Air Industries (AIRI) 8 Aug 222022 Q2 Earnings call transcript

Good day and welcome to the Air Industries Conference Call. Today’s conference is being recorded.

Now for Air Industries' Safe Harbor statement, except for the historical information contained herein the matters discussed in this presentation contain forward-looking statements. The accuracy of these statements is subject to significant risks and uncertainties. Actual results could differ materially from those contained in the forward-looking statements. filings the XX-K company SEC important XX-Q company’s about information and the on and Forms for See related risks. items. as as to the other uses results, expenses and used finds impact charges, stock-based non-cash of is a prior working and measure amortization cash, liquidity of EBITDA non-recurring expenses because depreciation it and useful and the to understand potential excluding evaluate outlays capital sources compensation and such impact of supplemental management consideration of calculation method companies. titled This in measures used similarly differ calculation from may of by other over At Lou like this time, to I’d President turn the CEO. conference to and Melluzzo, sir. Please ahead, go

Thank you, us on joining made Anna. for progress afternoon, XXXX. Good several fronts thank second you Air the Industries and today. in everyone, of quarter

to the the XXXX most comparisons of were conditions on industry market quarter as similar. first focus me and Let

quarter of in in quarter -- the first Adjusted XX.X%. increase and versus Our the XXXX. XXXX. by sales -- the by nearly XX.X% was XXXX. of a in Gross quarter from income EBITDA nearly sequentially increased a XX.X% Operating XX% second from sequentially second dollars of $X.X sales increased of increased million, the quarter represented nearly XX.X% first sales XX.X% profit an first the quarter quarter of

delays delays our quarter in outside heightened many that processing. chain of as our the quarter a supply XXXX, detailed quarter this percentage impacting financial disruptions of receiving compared our below adjusted by versus release a progress ago, throughout in quarter sales, materials. in with delays, major further for and first were in press a The significant second businesses X.X% year, Despite quarter. in manufacturing chain As the the the EBITDA factor year compounded material sales the XXXX second today. Supply was the causing X.X% other of raw the results with of have the second first been challenges performance

nine the titanium war to Prior remain receive countries six of used largest is and of the sanctions on For to of titanium drags example, many a month the in war, in shipments to Ukraine lead suppliers the U.S. place. the were as to there two those month now in Russian time products, our

being new sources are While are alternative tapped, sources capacity. the near

in we facility with remainder our underway. So a is second Connecticut, to adding titanium the issues we qualification important these installation for subsidiary Sterling steps time our operational (ph). -- Even our be and is at of progress one the ongoing expect complete that paint with which one now capability quarter, of in the us a Engineering integration that made paint the discussed of of last is in includes, I plan year. vertical challenges, our

and delays outsourcing the assembly at process We been risk also are the strategy mitigating facility cost and we has to proceeding of the boost area in quarter. our completed. the second major sort experienced of our with Construction of Sterling

and Long drive advantages will have As process the we Sterling order. capacity while The growth our area accelerate of assembly a we advances manufacturing to the achieved our customer substantial facilitate Island, complex apply our machining on facility taking marginal for that EBITDA. new the assembly

in-house. among time, last processes are are discussed and non-destructive the to targeting testing other grinding we I’ve bring As

fact, In in three million. totaled the investment past $X our capital years, has

$X.X have year, this million. we So orders additional written purchase far for an

Our more world-class manufacture Industries equipment, to enabling plan and efficiently products to modernize Air to our continually more in is profitably. invest

ancillary the produce for Geared Lightning the Blackhawk US II In have LTAs been Turbofan. E-XD commercial into supplier equipment and Since new a variants these Geared The our the the and landing especially the landing Long is Island and platforms. XXXX, the an Sikorsky the accelerating we sales, gear $XX.X received announced, in platform for Whitney manufacturer. I and you earlier market. complete important fighter, build including warning completed strong a strength EX and won growth jets in the E-XD complete, Deliveries components aircraft Air are we install gear commercial airborne aircraft. the Advanced it we Pratt year, helicopter, addresses rates of Airbus and platforms, Lockheed As the we be Geared next Turbofan, reflects Industries Grumman is those for as our of for Hornet April the for order the and E-XD F-XX Martin this in original orders February, ready aircraft aviation our and major its for many and order, the all E-XD. Northrop we including sales mainly manufacture first million popular aircraft, Navy Hawkeye in AXXX, In year have Turbofan the half subsidiary which Tier-X decades overall. E-XD to product of which our to achieved the know, The XXXX. expect Navy's main entry to smaller for five to naval begin F-XX Embraer early

Sterling of The with agreements. Additionally, awarded components which may product an the engine, our jet mix exhaust program larger Sterling Engineering to revenue remaining $X million also long for turbine term. corporate is you PWXXXX met to Engineering, over LTA key remember a transition life expected for objectives for of excess one of into extension in LTA its case which that term was a deliver in January, to

from capability for our exceeding were year lift CH-XXK, in victory another LTA major helicopter. October, is supplier platforms, sales lift the the saw new the sea-based lift range Engineering While the five We its for not is for awarded long-time the times among providing Sterling this a past And DoD of heavy predecessor to for in heavy is other XXXX. were that in which chaff an strong in production they and deliver all pods XX and beyond. and A rotary X remain expected long is CH-XX Production is helicopter platform. CH-XXK to helicopter. of balance will It listed between this the four increase Air our half CH-XX not Industries funding a inventory platforms. growth customers. our nine in the It depending flow wing through programs Six our see vary (ph) platforms. for sales year forecasted of level to government at years of of XXXX different XXXX, lower status months on to and XXXX and the the to unusual helicopter aircrafts

normalized attended to industry normal including many of to lifted wrap Air be more Industries our tone the a should I production business taking returning upbeat, This been effort Turning ongoing of business environment shows. and Airshow is have activity. to trade about We the year challenges. and this advantage are customers been related we gain Relatively, development, cadence restrictions the face-to-face and long-term industry to this development and up is among realistic meetings medium started Farnborough found the outlook. traction. pandemic note has to that while

We have received which pipeline. over step for and now XXX process a RFQs, the active sales number requests have quotation represent in prospects of first in the

new we our activity. our markets fit example, already are For adjacent landing have also capabilities. several strategy, are with we yielded engaged RFQ gear natural that companies targeting growth Part of have that with

time. order. recently For example, a from submarine and industry growth first we our the market have hope received this dramatic We for on over nuclear focused new

to a again space major number for able have received with company. are vendor exciting to from RFQ clients Group. pursue new Air seeing activity also be is opportunities and Industries and It We meet in-person

half shifting anticipate aerospace long -- second we defense As as we growing programs look we with to remain the well. expect with we growth as better But into year, first the challenges term with of half to we demand. still growth That year stronger the be commercial the continue highly of balance continue about optimistic Air to our XXXX. the said, current than prospects and Industries serve major to the of

capital our integrating even performance processes to become our enhancing to partner investments strategic our While by as customers. making well valuable more as vertically

turn me concluding financial our Recca, Mike? which over Michael with call a will report, follow Let in the questions-and-answer for CFO some remarks. to his

Thanks Lou.

quarter we’re in Sales of in year. by to million the million (ph) quarter second year, than quarter Let provide $X.X on next the QX some the additional $X.X last XXXX the me color increased but of lower results. first compared

a those million the six products. decline, of For months were million Of $XX.X to months, to $X.X $X.X the of compared XXXX. reduction million missed six about two sales half related

we've for landing AXXX for of this loss. resulted at And at second which some customer. that have we been was of years, was its made taken work/cancellation the the gear our may has many various production was products helicopter because aircraft of of First both order stop from known a in but sold were you these reasons product and contract, the the out a a end

those losses avoided sales but were XXXX. lower, also we So in

a Now on. some lower the decline that's year sales. discuss in profit Gross than more on $XXX,XXX little and when later -- about comments I quarter lower bit second sales in last the was $XXX,XXX inventory

for gross was six higher $XXX,XXX in the XXXX. However, profit months,

keep increase calculating This the periods, $XXX,XXX six by the for inventory following year. increasing Operating You we're current profit were $XXX,XXX refined for of gross higher think of a all and for less year. I by estimate than in profit and second than in compared but to QX periods quarter in prior count profit months. most using expenses Gross to pretty positive than X% X% in part, percentage margin then valuation. and Operating news. the for in mind declined year-over-year for gross method flat, that good income is we the that the use got just our essentially in is increase less the environment, $X,XXX And was the interim XXXX is about XXXX. yearly

declining months, in for flat. quarter slightly compared $XX,XXX again last year. operating income essentially both periods, expense was to essentially For the Interest flat second by was the six

months, the smaller, flat slightly decline but essentially the For year-over-year. six again $XX,XXX, was

risen. finished. has year. the $X,XXX, now a The in recent our loss by are loss quarter floor at the X.XX% $XX,XXX several of first interest risen to quarter per rate was per Federal Reserve. the income It's to Interest interest year. For at the thus for an rate at a been has Hopefully, year. X.X%, X.X% as years, prime. has improvement a increases calculated is our interest now the of of rate $X.XX% compared It Net actions prime past below expense a the

of year. $XX,XXX versus sheet. loss with balance For Balance the last of a to income remains Switching no changes. six major sheet strong $XX,XXX months,

There two items payables, I like accounts normal receivables all the remain are though. Our would to with limits. discuss that

loan. term our First,

$X.X a may of renegotiated further used our investments you secured line Term term loan million in the loan. to equipment. with -- both loans increase. Bank we In term As we of May, by machinery. know, finance and to amount the $X terms We buy million about to the have Webster revolving used loan and credit increased

is Some beginning. since increase the of some term but that reduce equipment got in loan used we the leases it's used taken to out pay off to had also capital revolver, purchases the to that finance we

In of that's the hard advanced million. XX added equipment. loan capital we be credit line addition, This on of XX% drawn new months. a finance on of the including a $X credit total to can $X million of equipment amortized line term over for years, of All a cost new seven

of Now now. from machinery we the $X.XX shipping credit. installed. been of the be pay This being shipping, in have drawn and about right down It's line line for deposits made from These some is revolver. new funds of taken progress and to revolving has equipment (ph) will The it's used constructed million in equipment. already amount credit our payments inbound

this the E-XD important and inventory this. work-in-process F-XX, whip, our decreased an CH-XX year by point. of disruption million. inventory our production. on end, increased increase The delays the has reflects platforms. this is Since I the is Majority Lou the Second, discussed concentrated and is think $X.X affecting

months then million inventory of million, to million six for add gives total a it it's six months you sales If you this to the equal essentially increased about of the XXXX. $XX $X.X $XX of

and I result completed Our your my that view increased sales. is that and to concludes back turn inventory And look the be I'll forward call will comments. to this in Luke questions. [indiscernible] excess over time

Thank you, Mike.

call close portion call by me reiterating central two a with of I Let [Technical the on our Difficulty] brief that made today's this last points comments.

and customers supportive suppliers. debt We operations have and in established consolidated our drive are and we relationship. rationalized profitability. our equipment important, Very a and making our with opportunity have our critical investments relationship and further reduced We to banking improved

to point our achievements Our operational quarter in second the progress.

rest We of expected delays challenges the in of growth especially the also are for despite compounded supply chain challenges, in those Unfortunately, XXXX the financial achieved continue to heightened that raw outside quarter-over-quarter processing. quarter second by were year. material delays

Let me also optimistic prospects emphasize Industries. of that we about the long-term remain highly Air

growing. to commercial continue demand program where is We defense aerospace and major serve

developing new (ph). are as programs as well including submarines, nuclear space new other We markets opportunities

enhancing partners investments processes Anna? the like we Anna are our our questions-and-answers. up our customer even report. focused capital our become integrating to over this the concludes strategic open for vertically We to At would EBITDA our and our we're on performance driving and to by making turn remain call growth. to more valuable to time, I That lines

you. have a And Yes, sir. in do Thank [Operator Instructions] we queue. caller

line is Your open.

Hi, Mike. from Lou It's John Nobile and Brothers. Taglich

to You in prepared time nine have had about month to your month you titanium. the receive lag said that in a remarks six

really cost, getting actually to titanium? product So get I your was just how mean, this affecting relies of is of what material cost percentage out? idea just product total curious an on material I much

gave and I example issues that's war the in is I because Ukraine in is with section near and John, the the that having of that that really high whole globe the think, and but canals. really dear. was titanium we're producing an and

-- is have your this We based year. product. the four (ph) see Turbofan any We for or materials product, three months an first Inconel won't which

to trickle in. Now it's starting

selling that's So there was our in time house. in products lag that we one have best a of and

show the point. just at arena. raw So at is in the singing a There's material the captivating this material of we're Farnborough really attended all availability weeks in blues few back that and I England

releases since regard. Okay. seen first in XXXX, related orders. there I press quarter haven't to then, that announcements new I really were And in of any the And know several

curious I and comment orders backlog since what So XXXX quarter any new if there of also on current if the placed you was were can first your is?

no term been have long There agreements.

of really beginning long The the term in some long issue first and end of so quarter a agreements this term XXXX. XXXX, at a the expiring that's our and can year, were we that announced agreements that lot timing we of do

against orders received have We those.

the haven’t significant pipeline, We relatively We're call for next we and -- agreements five announce do will orders, soon. some really conservative But of the them years. not expecting continue pretty long term life generally pretty new against LTAs. to new we about we we agreement no We announce. a the do releases over to got so announce announcing have are as

second Okay. of this primarily the In better the half it's LTAs, second Lou, half. the half you the XXXX mentioned I to be to expect I in orders of the had believe, than just year be know, of regard LTAs you half first or better? Is that that the your first because other are helping to

we early that materials late expecting trickle year the are last Well, in. year were this and to starting

So door. going them can to out get we what to do the we're

been has that with now, low Okay. in able a that creeping to a product that reductions, been still significant back you've very And has relatively seen chain overdue level supply XXXX, it question, current I arises to curious thing. or question if know another regard the But there out keep good really are issues I'm up?

our beast due than order zero. time. the customers orders are Remember, low. relatively less The nature remains never of It lead past

they're destined in due. end to past So up

know that. I No,

second It has increased quarter, in not the materially.

sorry. good now. capital that's No, to the you speaking sorry hear. Okay. investments I'm to off, And about Mike. cut I'm

ahead. Part where had Go the material interruption was past increase the due, due Geared in of shipments. of an Turbofan raw to we

made. be by this could that would And products those been making were not late. They in April, up they June, then delivered have made so were

that thanks capital significant for Well, Okay. insight. you've made investments. And

CapEx some in that mentioned, talk this issues plagued compare little area the year that was in bottleneck has you time. there could had been where progress you if effort were that that wondering have that and to all I about see Lou an to maybe made a in a As for ago? could you any was and alleviate

it's options we Well, run given can us machine product numerous on in. to what

when One options. have Industries I of turning both the there is several to we problems that the we milling on bottlenecks was didn't had earlier Air in and got that and

gone in from we've sizes size can and it an six X-Axis as to machines products. different Now example, handle two different X-Axis,

eliminate have And reduced to of bottlenecks. because last we couple to -- work down where the on have the through to of substantially put we obviously put some years. this over So additional where yield options this that,

Okay.

-- chain year. concern to So year of no top currently it bottleneck less to half that most have Would I that were than be safe say mean issues with if the first the better there last say a ago. the than on a supply line would likely be results shown

and equal bit a little least better. year perhaps At to last

quarter grew second $X light there minimal change in they could million was revenue. margins, some hoping you that margins on the up were a first in revenue and quarter. significant meantime, the X.X% And on almost shed just the Okay. I sequentially In from by pretty increase gross gross why was the

job. for I at tried we I I gross method address use the profit guess, the part. that greater to didn't do that, machining Again, air most

year a mix year. profit last we use external the factor, that gross discern product use or Our other in guide we that unless some change XX.X%. can some and was as We during

variance So at why And approach. at the sales because overwhelming in CMS margin to a the are at proportion plus sales is Sterling air CMS. the sales of equal measurement -- our XX.X% whatever that's they gross direct use percent

hopefully the XXX.X%, did taken it that until is so only direction, move year up when that and it will one will that are they as year. end on inventory valued in And not move last at based which has and we've

margin. a third your year guess I and Okay. XX% in my last then showed Yes, the really fourth margins. that question the gross year, a you mean I XX.X% quarter, was in huge XX% I quarter gross noticed answered because last increasing almost bump

do the the thing a gross inventory the going know will then that's what a guess first-three and early feel when is gross at we margin there's true year the too we of significantly dictated to fourth the basically chance I is? margins same know quarter? don't for that known bumped this this year, be in it's up factor quarters end I if So anticipate And that point. at to you that tell should

we're million entire [indiscernible] XX.X% get the point to gross in that XX.X% percentage not we I 'XX. that of for entire We to going $X margin sales. about took additional Last profit fourth the be product quarter. in to in $X.X our increase accounted $X.X quarter expect million had we $X that do lost the booked and increase to had from year that of it and million year, fourth got the $XXX,XXX. was a were, million zero X.X the of

we don't year. So those this have

So our that closer John, -- we been not if have year those think had it to you gross last the hadn't XX.X% about if profit would for XX%. products, particular have year, would been

I'm it's not going hopeful year. for as this as do to increase an last. be for So was I expect significant it in

appreciate Okay. it. and the Fair right. questions. Lou making taking for enough. Thanks I my Mike, All call and for

Dan. Thank you,

move for will next And [Operator Instructions] moment. caller. our and a pause just we'll to now

Your open. line is

name cut company. is major something phone (ph). my right Atkins you Mike space Hi, out And before yes. said a about My

that elaborate you a you. just bit could Thank or little If appreciate repeat I for it. me. really

to So Mike, somewhat Boeing, remotely. still getting Defense is working are things what things normal. normal. a people are a of to since Sikorsky, It's get Department but (ph), remotely, the saying Collins, lot been working Chaff starting back while of still we're I guess back is

because to some of we've it. get and an had up times stepped opportunity business development really our we've face-to-face activity So

company we've and frontier. because it's we space SpaceX a and make Blue and next activity hopefully the something so Origin stick that across nature, can some of like coding come just stuff gotten we've So

direction to organization. categories. business Industry, a into but manufacturing each but us company, we the in those there's taken gear under are also precision of has landing and the So, sea, a opportunities space. we're And And we're our Air the of sea development respective

you you very Thank filling call. you for on I Okay. appreciate much. my that. Thank taking me in for

Thank call, you for the Mike.

additional turn telephone I'd back any over all conference are closing appears the it our like to questions. further to presenters And Instructions] [Operator remarks. our there for no

Thank you, Anna.

question, the you on that, we time that, your you concluded. next Please with thank today. on of to forward the on with be Group taking again, our Air updating progress for And conference the call to is once for So call. disconnect. look Industries attention all Anna, and

you. conference. your Thank once And you does sir. Yes, for conclude participation. We thank that all today's again,

You disconnect. may now