Okay, good morning, everyone. Happy New Year and welcome to the CJS Winter New Ideas Conference. My name is Jon Tanwanteng . I am the covering analyst for Astronics, which we have rated at a market outperform. Astronics is a leader in electrical systems and cabin electronics for the airline and defense industries, and the best performing stock in my coverage in 2025. Joining us today, we're happy to welcome Peter Gunderman, who is the CEO of the company, as well as Nancy Hedges, who is the CFO, and Deb Pawlowski, who handles IR for them. Pete's going to lead off with a brief overview of the company, talk about some of their opportunities and challenges in the near future, and then we're going to move to the fireside chat portion of the session.
For the audience, if you do have a question, feel free to submit one via the text interface on the web or via email, and I'll try to get to them as time allows. And with that, Pete, you have the floor.
Okay, thank you, Jon, and good morning, everybody. I'm going to, I guess, allocate 10 minutes here. So, Jon, cut me off if I start going too long, but I'm going to give you a quick overview of the company, and then I think the plan is to go to a question and answer fireside chat kind of situation. So, next slide, Debbie, are you driving?
Yes.
All right. So everyone knows what that means. Next slide. This is a kind of some overview statistics on the company. We have a market cap of around $2.3 billion, well, probably a little lower today after yesterday, but we have been trading at or near all-time highs, regularly setting new levels over the last six months. The stock's been performing very well. We have two classes of stock, Common and Class B. The difference between the two is that the Class B don't trade, but they're convertible to Common at any time. And the Class B of 10 votes, Common has one vote, and we are largely institutionally owned at about 85%. Next.
I'm trying. It won't move. I shit. Okay, hang on. Excuse me.
We should mute Debbie, Jon, if you can. Her commentary can be a little bit distracting. We have two. We report in two segments. The pie chart on the left here shows that we're largely an aerospace business. Typically, 90% of our volume. The rest these days is running around 8% on a trailing 12-month basis, but we typically see it at about 10% of our overall volume. We think and act like an aerospace company. Most of our investor community thinks of us as an aerospace company. The pie chart on the right shows you our major markets or sources of income, you might think of it as. The obvious point here is that we are very significantly exposed to the commercial aerospace market, about 70% typically. We have a defense and government element to our business, about 20% typically.
That's split pretty evenly between military aircraft and our test business, and then a smaller portion, but typically, again, around 10% of our volume is general aviation or business jets or private aviation. We'll use those terms interchangeably. The 70% of commercial aerospace is important to keep in mind. It explains, if you look back at our financials and our performance over the pandemic, during the pandemic, it kind of tells a story. Obviously, significant travel restrictions, significant supplier challenges in the aerospace industry. Boeing had some real troubles during that timeframe, building 737s or 787s or pretty much anything there for a little while, and it explains what happened to us on the top line, which is apparent on this next chart that Debbie's going to flip to.
The revenue chart on the left shows you that pre-pandemic, we were about $773 million. We eventually bottomed out at $445 million.
That was a tough stretch for sure. We have since then come roaring back. And for that period of 2021- 2024, I think we averaged about 18% growth. One year in 2023, we were up around 28%. And that was a period of significant recovery. And last year, 2025, was also preliminarily, we came in around $860 million. That's high single-digit growth, a little bit less than the previous years, but it was a significant year of recovery again for our income statement and our balance sheet. We started to generate cash as the year wore on. We did some refinancing, and our income statement started to look better and better on a sequential basis. About a week ago, we came out with preliminary top-line guidance for 2026. We said we're going to be up 10%-15%.
There is a wide range of tailwinds really pushing us to these expectations. And I think the fourth quarter was a good indication of that. We had a preliminary revenue level of $230 million, the high $230 million.
236-239.
Which was an all-time record for the company. So we think we're on a pretty good track. I'll talk about those tailwinds in just a minute. Go back one slide, Debbie. I'll tell you when to move. That backlog chart in the bottom right is worth focusing on. Even as our revenue has ramped, our bookings have stayed right there and grown with us. And $669 million, as we preliminarily, as we entered 2026, is essentially an all-time high on an annual basis. And pre-pandemic, it's probably worth noting that we were achieving $700 million, almost $800 million in revenue with a backlog level of about $440 million or so. So our backlog is significantly up compared to where it was back then, and so are our expectations. Okay, Debbie, one more chart. This is probably the last chart I'm going to talk to.
There's a whole bunch of detail in our investor previews that I would encourage you to go look at if you want to see more. But this chart is a pretty important chart to understand if you want to understand our business. And it cuts our business not by market, not by segment, but by what we call Strategic Thrust, or you can think of it as a product area. And what this shows you is that we are very significantly invested in and exposed to the in-flight entertainment and connectivity business in commercial transports. So that's why commercial transports are so big for us. Literally, half our business involves what passenger entertainment connectivity systems for the cabins of commercial airplanes.
When you sit down and you watch a movie, or you plug in your computer, or you stream something over a wireless access point from a file server, or you go off airplane and into satellite connectivity systems, you are very likely working with our hardware there and our systems. We sell to some 200 airlines around the world. We sell to the full range of entertainment companies, companies like Panasonic or Thales or Safran. Those are the major players. Then we work with a universe of connectivity companies. These can be companies like Viasat or Inmarsat or SES or Intelsat. We have established ourselves as a one-stop shop for those companies and the airlines for the full range of hardware that they need to piece together a passenger offering as they wish.
And we're pretty much unrivaled in the business that way in terms of the range and breadth of our product line. We have competitors, certainly, in each of the individual commodities, but nobody has the range of offerings that we do. And we find that that's a pretty competitive advantage for us. And it's a major part of our growth here. So to tie in kind of growth vectors, the aerospace industry is experiencing a real resurgence and unprecedented demand, which is being reflected in strong growth rates for aircraft production from the major OEMs, Boeing and Airbus in particular, both in the narrow body side and the wide body side. They're having some challenges. Airplanes are complex machines. It takes a pretty lengthy supply chain to make it all work. But the growth expectations are pretty significant.
Boeing's running at about high 30s in terms of high 30s per month in terms of narrow body 737 production. And they want to go over time up to some 60 units a month. And they've made significant progress in 2025 to get where they are. They obviously have a long ways to go. Airbus is in a similar situation with the A320. They are running low 50s. They want to get into the 70s. And both Airbus and Boeing on the wide body side, 787 for Boeing, A350 for Airbus. They're both running kind of mid-single digits per month at this point, and they both want to get to low double digits per month. And then additionally, Airbus has the A220, which is ramping up. That's the old Bombardier C Series aircraft. Boeing has 777X on a certification path, long delayed, but it is on a path.
And all that for us means a lot more entertainment systems, a lot more passengers flying, which is a good thing. And then the final thing I'd say about our in-flight entertainment and connectivity business is this is the kind of product that begs to be continually upgraded and retrofitted. So not only are we seeing more aircraft and a higher penetration rate of aircraft in the field, but even when aircraft get outfitted, the life cycles of consumer electronics and connectivity technology are relatively short, such that those systems are always in need of upgrade to keep up with what the consumer electronics industry is doing. So we have a significant retrofit or aftermarket opportunity in our in-flight entertainment business. And if you, as an investor, accept the promise that people want to be, they want to carry their electronic devices when they travel. They want to be entertained.
They want to be connected, and if you think the aerospace industry is a good place to be in terms of the big production rates that I was talking about, that's a pretty powerful combination for why we think this is a really good market to be in. 737 or any airplane really that enters commercial service today can be expected to fly for maybe 20 or 30 years. Most of the major systems on that airplane are pretty much set at the time of design or certification, and they're not going to change much over 30 years, but the in-flight entertainment connectivity system will change dramatically. People in the industry typically think that the interiors of commercial aircraft get replaced, kind of ripped out and replaced every five to seven years.
That's a cycle that many of the airlines work to update and modernize their in-flight entertainment and connectivity system also. Real quickly, just running through the other product lines, Flight Critical Electrical Power is a smaller part of our business. It's mostly for small aircraft, business jets. We got a big position on the Bell V-280 or FLRAA aircraft that's being developed for the U.S. Army. We also have a position that's emerging in eVTOL aircraft and in drones, remotely piloted or autonomous aircraft. We are one of the aircraft, one of the world's biggest lighting and safety companies. We do work in the cockpits. We do work in the exteriors. We do work in the cabins of aircraft, commercial transports, business jets, and military aircraft, including the F-35, for example. We do the entire exterior lighting suite on that aircraft.
And then our test business is mostly focused on radio systems for militaries and government agencies like first responders, border control, fire departments, things like that. We have a significant program that we've been waiting on for a while that we expect will hit in 2027 or 2026, sorry, which will change that business from, say, a $70-$80 million level to $100 million or more. And we expect that that additional business will drastically change the income profile or financial profile of our test business, which we have struggled with during the pandemic in particular. We think we have got greener fields ahead of us in that business also. So that is Astronics in about, I don't know what I did, 15 minutes, maybe in my fastest presentation ever. But again, there's more in our investor presentation if you want to look at it.
So Jon, I can go on, but I think you want to ask some questions.
No, that was a great overview, Pete. Thank you for that. So yeah, we're going to start the fireside portion, fireside chat portion of our session now and open the floor for Q&A. Again, if any listener wants to submit a question, you can do it over the web link, or you can send me an email, and we'll get to them as time allows. Pete, maybe you can start with just the recent announcement you had. You obviously had better revenues in Q4. You had mentioned on your prior calls that you were going to see 10% or more growth in 2026, and you officially got it to 10%-15%. Maybe what were the specific drivers of the strength that you saw that was different from maybe your prior expectation and what things are moving in or out of the year to get you there?
Yeah, I wouldn't say that something changed. I would say our expectation maybe just matured a little bit. The preliminary indication was just to kind of signal to the market that we expect to resume stronger growth in 2026 compared to what we saw in 2025. And as we kind of matured our kind of bottoms-up planning process for the year with all of our operating subsidiaries, the numbers came in pretty strong. So we're comfortable with kind of a 10%-15% range. We have pretty good line of sight to the high end of that range, frankly. So we think we're being pretty conservative with the lower end of the range, but it's early in the year, so obviously a lot of things can happen.
The only thing that is maybe a watch item, maybe the weakest thing in our plan has to do with that big additional business for our test operation. That has been something that we were awarded literally a couple of years ago. We've been trying to get it going from a production basis ever since. We have been actively involved in all the engineering and preparation steps along the way. But the government shutdown didn't help us. We thought that we might have an award as we exited 2025 and entered 2026. That didn't happen, and now we're thinking we're going to get turned on at the end of the first quarter, but frankly, between the shutdown and the Christmas year-end holidays, we haven't got firm guidance from the U.S. Army at this point, so it's a little bit of a watch item.
We think it's a matter of when and not if. So if it doesn't happen in the first quarter, we would expect it to happen in the second quarter. But obviously, the later you get in the year, the more it cuts into that revenue level. But even if it happens at the end of the first quarter, we're thinking it's somewhere at maximum something like a $20 million add-on to the year. So it's helpful, but it's not going to make or break us. But that's the one thing that's kind of moving around maybe the most in our plan. The rest of it, we're pretty confident and convinced that Boeing and Airbus, they may not hit their plans entirely, but they made a lot of progress. I mean, Boeing started the year building 737s at like 20 a month or something like that.
They ended the year at almost 100% growth, high 30s with FAA permission to go to 42. They have plans to push that up to closer to 50 over the course of 2026. We're building at this rate at like 31 or 32 ships a month, so then that's because there's a little bit of excess inventory in the system, but as we go from 31 or 32 and catch up to them one for one, which we expect will happen at the end of the first quarter, it gives you an indication of where the growth is going to come from. If we were at 31 or 32 at the second half of 2025 and we end up at like 50 in the first half of 2026, that's a significant step up.
Got it. That's very helpful. Maybe just to drill down in the variation range and the guidance, that 10%-15%, is that mostly captured from what you may or may not expect from the Army radio contract, or is there other pluses and minuses in there?
There are a range of things that could go one way or could go the other. But again, we're pretty comfortable with the way everything's kind of shaping up. Production rates are definitely going up. The FLRAA program is going to be a significant add-on for us to the tune of like $40 million or so in the year. And that's pretty locked in. Business jet production seems to be pretty locked in. There aren't a whole lot of things that we're worried about. I mean, you can always be surprised, obviously. But we think if you look back over our last six quarters, and I know you know this, Jon, because you watch us pretty closely, we typically forecast a range. And for the last six quarters or so, we've come in right at the high end or even a little bit beyond, like in the fourth quarter.
We forecasted, I think, an upper limit of 235, and we beat that again, so it wouldn't surprise me if we continue that operating performance based on the strength of our markets as we move through 2026.
Got it. Thanks. And you mentioned maybe not giving Boeing and Airbus total credit for their production targets. Obviously, as we exited Q4, Airbus had some issues with their production and safety. Just wondering how much cushion you have in there in the guidance versus what their production targets are actually and kind of what the drivers of their constraints are?
Yeah, we have trimmed their forecast a little bit, no doubt, so we hope they hit their numbers. They haven't entirely been successful, and we've trimmed our expectations accordingly, but still, even at those trimmed levels, I think we're very comfortable with the growth forecast that we've put out there. I mean, building airplanes is pretty hard, and there's a lot of things that can go right or go wrong, and when you move from 21 a month, like Boeing had on the 737 at the beginning of 2025, and you're having to plan to get up to 60, which includes starting up a whole new production line in Renton north of Seattle. Is that right? No, the new production line is going to go where the 787 used to be built, and that's a challenge, not only for Boeing, but for the entire supply chain.
We don't think we're going to be the problem. We've got plenty of capacity. If they can build that many airplanes, we'll happily support them.
Got it. Maybe switching a little bit to defense, could you talk about the FLRAA program in a little bit more detail? Obviously, you have a pretty nice position in the electrical system there. How has the timeline for that program and the intensity for that program changed over the last year under the new administration? And how should we think about the revenue and profitability opportunity as that transitions from development to production over the next several years?
Okay. Well, yes, we have a significant, I would say almost outsized position on that program. Bell has been a customer of ours for a long time. We've done two commercial helicopters for them in terms of electrical power systems. I'm talking primarily, and we ended up on their FARA and FLRAA program. We've basically become a true side-by-side partner with them managing and producing electrical systems for their aircraft. The FLRAA program or V-280 is the Army's planned replacement for the Sikorsky Black Hawk. There isn't an official final production tally out there that we know of, but many people in the industry are thinking it's going to be a 2,000-unit build or something like that over time. That compares to a much larger number, like 4,000 Black Hawks that are out there, so it's not going to be a one-for-one replacement.
It is the biggest Army aviation procurement program in many years. They are pushing it very aggressively. We are doing the electrical system, everything after the generators, power conditioning, power distribution, circuit breakers, powering all the critical systems on the airplane, like avionics and navigation and HVAC and weapon systems and medical systems, life support systems, all the things in the airplane that require electrical power. We are well along in the development phase. We think when all's said and done, it is going to be something like a $90-$95 million program funded by the Army. We are about a third of the way through it. We are about $30 million through it. We got a plan to do about another $40 million or so in 2026. We expect to wrap it up in the first half of 2027.
That's consistent with the development timeframe that's been in place for quite some time. Our ship set content is still in work and won't be finalized probably until halfway through 2026. It's under review and constant iterations as we work through the development process. We're thinking that it's going to be somewhere in the neighborhood of $1 million a ship, which for us is really strong content. We don't have any other production programs where we consistently put $1 million of product on each and every aircraft. That's what we're looking at with FLRAA. From a financial standpoint, we have been conservative in our accounting because we actually don't yet have a final EMD contract, they call it, which is a manufacturing and development contract. With Bell, we're working on a bunch of smaller short-term contracts that keep us going.
But because we don't have that final EMD contract in place, over the $30 million that we worked in 2025 primarily, we didn't take any margin on that. So when we get that contract signed and it's in active work right now, there will be a catch-up entry that will show up in, I would guess, the first quarter, could be the second quarter. And then as we work through 2026 on the incremental $40 million of progress, we will take margin on that. It won't be the same as our typical aerospace margin, but it will be certainly stronger than zero, which is what we booked in 2025. As far as schedule, I can't speak for the Army. And obviously, there might be things that we don't know about it.
But in general, there's high enthusiasm in the Army and strong congressional support to accelerate the program, if at all possible, and move the production phase to the left and start it sooner. So the official program in broad strokes for us, again, is to complete development and qualification in early 2027. The plan would then be for the customer, the Army, to do a year of flight tests on some, think of them as pre-production aircraft, a handful, five or six, something like that. The year of flight tests, lessons learned would be fed back through the engineering process and refinements made. And then production would typically start a year later. So think second half of 2028.
The Army is talking, however, about moving that production ramp from the second half of 2028 into the second half of 2027 and basically starting to build aircraft simultaneously with the flight test program. That is not a common approach. It's not how the industry typically works. There's a little bit of risk involved because you might be building things that have to be changed based on lessons learned in the flight test, but the helicopter or the aircraft is considered very critical for what the Army wants to accomplish or needs to be prepared for, so moving that production to the left is their stated goal, and beyond that, I can't really speak to it. I think our situation is that if they want to move it to the left, we'll certainly comply, and it won't be much of a problem for us. We have the facilities.
We have the people. And the initial ramps probably would be somewhere in the neighborhood of 10 aircraft in the first year, 20 aircraft in the second year, and ramping up from there, maybe 30-40 in the third year. So that's about what we know. One thing to consider when you look at our company, I talked about the 70% exposure to commercial transport early on in my little rambling presentation here. This program and a couple of others, including the big radio test program I talked about for our test segment, will bring more of a balance to our business. And certainly, the military government defense side of our business is going to grow over time with the benefit of those two programs, which is a good thing, I feel.
However, obviously, not knowing for sure what the long-term growth opportunities are in our commercial transport business, we might still end up in that 70% split or 70% proportion. But it shows you some of the growth that we have even outside of commercial transports.
Great. I think we have time for one more. And then, Pete, I'll let you wrap up with any closing comments after that. You've made some really nice advancements in the technology with the FLRAA program. And I think that's leading to some opportunities in the eVTOL and drone space for defense specifically. Could you talk a little bit more about the upside opportunities there and just kind of what the, I guess, the sky's the limit, literally there? Talk about the opportunity there, and then I'll let you have some closing remarks.
Yeah. So we've developed a real body of expertise doing very advanced electrical systems for smaller aircraft. We're not going to, we're not going to do a G700. We're not going to do the next mid-engine or mid-sized aircraft from Airbus or Boeing. But when you talk about business jets, you talk about smaller aircraft like the FLRAA program, that's right up our alley. And the technology is based on a couple of critical characteristics or critical features, one of which is electronic circuit breakers. Rather than thermal fuses, which are rather traditional, how traditional electrical systems are designed. Ours are based on basically little computers that monitor circuits and can control them. And one of the things that that allows is remote operation. Somebody remotely piloting an aircraft or autonomously flying an aircraft can manage the electrical system even when things go wrong based on our technology.
And we developed it for business jets. We found a really nice opportunity here with FLRAA. And then drones have really started to take off in the military world, so to speak. And we expect that, well, there's a lot of development effort going on across the industry. You can read about it and find out a lot about it. Most of the programs are pretty preliminary at this point and classified. But everybody's involved. I mean, the conventional defense aerospace firms, household names are certainly involved. A lot of the next-generation younger firms, startup firms, disrupting firms are also involved. And one of the great things for us is that based on the obvious success we've had with FLRAA, everybody knows who we are, and we know who they are. So there's a lot of interaction back and forth.
Not a lot of high-volume programs of record at this point, but we think that they're on the way, and we think we have an excellent opportunity there, and then eVTOL, reasonable people can certainly differ on their enthusiasm or expectations for that market. We've developed a commercial off-the-shelf offering in the electrical power area that basically they all need. What are they again? They're smaller aircraft, very electrically intensive, kind of right up our alley, and we're working with pretty much everybody that you can think of in that industry. We're not working with Joby. That's the one we're not, but we are working with pretty much everybody else, and they all have pretty big ambitions. Are they all going to achieve the high end of their ambitions? We would not expect so. Market realities, business plans, the winners and losers are to be determined.
But we expect, as we work through 2026 and into 2027, they're going to get certified. The FAA has created a path for that. EASA has created a path for that. Then it's going to be a question of aircraft performance and battery technology and use case and business model. And there are some pretty widely differing views on all that. But we're not doing a lot of intensive unique work for any one of those providers. We've limited ourselves to a commercial off-the-shelf approach. We do some help with certification on a fee basis. And we think we're in a good position. So if that market takes off, we will benefit from it. We do not have a major portion of our plan for 2026. However, I would say, Nancy check me, but I would say we're somewhere $5 million-$10 million total. It's not a big number.
That's right.
But it's a future opportunity for us.
Great. And with that, I think that's all we have time for. Thank you, Pete, for being here, Nancy as well, and Deb. We look forward to talking to all of you guys again soon.
Okay. Thanks, Jon.
Thank you.
Thank you.