Good afternoon, everyone. My name is Jack Greenberg, with the Midwest IDEAS Conference, hosted by Three Part Advisors. Our next and last session will begin with Astronics Corp, traded on the Nasdaq under the symbol ATRO. Here on behalf of the company is Dave Burney, their CFO, and Pete Gundermann, their President and CEO. With that, I'll hand it over to Dave, who will start the presentation. Thank you.
Me?
... Right here.
I know you all came for Dave, but you're getting Pete. So welcome to the afternoon shift. We are closing up the show, I guess, today, and I'm very impressed at the turnout here. You all deserve to be paid at least time and a half for this extra effort this late in the afternoon. We're gonna do a quick overview of our company, Astronics. It is intended both to, you know, provide some basic background to the company for people who are unfamiliar, but also to give you a sense of kinda where we've been and where we're going.
The pandemic has been a really interesting exercise for our company, like many companies, and we feel like we're coming out of the other side of it with quite a bit of strong momentum, and I'd like to relay that as best I can as we go through this presentation. I do have a question procedurally about how we wanna handle questions. We usually get a fair amount of those. Do we wanna do that at the end, or do we wanna interject during the middle? Okay, we'll do it at the end. I have another question, which is. I guess I'll do this. Safe harbor statement. Some overall statistics on our company. We have about, you know, 35 million shares outstanding, two classes of stock.
B shares don't trade, but have 10 votes per share and are convertible to common at any moment. We have a market cap of just under $700 million recently, and we have an insider ownership close to 10% of shares outstanding. A couple of important pie charts that give you some sense of what our activities center around. The chart on the left looks at our two segments. We report in two segments. Aerospace is for the last 12 months just 90% or just under 90% of our volume. We have a test segment, which is usually running about 10% of our volume. That's the pie chart on the left. The pie chart on the right breaks our revenues a different way by major market, or think of it as source of revenue.
Commercial aerospace is for the last 12 months, ending with the second quarter, 64% of our total volume, general aviation, about 10%, and defense and government, 22%. That includes our test segment and our military aircraft business. I wanna concentrate or focus on the 64% of commercial aerospace for just a minute. That's a disproportionate weighting, if you think about it. Most aerospace companies are relatively well-balanced between military, maybe space, defense, business jet, and commercial transport. We are relatively highly exposed to the commercial transport market, which explains what I'm about to show you, which is why we kinda took it in the teeth when the pandemic came and commercial aerospace shut down. Our revenues went from, like, $780 million in 2019 to, like, $450 million in 2021.
So it was a rough ride down. But since then, we've been on the rebound, and that's kind of the tone of our company today, is very much getting back to where we were finally in 2019 . This pie charts or this bar chart on the left is probably a little bit hard to see, but it looks at our quarterly bookings and revenue from the beginning of the pandemic all the way to the most recent quarter, and the colors up there are a little different than what I'm used to seeing. I think it's green and blue, or it should be green and blue. The green bars are bookings, and the blue bars are shipments, and if you look at the chart, and in your head, kinda divide it into three parts: the left part, the middle part, and the right part.
The left part is the collapse of the travel industry. You can see bookings just cutting off dramatically and shipments following bookings down for about a year, year and a half, and staying down there for a while, and then the middle part of the chart is when demand came back, but shipments really couldn't. Why couldn't shipments? That's when the global supply chain was all knotted up. That's when, you know, there were 250 ships on the horizon outside of Long Beach, and everybody was having troubles getting the parts they wanted to build their products. We were no exception.
And then the right-hand part of that chart, the last year and a half or so, you see the blue bars starting to ramp up pretty significantly, and, nicely, from my perspective, the demand bars, the booking bars, have stayed strong. So even as revenue has bounced back, bookings continue to stay really strong, and we're gonna talk about some of those drivers as we go through this. And long story short, we saw 28% growth in 2022. We saw 20% growth in 2023. This year, it's gonna be lower, but on a much bigger base. We're expecting to be up in the mid-teens for growth, and by over the next two quarters, really finally, operating again at the revenue level that we were at in 2019.
So long story short, we've kept, you know, relevance with our existing product line, and also during the pandemic, during all this chaos, we have won a number of new programs, which I think promise very good things for our company in the future. So, we will talk through this a little more, quickly going forward in terms of product ranges and opportunities. Final pie chart, I think. We present ourselves a bunch of different ways, but I think the best way to understand our company is this pie chart on the right, strategic thrust. These are the main things that our company is trying to do or is involved in. Again, looking back on a trailing twelve-month basis, ended with the second quarter, you can see that roughly half our sales are from the in-flight entertainment and connectivity space.
What does that mean? That means when you're traveling around in a commercial airplane, and you wanna plug in your computer, or you wanna stream content, or you wanna cruise the internet, you're probably using our power systems. You're probably using our wireless access points. You might be using our file servers or data loaders or modem managers. This is an active part of our business. It's what we're best known for, and it's something that continues to evolve as we go forward. In the lower left part of that pie chart, 23% is aircraft lighting and safety. We're actually one of the world's largest aircraft lighting companies. What does that mean? Aircraft lighting is critical in the cabin for passengers. It's also federally mandated, actually, by the FAA for exterior lighting in terms of position lighting or refueling or landing lighting.
A lot of lights on the outside of the airplane play critical roles, and also in the cockpit. If you ever take a look in the cockpit or if you're a pilot, you know that there's a lot of flight-critical information displays that are basic to operating the airplane in a safe way. Kinda like a car, except much more so. Smaller parts of our strategic thrust, but equally important, maybe even more important going forward, in the upper left-hand corner is flight-critical electrical power. We talk about power a lot. Most people know us as passenger power. You know, you plug your computer in. It's an amenity in the cabin of a commercial airplane. Flight-critical is something different. This is for smaller airplanes. This is the real important stuff that makes the airplane fly.
Power off the generators or even the generators themselves, and then the conditioning and the distribution, the circuit breakers, that kind of stuff throughout the aircraft. We have some really good growth opportunities there. And then the bottom right is our test systems segment. One of the things we're heavily involved in is radio tests. The other thing that we're pursuing is transit tests. It's about an $80 million business. And just last quarter, we won an Army contract for their radio test platform of the future, which is an IDIQ program, Indefinite Delivery, Indefinite Quantity, funded to the tune of $250 million, expected to be delivered over three or four years.
Which, you know, you get a $80 million business and a $250 million award, there's pretty good potential, we think, there for improved performance going forward. So the next series of slides really goes through these four thrusts and gives you some level of detail as to what the, what the products look like and what they do. In-flight entertainment, I've talked about a lot of this already. Power, passenger power on the lower left, data loaders, radars, radome systems, connectivity, antenna systems, something that we get involved with. Getting data on and off airplanes is a very important part of our product capability. In-seat power is probably the most important element. We this is a space that we invented in the late 1990s. We have, we estimate, in excess of 90% market share.
There's a long story as to why that's important, but basically, you know, everybody's digitally addicted these days, right? You're probably like me. You fly with two phones, you fly with a computer, you fly with an iPad. You like to have those devices usable on your flight, and you like to get off the airplane with charged devices, not depleted devices. Whereas this was once considered a luxury, and it was only in first class or business class, increasingly, it's nose to tail, and increasingly it's across the fleet and considered passenger critical, not flight critical, but passenger critical. The big growth opportunity here is that over the last few years, or not too long ago, it was basically only a wide-body phenomenon. There are many more narrow-body airplanes out there than wide-body airplanes.
Wide-body basically means two aisles, so like a 787 or an A350. Narrow-body is one aisle, like a 737 or an A320. Today, every seat of every wide-body airplane built by Boeing or by Airbus comes with power. On the narrow-body side, it's much lower. It's probably 50%-60%, depending on who the airplane's being built for. But if you look at the installed base around the world, there's approximately... I don't even want to estimate the guess, but we think 70% of the narrow-body airplanes out there do not have in-seat power at this point. So there are big retrofit opportunities, and this is something we are actively involved in. Lighting and safety, I talked about this, cockpit, cabin, exterior. We're one of the bigger lighting companies out there.
We're involved in commercial transport, military, and business jet. Pictures tell a thousand stories. That's a Joint Strike Fighter in the upper left-hand corner. That's a Cessna Citation cockpit in the upper right. That's a Cessna Mustang, I think, lower right, and lower left is a passenger service unit for a 737 MAX. So if you sit in a 737 or a 777, for that matter, that assembly above your head is ours. We categorize it as lighting, every seat, every airplane, and it doesn't look like it's all that much of a device, but it's actually pretty critical. And in fact, a lot of our lighting systems are pretty critical. The next couple of slides will probably be the last time we show these in a presentation because they can be disturbing.
But this is a door plug removed from a 737 that's flying around the Portland, Oregon, area. And it's an action shot. The airplane's in motion here. I'm not trying to focus on the door plug. I'm trying to focus on the oxygen systems, which successfully deployed and allowed people to breathe comfortably and without too much obvious stress, while this situation was playing out. A more stressful situation, again, critical lighting involved. You might recall an A350 that landed in Japan, in Tokyo, not too long ago, and collided with one of their Japan Coast Guard aircraft. People on the Japan Coast Guard airplane perished, unfortunately. Everybody got out of this A350 in a matter of minutes before it went up with flames.
What I want you to focus on are the slides here in these two shots, and the lights on the airplane illuminating the slides. These are things we do. You hope never to see them in service, but think of us if you're ever in an airplane and something really bad happens, and a lighting system comes on that helps you try to get out. You may or may not buy our stock, but you'll think about us in that situation. The third major thrust I want to talk about is flight-critical electrical power. I talked about this. Flight critical is the keyword. Let me say that this way, our genius, our contribution to the art here is in very high reliability generation topologies.
Instead of wound machines, which have a typical MTBF of, you know, five hundred to a thousand hours, we use induction machines or permanent magnet machines that can go up to thirty thousand hours, and maybe more importantly, we use electronic circuit breakers instead of thermal circuit breakers, which are great weight reductions, reliability improvements, and automation improvements. An example of that, I think, yes, here we have a Learjet 45 cockpit on the left. This is vintage nineteen eighty-five to nineteen ninety-five or two thousand even. The cockpit on the right is a Pilatus PC-24, where we do the flight-critical electrical power distribution system. And I want you to notice all the circuit breakers on either side of the cockpit on the Learjet cockpit, and there is no equivalent in the Pilatus cockpit. And why is that?
Because in the Learjet cockpit, it's up to the pilot to manage an electrical problem, and all the wiring for all the systems has to run, they have to run rated wire up to the cockpit for thermal circuit breakers. If something goes wrong, you get a pop, and the pilot may get an indication, but then the pilot has to figure out what to do about it. In the Pilatus airplane, if something goes wrong, there are electronic circuit breakers, which are basically little computers distributed throughout the airplane, so you don't have to run rated wire up to the cockpit. You just run a digital signal wire, and if something goes wrong, the pilot gets an indication, and in most cases, the airplane automatically compensates for whatever the problem is, tells the pilot about it, and then the pilot has the flexibility to-...
to manage the situation differently if he or she wishes. It's a step forward in terms of technology. Pretty much every small, new airplane wants to go with this newer technology and not with the older technology, and it's a big safety and performance improvement, and we're really the only company that's taking this kind of technology and applying it to these kind of airplanes. And to be fair, I should say that this kind of thing is available and in practice in the big commercial transports right now, and also in the big business jets, like the big Gulfstreams and the big Bombardiers. But the companies that do that kind of work are not doing it for the small companies, and I'm not sure the small OEMs would necessarily trust those big providers.
We kind of view this as very much a greenfield to work in. Here's a list of some of the airplanes that we've put this system on. I'm not gonna talk about them too much, except for FLRAA, the third from the bottom, the Bell V-280. If you don't know what this is, FLRAA stands for Future Long-Range Assault Aircraft. It is the Army's next generation helicopter, replacing the Black Hawk, Sikorsky Black Hawk. It was awarded to Bell Textron about a year and a half ago. Bell Textron, in turn, awarded the flight critical electrical power system to us. You know, it's early.
This is gonna be a long development program, and who knows how many they're gonna build, but there are four thousand Black Hawks out there, and the working number that I keep hearing is something like two thousand expected V-280s, and our content on it is still being negotiated, being developed. There are all different trade study, trade-off studies for different configurations, but the indications are that this is gonna be the biggest shipset content we've ever put out there, so on any aircraft. So it potentially, you know, probably will... Not probably, it will go on longer than I'll be around doing this, but I think by the time it's over, it's safe to say it should be the biggest program the company's ever taken on. eVTOL. eVTOL stands for Electric Vertical Takeoff and Landing.
We're not gonna get into this too deeply, but you probably know, or you might know that there are a number of companies out there, in industry developing electric aircraft. Anybody who needs to get to O'Hare for an airplane ride tonight would wish that these things are here today, because, you know, you turn an hour Uber ride into maybe a 10-minute flight at 120 miles an hour. They're limited in range, they're limited in capacity, but we think they're gonna be certified, and there are analysts out there who think this is gonna be a big deal. So we are concentrating on certain parts of the electrical power system for these aircraft. They're obviously small, they're obviously electric, so it's kind of in our wheelhouse.
We aren't betting the farm on it, and we think there's a long ways to go between today and commerciality, but we think it's technically viable, and we want to be prepared to participate with the winners, whoever they may be when at the end of the day. So there's a list of some of the flight or airplane programs that we are involved in, both rotary, fixed wing, business jet, military aircraft. This is in our presentation. For a small company, we feel like we've got pretty long fingers throughout the industry, all around the world, and this does not list major airlines. We do work with 200-some airlines on a regular basis all around the world. Finally, our test business. We concentrate on transit test and radio test.
We recently got. Just last quarter, we finally got an IDIQ radio test program from the US Army to test their. They have 28-some families of radios that they use. They picked one of our systems to be their next standard test platform, and we're excited to get this going. We think it's a $250 million program, IDIQ, over the next 3-5 years. With our test business being at $80 million, it should be a big net adder. So I think, I'm gonna turn it over to Dave because I'm a little burned out and-
This will go, this will go quick. I have four slides I'm gonna run through real quick here. But the gist of this, and these slides don't go back to 2020 , 2021 , but as Pete mentioned, the pandemic threw us into a real tailspin. Our sales dropped by 40% or so, mainly due to the commercial transport market. But what you'll see on these next four pages are, where we are in the recovery here. We feel like we're getting back to normal now. Our bookings have been strong for the last four quarters, actually, for the last eight quarters. They continue to improve. The quoting activity still remains strong, and we're on platforms that are forecast to increase, with the OEM production ramp over the next, two or three years.
So you can see our bookings have exceeded our sales, pretty steadily over the last four quarters, and in fact, our backlog that we have at the end of the second quarter is sufficient to meet our forecast or our guidance that we provide for the rest of this year. When we turn to our margin profile, the margin profiles still are pretty weak, but the message here is they're improving. We had horrible margins over the last four years, just keeping our head above water due to the pandemic. We're breaking through out of that now. Our top line is improving significantly, and we have really strong contribution margin from incremental sales. Our contribution margin tends to be in excess of 40% on that incremental sales growth.
Ultimately, we believe that our businesses should run at a EBITDA level in the mid to upper teens. We're improving, we're getting there, and we have a line of sight to get there. Net income is almost irrelevant. I think where we are in this recovery period here, you can see improvement there. I think that's the key takeaway there, but we're clearly not done here, and the adjusted EBITDA, where we're at, in the last, in the second quarter, was at $20 million. I think that I expect to continue to grow as our top line grows. Significant thing that happened, in this past quarter is we, we did a big refi. The refi is gonna do a couple things, probably most importantly, provides us more liquidity.
It provides us all the liquidity that we need in our forecast, and then some. Additionally, it's gonna lower our cost in terms of interest rate, and it's gonna lower our cash required to pay down our term loan. Our old term loan had us paying down roughly $9 million a year in terms of principal payments. Our new term loan is only $500,000 for the full year. So those things combined are gonna save us about $10.5 million in annual cash savings starting in the third quarter. Our CapEx is pretty minimal. We've spent $3.4 million year to date. Our forecast is about $20 million at the midpoint of the guidance that we provide.
It's a combination of CapEx for new programs. Some of the programs Pete mentioned, there's tooling and test equipment required for those. And the other piece to that is some catch up on deferred CapEx that we had deferred over the last four years. We have about $174 million in total debt. Told you I'd be quick. More time for questions.
Lorne Wallace?
So you pointed out that revenues have essentially rebounded to pre-COVID, but the net income has not. Why? What changed?
Can you move the mic closer?
The question is: Revenue has recovered and net income has not, and what has changed? And it's a good question. I would say revenue has not quite recovered. It is recovering. I would say over the next six months, if you annualize that, we should be finally back to where we were in 2019, and we feel like our income statement is following through with where we think it should be. We think that if you think of 40-45% contribution, marginal contribution on incremental sales, we think that the picture after the next six months will be much better than the picture up till now. And then, of course, we're starting to look at 2025 in some detail, and again, with the backlog strength and the booking strength, we think we're in pretty good shape.
There certainly are some moving parts. We have taken on increased input cost in some instances, both for labor and for parts. We're not alone in that, but I think we've been pretty successful at the same time negotiating increased pricing accordingly, and frankly, I think our customers have been surprisingly accommodating on that, so I think as that washes through, that'll be another tailwind as opposed to a headwind like it was or has been in 2023 and 2022. Dave, I don't know if you add anything to it.
No, it's. Also, in the second quarter, we took a $3.5 million hit in the test segment for a revision to our estimated cost to complete a couple of our transit program test programs. We don't anticipate that charge continuing. You know, it's obviously we did a deep dive on that, went through work to be completed on that. We took a $3.5 million hit, so I think if you, when you look at the margin profile there, there's a $3.5 million hit there that shouldn't continue going forward.
...the backlog, you mentioned the target EBITDA margins are mid-teen. Has that backlog and the recent bookings that build up the backlog, despite it, hit that mid-15% type of goal?
You know, the question is whether the backlog, the pricing in the backlog is consistent with the mid-teen EBITDA target. Is that safe to say? We think so. Yeah, we don't think we need to do anything drastic to get there other than, you know, continue to execute on the backlog as it's coming due. We do have, you know, some past due element in our backlog, which is old stuff, which is maybe not priced as well as the new stuff, but overall, I think we're pretty comfortable with where pricing's come through. Yep.
What percentage of the entire fleet is the connectivity? What percentage was the market share in the United States?
Connectivity. So connectivity is a broad topic. Antennas in general? Entertainment.
In categories.
We don't know of a way to estimate kinda our market share in that broad a cut. I can tell you some of the components. If you look at in-seat power, I think I mentioned 90%. I think it's higher than that, 95% or something for market share. If you look at wireless access points, we're climbing significantly. We're probably 70-75% right now. If you look at modem managers, that's a device that steers the modem to the satellite constellation that you're looking at. We are also at least, I'd say 70-75%. If you look at antenna systems, we're very small. We're probably 2%, 3%, or 4%. It varies by the product that you're looking at.
But I will say this, we are without a doubt, we have the broadest product line, so we can go to an IFE company, the prominent ones are Panasonic, Thales, or Safran, and say, "You know, you guys..." They're all capable of developing their own products for sure, or hardware, but they're also sometimes opt to buy, and we offer the broadest range to them. So we're partners with all of them. Same with the connectivity companies. If you look at Viasat, or Inmarsat, or Intelsat, or those kind of companies, they are, some of them, very qualified to develop their own hardware. Some of them are really not. They're more, they piece together systems by procuring parts from other companies. And again, we have the broadest product line offering.
So we have a prominent market share, but it's kinda hard to lump all that stuff together because we're selling to them, and they're selling to them, in terms of what our market share really is. Is that good enough? Right.
Just a quick question about Boeing. Any second order effects on that is positive or negative on that?
You know, there's one minute left in my little timer up here, and we get the Boeing question. It's a challenge. I mean, Boeing is obviously an important company to us. We are doing what we can to help them along, and I think they'll get there. The world needs them to get there. The 737 has been our biggest program historically, and we, they're holding us to, like, 30, 30, 32, 33 ship sets a month, even though they're building significantly less than that. We think they're around 25 a month right now. But they're committed to getting up to 38, which is the FAA mandate or FAA limit, by the end of the year, and I'm pulling for them. I hope they do it.
And so we think they're building inventory on our products, but like most of their supply chain, they don't wanna cut them down and then try to yank them back next year. I think they're holding inventory, and if they get their production rates up where they want to, you know, we'll look back at this as a blip, and everything will be good. I would just also say that Airbus is also a very important customer to us. We put as much product on Airbus production lines as we do on Boeing production lines. It isn't all sold direct to Airbus, and actually, a lot of the stuff that goes on production lines at Boeing is not sold direct to Boeing, but rather, say, sold to an airline, which is then, you know, they have us ship to Boeing for installation on the airplane.
Same with Airbus. So we're, we work very well with both of them. We love them both. And, you know, we're, if you think of the production rate increases that Airbus is talking about and Boeing is talking about, not only in the narrow body, but also the wide- body, percentage-wise, for suppliers like us, that's a nice runway to be looking at over the next couple of years. One more?
Can you talk about the how you set up the next few years for incremental volume in their track record of getting targets at this point or open up to the different margins in the next few years?
It's the skeptic's question about the production or volume at Boeing and Airbus. I mean, no doubt they have been challenged. I mean, we had enough challenges with supply chain over the last couple of years. Theirs is even bigger, obviously, and some of them are well known and well published. We don't feel like we need them to pull up our production rates to get to that mid-teens EBITDA, if that's your question. I think we've got line of sight. If we execute on our existing backlog, which is driven on it off existing rates, I think that's good enough.
I think if you look at what they're planning to do, even if they miss by a certain percentage, I mean, Airbus is talking about taking A320, you know, from 50, 55, up to 80 or something over the next couple of years, and A220 rates are going up. 737, they wanna get up to 55 or 60. Percentage-wise, those are big, big helps for us, and we look forward to it, but we don't need it for the margin goals we're talking about. Very good. Thank you. Thanks for your time. Appreciate it.