Q4 2024 Air Industries Group Earnings Call
Speaker Change: Hello and welcome to the Air Industries Group's year-end 2024 earnings conference call. This time, all participants are in Alyson Lonnie Mode. The question and answer session will follow the formal presentation.
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Speaker Change: This call may contain poor looking statements as defined in section 27A of the Securities Act of 1933, as amended, including statements regarding, among other things, the company's business strategy and growth strategy.
Speaker Change: Expressions, which identify four local statements, speak only as of the date the statement is made.
Speaker Change: These four-looking statements are based largely on our company's expectations, on our subject to a number of risks and uncertainties, some of which are beyond our control and cannot be predicted or quantified. Future developments and actual results could differ materially from those set forth in, contemplated by or underlying the four-looking statements.
Speaker Change: In light of these recent uncertainties, there could be no assurance of the forward-looking information or proof to be accurate.
Speaker Change: The call does not constitute an offer to purchase any securities nor solicitation of a proxy, consent, authorization, or Asian designation with respect to the meeting of the company shareholders.
Lou Melluzzo: At this time, I'd like to turn a call over to Lou Melluzzo, President Canceo. Please go ahead.
Speaker Change: Thank you, Ralph, and thank you all for joining us today.
Speaker Change: 2020-24 was a successful rebuilding year. Our financial results showed significant improvement over 2023. Our dramatic improved bookings of new business have led to a record backlog at a level we have never seen before.
Speaker Change: For 2024, compared to 2023, Revenue, Operating Profit, and Net Income, Adjusted Editor, All Improved.
Speaker Change: Revenue was in excess of $55 million, proven of nearly $2.6 million for 7%. Operating income by more than 750,000 converting a loss in 2023 to operating profit in 2024.
Speaker Change: We incurred a net loss for the year, but the loss was reduced by $765,000, a reduction of 36%.
Speaker Change: Adjusted EBITDA, our primary measure of financial performance, improved by nearly $1 million or 35%. As 2024 came to a close, we continued our accelerated business development sales efforts.
Speaker Change: The aerospace industry usually booked a bill ratio, the total number, the total of new business booked divided by sales billed to customers to measure the health of a business.
Speaker Change: A ratio of 1.2 to 1 is considered healthy and supportive of a growing business. In January of 2023, a ratio was a dismo 0.75 to 1.
Speaker Change: At December 2024, it had improved to 1.29 to 1, an improvement of 72% now higher in the industry standard.
Speaker Change: Our new business sales efforts accelerated at the year end and into the first quarter of 2025.
Speaker Change: Beginning in December and continuing to March 11th of 2025, we announced six major new contracts for LTA's long-term agreements following nearly $60 million of new business.
Spread over four aircraft platforms and four customers.
Now, bookings lead backward.
Speaker Change: Over the past two years in 23 and 24, our full funded backlog and backlog fully supported by firm customers, purchasers, and increased by nearly $32 million or 36.7%.
and it's now at almost $118 million.
Speaker Change: Our total backlog, including unfunded orders, also increased dramatically and now is an excess of a quarter of a billion dollars.
Speaker Change: During 2024, we enjoyed improving financial results. Our business development efforts during that year continued to accelerate. This has laid a strong foundation for the future.
Speaker Change: While we do not expect straight line improvement, we do expect improvement to continue in 2025 and beyond.
Speaker Change: Now let me turn the call over to Scott who will discuss our results in more detail. And I'll be back to add closing commentary and a bit more specifics on the outlook for some preliminary thoughts on 2025.
Before opening it up, the questions and answers.
Speaker Change: So Scott, let's go over to finances please. Good morning everybody, and thank you Lou. Before I begin, I would also like to comment on the delay in filing hours 10K.
Speaker Change: Late last year, our independent audit firm merged. Mergers of accounting firms often result in additional time to complete audit as new personnel and procedures are involved. The good news is that it was filed yesterday afternoon, then the 15-day automatic extension period, so we remain compliant.
Speaker Change: I too share a loose enthusiasm about the 2024 results. Let me discuss them in some more detail.
Speaker Change: Our consolidated net sales for the year were $55.1 million. That was 7% higher than the 51.5 million we achieved in 2023.
Speaker Change: The improvement in gross margin and profit is even more significant news.
Speaker Change: For the year, Gross Profit increased by over 1.5 million or 20.2% compared to that of 2023.
Speaker Change: Now while the gross margin of 16.2% remains below our historical average, we anticipate continued improvements in the future.
Speaker Change: Our operating expenses were controlled as well, even though we are in an inflationary environment. For the year, they were $8.5 million, an increase of $750,000, or 9.7% higher than the previous year.
Speaker Change: I'd like to point out that included in this increase was an additional $315,000 of stock compensation expense, which is a non-taish item.
Speaker Change: The increase in stock compensation expense accounted for 42% of the total increase. Had it not been for this non-KS additional expense, our operating expenses would have only increased by 435,000 or 5.6%.
Speaker Change: Our operating profit for the year was $459,000, which is a significant improvement from the loss we had in 2023.
Speaker Change: Finally, on the bottom line, we had a net loss of 1,366,000 or 41 cents a share. This is a dramatic improvement from 2023 where we had a net loss of 2.1 million or 65 cents
Speaker Change: Adjusted EBITDA for the year was $3,641,000, an increase of 944,000 or 35% compared to that of 2023.
Speaker Change: I'm also very pleased to report that we remain in compliance with our loan with our
Now, let me quickly highlight a few balance sheet items.
comparing 2024 to 2023.
Speaker Change: Our total debt is up by about 3 million, which resulted from additional barrings under our revolving credit facility and additional barrings due to the completion of our solar power installation in our Connecticut facility.
Speaker Change: Accounts receivable are up by about a million dollars as are accounts payable and accrued expenses.
Lou Melluzzo: And with that, I turn the call back to Lou for some other remarks and then to our Q&A.
Lou Melluzzo: We would be remiss if we did not address the question on everybody's mind, the impact of the potential tariffs and those effects on budget cuts.
Lou Melluzzo: Nobody knows the final effect on terrorists, what they may be, and what expected damages we may incur.
Lou Melluzzo: Our business is heavily weighed to the military aerospace and as such we are required to source most of the raw materials and hardware from our domestic sources.
Lou Melluzzo: That said, increased tariffs may restrict imports and restricted imports may reduce supply, perhaps leading to an increase in prices for domestically produced products.
Lou Melluzzo: We do have one important product in the commercial aviation for which we source material from China.
Lou Melluzzo: Now, thankfully, our contract for this product has a price protection clause allowing us to pass along any significant cost that is more than 5% lifetime.
Lou Melluzzo: There's also a widespread concern about possible reductions in the defense budget.
Lou Melluzzo: We expect that there will be strategic reductions in the budget, but we believe that the programs we support will not materially be reduced, and perhaps may be increased.
Lou Melluzzo: The administration has made it clear that it is maintaining or increasing spending to counter tensions in the Pacific.
We are well positioned for this.
Lou Melluzzo: One of our major aircraft programs is the Navy's E2D Advanced Hawkeye Aircraft. This plane is a flying combat information center, surveilling and controlling the airspace around any aircraft carrier battle group.
Lou Melluzzo: We were recently awarded a large $33 million contract for the CH-53K heavy lift helicopter
Lou Melluzzo: This helicopter's function is to transfer US Marines and equipment from ship to land.
Lou Melluzzo: Aircraft carriers in the new heavy lift helicopters are obviously critical for the military to counterthreads in the Pacific.
Speaker Change: and although the conversations in Washington changes daily, we do not expect to be materially harmed by reductions in military spending. Thus, we are working tirelessly to continue to take risk out of the business.
Speaker Change: with that, I would like to turn this over to our questions and answers portion of the call. Rob, can you open up the lines, please?
Speaker Change: Sure, if you'd like to ask a question at this time, you may press star one from your telephone keypad and a confirmation tone indicate your line is in the question queue.
Speaker Change: You may press start too if you'd like to withdraw your question from the queue.
Speaker Change: For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment please, when we pull for questions, we'll see that star one. Thank you.
Howard Halpern: Thank you. The first question is from the line of Howard Halpern with Tankless Brothers. Let's just use your questions.
Speaker Change: Just one more question, I guess, regarding potential supply chain, and I don't know the answer to this, but
Do any of the-
Speaker Change: The raw materials that are in the supply chain, are there any rare earth elements that come from China?
in your supply chain.
Speaker Change: Howard, not in the products that we make that we're not aware of any, to be honest with you, you know, so I'm on all the military programs, there's an edict to make sure that the products are a source side of American soil, American minds.
Speaker Change: We have one product that is a commercial product that we do, we do piggyback off the OEM's contract and the OEM has chosen China to be the supplier.
So, now...
Speaker Change: So that's kind of, we do, we have price protection on that one contract.
Speaker Change: to a band of 5% as I stated earlier. So our obligations on that contract is it could only go up another 5% that would be our RV's our our incurred cost and everything else would be transferred to the client.
Now, that doesn't mean...
Speaker Change: that that product can't be sourced to the United States. It used to be, prior to, I guess maybe two, three years, a few years ago in the United States, and we had started those conversations
Speaker Change: in lieu of, you know, what is happening. We actually started along before, but again, in the ultimate decision, I'll rest on the OEM because they're the ones that placed you to purchase order with these
Speaker Change: The way you've constructed now the operations in 2024, you believe that the efficiency and flexibility you have in 2025
Speaker Change: and you have the ultimate flexibility going forward in your operations.
Speaker Change: The operations and you're welcome to visit, we'll schedule and give you a tour.
Speaker Change: and we've solved the problem that we had in the past with bottlenecks.
and pinch points. We have duplicate machines across the board.
Speaker Change: and quite frankly, the operations are running in New York, are running smooth as silk in Connecticut. We're a little bit behind because we put a lot of money.
Speaker Change: Early in my career here to make sure that our flagship operation in Connecticut in New York, I'm sorry, was optimal since in the last two years.
Speaker Change: We have two new large machines being installed in Connecticut right now. One of them just hit the floor about three weeks ago and has been installed and is going through final testing.
Speaker Change: and a very large other second machine is scheduled to commit mid-May, and they'll probably be operational at some point, you know, mid-June, maybe the under-June.
Speaker Change: So now, you know, we've sold our panel, that facility, Connecticut, it's got a brand new roof.
Speaker Change: Now that facility dates back to 1941 and so we are bringing that up to speed and it's it's making it's making great great tries so yes the operations are running very efficiently at this point.
Speaker Change: Okay, and talking about cat-backs, is that still going to be around property and equipment about $2 million, or might that be a little less this year?
Speaker Change: Strad old, if you will, 2024 into the beginning of 2025, as far as the timing of the payments and whatnot. However, for the rest of the year aside from that, those are our largest...
Expenditures that we expect currently for 2025.
Speaker Change: I'll also pre-face that Howard with. If a client walks in tomorrow and has $10 million a year of work to drop off and I need a new piece of equipment, I'm going to buy a new piece of equipment. Absolutely, but 100% but we're not, we don't know, you never know, but...
Speaker Change: Right now we feel like we've done a pretty decent job at making the shops efficiently for what we do.
Speaker Change: The potential new program starts you might have this year or is it going to be just piling in to, did you have a lot of starts last year and it's just, you know, full bore production?
Speaker Change: Yeah, you know, in years past, especially coming on a COVID.
Howard Halpern: You know we got we got flooded with a lot of new start to your absolutely correct powered that's that's been minimized you know some of the workers repeat you know we we've gotten follow on contracts to the for the E2D Hawkeye which we've been making for a while. [inaudible]
Howard Halpern: So that's just going to be a continuation of our existing production. There's no engineering, there's always continuous improvement but there's no new engineering. You know, we are working with some new clients and there's always a new start here and there but it's not definitely more controlled.
Howard Halpern: and that will be one of the drivers for improved gross margins as time goes by.
Speaker Change: Right, right. Once a program becomes mature in the first and the second, you know, after the first year, we tend to improve efficiencies dramatically.
Speaker Change: Okay, and one last one, if you cared to comment on it, Q1 relative to Q4, could you give some just a little bit of color?
Speaker Change: We're really not going to give that much color on it, obviously we just filed the 10k yesterday which was your end as you all know. So I would say our gross margin dollars are in line with our external expectations.
Speaker Change: We're still going through the closing process, which should be done in the next day or so and then in a couple of weeks we will put out results for the first quarter.
Speaker Change: Okay, thanks guys, and keep up the great work in 2025.
Thank you so much, Howard, for the call.
Speaker Change: Thank you. Once again, if you'd like to ask a question, you may press star one at this time.
Speaker Change: Thank you. At this time we have no additional questions and I'll hand the call over to Luma Lucel for closing remarks.
Speaker Change: . . . . . . .
Thank you, Rob.
Speaker Change: Thank you Mr. Melluzzo. This will conclude today's conference. Let me disconnect your lines at this time. Thank you for your participation.