everybody feels them, so it was not terribly difficult to raise prices; our customers were surprisingly accommodating to get those kind of price increases than it has been over the last year.

Scott Lewis: That kind of a conceptual question about price increases.

Speaker Change: I know you guys are probably trying to capture that.

Speaker Change: Material cost increase you've seen but I'm wondering if you're thinking about.

Speaker Change: The increase in cost of capital within kind of much higher interest rate environment.

Speaker Change: And maybe also your increase cost of protecting your IP.

Speaker Change: You have the ability to kind of capture those.

Speaker Change: Your price increases going forward.

Peter Gundermann: Yeah, I think the whole industry has, you know, exercised some muscles that had been kind of dormant for many, many years in terms of how to manage inflation, and we certainly have learned or re-learned things that we knew a long time ago in terms of protecting ourselves and contracts. And, and also identifying in our business, those areas where we can increase prices and spare uncertain spares opportunities and, you know, one-off buys or retrofit buys or things like that, I think the whole industry is kind of shaking off the cobwebs and it's gotten pretty good at that.

Speaker Change: Yeah.

Speaker Change: I think the whole industry has exercised some muscles that.

Speaker Change: Adam.

Adam: Im kind of dormant for many many years.

Speaker Change: In terms of how to manage inflation and we certainly have learned or re learns of things that we knew a long time ago in terms of protecting ourselves and contracts.

Speaker Change: And.

Speaker Change: And also identifying and our business those areas, where we can increase prices in spare uncertain spares opportunities in.

Speaker Change: No one asked buys a retrofit buys or things like that I think the whole industry is kind of.

Speaker Change: Shaken off the cobwebs and has gotten pretty good at that and I would say we have to.

Peter Gundermann: And I would say we have to. So I think we're doing a pretty good job of it. Our material cost is significantly higher than our direct labor cost, but we're protecting ourselves contractually on both sides with inflation indices and things like that, that I think will leave us in a much stronger position. I'll also say that I think it's been such, so severe not so much today, but over the last two years, inflation pressures have been so significant and they're so pervasive and everybody feels it, so that it was not terribly difficult to raise prices.

Speaker Change: So so I think we're doing a pretty good job of it.

Speaker Change: Our material cost is significantly higher than our direct labor cost.

Speaker Change:

Speaker Change: But we're protecting ourselves contractually on both sides with inflation.

Speaker Change: Indices and things like that.

Speaker Change: We will leave us in a much stronger position I'll also say that.

Speaker Change: I think it's been such so severe.

Speaker Change: Not so much today, but over the last two years.

Speaker Change: Inflation pressures have been so significant and they are so pervasive and everybody feels that that so that it was not terribly difficult to raise prices our customers were surprisingly accommodating.

Peter Gundermann: Our customers were surprisingly accommodating because they were going through the same thing also from all suppliers. So there was kind of an accepted understanding that you could change price levels, and nobody liked it. We didn't like doing it ourselves, but you kind of had to, and everybody knew that.

Speaker Change: Because they were going through the same thing also from all suppliers. So there was kind of an accepted understanding that you could change price levels and nobody liked it we don't like doing it ourselves, but you kind of had two and everybody knew that so.

Peter Gundermann: So I do think that's kind of changing. I think it's going to be harder in the future to get those kind of price increases than it has been over the last year. So I think, you know, everything's going to quiet down, but those long-term programs that are multi-year, when those come up for renegotiations, there will be big increases, and I think everybody involved on both sides of those kind of programs are aware of that. So this dynamic will continue, you know, for two or three years, even if the kind of ambient inflationary drops back to, you know, to go over two to three percent.

Speaker Change: I do think that's kind of changing I think it's going to be harder in the future.

Speaker Change: To get those kind of price increases than it has been over the last year.

Peter Gundermann: So I think, you know, everything is going to quiet down. But those long-term programs that are multi-year, when those come up for renegotiation, there will be big increases, and I think they are aware of that. So this dynamic will continue. The ETOL program is either picking up or slowing down.

Speaker Change: I think everyone is going to quiet down.

Speaker Change: But those long term programs that are multi year.

Speaker Change: When those come up for renegotiation, there will be big increases and I think.

Speaker Change: I think you know everybody involved on both sides of those kind of programs.

Speaker Change: Are aware of that so there's this dynamic will continue.

Speaker Change: No for two or three years, even if the.

Speaker Change: Kind of ambient inflation rate drops factor.

Speaker Change: Goal, 2% to 3%.

Scott Lewis: Okay, thanks.

Speaker Change: Okay. Thanks, and then just my last question have you seen anything with E VTOL programs, either picking up or slowing down what have you seen there.

Peter Gundermann: And then just my last question. Have you seen anything with EV tall programs either picking up or slowing down? What have you seen there? Well, we are actively involved with the number of those EV programs on a fee-for-service or kind of an off-the-shelf architecture that we've developed for certain critical technologies.

Speaker Change: Oh well.

Speaker Change: We are actively involved with a number of those EV programs.

Speaker Change: On a fee for service or kind of an off the shelf.

Speaker Change: Architecture that we've developed for certain critical technologies.

Peter Gundermann: I would say the general nature of the industry is that, you know, in service dates have slipped a little bit, maybe got a little bit more realistic compared to where they were initially. I think we're also, you know, entering a phase or have been in a phase for a while here where funding is going to be more challenging, especially for the startups. And, you know, I guess our feeling is that the airplanes are going to fly, and the FAA and NASA are going to figure out a certification path. The question is whether the business cases are going to, you know, develop in time to make a real industry out of it.

Speaker Change: I would say the general nature of the industry is that.

Speaker Change:

Speaker Change: In service dates have slipped a little bit maybe got a little bit more realistic.

Speaker Change: Compared to where they were initially.

Speaker Change: I think we're also.

Speaker Change: Entering a phase or have been and if there is for a while here where funding is going to be more challenging.

Speaker Change: Especially for the start ups.

Peter Gundermann: And yeah, I guess our feeling is that. Our next question is a follow-up from Jon Tanwanteng from CJS Securities. Please go ahead with your follow-up. Hi, yeah, I was just wondering if you could give an update on litigation, which has an obligation or a willingness to hear the appeal. And then, depending on how that appeal is handled, will influence where we go from there.

Speaker Change: And.

Speaker Change: Yes, I guess, our feeling is that.

Speaker Change: So the airplanes are going to fly.

Speaker Change: And.

Speaker Change: The FAA and the.

Speaker Change: So there are going to figure out a certification path.

Speaker Change: The question is whether the business cases are going to.

Speaker Change: Developed in time to two two.

Speaker Change: To make a real industry out of it.

Scott Lewis: And it'll be interesting to watch. We are involved, as I said. We're not betting the farm by any stretch. But for people who are interested in that part of the industry, if it develops anywhere near some of the more optimistic scenarios that are out there, we should benefit pretty substantially from it. Okay, great. Thank you.

Speaker Change: It'll be interesting to watch we are involved as I said, we're not betting the farm by any stretch.

Speaker Change: But for people who are interested in that part of the industry.

Speaker Change: If it develops anywhere near some of the more optimistic scenarios that are out there we should benefit pretty substantially from it.

Speaker Change: Okay, great. Thank you.

Operator: Once again, if you would like to ask a question, please press star and then one. To withdraw your question, you may press star and two.

Speaker Change: Once again, if he would like to ask a question. Please press star and then one to withdraw your question you May Press Star two.

John Tanwanteng: Our next question is a follow-up from John Tanwanteng from CJS Securities.

Speaker Change: Our next question is a follow up on John <unk> from CJS Securities. Please go with your follow up.

John Tanwanteng: Please go with your follow up. Hi, yeah, I was just wondering if you could give an update on litigation and expect expenses as you go through the year and the office. It's been pretty quiet, actually. So we have a couple activity will pick up towards the end of the year. Depending on a couple of decisions that we're expecting, particularly in France and in the US and the terror dying matter. We pretty strongly won in both those jurisdictions, but you know, the other side appeals in the court has an obligation or a willingness to hear the appeal.

Speaker Change: Hi, Yes, I was just wondering if you could give an update on litigation and expect to expenses as you go through the year.

Speaker Change: Yes.

Speaker Change: It's been pretty quiet actually.

Speaker Change: So we have a couple of activity will pick up towards the end of the year.

Speaker Change: Depending on a couple of decisions that we're expecting particularly in France and in the in the U S on the teradyne matter.

Speaker Change: We pretty strongly one and both of those.

Speaker Change: Jurisdictions, but.

Speaker Change: The other side of appeals in the court.

Speaker Change: As an obligation or a willingness to hear the appeal and then.

Peter Gundermann: And depending on how that appeal is handled, we'll influence where we go from there. I think the exciting thing about it from my perspective is that, you know, it's the middle of 2024 already, and we are thinking that there's a good chance that both of these things are wrapped up before we get to the end of 2025. And that sounds like a long ways off when you look at how long these things have been going on. We're pretty excited about that.

Speaker Change: Depending on how the appeal is handled will influence where we go from there.

Peter Gundermann: I think the exciting thing about it from my perspective is that before we get to the end of 2025, and that sounds like a long way off when you look at how long these things have been going on, we're pretty excited about that. [inaudible] I would say the first thing that we would be wanting to do would be to, uh... Pay down our debt a little bit, that load is a little bit higher than we would like it for kind of a normal run rate situation.

Speaker Change: The exciting thing about it from my perspective is that.

Speaker Change: It's the middle of 2024 already and we are thinking that there's a good chance that both of these things are wrapped up.

Speaker Change: Before we get to the end of 2025 and that sounds like a long ways off but when you look at how long these things have been going on.

Speaker Change: We're pretty excited about that.

Peter Gundermann: Okay, great. And then just as I may be getting ahead of myself here, but as your cash flow starts to improve and it came away, what are your priorities for the cash flow? Obviously, you have to catch up on some cat backs. Maybe you have to get up to a level that's more normalized for you, but you know, beyond that, what is the expectation of capital allocation? I would say the first thing that we would be wanting to do would be to pay down our debt a little bit. That that loads a little bit higher than we would like it for kind of a normal run rate situation.

Speaker Change: Okay, Great and then.

Speaker Change: Just if I may be getting ahead of myself here, but as your cost will start to improve and accumulate what are your priorities for the cash obviously you have to catch up on some capex, maybe you guys get up to a level thats more normalized for you but beyond that.

Speaker Change: What is the expectation of capital allocation.

Speaker Change: I would say the first thing that we would be wanting to do would be to.

Speaker Change: Pay down our debt a little bit.

Speaker Change: Loads, a little bit higher than we would like it for kind of a normal run rate situation I mean.

Peter Gundermann: I mean, in the past, we would lever up to these levels or even a little bit higher on the heels of an acquisition. We do expect that the acquisition world is going to wake up a little bit. It's been pretty slow from our perspective, but when our balance sheet makes us more capable there, we can rebuild our dry powder and liquidity and kind of be ready for next year. Thank you guys. We thank you for attending today's presentation. You may now disconnect your lines.

Peter Gundermann: I mean, in the past, we would lever up to these levels or even a little bit higher on the heels of an acquisition, but not having done an acquisition. This is a debt level that we would like to see reduced, and that's a function of, you know, what happens to our income statement and our cash flow over the foreseeable future. We do expect that the acquisition world is going to wake up a little bit. It's been pretty slow from our perspective. Certainly, deals are getting done, but there isn't much of a flow that we would be interested in.

Speaker Change: In the past, we would lever up to these levels or even a little bit higher on the heels of an acquisition.

Speaker Change: But not having done an acquisition. This is a debt level that we would like to see reduced and thats a function of.

Speaker Change: What happens to our income statement and our cash flow over the foreseeable future.

Speaker Change: We do expect that.

Speaker Change: Acquisition World is going to wake up a little bit it's been pretty slow from our perspective.

Speaker Change: Certainly deals are getting done, but there isn't much of a flow that that we would be interested in.

David Burney: And I guess I would say that, you know, we feel we have such an opportunity ahead of us just to execute on the backlog that we have in place. And the opportunities that we've won, frankly, including during the pandemic, that are our best way to create value is to execute on what we have on our plate in front of us. So acquisitions will be a secondary pursuit when our balance sheet makes us more capable there. Our first priority is simply to execute and take on debt data. I don't know if you describe it in a different way.

Speaker Change: I guess I would say that we feel we have such an opportunity ahead of us just to execute on the backlog that we have in place and the opportunities that we've won.

Speaker Change: Frankly.

Speaker Change: Including during the pandemic, but our best way to create value is to execute.

Speaker Change: On what we have on our plate in front of us.

Speaker Change: Acquisitions will be a secondary pursuit.

Speaker Change: When our balance sheet mix.

Speaker Change: Makes us makes us more capable there.

Speaker Change: Our first priority is simply to execute and take on that Dave I don't know if you describe it any differently.

David Burney: No, I'd say that's the priorities to execute, and as we move through the next 12 months, rebuild our dry powder and liquidity and kind of be ready for next year.

Dave Burney: No I'd say that that's the priority is to execute and as we move through the next 12 months.

Speaker Change: Rebuild our dry powder and liquidity.

B: B B ready for next year.

John Tanwanteng: Thank you, guys.

Dave Burney: Got it thank you guys.

Operator: And ladies and gentlemen, with that, ensuring no additional questions will be ending today's question-and-answer session as well as today's conference call. We do thank you for attending today's presentation.

Speaker Change: And ladies and gentlemen, with that and showing no additional questions will be ending today's question and answer session as well as today's conference conference call.

Speaker Change: What do you. Thank you for attending today's presentation.

Operator: You may now disconnect your lines.

Speaker Change: May now disconnect your lines.

B: Yeah.