Document

EAST AURORA, NY, August 5, 2019 – Astronics Corporation (Nasdaq: ATRO), a leading supplier of advanced technologies and products to the global aerospace and defense industries, today reported financial results for the three and six months ended June 29, 2019. Earnings per share for prior periods are adjusted for the 3 for 20 (15%) distribution of Class B Stock for shareholders of record on October 12, 2018. Financial results include the divestiture of the Test Systems’ semiconductor business on February 13, 2019.

Peter J. Gundermann, President and Chief Executive Officer, commented, “Financial results in the quarter were as expected with sales, after adjusting for the sale of the semiconductor business, up 5% over last year’s second quarter, but down from the robust level we had in the first quarter. For the first half of the year, adjusted sales were up over 12%. During the quarter we completed our initial restructuring initiatives in both the Test Systems and Aerospace segments and expect to realize approximately $8 million to $9 million in annualized savings beginning in the third quarter this year.”

He added, “Our outlook for the second half of the year is weaker than our previous expectations as our business jet antenna program was delayed due to an unusual satellite failure. We also have seen indications of a slowdown in demand for connectivity hardware. While this is concerning for the near term, we remain encouraged with the opportunities we have in this market because of the breadth of our product offerings. Airline passengers continue to indicate that inflight entertainment

For comparability purposes, in addition to reporting consolidated and segment results of operations on a basis consistent with U.S. generally accepted accounting principles (“GAAP”), this press release also contains certain financial information regarding consolidated sales, operating income and net income, as well as Test Systems segment sales and operating profit, adjusted to remove the effects of the divested semiconductor business from all periods presented. Management believes these non-GAAP measures are useful to investors in understanding the performance of the ongoing business. The reconciliation of GAAP measures to non-GAAP measures is contained in the section labeled "Reconciliation to Non-GAAP Performance Measures".


	Three Months Ended														Six Months Ended
($ in thousands)	June 29, 2019			June 30, 2018			% Change		June 29, 2019			June 30, 2018			% Change

Sales	$	189,098		$	208,606		(9.4)	%	$	397,272		$	387,665		2.5	%
Income from Operations	$	10,573		$	20,129		(47.5)	%	$	33,454		$	26,761		25.0	%
Operating margin %	5.6		%	9.6		%			8.4		%	6.9		%
Gain on Sale of Business	$	—		$	—		—		$	80,133		$	—		—
Net Income	$	6,726		$	14,025		(52.0)	%	$	84,872		$	17,319		390.1	%
Net Income %	3.6		%	6.7		%			21.4		%	4.5		%

Adjusted Consolidated Sales	$	186,856		$	177,201		5.4	%	$	391,675		$	349,200		12.2	%
Adjusted Income from Operations	$	8,506		$	9,937		(14.4)	%	$	30,470		$	15,857		92.2	%
Adjusted Operating margin %	4.6		%	5.6		%			7.8		%	4.5		%
Adjusted Net Income	$	6,339		$	5,878		7.8	%	$	22,446		$	8,648		159.6	%
Adjusted Net Income %	3.4		%	3.3		%			5.7		%	2.5		%

Consolidated operating income decreased to $10.6 million, or 5.6% of sales, compared with  $20.1 million, or 9.6% of sales in the prior-year period. The decline was primarily due to the divestiture of the semiconductor business. Adjusted consolidated income from operations excluding the operations of the divested semiconductor test business was $8.5 million, or 4.6% of adjusted consolidated sales, compared with $9.9 million, or 5.6% of adjusted consolidated sales, in the prior-year period.

Mr. Gundermann commented, “We made solid progress with the restructuring of operations in both our Aerospace and Test Systems to right-size the organization to our current expectations and improve our operating performance. We expect that the $8 million to $9 million in expected annual savings from the restructuring will begin to be apparent in our third quarter as much of the activity was completed later in the second quarter. Given the delays in certain programs, we plan to make additional changes in the organization over the next several months and would expect additional restructuring expense, as well as related cost savings, in future quarters.”

Adjusted consolidated operating income was $30.5 million, or 7.8% of adjusted consolidated sales, compared with $15.9 million, or 4.5% of adjusted consolidated sales, in the prior-year period. Margin expansion was driven by higher volume. These effects more than offset tariff expenses of $4.0 million and severance charges of $2.2 million. The challenged Aerospace businesses had $18.4 million of operating losses, which included a charge for inventory reserves of $3.6 million. Losses from the challenged Aerospace businesses, including program charges in the first half of 2018, were $17.1 million.

Net income was $84.9 million, or $2.56 per diluted share, compared with $17.3 million, or $0.52 per diluted share in the prior year. The $80.1 million gain on the sale of the semiconductor test business is expected to contribute $58.8 million to net income after taxes. Adjusted net income, excluding the divested semiconductor test business, was $22.4 million in the first six months of 2019 compared with $8.6 million in the prior-year period.

Electrical Power & Motion sales increased $16.4 million, or 24.2%, due primarily to higher sales in cabin power products. Sales of Lighting & Safety products were up $2.6 million due to an increase in sales of lighting products partially offset by lower sales of passenger service units. Avionics sales were down $10.6 million compared with the prior-year period due to a lower demand in the quarter for inflight entertainment and connectivity (“IFEC”) products.

Aerospace operating profit was $14.4 million, or 8.3% of sales, compared with $18.2 million, or 11.0% of sales, in the same period last year. Aerospace operating profit benefited from higher volume, offset by $2.3 million in tariffs. The challenged Aerospace businesses had $7.7 million of operating losses, including a $1.6 million inventory reserve. Operating losses for the challenged Aerospace businesses in the second quarter of 2018 were $8.1 million including a $1.6 million program charge recognized due to the revision of estimated costs to complete a long-term contract.

Mr. Gundermann commented, “Demand during the quarter was negatively affected by a couple of events in the industry. The first of these was the unusual loss of a satellite in April that was critical to our planned connectivity system for large business jets. This loss has caused the program to be paused this year, which lowers anticipated shipments and delays the revival of our AeroSat business. The second event is the industry’s concern related to Boeing’s 737 MAX situation, which negatively affects our volume for the 737 MAX production line, but also complicates fleet management plans for airlines, which in some cases may delay certain upgrade initiatives until resolution is apparent.”

Mr. Gundermann continued, “Despite the $7.7 million operating loss from our three challenged aerospace businesses, we are making good progress towards break-even. We have line of sight to this end for two of the three businesses. The third, AeroSat, faces a more difficult task with the delay in the tail-mount antenna program for large business jets. This delay hurt AeroSat’s financial performance in the second quarter, when it generated about 70% of the trio’s collective operating loss. We are watching the situation closely and will be deciding an appropriate action as the situation becomes clearer.”

Aerospace operating profit was $40.2 million, or 11.1% of sales, compared with $31.3 million, or 9.5% of sales, in the same period last year. Aerospace operating profit in the first six months of 2019 benefited from higher volume and $2.3 million lower amortization expense related to acquired intangible assets. These benefits were offset by $4.0 million in tariffs and $18.4 million in operating losses from the challenged businesses, which included $3.6 million in inventory reserves. Operating profit in the first half of 2018 was negatively impacted by $17.1 million in operating loss from challenged Aerospace businesses and $1.4 million in acquisition-related inventory step-up expense.

The Test segment was essentially breakeven in the quarter compared with operating profit of  $6.2 million in last year’s second quarter. Adjusted for the sale of the semiconductor business, there was an operating loss of $2.2 million compared with an operating loss of $3.9 million in the prior-year period. Impacting the loss in the quarter were severance charges of $2.0 million related to the restructuring initiatives, which are expected to provide savings of $5 million to $6 million beginning in the third quarter.

Mr. Gundermann commented, “Our Test business accomplished a major restructuring in the quarter that will help it adjust to the road ahead, subsequent to the sale of our semiconductor test business. In July, we acquired Freedom Communications Technologies, which represents a nice market and technology extension for our remaining test business. We are pleased to have Freedom as part of our team and are excited to see what we can accomplish together.”

Operating profit for the segment was $2.1 million, or 6.0% of sales, compared with operating income of $4.3 million in the prior-year period. Adjusted for the sale of the semiconductor business, there was an operating loss for the segment of $0.9 million which was mostly the result of  $2.0 million in restructuring costs. Operating loss in the prior-year period adjusted for the divestiture of the semiconductor business was $6.6 million.

Mr. Gundermann concluded, “The approximate 5% reduction at the mid-point of our expectations for the Aerospace segment reflects the impact of the delay of the business jet antenna program and the related satellite failure, along with some softening of demand for IFEC products, which we believe is at least in part a result of the 737 MAX situation, and the delay into 2020 of an unrelated customer program. We are disappointed with the confluence of these events and are looking more closely at changes to the organization to align costs with our new revenue expectations. In the meantime, we expect the restructuring initiatives we completed in the second quarter will generate approximately $8 million to $9 million in annual savings that should be realized beginning in the third quarter and should help to offset the impact on margin of lower volume.”

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 13692264. The telephonic replay will be available from 1:00 p.m. on the day of the call through Monday, August 19, 2019. A transcript will also be posted to the Company’s Web site once available.

Astronics Corporation (Nasdaq: ATRO) is a leading supplier of advanced technologies and products to the global aerospace and defense industries. Astronics’ products and services include advanced, high-performance electrical power generation and distribution systems, seat motion solutions, lighting and safety systems, avionics products, aircraft structures, systems certification and automated test systems. Astronics’ strategy is to increase its value by developing technologies and capabilities, either internally or through acquisition, and using those capabilities to provide innovative solutions to its targeted markets and other markets where its technology can be beneficial. Through its wholly owned subsidiaries, Astronics has a reputation for high-quality designs, exceptional responsiveness, strong brand recognition and best-in-class manufacturing practices. The Company routinely posts news and other important information on its website at www.astronics.com.

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. 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 progress being made with the three operations having losses, the continuation of the trend in growth with passenger power and connectivity on airplanes, the ability of the Company to advance its Test business, the ability to achieve at or near breakeven performance

in the Test business, the Company’s ability to deliver a solid 2019, the ability to win new projects in the Test business and margins to expand with growth, the success of the Company achieving its sales expectations, 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 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.


ASTRONICS CORPORATION
CONSOLIDATED INCOME STATEMENT DATA
(Unaudited, $ in thousands except per share data)

	Three Months Ended									Six Months Ended
	6/29/2019			6/30/2018			6/29/2019			6/30/2018
Sales	$	189,098		$	208,606		$	397,272		$	387,665
Cost of products sold	148,735			159,034			304,832			300,961
Gross profit	40,363			49,572			92,440			86,704
Gross margin	21.3		%	23.8		%	23.3		%	22.4		%

Selling, general and administrative	29,790			29,443			58,986			59,943
SG&A % of sales	15.8		%	14.1		%	14.8		%	15.5		%
Income from operations	10,573			20,129			33,454			26,761
Operating margin	5.6		%	9.6		%	8.4		%	6.9		%

Gain on sale of business	—			—			80,133			—
Other expense, net of other income	518			463			733			838
Interest expense, net	1,225			2,484			3,029			4,815
Income before tax	8,830			17,182			109,825			21,108
Income tax expense	2,104			3,157			24,953			3,789
Net income	$	6,726		$	14,025		$	84,872		$	17,319
Net income % of sales	3.6		%	6.7		%	21.4		%	4.5		%


*Basic earnings per share:	$	0.21		$	0.43		$	2.60		$	0.54
*Diluted earnings per share:	$	0.20		$	0.42		$	2.56		$	0.52

*Weighted average diluted shares outstanding (in thousands)	33,175			33,122			33,193			33,068

Capital expenditures	$	3,443		$	4,148		$	6,917		$	8,495
Depreciation and amortization	$	7,904		$	8,743		$	15,980		$	18,584


SEGMENT DATA
(Unaudited, $ in thousands)

	Three Months Ended									Six Months Ended
	6/29/2019			6/30/2018			6/29/2019			6/30/2018
Sales
Aerospace	$	174,292		$	166,257		$	362,793		$	330,857
Less inter-segment	(5)			(53)			(5)			(53)
Total Aerospace	174,287			166,204			362,788			330,804

Test Systems	14,925			42,402			34,649			56,861
Less inter-segment	(114)			—			(165)			—
Total Test Systems	14,811			42,402			34,484			56,861
Total consolidated sales	189,098			208,606			397,272			387,665

Segment operating profit and margins
Aerospace	14,392			18,200			40,160			31,315
	8.3		%	11.0		%	11.1		%	9.5		%
Test Systems	(94)			6,247			2,091			4,318
	(0.6)		%	14.7		%	6.0		%	7.6		%
Total segment operating profit	14,298			24,447			42,251			35,633

Gain on sale of business	—			—			80,133			—
Interest expense	1,225			2,484			3,029			4,815
Corporate expenses and other	4,243			4,781			9,530			9,710
Income before taxes	$	8,830		$	17,182		$	109,825		$	21,108

The Company’s press release contains financial information regarding consolidated sales, operating income and net income, as well as Test Systems segment sales and operating profit, as adjusted to remove the effects of the semiconductor business from all periods presented. Each of these adjusted balances are non-GAAP performance measures. Management believes these non-GAAP measures are useful to investors in understanding the performance of the ongoing business.


(Unaudited, $ in thousands)

Consolidated
	Three Months Ended									Six Months Ended
	6/29/2019			6/30/2018			6/29/2019			6/30/2018
Sales
Consolidated sales	$	189,098		$	208,606		$	397,272		$	387,665
Non-GAAP Adjustment - Remove effect of semiconductor business*	(2,242)			(31,405)			(5,597)			(38,465)
Adjusted Consolidated Sales	$	186,856		$	177,201		$	391,675		$	349,200

Income from Operations
Consolidated income from operations	10,573			20,129			$	33,454		$	26,761
Non-GAAP Adjustment - Remove effect of semiconductor business*	(2,067)			(10,192)			(2,984)			(10,904)
Adjusted Income from Operations	$	8,506		$	9,937		$	30,470		$	15,857
	4.6		%	5.6		%	7.8		%	4.5		%
Net Income
Consolidated net income	$	6,726		$	14,025		$	84,872		$	17,319
Non-GAAP Adjustment - Remove effect of semiconductor business*	(387)			(8,147)			(62,426)			(8,671)
Adjusted Net Income	$	6,339		$	5,878		$	22,446		$	8,648

Test Segment
Test Segment Sales
Test Segment Sales	$	14,811		$	42,402		$	34,484		$	56,861
Non-GAAP Adjustment - Remove effect of semiconductor business*	(2,242)			(31,405)			(5,597)			(38,465)
Adjusted Test Segment Sales	$	12,569		$	10,997		$	28,887		$	18,396

Loss from Test Segment Operations
Income (loss) from Test Segment operations	(94)			6,247			$	2,091		$	4,318
Non-GAAP Adjustment - Remove effect of semiconductor business*	(2,067)			(10,192)			(2,984)			(10,904)
Adjusted Loss from Test Segment Operations	$	(2,161)		$	(3,945)		$	(893)		$	(6,586)
	(17.2)		%	(35.9)		%	(3.1)		%	(35.8)		%

* The non-GAAP adjustment eliminates all semiconductor test sales and associated direct costs from all periods presented. There are significant indirect costs, overheads, and other general and administrative costs that are not included in the non-GAAP adjustment, as such functions benefited all operations and products within the Test Systems segment and have not been eliminated as a result of the divestiture. The non-GAAP adjustment to net income for the three-month and six-month period ended June 29, 2019 also eliminates the impact of the gain on the sale of the semiconductor business, net of tax at the forecasted consolidated tax rate for 2019.


ASTRONICS CORPORATION
CONSOLIDATED BALANCE SHEET DATA
($ in thousands)
	(unaudited)
	6/29/2019		12/31/2018
ASSETS
Cash and cash equivalents	$	17,106	$	16,622
Accounts receivable and uncompleted contracts	177,102		182,308
Inventories	142,853		138,685
Other current assets	17,587		17,198
Assets held for sale	—		19,358
Property, plant and equipment, net	117,389		120,862
Other long-term assets	45,189		21,272
Intangible assets, net	125,039		133,383
Goodwill	124,998		124,952
Total assets	$	767,263	$	774,640

LIABILITIES AND SHAREHOLDERS' EQUITY
Current maturities of long-term debt	$	170	$	1,870
Accounts payable and accrued expenses	94,018		98,436
Customer advances and deferred revenue	25,402		26,880
Liabilities held for sale	—		906
Long-term debt	122,113		232,112
Other liabilities	50,594		27,811
Shareholders' equity	474,966		386,625
Total liabilities and shareholders' equity	$	767,263	$	774,640


ASTRONICS CORPORATION
CONSOLIDATED CASH FLOWS DATA
(Unaudited, $ in thousands)

	Six Months Ended
	6/29/2019		6/30/2018
Cash flows from operating activities:
Net income	$	84,872	$	17,319
Adjustments to reconcile net income to cash provided by (used for) operating activities:
Depreciation and amortization	15,980		18,584
Provisions for non-cash losses on inventory and receivables	4,223		1,819
Equity-based compensation expense	2,145		1,637
Deferred tax benefit	(3,371)		(516)
Gain on sale of business	(80,133)		—
Other	263		(431)
Cash flows from changes in operating assets and liabilities:
Accounts receivable	5,266		(33,347)
Inventories	(11,070)		(19,761)
Accounts payable	(7,685)		7,981
Accrued expenses	(9,141)		53
Other current assets and liabilities	(975)		(404)
Customer advanced payments and deferred revenue	(1,234)		14,469
Income taxes	9,181		(189)
Supplemental retirement and other liabilities	735		896
Cash provided by operating activities	9,056		8,110
Cash flows from investing activities:
Proceeds on sale of business	103,793		—
Capital expenditures	(6,917)		(8,495)
Cash provided by (used for) investing activities	96,876		(8,495)
Cash flows from financing activities:
Proceeds from long-term debt	27,000		30,015
Payments for long-term debt	(132,053)		(36,416)

Debt acquisition costs	—		(516)
Proceeds from exercise of stock options	416		281


Other Financing Activities	(834)		—
Cash (used for) financing activities	(105,471)		(6,636)
Effect of exchange rates on cash	23		(285)
Increase (decrease) in cash and cash equivalents	484		(7,306)
Cash and cash equivalents at beginning of period	16,622		17,914
Cash and cash equivalents at end of period	$	17,106	$	10,608


ASTRONICS CORPORATION
SALES BY MARKET
(Unaudited, $ in thousands)

	Three Months Ended										Six Months Ended
	6/29/2019		6/30/2018		% Change		6/29/2019		6/30/2018		% Change		% of Sales
Aerospace Segment
Commercial Transport	$	129,731	$	132,797	(2.3)	%	$	271,509	$	265,847	2.1	%	68.4	%
Military	19,545		16,270		20.1	%	40,498		30,285		33.7	%	10.2	%
Business Jet	17,286		10,338		67.2	%	37,123		21,002		76.8	%	9.3	%
Other	7,725		6,799		13.6	%	13,658		13,670		(0.1)	%	3.4	%
Aerospace Total	174,287		166,204		4.9	%	362,788		330,804		9.7	%	91.3	%

Test Systems Segment excluding Semiconductor	12,569		10,997		14.3	%	28,888		18,396		57.0	%	7.3	%
Total sales excluding Semiconductor	186,856		177,201		5.4	%	391,676		349,200		12.2	%	98.6	%
Test-Semiconductor	2,242		31,405		(92.9)	%	5,596		38,465		(85.5)	%	1.4	%

Total Sales	$	189,098	$	208,606	(9.4)	%	$	397,272	$	387,665	2.5	%


SALES BY PRODUCT LINE
(Unaudited, $ in thousands)

	Three Months Ended										Six Months Ended
	6/29/2019		6/30/2018		% Change		6/29/2019		6/30/2018		% Change		% of Sales
Aerospace Segment
Electrical Power & Motion	$	84,042	$	67,643	24.2	%	$	176,579	$	140,321	25.8	%	44.5	%
Lighting & Safety	46,770		44,121		6.0	%	95,375		85,763		11.2	%	24.0	%
Avionics	25,682		36,272		(29.2)	%	59,543		69,295		(14.1)	%	15.0	%
Systems Certification	4,048		4,872		(16.9)	%	5,666		9,655		(41.3)	%	1.4	%
Structures	6,020		6,497		(7.3)	%	11,967		12,100		(1.1)	%	3.0	%
Other	7,725		6,799		13.6	%	13,658		13,670		(0.1)	%	3.4	%
Aerospace Total	174,287		166,204		4.9	%	362,788		330,804		9.7	%	91.3	%

Test Systems Segment excluding Semiconductor	12,569		10,997		14.3	%	28,888		18,396		57.0	%	7.3	%
Total sales excluding Semiconductor	186,856		177,201		5.4	%	391,676		349,200		12.2	%	98.6	%
Test-Semiconductor	2,242		31,405		(92.9)	%	5,596		38,465		(85.5)	%	1.4	%

Total Sales	$	189,098	$	208,606	(9.4)	%	$	397,272	$	387,665	2.5	%


ASTRONICS CORPORATION ORDER AND BACKLOG TREND (Unaudited, $ in thousands)
	Q3 2018		Q4 2018		Q1 2019		Q2 2019		Trailing Twelve Months
	9/29/2018		12/31/2018		3/30/2019		6/29/2019		6/29/2019
Sales
Aerospace	$	169,579	$	175,242	$	188,501	$	174,287	$	707,609
Test Systems (excluding Semi)	33,596		15,482		16,319		12,569		77,966
Sales (excluding Semi)	203,175		190,724		204,820		186,856		785,575
Test-Semiconductor	9,499		12,193		3,354		2,242		27,288
Total Sales	$	212,674	$	202,917	$	208,174	$	189,098	$	812,863

Bookings
Aerospace	$	196,671	$	175,554	$	191,701	$	157,631	$	721,557
Test Systems (excluding Semi)	29,976		43,300		11,812		12,675		97,763
Bookings (excluding Semi)	226,647		218,854		203,513		170,306		819,320
Test-Semiconductor	7,161		1,510		1,470		354		10,495
Total Bookings	$	233,808	$	220,364	$	204,983	$	170,660	$	829,815

Backlog*
Aerospace	$	325,735	$	326,047	$	329,247	$	310,590
Test Systems (excluding Semi)	38,618		66,436		61,929		62,035
Backlog (excluding Semi)	364,353		392,483		391,176		372,625
Test-Semiconductor	33,717		23,034		8,975		7,087
Total Backlog	$	398,070	$	415,517	$	400,151	$	379,712	N/A

Book:Bill Ratio**
Aerospace	1.16		1.00		1.02		0.90		1.02
Test Systems excl. Semi	0.89		2.80		0.72		1.01		1.25
Total Book:Bill excl. Semi	1.12		1.15		0.99		0.91		1.04

(*) During the first quarter of 2019, Test Systems segment backlog of approximately $12.2 million was disposed of in the divestiture of the semiconductor business. Aerospace backlog of approximately $2.0 million has been removed in the second quarter of 2019 above related to the airfield lighting product line, which was divested in July 2019.
(**) Calculations of Test Systems and Total Book:Bill excludes the total semiconductor business, which does include residual warranty backlog that is expected to be recognized.


For more information, contact:

Company:			Investor Relations:
David C. Burney, Chief Financial Officer			Deborah K. Pawlowski, Kei Advisors LLC
Phone: (716) 805-1599, ext. 159			Phone: (716) 843-3908
Email: david.burney@astronics.com			Email: dpawlowski@keiadvisors.com