Q3 2024 Air Industries Group Earnings Call
Hello, and welcome to the Air Industries Group third quarter 2024 earnings Conference call.
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Brief question and answer session will follow the formal presentation.
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This call may contain forward looking statements as defined in section 27, eight of the Securities Act of 1933 as amended including statements regarding among other things the company's business strategy and growth strategy.
Expressions, which identify forward looking statements speak only as of the date the statement is made.
These forward looking statements are based largely on our company's expectations and then are a number of risks and uncertainties some of which are beyond our control and cannot be predicted or quantified.
Future developments and actual results could differ materially from those set forth and I'm pretty by or underlying the forward looking statements in light of these risks and uncertainties. There can be no assurance that the political finish information will prove to be accurate.
This call does not constitute an offer to purchase any securities nor a solicitation of a proxy.
Authorization or agent as a nation with respect to a meeting of the company's shareholders.
At this time I'd like to turn the call over to Mr. Luke Maluso, President and CEO. Thank you you may begin.
Luke Maluso: Thank you Matt.
Luke Maluso: Thank you all for joining us today.
This morning, we reported our results for the third quarter of fiscal 2024, we saw top line revenue growth improved gross margins and expanded our backlog is up.
Luke Maluso: I'll discuss later in the call. We also reaffirmed our positive fiscal 2020 for outlook.
Luke Maluso: I'll, let Scott share many of the financial details, but before I turn it over to him I want to spend a few minutes a few moments on bookings.
Luke Maluso: Without question, our order flow continues to be strong.
Luke Maluso: Its backlog of undelivered fully funded customer orders surpassed $104 million.
Luke Maluso: King a 4% increase since June 30 of 2024.
Luke Maluso: 22% increase since January 1st of 'twenty 'twenty four I am proud of my team for these achievements.
Luke Maluso: You take a step back and look over a longer period, our book to Bill ratio was one four to one.
Luke Maluso: For the trailing 12 months ended September 32024, this is well above the industry standard up one two to one and also encouraging is that our pipeline of new coach remains full.
Luke Maluso: Let me turn the call over to Scott for some financial highlights and I will I will discuss our business outlook and provide some closing remarks Scott.
Scott: Can you thank you Sue.
Speaker Change: Yes, Thanks Lou.
Speaker Change: Sure lose enthusiasm about the third quarter results, let me discuss them in some more detail.
Speaker Change: Consolidated net sales for the third quarter ended September 30th 'twenty 'twenty four were $12 $6 million that was two 1% higher than what we achieved in Q3 of last year.
Speaker Change: I'm pleased to report that we also saw a gross margin improvements in fact, not only did our gross profit in dollars increased by over $700000 or <unk> 58 per cent compared to 2023, but our gross profit as a percentage of sales was 15, 5% an increase of more.
Speaker Change: [noise] than five percentage points compared to 2023.
Speaker Change: Importantly, we are not resting on our laurels.
Speaker Change: Gross margin of 15, 5% remains below our historical average and we are shooting to achieve additional improvement as production ramps and we continue to achieve efficiencies.
Speaker Change: We continue to focus on controlling operating expenses for the third quarter. They were $1 9 million, which reflects a reduction of $150000 or seven 4% less than it was last year in the third quarter.
Speaker Change: We achieved operating income of $67000 a substantial improvement over the loss of $796000 that we incurred in Q3 2023.
Speaker Change: Adjusted EBITDA for the quarter and nine months has improved significantly.
Speaker Change: The three months improved by $898000 and for the nine months it improved by $1 million $134000.
Speaker Change: A detailed reconciliation of EBITDA to GAAP is included in our press release that was issued this morning.
Speaker Change: And finally on the bottom line, we had a net loss of $404000 or 12 cents a share. This is a dramatic improvement in the third quarter of 2023, and we had a net loss of 1.299 million or 40 cents a share.
Speaker Change: On the balance sheet side as of September 30th 2024, total debt was 24.976 million up $1 million 666000, or seven 1% from December 31st 2023.
Speaker Change: The company is in compliance with its loan covenants and we expect to remain in compliance for the balance of the year.
Speaker Change: And with that I will turn the call back to Lou for some additional remarks and an update on our 2024 business outlook Lou.
Lou: Thanks Scott.
Lou: I am pleased that our results for the third quarter and year to date reflect continued improvement compared to the prior year I expect this positive trend to continue.
Lou: In the foreseeable future.
Lou: Our success is driven by executing our strategy, including a sharp focus on our portfolio expansion aftermarket strategy and an industry outreach.
Lou: Continued to meet with both existing and potential customers on a regular basis and are working hard to expand our business.
Lou: Well with respect to our 'twenty 'twenty four business outlook, we are reaffirming our guidance specifically, we are targeting the achievement of at least $50 million in net sales for fiscal 2024 with adjusted EBITDA expected to significantly surpassed 2023 levels.
Lou: Also as we think about 2025, we believe that revenues for 2025 will essentially be consistent with 2024. However, we will see improvement in gross margins and operating income.
Lou: Looking at the longer term, we are very enthusiastic.
Lou: Air Industries business is heavily weighted to the military.
Lou: Over the past four years, the military budget has been flat actually a reduction considering inflation.
Lou: We believe that the D O D or the department of Defense is the only federal agency to have fewer employees now than four years ago, and we believe the lack of funding has resulted in delayed maintenance and deteriorating force readiness.
Lou: Now with a pending new administration and ongoing conflicts abroad, we expect the deferred spending in our markets will get more focus.
And our year end conference call I'll have more to report at 2025 and long term.
Lou: And long term as things shape up but I wanted to give you an early preview of what we're thinking and what we are seeing.
Lou: Finally, I do want to mention that last month for the first time in several years. We attended the micro cap Rodeo Investor Conference in New York City.
Lou: Presentation, we used at the conference is posted on our website.
Lou: You have not viewed it I encourage you to take a look.
Lou: I look forward to increasing our shareholder investor outreach in the coming months and whether you are a longtime air industries' shareholders are a newcomer to our story I encourage you to give Scott or me a call and we'd be happy to talk to you now.
Lou: Now before I turn the call over to the operator for Q&A.
Lou: We received some questions from an analyst. It. Unfortunately was unable to attend today's call. Scott can you. Please read the questions and provide some answers when Scott is done we will have the operator open up the portion of the Q&A. So Scott.
Okay. Thank you as Lou mentioned, we did receive some questions in advance that we would like to address.
Scott: The first question can you describe the dynamics between excuse me the dynamics behind the fluctuation in gross margin and given the quarterly fluctuations do you anticipate the overall gross profit margin trend you see improvement over the next few years.
Scott: The answer to that question is that the quarterly fluctuation in our gross margin is tied to the mix and products shipped in any given quarter. As many of you are aware the products, we manufacture having have long lead times and we produce our customers discrete schedule, thereby causing a fluctuation.
Scott: And the timing of the product that we ship in any given period, which then impacts the gross margin.
Scott: Based on what we know today, we believe that overall margins will improve over the next several years, but as I. Just said there will continue to be fluctuations quarter to quarter and year to year.
Scott: The second question. We received was what are the macro trends supporting you in your customer base over the next 12 to 24 months.
Scott: The answer to that is as mentioned earlier the department of defense is the only federal agency that has fewer employees now than they did four years ago.
Scott: And the lack of funding has resulted in delayed maintenance, but that being said, we expect there will be significant spending over the next several years to bring the aircraft fleet fleet back into a state of readiness, especially given the conflicts abroad.
Speaker Change: Third question that we received well you are not providing 2025 guidance given the trends in backlog should we anticipate year over year improvement to operating results.
Speaker Change: The answer is that we believe that 2025 revenues will be roughly equal with 'twenty 'twenty four and expect to see improved gross margin. We are continuing to keep our operating costs in check, especially in this highly inflationary time, we anticipate we will be able to continue to do just that.
Speaker Change: We expect our operating results remained consistent or slightly improved for 2025.
Blue: Blue I turn it back to you.
Speaker Change: Thank you Scott now that we have addressed the questions that we see in advance, let's let's turn the call over to Matt for Q&A portion of the call. Matt can you open up the lines. Please.
Matt: Yeah, great. Thank you will not be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Matt: If the nation call will indicate your line is in the question queue.
Matt: Press Star two to remove yourself from the queue.
Matt: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star one.
Matt: Please poll for questions.
Matt: Yeah.
Speaker Change: First question is from Jamie grants from RF Lafferty and company. Please go ahead.
Speaker Change: I'm sorry, Jamie your line maybe on mute.
Yeah, sorry, yeah, yeah. It was on mute.
Speaker Change: Everybody. Thanks for taking my question I'm not that we haven't been Hello, Yeah that would be we havent change in administration.
What where do you see this segment as far as backlog.
The increase in loss is it aftermarket parts to be place in.
Speaker Change: New new Oh would equate men refurbish all equipment or just to maybe new bills new.
Speaker Change: Aircrafts, the Kid, India, he didn't sleep audio troops.
Speaker Change: Well.
Speaker Change: Thank you for the question.
Speaker Change: Where we're going to experience what we believe is an uptick in <unk>.
Aftermarket parts you know just like prior to the Republican administration that started with Trump now eight years ago.
Speaker Change: The U S fleet had been aging and they had been.
Speaker Change: Faster Nizing aircrafts on our runway two.
Speaker Change: It takes other ones both on the helicopter and all the defense planes.
Speaker Change: When not when that happened when do we publican stick over the office spending uptick pretty pretty sharply and we think what's going on right now with the threats across the across the world and the conflicts going on both in Israel and in the Ukraine.
Speaker Change: Although we're not intimately involved we support some of the aircrafts that are that are in the field. So we are we foresee an uptick in aftermarket parts.
Now would that be U S.
Retirement also NATO or just U S. Ah just the U S military.
Speaker Change: Well, we typically sell to the U S military although we have a strike.
Speaker Change: An agreement not too long ago to service our other countries NATO countries so that.
Speaker Change: That agreement is new Justice.
Speaker Change: Paul we announced it.
Speaker Change: We'll see what that what comes out of the field in there as well.
Speaker Change: What do you think the timing could be I know Trump hasnt taken office.
Speaker Change: Yeah, but what did tighten it could be on and when you start looking at two new bids or.
Speaker Change: You know as far as if you have them on the off the market.
Speaker Change: Well, what we're seeing now is is lead time on materials, increasing we were able to get our blackhawk parts.
Speaker Change: Forgings and <unk>.
Speaker Change: Foraging predominantly in 17, 40, 40 weeks and we're seeing those lead time go up from 42 eight weeks.
Speaker Change: <unk> the same thing so we're seeing lead time on materials dramatically.
Speaker Change: <unk> increased the production once once we had the materials, we put our hands on it.
Speaker Change: We get them out the door as quickly as possible that that hasnt changed but the material to material businesses, what's what's tough right now and driving and driving timelines.
Speaker Change: Right now on a material how's it is any cost inflation I mean, what's the cost inflation that you guys sort of.
Speaker Change: Oh no.
Speaker Change: There's dramatic theres been dramatic price increase across materials Oh.
Speaker Change: All across the board you know are our long term agreements all stipulate a band so when we quote the part when the business we win at X dollars and typically the first 5% is our problem and anything above 5% becomes the Oems or whoever wherever you choose to purchase order.
Speaker Change: No.
Speaker Change: We're not we're not in that business. We can't guarantee you know a long term agreement for four five years out with pricing being the way it is.
Speaker Change: Right now in your new markets I mean, what.
Speaker Change: You know a possibility of new markets. What are you looking at I mean, I I know, we talk about Eva tall and it was at the different types of drones I mean.
Speaker Change: And you guys do the landing gears are you looking at that type of market.
Speaker Change: Oh yeah.
Speaker Change: Okay.
Speaker Change: The new markets for US you know, where we're predominantly our 85% military so cross across all our operations. So a new market for US one that's that's hot despite the Boeing Bose that they're having right now there's others, but commercial aviation.
Again materials are long lead time, but theyre, starting we started to see a pretty heavy demand for commercial products that are.
Speaker Change: And with commercial D O D. Your Oems have a lot more leniency on where they put this work you know a lot of the work was across saw in China and in other unstable and stable areas that are now pulling it back theyre just starting to pull it back.
Speaker Change: And so we're seeing an uptick in quoting activity both on commercial we're we're quoting some you.
Speaker Change: Our vertical a new vertical lift you know where we're at we're in with the Black Hawk and had been for over 40 years.
Speaker Change: The V 280, the belt the Bell helicopter.
Speaker Change: <unk> is going to be coming into fruition you know within the next several years.
Speaker Change: We're going to be in that supply chain.
Speaker Change: We're also seeing we're also involved with a couple of electric vehicle companies.
Speaker Change: For Oh with short takeoff for vertical take off and you know 50 60 mile range planes that's.
Speaker Change: That's going to be the way the future we don't see it now, but it will be coming at some point, we're in with some of those companies as well.
Speaker Change: Yeah, when I was a kid I was watching the jetson I didn't realize that was going to become a reality one day.
Speaker Change: [laughter].
Speaker Change: So you know market is in EBITA and the drones EBITA, who vertical list. We're looking at drones. We're looking at missiles. We're looking at commercial there are several new opportunities for us.
Speaker Change: Yeah, I know, especially last couple of years with the drone warfare I mean, everything is going on AI drones, and you guys have I think I'm not I'm not a aeronautical engineer, but since you guys do with your landing gears for somebody fired as it just makes sense for you guys to get involved with some of the predator and Reaper.
Speaker Change: We played around with it.
Speaker Change: It's more than just landing gear, you know, where where we're landing gear company, but we do aerostructures, we do bra arresting gear, which you know stops the planes on carriers, we do a lot of structural work. So there's a lot of markets missiles. For example, you know they don't have landing gear. It's a one shot deal, but theres a lot of structural parts in a in a missile.
Speaker Change: And the beauty about missiles is.
Speaker Change: It's just a one shot deal.
Speaker Change: Yeah, Yeah yeah.
Speaker Change: Alright, so they'll go to a question I have I mean, you know what.
Speaker Change: A study of our new administration it seems.
Speaker Change: It seems like it's bringing a lot of good things, especially to the defense industry Alright. Thanks for my question.
Speaker Change: Thanks, so much thank you.
Speaker Change: The next question is from guaranteed a private investor. Please go ahead.
Speaker Change: Hi, yes. Thank you for taking my question.
Speaker Change: On August 22nd the company put out a press release.
Announcing a 117 million dollar order in.
Speaker Change: And a result in $280 million backlog.
Speaker Change: To date in the press release, the company says it has a hunter and $5 million backlog.
Speaker Change: The difference between $280 million and $105 million is a lot and I want it seems to be a huge discrepancy here between the two press releases I wondered if you would like to clarify that.
Speaker Change: So I'd be happy to.
Speaker Change: I'd be happy to.
Speaker Change: If you look at our press releases when we talk about backlog the company utilizes a.
Speaker Change: Couple of different measures, but the predominantly.
Speaker Change: $104 million is what we have in house that is firm funded orders that stretches between 18 months and potentially two years. Okay. So that's what the 104 million dollar.
Speaker Change: Backlog is our awards order, so anything let's say over.
Speaker Change: 18 months or two years, it's not in the backlog.
Speaker Change: But we have five year and seven year contracts those numbers are not in the contract, but when we say our words.
Awards given to the company. They can total up to about 270 $280 million, let me clarify that a little further if I may.
Speaker Change: As Lou said I'm. The 104 hundred 5 billion number is what is fully funded meaning that if a customer were to cancel an order that has been funded there would be a termination liability.
Speaker Change: As the total order award order as Lew just mentioned is over the life of the entire contract the entire contract the LTA, but call for a much longer period of time as in the one we announced the 110 million they've only funded or really.
Speaker Change: Leased or placed orders against that $110 million that go out for the next 18 to 24 months as Lou said and as time goes on they provide additional releases within the lead time required to manufacture those parts.
Speaker Change: Okay.
Speaker Change: I understand what you're saying and it was clear let me Jerry checkpoint.
Speaker Change: Well, let me just try to make it.
Make it even even more clear.
Speaker Change: Okay 10 million dollar order.
Speaker Change: That was talked about in the press release.
August 22nd.
Speaker Change: Resulting in a $280 million backlog.
Speaker Change: That is still on there that hasn't been rescinded or anything no.
Speaker Change: Long term or you are assuming.
Speaker Change: Please me correct he's correct.
Speaker Change: Yeah.
Speaker Change: Good.
Speaker Change: That's what I wanted to hear.
Speaker Change: I appreciate the call and I appreciate that thought we could we could further explore.
Speaker Change: Explain what that meant.
Once again as a reminder, if you'd like to ask a question. It is star one.
Speaker Change: Next question here signature card a private investor. Please go ahead.
Speaker Change: Yes, Sir Thank you for taking my call. My question has to do with your internal manufacturing operation.
Speaker Change: What programs do you have in place to optimize workflows improve equipment utilization.
Speaker Change: Kris operator productivity eliminate or reduce bottlenecks.
Speaker Change: The production line.
Speaker Change: That's a great question, we have a continuous improvement coordinator that's part of our team.
Speaker Change: The facilities and.
Speaker Change: His sole job is looking at scheduling looking at customers needs customers requirements.
Speaker Change: Make sure that we're utilizing the best equipment to produce these parts, we we call like in our Connecticut operations. For example, there's an operation called C Cat, which is Connecticut Center for advanced technologies, and also an operation called ton snap which is.
Speaker Change: On operation.
Speaker Change: On a non.
Speaker Change: And operation of retired executives that would help that help everything from from workflow charts.
Speaker Change: Two.
Speaker Change: Addressing outside services.
Speaker Change: The board so we tend to use both systems, both internally and outside consultants when we need to just remind whatever operations, we can do clusters or if we did if we.
Build a product in 10 hours lets say.
Speaker Change: Last month, we strive to do it in nine hours this month and there's a lot of there's a lot of gamba walks and Theres a lot of get Togethers on how do we improve how do we put the material closer to the machine.
Speaker Change: Speeds and feeds correct as their new cutter technologies, we look at everything.
Speaker Change: Alright. Thank you for your answer I appreciate it.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: One more time, if there's any questions that is star one to join the queue.
Speaker Change: Okay. No further questions I need to turn the floor back to management for any closing comments.
Speaker Change: Thank you Matt.
Speaker Change: Thank you all for taking the time to be on the call today and for your interest in Air Industries Group, We look forward to updating you on our progress on our next call.
Speaker Change: Matt with that you can conclude the call.
Speaker Change: Okay.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.
Okay.
Speaker Change: Yeah.