ASTRONICS CORP Q4 FY2025 earnings call

• Fourth quarter revenue was $240,000,000, a new record, up 15% from 2024 and 13.5% from preceding quarter.
• Gross profit increased nearly 29% to $80,000,000, gross margin expanded 350 basis points to 33.3%.
• Operating income was $35,500,000, up sharply from $8,900,000 a year ago, operating margin expanded 10.5 points to 14.8%. Adjusted operating income was $38,300,000, adjusted operating margin expanded 450 basis points to 16%.
• Cash from operations was $27,600,000 for the quarter, $74,800,000 for the year.
• Completed transition from ABL line of credit to cash flow revolver, end of quarter available liquidity $231,000,000.
• Total bookings in quarter $257,000,000, book-to-bill 1.07, year-end backlog $674,500,000, new record.
• R&D expense $10,600,000, 4.4% of sales, within expected 4% - 5% run rate.
• SG&A expense decreased $7,300,000 primarily due to $9,000,000 reduction in legal reserves and litigation-related expenses.
• Reviewed U.S. Supreme Court decision on tariffs, not assuming benefit in outlook currently.

Aerospace: Fourth quarter operating profit was $41,700,000, about 2.5 times greater than the prior year period, with an operating margin of 19% of sales. Adjusted operating profit margin expanded 380 basis points to 19%. Test Systems: Produced operating profit of $1,100,000 in the quarter compared with slightly below breakeven results a year ago. Improvement reflects simplification and restructuring actions, but is partially offset by unfavorable mix and under-absorption of fixed costs. Revenue for Aerospace contributed significantly, with a strong performance due to volume, mix, reduced litigation expenses, and pricing recovery. Test Systems' performance is affected by current volume levels but expected to improve with Army Radio Test Set Program ramp. Revenue contribution: Aerospace likely contributed a large portion given its strong performance, while Test Systems contributed a smaller amount but with potential for growth as the Army program ramps.

• Preliminary 2026 revenue guidance $950,000,000 - $990,000,000, midpoint $970,000,000 representing 12.5% growth, high end $990,000,000 representing nearly 15% growth.
• Anticipate first quarter sales $220,000,000 - $230,000,000, subsequent quarters to see sales above $250,000,000 in second half.
• Aim to drive further operating margin expansion, achieving sustainable high-teens operating margins or better over time.
• Expect improved Test Systems profitability as volume ramps on Army Radio Test Set Program.
• Maintain strong liquidity position while investing in future.

• Geopolitical risks, wide ranging and macroeconomic in nature.
• Tariffs, unpredictable.
• Waiting for U.S. Army to turn on for volume production of 4549T radio test program, government shutdown late last year affected timeline.

Q: Assuming achieving midpoint of Q1 full year revenue guidance, can do similar 19% - 20% EBITDA margin in Q2 - Q4?

A: That would be a goal, shooting for it, noting fourth quarter was unprecedented with tailwinds, will test marginal on incremental revenue dollars but goal is to repeat.

Q: Add color to Army radio test program and if it's biggest swing factor in revenue guidance?

A: Less of a swing factor as year progresses, wheels in motion, believe most task items completed, expect second quarter turn-on but hard to predict exactly when.

Q: Characterize order influx in Q4, concentrated in specific product areas?

A: Broad based across linefit and aftermarket, no singly outstanding product area, had some significant programs waiting but nothing specific drove bookings.

Q: Characterize Q1 and pipeline beyond Q1 with respect to orders?

A: Pretty optimistic, have target-rich environment to convert into revenue dollars to achieve 2026 growth.

Q: Characterize pricing broadly?

A: 70% - 80% complete in repricing business mix after inflation, few major programs due over next year and a half, catching up on pricing deficit but some further to go.

Q: Unpack Aero margins, remove litigation and spares, still trending above high 16%, 17%?

A: Adjusted Aerospace margin 19.8%, high teens achievable, broad-based drivers of results give confidence to continue.

Q: Outlook for 2026 production rates, assumptions?

A: Get same message from OEMs, planning and spooling accordingly, some conservatism built into numbers.

Q: General update on MV-75 program?

A: Chugging away, Army wants to accelerate, expect to step up revenue in 2026 to $40,000,000, development phase to be largely done by end of 2027.

Q: OE and retrofit performance for Commercial Aero segment, expectations for 2026?

A: Both expected to be strong, production rates well publicized, benefit from secular trend of passenger desires for connectivity and entertainment, constant need to update technology in aftermarket.