Astronics Corporation Q1 FY2026 earnings call

Overall Financial Performance

• Q1 FY2026 revenue was at the high end of management's guided range, and was the second highest quarterly revenue total in company history, behind only Q4 FY2025.
• Gross margin expanded 310 basis points to 32.6% of sales, driven by higher volume, improved productivity, and a $2.8 million cumulative catch-up adjustment on the MV75 program. Adjusted EBITDA margin expanded 150 basis points to 16.4% year-over-year.
• Total Q1 bookings hit an all-time record of $290 million, for a 1.26 book-to-bill ratio, resulting in an all-time record ending total backlog of $734 million. The strong booking performance was broad-based across all segments, not driven by any single large unusual order.

Core Market Tailwinds

• Rising commercial aircraft production rates: ~70% of Astronics' total sales go to commercial aircraft, split evenly between new aircraft original equipment (OE) production and aftermarket retrofits. Airbus and Boeing plan to increase narrow-body and wide-body production rates by 30% to 50% over the coming years in response to strong global airline demand. The Boeing 777 program, which is a significant program for Astronics, will come online in 2027.
• Growing demand for IFEC solutions: ~50% of total revenue comes from IFEC and passenger power. Airlines globally are retrofitting fleets to meet passenger demand for consistent connectivity, entertainment, and in-seat power, creating recurring retrofit upgrade demand due to short IFEC technology lifecycles.
• Growth opportunities for flight-critical electrical power: This product line currently makes up 10% of total sales, with strong growth prospects. Astronics holds key positions on emerging programs including the MV-75, and has growing exposure to the emerging eVTOL and unmanned drone aircraft segments, which are nearing certification.
• Strong momentum in seat motion: Demand for premium long-haul aircraft seating is growing, driving triple-digit year-over-year sales growth for seat motion in 2026. Q1 2026 seat motion sales were three times the level seen in Q1 2025, with growth expected to accelerate slightly through the remainder of the year.
• Acceleration expected for Test Systems: The segment has completed significant cost rationalization, and the $215 million sole-source U.S. Army radio test IDIQ program is expected to move into production in the coming weeks, driving meaningful revenue and profit growth in the second half of 2026.

Operational Updates

• The company completed a major facility relocation for its Seattle operation during Q1, which proceeded smoothly. Full operational consolidation is expected to complete in Q2 2026.
• The company is in the early stages of rolling out a new global ERP system, with total 2026 investment expected to be $15 to $17 million, and total five-year project spend of $35 to $40 million.
• Interest expense decreased 25.8% year-over-year following the company's September 2025 debt refinancing. Management expects to meet accounting requirements to release the full valuation allowance on deferred tax assets as early as Q2 2026, resulting in a large one-time tax benefit in the quarter of release.

Astronics operates two primary business segments, Aerospace and Test Systems, with the Aerospace segment broken into four product categories. Total company Q1 FY2026 revenue was $231 million, a 12% increase from $206 million in Q1 FY2025.

1. Aerospace Segment:

   • Total segment revenue: $213.8 million, up 11.7% year-over-year, accounting for 92.6% of total company revenue.
   • IFEC (In-Flight Entertainment and Connectivity): Revenue of $110.7 million, up 7.4% year-over-year, representing 48% of total company revenue.
   • Lighting and Safety: Revenue of $52.8 million, up 1.6% year-over-year, representing 23% of total company revenue.
   • Flight-Critical Electrical Power: Revenue of $24.8 million, up 16.2% year-over-year, representing ~11% of total company revenue.
   • Seat Motion: Revenue of $13.2 million, up nearly 200% year-over-year (includes a $4.6 million contribution from the BMA acquisition), representing ~5.7% of total company revenue.
   • Operating profit: $35.3 million (16.5% margin), up from $22.3 million (11.6% margin) year-over-year. Adjusted operating profit was $37.2 million, with an adjusted margin of 17.4%, up 120 basis points year-over-year.
   • Bookings: $264.4 million, up 11% sequentially, with a 1.24 book-to-bill ratio. Ending backlog was a record $651.4 million.

2. Test Systems Segment:

   • Total segment revenue: $16.8 million, up 15.4% year-over-year from $14.6 million, accounting for 7.3% of total company revenue. The prior year period was depressed by a $1.9 million negative cost revision on a long-term mass transit contract.
   • Operating profit: Slightly above break-even at $400 thousand, compared to an operating loss in the prior year.
   • Bookings: $26.1 million, with a 1.55 book-to-bill ratio. Ending backlog was $83 million.

• Full year FY2026 revenue guidance was raised to a range of $970 million to $1.0 billion, up from the prior guided range of $950 million to $990 million. The midpoint of the new range represents 14% year-over-year organic growth, while the top end of the range represents 16% organic growth.
• Q2 FY2026 revenue is expected to be in the range of $245 million to $250 million, which would represent a new quarterly revenue record for the company. Revenue is expected to increase further in the second half of 2026 as the Army radio test program ramps production and aerospace programs grow.
• Full year 2026 capital expenditures are expected to be in the range of $40 million to $45 million, consistent with prior guidance.
• Management's long-term target remains achieving sustainable high-teens consolidated adjusted operating margins, with continued progress toward this target expected in 2026, driven by volume leverage, improved productivity, lower litigation costs, and higher-margin product mix.

• Prolonged or escalated geopolitical conflict (specifically the Iran conflict) could eventually impact airline demand, travel volumes, and fuel prices, though management has not observed any order push-outs, delays, or cancellations related to the conflict as of the Q1 print.
• Higher fuel prices could disproportionately pressure low-cost airlines, though low-cost carriers are not major customers for Astronics' premium IFEC products, limiting this exposure.
• Rising tariffs increased Q1 costs by $1.7 million year-over-year, creating ongoing margin pressure until potential tariff refunds are processed.
• Memory chip price increases are creating cost pressure for some IFEC products, though this is not a material headwind for the overall business.
• Uncertainty around eVTOL market size and business model viability creates uncertainty around the timing and magnitude of growth from this emerging segment. While Astronics has diversified exposure to most leading eVTOL developers, it is not investing heavily in non-recurring development work for the segment at this time.
• The U.S. Army radio test production award could still experience unforeseen delays, which would push expected revenue and profit contributions from the program to later periods.

Q: If the Iran conflict remains unresolved long-term, where would Astronics first see weakness, and could there be any upside from consolidation like the Spirit Airlines bankruptcy? / A: Management has not seen any impact from the conflict on Astronics' business to date. While Middle East airline traffic has been impacted, management expects this to bounce back after the conflict ends. Higher fuel prices could pressure low-cost carriers, but these are not major Astronics customers. If Spirit's aircraft are acquired by larger existing customers, the reconfiguration to meet new operator standards would likely create incremental retrofit demand for Astronics products, as Spirit was not a major Astronics customer.

Q: What drove the upward revision to full-year revenue guidance, and are there any unaddressed negative factors impacting Q1 margins? / A: The guidance increase reflects broad-based surging demand across all business segments and product lines, rather than any single large order. Q1 bookings hit an all-time high driven by widespread demand, and the Seattle facility relocation was completed smoothly, increasing management confidence in ongoing operational improvements. Higher tariffs added ~$2 million in incremental year-over-year costs, which weighed on Q1 margins; potential tariff refunds could turn this into a benefit later in the year. Management expects incremental margins to improve meaningfully in Q2 and the second half of 2026 as revenue accelerates to a new quarterly record.

Q: How much revenue from the upcoming U.S. Army radio test program is built into 2026 guidance, and what is the full annual run-rate potential? / A: Management expects the program to contribute ~$20 million in revenue in the second half of 2026, with a full annual run rate of $40 million to $50 million once the program is fully ramped. All pre-award requirements have been completed, and the award documentation is currently pending final approval, with an announcement expected in the coming weeks.

Q: What is the current retrofit/OE revenue mix for commercial aerospace, and what is the opportunity size for eVTOL and the Boeing 777X in coming years? / A: The mix remains 50% retrofit, 50% OE, with both segments performing strongly. For eVTOL, the total market size and successful business models remain uncertain, so management does not publish large forward forecasts. Astronics has diversified off-the-shelf product exposure to most leading eVTOL developers, with minimal non-recurring investment at this stage, and expects 2026-2027 to be a critical period for market clarity. For the Boeing 777X, Astronics has ~$250 thousand in content per line-fit aircraft, with up to an additional $250 thousand in potential optional IFEC content per aircraft.