Astronics Corp (ATRO) 2010 Q2 法說會逐字稿

Greetings and welcome to the Astronics Corporation's second-quarter 2010 financial results conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Deborah Pawlowski, Investor Relations for Astronics Corporation. Thank you. Ms. Pawlowski, you may begin.

Thank you, Latonya and good morning, everyone. We appreciate your time and interest in Astronics.

On the call with me today is Pete Gundermann, President and CEO of Astronics, and Dave Burney, Chief Financial Officer. They will be covering the results, outlook, and prospects of the Company on the call, and then we'll follow with a question-and-answer period. If you do not have the release that went out this morning, it is available on the Company's website at www.Astronics.com.

As you are aware, we may make some forward-looking statements during the formal presentation and the question-and-answer portion of this teleconference. These statements apply to future events, which are subject to risks and uncertainties as well as other factors that could cause the actual results to differ materially from where we are today. These factors are outlined in our earnings release as well as in documents filed by the Company with the Securities and Exchange Commission, which can be found at our website or SEC.gov.

So with that, let me turn it over to Peter to start the discussion. Peter?

Thank you, and good morning, everybody. Thanks for tuning in to our Q2 conference call here. Long story short, in my opinion, our second quarter was another positive quarter for the Company, and overall, we saw a continuation of trends that had established themselves in the first quarter. In that sense, there isn't a whole lot of news to report that's new, but overall, we think it's a very positive picture and we're pretty pleased with our first half for 2010.

For the quarter, we saw a revenue of $47.1 million, about the same as our second quarter of 2009. 93% of our sales are from our Aerospace segment, which was perhaps our strongest quarter ever, except for the fourth quarter of 2008, where we had $44 million in sales. Our Test Systems segment did 7.5% of our sales at $3.5 million. We'll review some specifics in both those segments in a minute.

But for the quarter, we had consolidated net profits of $2.4 million, up from the second quarter a year ago when we were about $1.96 million. We continue to see the benefits of substantial cost reductions across the Company from the early part of 2009.

Like in the first quarter, we saw really good bookings in the second quarter -- consolidated bookings of $51.6 million, up from the second quarter of last year, where we had bookings of $40.8 million -- we had a book to bill ratio of 1.1 in the second quarter and that follows first-quarter book to bill of 1.16. So perhaps the best news, in addition to the financial results over the first half, is that bookings have been, I think, for the year, up 13% above shipments. And that's a comfortable range. We like to see bookings in that 10% to 15% range, which is a manageable increase in volume for the future.

For the first half, we have seen revenues of $94 million, which is down slightly from the first half of 2009 when we saw a revenue of $97 million. Again, for the year, we're 92% Aerospace and 8% Test Systems. On $94 million in revenue, we've seen net income of $5.8 million, which is up substantially from 74% from the first half of 2009, when we saw consolidated net income of $3.4 million.

Again, we've seen some pretty strong operating efficiencies established across the Company from the beginning of 2009. There are a lot of little things that end up having a pretty good cumulative result, but perhaps the best metric to demonstrate that is that we're down headcount-wise about 20% over where we were last year. We're about 1,000 people across the Company right now. We were about 1,200 in the first half of 2009, on pretty comparable sales levels.

With those financial results, we're maintaining our investment in engineering and development, $14.2 million year-to-date. Our cash flow is pretty healthy. We've got cash on hand at the end of the quarter of $16.4 million and available room on our credit facility of $35 million. We feel we're pretty comfortably capitalized for our current situation.

And again, bookings year-to-date, $105.9 million, which is up -- it's almost silly to do this comparison, but we're up 48% from the first half of 2009, when bookings were $71.5 million. Obviously, in those numbers there's some strength in the current period and the current half-year, and some real, real weakness in the first half of last year -- that feels like a world ago, at this point -- but in the first half of last year, a lot of us in the aerospace industry were wondering just how bad this was going to get.

In terms of the sectors, our Aerospace segment is providing most of our revenue and all of our profits; revenues of $86.8 million, again, 92% of total and all the margins.

Looking at our Products, hence, and Market segments, our cabin electronics and commercial transport sales are showing a lot of strength. And I'm referring to the charts, at this point, on page 7 of our press release. For the six months ended, commercial transport sales were $52.3 million, which was about 55% of our total sales and up 18% over where we were in the first half of last year. That's, obviously, a very strong performance.

Our military sales are 19% of our total and down a little bit from last year, primarily due to the conclusion of the Tactical Tomahawk Cruz Missile Program that we had, or at least a temporary conclusion of that program. Business jet sales have stabilized, it appears, at about 13% of our consolidated sales and we have 5% going to BFA directly or to airports for airfield lighting.

Our outlook in aerospace continues to be pretty positive. We had bookings in the first half of $97 million, easily exceeding our revenues of $87 million. And in general trends that have been apparent for awhile now, continue to be selling themselves. The commercial transport business really worldwide continues to show strength.

We continue to believe that the US mergers are going to be helpful, both for the industry and for us in particular, the way some of those are shaping up. Business jet traffic is rebounding pretty well, even though production rates at the manufacturers are still a little -- quite depressed compared to where they were a couple years ago, but they're at least stable.

And most importantly, we're seeing the resumption of development programs. We're having pretty strong quoting activity. Although we haven't had significant things to announce, we are pleased with how the attention that we're getting from various manufacturers around the world on new programs that they're developing, or upgrades to existing programs.

As far as our Test Systems segment, revenues were $3.5 million, 7.5% of total, down from $8.8 million a year ago. We are not profitable at that level. Bookings are not quite where we want them, but we are seeing some signs of improvement. We've had bookings of $5.4 million in the most recent quarter, which is second highest in the six quarters that we've been associated with that company, and our third quarter of improvement. So you've got to look for good news where it is.

We are forecasting a continuing increase in bookings there, which I'll talk about in a little more detail when we get into our outlook section in just a second.

We continue to see pretty strong quoting activity, and it's one of those situations where we're planting a lot of seeds. And we're planting them in various places. We believe that if the right conditions happen and if we win some programs, that those seeds will spread into something pretty good. And that's what we're working towards.

So that all being said, we are updating our revenue guidance for 2010. We originally came out with a revenue forecast of $170 million to $190 million. We're tightening and raising that forecast to $185 million to $195 million. We're expecting Aerospace to make up $165 million to $170 million. We're expecting Test Systems to be $20 million to $25 million.

In order for Test Systems to get there, we're obviously expecting an increase in booking level in the third quarter. That will tell us whether we can get into that range. We're fairly confident we can. In fact, if you look at our revenue guidance of $185 million to $195 million, I think it's safe to say that, at this point, we don't think there's a very high probability of missing it on the low end. We think there is some probability or some chance of getting to the high end of that range or even slightly above it. But today, we're issuing revenue guidance of $185 million to $195 million.

I think that's pretty much my prepared remarks, so at the time, we would like to open it up to questions at this point.

(Operator Instructions). Bob Sullivan, Satuit Capital Management.

Thank you and good morning. Terrific quarter. I've got a couple of questions, I guess. The first one is really about your thoughts on hiring for the future. I guess it's kind of a specific Company question; also just trying to get a sense for management's thoughts about that, industry-wide, I guess.

My second question would have to do with the backlog. Your margins have been terrific and the growth in them -- probably a lot of that coming from the op efficiencies that you've gotten over the past couple of years. I'm wondering if you could comment on the margins, where you think that they can go over the next couple of quarters, and comment, if you can, on the margins that you see in the backlog. And can that help drive that margin growth as well?

And I think my third question would be -- can you kind of give us a little sense about where you think we are in this cycle for your Company and your products? Are we in the first inning, second inning, third inning kind of thing? And I'll take my questions and I'll jump back into queue. Thank you.

Sure. Well, those are pretty broad questions. As far as hiring goes, I think our attitude is that we're continually looking or good people when we can find them, especially in our -- what I'd call our real high value-added jobs. We have continuing efforts underway. And kind of regardless of what our short-term prospects are, when we find the right people for right positions, we try to go get those people.

More generally, in terms of our employment level, comparing our current headcount to where we were a year ago, is in some respects unfair; because a year ago, we were on the tail end of a boom cycle that caught -- the end of that boom cycle caught everybody off guard, so to speak. We were ramping up at the request and demands of our customers. So we were hiring, hiring, hiring. And when the downfall hit, we were caught unprepared and we had to make some adjustments.

So I don't expect we're going to be going back to those days. At this point, I think our customers are more prudent and I think that we are too.

I think a 10% to 15% booking level over our shipping level I find really encouraging for right now. Maybe that growth level will pick up in a year or six months, but right now, I'm pretty pleased with that level. And I think we can largely conduct that level of business with the overall staffing level that we have.

As far as our backlog goes, we think it's pretty healthy and it strongly supports our prospects for the rest of the year.

Dave, do you want to talk through me what we have scheduled for the rest of this year in that backlog?

Oh -- (laughter).

I'll come back to Dave on that in just a second. But we keep track of our backlog and we keep track of, obviously, how much of it's scheduled to ship over the next three, six months, and we use those numbers to help support our revenue forecast.

And I would say from a margin standpoint, what you see is what you get. Our bookings reflect our current business level and our current allocation by market segments and products. So we don't expect to see any significant change in the mix that would play out in margin for the foreseeable future, which I would say is over the next six months.

Want to talk for a second?

Oh, sure. As far as our backlog, we have about $68 million of our backlog that's scheduled to ship over the third and fourth quarter of 2010. And doing the math on year-to-date sales plus that scheduled backlog leaves you with a gap of between $22 million and $32 million of orders that we need to book and ship during the third and fourth quarter, to hit our revenue targets.

And if you look historically at what our book and ship has done, that's within the range of orders that we would expect to book and ship.

Our typical lead-time on most of our products is generally about a quarter -- about 13 weeks or thereabouts, in terms of when we would receive an order and be able to turn it around -- sometimes quicker than that. So, that gets us to our comfortable range of revenue for the year that we're comfortable at -- between $185 million, $195 million, so.

Your last question had to do with where the cycle is and how we feel we fit into it -- or maybe I'm adding that to it. I think there are two slightly different answers -- or slightly different questions.

Overall, I think the cycle is pretty positive. Given how tenuous the economic environment is around the world, I'm pretty pleased with how the aerospace industry is holding up. From an OEM perspective, narrow-body production continues to be really strong -- so strong that new entrants are being drawn into it.

Wide-body prospects, I think, are really strong, given the 787 coming online soon; the demand for the A350 looks to be pretty strong. The A380 is getting some of the bugs worked out and getting into production. And we expect, as a supplier, to contribute and participate in those production runs.

The business jet world is pretty stable. It's not healthy necessarily; there's still a glut of used airplanes and those are dragging down prices for new airplanes, which is hurting the manufacturers. But from our perspective, revenue is at least staying flat in that segment, and I think that as the global economy strengthens, I think those airplanes will do well. And the military is the military. It's kind of atypical and it's continuing along on its own little trajectory.

I think with all that being said, where we are well-positioned is that we have across-the-board a product mix, which offers more value than what we had some time ago -- much more than what we had five years ago. So regardless of what the overall aerospace industry is doing, we're going to do better than that, I think, because the things that we're putting on new airplanes are much more value-added and much higher ship-side content, which should drive volume for us over and above the industry growth rate, and should drive financial results, as you work through the income statement.

So I feel a whole lot better than a year ago this time. I think probably everybody in the aerospace industry does. And I think the pieces are kind of in place for some pretty good stability as we go forward. Pretty good growth.

Great. That's great color. Thank you very much and congratulations on a great quarter.

(Operator Instructions). Scott Lewis, Lewis Capital Management.

A Test Systems question. On those bookings, were those mainly domestic military, call them legacy-type bookings? Or was there any foreign military or commercial in there?

It was mostly legacy domestic. We continue to be -- we've talked in the past about international opportunities. We're continuing to pursue those and we continue to be pretty excited about them. They're taking longer than we thought. So, we're a little bit more gun-shy about putting them in our short-term backlog. But again, if we're going to get $20 million, $25 million from that business this year after a first half of -- about $8 million, is it? Or is it --

$7.2 million.

-- $7.2 million, we're obviously going to have to see a pickup in volume. And given that we're six months into it, we should have some clarity. And we're clearly anticipating an increase in the bookings level going forward.

Okay, thanks. And then on the aerospace side, you did mention the narrow-body jet market is doing very well. Are you seeing any pickup in the amount of IFE that's going into the narrow-body? I know Panasonic came out with a new full seat or integrated seat product that could lead to something good there for you guys?

It's kind of an interesting prospect. I actually have Mark Peabody on the line, and he runs our Seattle business and has been sitting here patiently waiting for an opportunity to talk. So, Mark, do you want to handle that one?

Sure. The primary in-flight entertainment providers, which are Panasonic and Telus, have been looking at narrow-body solutions for in-flight entertainment that is more in a receipt kind of situation. And we are power providers for both those companies. So we will see an uptick in the narrow-body in the future but we're not seeing that this year.

Okay, super. And then, lastly, in the press release, there's a mention of the bizjet market and with some airframe power picking up there. And I just wanted to know what program that was. I wasn't aware that you guys were doing any bizjet airframe power at this time.

Well, the big program has to do with the development effort at Learjet on their newest airplane. And we're getting some NRE bookings for that and we're spending a lot of time -- we're actually towards the tail end of our development effort there and it's gone pretty well.

From a development standpoint, I'd also say that our technology, which really first became prominent on the Eclipse airplane and, secondarily, now on a Lear airplane, is getting a lot of play, so to speak, really around the industry, both for new airframes that are under consideration and for upgrades to existing airframes. The improvement in reliability, the reduction in weight, and just the better value -- it's just one of those technologies that's increasingly, we feel, being considered as a standard going forward. So --

So that's something on a block change, on an existing airframe that could conceivably put that in?

Right. It would have to be a block change. It's not a minor easy change, necessarily. It's one that they kind of have to redesign the central nervous system of the airplane.

Okay, great. Well, nice quarter. Thanks a lot.

Dick Ryan, Dougherty.

Pete, you mentioned the completion of the Tomahawk. It sounded like there's an opportunity for that to come back. Can you talk a little bit about that opportunity?

Sure. Mark, do you want to handle that one too?

Sure. Currently, we did a multi-year buy that ended about a year and a half ago. And we are doing some bidding on some more multi-year buys. But in the interim, between the multi-year buy, which we expect, hopefully, to see in another year or two, there are placing orders for a couple hundred units. And we actually saw that order come in last month.

And what will be the deliveries for that order?

Those couple hundred units will come mostly next year and the year after.

Just to clarify a little bit, that order Mark just talked about -- it's a little bit of a sneak preview. I think that was in July. So it wasn't reflected in the numbers we released.

But also to further that answer a little bit, what happened, Dick, usually production is tied to the OEM's production rate. For whatever reason, our contract with this Tactical Tomahawk program had an accelerated delivery schedule so that we were actually delivering product ahead of what the OEM was delivering. And so we got a little bit ahead and that contributed a little bit to the slowdown and the gap. And they're expecting to get continued orders for missiles and we're hoping to continue to be that supplier. But at this point, we don't have a contract committing us to that.

Okay, great. One clarification on the Systems business, Pete, you said, obviously, you need to see a pickup in orders in the second half of the year. Would you think that that still would be in the domestic side? International is slower, you said, but do you anticipate any orders from that this year?

We do have some international orders in there. And one of the challenges we have from that standpoint is that we continue to believe that the potential there is pretty big. Not clear whether -- what the ramp-up rate is going to be and not clear what the timing is going to be, so there's a guess on a guess, in terms of how it's going to impact our 2010 results. I think we've taken a pretty conservative view on where we're going to be from this point going forward, and -- but there's room to vary in that forecast on that part of our business.

Okay. On the commercial side, the IFE business, can you talk a little bit about that, what you saw the last quarter? How much Panasonic or Telus was, as far as significant customer and the results, and how that business looks for the remainder of the year?

I think Dave's got those numbers here.

Panasonic continues to be our largest customer, as it has for the last several years -- about 25% of our consolidated revenue in the second quarter came from Panasonic.

Okay. Thanks, guys. I'll go back in line.

Jay Weinstein, Oak Forest Investment.

What's going on at Eclipse? And the inventory that you guys had to write down when they filed, you guys have it just sitting around in a warehouse? What's going on with those assets?

We do have most of that inventory sitting around and we are selling -- I wouldn't call it a lot, but we are selling a little bit. The company has basically been taken over by the owners and their primary goal at this point is to service the existing fleet. And part of servicing the existing fleet is getting the certification of the airplane up to its originally-advertised level. And it's tough going.

It's -- yes, there are 200-some airplanes out there in the market. The value on those airplanes has plummeted. And we have some level of sales, I can't tell you it's significant; maybe a couple hundred thousand.

But the real goal for us, or what would really be great, is if somebody wanted to walk in and restart production. Given the competitive nature of the market and some of the new developments out there, especially with single-engine business jets, I don't know if we -- I don't think we're placing a whole lot of hope in that.

But we're doing what Eclipse wants us to do. We're playing the role as a service provider, so to speak. And we're working with them in terms of making sure the existing fleet maintains their worthiness. And beyond that, there's not a whole lot to report.

Okay. (multiple speakers) -- what the ownership group [was thinking].

Okay, thank you.

There are no further questions in queue at this time. I would like to turn the call back over to management for closing comments.

Okay, well, thanks again for tuning in. We felt pretty pleased with the first half and we look forward to our third quarter call when the time comes. Have a good day. Thanks for tuning in.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.