Air Industries Group (AIRI) 2024 Q1 法說會逐字稿

Hello, and welcome to the Air Industries Group first quarter 2024 earnings conference call. (Operator Instructions) Please note this conference is being recorded. This call and the accompanying webcast may contain forward-looking statements as defined in Section 27 A 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 are 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 forward-looking statements. In light of these risks and uncertainties, there can be no assurance that the forward-looking information will prove to be accurate. This call does not constitute an offer to purchase any securities nor a solicitation of a proxy, consent, authorization or agent designation with respect to a meeting of the company's shareholders.

At this time, I would now like to turn the call over to Lou Melluzzo, President and CEO. Please go ahead, sir.

Thank you, Shamali. Thank, everyone, for joining us today. The first quarter of 2024, saw revenue growth as compared to the first quarter of last year. As well as compared to revenues we achieved during the fourth quarter of 2023. More importantly, the strong order and opportunity flow we experienced during the fourth quarter of last year continues and remains strong.

We achieved bookings of $12.95 million and our backlog increased to $99.3 million. Our quarterly book-to-bill ratio, which is simply quarterly bookings divided by quarterly net sales, was 0.92 to 1. Q2 has started strong with new activity, and although timing is always difficult to predict given the opportunities we see. I believe that our annual book-to-bill ratio in fiscal 2024 will continue to exceed the industry standards of 1.2 to 1.

After the market closed today, we announced an $8.2 million quarter for Black Hawk and H-92 components. Our funded backlog of $99.3 million represents the net future sales we expect to realize from funded orders we have already received. This funded orders issued by our customers come from long-term agreements, spot buys and other contracts.

It is important to understand that our backlog does not include what I sometimes referred to as unfunded orders. Unfunded orders represent future orders possible under existing long-term agreements and other contracts. When you take a step back, the total value of contracts awarded to us as of March 31, 2024, including our $99.3 million of funded backlog was $179.1 million.

$179.1 million amount provide some multiyear visibility into our future revenue and validates that key partnerships we have with our customers. Importantly, as I mentioned earlier, we remain laser focused on several large opportunities we eventually expect to close. All in all, I am confident that fiscal 2024 will be a year of growth.

Now let me turn the call over to Scott, who will discuss our Q1 results. I'll be back to add some closing commentary and a bit more specifics on our 2024 outlook before opening it up to questions and answers. Scott, you may proceed.

Thanks, Lou. As Lou mentioned, we remain confident that fiscal 2024 will be a year of growth. Let me discuss our results. Consolidated net sales for the first quarter ended March 31, 2024, were $14 million. This was higher than the $12.5 million we achieved in Q1 of 2023. And in fact, it was even higher than the $13.5 million we achieved in the fourth quarter of 2023. Although I caution everyone not to annualize any particular quarter's results. This quarter sales level shows you a sense of our current production capabilities at our current staffing levels.

Gross profit as a percentage of sales in Q1 2024 was 13.6% as compared to the 15% we achieved in Q1 of 2023. It was lower than that than what we have achieved in Q4 2023, which was 16%. This quarter, our gross margins were impacted by several new products. We also experienced some hiccups in our Connecticut manufacturing facility, specifically incurring lower than expected hours. However, I am confident that gross margin will improve later in the year as we refine our operations and accelerate our products.

Operating expenses in Q1 2024 were $2.2 million or 15.4% of sales. When compared to Q1 2023, these metrics were very similar. Our Q1 2024 operating loss, largely driven by the lower gross profit was $259,000 compared to a Q1 2023 loss of $158,000. Interest expense in Q1 2024 was $462,000, down slightly as compared to the $476,000 in Q1 of 2023.

Finally, on the bottom line, net loss was $706,000 for the quarter compared to Q1 2023 loss of $618,000. With respect to adjusted EBITDA, we generated $362,000 in 2024 compared to $578,000 in 2023. A detailed reconciliation of this non-GAAP financial metric is included in our press release that was issued last evening.

And now let me quickly highlight a few items on the balance sheet. We finished the quarter with $225,000 of cash. Our debt level was approximately $23,936,000, a slight increase from Q4 of 2024. As of March 31, 2024, we unfortunately did not meet our fixed coverage charge ratio in our credit facility was Webster Bank.

However, we did make all required principal payments pursuant to the terms of the credit facility, and we are working with Webster to obtain adjusted or new financing that better meet our operating requirements. Accounts receivable at quarter end was $8 million and inventory was $29.3 million. Both amounts are very similar to how we finished Q4 of 2023.

And with that, I will turn the call back to Lou for some closing remarks and update on our 2024 business outlook. Lou?

Thank you, Scott. Let me provide some additional color on the challenges with gross profit in Q1. During Q1, we began initial production on a number of new programs from new customers at the same time. Gross margins at the development stage of a new product tend to be lower. Historically as we become more knowledgeable about how to produce a product, we reduce production time, we reduce costs and become more efficient as the product matures.

The good news is that once these products are under our belt, it's not uncommon for us to improve our production cycle times upwards of 30% to 40%. At the end of the day, I'm pleased with our Q1 performance, and I am confident that fiscal 2024 will be a year of growth. And considering all the typical disclaimers in our Form 10-Q filed with the SEC yesterday, we are still targeting the net sales for fiscal 2024 to be at least $50 million with an adjusted EBITDA in '24, better than that of 2023. As the year progresses, we intend to provide updates as appropriate.

Now let's turn the call over for the Q&A portion of the call. Shamali, can you please open up the lines.

(Operator Instructions)

Howard Halpern, Taglich Brothers.

Good afternoon, and good start to the year on --

Good afternoon, Howard.

Hi, Howaed. How are you?

Okay. So for modeling basis going forward would that operating expenses in the first quarter is that what we're going to see for a time as you continue to upgrade the information technology and cybersecurity area of the business.

So I would say that in Q1, the operating expenses will probably be -- were probably slightly higher than I anticipate for the remainder of the year. However, there are additional costs in there, as you indicated, for IT upgrades and cyber technology to make us compliant with the various things we need to be as a government contractor and just as a business in general. But I wouldn't think they would be higher than that in the future periods.

Okay. And in terms of, you talk about it was a new program that began in Q1. Now was -- is that sales going to ramp quarter-by-quarter or will there still be some fluctuations in that new program, but as you continue to deploy it, it'll help drive margins up throughout the quarters.

As Lou said, as production matures, typically our cycle time to reduce and that would, of course, lead to a higher margin. I believe that we will see that as that as time progresses. Lou, would you care to add any more color to that?

Absolutely. Howard as you know, and we've been saying all along, we've been on a real up new business development quest the last 12 to 16 months. We've been successful at bringing in new product and from new clients. So what's happening is some of this material and I think we're all aware of it has nine months a year, year and a half lead time. It all showed up at the same time. So we've got we had several projects that we initiated all at one time.

And we expect to be shipping this product throughout the course of the year. And some of these are LTAs that go on beyond this year and they'll go out three to five, seven years. So we'll start seeing some gains from the product that we have developed in Q1 and the end of last year as well.

Okay. And we will from time to time, I guess, see some fluctuations based on if it's a new programs, there will be some start-up always and then ramp to follow on some of the new programs that you will be engaged in?

That's correct.

That is absolutely correct.

Okay. And as of now, the raw materials issue seems like it's pretty much behind?

Most of our products, especially the important ones that really causes us some aggravation in 2023, it seems like that's mostly beyond us. I mean, we're still managing it day-to-day, but we're getting material in on -- and I have more material in house so far this year than I had all last year. So that's a very -- that's a positive trend to stop. You can't predict the future, but we're hopeful that it continues.

Yes, indeed. And what are you seeing from your customers that you're producing for and potential new customers spending? Their goal is to they have budgets to deploy capital?

Well, it seems like the government of direct -- we're seeing a lot more activity from the government than we saw in the last couple of years. Since COVID hit, government spending was more allocated for stuff that we don't get involved with, space and stuff that just was outside of our forte. But it just seems like now there's a lot more opportunities for spares on programs that we do get involved with. So we're seeing an uptick in that.

We are [week a week] brought in several new customers that are potentially make up 30%, 40% of our business. So we're going through the curve of producing product and developing product right now, but it seemed commercial. We are we produced a strategic plan that was presented at the at the end of last year to our Board. And so we're following that plan to a [tee]. And that plan had us -- as you're well aware, we're predominantly military. And 85%, 90% of our revenue comes from military programs. (multiple speakers) during the COVID years there was no such thing as a commercial. But commercial have started to make a comeback, as we're pursuing that pretty heavily as well because there's work to be had there.

Okay. And just one last one. How is the move or the progression to the submarine business going.

Slowly, but surely. It's new to us. So materials react differently than the aerospace materials than we -- that we are accustomed to. It's all about proper development. When you're cutting tolerant just as tight as we produce, the way you address apart and speed, there's a litany of things that you just have to trying to see how the materials react. It's moving along, it's not going as fast as I would like it to go, but it is moving along.

Okay. Thanks and keep up the great work.

Thank you for your call, Howard.

Thanks, Howard.

Thank you. And we have reached the end of the question-and-answer session, and I'll turn the call back over to Lou Melluzzo, for closing remarks.

Thank you, Shamali. Thank you, everybody, for being on the call today and for your interest in Air Industries Group. We look forward to updating you on our progress on the next call. Shamali, at this point you may conclude the call.

(inaudible) ladies and gentlemen, this concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.