Astronics Corporation Reports 2020 Fourth Quarter and Full Year Financial Results

  • Fourth quarter sales of $114.8 million; full year sales of $502.6 million
  • Fourth quarter pre-tax loss of $7.5 million and net loss of $20.0 million due to the non-cash reserve of $14.1 million against deferred tax assets
  • Fourth quarter Adjusted EBITDA* was $2.9 million
  • Fourth quarter bookings were $116.0 million, demonstrating sequential improvement
  • Backlog at end of the year was $283.4 million

*Adjusted EBITDA is a Non-GAAP Performance Measure. Please see the attached table for a reconciliation of Adjusted EBITDA to GAAP net income/(loss).

EAST AURORA, N.Y.–(BUSINESS WIRE)–Astronics Corporation (Nasdaq: ATRO) (“Astronics” or the “Company”), a leading supplier of advanced technologies and products to the global aerospace, defense and other mission critical industries, today reported financial results for the three and twelve months ended December 31, 2020.

Peter J. Gundermann, President and Chief Executive Officer, commented, “Even while the commercial aerospace industry continues to be challenged, there was some good news in the quarter.

  • We had sequential improvement in Aerospace bookings.
  • We were cash positive in the quarter, generating $5.8 million in cash from operations reflecting the impact of our restructuring efforts.
  • We had strong Test bookings driven by the transit test order from Stadler Rail for the Metro Atlanta Rapid Transit Authority (MARTA).
  • The 737 MAX was recertified to fly in the U.S. in late December, which is important as the MAX was our biggest OEM production program before the pandemic.

Perhaps the best news from the quarter was the initial approval of multiple effective COVID-19 vaccines, which we expect will result in increased demand for air travel later in 2021. To this end, we are seeing positive signs that demand is picking up in our aerospace business, though conditions currently remain depressed. In the meantime, we are carefully managing our cost structure, pursuing new opportunities and advancing development programs for our customers.”

Fourth Quarter and 2020 Summary and Review of Demand by Major Markets

Fourth quarter revenue was $114.8 million, down 42.1% from the comparator period of 2019, but up 7.8% sequentially from the third quarter. The Company incurred a pre-tax loss of $7.5 million. The Company’s net loss of $20.0 million included a $14.1 million non-cash tax expense reflecting a reserve recorded against its deferred tax assets. Adjusted EBITDA was $2.9 million, or 2.5% of sales, up $3.0 million sequentially from the third quarter of 2020.

Revenue in 2020 was $502.6 million, down 35% compared with 2019 as a direct result of the global pandemic. Net loss for the year was $115.8 million while Adjusted EBITDA was $28.8 million as the Company rapidly adjusted to the new environment by aggressively adjusting its cost structure to changes in demand.

The Company evaluates three revenue streams to monitor demand and analyze the impact of the pandemic to its business. These are (1) the commercial aircraft market, which includes OEM line fit and airline aftermarket business, (2) defense and other government markets, and (3) general aviation.

  • Commercial aerospace has been heavily impacted by the pandemic and was about $263 million of 2020 revenue, or 52% of total revenue, down nearly 50%. Aircraft build rates are expected to improve modestly during 2021 from current levels as production of the 737 MAX picks up. The aftermarket is expected to strengthen over the course of the year as aircraft utilization and load factors increase.
  • Defense and government markets, which were about 30% of 2020 revenue, have remained relatively strong through the pandemic, totaling approximately $149 million. This includes our military aircraft programs and the majority of our Test business.
  • General aviation demand contracted about 11% to approximately $60 million, or 12% of revenue. Most of our general aviation revenue is line fit driven by the manufacture of new aircraft, although there is some amount of aftermarket business as well. New build rates for business jet aircraft are expected to improve in 2021 from current levels.
  • Other revenue was $27 million in 2020, about 5% of revenue, and was up about 10% over 2019.

Peter J. Gundermann stated, “We are glad to put 2020 behind us. The pandemic hit our core aerospace business hard early in the year, but our team demonstrated resilience and flexibility in the midst of very trying times. We enacted protocols to protect our employees and dramatically reduced our cost structure. Though we continue to be heavily impacted by difficult conditions in the commercial aerospace industry, we are prepared for the recovery and look forward to improved market conditions as the vaccines take hold and demand returns to our industry.”

Liquidity and Financing

On May 4, 2020, the Company executed an amendment to the credit agreement (the “amended facility”) which reduced the revolving credit line from $500 million to $375 million with an option to increase the line by up to $150 million. The amended facility suspends the application of the maximum net leverage ratio covenant up through and including the second quarter of 2021. The maximum net leverage ratio on a trailing twelve-month basis will be 6.00 to 1 for the third quarter of 2021, 5.50 to 1 for the fourth quarter of 2021, 4.50 to 1 for the first quarter of 2022, and return to 3.75 to 1 in the second quarter of 2022 and thereafter. At the end of 2020, the Company had $173.0 million drawn on the facility, with net debt of $132.6 million.

Other financial covenants include that through the second quarter of 2021, the Company is required to maintain a minimum interest coverage ratio of 1.75x on a quarterly basis, except for the first quarter of 2021, which is set at 1.50x. In addition, through the third quarter of 2021, the Company must maintain minimum liquidity, defined as unrestricted cash plus the unused revolving credit commitments, of $180 million at all times. The amended facility also temporarily restricts certain activities, including acquisitions and share repurchases, and requires mandatory prepayments during the suspension period when the Company’s cash balance exceeds $100 million.

Year-to-date cash flow from operations totaled $37.3 million. Operating cash flows were used primarily to reduce long-term debt by $15 million during 2020. The Company was compliant with its debt covenants as of the end of the fourth quarter.

In February 2021, the Company was notified by the acquirer of its semiconductor business, which was sold in February 2019, that $10.7 million is payable to the Company for earnouts related to 2020. The Company is currently reviewing the calculations and underlying data and expects to record the additional gain on the sale in the first quarter of 2021 when that review is complete.

David C. Burney, Chief Financial Officer, commented, “Given our forecast expectations, and the structure of our revised lending agreement, combined with earnouts from the sale of the semiconductor business, we expect to have sufficient liquidity to operate through the COVID-19 pandemic and its economic impacts. We expect to remain compliant with our debt covenants through 2021 based on our current outlook.”

Consolidated Review

 

Three Months Ended

 

Year Ended

($ in thousands)

December

31, 2020

December

31, 2019

% Change

 

December

31, 2020

December

31, 2019

% Change

 

 

 

 

 

 

 

 

Sales

$

114,803

 

 

$

198,412

 

 

(42.1

)

%

 

$

502,587

 

 

$

772,702

 

(35.0

)

%

(Loss) Income from Operations

$

(5,469

)

 

$

(36,856

)

 

(85.2

)

%

 

$

(100,701

)

 

$

1,701

 

(6,020.1

)

%

Operating Margin %

(4.8

)

%

(18.6

)

%

 

 

(20.0

)

%

0.2

%

 

Net Gain on Sale of Businesses

$

 

 

$

 

 

 

 

$

 

 

$

78,801

 

 

Net (Loss) Income

$

(19,985

)

 

$

(34,065

)

 

(41.3

)

%

 

$

(115,781

)

 

$

52,017

 

(322.6

)

%

Net (Loss) Income %

(17.4

)

%

(17.2

)

%

 

 

(23.0

)

%

6.7

%

 

 

 

 

 

 

 

 

 

*Adjusted EBITDA

$

2,897

 

 

$

19,804

 

 

(85.4

)

%

 

$

28,762

 

 

$

88,315

 

(67.4

)

%

*Adjusted EBITDA Margin %

2.5

 

%

10.0

 

%

 

 

5.7

 

%

11.4

%

 

*Adjusted EBITDA is a Non-GAAP Performance Measure. Please see the attached table for a reconciliation of Adjusted EBITDA to GAAP net income.

Fourth Quarter 2020 Results (compared with the prior-year period, unless noted otherwise)

Consolidated sales were down $83.6 million compared with the fourth quarter of 2019. Aerospace sales were down $80.3 million. Test System sales decreased $3.3 million.

Consolidated operating loss was $5.5 million, compared with operating loss of $36.9 million in the prior-year period. The loss in 2020 was due to low volume related to the continued pause of production of the 737 MAX and the impacts of the COVID-19 pandemic on the global aerospace industry. Operating loss in the prior year’s fourth quarter were impacted by an increase to the legal reserve of $17.9 million for a long-outstanding patent dispute and $28.8 million of impairment and restructuring charges related to the refocusing of our antenna business.

Income tax expense in the fourth quarter reflects a $14.1 million non-cash valuation allowance against federal deferred tax assets.

Bookings were $116.0 million, for a book-to-bill ratio of 1.01:1. Backlog at the end of the quarter was $283.4 million. Approximately $216.9 million of backlog is expected to ship in 2021.

Full Year 2020 Results (compared with the prior-year period, unless noted otherwise)

Consolidated sales were down $270.1 million to $502.6 million compared with the prior year. Aerospace sales were down $274.6 million. Test System sales increased $4.5 million.

Consolidated operating loss was $100.7 million, reflecting non-cash impairment charges of $87.0 million in the Aerospace segment, restructuring-related severance charges of $5.3 million, primarily in the Aerospace segment, and lower sales volumes compared with the prior-year period. Impairment charges were recognized in the current year as a result of reduced expectations of future operating results due to the COVID-19 pandemic, which has significantly impacted the global aerospace industry. During the first quarter, the Company recognized full impairments of the goodwill of Astronics Connectivity Systems and Certification (“CSC”), PGA and Custom Control Concepts (“CCC”) reporting units, and a partial impairment of the goodwill of the PECO reporting unit. During the second quarter of 2020, an additional partial impairment of the PECO reporting unit was recorded. No impairment charges were recorded in the third or fourth quarters of 2020.

The effective tax rate for 2020 was (3.0)%, compared with 23.8% in 2019. The effective tax rate in 2020 was impacted by the previously discussed valuation allowance on federal deferred tax assets, which was $21.5 million for the full year, as well as permanently non-deductible goodwill impairments.

Consolidated net loss was $115.8 million, or $(3.76) per diluted share, compared with net income of $52.0 million, or $1.60 per diluted share in the prior year. The after-tax impact of the impairment loss in 2020 was $81.4 million, or $(2.64) per diluted share. The $80.1 million pre-tax gain on the sale of the semiconductor test business in contributed $60.4 million to net income after taxes in 2019.

Consolidated Adjusted EBITDA was $28.8 million, or 5.7% of consolidated sales, compared with $88.3 million, or 11.4% of consolidated sales, in the prior year.

Prior year consolidated Adjusted EBITDA was negatively impacted by $20.1 million of charges associated with the restructuring activities, including severance; goodwill and asset impairment charges of $11.1 million; increased legal reserves for the long-term patent dispute of $19.6 million; and an equity investment impairment of $5.0 million.

Aerospace Segment Review (refer to sales by market and segment data in accompanying tables)

Aerospace Fourth Quarter 2020 Results (compared with the prior-year period, unless noted otherwise)

Aerospace segment sales decreased $80.3 million, or 46.7%, to $91.8 million. Sales were negatively affected by the continued grounding of the 737 MAX, overall lower build rates for commercial transport and general aviation aircraft and a weak commercial aircraft aftermarket as the airlines reduced spending due to the global COVID-19 pandemic.

Aerospace segment operating loss for the fourth quarter of 2020 was $3.3 million compared with operating loss of $32.3 million in the same period of 2019. Under-absorption of fixed costs due to lower sales drove the operating loss in 2020. In 2019, Aerospace operating profit was impacted by increased legal reserves for a long-term patent dispute of $17.9 million and $28.8 million of impairment and restructuring charges related to the refocusing of our antenna business.

Aerospace bookings in the fourth quarter of 2020 improved sequentially to $74.1 million, for a book-to-bill ratio of 0.81. Backlog was $191.1 million at the end of the fourth quarter of 2020 compared with backlog of $275.8 million at the end of the fourth quarter of 2019.

Aerospace Full Year Results

Aerospace segment sales decreased by $274.6 million, or 39.7%, to $418.0 million, when compared with 2019. Sales were negatively affected for the same reasons noted for the quarter.

Aerospace operating loss for 2020 was $89.8 million compared with operating income of $16.7 million, or 2.4% of sales, in the same period of 2019. Aerospace 2020 operating profit was impacted by impairment charges of $87.0 million, of which $86.3 million was related to goodwill, as previously discussed. Restructuring-related severance charges of $5.3 million and leverage lost on reduced sales also significantly impacted operating results.

Test Systems Segment Review (refer to sales by market and segment data in accompanying tables)

Test Systems Fourth Quarter Results

Test Systems segment sales in the fourth quarter were $23.0 million, down $3.3 million compared with the prior-year period.

Test Systems operating profit was $1.3 million, or 5.6% of sales, up from $0.3 million, or 1.2% of sales, in last year’s fourth quarter.

Bookings for the Test Systems segment in the quarter were $41.9 million, for a book-to-bill ratio, excluding semiconductor activity, of 1.83:1 for the quarter. Backlog was $92.3 million at the end of 2020 compared with backlog of $83.8 million at the end of 2019.

Test Systems Full Year Results

Test Systems Segment sales were $84.6 million, up $4.5 million compared with the prior year. Acquisitions completed in July 2019 and October 2019 contributed an incremental $6.2 million in sales. Sales related to the Semiconductor business, which was sold in early 2019, decreased $6.2 million.

Test Systems operating profit was $5.5 million, or 6.6% of sales, compared with operating profit of $4.5 million, or 5.6% of sales, in 2019. Operating profit in the prior-year period was impacted by restructuring-related severance charges of $2.0 million.

Mr. Gundermann commented, “Our Test business had a good year in 2020, benefiting from strong government and defense spending. The business made strides integrating two 2019 acquisitions and won a couple of significant awards in the emerging transit test market, which we believe promises to be important for our future. The table is set for these trends to continue in 2021 and for Test to have another solid year.”

Outlook

Mr. Gundermann commented, “While it is difficult to provide guidance for all of 2021 given the ongoing pandemic, we do expect that customer demand in the first half of 2021 will be similar to that of the second half of 2020. The year will start slowly, however, with first quarter sales of about $100 million. We expect conditions to strengthen through the year. We expect we will manage the business to generate cash that we will use to reduce debt. We believe we are well-positioned for the future, and we expect to do well when market conditions rebound.”

Capital expenditures for 2021 are expected to be approximately $10 million to $11 million up from $7.5 million in 2020 due to investments in customer programs.

Fourth Quarter 2020 Webcast and Conference Call

The Company will host a teleconference today at 11:00 a.m. ET. During the teleconference, management will review the financial and operating results for the period and discuss Astronics’ corporate strategy and outlook. A question-and-answer session will follow.

The Astronics conference call can be accessed by calling 201.493.6784. The listen-only audio webcast can be monitored at www.astronics.com. To listen to the archived call, dial 412.317.6671 and enter replay pin number 13715117. The telephonic replay will be available from 2:00 p.m. on the day of the call through Tuesday, March 2, 2021. A transcript of the call will also be posted to the Company’s Web site once available.

About Astronics Corporation

Astronics Corporation (Nasdaq: ATRO) serves the world’s aerospace, defense, and other mission critical industries with proven, innovative technology solutions. Astronics works side-by-side with customers, integrating its array of power, connectivity, lighting, structures, interiors, and test technologies to solve complex challenges. For over 50 years, Astronics has delivered creative, customer-focused solutions with exceptional responsiveness. Today, global airframe manufacturers, airlines, military branches, completion centers, and Fortune 500 companies rely on the collaborative spirit and innovation of Astronics. The Company’s strategy is to increase its value by developing technologies and capabilities that provide innovative solutions to its targeted markets.

For more information on Astronics and its products, visit its Web site at www.astronics.com.

Safe Harbor Statement

This news release contains forward-looking statements as defined by the Securities Exchange Act of 1934. One can identify these forward-looking statements by the use of the words “expect,” “anticipate,” “plan,” “may,” “will,” “estimate” or other similar expressions and include all statements with regard to the impact of COVID-19 on the Company and its future, reaching any revenue or Adjusted EBITDA margin expectations, being cash positive in 2021, the recovery of the commercial aerospace market, the opportunities to leverage capabilities in other markets and the outcome of demand streams or expectations of demand by customers and markets. Because such statements apply to future events, they are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by the statements. Important factors that could cause actual results to differ materially from what may be stated here include the impact of the global outbreak of COVID-19 and governmental and other actions taken in response, trend in growth with passenger power and connectivity on airplanes, the state of the aerospace and defense industries, the market acceptance of newly developed products, internal production capabilities, the timing of orders received, the status of customer certification processes and delivery schedules, the demand for and market acceptance of new or existing aircraft which contain the Company’s products, the need for new and advanced test and simulation equipment, customer preferences and relationships, and other factors which are described in filings by Astronics with the Securities and Exchange Commission. The Company assumes no obligation to update forward-looking information in this news release whether to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial conditions or prospects, or otherwise.

FINANCIAL TABLES FOLLOW

ASTRONICS CORPORATION

CONSOLIDATED INCOME STATEMENT DATA

(Unaudited, $ in thousands except per share data)

 

 

 

 

Three Months Ended

 

Year Ended

 

12/31/2020

12/31/2019

 

12/31/2020

12/31/2019

Sales

$

114,803

 

 

$

198,412

 

 

 

$

502,587

 

 

$

772,702

 

Cost of products sold1

95,685

 

 

171,504

 

 

 

405,744

 

 

616,560

 

Gross profit

19,118

 

 

26,908

 

 

 

96,843

 

 

156,142

 

Gross margin

16.7

 

%

13.6

 

%

 

19.3

 

%

20.2

%

 

 

 

 

 

 

Selling, general and administrative2

24,587

 

 

52,681

 

 

 

110,528

 

 

143,358

 

SG&A % of sales

21.4

 

%

26.6

 

%

 

22.0

 

%

18.6

%

Impairment Loss3

 

 

11,083

 

 

 

87,016

 

 

11,083

 

(Loss) Income from operations

(5,469

)

 

(36,856

)

 

 

(100,701

)

 

1,701

 

Operating margin

(4.8

)

%

(18.6

)

%

 

(20.0

)

%

0.2

%

 

 

 

 

 

 

Net gain on sale of businesses

 

 

 

 

 

 

 

78,801

 

Other expense, net of other income4

422

 

 

4,861

 

 

 

4,968

 

 

6,058

 

Interest expense, net

1,650

 

 

1,565

 

 

 

6,741

 

 

6,141

 

(Loss) Income before tax

(7,541

)

 

(43,282

)

 

 

(112,410

)

 

68,303

 

Income tax expense (benefit)

12,444

 

 

(9,217

)

 

 

3,371

 

 

16,286

 

Net (Loss) Income

$

(19,985

)

 

$

(34,065

)

 

 

$

(115,781

)

 

$

52,017

 

Net (Loss) Income % of sales

(17.4

)

%

(17.2

)

%

 

(23.0

)

%

6.7

%

 

 

 

 

 

 

 

 

 

 

 

 

Basic (loss) earnings per share:

$

(0.65

)

 

$

(1.10

)

 

 

$

(3.76

)

 

$

1.62

 

Diluted (loss) earnings per share:

$

(0.65

)

 

$

(1.10

)

 

 

$

(3.76

)

 

$

1.60

 

 

 

 

 

 

 

Weighted average diluted shares outstanding (in thousands)

30,837

 

 

30,919

 

 

 

30,795

 

 

32,459

 

 

 

 

 

 

 

Capital expenditures

$

1,884

 

 

$

3,233

 

 

 

$

7,459

 

 

$

12,083

 

Depreciation and amortization

$

7,759

 

 

$

8,866

 

 

 

$

31,854

 

 

$

33,049

 

______________________________________________________________________________________________________

1Cost of goods sold for the three months and year ended December 31, 2019 includes impairment and restructuring charges related to the antenna business of $15.4 million in both periods.

2Selling, general and administrative expense for the three months and year ended December 31, 2019 includes legal reserves for the patent infringement matter of $17.9 million and $19.6 million, respectively, and impairment and restructuring charges related to the antenna business of $2.4 million in both periods.

3Impairment loss primarily represents the goodwill impairment charges incurred in the Aerospace segment. In the first quarter of 2020, full impairment charges were recorded for goodwill associated to the CSC, PGA and CCC reporting units, and a partial goodwill impairment charge was recognized for the PECO reporting unit. In the second quarter of 2020, an additional partial goodwill impairment charge was recorded for the PECO reporting unit. Total goodwill impairment charges were $73.7 million and $12.6 million in the first and second quarters of 2020, respectively. Impairment loss in the three months and year ended December 31, 2019 represents the impairment of fixed assets, intangible assets, goodwill and other non-current assets associated with the antenna business restructuring.

4Other expense, net of other income, is primarily comprised of an equity investment impairment of $3.6 million in the year ended December 31, 2020. For the three months and year ended December 31, 2019 includes impairment of an equity investment related to the antenna business of $5.0 million.

ASTRONICS CORPORATION

SEGMENT DATA

(Unaudited, $ in thousands)

 

 

 

 

 

 

 

Three Months Ended

 

Year Ended

 

12/31/2020

12/31/2019

 

12/31/2020

12/31/2019

Sales

 

 

 

 

 

Aerospace

$

91,797

 

 

$

172,119

 

 

 

$

418,079

 

 

$

692,614

 

 

Less Inter-segment

 

 

 

 

 

(91

)

 

(5

)

 

Total Aerospace

91,797

 

 

172,119

 

 

 

417,988

 

 

692,609

 

 

 

 

 

 

 

 

Test Systems

23,198

 

 

26,500

 

 

 

85,589

 

 

80,495

 

 

Less Inter-segment

(192

)

 

(207

)

 

 

(990

)

 

(402

)

 

Total Test Systems

23,006

 

 

26,293

 

 

 

84,599

 

 

80,093

 

 

 

 

 

 

 

 

Total consolidated sales

114,803

 

 

198,412

 

 

 

502,587

 

 

772,702

 

 

 

 

 

 

 

 

Segment operating (loss) profit and margins

 

 

 

 

 

Aerospace

(3,266

)

 

(32,292

)

 

 

(89,833

)

 

16,657

 

 

 

(3.6

)

%

(18.8

)

%

 

(21.5

)

%

2.4

 

%

Test Systems

1,279

 

 

328

 

 

 

5,549

 

 

4,494

 

 

 

5.6

 

%

1.2

 

%

 

6.6

 

%

5.6

 

%

Total segment operating (loss) profit

(1,987

)

 

(31,964

)

 

 

(84,284

)

 

21,151

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gain on sales of businesses

 

 

 

 

 

 

 

78,801

 

 

Interest expense

1,650

 

 

1,565

 

 

 

6,741

 

 

6,141

 

 

Corporate expenses and other

3,904

 

 

9,753

 

 

 

21,385

 

 

25,508

 

 

(Loss) Income before taxes

$

(7,541

)

 

$

(43,282

)

 

 

$

(112,410

)

 

$

68,303

 

 

Contacts

Company:

David C. Burney, Chief Financial Officer

Phone: (716) 805-1599, ext. 159

Email: david.burney@astronics.com

Investor Relations:

Deborah K. Pawlowski, Kei Advisors LLC

Phone: (716) 843-3908

Email: dpawlowski@keiadvisors.com

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